By Institute for Energy Research ——Bio and Archives--April 22, 2013
Global Warming-Energy-Environment | CFP Comments | Reader Friendly | Subscribe | Email Us
Understanding the RIN system and the prices for RINs when bought and sold can provide key insights into the impact of mandates on biofuel and feedstock markets. For 2011, conventional ethanol RIN prices have been low, implying low probability that the corresponding mandate has been…Conversely, biodiesel RIN prices have been high in 2011, implying a more binding biodiesel mandate with effects on soybean oil and other biodiesel feedstock markets.Things have changed since that paper was published, in that ethanol RINs are now much costlier. Why are refiners willing to pay so much? Because the mandate itself (given other economic factors) is much more binding now, than in 2011. When you impose costly burdens on businesses, don’t be surprised when consumer prices (in this case, gas prices) go up. Buis and Dinneen point to an academic study claiming that ethanol actually makes driving cheaper for motorists. Yet these claims too are dubious. First and most obvious, Buis and Dinneen don’t mention that a gallon of conventional gasoline has 47 percent more energy than a gallon of ethanol. Thus a gallon-to-gallon price comparison is misleading. Further, when empirical studies argue that ethanol keeps down pump prices, they usually mean in the vacuous sense that the refining industry has adapted to federal mandates for ethanol, and if ethanol suddenly disappeared tomorrow, then pump prices would rise while the industry responded. But if the mandate had never been enacted in the first place, there would be more conventional refining capacity available. Beyond wading into the technical statistical analyses, we can conclude with a commonsense observation: If Buis and Dinneen actually believe that ethanol is more cost-effective for consumers, then they should call for an immediate abolition of the federal mandates for ethanol. But they won’t do that, of course, because they know that the ethanol mandate is inefficient and makes refining costs higher than they otherwise would be. The way to deliver relief at the pump for American motorists is to get government taxes and mandates out of the energy sector.
View Comments
The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.