DESPITE the petroleum industry's claims to the contrary, a newly released analysis concludes that ethanol blending credits generated under the renewable fuel standard (RFS) are not a factor in rising consumer fuel prices.
Commissioned by the Renewable Fuels Assn. (RFA) and conducted by Informa Economics, the study found that ethanol delivers a net benefit to consumers at the pump and does not drive up the cost of gasoline.
While recent media reports have suggested that surging prices for renewable identification numbers (RINs) have contributed to escalating prices at the pump, that is not the case, according to RFA. Informa's analysis shows that RIN prices, when broken out per gallon of domestic fuel consumed, are likely contributing no more than 0.4 cent to the retail price of 1 gal. of gasoline.
In fact, the report notes that the net benefit of ethanol -- even factoring in RIN prices -- is saving consumers 4 cents/gal., or an aggregated $5.5 billion each year.
The authors noted that this net benefit does not take into account other indirect benefits to consumers, such as lower demand for crude oil and gasoline or the improved octane value of ethanol over gasoline.
Informa's analysis suggests that higher gasoline prices can be explained by several factors that are unrelated to either the RFS or RINs.
"There is a distinct seasonal pattern to gasoline prices and crack spreads," it notes, suggesting that the increase in prices this year has been consistent with seasonal increases experienced in 2011 and 2012, when RIN prices averaged less than 3 cents per credit.
A similar analysis conducted by University of Illinois economists Darrel Good and Scott Irwin drew parallel conclusions: "The basic zero sum nature of relationships in the supply chain and recent price trends for blend stock and ethanol suggest that the impact, if any, has likely been small -- at most, a few cents."
Good and Irwin explained that a narrow focus on RIN pricing has diverted attention from "the broader issue of ethanol blending economics" and how market participants, including consumers, have largely benefited from the "mostly positive returns to ethanol blending during the past several years."
Regardless of the media hype surrounding RINs in recent weeks, prices dropped considerably during the month of March after hitting an all-time high on March 8. Prices for 2012 RINs fell 35.4% to 57.5 cents on March 25, with prices for 2013 RINs falling 37.3% to 64 cents.