"It has created a situation where refiners have to mix 10% ethanol into the gasoline they make — even though the market can't consume it all," he says, noting that most vehicles on the road today can't handle any more than E-10, as the mixed gasoline is known.
Now here's the tricky part. In order to adhere to this federal mandate, Lutz says, refiners have been buying ethanol credits, known as RINs (Renewable Identification Numbers), to offset their obligations. Predictably, this surge in demand for RINs has pushed the price to record highs.
"The price of these credits has gone from pennies on the dollar at the beginning of this year to almost $1.40 today, including a massive spike up in the last couple of weeks," Lutz says. "I would think the recent move that we've seen in gasoline prices, towards year-to-date highs over the last four months, half of it has been due to this ethanol policy."
Adding to the dilemma is the fact that refiners are exporting the gasoline they can't sell here, which keeps inventories low and prices high. And if you think that's bad, just wait until E-15 comes to market in 2015. Despite protestations — from automakers, the AAA, refiners, oil producers, outdoor power equipment manufacturers, and the American Petroleum Institute — the Supreme Court refused to block the increased use of ethanol required by the EPA's Renewable Fuel Standards.