Why gas prices are too high...
 

RIN -- RENEWABLE INDENTIFICATION NUMBER





Most people have never heard of a RIN but the RIN certificates or credits are a hotly debated item in Congress and at the center of the government's ethanol policy. Refiners will produce 133 billion gallons of gasoline this year. The government has mandated that 13.8 billion gallons of that production be sourced from ethanol. When a refiner has blended ethanol, they create a certificate for the amount blended and those certificates or credits can be traded among other refiners.



For example, a refiner using imported sugar based ethanol from Brazil might issue a certificate showing they have blended over the 10% mandate and another refiner could purchase the certificate and use it instead of purchasing corn based ethanol. The price of RIN credits have skyrocketed as ethanol plants close and less ethanol is available to meet the Renewable Fuel Standard.



Refiners are complaining that the 10% mandate is costing consumers at least an additional 10 cents on every gallon of gasoline produced. Because of the drought, corn supplies are tight and ethanol plants have closed and are trimming back production. Without ethanol to fulfill the Renewable Fuel Standard mandate, refiners have forced the price of RIN certificates to record highs. Valero, a refiner, testified that they expect to spend between $500 and $750 million dollars this year purchasing RIN credits and the added cost to each gasoline consumer is $2700 per year.



The ethanol industry is warning Congress that if they drop the mandate, hundreds of thousands of jobs will be lost from plant closures. They insist that farmers will lose a market for their corn and that billions of dollars will be lost on closed ethanol plants. The ethanol industry has been a strong supporter of President Obama and contributions to his campaign have been thankfully rewarded. Secretary Vilsack and USDA economists have testified on several occasions that the ethanol plants have had a negligible impact on corn prices.



Top down governmental planning is never a solution to commodity problems. Whether the initiative is from the President or Congress, the result is always the same -- failure. Commodities are market based command systems driven by market signals and responding to them. The first sign of trouble is when a governmental entity attempts to interfere and provide a solution. Absent the government mandate on ethanol, the market was already responding to the need for energy self sufficiency by developing new drilling techniques like horizontal drilling and discovering new previously un-mined reserves in shale rocks. Between newly discovered natural gas fields and oil fields, some say we have reached energy independence. The economic sectors of the economy will respond to crisis on their own.



The simple fact is corn based ethanol makes no economic sense. It forces gasoline prices higher. It raises the price of all meats in the grocery store. It leaves the American consumer holding the bag overpaying for gas and food. Not only was it bad public policy from the start it has gotten worse as time progressed.

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Not to mention it is just burning up topsoil in our cars. Energy doesn't come from nowhere.

Jobs that make more jobs are only created by innovation. Jobs that only destroy future jobs are best called welfare - jobs that are not productive.

Fools prove productivity by profits. Realists use numbers based in the product. For example, Intel knew they were in trouble even though profits were high. Because the product was falling below Moore's law. So Intel took a major risk - that therefore accomplished a major breakthrough.

Same concept applies to energy. In particular, EROI (energy return on investment). The oil industry once had numbers around 40. Forty units of energy produced by consuming one unit. Hydropower still does 40. Wind is 20. Natural gas is 7. Nuclear is 5. EROI is the energy industry's equivalent to Moore's law.

Due to a severe shortage of good (sweet) oil, today's oil only gets 16. We have burned the good stuff so excessively (ie of $35 of gasoline; only $4 moves the car; rest wasted as heat and noise) that only crappy energy is left.

This oil shortage made possible innovation from Brazil - sugarcane ethanol. Its EROI is 9. Studies suggest that a modern society can only exist when EROI is somewhere above between 5 to 9.

Tar sands from Alberta do 6. But the worst energy source, without doubt, is ethanol from corn. Somewhere between 1 and 1.4. Nothing else is lower.

Environmentalists using facts would not waste energy attacking Alberta tar sands and a pipeline to the Gulf coast. Instead, they would vigorously campaign against a disaster, created by liars: American ethanol. Informed consumers would demand that American corn ethanol lose all massive and unjustified subsidies. And remove a 50 cent gallon tariff on Brazilian ethanol.

The naive created welfare (corn ethanol laws) based in stupidity. Even using lies about jobs to enrich the wrong people at expense of the American consumer and economy. American ethanol only destroys American jobs.

Again, an EROI number must be somewhere above 5 to 9. American corn ethanol, at best, only does 1.4. Numbers define a technology that we pay taxes to subsidize. American corn ethanol could never exist in any free market. Because its EROI is 500% to 800% too low.

Does corn ethanol make sense? Nobody knows without hard numbers. EROI a hard number that defines the product; is not invented by special interests.

Ethanol from corn never made sense. Cannot exist without welfare. And is protected by wackos in Congress who also said we want American to fail. If they really wanted to cut spending, then eliminate subsidizes to corn ethanol. And eliminate tariffs that only exist to enrich unproductive special interests. Only then do free markets work properly.

Enriched special interests would either have to innovate. Or go bankrupt. Welfare protects them from doing either.

tw, does your EROI figure from ethanol take into account the cost of soil depletion? Once that soil is gone, it's gone. No good for food or almost anything. How do you calculate those costs?

No.

But again, if environmental extremists were using science and numbers to address the greatest problem, then they were ignoring Alberta Tar Sands (and Keystone pipeline). And addressing the most environmentally harmful fuel - corn based ethanol.

Ethanol cannot be delivered to refineries by pipeline. It must be delivered by truck or railroad car. A more dangerous method.

Residents in the Pittsburgh region remember an ethanol train that derailed maybe two years ago. Many remember a recent train derailment in the Philly (Paulsboro) area. It was not just a toxic plastics chemical. Also in that derailment were tankers full of ethanol.

We have ethanol in our gas because political rhetoric has justified it. Science, logic, and numbers were never part of a decision that only increases gas prices. And enriches the rich with welfare (tax subsidies).