UPDATE 4-U.S. lawmakers say ethanol mandate may hike gasoline price

Wed Mar 20, 2013 8:08pm EDT

Related Topics

* Two Senators ask EPA to look at gasoline price concerns

* Ethanol credit costs have climbed on "blend wall" concerns

* First action on contentious "RIN" issue by lawmakers

* Lawmaker questions whether speculators behind spike (Adds House lawmakers studying issue)

By Ayesha Rascoe

WASHINGTON, March 20 (Reuters) - Two senior Republican senators on Wednesday joined the oil industry in warning that the U.S. ethanol mandate could push up gasoline prices for consumers ahead of the summer driving season.

The ethanol mandate requires increasing volumes of biofuels to be blended into the U.S. fuel supply each year through 2022. Refiners buy credits, or RINs, from producers of renewable fuels to comply with the federal targets.

Senators David Vitter of Louisiana and Lisa Murkowski of Alaska, urged the Environmental Protection Agency in a letter to take decisive action to protect consumers from the rising costs of the credits, known as RINs, required by the mandate for all producers of gasoline.

Refiners have said that slumping gasoline demand and other factors have pushed them closer to a point when the law will require the use of more ethanol than can be physically blended into the fuel supply at the 10 percent per gallon level they prefer. Refiners refer to this problem as the "blend wall."

Attention on the once obscure RINs market has heightened as prices for the credits have spiked from a penny a gallon in December to more than a dollar this month. That translates into a rise of roughly 10 cents per gallon at the pumps if 10 percent of the fuel was made from ethanol.

Lawmakers in the House of Representatives also took up the issue on Wednesday with the two senior members of the panel that oversees the ethanol mandate saying they wanted answers.

Michigan's Fred Upton, the Republican chairman of the Energy and Commerce Committee, and the leading Democrat, Henry Waxman of California, jointly endorsed research into the costs and implications of the policy that turns a large share of the nation's corn into fuel.

EPA TO MONITOR MARKETS

Both senators who sent the letter to the EPA represent states with a large energy industry presence. Some lawmakers who represent states where grain is grown or ethanol is produced have blamed speculators for pushing up the prices of RINs.

"We ask that you utilize any and all existing regulatory authority and flexibility to address the issue of rising RIN costs and alleviate the threat of increased consumer fuel costs," Vitter and Murkowski said in a letter to Gina McCarthy, President Barack Obama's choice to head the EPA.

The senators' letter was the first official response to the soaring costs of RINs by lawmakers. Murkowski is the top Republican on the Senate energy committee and Vitter the top Republican on the environmental committee.

RIN stands for Renewable Identification Number, a numeric code that the law requires producers or importers of renewable fuels to generate. Arguments about RINs have played out relatively quietly in Washington, but a spike in pump prices could change that.

"EPA, industry and market analysts have anticipated a more dynamic RIN market in 2013 due to increasing renewable fuel volume requirements established by Congress," the agency said in a statement in response to the senators' letter.

The EPA said it will continue to "monitor the markets to assess the program's impacts," and will respond to the senators' inquiry more fully.

FIGHT OVER HIGHER ETHANOL BLEND

Traders say the rising cost of RINs is tied to expectations that there may not be enough ethanol credits to meet demand next year, when the ethanol requirement could exceed the blend wall.

Oil and gas companies now say that the mandate is unworkable. The American Petroleum Institute is pushing to have the mandate repealed. But ethanol producers say biofuels are actually helping to lower gasoline prices. They blame the credit cost woes on refiners' opposition to higher ethanol blends at the pump.

Representative John Shimkus, a Republican from ethanol-producing Illinois, questioned whether speculators might be responsible for rising RINs prices.

"There are questions that need to be asked on why such swift dramatic price shifts are being reported in the market," Shimkus said in a speech on the House floor on Wednesday. "To simply jump on and blame the renewable fuels sector is incorrect."

The EPA, which administers the ethanol mandate, has proposed that refiners and blenders use 16.6 billion gallons of biofuels in motor fuels this year. The EPA is accepting comments on the proposal through April 7 before it finalizes the rule.

While the EPA has authorized use of up to 15 percent ethanol in gasoline for cars built since model year 2001, refiners say the higher blend could damage older vehicles. Gasoline station operators and oil refiners have voiced concerns they could be sued if engines are damaged.

Vitter and Republican Senator Roger Wicker of Mississippi introduced legislation last month that would block the EPA from allowing higher levels of ethanol to be blended into gasoline.

The American Petroleum Institute on Wednesday continued its fight for the repeal of the biofuel mandate, releasing the results of a study it commissioned on the impact of the "blend wall."

The study by NERA Economic Consulting predicted dire results if the mandate is upheld, including the loss of almost $800 billion in U.S. gross domestic product by 2015 and possible fuel shortages. (Reporting by Ayesha Rascoe; Editing by Ros Krasny, Gerald E. McCormick, Jim Marshall, Kenneth Barry, David Gregorio and Lisa Shumaker)

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