It’s been a difficult year for America’s small and mid-size refineries. As the global economy shuttered in response to the COVID-19 pandemic, plummeting demand for fuel compounded skyrocketing costs of compliance under the Renewable Fuel Standard.
Now, as refiners struggle to recover from the economic shocks of the pandemic, corn prices are climbing to record highs. Last week, the price of corn was the most expensive it’s been in eight years. This historic rally is adding more financial strain to an increasingly vulnerable industry.
Higher corn prices inflate costs across nearly every sector of the U.S. economy.
Higher costs for cattle because of the food they eat.
Higher costs at restaurants because of the food they sell. According to the National Retail Federation, the ethanol mandate already costs $3.2 billion for restaurants each year.
And higher costs for refineries because of the Renewable Identification Numbers – RINs – they’re required to purchase. Given the fact that 40 percent of America’s corn crop goes directly to ethanol mandated by the Renewable Fuel Standard, RINs are set to soar.
RINs are the compliance credits that are traded in the ethanol and biofuel market created by the Renewable Fuel Standard. If you blend biofuels, you generate and can sell RINs. If you refine or import fuel, you have to purchase RINs to meet compliance under the law. The RINs market is opaque. It’s hard to see the number of actual RINs that exist in the marketplace, which makes it easy to manipulate. In fact, the RINs market is frequently manipulated by third-party traders.
When the law creating this program at EPA was first enacted, RINs were predicted to trade at pennies. In January 2020, high RINs prices cost around 14 cents. This week, RINs cost nearly two dollars at $1.89. Refineries are spending more to purchase RINs annually than on any other annual operational cost. And now, as the U.S. economy tries to regain its footing after the pandemic, the volatility of the RINs market threatens the viability of our nation’s refineries.
Rising RIN prices combined with the rising cost of corn – which will drive up the cost of ethanol and biofuel, driving up the cost of RINs – threaten to raise consumer fuel prices and put more refineries out of business as the U.S. economy struggles to emerge from the pandemic.
The growing prospects of this disarray undermine President Biden’s promise of an economic recovery that benefits American workers and uplifts working communities. It’s clear that financial recovery is underway for some sectors of the economy, but without action from the EPA to fix the Renewable Fuel Standard, refinery workers and communities are poised to be left behind.