Ethanol 'blend wall' cost refiners at least $1.35 billion
The regulatory burden is at the heart of a fierce lobbying battle between refiners fighting to ease the rules and ethanol proponents hoping to keep them in place. Saddled with hundreds of millions in additional costs, refiners turned up the ante in Washington last year, successfully convincing environmental regulators that ethanol blending capacity had hit its peak.
In November, the EPA explicitly recognized the so-called "blend wall," proposing to cut corn ethanol blending quotas from 14.4 billion gallons to about 13 billion gallons for 2014. The proposal caused RINs to fall as low as 22 cents each.
But in recent months, RINs have risen anew, largely on uncertainty over whether the proposed cuts will stay in place. The EPA's proposal is not yet finalized, and since it was unveiled in November, the biofuel industry has redoubled its efforts lobbying the White House and the EPA to change course.
In February, EPA administrator Gina McCarthy caused a stir in the RINs market after telling state agricultural officials that the final rule will be "in a shape that you will see that we have listened to your comments."
The American Fuel and Petrochemical Manufacturers, which represents the refining industry, said the RIN bill showed the need for the EPA to keep its proposed cuts in place.
"What was supposed to be a transaction cost has become this artificial commodity that is obviously costing fuel producers," said Brendan Williams, senior vice president of advocacy for the group. "What it does is it shows you the blend wall's here."
Proponents of the blending regulations say the higher compliance costs should incentivize refiners to do what they should under the law: blend more ethanol into their fuel output to avoid paying the higher costs.
But only a handful of them, such as Marathon Petroleum Corp , the No. 5 refiner, said in its filings that the company curbed the cost rise by investing in blending infrastructure.
A Marathon spokesman said the company began investing in its terminals several years ago to allow for gasoline to be blended with up to 10 percent ethanol at all of its facilities.
Many others simply paid the costs. Delta Air Lines Inc , which bought a 185,000 barrel-per-day (bpd) refinery in Trainer, Pennsylvania, in 2012, said it paid $64 million for the credits because the plant does not blend biofuels.
The company said in an annual U.S. Securities and Exchange Commission filing that it was "pursuing legal, regulatory and legislative solutions to this problem."