As American Gasoline Prices Soar, Some Blame Ethanol

Prices for the biofuel have surged, rekindling a debate about whether it’s contributing to pain at the pump

By Christopher M. Matthews, WSJ |  November 24, 2021

Ethanol prices have skyrocketed to their highest level in a decade, contributing to surging U.S. gasoline prices as oil refiners pay more for the biofuel they are required to blend with their products.

The price spike is adding grist to a yearslong political debate over the federal ethanol blending mandate, known as the Renewable Fuel Standard. Politicians from oil-and-gas states have sought to repeal the requirement, calling it ineffective and expensive, while corn-state politicians have defended it, arguing it has added to U.S. fuel supplies and decreased consumer costs.

Since the Renewable Fuel Standard, or RFS, became law in 2005, ethanol has traded at around the same price as unblended gasoline, or at a discount to it. The two have diverged this year as ethanol has increased about 157% to $3.42 a gallon in 2021, while unblended gasoline is up about 61% to $2.28 a gallon, according to FactSet data.

The price of the finished U.S. gasoline consumers buy, which includes ethanol and other additives, is up about 62% this year, the highest levels since 2014. It was about $3.40 a gallon on average Wednesday.

Now, lobbyists for the refining industry are seizing on the recent ethanol-price jumps and urging the Biden administration to lower the amount of the biofuel they are required to blend with their products, arguing it will tamp down gasoline prices. Supporters of the biofuel industry argue the opposite is true, and are warning the administration against relaxing the requirements.

Most analysts agree that the primary causes of rising fuel prices are increased energy demand, spurred by an uptick in global economic activity, and oil production that hasn’t kept pace. But the cost of complying with the RFS and other regulations is currently adding nearly 20 cents to the price of a gallon of gasoline in some parts of the country, according to some analysts.

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