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Analysis: RFS and RIN credits decrease gas prices

A new analysis from the Center for Agricultural and Rural Development (CARD) at Iowa State University finds that ethanol expansion under the Renewable Fuel Standard (RFS) program reduces gas prices and suggests that Congress and the Administration have been misled about the impacts of RIN credits on retail gas prices.

The belief that RINs affect retail gas prices is one of the reasons the Environmental Protection Agency wants to lower the blending requirements for conventional ethanol from 14.4 billion gallons to 13.01 billion gallons.

The analysis “Impact of Increased Ethanol Mandates on Prices at the Pump“, by ISU professors Bruce Babcock and Sebastien Pouliot, concludes that RFS policies decrease gas prices and should not be a reason to reevaluate or revamp the RFS. The paper shows that as RIN prices increase, the retail prices for both E85 and E10 decrease. It states, “As we demonstrate here, one of the costs that does not need to be considered is an increase in the pump price of fuel, because we show that the most likely outcome from increasing ethanol mandates is a drop in pump prices, not an increase.”

According to the analysis, “Our results should reassure those in Congress and the Administration who are worried that following the RFS commitment to expanding the use of renewable fuels will result in sharply higher fuel prices for consumers. There may be sound policy reasons that could justify Congress revisiting the RFS. However, concern about higher pump prices for consumers is not one of them.”

Bruce Babcock testified at the recent RFS hearing in Des Moines.  Here are his remarks.

AUDIO: Bruce Babcock (5:52 MP3)