Ethanol Credits – Educational Series


I’m Samantha Deutscher for Investmentpitch.com There’s been a lot of talk in the news lately
about some of the big Wall Street firms exploiting the market for ethanol credits. But what exactly are ethanol credits and how
does their price affect us? It all started about 8 years ago when the
Environmental Protection Agency, in their wisdom, decided that gasoline refiners be
required to blend a specific amount of ethanol and other bio-fuels into the gasoline. This Renewable Fuel Standard was promoted
as a way to reduce reliance on foreign oil, offset global warming, and help out the farming
community. The Renewable Fuel Standard also set targets
for the industry, assuming that gasoline consumption would continue rising. Most ethanol in North America is produced
from corn, which resulted in comments like, “Only an environmentalist would burn food
as fuel, rather than putting it into the food chain.” This chart shows total U.S. corn production
and corn used to produce fuel ethanol from 1987 to 2012. The amount of corn used for ethanol production
increased substantially during the last decade, although both values dropped in 2012 due to
drought. Despite this and other fluctuations, the overall
trend has been one of increasing production. It has been estimated that in the United States
that more corn is used for ethanol production than is used to feed poultry and livestock. As with many government initiatives, there
was a get out of jail card. For those refineries that were unable or perhaps
refused to mix ethanol into their gasoline, they were allowed to buy ethanol credits,
which were called Renewable Identification Numbers or RINs, from other parties. As you can see in this chart provided by Bloomberg,
this worked for years as the price of ethanol credits traded for pennies, and as recently
as January only cost $0.07 each. However, in July the prices moved as high
as $1.43, and are now trading in the $0.60 range. Whether or not the big firms have been buying
up all the available credits, analysts say it will be hitting us in the wallet as the
higher cost of the ethanol credits get added to the price of a gallon of gasoline. We could also discuss how millions of car
engines have been ruined by burning ethanol, but we’ll leave that for another day. I’m Samantha Deutscher for Investmentpitch.com For more video news, and to view our disclaimer,
be sure to visit our website www.investmentpitch.com. This video is for information purposes only
and it is not a recommendation to buy or sell any securities.

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