Critics of the Renewable Fuel Standard, created by the Energy Policy Act of 2005 and expanded by the Energy Independence and Security Act of 2007, say it has had many unintended consequences, including driving up food prices around the world.
The New York Times may have found another.
The RFS mandates the amount of biofuel (from renewable resources, such as corn or soybeans) that must be blended into gasoline, and the EPA sets the amount each year. Refiners that can't or don't meet the standards can purchase biofuel credits to meet the requirements.
In an extensive story earlier this month, the Times reported that Wall Street banks and others likely are cashing in on the lightly regulated market for those credits, buying millions of the credits "just as refiners were looking to buy more of them to meet an expanding federal requirement."
The market in exploiting credit trading arose, according to the Times article, when renewable fuel standards were increasing based on estimates of increased gasoline consumption while that consumption was actually falling in the U.S. The upshot is that the price of credits has risen dramatically and driven up costs for refiners. Most refiners apparently are absorbing the increases for now, but the potential is there for future price increases at the pump.
The U.S. Environmental Protection Agency, which created the biofuels credit and oversees it, told the Times it wasn't seeing an indications of exploitation of the market, but the story notes there's little transparency in the EPA's regulation of credit trading. The EPA doesn't disclose who's trading the credits or how much they trade, according to the Times, to protect the confidentiality of the refiners and others in the market.
But in a market created by a government agency, transparency should be mandatory, particularly if speculators are lining up to capitalize on conditions that were also created by that government agency. And better oversight of the biofuel credit market is overdue.