The Renewable Fuels Association (RFA) has a good post on the E-xchange Blog this week about the relationship between ethanol and gasoline prices and the importance of the Volumetric Ethanol Excise Tax Credit, or VEETC.
RFA Vice President for Research Geoff Cooper notes that ethanol prices have strengthened recently and while gas prices have also increased slightly, gasoline prices would be higher were it not for ethanol in the mix. “Despite the fact that the market price for ethanol has been above the price of gasoline in recent weeks, the ethanol blender’s tax credit has kept the effective price of ethanol below the price of gasoline,” Cooper says.
As of last week, Chicago spot prices showed ethanol selling for $0.15 less than the blend-ready gasoline (called Reformulated Blendstock for Oxygenated Blending, or RBOB), when VEETC is accounted for. This differential translates to a gallon of E10 being 1.5 cents/gallon cheaper at the retail level than unleaded gasoline without ethanol.
This simple example demonstrates the importance and effectiveness of the VEETC. In essence, VEETC is enhancing the ability of ethanol producers to manage sharply higher corn prices, while at the same time ensuring ethanol is priced competitively with gasoline and ultimately saving consumers money.