A Market In Desperate Need Of Transparency

If the 2009 financial crisis taught us anything, it's that market manipulation and speculation is a recipe for disaster. Four years later, we don't seem to have learned our lesson. Wall Street has found another, more obscure, market to manipulate: ethanol credits. Fortunately, the EPA has the power to bring transparency to this marketplace -- it just needs to do it.

I have written many, many times about Wall Street and its rotten practices, and how their reckless decisions are hurting families. For years now, we've known that Wall Street had too much influence over government. They could lie, cheat, and steal from millions of working families and not only keep their jobs, but receive bonuses. They could fix prices and markets to work in their favor. And after all their fraud and corruption, the government doesn't send these crooks to jail.

So when I was approached by an odd bedfellows coalition of businesses, environmentalists, and consumer advocates about the strange gyrations going on in the energy markets, and how Wall Street and speculators were driving the cost of energy credits through the roof to screw with the market, I decided to get involved. I have long been an activist in trying to restrain Wall Street's power and an advocate for stronger environmental standards and regulation of corporations, and believe that if we don't stop this blatant manipulation of markets and prices, that we will continue to open the possibility that our economy will be driven into the ditch.

If the 2009 financial crisis taught us anything, it's that market manipulation and speculation is a recipe for disaster. Four years later, we don't seem to have learned our lesson. Wall Street has found another, more obscure, market to manipulate: ethanol credits. Fortunately, the EPA has the power to bring transparency to this marketplace -- it just needs to do it.

First, some background. To encourage the production of cleaner fuels, Congress in 2007 passed new Renewable Fuel Standards (RFS) that required transportation fuel sold in the United States to contain a minimum volume of biofuels -- like ethanol. To track the amount of ethanol and other biofuels being used in auto and truck fuel each year, the EPA issues a Renewable Identification Number, or RIN, to each gallon of biofuel produced.

To acquire RINs, which are needed to demonstrate compliance with RFS regulations, refiners and importers can blend ethanol with the fuel they produce or purchase excess RINs in a specialized market, in which banks and other parties also participate.

Here's the catch: The federal biofuel requirements for 2013 require a level of RINs that exceeds the available supply. This limited supply and increased demand have led to skyrocketing RINs prices -- increasing as much as 2,000 percent in the last six months alone. As a result, refiners needing to purchase RINs credits -- due to an inability to blend sufficient amounts of biofuels -- are forced to buy them in a volatile market, which is increasingly being manipulated by speculators.

Manipulation of the RFS program is artificially raising the price of RINs and will make gasoline and diesel more expensive for consumers. These costs will ripple through the economy as higher RINs costs will be passed on at the pump, raising gas prices and killing jobs.

Speculators are being abetted by the EPA, which has kept the names of RINs traders secret. That means bankers can continue to overleverage RINs under the cover of night -- no accountability, no consequences.

If we're going to avoid another financial crisis, we need to ensure markets in need of transparency are actually getting sunlight. The EPA should release the names of the speculators to the public -- before they speculate our money away yet again.

About Mike Lux

Mike Lux's picture
Author, The Progressive Revolution: How the Best in America Came to Be

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