This does not square with the industry officials' claims. The U.S. Environmental Protection Agency estimates the additional cost of manufacturing the new Phase 2 RFG to be at about five cents a gallon. The cost spread between Phase 1 RFG and conventional gasoline has typically been between two and five cents a gallon. Together, this suggests an expected cost spread between Phase 2 RFG and conventional gasoline of seven to 10 cents per gallon. Moreover, gasoline marketers receive a federal tax credit of more than five cents per gallon for blending their product with 10 percent ethanol.
Many states provide additional financial incentives.
If these cost savings were passed on to consumers, RFG should be sold at or less than the price of conventional unleaded gasoline. Ethanol, used for the Phase 2 RFG requirement in the Midwest, cannot be a cause of the higher prices, despite some oil company claims to the contrary. Supplies are the most plentiful in 20 years and the ethanol industry is on pace to set an all-time record for annual production. Refiners have had five years to prepare the Phase 2 RFG requirements. Again, we believe the facts do not add up.