RINs — Renewable Identification Numbers — have been in the news recently as a part of the ongoing political battle between oil companies and renewable fuel proponents.
“When the EPA put in place the Renewable Fuel Standard, they had to be sure the proper amounts of renewable fuels were being blended into the nation’s fuel supply. To account for that they created RINs. Every time a gallon of renewable fuel is created, a RIN is attached to it. It is an accounting system to make sure the RFS mandate is met. It is a tracking number for every gallon of biofuel created in the U.S.,” said John Torres, with Ohio Corn & Wheat. “RINs are bought and traded because not every fuel refinery in the country blends ethanol or biofuels. Those refiners that do not blend biofuels have to buy a RIN in order to offset the percent of the renewable fuels that is mandated. The refinery can either blend the renewable fuels at the point of refinement or they can buy the RIN to say that it will be blended at some point down the stream of production. RINs are a commodity like any other. When RINs are plentiful the price goes down and when RINs are scarce the price goes up.”
Oil companies have been complaining about the cost of RINs hurting their profitability and pushing for political change. In response, late last year U.S. Senator Ted Cruz from Texas proposed mandating a 10-cent RIN price, much lower than the more than 70-cent price at the time. RINs had gotten up to 90 cents in November.
“In a free market system in this country we frown on the federal government setting price ceilings or floors for a freely traded commodity. [Ted Cruz] is saying that the government should put its thumb down on the natural price of a commodity determined by the free market,” Torres said. “That is not something we think is good for the market. Let the market determine the price of the RIN. If you want the RIN price to come down, let’s find a way to create more RINs rather than use government intervention.”
University of Illinois economists Scott Irwin and Jonathan Coppess assessed the impacts of the 10-cent RIN cap proposal and found that there would be a significant affect on domestic biofuel production.
“If implemented, a $0.10 cap would have profound impacts on biofuels production and consumption in the U.S. because RIN prices and mandate levels are directly related — one cannot be changed without changing the other. For example, our analysis indicates that a $0.10 price cap without a biodiesel tax credit would eliminate all biomass-based diesel production and consumption in the U.S. and would reduce ethanol consumption to the level of the E10 blend wall or lower,” they wrote. “Hence, the proposal to institute a $0.10 cap on RIN prices strikes at the heart of the RFS because it would reverse the technology-forcing intent of the statutory mandate. We are skeptical that the EPA can implement such a policy on its own under the current RFS statute. The only path forward on this idea that does not violate the Constitutional limitations on EPA authority is for Congress to amend the RFS and fundamentally change its purpose.”
There is concern that such a change politically would be the beginning of the end for the Renewable Fuel Standard.
“The big rub is the foothold principle. If Big Oil gets a foothold with president Trump and breaks down his current pathway of supporting ethanol, they will keep chinking away at the RFS and ethanol will lose more ground,” said Mike Zuzolo, with Global Commodity Analytics. “The biggest issue is that Big Oil could get a foothold legislatively in D.C.”