Wednesday, November 16, 2011

By Erin Voegele

The current RFS sets mandates through 2022. The Renewable Identification Number (RIN) system was created by the U.S. Environmental Protection Agency to facilitate compliance with the RFS. A RIN is a 38 character numeric code that corresponds to a volume of renewable fuel produced in or imported into the United States. RINs remain with the renewable fuel through the distribution system and ownership changes. Once the renewable fuel is blended into a motor vehicle fuel, the RIN is no longer required to remain with the renewable fuel. Instead, the RIN may then be separated from the renewable fuel and used for RFS compliance, held for future compliance, or traded.

The RFS mandates are prorated down to “obligated parties” - individual gasoline and diesel producers and/or importers - based on their annual production and/or imports. Each year, obligated parties are required to meet their prorated share of the RFS mandates by accumulating RINs, either through fuel blending or by purchasing RINs from others. Understanding the RIN system and the prices for RINs when bought and sold can provide key insights into the impact of mandates on biofuel and feedstock markets. For 2011, conventional ethanol RIN prices have been low, implying low probability that the corresponding mandate has been binding and suggesting that other factors have contributed to expansion beyond the mandate. Conversely, biodiesel RIN prices have been high in 2011, implying a more binding biodiesel mandate with effects on soybean oil and other biodiesel feedstock markets.

To reduce dependence on foreign oil and to address climate change concerns, U.S. policymakers have introduced a combination of policies to support the production and consumption of biofuels. An important element of U.S. biofuel policy is the Renewable Fuel Standard (RFS). The RFS originated with the Energy Policy Act of 2005 and was expanded and extended by the Energy Independence and Security Act of 2007 (EISA). The Renewable Identifi cation Number (RIN) system was developed by the U.S. Environmental Protection Agency (EPA) to ensure compliance with RFS mandates. RINs are used by obligated parties to
demonstrate compliance with their pro rata share of a particular year’s mandate.

Obligated parties are producers or importers of gasoline and diesel in the 48 contiguous States and Hawaii, including blenders that produce gasoline from nonrenewable blendstocks. Understanding the RIN market is key to understanding the role of the RFS mandates in biofuel and feedstock markets.

The full report is available on the link.