Posts Tagged ‘Educational Briefing Series’

Educational Series: A Recap of the RFS & RINS

RFS Educational Series Briefing No. 11: A Recap of the RFS & RINS

Written by Clayton McMartin for Televent DTN

Profitability of today’s fuel supplier is impacted by how well they understand the regulations that they operate within. Recognizing this, we have provided a series of briefings to help you better understand the regulatory arena you are operating in today, and that you face tomorrow.

Over the past several weeks we have covered several topics related to the renewable fuel standard (RFS) and the credit known as the Renewable Identification Number (RIN). In this wrap-up briefing we will recap the key points and hopefully tie many of these concepts and principals together, giving you a better understanding of how to profit from your new found knowledge.

In Briefing #1 we started with an explanation of what the renewable fuel standard (RFS) is and learned that it is a mandate for the use of renewable fuels.

Briefing #2 then explained the principal behind the 38-digit Renewable Identification Number (RIN) and the important information that can be found in those digits.

In Briefing #3 we started at the beginning of the supply chain to learn that RINs come from producers and importers of renewable fuels. We then focused our attention to the end of the supply chain in Briefing #4 to see how obligated parties would use RINs to satisfy their obligations.

Since in reality, renewable fuel often moves through numerous parties before reaching the end of the supply chain, we moved our attention in Briefing #5 to how RINs are tracked. We saw how the RIN is carried from one party to the next through the supply chain and how EPA utilizes this information to assure compliance.

Since RINs can exist in two different states, either assigned to physical fuel or separated from fuel, we covered this important subject in Briefing #6. We covered the criteria necessary to separate RINs from the fuel and therefore make them a tradable paper credit.

In Briefing #7, Briefing #8 and Briefing #9 we focused more on the market for RINs, investigating who would want to own RINs for investment purposes, what vintage year RINs are valid and their limitations. And then we moved on finally to the market factors that influence RIN prices.

In our most recent Briefing #10, we took our first high level look at how the advanced renewable fuel standard (RFS2) came to be and how it will bring even more complexities and opportunities to those in the motor fuel industry.

As you recognized, the involvement of government in your business is becoming more prevalent with each coming year. Regulatory changes like we have seen with the renewable fuel standards present challenges but also opportunities for those who take the initiative to learn about the factors impacting their business. These fuel standards are a part of business today and will be well into the foreseeable future.

Click here to download a PDF of Educational Series Briefing No 11: A Recap of the RFS & RINS.

Past briefings are available by clicking here.

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Educational Series: The Proposed Advanced Fuel Standard (RFS2)

RFS Educational Series Briefing No. 10: The Proposed Advanced Fuel Standard

Written by Clayton McMartin for Televent DTN

Congress passed the Energy Independence and Security Act (EISA) in December of 2007 and as President Bush signed the ACT a new and advanced renewable fuel standard started what has turned out to be a long road to the marketplace. In fact, the regulatory process, where EPA codifies the Congressional Act into regulations, is over 2 years behind the deadline established through EISA.

The tardiness of the advance renewable fuel standard (RFS2) can be attributed to numerous factors, including such items as a Presidential election, special interest group lobbying, indirect land use assessments, and overall complexity of the new laws. Regardless of the delays, industry still anticipates an eventual RFS2 and will therefore need to be prepared for the changes.

The high level changes brought about by RFS2 when compared to the original RFS1 are:

  • Under RFS2 mandated volumes apply to both gasoline and diesel used in both on-road and off-road application in the United States. RFS1 obligations apply only to on-road gasoline.
  • RFS2 mandates increased dramatically over RFS1, 36 Billion by 2022 gallons/year vs. 7.5 BGY by 2012.
  • RFS2 provides for “carve outs” for specific fuel types, namely biodiesel and cellulosic biofuels.
  • RFS1 places a 15 BGY cap on the mandates for corn starch derived ethanol.
  • RFS2 addresses greenhouse gas (GHG) contribution by establishing four categories of fuels and requiring threshold performance requirements to be met. RFS1 did not address GHG reduction.
  • RFS2 places restrictions on land use in an attempt to address the food vs. fuel argument. These restrictions require renewable fuel producers to qualify their feedstocks each time they generate RINs.

This list represents the highest level of changes brought about by RFS2. Although not comprehensive, these basic changes should provide a good indication to the change in complexity that the industry faces as the legislators and the regulators become more involved with the daily business of transportation fuels.

To illustrate just one area of the new RFS2 program, consider the obligated party. You may recall from Briefing #4 How are RINs Used? that it is primarily refiners who would have a use for RINs. Under RFS2 there are 4 categories of renewable fuels, each with their own distinct RIN type. What this means to the obligated party is that they will now have to meet 4 different standards instead of just one renewable fuel standard as today. They will need to acquire and balance 4 different RIN types to be assured of compliance with the regulations. As you can see, the added degrees of freedom bring with them at least an order of magnitude in complexity.

Click here to download a PDF of Educational Series Briefing No 10: The Proposed Advanced Fuel Standard.

Past briefings are available by clicking here.

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Educational Series: Market Factors Influencing RIN Values

RFS Educational Series Briefing No. 9: Market Factors Influencing RIN Values

Written by Clayton McMartin for Televent DTN

RIN values are affected by a number of factors, ranging from the current year’s mandate of renewable fuel to the level of overall confidence in the marketplace. The following would represent a partial list of contributing factors to the value of a RIN:

  • Transportation cost – The cost to transport ethanol and other biofuels play a key role in the overall RIN value.
  • RFS mandate – The mandated level of renewable fuel, the Renewable Fuel Standard, for the specific year establishes the demand and therefore influences price.
  • Waiver petitions and other uncertainties that await EPA’s ruling have proven to have a dramatic impact on RIN prices.
  • Vintage year – Current vintage year RINs will have more value than RINs from the prior year due to limitations on the use of prior year RINs.
  • Blending Margins – The net economic margin considering petroleum product price, biofuel price, and other blending tax credits has a direct impact on the availability of RINs and consequently the price.
  • RIN failures – Invalid RINs in the market place result in oversupply of RINs and consequently drive the price of RINs down and with it the demand for physical product.
  • Deadlines – The year end deadline and the overall readiness by industry can result in last hour panic and a resulting price increase.

Since the inception of the RFS program, RIN prices have seen a dramatic increase from when RIN trading originally started on Sept. 1, 2007. RIN credits originally traded at 0.25 cents each – primarily because industry did not initially understand the program. RINs have since traded for over 25 cents each, a multiple of 100 times.

FUTURE VIEW: With the impending RFS2 regulations, there will be several types of RINs in the marketplace – each trading at a different price point and in some cases driven by technology specific issues. These future RIN values will be based upon similar factors as described above and as they apply to a specific type of RIN. For example cellulosic RINs (Type C RINs) will have a different value than RINs derived from say corn ethanol (Type R RINs – also known as renewable fuel RINs), due to their availability in the market place.

In fact, due to a special consideration in the 2007 Energy Independence and Security Act (EISA), RINs derived from cellulosic biofuels (Type C RINs), bring a new twist to RIN values. Type C RINs will have a floor price of not less than 25 cents per RIN, and possibly more depending upon the rack price of gasoline in any given year. This is a subject we will explore more in future briefings.

Click here to download a PDF of Educational Series Briefing No 9: Market Factors Influencing RIN Values.

Past briefings are available by clicking here.

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Educational Series: What is the Lifetime of a RIN?

RFS Educational Series Briefing No. 8: What is the Lifetime of a RIN?

Written by Clayton McMartin for Televent DTN

A RIN is generated whenever renewable fuel is produced or imported into the United States, as we discussed in Briefing No. 3 in this Educational Series. Established within the RIN is a vintage year at the time that it is generated. The vintage year is embedded in the RIN number at the time it is produced and can be found in digits two through five. As an example consider the following RIN number:


In this example the RIN has a vintage year of 2008.

According to the regulations a RIN can be used to demonstrate compliance in the year in which it was generated or the year that follows its year of generation. In the case of our example, this 2008 vintage year RIN could be applied to an obligated party’s 2008 obligation or to their 2009 compliance year obligation.

Although a RIN having a vintage year of one year earlier than the current compliance year can be used to demonstrate compliance, there remains a volumetric limitation. This limitation is addressed in Section 80.1127 of the RFS regulations and states that RINs submitted from the prior year vintage cannot exceed 20 percent of the total RIN submission for the current compliance year.

Another important factor to keep in mind is that a 2008 RIN could actually trade up until the last day of February 2010 – two years and two months after its earliest possible generation. The reason for this is the fact that compliance year 2009 reports are not due into EPA until the last day of February and therefore EPA permits the trading of the prior compliance year RINs up until the deadline. In our example, the 2008 RIN would then be automatically expired on March 1, 2010 if it was not already applied to a party’s obligation. More about this later.

The qualification of RINs based on vintage year is an important consideration and should be well understood by anyone electing to trade in this market or otherwise a regulated party under the RFS program.

Click here to download a PDF of Educational Series Briefing No 8: What is the Lifetime of a RIN?

Past briefings are available by clicking here.

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Educational Series: Who Would Want to Own a RIN?

RFS Educational Series Briefing No. 7: Who Would Want to Own a RIN?

Written by Clayton McMartin for Televent DTN

As we answer the question “Who would want to own a RIN?” it is important to recognize that there are two types of RINs. There is the assigned RIN, having a K code of 1 and being associated with renewable fuel, and there is the separated RIN having a K code of 2 and serving as a paper environmental credit. This important distinction was covered in Briefing No. 6 of this series.

In the case of an assigned RIN any party downstream of the producer would have a financial interest in owning the RIN, as it places more value upon the renewable fuel product which it is associated with. As the marketplace matures, more sophisticated operators are now starting to recognize this distinction and pricing their physical product accordingly. In many instances, petroleum marketers now recognize the RIN as a key economic consideration in their blending economics.

However, even after more than two years of RIN market activity, there remain several companies in the supply chain who have yet to participate in the RIN program. Some operators are avoiding participation due to the hassle and complexity of the rules and others due to the expense associated with compliance programs. Speaking generally, only those companies who would be the smallest of distributors, of say 10,000 gallons of renewable fuel product or less per month, could justify non-participation based on financial returns. This group would represent a very small percentage of the total supply.

In the case of separated RINs, or the ultimate renewable fuel credit, the most obvious parties who have incentive to own these assets would be domestic refiners or importers of gasoline into the United States. These obligated parties are mandated under the regulation to accumulate, either through production or acquisition, their pro rata share of RINs based on the current year’s fuel standard. In the end, only an obligated party would be able to realize the intended value of a RIN. In fact, many refer to the RIN as the “Currency of Compliance” for the renewable fuel standard.

With its free market framework, speculators have also shown an interest in participating in the credit banking and trading market formed through the RFS program. Traders are now actively involved in the RIN market, having interest in acquiring RINs for the purpose of hedging a market position or for speculative financial gain. Price swings in the RIN market have been extreme over the past two years, with 300 percent plus price moves in some cases. This is a dynamic that points to the fact that there remains a need for additional liquidity and overall market efficiency, results that will only come with more understanding and time.

Finally, one last party that may also have an interest in acquiring RINs would be an individual or corporation who wishes to use RINs as a vehicle to demonstrate support for biofuel production and/or environmental stewardship. In this scenario the RIN purchaser would retire the RIN upon receipt, taking the RIN out of the market and effectively promoting additional renewable fuel production in order to fill the void that would be created by such action. This activity recognizes that the only way to generate a RIN is by also producing another gallon of biofuel product. Only in isolated cases is the market seeing such activity at this time.

Click here to download a PDF of Educational Series Briefing No 7: Who Would Want to Own a RIN?

Past briefings are available by clicking here.

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Educational Series: How Do RINs Become Separated From Fuel?

RFS Educational Series Briefing No. 6: How Do RINs Become Separated From Fuel?

Written by Clayton McMartin for Televent DTN

When renewable fuel is produced a RIN is assigned to each gallon. According to the regulations, these assigned RINs can only be transferred along with renewable fuel. The RINs cannot move independent of renewable fuel until such time that the associated fuel is blended into finished petroleum products or purchased by an obligated party, such as a refiner. An assigned RIN can be identified by the first number in the RIN which will be the numeral 1. An example of an assigned RIN is:

12009480270076000011020003994400048031 (K code = 1)

In principal, as the renewable fuel is placed into the retail market, along with petroleum products, the RIN then becomes separated from the fuel. In practice the rules read that obligated parties, such as refiners and importers of gasoline, and those who blend renewable fuel with finished gasoline, such as splash blenders and oxygenate blenders, are required to separate the RIN from the fuel. A separated RIN is easily identified by the first numeral being a 2. An example of a separated RIN is:

22008480270076000011020003994400048031 (K code =2)

At this point in the RIN’s life it becomes a renewable fuel credit, no longer associated with the physical product. In essence the RIN is now a paper credit that can be traded between and among parties that are registered with EPA to participate in the RFS program. A separated RIN trades from one party to the next and independent of renewable fuel.

Ultimately the separated RIN will be used by an obligated party such as a refiner or importer of gasoline(1) into the United States. These obligated parties demonstrate compliance through the submission of RINs to EPA at the end of each compliance year to meet their obligation under the renewable fuel standard – a subject we will take up in our next briefing.

(1)Future View: The advanced standard, RFS2, has been expanded to encompass both gasoline and diesel fuels, refined or imported. The effect of this legislative change will be the inclusion of several more parties who today are not obligated under RFS1.

Click here to download a PDF of Educational Series Briefing No 6: How Do RINS Become Separated From Fuel?

Past briefings are available by clicking here.

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Educational Series: How are RINs Tracked?

RFS Educational Series Briefing No. 5: How Are RINs Tracked?

Written by Clayton McMartin for Televent DTN

The RFS regulations require that accurate records pertaining to RIN activity be maintained and summary reports be submitted to EPA each quarter (1). In principle this is a simple concept; in practice it is much more complex.

As title to product and the associated RINs are transferred from one party to the next the supplier (transferor) is required to generate and deliver documentation to their customer (transferee). As the transferee then sells to their customer, and so on down the line, the same type of documentation is required each time title is transferred. Now that each of these events has been documented, each party is required to keep the records in an organized manner and report to EPA every quarter on their activity. These standardized reports are due two months after the quarter closes (1). EPA staff members can then process the data to track the movement of renewable fuel through the supply chain and determine if all parties are in compliance.

EPA utilizes a post-audit approach to the program, where they gather data pertaining to literally millions of transactions and then process, looking for discrepancies and inconsistencies among the data. The shortcoming of this approach is the fact that possible violations are revealed months after they have occurred, making for considerable challenges in the area of enforcement and overall exposure.

An alternative approach is for companies to voluntarily participate on the renewable fuel registry where they take a proactive approach to RIN tracking and validation. By utilizing a third party verifier, companies are able to manage massive amounts of data on one standardized computing system (2). Through a centralized registry, companies are also able to conduct a more through job of due diligence and minimize ownership issues before they occur. The RIN program is “Buyer Beware” and any liability resulting from title defects fall to the current owner.

(1)Future View: As discussed in Briefing #2, the reporting frequency will increase under RFS2, first to monthly then to within three days of the transaction.

(2)Future View: EPA has proposed a centralized and closed system for clearing RIN transactions known as the EPA Moderated Transaction System (EMTS). EPA has stated that they hope to bring increased confidence to the marketplace with EMTS – schedule to go into effect in 2011. More details will be provided about EMTS in future briefings.

Click here to download a PDF of Educational Series Briefing No 5: How are RINs Tracked?

Past briefings are available by clicking here.

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Educational Series: How Are RINs Used?

RFS Educational Series Briefing No. 4: How Are RINs Used?

Written by Clayton McMartin for Televent DTN

In previous briefings we covered the fact that RINs are utilized to track renewable fuel through the supply chain, but ultimately RINs are used to demonstrate compliance. Companies identified by EPA as “obligated parties” must meet the mandated standards in order to remain compliant with the federal law.

The typical obligated party is a company that refines crude oil and produces finished gasoline. By far the biggest portion of obligated parties are refiners, such as ExxonMobil, ConocoPhillips, Valero, BP, Shell, and Chevron. Other companies that fall under the RFS obligated party classification would be importers of gasoline into the U.S. as well as companies that buy petroleum intermediate components and blend at facilities like fuel terminals to produce finished gasoline.

Under the regulations, each of these obligated parties is then bound by the law to use their pro-rata share of renewable fuel. Recalling that the RFS is really a percentage established each year (see Briefing #1 What is the Renewable Fuel Standard?), the company multiplies their on-road gasoline production (1) times the RFS to determine their obligation. This is called their RVO or renewable volume obligation.

Obligated parties demonstrate to EPA that they have met or exceeded their RVO by the submission of RINs each year. These RINs can be acquired through the process of purchasing and blending renewable fuel into their own pool of petroleum products or by acquiring RINs from another party that has blended renewable fuel in excess of their RVO and is willing to sell their RINs to the obligated party. As you can see, central to the RFS program are provisions for credit banking and trading, with the RIN serving as the paper credit for this purpose.

(1) FUTURE VIEW: Under the RFS2 the program basis is extended from only on-road gasoline to now include non-road, locomotive, and marine fuels. Additionally, the RVO will be broadened to encompass four separate standards. With RFS2 come four categories of mandated fuels, resulting in four different standards each year. More details about these four different standards and how the program will work will be provided in future RFS Educational Briefings.

Click here to download a PDF of Educational Series Briefing No 4: How Are RINs Used?

Past briefings are available by clicking here.

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Educational Series: Where Do RINs Come From?

RFS Educational Series Briefing No. 3: Where Do RINs Come From?

Written by Clayton McMartin for Televent DTN

RINs are generated as a result of the production or importation of renewable fuel into the United States. The RINs serve as identification numbers for each gallon of renewable fuel placed into commerce, allowing EPA to monitor the movement and use of renewable fuel in the marketplace.

The assignment of RINs, contrary to what some believe, is not conducted by EPA (1). Instead RINs are assigned by the producer or importer in accordance with the rules found in the Renewable Fuel Standard program. Section 80.1126 provides all of the details necessary for a producer or importer to assign RINs to their product.

With the exception of producers who produce less than 10,000 gallons per year, and importers who import less than 10,000 gallons per year of renewable fuel, it is mandatory that RINs be generated as the renewable fuel is placed into commerce.

The process of generating the RIN is really one of the easiest steps in the program. A producer simply needs to gather the required data pertaining to their entity, facility, and product type. Then as fuel is produced or imported a unique batch number for the applicable year and the total volume of RINs are added to the 38-digit series resulting in what EPA defines as the parent batch RIN. Producers can generate RINs on the renewable fuel registry by providing only two pieces of data, the volume of fuel and denaturant content in the case of ethanol.

(1) FUTURE VIEW: The impending implementation of the RFS2 program will bring fundamental changes to the way RINs are assigned to produced and imported product. EPA has proposed modifications to the rule due to numerous errors that have occurred through the present RIN generation approach. EPA will eventually issue RIN numbers as producers and importers submit operational data directly to EPA in a more real-time manner.

More details about RFS2 and the resulting changes will be covered in future briefings.

Click here to download a PDF of Educational Series Briefing No 3: Where Do RINS Come From?

Past briefings are available by clicking here.

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Educational Series: What is a RIN?

RFS Educational Series Briefing No. 2: What is a RIN?

Written by Clayton McMartin for Televent DTN

The three-letter RIN is an abbreviation for Renewable Identification Number. Under the Federal government’s Renewable Fuel Standard (RFS) a RIN is assigned to every gallon of biofuel produced or imported into the United States. Comprised of 38 digits, the RIN serves effectively as a serial number which is tracked throughout its life in the renewable fuel supply chain, from the point of production to the point at which the fuel is placed into the retail market.

Valuable information about the fuel and its producer is embedded within the 38-digit code that makes up the RIN. Here is a sample of what you can readily determine from the RIN number:

— Status of the RIN as far as being tradable as a separated credit (more on this later)
— The year the fuel was produced – also referred to as the vintage
— Who produced or imported the renewable fuel
— Where it was produced or imported into the U.S.
— What kind of fuel, ethanol, biodiesel, etc. (more on this later)
— Its equivalence value (more on this later)
— Whether it comes from cellulosic technologies or not
— And the total volume of credits assigned to a batch of renewable fuel

As an example of a RIN consider the following:


RINs are useful for tracking renewable fuel at every link of the supply chain. The process starts when renewable fuel is produced or imported and the 38-digit serial number is assigned to the fuel. Tracking and reporting to EPA is then continued as the fuel is transferred from supplier to customer and so on and so on. Once the renewable fuel is placed into the retail market the RIN is separated from the fuel and then serves as a tradable credit. This separated RIN, or credit, can then be traded from one party to another, similar to other environmental credit trading programs.

Ultimately the RIN is used to demonstrate to EPA that a party has met their particular obligation under the RFS. EPA monitors the overall program by having every party in the supply chain report their RIN activity to the agency on a quarterly basis. The advanced fuel standard (RFS2) requires that the frequency of reporting increases first to monthly and then to near real-time, or within three days of transfer.

Future briefings will provide more details about how the RIN number is used, who has value in RINs, and how the changing regulations will impact business throughout the motor fuel sector.

Click here to download a PDF of Educational Series Briefing No 2: What is a RIN?.

Past briefings are available by clicking here.

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