Posts Tagged ‘Renewable Fuel Credit’
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.
Tags: Clayton McMartin, Educational Briefing Series, Renewable Fuel Credit, RIN, RINS
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.
Tags: Clayton McMartin, Educational Briefing Series, Renewable Fuel Credit, RIN, RINS