Posts Tagged ‘RIN’
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.
Tags: Clayton McMartin, Educational Briefing Series, Renewable Fuel Standard, RFS1, RFS2, RIN, RINS
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.
Tags: Clayton McMartin, Educational Briefing Series, Renewable Fuel Standard, RFS, RFS2, RIN, RINS
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:
22008480270076000011020003994400048031
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.
Tags: Clayton McMartin, Educational Briefing Series, RFS, RIN, RIN Vintage Year, RINS
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
RINSTAR® “The Renewable Fuel Registry”
RINSTAR® is the nation’s first and only third party renewable fuel registry. Through its interactions with hundreds of companies each day, RINSTAR® safeguards participating companies against invalid RINs while delivering the highest level of confidence available to the renewable fuel marketplace. The registry has facilitated over 12 billion gallon-RIN transactions since its inception.
Coming Up Short
Coming Up Short
By: Kris Bevill
From the November 2009 Ethanol Producer Magazine
Tags: Clayton McMartin, Clean Fuels Clearinghouse, Energy Independence and Security Act of 2007, Environmental Protection Agency, EPA, Renewable Fuel Standard, Renewable Identification Number, RFS2, RIN, RINSTAR, RINStar Renewable Fuels Registry
RIN Credits, Ethanol Blending and the 800-pound Gorilla
RIN Credits, Ethanol Blending and the 800-pound Gorilla
By: Ron Kotrba
From the April 2009 Ethanol Producer Magazine
Renewable energy credit prices are on the rise as ethanol blend economics remain poor and the year-end reporting date looms. EPM talks with Clayton McMartin, president of Clean Fuels Clearinghouse, about renewable identification number credits, industry consolidation, and the oil industry’s 800-pound gorilla, Valero Energy Corp., which can no longer be ignored.
The 800-pound gorilla in the room finally announced itself in early February. For months, speculators have been trying to figure out which ethanol companies will buy out which ethanol plants during this period of crushing economic recession and potential ethanol industry consolidation. Aside from food companies, what other industry made record profits in 2008 and could logically purchase distressed ethanol production facilities? The oil refiners—they who are obligated to blend ethanol into their supplies as mandated under the federal renewable fuels standard (RFS). On Friday, Feb. 6, VeraSun Energy Corp. “took out the trash”—that’s public relations lingo for releasing bad news on a Friday, with the understanding that there will be little coverage of it until at least Monday. The same day, VeraSun issued a press release titled, “VeraSun Energy Obtains ‘Stalking Horse’ Bid From Valero for Five Facilities; Files Motion Seeking Authority to Sell Substantially All Assets by March.” Read the rest of this entry »
Tags: Biofuel, Biomass, Cellulosic, Clayton, Clayton McMartin, Clean Fuels Clearinghouse, Compliance, Environmental, EPA, Ethanol, Ethanol-Producer Magazine, Fuel, Gasoline, McMartin, press, Regulations, Renewable Fuel Standard, Renewable Identification Number, RFS, RIN, Ron, Ron Kotrba
EPA rolls out RINs Moderated Tracking System
EPA Rolls Out RINs Moderated Tracking System
By: Ron Kotrba
From the March 2009 Web Exclusive Ethanol Producer Magazine
The U.S. EPA held a Webinar on Feb. 25 to explain its development of a Moderated Tracking System that will accurately and securely track renewable identification number (RIN) credits.
A RIN is a 38-character numeric code that’s generated by the producer or importer of renewable fuel; it represents gallons of renewable fuel produced/imported and is assigned to batches of renewable fuel that are transferred (change of ownership) to others. RINs are valid for the calendar-generated, or the following year.
RINs currently apply to the ethanol industry; however beginning in 2010 RINS will also apply to the biodiesel industry.
The EPA is developing MTS to track the generation, distribution and sale of RINs as a way to help accurately enforce the mandates under the renewable fuels standard enacted in the Energy Independence & Security Act of 2007. The market-based renewable fuels registry RINSTAR has been working with the EPA to help develop a federal register through which all RIN transactions would flow to ensure accurate and honest reporting. Read the rest of this entry »
Tags: Biofuel, Biomass, Cellulosic, Clayton, Clayton McMartin, Clean Fuels Clearinghouse, Compliance, Environmental, EPA, Ethanol, Ethanol-Producer Magazine, Fuel, Gasoline, McMartin, press, Regulations, Renewable Fuel Standard, Renewable Identification Number, RFS, RIN, Ron, Ron Kotrba
Spot Ethanol Prices Flat as Supply, Demand in Balance
Spot Ethanol Prices Flat as Supply, Demand in Balance
By: George Orwel
February 2009 DTN Refined Fuels
NEW YORK (DTN) — Spot ethanol prices rose slightly on Friday from the levels seen Thursday, but there wasn’t much change for the week as traders weighed lower corn prices against higher gasoline values.
In fact, in the ethanol swaps market, prices came off about 3cts, driven largely by the weaker corn market. But physical cargoes of ethanol for late January to early February delivery to Chicago traded at $1.57 and $1.59 gal, reflecting a session gain of 2cts and up 1.5cts for the week.
In the New York Harbor, physical cargoes traded 3cts higher for the session and 1.5cts higher for the week. Houston prices were discussed between $1.68 and $1.70 a gal, although no trade was reported. In the West Coast, most of the discussions on cargoes going to Las Vegas and a few to Phoenix, Ariz., with just a few to California. Read the rest of this entry »
Tags: Biofuel, Biomass, Cellulosic, Clayton, Clayton McMartin, Clean Fuels Clearinghouse, Compliance, DTM Refined Fuels, DTN, Environmental, EPA, Ethanol, Ethanol Prices, Fuel, Gasoline, Gorge Orwel, McMartin, Orwel, press, Refined Fuels, Regulations, Renewable Fuel Standard, Renewable Identification Number, RFS, RIN