The most effective way to reduce the prices American consumers are paying at the pump is to let Renewable Identification Numbers (RINs) do the job they were intended to do by stimulating increased ethanol production and blending, the Renewable Fuels Association wrote in a letter to House Energy and Commerce Subcommittee on Environment Chairman John Shimkus (R-Ill.) and Ranking Member Paul Tonko (D-N.Y.).
The subcommittee held a hearing yesterday morning on RINs, which are used to demonstrate compliance with annual Renewable Fuel Standard blending obligations.
“RIN credits are the engine that drives the RFS. Not only are RINs used to demonstrate compliance with annual RFS blending obligations, but they also serve as a critical economic incentive to expand the production and use of renewable fuels,” RFA explained to the lawmakers. “Studies show that higher RIN prices facilitate deeper discounting of ethanol-blended fuels (such as E15 and E85) relative to gasoline, and that wider discounts lead to greater consumption of these blends. In turn, greater demand for E15 and E85 stimulates increased production of ethanol, which leads to increased RIN generation and larger supplies,” the letter noted.
Contrary to the rhetoric coming from some in the refining industry, RINs aren’t negatively affecting the financial performance of refining companies, since merchant refiners who do not blend ethanol recoup their RIN costs by slightly marking up their selling price of gasoline blendstock, RFA explained to the lawmakers. Multiple economists and outside experts have testified to this fact.
Additionally, “there is no evidence to support the notion that RINs push retail gas prices higher. In fact, RINs and retail E10 gas prices tend to be negatively correlated, with periods of high gas prices occurring during periods of low RIN prices and vice versa,” RFA explained.
EPA’s recent issuance of approximately 50 small refinery compliance exemptions from 2016 and 2017 RFS requirements has increased RIN stocks to nearly 3.1 billion RINs—more than double the level of RIN stocks just two years ago, RFA explained in its letter. As a consequence, RIN prices have dropped from 95 cents in late November 2017 to just 25 cents today, decreasing the incentive for blenders and refiners to increase volumes of E15 and other higher-level ethanol blends.
These small refiner waivers have destroyed demand for ethanol, RFA wrote. “Despite very favorable blending economics (i.e., ethanol is priced 70 cents per gallon below gasoline at the wholesale level), ethanol blending activity has slowed in 2018….The 2018 weekly ethanol blend rate has been below year-ago levels in 21 of 28 weeks so far. Meanwhile absolute blending volumes have lagged year-ago volumes in 18 of 28 weeks, including 16 of the past 20 weeks,” RFA explained.
“U.S. ethanol producers and farmers across the country who have invested in this important value-added market opportunity are extraordinarily concerned by EPA’s recent intrusion into the RIN market, and believe it irreparably undermines the integrity of the Renewable Fuels Standard,” RFA wrote. “Providing waivers from RIN obligations to wealthy oil companies that are recovering RIN costs in the crack spread, creating new RINs not tied to a specific gallon of biofuel to accommodate the retroactive granting of a small refinery waiver, and forgiving the RIN obligations of a certain refinery in bankruptcy proceedings when the source of that refinery’s financial distress was well understood to be unrelated to its RFS obligations are all examples of EPA’s wanton disregard for the statute and its biofuel demand destruction campaign. All of this must end. EPA must allow RIN markets to work,” RFA concluded.
A copy of RFA’s letter to the lawmakers is here.
Source: The Renewable Fuels Association