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Up, Up, and Away:What’s the Real Story On RINs?
Scott H. Irwin
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1.00R
INS
Pri
ce (
cen
ts/g
al.)
Date
Weekly (Thursday) Price of Current Year D6 Ethanol RINs in the Secondary Market, 04/03/2008 - 03/21/2013
Source: OPIS
http://money.msn.com/business-news/article.aspx?feed=OBR&date=20130327&id=16285821
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n)
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U.S. Renewable Fuels Standards, 2008-2022
Cellulosic Biodiesel Undifferentiated Renewable
20% GHG Reduction
50% GHG Reduction
Renewable Volume Obligations (RVOs)
Renewable Identification Numbers (RINs)
• The U.S. EPA enforces RVOs using RINs, a tradable credit system
• A RIN is a 38-digit number assigned to each gallon or batch of renewable fuel produced or imported into the U.S.
• Each RIN travels with the biofuel as it moves through the supply chain
• RINs are actively traded in a secondary market
• RINs allow obligated parties to meet their individual mandates by applying RINs representing biofuels which they have physically purchased and blended, or those which were purchased from another party through RIN trading
Source: Schnepf, R., and B.D. Yacobucci. “Renewable Fuel Standard (RFS): Overview and Issues.” Congressional Research Service, March 2013.
Source: Schnepf, R., and B.D. Yacobucci. “Renewable Fuel Standard (RFS): Overview and Issues.” Congressional Research Service, March 2013.
Source: Schnepf, R., and B.D. Yacobucci. “Renewable Fuel Standard (RFS): Overview and Issues.” Congressional Research Service, March 2013.
Source: Schnepf, R., and B.D. Yacobucci. “Renewable Fuel Standard (RFS): Overview and Issues.” Congressional Research Service, March 2013.
The Ethanol Market: No Mandate
Price
Quantity
P*
Q*
Demand
Supply
The Ethanol Market: Non-Binding Mandate
Price
Quantity
P*
Q*
Demand
Supply
QM
The Ethanol Market: A Binding Mandate
Price
Quantity
P*
Q*
Demand
Supply
QM
The Ethanol Market: A Binding Mandate
Price
Quantity
P*
Q*
Demand
Supply
Ps
QM
The Ethanol Market: A Binding Mandate
Price
Quantity
P*
Q*
Demand
Supply
Ps
QM
Pd
The Ethanol Market: A Binding Mandate
Price
Quantity
P*
Q*
Demand
Supply
Ps
QM
Pd
Gasoline Blenders
Purchase Price
Selling Price
The Ethanol Market: A Binding Mandate
Price
Quantity
P*
Q*
Demand
Supply
Ps
QM
Pd
Gasoline Blenders
Purchase Price
Selling Price
RINs Price
50
70
90
110
130
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170
190
210
Rat
io (
%)
Date
Weekly (Thursday) Ratio of Wholesale Ethanol to CBOB Gasoline Price at Chicago, 01/25/2007- 03/28/2013
Source: OPIS
Breakeven
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170
190
210
RIN
s P
rice
($/
gal
lon
)
Rat
io (
%)
Date
Weekly (Thursday) Ratio of Wholesale Ethanol to CBOB Gasoline Price at Chicago and D6 Ethanol RINs Price,
01/25/2007- 03/28/2013
Source: OPIS
Breakeven
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4 5 6 7 8 9 10 11 12 13 14 15
Rat
io o
f E
than
ol t
o C
BO
B P
rice
(%
)
Ethanol Quantity (bil. gal.)
A Simplified Model of Ethanol Demand Conditional on the Price of Gasoline (CBOB) and a Binding E10 Blend Wall
5 bil. gal. = minimum demand as MTBE replacement
13 bil. gal. = 10% blend wall maximum
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4 5 6 7 8 9 10 11 12 13 14 15
Rat
io o
f E
than
ol t
o C
BO
B P
rice
(%
)
Ethanol Quantity (bil. gal.)
A Simplified Model of Ethanol Supply and Demand Conditional on the Price of Gasoline (CBOB) and a Binding E10 Blend Wall
Demand
Supply
0
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4 5 6 7 8 9 10 11 12 13 14 15
Rat
io o
f E
than
ol t
o C
BO
B P
rice
(%
)
Ethanol Quantity (bil. gal.)
A Simplified Model of Ethanol Supply and Demand Conditional on the Price of Gasoline (CBOB) and a Binding E10 Blend Wall
RFS Mandate 2011
Demand
Supply
0
20
40
60
80
100
120
140
160
4 5 6 7 8 9 10 11 12 13 14 15
Rat
io o
f E
than
ol t
o C
BO
B P
rice
(%
)
Ethanol Quantity (bil. gal.)
A Simplified Model of Ethanol Supply and Demand Conditional on the Price of Gasoline (CBOB) and a Binding E10 Blend Wall
RFS Mandate 2011
RFS Mandate 2013
Demand
Supply
Calendar Mandate - Year Beginning Production Exports Ending2013 2.6 0.9 0.5 1.22014 1.2 1.3 0.5 -0.62015 0.0 1.6 0.5 -2.1
U.S. Renewable (D6) RINS Stock--Billion Gallons
Source: Schnepf, R., and B.D. Yacobucci. “Renewable Fuel Standard (RFS): Overview and Issues.” Congressional Research Service, March 2013.
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4 5 6 7 8 9 10 11 12 13 14 15
Rat
io o
f E
than
ol t
o C
BO
B P
rice
(%
)
Ethanol Quantity (bil. gal.)
A Simplified Model of Ethanol Supply and Demand Conditional on the Price of Gasoline (CBOB) and a Binding E10 Blend Wall
RFS Mandate 2011
RFS Mandate 2013
Demand
SupplyAdditionalbiodiesel mandate
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2.50
Pri
ce (
$/g
allo
n)
Date
Weekly (Thursday) Price of D4 Biodiesel and D6 Ethanol RINs, 01/25/2007- 03/28/2013
Source: OPIS
D4 Biodiesel RIN
D6 Ethanol RIN
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3.20
RIN
s P
rice
($/
gal
.)
Gas
oli
ne
or
Eth
ano
l Pri
ce (
$/g
al.)
Date
Weekly (Thursday) Wholesale Price of CBOB Gasoline, Ethanol, And D6 Ethanol RINs at Chicago, 10/04/2012 -
03/21/2013
Ethanol (left-scale)
Gasoline (left-scale)
Source: OPIS
RINs (right-scale)
Table 1. U.S. Annual Ethanol Consumption and Blending Margins, 2007-2012
Ethanol Implied E10 Average Ethanol Total Ethanol Blending MarginYear Consumption Consumption Blending Margin Blending Margin per Gallon of E10
(mil. gal.) (mil. gal.) ($/gal.) (mil. $) ($/gal.)2007 6,886 68,857 0.17 1,140 0.022008 9,683 96,834 0.24 2,367 0.022009 11,037 110,366 -0.05 -543 0.002010 12,858 128,585 0.23 2,936 0.022011 12,893 128,933 0.15 1,875 0.012012 12,946 129,464 0.54 7,000 0.05
Long Refining CapacityShort Blending Capacity
Short Refining CapacityLong Blending Capacity
A Continuum of Business Models for Obligated Parties in the U.S.
Motor Fuel Supply Chain
Long Refining CapacityShort Blending Capacity
Short Refining CapacityLong Blending Capacity
A Continuum of Business Models for Obligated Parties in the U.S.
Motor Fuel Supply Chain
RINs Deficit RINs Surplus
Thank You!!
