What’s the deal with RINs, and what do they have to do with farm income? That little acronym has dominated the news this spring, traveling from the farm clear to President Donald Trump’s desk.
In short, RINs are a complicated but integral part of the Renewable Fuel Standard, established to help force the petroleum industry to blend ethanol into fuel.
RIN stands for renewable identification number. Each gallon of ethanol is assigned a number, and those numbers are traded between refiners that blend more ethanol than the RFS obligates and refiners that don’t. That creates incentive for those that blend more ethanol than they are obligated to because they can sell the additional RINs, which generates money for infrastructure investments.
Farmers joke that only Congress could come up with such a complicated system that no one really understands, but IL Corn’s Rodney Weinzierl takes a crack at explaining it here in an interview with Prairie Farmer:
What does RINs mean? Essentially RINs are a tool. The Renewable Fuel Standard obligates the petroleum refineries to meet certain thresholds on the different biofuels: biodiesel, advanced biofuels and corn ethanol. RINs is a paper trading mechanism that allows the market to equalize among the different petroleum refiners.
What’s the deal with RINs right now? The smaller refiners generally are not branded at retail. So they have to go out and buy these RINs — these paper gallons of biofuels — and turn them in to EPA at the end of each year. Larger refiners that are integrated down to retail — your Exxon Mobiles, your BPs, your Shells — they are buying ethanol and biodiesel, so they are generating their own RINs to turn in to EPA. So there’s a little bit of a market crunch on the value of these RINs in the marketplaces.
So it’s complicated in the petroleum industry, too? What’s really interesting is that these large refiners have no mercy in the marketplace for the small, independent refiners in all this. If anybody thinks this is a simple issue, it’s very complex, and even the refiners and industry are not together on this issue.
Would a year-round E15 blend alleviate some of the RINs issue? The requirements are such that the petroleum industry has to buy X amount of gallons every year. And those gallons have been working their way up. In the case of ethanol, the requirement is 15 billion gallons. Right now, we’re selling about 14.4 [billion] to 14.5 billion gallons. So there’s another 500 million gallons that need to be purchased in the next couple years. RINs can carry from one year to the next, so there are some extra RINs from previous years that are being carried into this year.
What do RINs do exactly? RINs are forcing higher blends of ethanol into the marketplace, whether that’s E15 or E85, or something in between. But there’s a cost to retailers to put in the infrastructure to do that. So the independent retailers are loving this because they can go out and put in E85 or E15 pumps, and they’ll generate more RINs. They sell the RINs — they’re not an obligated party — and they have these refiners coming to them wanting to buy them.
So that’s what the RIN system is designed to do: Create the mechanism that allows retailers to have the resources to put that E85 tank in the ground and the E85 pump, or the pumps that can sell E15. That’s slowly happening, but not at the speed we’d like, because infrastructure is not inexpensive.
How does this affect the value of RINs? Every time we start talking about the value of RINs, guess what happens to the value of RINs? They’ve dropped two-thirds in price since we started this conversation in the marketplace this spring. So just by having this conversation in Congress, the price of RINs have dropped two-thirds in price.
What makes the price go up or down? Because the petroleum industry is not blending the levels that they need to be moving toward, the value of the RINs is going up. RINs is a forcing mechanism. But it’s also a mechanism that provides the resources that allows resources to put in tankage and pumps to do it. Once they blend the levels they need to, the RINs price will drop to pennies.
How does the industry feel about RINs? The large major refinery industry loves it. They have access to RINs. Small independent refineries are over a barrel. There’s no mercy in the large integrated petroleum industry.
For more on RINs, check out Scott Irwin’s analysis on Farmdoc.