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RFA Says High RIN Prices Don't Translate To High Gas Prices

Group offers analysis to counter sentiment from oil industry, some lawmakers

Published on: Mar 28, 2013

Ethanol group Renewable Fuels Association Wednesday released an Informa Economics analysis of the Renewable Fuels Standard and its associated RIN credits, finding the policy has not been a factor in rising gasoline prices, despite rising RIN costs.

The RINs – identifying numbers that renewable fuel producers and importers generate based on the volume of compliant renewable fuel that they make available – can be traded and used by petroleum refiners and importers to show compliance with volume obligations.

Though competing arguments have been made about what's causing the higher gas prices, one thing is certain –RIN prices have risen sharply over the last few months. Scott Irwin and Darrel Good of the University of Illinois FarmDoc program cite Oil Price Information Service data showing prices of D6 RINs peaking at $.90 earlier this month, up from less than 10 cents late last year.

Group offers analysis to counter sentiment from oil industry, some lawmakers
Group offers analysis to counter sentiment from oil industry, some lawmakers

Some groups say the rise is because of a forthcoming "blend wall" – a cap on the amount of ethanol that can be blended into traditional fuels, thereby making mandated ethanol production higher than what is needed in the marketplace. In turn, because of compliance concerns, that cap is boosting RIN demand and driving prices higher.

And, higher RIN prices bring higher refining costs, the American Petroleum Institute says. The group's own study, prepared by NERA Economic Consulting and released last week, pointed out the findings: for every dollar spent per gallon on the RINs market, the cost of making E10 gasoline rises 10 cents.

"Ethanol and other renewable fuels have an important role to play in increasing America's energy security, and are an important piece of our transportation fuel mix," said Bob Greco, API downstream group director. "But the federal RFS mandate is ill-conceived and continues to be inflexible."

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The NERA study projected that the RFS would decrease the U.S. Gross Domestic Product, lower American take-home pay and cause significant increases in the costs of diesel fuel and gas by 2015.

Some lawmakers seem to be on same page

Sens. David Vitter, R-La., and Lisa Murkowski, R-Alaska, spoke up on the issue in a letter to Environmental Protection Agency Director nominee Gina McCarthy March 20, requesting that she outline a plan to "protect American citizens from rising gas prices due to the rising cost of ethanol Renewable Identification Numbers."

The Senators contend that rising RIN costs are because of the approaching blend wall, increased uncertainty in the RIN market, and unrealistic RFS mandates. Further, they say, the market volatility is being passed to consumers in the form of higher gas prices.

Ethanol industry study points in different direction

Despite the claims, the ethanol industry says rising RIN prices aren't the culprit of higher gas prices. If anything, they say, ethanol's wholesale discount to gasoline in 2013 has reduced gas prices by an average of $0.04 per gallon.

RFA says the Informa study indicates RINs are likely contributing no more than $0.004 to the retail price of a gallon of gasoline.

"A fact-based review of developments in the gasoline, ethanol and RIN markets indicates that the Renewable Fuel Standard in general and RINs in particular have not been a demonstrable factor in the rise in retail gasoline prices that has occurred in early 2013," the report said.

High gasoline prices in early 2013 can be explained by several factors unrelated to the RFS, RINs, or ethanol use, the report said, pointing to seasonal patterns.

"The increase in gasoline prices and crack spreads during the first quarter of 2013 has been generally consistent with increases experienced in 2011 and 2012, despite the fact that conventional ethanol RIN prices averaged $0.03 during the first quarter of 2011 and $0.02 during the first quarter of 2012," the report concluded.

Citing a Department of Energy analysis, the Informa report also notes that higher gasoline prices have stemmed from planned and unplanned refinery maintenance; the low starting level for gasoline crack spreads going into 2013; preparation for seasonal fuel specification changes; and developments in global product demand.