University economist analyzes dynamics of ethanol RIN prices

By Erin Voegele | November 04, 2013

University of Illinois agricultural economist Scott Irwin has analyzed the current pricing of D6 renewable fuel renewable identification numbers (RINs) in a recently FarmDoc Daily post. He specifically looks at the uncertainty in the U.S. EPA’s rulemaking for the 2014 renewable fuels standard (RFS) requirements and the impact it is having on D6 ethanol RINs.

In the post, Irwin calls the dynamics of D6 ethanol RIN pricing “quite interesting.” He shows that if the RFS renewable mandate is set at less than or equal to 13 billion gallons, the D6 RIN price is near zero. This is due to the fact that there would be a gap between the RFS renewable fuel mandate and the E10 blendwall. However, Irwin determined that if the RFS mandate for renewable biofuel exceeds 13 billion gallons, the price of D6 RINs are determined by the price of D4 biomass-based diesel RINs because there is a gap between the RFS renewable mandate and the E10 blendwall.

Using a joint probability approach, Irwin demonstrated that the ethanol RINs markets appear to be assuming there is an 80 percent chance that a future court ruling will upload the EPA’s leaked RFS rulemaking for 2014, along with an 80 percent chance that the biodiesel blenders tax credit will be extended for next year.

In the post he also addresses the possibility that E85 could be used to fill the renewable gap instead of biodiesel, noting that analysis by Iowa State University’s Bruce Babcock indicates that D6 RIN prices in 2014 would have to range from approximately $1.00 to $1.50 per gallon to incentivize substantially increased E85 deployment.

A full copy of the post can be accessed here.  A similar post authored by Irwin on biodiesel RIN prices is also available on the FarmDoc Daily website