Making Sense of RINs

The key to demonstrating compliance with the renewable fuels standard, which goes into effect this month, is a 38-digit Renewable Identification Number. EPM explains what's behind all those digits and why they are necessary.
By Anduin Kirkbride McElroy | August 27, 2007
When the renewable fuels standard (RFS) was included in the Energy Policy Act of 2005 the concept was easy to understand. Every year, each refiner, blender and importer of gasoline must demonstrate that renewable fuels comprise a specific percentage of their gasoline volume so that the total volume requirements of renewable fuel within transportation fuel are met. The volume requirements were set by the energy bill and increase annually; the required amount for 2007 is 4.7 billion gallons, and by 2012 must be 7.5 billion gallons.

The RFS legislation is credited with spurring the current ethanol boom by guaranteeing a demand for the product. Production capacity has quickly outpaced the expectations of the energy bill and will likely meet the 2012 goal four years early. In 2007, there is already 6.2 billion gallons of ethanol production capacity, with another 4.9 billion gallons under construction.

These numbers don't necessarily indicate compliance with the RFS. How is it proven that renewable fuel is actually blended into gasoline? How is compliance demonstrated? After two years of work, the U.S. EPA gave its answer May 1, 2007 when it issued its 116-page final ruling that implements the RFS.

The ruling goes into effect Sept. 1, 2007. For the remainder of 2007, the EPA requires that 4.02 percent of the obligated parties' gasoline volume be renewable fuels. Obligated parties include every refiner, blender and importer of gasoline within the lower 48 states, although small refiners are excluded through 2010. The obvious challenge for compliance with the RFS is that obligated parties are spread throughout the country, while renewable fuel production facilities aren't.

To demonstate this challenge, the EPA analyzed the ethanol production capacity in 2006 within the Petroleum Administration for Defense Districts (PADD). According to the EPA, PADD 2, which encompasses the Midwest, produces more than 90 percent of the ethanol in the United States. The EPA compared this data with the 2004 ethanol and oxygenate use. At that time, PADD 2, followed by California, consumed nearly half of the ethanol produced. This analysis contributed to what the EPA hopes is the solution to the challenge, which is the credit trading system.

The crux of the program is the Renewable Identification Number (RIN). The unique 38-character code is assigned by the producer to every gallon or batch of fuel that is transferred to others. As of Sept. 1, any renewable fuel transferred from a plant to a shipper via truck, train or barge is required to have a RIN to help the EPA track how much fuel is being produced.

"Compliance is demonstrated through the acquisition of unique Renewable Identification Numbers assigned by the producer or importer to every batch of renewable fuel produced or imported," the EPA wrote in its final ruling. "The RIN shows that a certain volume of renewable fuel was produced or imported. Each year, the refiners, blenders and importers obligated to meet the renewable volume requirement must acquire sufficient RINs to demonstrate compliance with their volume obligation."

RINs play two roles. They demonstrate compliance and they are the foundation of a trading program that allows obligated parties to use RINs for their own compliance or trade RINs to others in need of credits. "The regulations also establish a trading program that will be an integral aspect of the overall program, allowing renewable fuels to be used where they are most economical while providing a flexible means for obligated parties to comply with the standard," the EPA explains.

RIN Format
As stated previously, a RIN is made up of 38 characters, each one unique to the specific batch of fuel. The RIN format is: KYYYYCCCCFFFFFBBBBBRRDSSSSSSSSEEEEEEEE.

The K stands for the assignment code. If K is assigned it's designated by a 1. If it is unassigned it's designated by a 2. The standard method of trading is with assigned RINs in which K is 1. These RINs are transferred when the ownership of a batch of renewable fuel is transferred. RINs are not transferred when parties take custody, but not ownership, of renewable fuels, such as in tank storage.

Unassigned RINs, in which K is 2, can be transferred freely without volumes of renewable fuel, and any registered party can own an unassigned RIN. There is no limit to the number of times an unassigned RIN can be transferred between parties. The only instance in which the batch could be unassigned is for cellulosic ethanol. "For the specific case of cellulosic biomass or waste-derived ethanol with an equivalence value of 2.5, producers will be required to assign only one gallon-RIN to each gallon of ethanol, each of which has a K code value of 1," the EPA explains. "The additional 1.5 gallon-RINs that can be generated for each gallon can remain unassigned, and thus be assigned a K code value of 2." A producer can also choose to assign the entire batch.

The next section of the format is YYYY, which stands for the year the batch is produced or imported, such as 2007. RINs are valid for purposes of compliance for the calendar year generated (the YYYY code) or the following year. However, only 20 percent of an obligated party's renewable volume obligation (RVO) can come from the previous year.

The CCCC number is the company registration identification number and the FFFFF is specific to the facility. These are numbers assigned by the EPA through registration. A company with multiple facilities will likely have the same company identification number but separate facility numbers. "Owning RINs, and engaging in any activities regarding RINs, is prohibited as of Sept. 1, 2007 unless the party has registered and received EPA company and facility identification numbers," the EPA wrote.

The BBBBB number is the producer assigned batch number. It can represent a gallon or a batch, which is defined as less than 100 million gallons and less than one calendar month's production. The producer of the renewable fuel decides the amount of the batch. Depending on the producer's system, it may represent a day's worth of production or up to a month's worth. No two batch numbers can be the same in a calendar year. This number will usually be sequential, thus it is likely that RINs generated on Sept. 1, 2007 will have a BBBBB code of 00001.

The RR, D and K codes together describe the nature of the renewable fuel and the RINs that are generated to represent it. The RR number represents the equivalence value of the renewable fuel. The equivalence value indicates how many gallon-RINs can be generated for each gallon of renewable fuel. It is calculated by using volumetric energy content in relation to renewable content. Standard corn-based ethanol was given an equivalence value of 1, so that all actual gallons are valued on a 1:1 ratio. Other fuels are calculated in comparison to the volumetric energy content of ethanol: Biobutanol was given a value of 1.3, biodiesel 1.5, renewable diesel 1.7 and cellulosic biomass ethanol 2.5. All values were calculated based on a formula except for cellulosic ethanol; the 2.5 value was specified in the energy bill.

The RR number shows how many gallon-RINs are generated. For example, corn-based ethanol would have an equivalence value of 1.0 (inserted in the RIN as 10), so a 2,000-gallon batch would equal 2,000 gallon-RINs. Cellulosic ethanol is valued at 2.5 (inserted as 25), so a 2,000-gallon batch would generate 5,000 gallon-RINs. The equivalence value incentiveizes fuels with higher energy content, and also is what allows fuels that do not go into the gasoline, such as biodiesel, to be given credit within the RFS.

The next number in the RIN format is D, which identifies the type of renewable fuel. Cellulosic fuel is labeled as 1 and noncellulosic fuel is labeled with a 2. This is necessary because the energy bill required that a minimum of 250 million gallons of cellulosic biomass ethanol be consumed starting in 2013, so obligated parties will need to be able to distinguish RINs representing cellulosic biomass ethanol from RINs representing other types of renewable fuel.

The final digits, represented by eight S's and E's, are the block starting numbers and block ending numbers. These represent the number of gallon-RINs in the batch, or the amount of actual gallons multiplied by the equivalence value. If a RIN represents one gallon of corn-based ethanol, the codes are identical. A batch of 2,000 gallons of ethanol would start at 00000001 and end at 00002000. A batch of 2,000 gallons of cellulosic ethanol would start at 00000001 and end at 00005000.

RINs are like a fingerprint that follow the fuel to the consumer, ensuring the gallons credited are original and authentic and that the goals set by congress in the 2005 Energy Policy Act are met. The EPA expects that this system will carry through beyond the original RFS requirements and ensure compliance with future renewable fuel volumetric goals.

Anduin Kirkbride McElroy is an Ethanol Producer Magazine staff writer. Reach her at [email protected] or (701) 746-8385.