Illinois economists, Dinneen weigh in on RIN price increase

By Susanne Retka Schill | March 11, 2013

The speed and magnitude of the recent runup in the price of D6 RINs is “indeed startling,” Illinois ag economists Scott Irwin and Darrel Good wrote in a recent FarmDoc Daily post. In their ongoing analysis of renewable energy market impacts, they take a look at the recent price explosion in ethanol RINs, the renewable identification numbers used for recording compliance of the renewable fuel standard (RFS) with the U.S. EPA.

“The underlying reason for the increased value of D6 RINs lies in the impending collision of the blend wall for E10 and the rising renewable (ethanol) mandate under the RFS,” they write. “This situation results in the prospect for a sharp draw down in D6 RIN stocks in 2013 and 2014 as physical blending of ethanol, due to the blend wall, falls further and further behind the mandate levels.”

There may be some unusual speculative buying, they added, but said the price increase is “fundamentally supported by the ethanol blend wall.” Two things could take pressure off that, one a more rapid expansion of ethanol blending through E15 or E85 to expand the blend wall, or second, a reduction in the mandate.

Renewable Fuels Association President and CEO Bob Dineen weighed in on the increase in a posting to the RFA website saying the E10 blend wall “was erected by the oil companies themselves, and it is little more than a convenient excuse for their refusal to move to higher-level ethanol blends.”

“Congress enacted the RFS2 in 2007 with the express purpose of transforming and diversifying the U.S. fuels market,” Dinneen continued. “However, oil companies have blatantly ignored the law, refusing for more than five years to make any meaningful investments in infrastructure that would allow the sale of E85 or other blends above E10.”

Even as RINs prices have increased, ethanol prices with RINs attached have sold for roughly 50 cents per gallon less than a gallon of gasoline. “Thus, the argument that prices for ethanol (and attached RINs) are somehow contributing to higher gasoline prices is patently false,” Dinneen said. “In fact, U.S. consumers are missing out on an opportunity for lower gasoline prices due to the oil industry’s refusal to move to blends above E10.”