Report: Higher RINs prices aren't the reason gas prices are up

By Holly Jessen | March 28, 2013

A newly released analysis shows that the renewable fuel standard (RFS) and renewable identification numbers (RINs) have not been a significant factor in higher gas prices—despite suggestions to the contrary. “Retail Gasoline Price Impact of Compliance with the Renewable Fuel Standard,” an eight-page white paper prepared by Informa Economics, was released March 28.

“There’s been a lot of rhetoric and a lot of hysteria in recent weeks regarding the temporary spike in ethanol RIN prices,” said Geoff Cooper, vice president of research and analysis for the Renewable Fuels Association, during a March 28 media teleconference call about the issue. “Some oil companies and the associations representing the oil companies have outrageously suggested that RINs are adding as much as 10 cents per gallon to the retail price of gasoline or $13 billion in aggregate.”

The RFA commissioned Informa Economics to conduct an independent economic analysis of the impact of RINs on gas prices, “in an effort to inject some facts and some logic into this debate,” Cooper said. The white paper points to seasonal patterns in gasoline prices and crack spreads. “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 3 cents during the first quarter of 2011 and 2 cents during the first quarter of 2012,” the report said.

RIN prices started going up in January and reached a high of $1 before dropping down again. It’s important to point out, Cooper said, RINs traded for $1 for only two out of 59 trading days this year. The average daily price for conventional RINs, from Jan. 2 to March 22, was 39 cents.

According to the calculations of Informa Economics, in a reference case, elevated RIN prices would only add 0.004 cents per gallon to the price of gasoline. For the high case, RINs prices added a maximum of 2 cents a gallon to the price of gas. Scott Richman, senior vice president of Informa Economics, clarified that the reference case was more representative of what’s likely happening and the high case was included to show the logical extreme impact of RINs prices.

Another important factor is the downward pressure ethanol prices have had on gas prices. So far in 2013, ethanol prices have averaged 44 cents per gallon less than wholesale gas prices. “Considering both the ethanol price advantage and the direct cost of RIN prices, the net benefit to consumers from the usage of ethanol is 4 cents per gallon of gasoline in the reference case and 2 cents per gallon in the high case,” the report said.

Obligated parties, typically refiners and importers, use RINs to demonstrate compliance with the RFS, Cooper explained, giving listeners a short RINs 101. When obligated parties purchase a gallon of ethanol a RIN is attached. The RIN is separated from the physical gallon when it is blended for retail sale. At that point, the RIN can be sold for a separate price to other obligated parties or third parties, with no blending obligations. The U.S. EPA allowed these third party buyers and sellers to participate in RIN trading at the request of the oil industry, Cooper clarified. “We believe that much of the volatility we’ve seen in recent weeks, can be explained, at least in part, by speculative activity,” he said. In answer to a question Cooper said the RFA hadn’t specifically called for an investigation into the matter, but would like to see more transparency in the RIN market, as no one currently knows who is buying and selling them.

Richman pointed out another critical issue that has been missed in most media reporting of increased RINs prices. About 70 to 85 percent of RINs needed for compliance are obtained through the ethanol obligated parties purchase and blend, or indirectly obtained through contractual agreements with third parties. Looking at expected ethanol production in 2013 and assuming 85 percent of RINs are controlled by obligated parties, about 1.4 billion separated RINs would need to be purchased on the open market, or about 10 percent of total required compliance.