EPA administrator Scott Pruitt opened up the year by announcing his three regulatory priorities for 2018; rewrite the Clean Power Plan, rewrite the Waters of the United States and overhaul the Renewable Fuel Standard. Within the RFS, one can only take his comments to mean specifically – overhaul the RINs marketplace. Renewable identification numbers (RINs) are the tradable credits attached to every gallon of renewable fuel and used as a compliance mechanism for the Renewable Fuel Standard (RFS). They have been the oil refining industry’s favorite punching bag for quite some time.
The argument is roughly – increased biofuels mandates lead RINs to spike in cost, translating to billions in compliance costs, particularly for small refiners. While somewhat logical, as higher RINs costs have to be absorbed somewhere, this logic has not borne out. According to multiple economic studies, refiners recoup the higher RIN cost through what refiners call the ‘crack spread’ or the difference in price between the unrefined petroleum and the refinery products, such as gasoline, diesel, jet fuel and heating oil. When the RIN price increases, the crack spread increases, and when they fall, the crack spread decreases.
While President Trump has been largely unwavering in his support for the domestic biofuels industry, the administration often finds itself at odds with two industries it purports to support -- oil and biofuels. The issue reached a fever pitch early in the Trump administration, with former White House special advisor Carl Icahn supporting changes to who was required to comply with the RFS. Icahn is a major shareholder in the merchant refinery CVR Energy and is currently under federal investigation for his unusual role in the administration.
More recently, Senator Ted Cruz (R-TX) has led efforts to seek ‘regulatory relief’ for refiners from RINs. Cruz has been the latest standard bearer for the argument that the credits are costing refiners millions of dollars and put the sector at risk of major jobs cuts.
After putting a hold on the confirmation of Bill Northey, the Iowa Secretary of Agriculture, for the position of Undersecretary for Farm Production and Conservation at USDA, Cruz was able to garner several meetings at the White House to broker a supposed deal with corn-state leaders late last year. Last month, Cruz also floated a proposal to cap RIN prices at 10 cents, a non-starter with the biofuels industry.
Agricultural economists with FarmDoc, at the University of Illinois, independently assessed the 10 cent cap to RINs proposal, concluding that it would be a defacto 10 percent blending cap and “would reverse the technology-forcing intent of the statutory mandate.” They also questioned the legality of such a change, without further Congressional intervention to change the statute.
Indeed, RIN prices drop when more biofuels are blended into the fuel supply, making producing and blending renewable fuels more attractive. In this sense, RINs have worked exactly as designed.
Over the past several years, it’s practically become conventional wisdom that the RINs market is “broken” and causing significant hardship to the refining industry, particularly small merchant refiners that don’t have the capacity to blend biofuels without investing in blending technology.
However, at least one merchant refiner has publicly admitted that there is no evidence of economic harm from RINs, with merchant refiner Tesoro stating, “RIN costs are passed through at the bulk finished product sales points and provide refiners with coverage of their exposure to them.”
Even labor unions have begun to question the logic, with Ryan O’Callaghan of the United Steelworkers Local 10-1, representing workers at the PES Refinery in Philadelphia, PA stating, “We have information that the RINs might not be impacting [the refiner] as stated.”
Instead, the blame for sometimes low refining margins and cyclical petroleum markets is more complex, according to groups such as the Renewable Fuels Associate. In the Northeast, for example, expensive crude oil from Western Africa and the Northern Sea regions, falling Bakken supplies, and old infrastructure are all issues at play, not RINs.
As to the compromise that lawmakers want to see from the biofuels and refining industry, RFA CEO Bob Dineen recently noted that there is little consensus among the oil industry, stating, “So, what problem are we really trying to solve? Whose problems are we trying to solve? And how many bites of the apple are they going to get?”
For more information see:
- Exclusive: Senator Cruz Wants to Cap Renewable Fuel Credits at 10 Cents – Document, Reuters
- Still Another Wrinkle in the RFS: A RINs Price Cap, FarmDoc Daily
- Pennsylvania’s RFS Waiver Request: Separating Fact from Fiction, RFA
- IRFA: ‘Merchant Refiners Not Paying for RINs’, Ethanol Producer
- Dinneen: Oil, Ethanol Meetings Not Scheduled Yet, Likely Not Constructive, DTN the Progressive Farmer