New Study Questions EPA

Winters: RIN Price Spike a Mystery

Todd Neeley , DTN Staff Reporter
A new study questions a U.S. Environmental Protection Agency rationale for changes to the Renewable Fuel Standard. (DTN file photo)

OMAHA (DTN) -- Claims by the oil industry and the U.S. Environmental Protection Agency that 2013 price spikes in renewable fuel credits were caused by the blend wall conflict with actual data compiled by the EPA, according to a white paper published by the Biotechnology Innovation Organizationlast week.

The blend wall, where total ethanol production in the United States exceeds the available E10 gasoline market, was believed to be the cause of a Renewable Identification Numbers, or RINs, shortage in the market.

Every gallon of biofuels produced has a RIN attached to it, allowing obligated parties such as refiners to trade the RINs for compliance with the Renewable Fuel Standard.

Paul Winters, director of communications for BIO, wrote the white paper, "A new question worth billions: why did RIN prices spike in 2013?"

Winters told DTN his analysis of federal data shows the agency's view of the RIN market was incorrect.

"The economists definitely lacked real world data to back up that claim," he said.

Winters said his analysis shows RIN prices would have spiked earlier than they did if the blend wall were going to cause a shortage of RINs.

The analysis found that in order to generate carry-over RINs and RIN banks, the refiners blended more than 10% ethanol into obligated gasoline as early as 2011.

"So, the blend wall is not a real barrier," Winters said.

Agency data shows changes to the RFS provided a solution to a problem that "didn't really exist," Winters said.

"There isn't any real impact on RVOs (renewable volume obligations) or use of ethanol. Although there's been a disastrous impact on advanced biofuels."

RVO is the technical term for the annual EPA-mandated blend volumes of biofuels placed on refiners.

EPA did not respond to DTN's request for comment.

RIN PRICE CONCERNS

In August last year, the Renewable Fuels Association asked EPA and the Commodity Futures Trading Commission to investigate the source of RIN price spikes, focusing on whether "manipulative practices" by "certain parties" could have been the cause.

In his analysis, Winters said EPA actions to "steer away from the blend wall have had no impact on RIN supplies or prices or on the blend wall itself."

EPA data shows the volume of obligated gasoline use is about 70% of the actual volume of ethanol used in any given year.

"The volumes reported by the EPA are substantially different from the volumes of gasoline and diesel consumption reported by EIA (U.S. Energy Information Administration) in its monthly 'Short-Term Energy and Summer Fuels Outlook,'" the analysis said.

That's because small refiners were exempted from the RFS by the EPA.

As a result, Winters said EPA's data shows the amount of ethanol refiners were required to blend already exceeded 10% in 2010 -- beyond a blend wall.

"The ethanol gap was no more difficult for obligated parties to meet in 2013 than in 2012, since the relative percentages were nearly identical. Per the theory, RIN prices should have spiked in 2012..."

Despite EPA delays in setting RFS volumes in 2014 and 2015, the paper said ethanol blending continued "well above the theoretical blend wall."

FAPRI ANALYSIS

A 2012 paper written by researchers at the Food and Agricultural Policy Research Institute, or FAPRI, at the University of Missouri, predicted when fuel refiners encountered the blend wall they would see a shortage of RINs that would cause an increase in RIN prices.

FAPRI used a model to project the E10 blend wall would be an impediment to growing biofuels production by 2015. It was a widely held belief that spikes in RIN spot markets in 2013 were caused by a shortage of RINs, as predicted by FAPRI.

According to Winters' study of data published by EPA after the 2013 to 2015 compliance years, however, shows refiners and importers reached the "theoretical" blend wall as early as 2010 and definitively surpassed it in 2012 without experiencing a shortage of RINs.

"Therefore, the 2013 rise in spot market RIN prices cannot be explained as a consequence of either the blend wall or a shortage of RINs."

Wyatt Thompson, associate professor at FAPRI and the lead author of the 2012 study, told DTN the analysis was a look at demand-side pressure on RINs and nothing more.

Thompson said he and his co-authors were attempting to figure out why RINS were priced at less than 5 cents at the time considering a demand for more RINs.

"We didn't speak definitively, it was more about what people might expect," he said. "The RIN price did, in fact, rise after that.

"A better critique of what we did is to ask what if prices had stayed at 5 cents. What then? I'm a little concerned the critique of what we did isn't hitting the mark. We tried to be cautious. I don't say our 2012 paper was perfect by any means. I think our tone was more cautious."

Find Winters' analysis here: http://bit.ly/…

Read the FAPRI analysis here: http://bit.ly/…

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @toddneeleyDTN

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