Committee Examines Biofuels RINs Market

Lack of Publicly Available Data on Traders Continues to be Sticking Point

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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There are calls to make the market for Renewable Identification Numbers, or RINs, more transparent. (DTN file photo)

OMAHA (DTN) -- Markets for biofuels credits continue to be opaque and EPA continues to do little in the way of oversight in administering the Renewable Fuel Standard program, a group of experts on Renewable Identification Numbers, or RINs, told a House subcommittee on Wednesday.

The House Subcommittee on Environment continued work on possible RFS reform, questioning a panel of experts as part of an ongoing look at the law. The calls for RFS reform often focus on improving the RINs market and protecting obligated parties from price volatility in that market.

"I think the EPA does a pretty good job administering the regulations as they were written, but the RIN market oversight is missing," said Sandra Dunphy, director of energy compliance services at Weaver and Tidwell, LLP. "There's really not any oversight of the trading activity of RINs."

In recent years, the rise and fall of RINs prices led to accusations that the market was being manipulated. One of the issues raised is how to overcome a lack of public data on exactly who is buying and selling RINs.

Paul Niznik, senior consultant of Argus Media, Inc., said it is difficult to get a handle on the size of the RINs market.

"We track RINs transactions from real market participants reporting from actual trades, so that's how we gather data on pricing," he said. "And still, even at that level we can't have the understanding of the full volumes of the marketplace at any one given time that would be able to elucidate any issues on market manipulation."

In particular, RINs prices for conventional ethanol hit $1.50 in July 2013 as a result of the 2012 drought and a number of ethanol plants idling. However, the credits' prices dropped in late summer and early fall 2013.

Conventional ethanol credits traded between 45 cents and 55 cents through most of 2014 before rallying at the end of the year. In the first three months of 2015, ethanol credit prices mainly hovered around 70 cents.

Gabriel Lade, associate professor of economics at the Center for Agriculture and Rural Development at Iowa State University, said RIN prices adjust to make sure RFS mandates are met.

"High RIN prices effectively tax gasoline and diesel, discouraging their use, and subsidize biofuels, stimulating their demand," Lade said. "Prices adjust quickly to changing compliance cost expectations, and most RIN price volatility since 2013 can be attributed to ever-changing blending targets and uncertainty regarding future mandate volumes."

He said the lack of public data is "insufficient to determine whether the market is fully efficient or free of manipulation. Greater transparency would allow researchers and regulators to study these issues" and would make it more "difficult and costly" to manipulate RIN markets.

Despite the calls from refiners to make changes to the RINs market to control costs to comply with the RFS, Lade said refiners are recovering RINs costs.

"This means that so long as refiners offset their RFS compliance obligations as they accrue them, on average, they are fully compensated for their RIN costs through higher wholesale gasoline and diesel prices," he said.

The EPA granted 49 of 53 small refinery waiver requests to the RFS in 2016 and 2017.

Lade said those actions "likely undermine RIN markets and may drive away market participants. This would be detrimental to market liquidity and inhibit price discovery. RIN markets are designed to provide a signal about the value of biofuel production and distribution. That signal becomes unreliable when EPA decisions are unpredictable and lack transparency."

LETTERS TO COMMITTEE

In a letter to subcommittee leaders on Wednesday, the United Steelworkers urged Congress to reform the RFS to reduce compliance costs to refiners.

"Ethanol supporters in Congress have consistently worked to derail needed reforms to the RFS meant to address concerns raised by the USW and merchant refiners," the letter said, "in an effort to preserve the status quo for the ethanol industry at all costs.

"Inaction by Congress and the Trump administration now threatens the livelihood of thousands of East Coast and Midwest refinery workers and tens of thousands of related jobs."

Bob Dinneen, president and chief executive officer of the Renewable Fuels Association, wrote in a letter to the committee that the RIN market needs to be allowed to work as designed.

"RIN credits are the engine that drives the RFS," he said. "Not only are RINs used to demonstrate compliance with annual RFS blending obligations, but they also serve as a critical economic incentive to expand the production and use of renewable fuels.

"Despite very favorable blending economics (i.e., ethanol is priced 70 cents per gallon below gasoline at the wholesale level), ethanol blending activity has slowed in 2018. The 2018 weekly ethanol blend rate has been below year-ago levels in 21 of 28 weeks so far. Meanwhile absolute blending volumes have lagged year-ago volumes in 18 of 28 weeks, including 16 of the past 20 weeks. U.S. ethanol producers and farmers across the country who have invested in this important value-added market opportunity are extraordinarily concerned by EPA's recent intrusion into the RIN market, and believe it irreparably undermines the integrity of the Renewable Fuels Standard."

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

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Todd Neeley