RINs are mechanisms the EPA created to ensure compliance with the first RFS. The Energy Policy Act of 2005 mandated that obligated parties, which include refiners, importers and gasoline blenders, fulfill a renewable volume requirement. The requirement is that a certain percentage (released by the EPA every November) of each party’s motor vehicle fuel be renewable fuel. This necessitated the development of a flexible accounting mechanism to track compliance with the new renewable fuel blending requirements. A RIN is a unique, 38-digit serial number assigned by producers to each gallon or batch of renewable fuel produced. An obligated party acquires RINs by blending renewable fuel, or it can purchase RINs to satisfy its requirement.
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The EPA issued the final rule on RINs in May 2007, and it went into effect that September. Just three months later, long before the kinks were worked out, Congress passed EISA along with an even greater and more complex RFS. EISA requires that the EPA issue a rule for the second RFS by Dec. 19, 2008, which would be effective by Jan. 1, 2009. The EPA is simultaneously enacting the rule while updating it within what Machiele told attendees at the National Ethanol Conference in February is an extremely short time frame.
The beauty of the RIN system is that it was developed as a foundation upon which other regulations could be built. Machiele said the RIN system should remain virtually intact with 38 digits, but the values of some of the digits may need to be redefined.
In the first RFS, the EPA needed to keep track of two types of fuels: cellulosic and everything else. The renewable type code is the 22nd digit; cellulosic ethanol is designated as a 1 and other fuels are designated with a 2. This ensured that the cellulosic requirement was met when required. Under the new RFS there are more numbers that must be tracked.
In addition to cellulosic biofuel, EISA has separate inclusion requirements for biomass-based diesel and advanced biofuel. “With RFS1, we put in a code to prepare for cellulosic ethanol,” Michiele said. “With RFS2, instead of 1 or 2, we’ll now have 1-4. There will still be one RIN code, but the RIN will have a different value.” The difference in these numbers will be reflected in the RIN’s value its market price.
Fuels other than corn-based ethanol have qualified for RINs by an equivalence value, which are represented by the 20th and 21st digits. Equivalence values are based on volumetric energy content in comparison with corn ethanol, and determines how many RINs the fuel is worth. For example, 1 gallon of cellulosic biomass ethanol receives 2.5 RINs, while 1 gallon of corn ethanol receives one RIN. For fuels not already designated within the rule, the EPA created a formula to determine the energy equivalence value of the fuel compared with corn-based ethanol. This makes an easy transition to accommodate the advanced biofuels required in the second RFS.
The advanced biofuel requirements can be built into the existing system, but there are other more difficult changes the EPA is addressing. Machiele said one of the greatest challenges, on which most of the EPA’s time will be spent, is the new lifecycle greenhouse gas criteria. EISA requires that renewable fuels must meet a 20 percent lifecycle greenhouse gas threshold relative to the gasoline or diesel fuel they displace. The EPA must determine the lifecycle performance of the various fuels, and will address how to include emissions resulting from international land-use changes.
“If you thought RFS1 was interesting, RFS2 will have you on the edge of your seats,” quipped Jim Redding, vice president of external relations for Aventine Renewable Energy Inc.
RIN Markets and Values
While these changes to the rule are being discussed among stakeholders, RINs on today’s market are increasing in value, and are seeing trade activity. Several companies have sprouted to accommodate RIN trading. On Jan. 30, a trading platform for RINs opened, called RINXchange. RINXchange is a Web-based trading platform that enables buyers and sellers complete transparency and price discovery. It’s open to the expected customers, such as producers, refiners, blenders, marketers and importers, as well as the occasional speculator. Like RIN trading in general, this trading platform is still in its infancy. “The lion’s share of RINs is currently traded on a bilateral basis,” says Clayton McMartin, president of the Clean Fuels Clearinghouse, which operates the RINSTAR Renewable Fuels Registry. “They’re being traded as direct negotiations from buyer and seller. By a long margin, most RIN transactions are being done as an extension of the physical product that’s being traded.” He adds that his company’s product, RINSTAR, facilitates RIN transactions, but it doesn’t get involved with price discovery.
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