How RINs Really Work, and Why Big Oil Hates Them

The ability for independent fuel marketers to sell renewable fuels at lower prices while improving profit margins by selling RINs, has given independent fuel marketers something they have never had before: an advantage over Big Oil.
By Ron Lamberty | March 07, 2014

One of the central characters in Big Oil’s misinformation campaign on the renewable fuel standard (RFS) continues to be the RIN—short for renewable identification number.   As most of you reading this know, a RIN is a 38-digit number that serves as a “proof of purchase seal” for oil companies to submit to the U.S. EPA as proof they’ve complied with terms of the RFS. Unfortunately, the Big Oil PR machine has so thoroughly demonized and mischaracterized RINs that even really smart people who should understand basic principles of economics have completely “bought in” to the myth that increased RIN prices equal increased prices at the pump. The truth is, RINs can only increase the price of fuel that does not contain ethanol, because ethanol blends come complete with their own RIN attached—no extra charge.

In the real world, over the past 15 months, higher RIN prices helped independent gas station and convenience store owners sell more renewable fuel than they’ve ever sold, well above Big Oil’s imaginary 10 percent blend wall—at pump prices well below lower-octane nonblended fuels. Marketers who have sold E85 for years priced more aggressively, knowing that the RINs they would receive would more than make up for lower pump prices. More new E85 fueling locations were added last year than in any of the past five years. Increased RIN prices helped expand the availability of renewable fuels as station owners did the math and realized that an investment in equipment to sell more renewable fuels would have a quick payback. The number of retailers offering E15 and higher ethanol blends continues to expand this year, despite Big Oil contract restrictions and fear of the mythical “liability” bogeyman, because independent station owners recognize the opportunities offered by RINs and greater renewable fuel sales.

The ability for independent fuel marketers to sell renewable fuels at lower prices while improving profit margins by selling RINs, has given independent fuel marketers something they have never had before: an advantage over Big Oil.

If Joe’s Corner Convenience Store and Exxon/Mobil each get 8,000 gallons of E10, they each get 800 RINs. Exxon/Mobil has to turn theirs in to EPA. Joe doesn’t refine products that harm the environment, so he can sell his RINs. So far this year, Joe’s RINs would be worth about 400 bucks. That means he could sell his E10 for 5 cents less than the oil company or pass 3 cents along to customers and make 2 cents more profit. Or he could put $400 toward a pump upgrade to sell E15 or E85 or any other blend to get him more RINs. Either way, until Exxon/Mobil sells more renewables than the RFS requires, it can’t compete with Joe.

And that’s why Big Oil hates RINs. This is not a position familiar to them, and not one I imagine they see themselves in much longer.

A couple of years ago, West Virginia Sen. Jay Rockefeller became exasperated at the CEOs of the Big Five oil companies in a Senate hearing, and told them they were “Deeply, profoundly out of touch,” and “deeply and profoundly committed to sharing nothing." Rockefeller said the Big Oil execs got that way because “You never lose. You've never lost. You always prevail. You always prevail in the halls of Congress, and you do that for a whole variety of reasons, because of your lobbyists, because of your friends, because of all the places where you do business. And I don't really know any other business that never loses," he said.

Big Oil knows they don’t have to lose on RINs, either. With a minimal commitment to E15 and/or E85, oil companies would have all the RINs they need and extras for future years. RIN prices would retreat to the levels of two years ago—the last time Big Oil bought more renewables than the RFS required. But Big Oil won’t do that, because even minimal E15 exposes 5 percent of a market that Big Oil currently does not have to worry about winning or losing. It may be hubris to amend John D. “Standard Oil” Rockefeller’s great-grandson’s analysis of oil company behavior, but I would suggest that the main reason Big Oil doesn’t lose is that they very rarely have to play the game.
 
Author: Ron Lamberty
Senior Vice President,
American Coalition for Ethanol
605-334-3381
rlamberty@ethanol.org