Big Oil Lies and Whines

RINs aren't a tax paid to the government or a premium paid to ethanol producers, writes Jim Miller of Growth Energy. They are free to renewable energy producers and are purchased by obligated parties with RIN shortages.
By Jim Miller | May 17, 2014

Time and again, we hear Big Oil complain that renewable identification numbers (RINs) are a burden and increase the cost of the renewable fuel standard. They claim RINs drive up prices of fuel for the consumer. These allegations are a direct contradiction to a number of independent analyses and empirical data. RINs have been cited by groups like the American Petroleum Institute as one of the primary reasons why the blending requirements of the RFS must be scaled back, but when one looks at the situation, it is clear that this is an erroneous statement made by an industry that is far too comfortable with distorting the truth.

Ethanol generally trades at prices less than gasoline. On average, ethanol sells at a 56-cent discount per gallon on the wholesale market compared to the wholesale cost of gasoline. By incentivizing greater distribution and sale of a fuel that costs less per unit of volume, RINs and the RFS drive the retail price of gasoline down, not up as Big Oil has claimed. 

The cost of RINs is not a “tax” paid to the government or a premium received by ethanol producers. In fact, RINs are provided by ethanol and other renewable fuel producers at no cost to their customers.   They are provided to ethanol purchasers for free. Money is paid from one company to another in the fuel production, blending and retail sectors.  Companies with a shortage of RINs purchase them from other companies within the market that have a surplus. The bottom line is that if an obligated party, generally an oil refiner, decides not to blend enough ethanol to meet its obligation under the RFS, it can purchase RINs as an alternative method to achieve compliance.

Even if the refiner choses to purchase RINs, the net cost to consumers is zero. RINs are paid for by obligated parties, such as refiners and importers, rather than consumers at the pump. In addition, as the RIN price rises, it creates an incentive for refiners to offer higher ethanol blends—like E15, E30 and E85—at a discount to consumers. 

But not all refiners or other obligated parties have to purchase RINs.  Many refiners purchase ethanol directly and blend it into their gasoline.  Since they obtain RINs for free when they buy ethanol, they don’t have to purchase extra RINs to meet their RFS requirements, and indeed they may be able to generate additional revenue by selling RINs, if they have a surplus. 

Those refiners who purchase RINs in lieu of blending renewable fuels must still sell their product at a price that competes with refiners that have not incurred additional RIN costs.  Therefore, in a competitive marketplace, refiners who refuse to blend have to absorb the cost of the RINs and won’t be able to pass those costs on to consumers. 

The retail market for gasoline is both highly competitive and highly transparent.  There are roughly 150,000 retail gasoline stations in the U.S., all selling the same product with prices posted for all to see.  Customers are simply in search of the lowest available price. A driver can easily bypass one station in favor of another selling for just a few cents less per gallon. Even if the refiner could pass along the RINs cost to the wholesaler or distributor, and the wholesaler or distributor could pass it along to the retailer, the retailer would have a hard time passing it along to consumers in such a price competitive environment.  Thus the cost of the RIN is absorbed along the way, before it ever reaches the consumer. 

 The real reason Big Oil opposes RINs and the RFS is simply an issue of market share. The oil industry wants to maintain its stranglehold on the U.S. economy. The oil industry knows that ethanol is a higher performing, less expensive fuel that reduces our greenhouse gas emissions and keeps our energy production at home. Ethanol revitalizes rural communities and keeps our agricultural industry flourishing. When compared, it is no surprise that the oil industry is using every tactic possible to try to keep ethanol from being a choice for consumers.  

Author: Jim Miller
Chief Economist for Growth Energy