RFA asks EPA, CFTC to examine possible manipulation of RIN market

By Erin Voegele | August 03, 2016

On Aug. 1, Bob Dinneen, president and CEO of the Renewable Fuels Association, asked the U.S. EPA and U.S. Commodity Futures Trading Commission to investigate potential manipulation in the renewable identification number (RIN) market.

In a letter issued to CFTC Chairman Timothy Massad and EPA Administrator Gina McCarthy, Dinneen expressed concern over recent irregular activity and volatility in the market for conventional RIN credits under the renewable fuel standard (RFS) and encouraged the two agencies to “closely examine recent events in the RIN market to determine whether certain parties may be exerting undue influence on prices or otherwise engaging in manipulative practices.” Earlier this year, the CFTC and EPA entered a memorandum of understanding to cooperate on coordinate on topics related to the implementation of the RFS and RIN market.

Dinneen stressed that “at a time when EPA is reviewing public comments on its proposed rule for the 2017 RFS volume requirements and considering whether changes are warranted, it is especially important that the agency and affected stakeholders have a proper understanding of what is truly driving RIN prices.”

In his letter Dinneen recalls that RIN prices artificially spiked to record levels in July 2013, providing opponents to the RFS with “politically expedient fodder for their campaign to repeal or reform the program.” Dinneen said the ethanol industry is concerned that opponents of the RFS are similarly using the recent RIN spike to bolster efforts to change or eliminate the program.

According to Dinneen, RIN prices have risen nearly 30 percent since the EPA released its proposed 2017 RFS rule on May 18. RIN prices averaged 74 cents on May 17, increasing to 79 cents on May 18, but falling to 76 cents by May 25. “The initial RIN price response suggested that the 2017 volumes proposed by EPA generally matched market expectations,” wrote Dinneen in the letter. “The RIN market’s lack of response to the proposal also indicated that participants broadly understood that the proposed volume requirements would not result in a drawdown of RIN stocks.”

RIN prices, however, began rising rapidly in early June, hitting 98 cents on July 13. Dinnen notes that while several theories have been advanced, the real reason behind the increase remains unclear. He also stressed that basic market fundamentals suggest RIN prices should have remained stable or dropped following the release of the 2017 RFS proposed rule. He cites record 2015 ethanol production, the fact that RIN generation for 2016 is expected to outpace 2016 requirements, and strong evidence that 2017 requirements can be met without drawing down RIN inventories.  

“Given the evidence of ample RIN supplies, the recent spike in RIN prices appears contributed and driven by something other than basic supply-demand fundamentals,” Dinneen wrote. “Indeed, the spike raises renewed questions about the potential manipulation of the market by entities who may believe the specter of higher RIN prices supports their political efforts to repeal or reform the RFS.”

A full copy of the letter can be downloaded from the RFS website