Overview of the RIN Compliance System and Pricing of RINs for the U.S. Renewable Fuel Standard

Maria Gerveni and Scott Irwin (University of Illinois) and Todd Hubbs (U.S. Department of Agriculture) ... A RIN represents biofuel that has been produced and blended into transportation fuel. RINs are tradeable, and the market price of RINs plays a central role in the functioning of the RFS. In this article, we provide an overview of the RIN compliance system and the pricing of RINs. Both are important in understanding the policy incentives driving the renewable diesel boom. This is the 11th in a series of farmdoc daily articles on the renewable diesel boom (see the complete list of articles here).

Renewable Identification Numbers (RINs)

The U.S. Environmental Protection Agency (EPA) is responsible for proposing and enforcing annual renewable volume obligations (RVOs) under the RFS. Specifically, the EPA converts the statutory mandate volumes, where provided, into percentage standards through annual rulemakings. The resulting annual percentage standards specify that for every gallon of petroleum fuel sold into the surface transportation sector in the U.S., a specified fraction of a gallon of biofuel must be blended into the surface transportation fuel supply.

The RFS statutes require annual volume mandates to be established for four categories of biofuels: cellulosic, biomass-based diesel, total advanced (which includes cellulosic and biomass-based diesel), and renewable (referred to as conventional here). The total advanced mandate is a higher volume than the sum of the cellulosic and biomass-based diesel mandates. This difference is referred to as the undifferentiated advanced mandate, which can be satisfied by a combination of qualified advanced biofuels. Conventional biofuels are generally assumed to be corn-based ethanol, but this is not explicitly required by the RFS legislation.

To ensure that annual RVOs are fulfilled, the EPA established a system of compliance based on Renewable Identification Numbers (RINs), which are electronic certificates associated with a specific batch of biofuels. A RIN originates when a qualified biofuel is produced, and it can be bought or sold once that fuel is blended into the surface transportation fuel supply. Refiners and importers of petroleum fuels are the obligated parties under the RFS, and they can obtain RINs through their own blending operations or the purchase of RINs in the secondary market. Once obtained via blending or purchase, RINs can be turned in to the EPA (“retire” the RIN) to demonstrate compliance. For a detailed explanation, see Irwin and Stock (2018).

Each of the four categories of biofuels under the RFS has its own RIN: D3 (cellulosic), D4 (advanced biomass-based diesel), D5 (advanced non-biomass-based diesel), and D6 (conventional). These fuels are nested based on lifecycle greenhouse gas reductions (farmdoc daily, May 17, 2023), so that excess D3 and D4 RINs can be used to satisfy the D5 and D6 requirements, and excess D3, D4, and D5 RINs can be used to satisfy the D6 requirement. RINs are generated upon production or import of a qualifying biofuel and are separated (detached) from that fuel when blended or sold into the fuel supply. Detached RINs are tradable, so an obligated party can acquire RINs for compliance either by purchasing the renewable fuel with the RIN attached or by purchasing RINs in the secondary RIN market.

An important feature of the RIN system is that the number of RINs generated per physical gallon of biofuel is based on the energy equivalence value with ethanol. Specifically, blending one gallon of ethanol generates one RIN, blending one gallon of FAME (fatty acid methyl ester) biodiesel generates 1.5 RINs, and blending one gallon of renewable diesel generates 1.6 or 1.7 RINs. Accordingly, it is necessary to distinguish between “wet” (actual physical) gallons of a biofuel and RIN-equivalent gallons. For example, one wet gallon of biodiesel generates 1.5 RIN gallons.

An additional important feature is that RINs are bankable. That is, RINs generated in a given year can be used for compliance with obligation for that calendar year or the following year. For example, RINs generated in 2023 can be used to meet compliance obligations in 2023 or 2024. Being able to bank RINs provides a buffer to fluctuations in fuel supply and demand (although banked RINs cannot exceed 20 percent of a given year’s RVO for an obligated party).

Lastly, because of uncertainty surrounding cellulosic ethanol production, the RFS statutes allow the EPA to make cellulosic waiver credits available to obligated parties to fulfill their cellulosic obligations. The cost of cellulosic waiver credits is capped, and the credit can be combined with a D5 advanced RIN to satisfy the cellulosic RVO.