You Can’t Put a RIN in Your Gas Tank

When an obligated party such as a refiner turns in their report card to EPA to show they met the requirements of the RFS, the “currency of compliance” is a RIN. Every gallon of any biofuel is assigned a renewable identification number and it is these numbers, or RINS, that prove the program is working—on paper. It is not about wet gallons as much as it is about meeting an accounting system. When the RFS was expanded to 36 billion gallons it established basically three categories of renewable fuel and the RINS that go with them. The first is conventional biofuel which is for the most part corn ethanol. The second is the so-called advanced biofuel that requires a greater reduction in greenhouse gas emissions and importantly, cannot come from corn starch. That has typically been met with biodiesel and sugar cane ethanol. The third category is cellulosic which has an even higher requirement for reduction of GHGs and must be derived from cellulosic biomass.

The thinking at the time this was all developed was to limit the amount of corn that was used for ethanol and to force technology on the advanced and cellulosic categories. The conventional, or corn ethanol category by the way, is the only one that really worked, the advanced category for years was met by importing Brazilian ethanol and the cellulosic category has been an abysmal failure.

And let me say before continuing, the RIN/credit system is in theory a great program. If I blend more than I am required and you either can’t or won’t blend renewable fuel, then you can purchase a RIN/credit from me since I met my requirement and then some. It provided the oil industry with the flexibility they said they needed.

So whats the problem? First of all, from a corn ethanol standpoint the RFS required 15 billion gallons of the conventional category. While we produce that much, and can produce a lot more, EPA’s regulatory structure that effectively limits ethanol blends to 10% makes it difficult to blend that much into the gasoline pool. RVP limits, small refiner waivers, faulty emission modeling, and erroneous ghg ratings have all stymied ethanol.

Secondly, the RIN system allows for RINs in the advanced category to be used to meet the lower, or ethanol category. That has not been an issue until now when we see major capital investment into the renewable/bio diesel (RD/BD) category. Based on energy content being higher than ethanol, those BD/RD RINS receive 1.5 – 1.7 RINS for every gallon. With announced projects in RD alone of at least 5 billion gallons they can not only meet their own obligations but the extra 3 billion RINS they generate can be used to meet the ethanol requirement, either their own or selling them. Either way it reduces the demand for ethanol under the RFS by turning in paper to EPA rather than producing a gallon of renewable fuel. And while the categories of the RFS are fixed in terms of gallons, there is no limit to the amount of RINS that can be generated.

The biomass based (biodiesel) folks, who must fight for a seat at the table in the advanced category, rightfully felt shorted in the final RFS requirements, arguing they can produce much more than the required volumes. In response to that concern, in the final rule EPA did sort of a there there, pat-you-on-the head, don’t worry, and clearly stated you can always produce more than we are asking for and use the extra RINS to go after ethanol. This a direct excerpt from the EPA rule:

“Moreover, BBD can also be driven by the implied conventional renewable fuel volume requirement as an alternative to using increasing volumes of corn ethanol in higher level ethanol blends such as E15 and E85.”

Read that carefully– as an alternative to using higher ethanol blends. How does EPA justify implying higher blends are a bad thing, and further how do they justify not doing everything in their power to replace toxic, carcinogenic, aromatics that ethanol should replace?

New EPA data shows that by September the Biomass diesel production had already surpassed the required amount for that particular category of the RFS for the year and now these D4 Rins are being used to satisfy the conventional, or D6 requirement. So our concern about demand destruction is happening as we speak.

So they can play a numbers game that suggests the program is working but it did nothing in this case to actually reduce the use of gasoline. It can, however, reduce the use of ethanol so it could actually increase the amount of gasoline we are using!

The answer is to break free of the RFS as a ceiling and make it the floor it was always envisioned to be. There are some fixes needed for the RFS, for starters corn ethanol should not be constrained to the conventional category if it can demonstrate a 50% GHG reduction—which it can. We have to develop additional, complementary markets that can only happen with higher blends and the key to that is to establish a higher octane standard and to capture the value for ethanol’s low carbon. Are countries like Brazil, India, the Philippines, Viet Nam and so many others smarter than we are as they move to 20 and 30% blends? It would seem so. READ MORE