RIN Values: What Do They Tell Us about the Impact of Biofuel Mandates?
The impact of the US drought on the price of corn and other feed grains and oilseeds has made the arcane subject of Renewable Identification Number (RINs) and the role of US biofuel policy of great interest this year. For example, there have been a number of recent calls to the EPA for waivers of the RFS mandates to relieve pressure on food prices for consumers and feed prices for livestock producers. In this post we review the basic economics of the ethanol market both with and without the RFS mandate, and discuss RIN valuation under both conditions. We then provide some speculation as to the support the RFS mandates are currently providing to corn prices based on recently observed RIN prices.
The Renewable Identification Number System and U.S. Biofuel Mandates
The Renewable Fuel Standard (RFS) sets annual mandates for renewable transportation fuels sold or introduced into commerce in the United States. The current RFS sets mandates through 2022. The Renewable Identifi cation Number (RIN) system was created by the U.S. Environmental Protection Agency to facilitate compliance with the RFS. A RIN is a 38-character numeric code that corresponds to a volume of renewable fuel produced in or imported into the United States. RINs remain with the renewable fuel through the distribution system and ownership changes. Once the renewable fuel is blended into a motor vehicle fuel, the RIN is no longer required to remain with the renewable fuel. Instead, the RIN may then be separated from the renewable fuel and used for RFS compliance, held for future compliance, or traded. The RFS mandates are prorated down to “obligated parties”—individual gasoline and diesel producers and/ or importers—based on their annual production and/or imports. Each year, obligated parties are required to meet their prorated share of the RFS mandates by accumulating RINs, either through fuel blending or by purchasing RINs from others. Understanding the RIN system and the prices for RINs when bought and sold can provide key insights into the impact of mandates on biofuel and feedstock markets. For 2011, conventional ethanol RIN prices have been low, implying low probability that the corresponding mandate has been binding and suggesting that other factors have contributed to expansion beyond the mandate. Conversely, biodiesel RIN prices have been high in 2011, implying a more binding biodiesel mandate with effects on soybean oil and other biodiesel feedstock markets.
Regional strategies for the minerals industries of the states of the SADCC
The SADCC has been in existence for eleven years but little progress has been made in regional coordination of the minerals sector even though this sector is the most important exporter of the region. There is however scope for minerals development at the regional level.