Renewable Identification Numbers (RINs) could be a fantastic deal for investors – if the 2013 trend continues. RINs, part of a federal mandate that requires fuel producers to either make or buy ethanol or to buy RIN ethanol credits, have shot up to $1.25 a gallon. That's a wee bit higher than the price last December, when it dropped down to one cent a gallon. That means there's been a 2,000 percent price increase in prices since the beginning of the year!

The increase comes from 2007 federal guidelines that require fuel companies to produce 13.8 billion gallons of ethanol produced this year. Trouble is, demand is expected to be much lower than that – around 10.6 billion gallons – and so vehicle fuel blenders, which include oil refiners, have to buy credits to meed the requirement. That pushes up the price of RINs like corn stalks after a rain.

Valero Energy thinks that buying RINs will cost the company about $750 million this year.

The US Environmental Protection Agency's drive for E15 in gasoline is unlikely to move forward soon and help meet those ethanol targets, and there hasn't been enough demand lately for typical gasoline with E10 to fill the gap. Valero Energy, the largest oil refiner in the US, thinks that buying all of the RINs it needs to will cost the company about $750 million this year. Valero said consumers will have to pay more at the pump for gasoline to offset the cost.

Two companies involved with futures trading of RINs – CME Group and The Intercontinental Exchange – must be enjoying the 2,000 percent gain. Outside of these two trading companies, though, the market for RINs is "small and illiquid," according to coverage in 24/7 Wall St. Some members of this market have been RIN fraudsters and there are members of Congress who want to see the 2007 ethanol mandates go away, which makes the overall future of RINs questionable.


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    • 1 Second Ago
  • 9 Comments
      Rotation
      • 2 Years Ago
      'The increase comes from 2007 federal guidelines that require fuel companies to produce 13.8 billion gallons of ethanol produced this year.' What is this sentence trying to say? It's malformed. Are fuel (pump gas) companies required to buy ethanol that isn't available?
        Marcopolo
        • 2 Years Ago
        @Rotation
        Yes ! Shortfalls are made up from imports from Brazil etc, driving up the price of ethanol, and creating further poverty and rain-forest devastation in equatorial third world countries. Not only that, but US ethanol policy also produces wasteful surpluses, during periods of decline in US fuel usage. The US exports these surpluses, creating even further devastation as third world producers clear more acreage to cope with lower price fluctuations, to buy increasingly expensive food. The US corn-based ethanol industry should be denied the benefit of this environmentally harmful government mandate, without further delay.
          EZEE
          • 2 Years Ago
          @Marcopolo
          Isn't this the thing that also has us exporting to Brazil when the USA has more and Brazil is short? This all makes my head hurt... I have no emotional attachment or issue with ethanol - but this system that is in place... I would like to just channel my inner 2wheel and say, "why not let the market dictate what we use?" I see the E-85 at $1.00 less per gallon - of course, that is a highly subsidized price (then, gas has subsidies to drive down cost, and taxes to drive it back up again)... Wrapping head in duct tape before it explodes...
          Allch Chcar
          • 2 Years Ago
          @Marcopolo
          When Brazil has a shortfall in Ethanol, we have an bumper crop and vice versa. There are also markets in Europe that provide a place to dump excess ethanol. Sweden for example. It's vastly safer than depending on a single market and benefits both countries. It balances out.
        Allch Chcar
        • 2 Years Ago
        @Rotation
        That is for domestic production only. In addition to RINs, there is plenty of Brazilian ethanol available. Which after the tariff is more expensive than just buying RINs.
      Allch Chcar
      • 2 Years Ago
      The law was written after Oil demand peaked in 2005. Law makers then were not only aware of the Blend wall, they intended to pass the Blend wall eventually. Either through increasing Ethanol usage in regular vehicles or increasing usage among flexfuel vehicles. It's well proven that OBDII compliant engines can run E30-E40 without modification. Universities have studies going back decades. It's just a matter of more government testing, meaning $. The vast majority of FFVs today only use Gasoline/E10. 99% of Ethanol consumption is in Gasoline/E10. This is more of a consumer awareness and education issue. But there are many issues with price or availability. The average consumer is more or less blissfully ignorant of the nation's Oil dependency as it stands. If they gave it 5 tanks of E85 in their FFV barring any issues, odds are most would choose E85 in the future.
      • 2 Years Ago
      Tax credits for U.s. ethanol and tariffs on Brazilian ethanol were lifted at the end of 2011. RINs were established under the Renewable Fuel Standard as a mechanism to encourage the oil companies to blend ethanol to certain levels over time. When an oil company or blender buys a gallon of ethanol from a U.S. biorefinery, they receive one Renewable Identification Number (RIN) at no charge. It comes with the purchase, just like a Coke Rewards number comes with the purchase of a bottle of Coke. If the oil companies meet the RFS requirements by blending at the required rate, they receive the appropriate number of RINs to prove that they've met the requirements. The problem for the oil companies comes when they decide that they don't want to comply with the requirement, but are still required by the EPA to produce RINs at a certain reckoning point to the EPA. If they are caught short on RINs, they must buy them from blenders or others who have a surplus so they can meet this obligation. There is no "my dog ate my homework" excuse, they MUST have them. The RFS requirement does work like it was designed. The problem is when a company like an oil comany refuses to comply, then complains about the penalty. They knew about the requirement at least six years ago, yet they violate the RFS. This is a case where their own selfishness has put them in a predicament that they want to get out of because now, the prices of RINs have gone up significantly. But they knew this would happen. And they whine...
        Allch Chcar
        • 2 Years Ago
        My mistake on the tariff. I remember when it was put up for renewal but missed the results.
      EZEE
      • 2 Years Ago
      The increase comes from 2007 federal guidelines that require fuel companies to produce 13.8 billion gallons of ethanol produced this year. So...federal guidelines require fuel companies to produce so much ethanol that is produced this year that must be produced, while producing said ethanol production. :D