There could be big money in store for Renewable Identification Numbers (RINs)… or not. A new report from the Food and Agricultural Policy Research Institute at the University of Missouri (FAPRI-MU) says that the ethanol blend wall could have the biggest effect on how RIN prices rise or fall:
Expanding ethanol use in the future could require more E15 and E85 sales. More E15 or E85 could require costly infrastructure development and the prices of these fuels might have to be discounted to coax consumers to buy them. Based on this understanding of the fuel market, pushing more ethanol through the system would be increasingly difficult for fuel blenders, meaning that conventional RIN prices could rise in the future.
If the mandates will become more difficult to meet as they force ethanol use to exceed the blend wall, then RIN prices could rise in the future. RINs can be stored, up to a point, so current RINs might reflect expectations about future RIN prices. However, the price of conventional RINs generated in 2012 is less than $0.05 per gallon – 1-2% of the current wholesale price of ethanol – as of November 2012.
But… on the other hand…
There are reasons why the conventional RIN price would remain low despite the looming blend wall.
1. The blend wall could be less of a constraint than expected if ethanol expansion is easy, drop-in biofuels become commercially viable, or more biofuel is used other than as in motor fuels.
2. RIN stocks in the future are expected to exceed the maximum permitted amount, although 2012 market data about biofuel disposition cast some doubt on this explanation in the short run.
3. RIN buyers and sellers could expect that the EPA would waive the broad mandates in the future in the event that the associated RIN prices rise sharply, but this question goes well beyond our analysis.
The report looks at three possible scenarios, and some of those expectations include expanding the Renewable Fuels Standard (RFS). The bottom line is that the change in RIN prices could mean billions of dollars.