Ethanol:

Renewable Fuels Association's Dinneen says volatile RIN market not affecting gas prices

As members of Congress discuss potential reforms to the renewable fuel standard, what role have rising Renewable Identification Number (RIN) prices had on the fuels market and, specifically, gas prices? During today's OnPoint, Bob Dinneen, president of the Renewable Fuels Association, explains why he believes RIN prices are having no effect on the price of gasoline. He also discusses the impact RFS reform could have on the corn and cellulosic ethanol industries.

Transcript

Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Bob Dinneen, president of the Renewable Fuels Association. Bob, it's nice to see you again.

Bob Dinneen: Good to be back.

Monica Trauzzi: Bob, high gas prices and high renewable identification number prices are causing a big debate between your industry and the oil lobby. RIN costs have skyrocketed. We've seen them go up from $0.07 in January to spiking at over $1 recently. How much are these high RIN prices affecting the price of gasoline at the pump for consumers?

Bob Dinneen: Not at all. Sure, the price of a renewable identification number or RIN or a credit has gone up, and it's been fairly volatile, but compared to other RINs, whether it's an advanced biofuel RIN or a cellulosic RIN, I mean, it, they're about the same. But here's the point. RINs are free. The ethanol industry produces a credit, a renewable identification number that is used for compliance. We then give them to the regulated party, the gasoline marketer or the refiner. We can't sell it. We can't separate it from the gallon. We generate it so that they then can demonstrate to EPA once a year that they have met their obligation. But it goes along with the gallon of ethanol, and ethanol is $0.60 cheaper than the price of gasoline today. So that RIN is just given to them free. Now oil companies can trade them amongst themselves, and they do occasionally. In fact, they demanded the ability to trade credits amongst each other, and within a company, so as to add flexibility to the renewable fuel standard. And we agreed to that, because we want it to be a flexible program. So if they're trading them amongst themselves, it's not having an overall impact on the price of gasoline.

Monica Trauzzi: So it seems like you're putting the blame on them. They're putting the blame on you. There's been a lot of back and forth between the two industries. I want to go beyond that a little bit. If ...

Bob Dinneen: Yeah. I'm not trying to assess blame. I'm just trying to explain ...

Monica Trauzzi: No, and ...

Bob Dinneen: ... the way the program works.

Monica Trauzzi: But if RIN prices aren't the cause for higher gas prices, who's paying the higher cost for the RINs, then? I mean, don't refiners have to pass the cost along to consumers?

Bob Dinneen: No, they don't. First of all, if they're trading amongst themselves, if one company is making a little money, another company might be losing a little bit of money, the consumer shouldn't be affected any, in the overall scheme of things.

Monica Trauzzi: So then who feels the burn from a RIN price going from $0.07 to over a gallon, over $1?

Bob Dinneen: Look, it's just the decision that the oil companies might make in terms of how they comply with the program. They wouldn't have to purchase a RIN at all if they simply purchased more ethanol. You know, they act as if they cannot blend any more ethanol into gasoline. Well, they certainly can. They can use more ethanol in the form of E85. They can use more ethanol by allowing the sale of E15, both of which are legal fuels to be sold today, with growing markets. They are choosing to go to the credit market because they would rather do that than invest in the infrastructure to provide those other options to consumers. But Monica, we will produce 13 billion gallons of ethanol this year, more or less. That will provide enough free RINs to satisfy the demand for 133 billion gallons of gasoline. Now the RFS requirement this year is, let me see, 13.8 billion gallons, so that implies 500 million gallons for which oil companies have to make a decision. Do they purchase more ethanol and allow the sale of E85 or E15, get free RINs, or do they go to the credit market and purchase RINs? There are 2 billion, maybe a little bit more, RINs that have already been made available to them. There's a surplus of RINs in the marketplace today. So we don't think that there's going to be any impact on gasoline prices whatsoever.

Monica Trauzzi: Would a change to the RFS reduce RIN prices?

Bob Dinneen: In what way? I mean, what kind of a change to the RFS?

Monica Trauzzi: Well, if Congress sat down, and there has been talk about this, many energy analysts are saying that Congress may very well reform US biofuels policy in the next two years. If they did, could we see a change in the RIN prices? Or does that not have any material effect?

Bob Dinneen: I don't think it would have a material effect. What it would do is it would chill investment in new technologies. It would send a horrible signal to the marketplace that the government's not serious about its commitment to renewable fuels, to cellulosic ethanol, to advanced biofuels. They're changing the rules in the middle of the game. And, you know, let's just go frack some more. And that's the wrong signal to send. Look, the RFS is working today, and a higher RIN price is just going to motivate some gasoline marketers, some refiners, to put the infrastructure in to allow consumers to make those choices for themselves.

Monica Trauzzi: But EPA did not anticipate that RIN prices would go as high as they have. What can they do, or is there something that they should be doing, to deal with the changing landscape that they did not anticipate?

Bob Dinneen: I'm not sure I agree with the premise that EPA didn't anticipate that RIN prices would go up. Maybe they didn't anticipate the skyrocket in early March, where there were reports of RINs being sold for $1.10. But there's also not a lot of transparency in this market. And we really don't know how many RINs were traded at that level, who purchased them, whether they were sold by a speculator, or it was a company to company sale. There's no transparency in this market whatsoever. And EPA should probably address that issue, and I think that they can. But ultimately, you've got to let the RFS work. You've got to let the investments in infrastructure be made so that we can have some consumer choice in this country. Right now we don't.

Monica Trauzzi: So there are discussions in Congress to change the policy. Are you willing to engage in a conversation about policy reform?

Bob Dinneen: I'm willing to engage in a discussion about the RFS. I'm willing to remind members of Congress why this program is so important, and let them know the energy, economic, and environmental benefit that the RFS is providing today. I think when provided with all the facts, Congress is going to agree with us that there is nothing wrong with the RFS that can't be fixed with what is right with the RFS, because there's so much flexibility, and the markets are, or the program is set up in such a way as to encourage investments in new technologies and in infrastructure that will allow us finally to reduce our dependency on imported oil.

Monica Trauzzi: Do you believe that EPA will lower its 2013 cellulosic target when it finalizes its requirements this summer?

Bob Dinneen: Well, they've already reduced it significantly in the proposal to 14 million gallons. They were relying upon a couple of companies being able to produce ethanol in the first quarter that did not, so I would not be at all surprised if they reduced that 14 million gallons a bit more. But Monica, that reflects the flexibility that exists in the RFS today, because EPA can and has always made the appropriate adjustments.

Monica Trauzzi: But that reflects the fact that the targets can't be met, as well.

Bob Dinneen: That reflects that the development is not coming along as fast as everybody would like it to. But it is coming along. You do have companies that are on the cusp of commercial production. You've got several plants that are under construction today, and I think that's the real threat to all this, right? Because I think the oil companies see that the commercialization of second generation ethanol facilities and other advanced biofuels is indeed coming, and they desperately want to stop the RFS now, before those fuels become a reality.

Monica Trauzzi: So what's the forecast for RIN prices, then? What are you anticipating? Do you anticipate continued volatility?

Bob Dinneen: Well, it sort of settled down after that period in early March where they had jumped up, but the average RIN price so far this year has been about $0.35. Right now, it seems to be settling in the $0.60 to $0.70 range, and I would expect that that's probably where it will be. But until there is more transparency, until we really know who's trading these RINs at what price and for what reason, who knows?

Monica Trauzzi: All right. The debate continues. We'll end it there. Thanks for coming on the show. Good to see you.

Bob Dinneen: Thank you, Monica.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

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