Fuels America holds call to discuss new EPA memo on RIN prices

By Erin Voegele | June 11, 2015

On June 11, Fuels America hosted a conference call to discuss a memo from the U.S. EPA that demonstrates the renewable fuel standard (RFS) does not increase—and, in fact, works to decrease—retail gas prices.

The memo was posted in the rulemaking docket, EPA-HQ-OAR-2015-0111, posted to regulations.gov for the recently announced proposed rule to establish 2014, 2015 and 2016 renewable volume obligations (RVOs) under the RFS, along with a 2017 RVO for biomass-based diesel. A public comment period on the proposal opened June 10. According to information published under the docket folder, 573 public comments were received on the first day of the comment period. Comments will be accepted through July 27

Within the 31-page memo, the EPA explains that “while RIN [renewable identification number] prices were significantly higher in 2013 that previous years, we did not see, nor would we expect to see, a corresponding net increase in the overall retail prices of transportation fuel across the entire fuel pool.”

Tom Buis, CEO of Growth Energy, opened the Fuels America call by noting that the memo confirms yet again what the ethanol industry has confirmed many times before—that RIN prices didn’t and don’t have an impact on retail gas prices. According to Buis, the hullabaloo over the past few years that the RFS would drive RIN prices through the roof and increase consumer prices was just rhetoric by obligated parties that didn’t want to live up to their RFS obligations.

Geoff Cooper, senior vice president of the Renewable Fuels Association, noted that although a press call wouldn’t normally be called to discuss a technical memo, the biofuel trade groups though the memo was significant enough to address.

Cooper explained that the messenger in this case is just as important as the message. “It’s isn’t what’s being said in the EPA memo that’s so significant here,” he said. “It’s who is saying it.”

During his presentation, Cooper outlined some key components of the memo. Most striking, he said the EPA did not see and doesn’t expect to see any changes in retail prices for transportation fuels across the entire fuel pool as a result of any fluctuations in RIN prices. He noted that is something the RFA and Growth Energy have been arguing for nearly three years.

According to Cooper, the EPA says the reason there is no impact is the RIN is not an additional cost to the consumer. Rather, it’s really just a transfer payment between parties that are blending renewable fuels and obligated parties who are producing petroleum-based fuels.

Another key finding in the memo, Cooper said, is that when a detached RIN is transacted, it generates revenue for the RIN sellers. It may be looked as a cost to the RIN buyer, but there is no impact for the buyer of the finished fuel at the pump.

Cooper said the EPA sent a lot of time in the memo discussing how RIN prices can transform the gasoline marketplace. “They talk about how a higher RIN price is actually expected to result in a significant decrease in the price for E85, and clearly we’ve seen real world evidence of this happening in places like Iowa and Minnesota, but also even in places like Florida and Texas,” Cooper continued, noting the memo addresses some real-world observations and explains this behavior. “Essentially what you have happening is when a marketer or blender buys ethanol with a RIN attached, and they blend it with a little bit of hydrocarbon to make E85, they separate some of that RIN, and that’s a nice profit for them, and they pass some of that revenue onto the consumer in the form of a lower E85 price. Clearly, that’s how the RIN program was designed to work, we have evidence that it was working that way.”

“The other important takeaway from the memo is that EPA believes merchant refiners who largely purchase separated RINs to meet their RFS obligations are not disadvantaged competitively by higher RIN prices and there are a number of ways that those merchant refiners who may not have blending assets can comply with the regulation without having these kinds of disastrous economic impacts that they claim,” Cooper continued.

Regarding the relationship between the memo and the RFS proposal, Cooper noted that back in 2013 the administration was terrified of the potential impacts of higher RIN prices on consumer fuel prices. “The oil industry really played to those fears,” he said, noting that the result was the original 2014 RVO proposal that embraced the blend wall and gutted the RIN market mechanism.

While the memo shows the EPA if finally openly recognizing how the RIN market can work to try to inform the marketplace and recognizes that consumers are insulated from the impact of RIN trading amongst obligated parties, Cooper said the agency has still published a RFS proposed rule that cuts the RIN mechanism off at the knees and maintains a status quo to keep the program from overcoming the blend wall.

Jim Miller, vice president and chief economist at Growth Energy, also addressed the impact of the EPA’s memo. “Big Oil has been trying to make the case really since 2013 that rising RIN prices were going to directly be passed on to the consumer in the form of higher gas prices,” he said. “This EPA memo along with other work that Growth Energy has done on this issue clearly shoots down just another element of Big Oil’s scare campaign in their effort to destroy the renewable fuel standard.”

Miller said Growth Energy hopes the EPA will consider the memo it drafted and revise the proposed RFS rule to reflect the positive elements that the RFS provides to everyone in America.

Bob Dinneen, president and CEO of the RFA, said that by failing to implement the RFS statute, the EPA is systematically destructing the RIN market and discouraging investment in new technology and new infrastructure that would break down the blend wall.

“So, why are they doing it? It makes no sense,” Dinneen said. “They are only helping the oil companies by doing this. Their own analysis and their own proposed rulemaking says that by increasing the potential profitability of blending renewable fuels, higher RIN prices can incentivize the build out of the infrastructure necessary to blend and distribute renewable fuel blends. But, what they are doing is manipulating the RIN market, unofficially creating a surplus of RINs in the marketplace, devaluing that market, and ripping the guts out of the program by removing any incentive to invest in infrastructure or new technologies. More than that, they are ignoring all those surplus RINs as they evaluate the supply of renewable fuels for this program. And that is inconsistent with that they have done prior to the 2014 RVO and is inconsistent with the statute. We strongly believe that EPA needs to scrap this proposal and get the RFS back on track, which means with a RIN program that will drive the investments that congress designed this program to do.”