U.S. Refiners May Use RINs to Meet Requirement on Biofuel Use

U.S. oil refiners may draw from a reserve of 2.5 billion Renewable Identification Numbers that they’ve banked in previous years to meet federal requirements for the amount of ethanol they blend into gasoline this year.

Blenders can use as much as 20 percent of the current year’s volume of the RINs to meet the Environmental Protection Agency’s Renewable Fuel Standard set out in 2007, according to a report released today by Bloomberg New Energy Finance.

RINs represent the mechanism the EPA uses to ensure companies comply with the rules, which are aimed at promoting the use of biofuels that substitute for oil and help reduce greenhouse gas emissions. Refiners have been authorized to bank RINs accrued in previous years and may use them this year to meet the mandate, the London-based researcher said.

“The biofuels sector faces difficult choices”, said Alejandro Zamorano Cadavid, U.S. analyst for biofuels at New Energy Finance. “Corn ethanol use has expanded rapidly in the U.S. as an oxygenate in gasoline. But this year, biofuels must by law play a significantly bigger role in the U.S. transport sector, and that is raising significant challenges.”

The report said two of the EPA’s rules will collide this year, giving refiners few options on how to comply with the law. New Energy Finance estimated the industry will be able to produce about 13.4 billion gallons of ethanol this year. That’s almost the same as the 13.8 billion gallon mandate under the Renewable Fuel Standard. It’s also about the same as the maximum permitted to be mixed into gasoline.

Legal Requirements

Blenders seeking to comply with the law can either use more ethanol in their fuels or spend RINs they banked in previous years. The law requires oil refiners to blend 36 billion gallons of biofuels a year with their products by 2022. If a company hasn’t blended enough, it can buy RINS from another company that has surpassed its requirement that year.

Ethanol cost about 50 cents less than gasoline per gallon in the U.S. on average last year, encouraging refiners to use as much as they can. Because most car engines aren’t designed to run on ethanol, the government limits its usage in fuels.

“At $2.51 a gallon, ethanol is very cheap right now, cheaper than gasoline,” Cadavid wrote in the report. “This discount existed throughout most of the past decade” because of a tax credit designed to encourage ethanol use.

The EPA estimates that there are about 2.5 billion banked RINS that may be used this year, New Energy Finance said.

To contact the reporter on this story: Louise Downing in London at ldowning4@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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