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Big Numbers, Big Profits: The Fleetingly Lucrative RIN Trade

By Editorial Dept | Fri, 19 April 2013 20:29 | 0

Renewable energy credits, or RINs, are one of the hottest things on the energy market right now because they are making up for a shortfall of refining capacity to blend ethanol with gasoline in compliance with renewable fuel standards (RFS), shortfalls from suppliers, and lower demand for gasoline. But this is a small window of opportunity, so it’s now or possibly never.

The RIN is a 38-digit serial number attached to each gallon of ethanol. If an oil company or another party under blend obligations blends more renewable fuel that it needs to for the RFS quota, it accumulates more RINs than it needs and then can trade or sell those to another company that would rather buy RINs than blend ethanol. This is the open RIN market, and they can only be traded at the end of the supply chain, after they have been separated from the gallon of renewable fuel—once it becomes a being of its own.

Each gallon of renewable fuel is equivalent to one RIN. What happens is that when an oil company buys a gallon of renewable fuel, it takes that RIN and sells it on the open market. There’s a choice here: oil companies can either buy a gallon of renewable fuel or they can buy an RIN to meet their Renewable Fuel Standard (RFS) quota instead. They are interchangeable.

Oil companies are bidding up the price of RINs rather than adding more ethanol to gasoline to meet the RFS. Right now, ethanol is about 65 cents cheaper than gasoline (per gallon). The justification…

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