Uncertainty about what the future holds for the Renewable Fuel Standard program interferes with the proper functioning of the market for Renewable Identification Numbers, or RINS, experts on that market told a House subcommittee today.
“Most RIN price volatility since 2013 can be attributed to ever-changing blending targets and uncertainty regarding future mandate volumes,” Gabriel Lade, an economics professor at Iowa State University’s Center for Agricultural and Rural Development, told the House Energy and Commerce Committee’s environment subcommittee. “However, publicly available data is insufficient to determine whether the market is fully efficient or free of manipulation.”
And Paul Niznik, a senior consultant at Argus Media, a price-reporting service, said that the two biggest complaints he hears about the RFS revolve around price volatility “driven by policy news, as well as long-term policy uncertainty.”
The hearing was held as the debate over the future of the RFS continues to rage, with RFS supporters complaining about the Environmental Protection Agency’s granting of 48 small-refinery waivers to blending requirements for 2016 and 2017. Renewable fuels producers and the trade groups that represent them have said the waivers have resulted in “demand destruction” for ethanol, an assertion disputed by the oil industry.
In a letter today to subcommittee Chairman John Shimkus, R-Ill., and Ranking Member Paul Tonko, D-N.Y., Renewable Fuels Association President Bob Dinneen said that “EPA’s recent issuance of approximately 50 small refinery compliance exemptions from 2016 and 2017 RFS requirements has ballooned RIN stocks to nearly 3.1 billion RINs. That is more than double the level of RIN stocks just two years ago. Consequently, RIN prices have plummeted from 95 cents in late November 2017 to just 25 cents today, decreasing the incentive for blenders and refiners to increase volumes of E15 and flex fuels like E85 to push past the so-called E10 ‘blend wall.’”
A recent 4th Circuit Court of Appeals decision that overturned an EPA denial of a waiver for a West Virginia refinery also could have an effect on the RINs market, said Corey Lavinsky, an S&P biofuels analyst.
“If this decision were to open the door to future lawsuits that lead to reinstatement of retired RINs, supply, demand and prices would be affected,” Lavinsky said.
Greater transparency would reduce volatility in the market, witnesses told the subcommittee.
Lade said that the secrecy surrounding the small refinery exemptions – EPA will not reveal the names of the companies that have received them – “undermines the integrity of RIN markets, especially if only the firms receiving the exemptions know of their existence. Lack of transparency increases market participants’ uncertainty of mandate levels. In the long run, uncertainty delays investments in the very biofuel infrastructure that the RFS is designed to incentivize.”
Brendan Williams, vice president of government relations with petroleum refiner PBF Energy, said the hearing's witnesses "confirmed nobody is manning the store when it comes to regulating the RIN market. It's more proof that the administration and Congress need to take more permanent action to keep RIN costs under control."
Speaking to reporters yesterday in Washington, EPA Acting Administrator Andrew Wheeler said he wanted to increase transparency around the exemptions, but noted that the agency will still have to address confidential business information concerns.
One theme of the hearing was confusion, as lawmakers attempted to understand the complex RINs market. Rep. Gregg Harper, R-Miss., said that every time he reads a study about the RFS, “I come away more confused.”
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