The prices of Renewable Identification Numbers (RINs) can be defined as the marginal compliance cost of Renewable Fuels Standard (RFS) mandates. As shown in Figure 1, the ethanol D6 RIN prices that had been $0.36 per RIN at the end of September 2015 rocketed to $0.97 per RIN by mid-July 2016. Now it has slowly settled into the $0.86–$0.88 range by mid-September 2016. Because RINs are thinly traded and highly dependent on regulations and perceptions of supply, they typically show some volatility that is often difficult to fully explain—for example, a sudden move by a trading house can cause prices to jump.
After the Environmental Protection Agency (EPA) released its long-awaited final ruling for 2014-2016 RFS standards on November 30, 2015, the price of D6 ethanol RINs increased dramatically. An increase of additional total renewable fuels obligations (RVOs) for each year from 2014 to 2016 in the final rulemaking in comparison to the preliminary proposal released on May 29, 2015, was one factor in the spike of the prices of RINs. On May 31, 2016, the EPA released its proposal for the 2017 RFS mandate and D6 RIN prices have generally risen.
The steady rise in RIN prices from above $0.60 in January to above $0.90 in July of this year can be mostly attributed to the RVOs for 2016 and 2017 and perceptions of future supply. There has been a slow but steady awareness that the supply of RINS might be tight for the next two years. In late June there was a Reuters news report that referred to Goldman Sachs Group talking about a supply crunch and how RINs will be $1 or above in 2017. That may have contributed to the rise in prices in late July. As seen in Figure 1, there was a fall to around $0.80 in mid-August, which may have been just a correction or some other market event. During August, we witnessed some market incidents such as a letter from a well-known investor, Carl Icahn, addressed to the EPA on how the system is rigged. That may have tempered trading for a few days. For more information on recent ethanol market developments visit the AgMRC newsletter.
Written by: Sampath Jayasinghe, Decision Innovation Solutions
Guest Contributor: Shashi Menon, EcoEngineers, 300 E Locust Street, Des Moines, IA 50309. http://ecoengineers.us/
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