USDA Economic Research Service studies future RIN prices

By Erin Voegele | November 15, 2011

The USDA’s Economic Research Service published a study focused on renewable identification numbers (RINs) and their role in the renewable fuel standard (RFS2) program in November. In addition to providing basic information on the function of RINs, the study, titled, “The Renewable Identification Number System and U.S. Biofuel Mandates,” also addressed market outlook for RINs.

According to the report, biodiesel RIN prices have remained high in 2011, with prices trading significantly higher than ethanol RINs. The study notes these high biodiesel RIN prices imply a more binding biodiesel mandate with mandate-driven effects on markets for soybean oil and other biodiesel feedstocks.

Assuming the biodiesel mandate is held constant at 1 billion gallons starting in 2012, the report states the biodiesel mandate will be binding for the next five to six years, but that biodiesel production will exceed the 1 billion gallon mandate later in the decade. During this time, soy oil is projected to account for approximately 50 percent of the biodiesel output.

The authors of the report have used the above baseline assumption as well as other factors, including the U.S. Energy Information Administration’s 2010 Annual Energy Outlook projections for diesel prices, to estimate the future prices of biodiesel RINs. According to the report, the spread between diesel prices and soybean oil prices over the next 10 years was used to calculate a biodiesel production profitability indicator. The resulting calculation shows that biodiesel RIN prices will need to remain high in early years of the RFS2 program. “High biodiesel RIN prices will increase the profitability of procuring biodiesel, and thus its supply, because the price producers receive should be equal to the price consumers are willing to pay plus the core value of RINs,” states the report.

However, the report notes that as biodiesel production rises above mandated levels, RIN prices should drop since the biodiesel mandate is not binding and market prices, including higher diesel prices, would provide sufficient economic incentives to meet and exceed the mandate.

A fully copy of the report can be downloaded from the USDA ERS website.


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