RINs Equal Key Component in Today's Biodiesel Economics
July 15, 2009
BY Gary Haer
Registering for, collecting, tracking and extracting value from renewable identification number (RIN) credits can be a complicated process. However, today's RIN markets offer potential value throughout the supply chain, from petroleum refiners to end users such as school bus and off-road fleets.
RINs are a critical value component in the decision-making process for petroleum distributors and diesel users when it comes to purchasing biodiesel under current biodiesel blend economics. RINs are the federal tracking mechanism developed by the U.S. EPA to monitor utilization of renewable fuels driven by the renewable fuels standard (RFS). In the proposed rule for implementation of the RFS as revised in the 2007 energy bill (RFS2), EPA outlines the details of how obligated parties such as petroleum refiners must meet their portion of the federal biodiesel consumption volume requirements. Their consumption will be tracked by possession of RINs. If a refiner or major petroleum company doesn't meet their consumption requirement of biodiesel for the year, they'll need to purchase RINS on the open market-or pay the penalty imposed by the EPA.
If you are a petroleum distributor, current biodiesel blender, large over-the-road fleet, mining operation or a school district or fleet who is blending biodiesel with petroleum diesel, then you should know that the obligated parties could be actively looking to purchase your RINs. With the implementation of RFS2, even more biodiesel purchasers may be eligible to possess and extract value from RINs. Under RFS1, RINs tied to biodiesel being utilized for off-road were retired. Under proposed RFS2 rules, diesel consumers in underground mines, off-road construction fleets and large agricultural operations who are blending biodiesel will likely be allowed to separate their RINs and sell them on the open market in order to help obligated parties meet their federal volume requirements.
Here are the steps you'll need in order to take advantage of RIN values from your biodiesel purchase.
1. Register with the EPA.
2. Collect RINs. The mechanism used to demonstrate the transfer of RINs will be the product transfer document, which is required when ownership of a renewable fuel is transferred
to another party. They may be in any form of documentation, such as an invoice, that demonstrates transfer of ownership of the renewable fuel.
RIN Values
3. Extract the RINs value. In order to put cash in your pocket, you'll need to be able to separate RINs and then select a RIN broker in order to extract the value of your RINs by selling them back to obligated parties.
4. Conduct an annual RINs audit. It is possible that this requirement may be met by working through a RIN broker who can sell RINs on behalf of biodiesel blenders to obligated parties.
Almost anyone who purchases biodiesel directly from a biodiesel producer, like Renewable Energy Group, will have the opportunity to extract value from the RINs program, even if they don't register with EPA to collect RINs. There is market value in the RIN program for end consumers who are aware of the program and can work with their fuel suppliers on pricing models that account for RIN values.
This summer's rack prices of #2 ULSD have been in the $1.70 to $1.80 per gallon range, and June biodiesel prices for B99.9 have been 5 cents to 10 cents per gallon higher. Since March 2007, RINs values have steadily risen in value from 10 cents per gallon to more than 37 cents per gallon in June 2009. Pair this with several state incentives or tax credits for biodiesel utilization and there is potential for significant gross margin opportunity.
When taking into account RIN values of 25 cents to 35 cents per gallon, there is potential margin opportunity for U.S. biodiesel customers who take the time to better understand the RINs process and extract potential value as part of their fuel pricing model.
Gary Haer is the vice president of sales and marketing for Renewable Energy Group Inc. He can be reached at (515) 239-8000.
RINs are a critical value component in the decision-making process for petroleum distributors and diesel users when it comes to purchasing biodiesel under current biodiesel blend economics. RINs are the federal tracking mechanism developed by the U.S. EPA to monitor utilization of renewable fuels driven by the renewable fuels standard (RFS). In the proposed rule for implementation of the RFS as revised in the 2007 energy bill (RFS2), EPA outlines the details of how obligated parties such as petroleum refiners must meet their portion of the federal biodiesel consumption volume requirements. Their consumption will be tracked by possession of RINs. If a refiner or major petroleum company doesn't meet their consumption requirement of biodiesel for the year, they'll need to purchase RINS on the open market-or pay the penalty imposed by the EPA.
If you are a petroleum distributor, current biodiesel blender, large over-the-road fleet, mining operation or a school district or fleet who is blending biodiesel with petroleum diesel, then you should know that the obligated parties could be actively looking to purchase your RINs. With the implementation of RFS2, even more biodiesel purchasers may be eligible to possess and extract value from RINs. Under RFS1, RINs tied to biodiesel being utilized for off-road were retired. Under proposed RFS2 rules, diesel consumers in underground mines, off-road construction fleets and large agricultural operations who are blending biodiesel will likely be allowed to separate their RINs and sell them on the open market in order to help obligated parties meet their federal volume requirements.
Here are the steps you'll need in order to take advantage of RIN values from your biodiesel purchase.
1. Register with the EPA.
2. Collect RINs. The mechanism used to demonstrate the transfer of RINs will be the product transfer document, which is required when ownership of a renewable fuel is transferred
to another party. They may be in any form of documentation, such as an invoice, that demonstrates transfer of ownership of the renewable fuel.
RIN Values
3. Extract the RINs value. In order to put cash in your pocket, you'll need to be able to separate RINs and then select a RIN broker in order to extract the value of your RINs by selling them back to obligated parties.
4. Conduct an annual RINs audit. It is possible that this requirement may be met by working through a RIN broker who can sell RINs on behalf of biodiesel blenders to obligated parties.
Almost anyone who purchases biodiesel directly from a biodiesel producer, like Renewable Energy Group, will have the opportunity to extract value from the RINs program, even if they don't register with EPA to collect RINs. There is market value in the RIN program for end consumers who are aware of the program and can work with their fuel suppliers on pricing models that account for RIN values.
This summer's rack prices of #2 ULSD have been in the $1.70 to $1.80 per gallon range, and June biodiesel prices for B99.9 have been 5 cents to 10 cents per gallon higher. Since March 2007, RINs values have steadily risen in value from 10 cents per gallon to more than 37 cents per gallon in June 2009. Pair this with several state incentives or tax credits for biodiesel utilization and there is potential for significant gross margin opportunity.
When taking into account RIN values of 25 cents to 35 cents per gallon, there is potential margin opportunity for U.S. biodiesel customers who take the time to better understand the RINs process and extract potential value as part of their fuel pricing model.
Gary Haer is the vice president of sales and marketing for Renewable Energy Group Inc. He can be reached at (515) 239-8000.
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