In the wake of news that Aventine Renewable Energy Holdings filed for bankruptcy, I have to wonder if the little 38-digit renewable identification number, or “RIN” is what’s killing ethanol demand.
Here’s how RINs work: To meet the Renewable Fuels Standard (RFS), every refiner, blender and importer of gasoline must demonstrate that ethanol comprises a certain percentage of their gasoline volume. To make sure enough ethanol is getting blended into the fuel supply, a unique code – or RIN – is assigned by the ethanol producer to every gallon of fuel transferred to refiners. Refiners then prove they have met their obligation to blend in ethanol by turning RINs into the EPA annually.
Instead of blending all the ethanol themselves, however, refiners also have the option to buy excess RINs (or credits) from other refiners who have done extra blending. It's important to note, also, that RIN credits expire and they can only be applied to 20% of an individual obligated party's mandated level, according to USDA.
Because of low gasoline prices, more refiners have opted to blend less ethanol and simply buy more credits. It is this excess use of RINs that may be killing off ethanol demand. At least Aventine, in its statement regarding its filing for bankruptcy, seems to think so.
According to Aventine: “Ethanol demand has been negatively affected by refiners and blenders using excess renewable identification numbers (“RINS”) to help meet their renewable fuels standard obligations instead of purchasing actual gallons of ethanol.”
Ron Miller, Aventine’s President and CEO went on to say: “The ethanol industry has sound long-term prospects, and we anticipate a strong rebound as the government imposed biofuels mandate continues to increase and the supply of excess
RINs are consumed. We are taking steps to ensure our business will be ready when the current markets turn up again.”
At the USDA outlook forum, analysts suggested that as historical RINs are used or expire, tradeable RINs will become increasingly scarce, driving up their value and encouraging actual blending of ethanol to meet mandates.