The dramatic increase in the price of the D6 Renewable Identification Number a decade ago was one of the more spectacular moves in the history of major commodity trading. The spike in the price of RINs — the credits used to certify compliance with the federal Renewable Fuel Standard (RFS) — was brought on by a sudden uptick in demand and stakeholders who lacked sufficiently deep awareness and understanding of the complex RIN credit system. In today’s RBN blog, we use the story of 2013’s “Big Bang” in D6 RIN prices to explain the fundamental mechanism that determines RIN prices, consider whether such a price shock could occur again, and discuss what stakeholders can do to prepare.
The 100-fold (10,000%) move in the D6 RIN — from a low of 1 cent in 2012 to more than $1 in July 2013 — meant U.S. refiners and importers, who naturally tend to be short RINs, were suddenly facing unexpected RIN costs totaling $14 billion per year. The price spike, which came to be known as “RINsanity,” occurred because ethanol use, which had been increasing steadily through 2010-12, reached the 10% maximum that can be blended into E10 gasoline (a level also known as the “blend wall”). The government mandate was for 13.8 billion gallons of ethanol to be blended into gasoline when there was room for only 13 billion gallons. It was like pouring cream into your coffee until it reaches the brim, after which no more will fit.
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