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Misunderstanding?, Part 3 - Do RINs Increase the Price of Gasoline to Consumers?

Refiners and the U.S. Environmental Protection Agency (EPA) have locked horns in a dispute over Renewable Identification Numbers (RINs). Now in its 10th year, the dispute stems from contradictory premises about how RINs affect the profits of the refiners and blenders who produce the ground transportation fuels sold in the U.S. To form an opinion of what ought to happen next, you need to understand the fundamentals of how RINs work in light of the RIN being a tax and a subsidy that forces renewables into fuels. In today’s RBN blog, we focus on how RINs force renewables into fuels and address the related question: Do RINs increase the price consumers pay for gasoline?

So far in this blog series, we have been considering the example case of E10, which is the 10% ethanol/90% BOB (blendstock for oxygenate blending) gasoline we use to fuel our cars, SUVs and pickups. In the first blog of the series, we explained that RINs are used to monitor compliance with the federal Renewable Fuel Standard (RFS), which was created by the Energy Policy Act of 2005 and expanded and extended by the Energy Independence and Security Act of 2007. In essence, the system works like this: A refiner or importer of BOB — the non-renewable gasoline mixed with ethanol to produce E10 — is obligated to acquire and retire an annual quota of RINs to fulfill its Renewable Volume Obligation, or RVO. A 38-digit RIN is created for and “attached” to each gallon of ethanol produced to blend with BOB, “separated” from the ethanol gallon when the gallon is blended with BOB, and “retired” to fulfill the BOB refiner or importer’s RVO. Part 1 also addressed the cost to acquire RINs, which we sometimes call the “RIN tax” (dark-blue outlined rectangle in Figure 1). How that RIN tax affects a refiner’s profit is one root of the controversy — one camp, which we call Camp A, says it hurts a refiner’s profit and the other side, Camp B, says it doesn’t.

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