In an August 1, 2016 letter to the Commodity Futures Trading Commission (CFTC) and the Environmental Protection Agency (EPA), the Renewable Fuels Association (RFA) called for an investigation into Renewable Identification Number (RIN) trading and recent increases in RIN prices. RINs are the currency used for compliance with EPA’s Renewable Volume Obligations under the Renewable Fuel Standard (RFS) program. In the August 1 letter, RFA calls upon the CFTC and EPA to take action under the recently-executed memorandum of understanding (MOU), in which EPA and CFTC agreed to coordinate and share information regarding the RIN and renewable fuels markets. Under the MOU, CFTC also agreed to “advise EPA” and “conduct appropriate oversight” to deter fraud and market abuse.
Advocating on behalf of the ethanol industry, RFA asserts that recent spikes in RIN pricing do not correlate with increased ethanol production levels. Instead of being driven by basic supply and demand market fundamentals, RFA alleges that RIN prices are being manipulated by those seeking reform or repeal of the RFS program. Accordingly, RFA’s letter urges the agencies to investigate RIN price volatility.
Some, however, attribute the continued price increases to inadequate supply of RINs. For example, a recent study published by the University of Illinois predicts an upcoming shortfall in the supply of RINs. The study, by Scott Irwin and Darrel Good of the University of Illinois’ Department of Agricultural and Consumer Economics, included an analysis of supply and demand across all RIN categories. The study finds that EPA’s recent policy of setting RFS mandates sufficiently high to increase biofuel consumption, combined with the increased consumption of gasoline driven by falling oil prices, motivates the increased use of RINs to meet RFS compliance obligations. Irwin and Good have made this point in prior studies as well, linking EPA’s demonstrated seriousness of getting the RFS program “back on track” to RIN price spikes in 2013 and 2015.
EPA and CFTC have not yet responded to the letter.