The complex world of RINs can be a hard-to-navigate environment and requires arduous management practice for those in the biodiesel industry. RINs, or renewable identification numbers, are crucial building blocks to the production and distribution of biodiesel across the country. RINs can be traded on the open market, creating another potential revenue stream ‘ if done correctly ‘ for the petroleum value chain.
RINs are generated by the production of biofuels and are used to verify refiner or obligated party compliance with the blending requirements of the Renewable Fuel Standard 2. A company is typically assigned 1.5 RINs for each gallon of biodiesel produced. As each gallon of biodiesel passes down the supply chain, the management and tracking of RINs associated with those downstream gallons of biodiesel can become complex.
Buying with and without RINs
For some customers in the marketplace, the RIN process can be difficult and cuts into the efficiency of their business operations. To better serve these customers, biodiesel producers made it a point to provide biodiesel without RINs attached. Often, RIN-less biodiesel is preferred by customers that cannot easily aggregate all of the RINs for each gallon they buy. In addition, going through the RIN registration process adds expense; this extra cost can be a motivating factor for customers who prefer to purchase biodiesel without the RINs attached.
‘We sell B99 RIN-less biodiesel; it gives customers an added level of flexibility,” said Jon Scharingson, director of sales and marketing for Renewable Energy Group, Inc. ‘The daily changes in the marketplace can greatly affect the value of RINs, and the volatility in 2013 was apparent.”
When B99 RIN-less biodiesel is shipped to customers, the biodiesel producer retains the RIN that came with each gallon. To help disperse this supply of RINs, the biodiesel producer provides customers (primarily larger) with the opportunity to purchase one additional RIN with each gallon of biodiesel purchased. Typically, 1.5 RINs are assigned to every gallon of biodiesel, but by purchasing the residual RIN from a gallon of biodiesel that is sold as B99 RIN-less, those customers can purchase 2.5 RINs per gallon.
Should you decide to purchase biodiesel with the RINs attached, it is important to have a RINs management plan in place.
‘Many companies will outsource their RINs management as a cost-saving method. Due to the expense and meticulous attention to detail needed in managing RINs, it is often easier to work with a broker,” said Michael Ruggles, senior manager, Treasury Operations for REG. ‘It is compared to an individual preparing his or her own tax return or going to a professional service. It is all based on a level of comfort.”
Some biodiesel producers also have dedicated RINs accountants on staff that can help coach and assist customers along the way. These producers can also help connect customers with RINs brokers and they can walk people through RINs values and what the value propositions look like.
No matter which path you take, knowing every party involved in the RINs transaction process is important in maintaining integrity. Having a sound knowledge of the biodiesel supplier and their RINs generating process will help build confidence and trust in purchasing quality RINs.
Ask the questions: Who are you selling to? What are they looking for? Am I going to have issues moving the RINs?
Make sure you know your counter parties. If you’re buying biodiesel with RINs and plan on selling them, it’s probably best to make sure you have identified a party willing to purchase the RINs in advance and know what quality of RINs that party will accept.
There are a number of other steps that can be taken to ensure that quality RINs are being transacted, starting with sidestepping any mistakes in management. Ruggles recommended looking beyond the name of the producer on the RIN and delving deeper by examining how the RIN was produced and whether the producer has a solid track record in producing a quality RIN. The RIN from a larger biodiesel producer may have more value attached, but that does not mean that a smaller producer is generating lower-quality RINs.
A RIN is not marketable until a ‘separation act ‘occurs,”‘ meaning the biodiesel has been blended with the petroleum diesel. The separation act changes the RIN from assigned to separated, and then becomes a stand-alone marketable commodity. This means that the RIN can be sold. Prior to the separation, the RIN itself cannot be sold and can only be moved by being attached to a gallon of biodiesel.
There are a number of options when it comes to selling RINs. Let’s say you are a wholesaler and you are just buying and selling, you are mainly going to pass the RIN on to the next person. If you are a jobber or a dealer, you may choose to acquire the RIN from the producer or distributor, and after you blend the fuel you can sell the RIN.
‘First, you can use a RIN broker. Basically, they are clearinghouses that will do all of the work for you and they charge a small fee for each RIN handled. You can also work on your own and sell them; typically obligated parties and brokers will purchase them,” Ruggles said.
Scharingson adds that some companies may aggregate their RINs and sell them directly to the large oil companies and other obligated parties. In order to do this the company must set up an account in the EPA Moderated Transaction System, which manages RIN transactions.
In order to help maintain quality and integrity throughout the RINs program, the EPA has created a quality assurance program, simply known as the QAP. The QAP is a voluntary program and is intended to help large obligated parties feel more assured that they are acquiring qualified RINs. Currently, there are two temporary programs under the umbrella of the QAP ‘ QAP-A and QAP-B.
Keeping a watchful eye on RINs from production to retail is essential at every level of the biodiesel industry.