Agricultural Advisory Committee 

Meeting

July 25, 2013

Panel II: Ethanol / RINs

Office of the Chief Economist
D6 Ethanol RIN prices spiked in early 2013, surprising many observers

2

Data Source: Bloomberg

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

D6 2013

D6 2012
D6 Ethanol RIN prices converged toward D4 biodiesel and D5 advanced biofuel RIN prices

3

Data Source: Bloomberg

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

D4

D5

D6
Analysts: Mandated blending exceeds market capacity, given status quo

4

Data Source: CFTC calculations, EIA, EPA
Analysts: A Fundamentals-Based Explanation for Higher Prices in 2013

5

• Analysts: Amount of ethanol required by EPA mandate to be 

blended exceeds industry capacity to blend (given status quo 

technology, infrastructure, and market practice)

• Analysts have suggested that the difference will be made up by 

buying RINs to satisfy the mandate

• Their theory is that the stock of D6 RINs will be depleted 

sometime in 2014

• “The Impending Collision of Biofuels Mandates with Market Reality”: 

U of Illinois FarmdocDaily, 26 Sep 2012

• “A Question Worth Billions: Why Isn’t the Conventional RIN Price 

Higher?”: U of Missouri Food and Agricultural Policy Research 

Institute report, Dec 2012

• “The Ethanol Blend Wall, Biodiesel Production Capacity, and the RFS 

... Something Has to Give”, U of Illinois FarmdocDaily, 13 Feb 2013

• “Outlook for Ethanol and Conventional Biofuel RINs in 2013 and 

2014,” Iowa State Center for Agricultural and Rural Development, 

December 2012 [puts upper bound of D6 RINs at $1.20 in 2013] 
Color/claims from Market Participants

6

• 2007-2010: Excel spreadsheet-based market

• 2010-Present: Transactions booked into EPA 

Moderated Transaction System (EMTS)

– EMTS is not a central limit order book

– Trade confirmation/back office accounting 

system

– Participants can see their own inventory of RINs 

and RINs transactions, but not anyone else’s

– Post-trade transparency to the EPA:

• Most transactions (generate, separate, sell, retire) 

reported within 5 business days to EMTS[40 CFR 80.1452]

• Quarterly reports to EPA due end of 2nd month 

after quarter-end
Color/claims from Market Participants

7

• Broker-driven market (Perhaps 20-25 brokers)

• Estimated trading activity in the market

• Slow day: 5-10 million RINs

• Active day: 100 million RINs

• Estimated RINs to trade at end of 2012: 2.6 billion

• Estimated trading costs

- 2012: D6 RIN market ~ 5.0 / 5.2 cents (3-4% wide)

- 2013: D6 RIN market ~ 70 / 72 cents (3-4% wide)

- 2013: D6 RIN market ~$1.20 / $1.22 (1.5-2% wide)
Color/claims from Market Participants

8

• Fraud in Biodiesel RIN market 

– Trades for 2010 and 2011 D5 RINs booked into EMTS

– RINs issued by EPA, but not valid: no biofuel existed (140 

million RINs) – criminal violation of the EPA

– Purchasers had to buy new RINs to comply with mandate 

– Liquidity dried up for smaller plants (Counterparty credit 

risk)

– Third parties to validate RINs for smaller, lesser known 

plants (QAP RINs, Feb 2013 Proposed Rule)

– Some financial institutions have entered the market but 

have had difficulties establishing relationships: high 

barriers to entry due to counterparty credit risk issues