The Pass-Through of RIN Prices to Wholesale and Retail Fuels under the Renewable Fuel Standard

The U.S. Renewable Fuel Standard (RFS) requires blending increasing quantities of biofuels into the U.S. surface vehicle fuel supply. In 2013, the fraction of ethanol in the gasoline pool effectively reached 10%, the ethanol capacity of the dominant U.S. gasoline blend (the "E10 blend wall"). During 2013-2015, the price of RINs--tradeable electronic certificates for complying with the RFS--fluctuated through a wide range, largely because of changes in actual and expected policy combined with learning about the implications of the E10 blend wall. RINs are sold by biofuels producers and purchased by obligated parties (refiners and importers), who must retire RINs in proportion to the petroleum they sell for surface transportation. As a result, RINs in effect serve as a charge on obligated fuels and a corrective subsidy for lower-carbon renewable fuels, and are neutral for fuels outside the RFS. In theory, RIN prices provide incentives to consumers to use fuels with a high renewable content and to biofuels producers to produce those fuels, and as such are a key mechanism of the RFS