Biofuels are meant to be an environmental friendly alternative for the use of fossil fuels. Thisidea led to the use of subsidies in order to support their production and use. In the USA, the EPAis in charge of establishing mandates to obligated parties and enforcing compliance. RenewableIdentification Numbers (“RIN”) are generated for every gallon of biofuel produced in orimported by the USA. This number is the accounting mechanism with which the obligated party,blenders and refiners, can show that their obligation is fulfilled. RINs can only be used forcompliance after they are separated from their underlying batches of biofuel. The blending ofthis batch or part of this batch of biofuel with gasoline or diesel triggers the separation event. Atthis point, the obligated party that has the separated RIN can use it for compliance, store itaccording to some rules and constraints or sell it to a different party. In the end of each yearlyperiod, parties need to send enough RINs to fulfill their individual mandate of each biofuel type.A party, therefore, can meet the mandate without physically blending, or blend above themandate and sell their excess RINs. Because some refiners should have lower ethanol sourcingcosts than others, it is expected that they will be able to trade RINs, therefore decreasing totalmandate compliance costs.Ethanol sourcing costs will be one of the predominant factors in defining which parties willblend, which will buy the RINs and the market value of RINs in the future. Furthermore, thisfactor has been neglected in the existing literature on RINs, and the results of this thesis showthat there is much to understand from a comprehensive analysis of how transportation costs andthe ethanol supply chain may influence the RINs market.This thesis analyzes the role of logistics in the ethanol supply chain, comparing outcomes when aRINs market exists to a baseline case where RINs are not available. The results are obtained for2different levels of blending margin, B, which is defined as the price of gasoline, PxGas, minusthe price of ethanol, PxEth. The findings suggest that, under certain values of B, the existence ofa RINs market decreases the total amount blended. Total savings from RINs are estimated to beup to 50% of the total transportation costs in the ethanol blending sector, or up to $400 million.
