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What’s all the Fuss with RFS and RINs?

By Market Analyst Dan

Jul 07, 2013
 

A quick 20 question Q&A that will simplify RFS and RINs for those wondering about all the hype.   

 
 

There has surely been a lot of buzz around RFS and RINs over the years.  However, most of the publications are written for those very close to the action – i.e. if you ain’t geek, you just won’t understand it. 

 

As RFS will have a significant impact on the oil refining industry, we’ve taken it upon ourselves to simplify what the fuss is all about.  The quick 20 question Q&A below will step you through understanding the basics of RFS and RINs.  We’ll use subsequent articles to explore what this all means to oil refineries.


 

 



What is RFS?

  • RFS stands for Renewable Fuels Standard

 


When was RFS created?

  • The RFS Program was created by the US EPA in 2005 under the Energy Policy Act (EPAct)

 

 

Why was RFS created?

  • RFS is intended to reduce US dependency on foreign fuel sources
  • RFS intends to also reduces greenhouse gas emissions
  • RFS will ultimately decrease refinery fuel production by reducing utilization or shutting them down entirely

 


How does RFS Work?

  • The RFS program sets a minimum volume requirement of renewable fuel contained in transportation fuel sold in the United States

 


What is a transportation fuel?

  • It includes Gasoline and Diesel, but not Jet fuel

 


Who is the obligated party for RFS?

  • Oil refiners who produce transportation fuels or fuel importers carry the compliance obligation

 

What is a renewable fuel?

  • Renewable fuels are derived from renewable biomass energy sources, as opposed to fossil fuels

 


Why are renewable fuels better than fossil fuels?

  • Many renewable fuels achieve significant lifecycle greenhouse gas emissions reductions relative to fossil fuels

 


What does Lifecycle reduction mean?

  • Lifecycle is more than just the emissions generated during fuel consumption, it also factors in how much emissions are generated as part of the process to create the fuel

 


What are examples of renewable fuels?

  • Ethanol is a renewable fuel that can be blended into gasoline
  • Fatty Acid Methyl Ester (FAME) is a renewable fuel that can be blended into diesel
  • Hydrogenated Vegetable Oil (HVO) is also a renewable fuel that can be blended into diesel

 


What is the RFS target?

  • The original RFS program (RFS1) required 7.5 billion gallons of renewable fuel to be blended into gasoline by 2012
  • 7.5 billion gallons per year is equivalent to 0.5 million barrels per day
  • The US gasoline consumption is roughly 9 million barrels per day
  • RFS1 basically set a requirement of 5.4 % ethanol in gasoline at the pump

 

 

 

 

What is the difference between RFS2 and RFS1?

  • RFS2 is just an expansion of the original RFS1 program

 


When did RFS2 occur?

  • In 2007 Congress passed the Energy Independence and Security Act (EISA), which now sets the foundation for RFS2

 

 

How is RFS2 different from RFS1?

  • In addition to minimum renewable fuel volumes, RFS2 now includes diesel fuel
  • RFS2 now requires 36 billion gallons of renewable fuels by 2022 – this is close to 20% renewable fuel at the pump!
  • RFS2 also sets new categories of renewable fuel, and sets separate volume requirements for each one

 


What are the new categories of renewable fuel?

 

 

So what do RINs have to do with all of this?

  • A Renewable Identification Number (RIN) gives the EPA a way of tracking all of the renewable fuels used in the United States

 


How are RINs created?

  • When a renewable fuel is produced or imported into the US it gets assigned a 38 digit Renewable Identification Number

 


What happens to the RINs next?

  • When the renewable fuel is blended into transportation fuel and sold to consumers, the RIN associated with the fuel now becomes a credit

 

How are RIN credits used?

  • As oil refiners and fuel importers carry RFS compliance obligation, they need to demonstrate that they meet the minimum volume requirements through RIN credit tracking

 


Can RINs be traded?

  • Yes, RINS can be bought or sold between parties

 


How else will RFS help reduce emissions and foreign oil dependency?

  • It costs more to produce renewable fuels, so ultimately consumers will pay more for fuels at the pump - higher pump prices will encourage lower consumer demand

 

 

Now that you’ve read this primer on understanding RFS and RINs, you’ll be able to understand all future discussions related to this sweeping regulation.  As you can see, the RFS program will not only affect refiners, but also consumers as biofuel composition in transportation fuel will affect engine performance and fuel efficiency.

 

In future articles, I will share how the RIN markets will affect refinery economics, as well as consumer prices.

 
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