Statement of
Brent D. Yacobucci
Section Research Manager
Before
Committee on Energy and Commerce
Subcommittee on Environment
U.S. House of Representatives
Hearing on
“Background on Renewable Identification
Numbers under the Renewable Fuel
Standard”
July 25, 2018
Congressional Research Service
https://crsreports.congress.gov
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Good morning Chairman Shimkus, Ranking Member Tonko, and Members of the Subcommittee. My
name is Brent Yacobucci. I am the Energy & Minerals Section Research Manager for the Resources,
Science, and Industry Division of the Congressional Research Service. I have been asked to provide a
background and overview of issues related to Renewable Identification Numbers, or RINs, the
compliance mechanism for the federal Renewable Fuel Standard. Congressional guidelines on objectivity
and non-partisanship require that I confine my testimony to technical, professional, and non-advocate
aspects of matters under consideration, and that I limit myself to questions within my field of expertise.
Although I can discuss policy options and potential ramifications, CRS does not take a position on
pending or proposed legislation.
I have been with CRS for 19 years in various positions, providing analysis on alternative and
conventional transportation fuels, vehicle design, and vehicle and fuels-related provisions of the Clean Air
Act. I have a bachelor’s degree in mechanical engineering from the Georgia Institute of Technology and a
master’s degree in public policy from The George Washington University. I am a member of the Society
of Mechanical Engineers and the Society of Petroleum Engineers, although today I am representing only
CRS.
Summary
The federal Renewable Fuel Standard (RFS) was established in the Energy Policy Act of 2005 (EPAct)
and expanded in the Energy Independence and Security Act of 2007 (EISA). The RFS requires the use of
renewable biofuels in transportation fuel—for 2018, the mandate is roughly 19.3 billion gallons. Within
the larger mandate, there are sub-mandates (sometimes referred to as “carve-outs”) for advanced biofuels
(e.g., biomass-based diesel and cellulosic fuels). In 2022, the RFS is scheduled to require the use of 36
billion gallons of renewable fuels, including 21 billion gallons of advanced biofuels, although it is unclear
whether these targets will be adjusted. For example, although the Environmental Protection Agency
(EPA) has established a standard of 19.3 billion gallons for 2018, the statute called for 26 billion gallons.
The RFS is a market-based program in which obligated parties (generally refiners and/or terminal
operators) must submit credits to cover their obligations. These credits—Renewable Identification
Numbers, or RINs—can be bought or sold like other commodities. In general, for each gallon of
renewable fuel in the RFS program, one RIN is generated. Each RIN is a 38-digit number, with blocks of
digits corresponding to various data, including the year the RIN was generated, the producer of the fuel,
and the type of fuel. RINs are valid for use in the year they are generated and the following year.
From the beginning of the RFS program, there have been concerns with RIN generation and the RIN
market. In part to address concerns over transposed digits, allegations of double-counting (intentional or
unintentional) and other errors and inaccuracies, when EPA finalized rules for the RFS as expanded by
EISA (sometimes referred to as the “RFS2”), EPA also established a new transaction system. All RIN
transactions, including generation, sale or trade, and retirement, must be cleared through this system,
called the EPA Moderated Transaction System (EMTS). From the beginning of the RFS2, EPA has
maintained that obligated parties must exercise due diligence. Under this “buyer beware” system those
purchasing or receiving RINs must certify their validity on their own, and they are responsible for any
invalid RINs they pass on to other buyers or submit to EPA for compliance.
In 2011, EPA began issuing Notices of Violations (NOVs) to companies that the agency alleged
fraudulently generated biodiesel RINs. In those cases, EPA and the Department of Justice initiated both
civil and criminal proceedings. In part because of these RIN fraud cases, EPA established a system
whereby RINs can be certified by third parties registered with EPA. Under this quality assurance program
(QAP), obligated parties have an “affirmative defense” if RINs are later found to be fraudulent—that is,
obligated parties would not be liable for penalties under the Clean Air Act for the use of such RINs.
However, such parties are required to purchase additional RINs to replace any invalidated RINs.
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At times, RIN prices have been volatile. Most RINs are bought and sold through private contracts.
However, there are also spot markets for RINs, and in 2013, spot prices for conventional ethanol RINs
rose dramatically, before dropping even more rapidly. Stakeholders have identified various factors as
potentially causing the price increase, including whether sufficient amounts of ethanol can be blended
into gasoline to meet the RFS mandates and the extent to which non-obligated parties are speculating in
RIN markets. Further, some stakeholders have suggested that a few actors could be actively working to
manipulate RIN markets, although it is unclear how such manipulation would occur.
One complicating factor is that there are effectively two markets for RINs. In what can be thought of as
the primary market, biofuel producers sell their products to gasoline refiners and blenders with RINs
attached. These transactions are largely based on private contracts, and there may be little or no price
discovery with these transactions. In the secondary market, RIN owners, some of which are not obligated
parties under the RFS, may buy or sell excess RINs. The Oil Price Information Service (OPIS) and other
private entities report secondary market prices, but it is unclear how much those prices reflect the overall
market, or whether they present an upper bound to prices on any given day. OPIS data present prices, but
do not report trading volumes. There is no “trading floor” or public exchange for RIN trading. EPA’s
EMTS requires price reporting, but those data are closely held by EPA because of concerns over the
potential release of confidential business information (CBI). Further, it is unclear how useful any price
data would be since, as noted before, it is presumed that most initial RIN transactions are part of a
contract for renewable fuel with RINs attached. In those cases, there may be no direct way to uncouple
the price of RINs from the price of the fuel itself.
Concerns have been raised about the volatility of RIN prices on the secondary market, and the potential
effects on the costs faced by blenders and refiners—particularly those without the infrastructure to
blend—as well as the effects on consumer fuel prices. The complex interactions among the prices for
ethanol, crude oil, wholesale gasoline, RINs, and other commodities makes such analysis difficult.
Stakeholders have proposed various options to address some of these concerns, including:
limiting the participation of non-obligated parties in the markets and the EMTS;
establishing a price cap on RINs;
requiring more public, real-time reporting of RIN trading data; and
granting the Commodity Futures Trading Commission (CFTC) authority to regulate the
RIN market similarly to agricultural commodities.
In addition to RIN-specific proposals, a variety of policy options have been proposed for the RFS more
broadly, including:
limiting or expanding the volumes required under the RFS;
expanding or limiting the fuel types that qualify; and
eliminating the RFS entirely.
Each of these options could affect agricultural and biofuel producers, gasoline suppliers, blenders, and
consumers. It is beyond the scope of this testimony to address the economic effects of various proposals.
RFS Introduction
The Energy Policy Act of 2005 (EPAct, P.L. 109-58) established the RFS, requiring the use of biofuels
such as ethanol and biodiesel in the nation’s fuel supply. The Energy Independence and Security Act of
2007 (EISA, P.L. 110-140) expanded this mandate.1 Within the overall RFS mandate, there are sub-
1 For more information on the RFS, see CRS Report R43325, The Renewable Fuel Standard (RFS): An Overview, by Kelsi
Bracmort.
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mandates for specific types of fuel, such as advanced biofuel, biomass-based diesel and cellulosic
biofuels. In the early years of the program, the lion’s share of the mandate was unspecified, and the vast
majority was supplied by corn-based ethanol largely produced in the Midwest.
Each year, for each class of renewable fuel, EPA determines a percentage standard that all suppliers must
meet. The standards are based on projected total U.S. gasoline and diesel demand for the coming year. For
example, for 2018, the overall renewable fuel standard is 10.67%, the advanced biofuel standard is
2.37%, the biomass-based diesel standard is 1.74%, and the cellulosic biofuel standard is 0.159%.2 For
2018, these percentages translate to roughly 19.3 billion gallons total of renewable fuel; 4.29 billion
gallons of advanced biofuel; 2.1 billion gallons of biomass-based diesel; and 288 million gallons of
cellulosic biofuel.3 (See Figure 1.)
The RFS mandate has been a major impetus to the development of U.S. biofuels industries, especially the
ethanol and biodiesel industries. In 2005, the United States produced 3.9 billion gallons of ethanol and 0.1
billion gallons of biodiesel.4 By 2013, production had increased to roughly 13.3 billion gallons of ethanol
and nearly 2 billion gallons of biodiesel and renewable diesel.5 In 2018, U.S. production is projected at
roughly 16 billion gallons of ethanol and over 2 billion gallons of biomass-based diesel.6
Despite this growth, however, the biofuel mandate under the RFS has not met the volume targets initially
established in EISA. For example, using its authority under the Clean Air Act, for 2018 EPA lowered the
overall biofuel mandate from 26 billion gallons to 19.3 billion, and the cellulosic mandate from 7 billion
gallons to 288 million.7 A range of factors have contributed to this shortfall, including lower than
expected commercial-scale production of cellulosic biofuels and limits on the ability of fuel suppliers to
deliver—and vehicle owners to use—ethanol-gasoline blends of greater than 10% (E10). This latter
limitation is frequently referred to as the “blend wall.”8
2 Environmental Protection Agency (EPA), “Renewable Fuel Standard Program: Standards for 2018 and Biomass-Based Diesel
Volume for 2019,” 82 Federal Register 58491, December 12, 2017.
3 Fuels vary by energy content. For example, biodiesel has roughly 1.5 times the energy content of ethanol. For biomass-based
diesel, volume requirements are based on biodiesel-equivalent gallons; for all other standards, volumes are based on ethanol-
equivalent gallons.
4 Renewable Fuels Association (RFA), Industry Statistics; Annual U.S. Fuel Ethanol Production, Washington, DC, accessed July
20, 2018, http://www.ethanolrfa.org/resources/industry/statistics/#1454099788442-e48b2782-ea53; National Biodiesel Board
(NBB), U.S. Biodiesel Production, Washington, DC, accessed July 20, 2018, http://biodiesel.org/docs/ffs-production/biodiesel-
production-estimates-2005-2011.ppt?sfvrsn=10.
5 RFA, op. cit., Annual U.S. Fuel Ethanol Production; NBB, Production Statistics, Washington, DC, DC, accessed July 20, 2018,
http://biodiesel.org/production/production-statistics.
6 RFA, op. cit., Monthly Ethanol Production; EPA, 2018 Renewable Fuel Standard Data, Washington, DC, July 10, 2018,
https://www.epa.gov/fuels-registration-reporting-and-compliance-help/2018-renewable-fuel-standard-data.
7 EPA, 82 Federal Register 58488, December 12, 2017.
8 For more information on the blend wall, see CRS Report R40445, Intermediate-Level Blends of Ethanol in Gasoline, and the
Ethanol “Blend Wall”, by Kelsi Bracmort.
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Figure 1. Annual Biofuel Mandates
Billions of Gallons
Source: P.L. 110-140; EPA annual RFS rulemaking documents.
Note: All volumes are ethanol-equivalent, except for biomass-based diesel, which is biodiesel equivalent.
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Renewable Identification Numbers
Compliance with the RFS is measured using RINs. When qualifying biofuels are produced, each gallon is
assigned a RIN. Until the biofuels are sold as fuel or blended into conventional fuels, the RINs are
“attached” to the fuel. Once the biofuel has been blended or sold, the RINs are detached, and can then be
bought and sold like other commodities. At the end of each year, fuel suppliers must multiply the above
percentage standards by their total gasoline and diesel sales to calculate their renewable volume
obligations (RVO), which indicate the total number of each type of RIN that the suppliers must submit to
EPA. To the extent that a supplier has excess RINs, that supplier may sell them to others who may be
short, or save them for use in the following year.
A RIN is a unique 38-character number that is issued (in accordance with EPA guidelines)9 by the biofuel
producer or importer at the point of biofuel production or the port of importation. Each qualifying gallon
of renewable fuel has its own unique RIN. RINs are generally assigned by batches of renewable fuel
production. (See box below.) Under the RFS2 RIN formulation, Code D identifies which of the four RFS
categories—total, advanced, cellulosic, or biodiesel—the biofuel satisfies. (For a schematic representation
of different fuels’ D codes, see Figure 2.)
Any party that owns RINs at any point during the
RIN Codes
year (including domestic and foreign producers;
RIN=KYYYYCCCCFFFFFBBBBBRRDSSSSSSSSEEEEEEEE
refiners and blenders; exporters and importers of
Where
renewable fuels; and RIN traders) must register
K
= code distinguishing RINs still assigned to a gallon
with the EPA and follow RIN record-keeping and
from RINs already separated
reporting guidelines. RINs can only be generated
YYYY = the calendar year of production or import
if it can be established that the feedstock from
CCCC = the company ID
which the fuel was made meets EISA’s definitions
FFFFF = the company plant or facility ID
of renewable biomass (including land-use
BBBBB = the batch number
restrictions), and if the fuel meets EISA’s lifecycle
RR
= the biofuel energy equivalence value
greenhouse gas emission limits. The feedstock
D
= the renewable fuel category
affirmation and record-keeping requirements
apply to RINs generated by both domestic
SSSSSSSS = the start number for this batch of biofuel
renewable fuel producers and RIN-generating
EEEEEEEE= the end number for this batch of biofuel
foreign renewable fuel producers or importers.10
9 EPA, “Regulation of Fuels and Fuel Additives: Changes to Renewable Fuel Standard Program; Final Rule,” 75 Federal
Register 14685, March 26, 2010.
10 40 C.F.R. § 80.1451.
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Figure 2. Renewable Fuel Classification (Not to Scale)
Source: CRS.
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EPA Moderated Transaction System (EMTS) and the Quality Assurance
Program (QAP)
All RIN transactions, including generation, trade/sale/transfer, separation, and retirement, must be cleared
through the EMTS.11 When biofuels change ownership (e.g., are sold by a producer to a blender), any
attached RINs are also transferred. The Code K status of the RIN is changed at separation (generally after
the fuel is sold from a biofuel producer to an obligated party).
As noted by EPA in the rule establishing the RFS2 and the EMTS, EPA views the EMTS solely as a
“screening” system, and all due diligence remains the duty of obligated parties.12 Under this “buyer
beware” system those purchasing or receiving RINs must certify their validity on their own, and they are
responsible for any fraudulent RINs they pass on to other buyers or submit to EPA for compliance.
Given several cases of fraud in the biodiesel RIN market, in 2014 EPA established a voluntary Quality
Assurance Program (QAP), whereby third-party verifiers—certified by EPA—audit the supply and value
chains of biofuel/RIN producers. If a verified RIN is later invalidated, obligated parties have an
affirmative defense against civil and/or criminal penalties.13 However, any invalidated RINs must be
replaced, and EPA’s rules specify who is responsible for that replacement.14
Beyond monitoring the EMTS, EPA generally takes a “hands-off” approach and does not directly regulate
the primary or secondary markets for RINs. Further, the Commodity Futures Trading Commission
(CFTC), which regulates the trade of other commodities, has no jurisdiction over RINs, although it
consults with EPA on RIN-related issues from time-to-time.15
RIN Markets
As noted above, initial trading of biofuels with attached RINs is generally conducted through private
contracts between biofuel producers and gasoline refiners/blenders. After this initial trade, RINs may be
detached and sold/traded multiple times. Further, a party who made the initial purchase may choose to sell
the batch of biofuel with RINs still attached. Either way, obligated parties, as well as non-obligated third
parties (“traders”) may buy or sell RINs, as long as any such transactions are reported in EMTS. Figure 3
presents a highly simplified schematic of the primary and secondary market for RINs.
EPA maintains a publicly available spreadsheet of all EMTS participants.16 This is part of a larger list of
all parties that have obligations and/or reporting requirements under the fuels provisions of the Clean Air
Act. Non-obligated parties are referred to as “RIN owners.” However, there is no easy way from the
11 40 C.F.R. § 80.1452.
12 EPA, 75 Federal Register 14732, March 26, 2010.
13 Title II of the Clean Air Act, which regulates fuels and vehicles, contains no criminal penalties. To the extent that the Justice
Department has initiated criminal proceedings for actions related to civil violations of Title II, these have generally been for other
fraud-related crimes such as wire fraud.
14 U.S. Environmental Protection Agency, EPA Issues Final Rule to Establish a Voluntary Quality Assurance Program for
Verifying the Validity of Renewable Identification Numbers Under the RFS Program, EPA-420-F014-042, Washington, DC, June
2014, https://nepis.epa.gov/Exe/ZyPDF.cgi?Dockey=P100JPPM.pdf.
15 EPA and CFTC, Memorandum of Understanding Between the Environmental Protection Agency and the Commodity Futures
Trading Commission on the Sharing of Information Available to EPA Related to the Functioning of Renewable Fuel and Related
Markets, Washington, DC, March 15, 2016, https://www.epa.gov/sites/production/files/2016-03/documents/epa-cftc-mou-2016-
03-16.pdf.
16 EPA, Registered Companies and Facilities in Part 80 Fuel Programs, Washington, DC, updated July 20, 2018,
https://www.epa.gov/fuels-registration-reporting-and-compliance-help/registered-companies-and-facilities-part-80-fuel.
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spreadsheet to determine whether a RIN owner is a subsidiary of a larger company that may or may not
be an obligated party, or whether that RIN owner is solely trading RINs on the secondary market.
Just as there is limited information on the participants in RIN markets, there is little public data on the
volume or price of RIN trades. Private companies such as the Oil Price Information Service (OPIS) and
Argus Media conduct surveys of traders to acquire price data. However, it is unclear whether these daily
prices reflect the entire market or only a segment of it. Further, while OPIS and others report prices, they
do not report trading volumes, so there is limited ability for observers to analyze market factors such as
the liquidity of the market or its overall value.
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Figure 3. Simplified Schematic of RIN Trading
Source: CRS
Notes: This is a simplification of the operation of RIN transfers and trading. In many cases, different entities are owned by the same company, and the specific
arrangements can vary widely based on corporate structure.
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Stakeholder Concerns
A variety of concerns related to RINs have been raised by various stakeholders. These include the
transparency of the market, potential market manipulation, and the effects of high and/or volatile RIN
prices on various stakeholders.
Transparency
As noted above, there is limited public information on RIN markets. EPA maintains that much of the data
submitted to the EMTS is confidential business information, and thus not publicly available. Further, it is
unclear whether reported spot prices accurately reflect the value of most or all RINs at any given time.
Speculation vs. Manipulation
Some stakeholders have questioned whether third party traders are “manipulating” the RIN markets.
However, it is unclear what form that manipulation might take, and whether third party traders are instead
speculating on price shifts in order to make a profit. While the latter may be necessary for a dynamic
market (if all participants agreed on the trajectory of prices, third parties would have no reason to
participate), the former could artificially shift prices and potentially raise costs for some obligated parties.
Concerns about manipulation are connected with the above concerns over transparency; it is difficult to
ascertain who is participating in the markets and what actions the participants may be taking at any time.
Volatility and High Prices
Over the past few years, RIN spot prices have been volatile, often seeing increases toward the end of a
year and drops after the start of a year. Prices have also been responsive to EPA’s release of proposed and
final rules, agency actions to expand or shrink annual RIN obligations, and potential congressional action.
This volatility may benefit some stakeholders while disadvantaging others—for example, rising prices
benefit a refiner with a RIN surplus, while the same rising prices will harm a refiner facing an annual
deficit. However, a surplus in times of falling prices may be detrimental. This is particularly true near the
end of a RIN’s life—RINs are only valid for the year in which they were generated and the following
year. Thus, if a stakeholder has an excess of expiring RINs, it may look to sell those expiring RINs at
whatever price it can. Determining how rising and falling prices affect individual stakeholders, and
industries as a whole, requires more complex analysis than can be provided here.
Legislative Policy Options
Stakeholders have proposed various options to address their concerns over RINs and RIN prices. Four
proposals include: 1) limiting the participation of non-obligated parties in the markets and the EMTS; 2)
establishing a price cap on RINs; 3) requiring more public, real-time reporting of RIN trading data; and 4)
granting the CFTC authority to regulate the RIN market.
The first proposal, limiting third party participation, could possibly limit the volatility in the system. Third
party traders may participate in the market precisely because they are seeking volatility and the
opportunity to profit from that volatility. However, these same third parties may also act to make the
market more liquid, giving obligated parties more chances to secure the RINs they need for compliance.
The second proposal, a cap on prices, could potentially decrease volatility in the market. It would
certainly establish an upper bound on prices, and the lower the cap the less room there would be for prices
to move. However, more certainty on price could deter third party traders seeking volatility. A cap on
prices would also limit biofuel production if the cap were below the level needed to make biofuels
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competitive. This may be particularly true for advanced and cellulosic biofuels with limited commercial
scale production and currently high production costs.
Requiring more public data would increase the transparency of the RIN market. However, much of the
EMTS data currently reported to EPA is considered confidential business information. Policymakers may
look to balance the desire for more transparency with the needs of industry to keep some information
private.
Currently, the CFTC consults with EPA on issues related to the RIN market. Requiring CFTC to take a
more active role in regulating the market could lead to greater transparency, but could also raise
compliance costs, depending on the specifics of the policy.
Each of these options could affect agricultural and biofuel producers, gasoline suppliers, blenders, and
consumers. It is beyond the scope of this testimony to address the economic effects of various proposals.
Conclusion
The RFS is a complex program with many moving parts. Among them, RINs and the RIN market are
particularly complicated. The current system was established to address concerns with the earlier system,
but has raised concerns of its own. These include the transparency of the system, the role of third parties,
and the economic effects of the system, as well as the goals, structure, and design of the overall program.
The RFS affects the entire U.S. motor fuel supply, and any changes to the program could affect
consumers, refiners, blenders, biofuel producers, farmers, and others. I thank the Subcommittee for its
time, and I am happy to answer any questions you have.
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff
to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role.
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