Sit on the RINs

Sit-on-the-RIN-smAvoid your enemy’s strength, and attack his weakness, said Sun Tzu. Thereby, we consider the problem of the RIN.

The US Environmental Protection Agency has discovered the following way of interpreting Energy Independence and Security Act.

To wit, if the transportation fuels supply chain — controlled by guess whom — does not build renewable fuel infrastructure, which they won’t, they don’t have to distribute any more renewable fuels than now, which rob them of market share.

So let me get this straight.

You’re telling me that, if oil companies simply ripped out all the (their) unleaded gas pumps in the country, we all have to go back to using leaded gas in (your) cars? If a corporation doesn’t put in (their) infrastructure to protect (your) data privacy, no data privacy law will be enforced?

Just think what a better world it would be if Jesus Christ had been able to prevent his execution by simply refusing to carry his own cross to Calvary. Thereby creating a shortage of crucifixion infrastructure. The Romans, as it turns out, had a sadly different idea about distribution constraints and law enforcement than the Environmental Protection Agency.

All in all, it’s good news for opponents of the Clean Power Act. All that the coal industry has to do is buy up gas pipelines and change out a few feet of pipe, situated near to coal-fired power plants, over to methane-incompatible material. No ability to supply natural gas or other materials? No obligation to follow the Clean Power Plan.

It’s great news for the harried taxpayer. Simply ban the US Post Office from your neighborhoods. No distribution infrastructure for delivering tax returns and checks to the IRS? No requirement to follow that law either.

You might be astonished to learn…

With that kind of Obama Administration stewardship of the Renewable Fuel Standard, you might be completely astonished to learn, there’s been almost no increase in the past five years in the number of high-blend renewable fuel pumps.

Staggers the imagination. How could such a thing have come to pass? Despite the fact that, in California, sales of E85 tripled in the past year, on a per-pump basis.

Sit on the RINs

Turns out, the only thing the renewable fuels industry has that the incumbent needs are the RINs. So, why not use some market power?

First, why not take Absolute Energy’s idea, and expand on it? They blend renewable fuels with 15 percent gasoline, claim the RINs, and sell a discounted E85 fuel into the marketplace. But take it a step farther. Why not splash blend fuels, and sit on the RINs? After all, the RIN is a powerful lever, someone needs it. As Tim Berners-Lee once said, “It’s mine – you can’t have it. If you want to use it for something, then you have to negotiate with me. I have to agree, I have to understand what I’m getting in return.”

Why not use RIN power for expanding distribution, instead of providing a free RIN to the incumbent? For example, execute RIN purchase agreements with obligated parties on the basis that they distribute a given percentage of the fuels as E85 or E15? It creates no supply constraint for renewable fuels, and no inconvenience to the consumer. It simply alters the balance of market distribution power.

Second, why not create a volume discount for the E85 customer? If the industry needs to sell, for example, an additional 1 billion gallons of higher ethanol blends to bypass the E10 saturation point, why not create a more attractive discount for E85 to sell to independents who pledge to sell E85?

Does 85-cent E85 fail to shift markets, in your view? What about 60-cent E60? Taking a loss of, say $0.85 per gallon (in these $1.45 ethanol days) as a loss leader is no picnic, but across the industry sales volume of 14 billion gallons, a billion gallons sold at a 75-cent discount represents a total discount of 5.5 cents. That’s no more than the difference between the CBOT price for the March 2016 ethanol contract and the May 2016 contract.

Vive la difference!

Consider all of the above material to stimulate your own thoughts. What is remarkable about people, in the end, is adaptability. So, think of ways to adapt to the nefarious times you find yourself living through. It’s worth some thought.

Five years of focusing on enforcement of the RFS could hardly have gone worse for the renewable fuel industry. The industry faces a halt in renewable volume obligation growth, an abandonment of the US by prospective cellulosic ethanol fuel project developers, a slow-down in EPA pathway approval, snail-like pacing of blender pump growth, and some 180 members of the US House of Representatives calling for a shut-down, phase-out, or lock-down of the Renewable Fuel Standard.

New tactics are called for when old tactics fail. And the power of markets remain.

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