The Renewable Fuel Standard’s compliance credit market mechanism does not have any impact on retail gasoline prices, according to a new analysis released today by the Renewable Fuels Association. The analysis finds that while RFS compliance credits—known as RINs, or Renewable Identification Numbers—are a factor in wholesale gasoline prices, there is no evidence that RIN costs have any measurable effect on the retail prices paid by consumers.
RFA Chief Economist Scott Richman found that, not surprisingly, the main driver of recent higher retail gas prices is higher crude oil prices. He calculates that retail gasoline prices have had a correlation of 0.96 with West Texas Intermediate crude oil prices on a monthly basis from January 2013 to July 2021 (with 1.00 representing a perfect correlation and 0.00 representing no correlation whatsoever). Meanwhile, there has been essentially zero correlation (-0.05) between gasoline prices and the prices of RINs. The new analysis is consistent with similar studies conducted by Informa in 2015 and 2017.
“Higher gasoline prices this summer were caused primarily by OPEC+ oil production cutbacks and an increase in gasoline demand,” writes Richman. “Additionally, supply issues such as the Colonial Pipeline shutdown and refinery closures due to Hurricane Ida accentuated price pressures at times. RINs are a convenient target for accusations since they are not widely understood, but as the analysis confirms, RINs do not contribute to higher retail gasoline prices.”
RFA President and CEO Geoff Cooper put the report’s findings into context: “The topic of RFS compliance and RINs can be complex and confusing, and oil refiners have used that complexity to their advantage in their relentless campaign against the RFS. One minute the refiners claim RIN prices cause higher retail gas prices, implying that they somehow fully pass RIN costs on to consumers. Then the next minute they claim RINs are eating into their bottom line because they can’t pass costs along to the pump. Neither of those arguments holds water, as this new analysis shows. The truth is, merchant refiners fully recoup RIN costs by passing them along to wholesale buyers at the terminal; then the RIN value is fully offset when ethanol is blended with gasoline. There is no impact to the consumer.”
Cooper also stressed that the debate over RINs wouldn’t even exist today if refiners had appropriately reacted to the investment signals sent when the RFS was expanded nearly 15 years ago. Refiners who acquire and blend physical volumes of renewable fuel—the original intent and purpose of the RFS—secure RINs free of charge.
When it comes to retail fuel prices, the U.S. Energy Information Administration has stated that crude oil prices and gasoline supply and demand are the main drivers. The EIA estimates that the cost of crude oil accounted for more than half of what consumers paid for gasoline from 2011 to 2020, and crude oil and taxes together represented nearly three-quarters of the total.
For more facts on the RFS and RINs, check out RFA’s Truth About RINs white paper here.