A conversational guide to Renewable Identification Numbers in the RFS2
The U.S. Renewable Fuel Standard (RFS2) promotes the use of biofuels in road transportation fuel through volume mandates, which increase each year under the regulation. The Environmental Protection Agency, which administers the RFS2, each year calculates the percentage of road fuel that must be biofuel based on that year’s total fuel consumption forecast. Gasoline/diesel refiners and blenders are then assigned “renewable volume obligations” (RVOs) based on this percentage standard. The RVO specifies the number of gallons of biofuel an individual refiner or blender must blend into road fuel per annum; the sum of every refiner’s and blender’s RVOs should equal the total mandated volume. EPA has some leeway to adjust the annual volumes based on biofuel availability and other factors.
Renewable Identification Numbers (RINs) are the instrument through which refiners and blenders demonstrate that they have met their annual renewable volume obligation. Whenever a gallon of biofuel is produced and reported to the EPA it is assigned a RIN, which is traded down the supply chain with the biofuel. When a fuel blender or refiner blends that biofuel into gasoline or diesel, it claims the RIN and can either retire it to EPA or, if they have more RINs than needed for compliance, sell it on to another obligated party with a RIN deficit.
The system is intended to give obligated parties under the RFS2 a certain flexibility, but it is somewhat complex. This short paper aims to clarify how Renewable Identification Numbers, a key component of the system, work in practice. A companion paper provides a concise overview of the RFS2—its history and current implementation, proposed reductions in 2014 volumes, biofuels categories, and credit trading system.