Regulation of Fuels and Fuel Additives: Renewable Fuel Standard ...

obligated parties to exercise market power in the RIN market, and the program we are
proposing today is designed to minimize these concerns. The alternative approaches
described below, in contrast, could potentially allow some non-obligated parties who
acquire RINs to either refuse to transfer them, make them difficult for obligated parties to
obtain, or drive their price up by exercising market power. We believe that these
stakeholder concerns about alternative program options are legitimate, given that nearly
half of the production volumes of ethanol come from only seven companies and only five
companies manage the majority of ethanol marketing. Our proposal also best addresses
other related issues, such as limiting the number of obligated parties, providing for the
most open RIN market, and providing an effective means at ensuring RIN certainty.
a. Producer With Direct Transfer Of RINs
One alternative to our proposed program would allow producers and importers of
renewable fuels to transfer RINs separately from the renewable fuel that they represent.
The producer or importer would still generate the RIN, but would not necessarily need to
assign it to a specific batch of renewable fuel. The producer or importer would be
required to transfer the RIN, but only to an obligated party.
Under this approach non-obligated parties other than producers and importers
would have no RIN ownership opportunities and would therefore not bear any burden
associated with transferring RINs with batches. This would eliminate most of the
recordkeeping and reporting requirements applicable to them under our proposed
program. There would also be no need for any regulatory requirements to ensure proper
accounting of RINs as they move through the distribution system, such as requirements
necessary to address volume changes due to temperature, batch splits and mergers, use of
renewable fuels in their neat form, and the recordkeeping and reporting associated with
these requirements
The challenges associated with this approach, however, pertain to the disconnect
between RINs and batches of renewable fuel. For instance, the disconnect would
produce the possibility for the creation of market power with the renewable fuel producer
that generates the RINs. As discussed above, there is the possibility that renewable
producers might not place all RINs on the market for procurement by the obligated
parties, thereby driving up their price and/or increasing further the demand for
renewables. It is very unlikely that they would withhold renewable fuel itself from the
market in order to drive up the price for it. Not only is storage capacity limited, but there
is no evidence that ethanol producers or marketers have ever exercised this type of
market control. This is also true under our proposed program.
In addition, although a refiner could purchase renewable fuel directly from a
producer and acquire RINs at the same time, there would be many other cases in which a
refiner would purchase renewable fuel without RINs (such as from a marketer).
Although the market would likely develop in such a way that renewable fuel without
RINs would be priced differently than renewable fuels with RINs, the purchase of the
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