The price volatility of renewable identification numbers (RINs) may be the result of speculation and market manipulation by parties that are not obligated by law to possess RINs under the federal renewable fuels program.  These concerns have led two members of Congress to request that federal agencies investigate RIN pricing and the possibility of fraud.

Introduced by the EPA under the federal renewable fuels program, a RIN is a code assigned to each gallon of renewable fuel that is produced in or imported into the United States.  Obligated parties acquire RINs to demonstrate compliance with the renewable fuel standard (RFS); the parties may also trade RINs.  The value of RINs provides an economic incentive to use renewable fuels, and the EPA intended that the RIN market function through the participation of obligated parties. 

Susceptible to manipulation

But Senator Debbie Stabenow (D-MI), chair of the Senate Committee on Agriculture, Nutrition, and Forestry, is concerned that factors other than supply and demand have been dramatically affecting the price of RINs.  In a letter to the Commodity Futures Trading Commission (CFTC), Stabenow requested that the CFTC investigate if there is a lack of transparency in the RIN market that has made it susceptible to manipulation. 

“While I support an actively traded market with a diverse array of market participants, the market must function and allow entities to manage their risk and comply with the law,” wrote Stabenow. 

Financial institutions

One day later, Senator Chuck Grassley (R-IA) wrote to EPA administrator Gina McCarthy about RIN market “abuse and exploitation” by nonobligated parties, including financial institutions. 

“The EPA needs to provide assurances that this market is functioning for its intended purpose, rather than acting as a profit mechanism for Wall Street banks and other financial institutions,” wrote Grassley.  “It’s troubling that there appears to be no way to determine who is trading the credits, at what price, and at what volumes.  It’s even more alarming that it’s impossible to know the extent of the involvement of financial or other speculators.”

What are the safeguards?

Grassley’s letter includes nine questions for McCarthy, including:

• What safeguards does the EPA have to prevent RIN market manipulation and abuse by parties that are not involved in the renewable fuel supply chain?
• Is the Agency working to eliminate abusive trading practices such as hoarding?
• Is there a way for the general public and all parties who generate, own, or trade RINs to discover the market price for RINs through EPA’s Moderated Transaction System (EMTS)?  
• To what degree are nonobligated parties with no direct involvement in the fuel supply chain (e.g., financial institutions, speculative investors) participating in the RIN market?
• Has the EPA considered providing aggregated data to the public regarding RIN transaction prices, volumes traded, and volumes held by the various segments of the marketplace (i.e., obligated refiners, obligated importers, nonobligated blenders/marketers, and non-obligated third parties with no tie to the supply chain)?

Fluctuation

In June 2013, the U.S. Energy Information Administration reported that before 2013, RIN prices ranged between $0.01 and $0.05 per gallon.  In March 2013, the per-gallon price was as high as $1.00.  In July, the price peaked at about $1.44.  By mid-September, the price for a RIN was between $0.60 and $0.70.

Stabenow’s letter

Grassley’s letter