Impact on Merchant Refiners and Blenders from Changing the RFS Point of Obligation

Bruce Babcock, Gabriel Lade () and Sebastien Pouliot ()

Center for Agricultural and Rural Development (CARD) Publications from Center for Agricultural and Rural Development (CARD) at Iowa State University

Abstract: The Environmental Protection Agency has proposed to deny a request to move the point of obligation under the Renewable Fuel Standard (RFS) from oil refiners to fuel blenders. Supporters of the request argue that those refiners who do not have the fuel blending capabilities of large, integrated oil companies are in danger of going out of business due to their need to buy RINs (Renewable Identification Numbers) to show compliance with the RFS. We demonstrate that this claim is false and that moving the point of obligation would have no impact on refiner profits. The key point that is neglected in the arguments of those who want to move the point of obligation is that added refiner costs from complying with the RFS are passed on to blenders through higher gasoline prices. We show that high RIN prices, holding constant gasoline consumption levels, have no impact on profits of refiners, blenders, or integrated oil companies. Moving the point of obligation from refiners to blenders similarly will have no impact on profit levels other than moving administrative costs of showing compliance from refiners to blenders. High RIN prices that result from substitution of ethanol for gasoline impact refiner profits from a loss of market share to biofuel producers. This loss of profits from lost market share is consistent with the objective of the RFS to substitute biofuels for gasoline. Moving the point of obligation from refiners to blenders would have no impact on this loss.

Date: 2016-12
New Economics Papers: this item is included in nep-ene and nep-env
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