Turns out that RINs are a market-sensitive renewable fuel subsidy that lets energy industry efficiently adapt as demand changes.
Not long ago, I wrote about research into renewable-based aviation fuel. What I did not know at that time, but have been fascinated to learn since, is that a financial instrument called a RIN underwrites the entire development of non-fossil-fuel technology. RINs begin as Environmental Protection Agency identification numbers on gallons of alternative fuel. I’m using the labels “alternative” or “renewable” interchangeably to contrast them with traditional fossil-based fuels.
Eco-friendly air travel: San Antonio researcher discusses possible routes and whether it’s realistic Talking to Hoekstra made me realize a couple of cool factors about RINs, which are at the intersection of finance, energy and decarbonization policy. Market-fluctuating subsidy The first cool thing is that the price of RINs — which ends up being the literal amount of subsidy-per-gallon that a renewable fuel producer gets paid — fluctuates freely in the marketplace.
An opportunistic Texas lithium-extraction strategy has me thinking Renewable fuels, like a lot of carbon-reducing projects, are not competitively priced when compared with fossil-based fuels. If renewable-fuel production gets more efficient and plentiful, however, the RIN market will reflect that. That lowers the “tax” in the form of RIN prices a refiner has to pay. And it reduces the subsidy the renewables producers receive.
My vote? Replace the humans and put robots behind the steering wheel. Hoekstra says admiringly: “The refiners say the system is broken. I say absolutely not. It’s doing precisely what it is designed to do, beautifully.” Which is to say, it is incentivizing renewable fuel production, but in an efficient way that responds to supply and demand changes and technology changes.
Want an edge predicting outcomes? Check out Nate Silver’s guide to rational risk-taking. Reviewing analyst transcripts from last year at public companies like Valero Energy Corp., it does seem that industry participants were caught off guard by the sudden price changes. Hoekstra goes further and names large refiners that haven’t figured out how to model and price RINs, which would be important for risk management and financial planning.
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