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RIN Pass-Through at Gasoline Terminals

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  • Pouliot, Sebastien
  • Smith, Aaron
  • Stock, James H.

Abstract

Wholesale suppliers at fuel terminals blend gasoline with ethanol to create finished gasoline. Under the US Renewable Fuel Standard (RFS), this blending activity produces a renewable fuel credit, known as a RIN, which blenders can sell to oil refiners who need it for RFS compliance. We estimate whether these suppliers, known as rack sellers, pass through the value of RINS. Based on a population-weighted regression with 20 large cities, we estimate a 63% RIN pass through for branded fuel (95% confidence interval [0.23, 1.03]) and a 92% pass through for unbranded fuel (95% CI [0.70, 1.14]). The confidence intervals on the pooled national regressions are wide and include full pass-through. When we estimate pass-through in regions, we find that suppliers pass through the RIN value in the Midwest – the so-called ethanol belt – and in the Gulf states. The estimates for the Midwest are 0.86 (branded, 95% CI [0.63, 1.09]) and 0.99 (unbranded, 95% CI [0.83, 1.16]). The estimates for the Gulf region are 0.88 (branded, 95% CI [0.74, 1.02]) and 0.89 (branded, 95% CI [0.76, 1.02]). In contrast, we find incomplete passthrough in Eastern cities, with estimates of 0.38 (branded, 95% CI [0.13, 0.63]) and 0.50 (unbranded, 95% CI [0.14, 0.85]); for the East, these confidence intervals do not include one. Price spreads in the West are too volatile to estimate RIN pass through precisely in that region. We also find that passthrough of RIN values to E10 prices is complete at terminals that offer multiple blends, but is incomplete (especially for branded fuels) at terminals that offer neither pure ethanol nor higher blends. The incomplete pass-through we find is a sign of too little competition at some terminals and in some regions, and that incomplete pass-through reduces the efficiency of the RIN program.

Suggested Citation

  • Pouliot, Sebastien & Smith, Aaron & Stock, James H., 2017. "RIN Pass-Through at Gasoline Terminals," ISU General Staff Papers 201702220800001049, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:201702220800001049
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    References listed on IDEAS

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    4. Gabriel E. Lade & James Bushnell, 2019. "Fuel Subsidy Pass-Through and Market Structure: Evidence from the Renewable Fuel Standard," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 6(3), pages 563-592.
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    6. Christopher R. Knittel & Ben S. Meiselman & James H. Stock, 2017. "The Pass-Through of RIN Prices to Wholesale and Retail Fuels under the Renewable Fuel Standard," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 4(4), pages 1081-1119.
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    Cited by:

    1. Wardle, Arthur R. & Akhundjanov, Sherzod B., 2022. "Industry Compliance Costs Under the Renewable Fuel Standard: Evidence from Compliance Credits," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322199, Agricultural and Applied Economics Association.
    2. Christina Korting & Harry de Gorter & David R Just, 2019. "Who Will Pay for Increasing Biofuel Mandates? Incidence of the Renewable Fuel Standard Given a Binding Blend Wall," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 101(2), pages 492-506.
    3. Burkhardt, Jesse, 2019. "The impact of the Renewable Fuel Standard on US oil refineries," Energy Policy, Elsevier, vol. 130(C), pages 429-437.

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