RINatomy Part 6 – The RIN As A Nested Structure

The Renewable Identification Number (RIN) is a nested structure.

Anatomy noun, anat·​o·​my ə-ˈna-tə-mē  a study of the structure or inner workings of something

This series has described the RIN as a subsidy, a tax, a mandate, an asset, and an option, all in one package. That makes the RIN by far the most complex environmental credit ever invented.

Adding to the complexity, the primary RIN types (D3, D4, D5, D6) exist and interact with one another in a nested structure. I will not cover the nesting aspect of the RIN in this series except to point out here that it increases complexity and introduces discreet boundaries like virtual walls and virtual cliffs that act as traps and pitfalls that blindside those navigating in the dark without a map, with costs in the $10s of millions per year per company; and that our ATTRACTOR spreadsheet helps our clients understand and analyze those traps and pitfalls, past, present, and future, to avoid being blindsided.

To recap the anatomy of a RIN:

• Part 1 The RIN Is A Subsidy – like a store coupon that discounts a product’s price to sell a higher volume than would otherwise occur.
• Part 2 The RIN Is A Tax – like a state sales tax imposed on the gasoline retailer and passed through to the fuel consumer.
• Part 3 The RIN Is A Mandate – like the set point of a flow controller that adjusts the flow of biofuels to the exact levels that are specified by law and the Environmental Protection Agency (EPA).
• Part 4 The RIN Is An Asset – like a bond that can be banked, borrowed, and traded to smooth out cash flows, minimize costs and transfer risks across market participants and compliance periods
• Part 5 The RIN Is A Contingent Claim – like a stock option whose value depends on a volatile price differential at a specified date in the future.
• Part 6 The RIN is a nested structure – like a landscape with walls and cliffs that can blindside those trying to navigate in the dark without a map.

Hopelessly complex? . . .

It may seem like the RIN is hopelessly complex. Is it? Yes, if you rely exclusively on intuition and experience for managing RIN strategy. No, if you also use the diagrams and equations that describe the system to help guide you.

Those diagrams and equations were developed, solved, and published by PhD students who worked on it many years at several U.S. universities. Hoekstra Trading found their work in 2020, applied it in a user-friendly spreadsheet named ATTRACTOR, and made it available to anyone at negligible cost.

Recommendation

We invite you to get Hoekstra Research Report 10 which includes the Hoekstra Attractor RINs pricing spreadsheet and 6 months of unlimited consultation. Why not send a purchase order today?

Attractor update

The Attractor spreadsheet shows the D4 RIN market price (gold points) and the “D4T” theoretical value (white line) updated through last Friday. The theoretical value of a hypothetical D4 RIN with 1 year remaining life (“D4T”) is $0.37.

Hoekstra Trading clients use this spreadsheet to compare theoretical and market prices, analyze departures from theoretical value, and identify trading opportunities on the premise RIN market prices will be attracted toward their fundamental economic values.

Get the Attractor spreadsheet, it is included with Hoekstra Research Report 10 and is available to anyone at negligible cost!

George Hoekstra [email protected] +1 630 330-8159