Top Three Takeaways – From EPA Decisions on Small Refiner Exemptions

Number 3: The Big Contradiction Remains Unresolved

This decision is a “deal”, straight out of the textbook, “Trump: The Art of the Deal”.  It is a compromise about the Big Contradiction. The Big Contradiction is that:

• on the one hand, the costs of Renewable Identification Numbers (RINs) used for compliance with the Renewable Fuel Standard (RFS) program are the same for all obligated parties

while,

• on the other hand, the costs of RINs used for compliance are higher for some small refiners than for other refiners.

These two things cannot both be true simultaneously.

The “same cost for all obligated parties” position is based on economic theory and empirical studies showing the RIN compliance cost is the same for those who purchase RINs and those who generate them by blending biofuels. This is the position that had been taken most recently by EPA.

The “higher for some small refiners” position is based on practical experience. This position is represented by a Department of Energy (DOE) criteria matrix that was developed based on the experiences and understandings of commercial market players and is the position held by the small refiners petitioning for exemptions.

The lawsuits, no matter how they start, always come down to one thing — the misunderstanding of how RIN costs pass through fuels supply chains.  Misunderstanding of this single economic issue is the root cause of the contradiction that, in the legal/political realm, remains unresolved today.

The lawsuits, no matter how they start, always come down to one thing — the misunderstanding of how RIN costs pass through the fuels supply chains. 

Number 2: The Burden of Proof is Flipped

As I read it, there is now a presumption that an eligible small refinery who qualifies in the DOE matrix analysis gets the exemption until proven otherwise, and this just flips the burden of proof from the opposite, previous EPA position where the refiner was presumed to NOT qualify for the exemption until proven otherwise.

This just flips the burden of proof from the opposite, previous EPA position

And as I read it, in the future, when it is proven otherwise, things will flip right back as in a perpetual motion machine being fueled and funded by whoever is paying for the lawyers.

So long as the big contradiction remains unresolved in the financial/political realm, the financial consequences of the “Sustained Revenue for Expensive lawyers” (oops, I mean the Small Refiner Exemption, or SRE) battle will continue to pile up as repetitive failures to resolve it in court continue well into their second decade.

Who is paying for this, and do they care?

Number 1: D4T continues to be a valuable benchmark theoretical price

Hoekstra Trading’s theoretical value of the D4 RIN (named “D4T”) has been calculated weekly since 2020 and published by Bloomberg Finance LP on the Bloomberg terminal since 2023.  The ATTRACTOR spreadsheet is Hoekstra Trading’s application of the theoretical RIN pricing model published in the paper, The Price of Biodiesel RINs and Economic Fundamentals .  

ATTRACTOR users know the solution to the big contradiction. They can quantify the theoretical impact of decisions like this. They use that knowledge to identify RIN strategies on the premise RIN market prices will tend to be attracted toward their theoretical economic values. 

Our real time experience supports the finding expressed in The Price of Biodiesel RINs paper that “evidently, the economic fundamentals do a good job explaining the variation in RIN prices at the monthly frequency and longer.” 

“evidently, the economic fundamentals do a good job explaining the variation in RIN prices at the monthly frequency and longer.” 

from “The price of biodiesel RINs and Economic Fundamentals”

The hard data supporting this finding now extends 15 years, from Jan 2011 until today.  

Recommendation

Get Hoekstra Research Report 10 and the ATTRACTOR spreadsheet

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

George Hoekstra

+1 630 330-8159