Monday, July 30, 2012

RIN carry and why I'm coming up with a different number than most

I think the original spreadsheet on my blog may actually be correct…..waiting on some confirmation, does anybody have a good contact at EPA? It isn’t a big deal this year bout would add about 150 million gallons (50+ million bushels) to the available RIN stocks. The difference between the two assumptions for point 3) becomes a BIG deal in future years.

I’m no longer convinced I’m wrong about 3) so the spreadsheet on my blog MIGHT ACTUALLY BE CORRECT and there are more than 2.640 billion gallons of maize rins possible for a carry forward….look at the EPA rules.
Note the percentages are nested and the RVO is NOT on the gap…..

This would mean if the carry in of advanced and sub-advanced wasn’t 20% then more than 20% of the gap could come in……. So the max carry is closer to the original one I had on my blog.

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Greetings from Rome.

This is my interpretation or I could just be wrong:

1)      First it isn’t that you can carry 20% OUT of last year into this year. It is that you can meet 20% of this year’s obligation with RINs from a previous year. That maters when the mandate is growing.  So if  the mandate last year was 90 and this year it is 100. Paulson’s calculation says you can carry out 90*.2= 18 when in reality it is that you can use 100*.2= 20  this year. So the 2520 constraint is incorrect.
2)      Pauslon uses net imports. He is correct in that exports lose RINs, you can’t export and then use those RINs for compliance. The problem with using NET-exports is that the imports are almost assuredly sugarcane ethanol which is by definition and advanced fuel. Unless the price of advanced RINS and conventional RINs are the same, you are not going to use those Advanced RINs to comply with the total mandate. So you should be using simply exports in the calculation.
3)      Finally, and this one seems to be not well considered is that the rule on carry is 20% of this year’s mandate can be met with last year’s RIN carry in.  Well there is no corn ethanol mandate despite what is constantly reported as a mandate which grows to 15bg. There is simply a gap in the total less advanced mandates that corn can qualify for. So the max carry-in isnt’20% times this gap as it isn’t even a mandate itself. It is 20% times the explicit mandates.   So how much corn could you carry in ? This is why there are those notes on the bottom of the graph about my assumptions of what was in the other classes. I’m probably wrong on those assumptions of how much other classes of RINs were available  but this is how the math should actually occur

You can find the language  as to why this appears true here 
Search for the section D. 20% Rollover Cap. Notice the 20% applies to the RVOs of which there are no corn ethanol mandates.  So.

You have
Biodiesel mandate*20% = max biodiesel carry
Cellulosic mandate*20% = max biodiesel carry
Advanced mandate*20%=max advanced fuel carry
Total mandate*20% = max renewable fuel carry
There is no corn mandate so in theory that isn’t capped in the way everyone puts it forth.

SO the point is, if you don’t MAX OUT the carry from advanced fuels, this leaves more that corn ethanol can carry from the previous year.

Advanced mandate = 2000
MAX advanced carry in is then 400 million gallons
Total mandate = 15200*20% = 3040 million gallons.

So if you were carrying in a FULL compliment of advanced RINs the amount of maize RINS you could carry would be 3040-400=2640.
However, given the fraudulent biodiesel RINs (and the weird vintage price inversion in RINs it caused), the fact that we had no cellulosic production and the fact that imports don’t look so large as to say we filled up the 400 million gallons, then we have greater room for maize ethanol to make compliance. So let’s say we carried in 100 million gallons of all advanced fuel types into 2012. That means we could carry in

3040 – 100 = 2940 million gallons of maize ethanol RINS to comply with the total and we would have used a total of 20% of last year’s RINs to comply with the total mandate.  The Real trick in this calculation is to know what the carry out was for all advanced fuels, but the number thrown out as the maximum that maize could under any circumstances carry forward is not that it could be higher.

*as an aside, could over carry advanced and then be forced to use it to comply with the total renewable mandate but they wouldn’t be worthless.  

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