RIN Pass-Through at Gasoline Terminals

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.