The Pass-Through of RIN Prices to Wholesale and Retail Fuels under the Renewable Fuel Standard

Abstract

The US Renewable Fuel Standard (RFS) requires blending increasing quantities of biofuels into the surface vehicle fuel supply. The RFS requirements are met through a system of tradable permits called Renewable (fuel) Identification Numbers, or RINs. We exploit the large fluctuations in RIN prices during 2013–15 to estimate the pass-through of RIN prices to US wholesale and retail fuel prices. We control for common factors by examining spreads of physically similar fuels with different RIN obligations. Pooling six different wholesale petroleum fuel spreads, we estimate a pooled long-run or equilibrium pass-through coefficient of 1.00 with a standard error of 0.11. This pass-through occurs within two business days. The only fuel for which we find economically and statistically significant failure of pass-through is retail E85, which contains up to 83% ethanol; the pass-through of RIN prices to the retail E85–E10 spread is precisely estimated to be close to zero. Keywords: E85; Energy prices; Fuels markers; RBOB; Retail fuel spreads; Wholesale fuel spreads