Convenience Matters Intro:
[Music] You’re listening to Convenience Matters brought to you by NACS, whether it’s for food, fuel, drinks, or snacks, about half of the U.S. population shops at a convenience store every day. We’ll talk about what we see at stores and what the future may hold for our industry.

John Eichberger:
Welcome, everybody to Convenience Matters. I am your host, John Eichberger with the Fuels Institute and NACS, and I’m joined by my colleague…

Convenience Matters Outro:
Jeff Lenard with NACS.

John Eichberger:
And today we’re going to talk about something that’s really high on a lot of people’s mind these days. It’s a mid May, 2021 and we want to chat about what’s going on in the fuels markets. We want to talk about what’s going on in the renewable fuels fuel sector and with what’s going on with the prices of Renewable Identification Numbers and we’re joined today by somebody who knows probably more about that than I will ever imagine to know. Its Reo Menning. She is the President and CEO of the RIN Alliance. Reo, thanks for joining us on Convenience Matters.

Reo Menning:
Well, thank you, John. I’m looking forward to our discussion today.

John Eichberger:
So I guess before we get started, we should probably, for those in the audience who are not familiar with what a RIN is, kind of explain what is a Renewable Identification Number and what role does the RIN Alliance play in the overall renewable fuels standard program?

Reo Menning:
Sure. So RINs came into play with some legislation that was passed back in 2007. And what they really are is a credit that gets attached to every renewable fuel gallon that gets produced in the United States. And that credit remains attached to that renewable fuel gallon until it is blended with gasoline or diesel. And at that point in time, it gets separated off and it is eventually sold to what’s called the obligated parties, which are typically the refineries, the people that are making the diesel and the gasoline and they have to demonstrate compliance. And there are EPA sets, a compliance guideline each year for how many RINs have to be retired based on each gallon of diesel or gasoline. So they’re essentially a compliance credit, but they work on a market with respect to how they’re priced. So it is, it’s one of those things that’s a little bit more of a market-based regulatory paradigm.

John Eichberger:
I remember when the RFS had been debated, the structure, the Renewable Identification Number trading program was being debated and discussed. And one of the things that – I was a lobbyist back then – was we want to make sure that those who have more RINs than they need are able to sell them to do, to need RINs so that we have a fluid credit trading program type situation. The RINAlliance was established way back when the RFS was first put together. How effective has the RIN program been in terms of helping facilitate compliance with the RFS?

Reo Menning:
I think it’s been, I mean, from my perspective, it’s been extremely smooth. RIN markets have been around for a long time. Some of the challenges with Rin markets are if you’re a small person in the marketplace or a small blender in the marketplace, you know, getting those RINs to the obligated parties and that’s why there’s rent aggregators out there and traders. So RIN Alliance is one of those rent aggregators that helps small producers or small, I should say, small blenders, my apologies, small blenders be able to market those RINs at current prices. That being said, the Renewable Fuel Standard is able for any, any market size. And we work with about any market size as well. So, you know, John, you’d asked me about what is RINAlliance and how does it play into this? I mean, it was originally established to help small marketers. We’re in Iowa. And, we’re part of the Fuel Iowa, which is the fuel industry association here in the state. And this was put together to help our smaller members be able to participate equally in the marketplace as larger blenders and larger retailers. What ended up happening is what we put together, which is essentially a software system to put in place efficiencies and make it easier to track the RINs compliance services so that you don’t have to have someone on staff constantly keeping track of the details of the regulations and then RIN marketing, which is if you can’t get the market prices yourself, because you don’t have the volumes we can aggregate and get those prices for you. So you get the most competitive prices and this service was needed across the United States. I mean, we have blenders large and small and from just from most States across the United States that participate in this. So from what I’ve been able to see the RIN credits move quite quite fluently from who needs them to who has them, or from who has them, I guess to who needs them. And it’s a pretty efficient system.

John Eichberger:
You know, Jeff, I think a is important, something like this exists because there was a time when there was a lot of debate that some of the larger marketers were able to blend their own ethanol into the gasoline, received the RIN credit and having more competitive price and the smaller retailers like, well, I don’t have the opportunity to do that. So a tool like this helps everybody participate in the market, which is a great tool and helps kind of level the playing field across different size operators.

Jeff Lenard:
Yeah. And I know last week with the Colonial Pipeline, we saw some some smaller consumers blending their own fuel in plastic bags and Tupperware containers.

John Eichberger:
Hey, those are my neighbors, Jeff!

Reo Menning:
I don’t know that they got the value of that RIN, you know, cause they had to register with EPA. Maybe there was a bunch of applications to be a part of the Renewable Fuel Standard suddenly.

John Eichberger:
If they were, they were all written on the hoarded toilet paper from last year. {laughter}

Reo Menning:
Absolutely. Absolutely. There’s always some very creative folks out there. Right?

Jeff Lenard:
The idea of what, what happened with the Colonial Pipeline still in a lot of our minds, because in some areas of the country we’re still working to get back to where we were at the same time, another big trend, we’re seeing a big trend in, in the growth of EVs that maybe we didn’t anticipate a few years ago where do EVs fit into this equation as we talk about renewable fuels and RINs? Is there more of a connection than I think most people realize between RINs and EVs or is one really possibly the transition to the next?

Reo Menning:
I say both. All of the above, none of that. But I mean, it just depends on how you look at it. So the Renewable Fuel Standard, what is great about it is there is some flexibility within it to have other types of credits if you want to call it that. So I know there’s talk about whether the Renewable Fuel Standard could become something that also embraces electric credits and has RINs for electrification. That being said right now, it is focused on those biofuels that are out there that definitely reduce carbon intensity relative to diesel and gasoline. So I think… it works and it’s there and it’s now. So when we start talking about reducing carbon intensity, these biofuels are already doing it. And the more we get them out there, the better off we’re going to be. Whether we move to EVs completely. Whether these fuels remain a large part of the marketplace, that kind of remains to be seen because that’s going to be based on consumers and what they want you know, efficiencies in how vehicles are performing.

Reo Menning:
You know, engines are performing. There’s so many things that go into this … of the future that, I mean, biofuels have got to stay in the game and should stay in the game because they are an excellent resource for reducing carbon intensity or reducing carbon out there. And they’re continuing to reduce their carbon intensity numbers as producers get better and better farming gets better, whatever it is that goes into this gets better. So they’re in the game and they should remain in the game and EVs will probably be in the game too. We’ll see kind of where they go.

John Eichberger:
You know, that your comment reflects exactly what the Fuels Institute has been saying all year is that even if EVs are viewed as the savior of the world, which I believe they’re part of a solution of a future market condition, not the only part, they are only a part. And they’re going to take a long time to gain significant market share. How are we going to reduce the carbon intensity of our liquid fuel combustion engines that are going to be in the market for 50 to 60 years, the best way to do that now for the biofuel market. And you look at the California Resources boards, carbon intensity scores for even starch ethanol, and it is significantly lower than California gasoline. And that’s predicated on older lifecycle analyses, new lifecycle analyses that have shown that the industry has done a better job of reducing its carbon intensity.

John Eichberger:
So the opportunities to have progress on the emissions profile by using biofuels strategically is right there. Now, Jeff, you asked about EVs. Prior to, I think it was during the Obama administration, EPA was working on an E-RIN-type program where you could get credits for using renewable energy to deliver electrons in electric vehicle that work kind of stopped over the last few years. There’s been discussion speculation that the Biden Administration will resurrect that we don’t know. but it is an interesting dynamic that, you know, on one side, the more credits you have in the market, the more liquid the market is, the more transparent it is and the more apt the obligated parties, our ability to obtain those credits and comply. So I think there’s some opportunities there. It also is a little interesting because the RFS is designed to promote biofuels, not electric vehicles. So it’ll be interesting to see what Congress does when they start thinking about the program.

Jeff Lenard:
So John, you raised an interesting point, the new Administration and every Administration has things that they kind of signal in terms of this is our big thinking. And then there’s things that they look at that maybe, this is achievable. And they look at both those things and they probably look at what can we do in two years? What can we do in four years? What can we do if there’s eight years? So for both of you how do we look at this new administration in its favor, ability to RINs and, and some of these other things that we’ve been talking about in this marketplace, and I’ll start with you Reo.

Reo Menning:
Well, you know, it’s clear that the Biden Administration has been very supportive when it comes to the Renewable Fuel Standard. And that in part you can see with respect to their decisions that they’re making about small refinery exemptions, how they’re weighing in on the Supreme Court evaluation of the Tenth Circuit Court, I always get the words mixed up. I can’t say them all together. You know what I mean? {indiscernible} I’m clearly not an attorney. So, you know it’s, it’s encouraging with respect to what, what we’re seeing there, but you’ll see the Administration looking at programs similar to what California offers with respect to LCFS. You’re going to see a lot of things out there. But I think what really, it comes down to, if you asked me, is biofuels reduced the CIs, you know, carbon intensity, I mean, they’re lower carbon intensity. They reduce carbon in the environment for every gallon that they displaced. And what retailers, fuel marketers need to do is be in the game. And in order for them to control their supply costs and to remain competitive, they’ve gotta be in the game for biofuels. And whether that means the Renewable Fuel Standard whatever that is, that comes out as far as policy is concerned, being in the game allows them to control their supply chain and their costs and offer the most competitive fuels out there.

John Eichberger:
And on the political side, you know, the RFS has a statutory provision that goes up through 2022. And after that volumes are in the discretion of EPA. So there’s been hearings last Congress about what are we gonna do about the RFS, but about the future of biofields policies, as Reo mentioned, do we bring in a California type, low carbon fuel standard, which, you know, there’s a Midwest, there’s a memorandum of understanding among the Midwestern governors have a regional LCFS out there, Canada’s doing an LCFS across this entire country. So does that make sense? I don’t know. LCFS has been pretty successful to date, but as the emissions reduction profile, the program gets a little more intense, the costs are gonna get a little higher. So balancing that is going to be challenging. For me, the, the concern I have is this preoccupation of the electrification. Whether it be from industry, advocacy, politicians, this idea that that is the only solution, and they almost have blinders on anything else and really comes down to – it is a solution that will have a huge impact long-term, but in the interim, what are we doing?

John Eichberger:
And how do we address the various use case scenarios? Not every mode of transportation can electrify in the near term, you’re going to have to have different energy sources for different transportation use scenarios. And in some of those cases, a liquid fuel combustion engine is the right strategy, even in the longer term. And so it’s really important that we try to, engage with our legislators and help them recognize that there are options. It’s not one size fits all. There’s not one path, there’s multiple tools available to reduce the carbon intensity of our transportation. And we need to give them all an opportunity. One of the biggest risks I see with this preoccupation is there’s a lot of research and development, still ongoing and combustion engine and liquid fuels that could yield tremendous benefits in the environment. If we say electrification is the only path forward, are we going to starve that R & D from making progress?

John Eichberger:
And are we going to cut off any additional reductions in emissions from that transportation sector, because we’re focused on one option. And I think that’s the biggest challenge I see with where we are politically the Federal level. And hopefully, you know, we can get some sensible discussions about what is the mix, what’s the proper mix, what’s the right deployment strategy at different solutions to maximize our environmental protection while benefiting consumers. And I think, you know, we get so focused on one objective. There’s two here. Any policy that gonna hurt the American family financially will fail. And so we have to make sure we right-size our strategies, and I’m concerned that that’s absent from the discussion right now.

Reo Menning:
Yeah. And John, I would agree with you on that. And, and you know, one of the, one of the great things about energy is we have so many different sources that are out there. And what makes sense for South Dakota may not make sense for Florida and what makes sense for New York and a highly densely populated area may not make sense for Montana, open land, low population density. So, you know, having a variety of fuels and types of energy sources and promoting all of those and encouraging at the same time, these efficiencies that lower carbon emissions, we do have to have that R & D on all, all aspects of energy.

Jeff Lenard:
And it really is. I almost seems like there’s an opportunity for our industry convenience retailers, convenience and fuel retailers to tell a story because I’ll often hear, okay, are you about, you know, dirty belching vehicles or EVs, and you can only pick one. And it’s like, well, no, it’s, it’s the evolution of the market and it is much cleaner. And there are an awful lot of opportunities for us to tell the positive story about here is what we’re selling in here is why it matters to you. And we are looking at the future just as much as you are. But with 280 million registered vehicles, it takes time for some of these things to happen.

Reo Menning:
Right. And, the one thing I will here, it doesn’t matter what fuel marketer or fuel retailer you talk to. They want to provide what the customers want. If the customers want it, they can provide it, and they want to provide it at the lowest cost possible. So that’s their goal, and that means a variety of energy sources and ways to approach things.

John Eichberger:
So given the time of year we’re in May, 2021, we’ll be remiss if we don’t raise the question about RIN prices and a good friend of ours, Tom Kloza coined the term RINsanity a few years ago. Just this month there was I got emails from some of my colleagues asking, you know, what’s going on. This is really hurting. The high price of RINs is hurting business. There was a piece in the Wall Street Journal this month that I think was, I disagree with it, but talking about how the ethanol fuel tax is hurting Americans what is really going on with RIN prices? We’re near record here in the middle of May, what is leading to that? What is what’s caused all that and what, what, what kind of you do you see as going forward?

Reo Menning:
Sure. You know, I’m by no means an expert in the analysis of RIN prices and where, and what’s causing them to go up and down. But I do know, you know, the key factors that, that tend to impact them. I mean, supply and demand is a huge one. And demand is increasing exceptionally rapidly for liquid fuels relative to where it was with COVID. So you’ve got that demand. You’ve also got a challenge with supply between the Colonial Pipeline challenges the Texas storm, the winter storm that was in Texas – supply is a challenge. And so when supply is low and demand is ramping up at speeds, that that are challenging to me, you’re going to see prices of everything go up when it comes to fuel. And so supply and demand is big. another one is feedstock is impacting rent prices right now.

Reo Menning:
So corn futures and soybean futures are at highs as well. So when your feedstock that goes into what you create your fuel out of goes up, then your ethanol and your biodiesel raise and these RIN prices are there to help offset those increasing costs of renewable fuels. Policy decisions are always huge in the rent markets and what impacts rents right now. It’s the anticipation of what RVOs are going to be in RVOs are basically those compliance volumes that EPA sets for each year. Those are anticipated to be released in June. So for 2021 and 2022, and, you know, we have an Administration that it looks like they’re going to give us some favorable when I say favorable or unfavorable, however, you want to look at it, higher. RVOs right. And, I can tell you that you can see both sides, right? So I’m not. I’m neutral. {laughter}

John Eichberger:
The champions of the RFS want to support farmers. And, you know, when I was on Capitol Hill, I worked for an Iowa Congressman and it was all about how do we promote ethanol and biodiesel? So our farmers have a better livelihood, so higher RIN prices, higher commodity, future prices, help farmers. So, and from that perspective, yes, that’s good from compliance world.

Reo Menning:
I mean, I personally like moderate RIN prices. I think the market works best when they’re moderate and they’re stable. But things aren’t stable right now. I mean, then you’ve got all the E-15 policy, the LCFS policy, the EV policies, and then small refinery exemptions, the very fact that they’re not probably going to get granted, like they used to, and then you have what people perceive as a potential shortage in the market. Is there going to be enough credits for me to meet my obligation by the end of the year if biofuel doesn’t ramp back up, cause remember biofuel production is down too, because ethanol plants started making hand sanitizer and some of them closed down. And so, so it is again, very much so back to what I started – supply and demand. It just keeps going back to that and that’s, what’s so great about a market-based system in some ways. So, you know I also know that businesses are always complaining about whether it’s incorporated and these prices have changed rapidly, but RIN prices change. And this has been around for more than a decade. I think they’ve been able to figure out, or they should have been able to figure out how to manage this in a way that especially the small refineries that complained about it. Well, you’ve had 10 years to figure this out. What are you doing?

John Eichberger:
You know, Jeff the conspiracy theorist and the skeptics are very unhappy with Reo’s explanation, but it is, I think it’s spot on.

Jeff Lenard:
Supply and demand… Where have I heard that before, I don’t know, 20 years we’ve been talking about that. And, just the past couple months, the other phrase I’ll put words in her mouth – fits and starts – as we bring back the economy, there’s going to be things that in the bigger sense, it’s good news because we’re recovering rapidly, but it’s also bad news because we have to ramp up quickly. And whether it’s at trucker shortage or whether it’s, you know, all these other things you’re hearing about that may be in short supply this summer the underpinning is it’s good news because we’re coming back, the bad news is it’s fits and starts, and we’re going to face some bumpiness as, as we get through this. And it’ll be nice to be complaining about like normal things like traffic jams and things like that as, as things come back.

Reo Menning:
Yeah, absolutely. And they’re going to come back fast. I mean, they just are, people are ready. There’s a lot of pent up. I want to do what I want to do, what I haven’t been able to do, whatever that might be. So you’re definitely gonna see, I think some rapid…

Jeff Lenard:
Yeah, we can all unite about that bad free coffee we have at work and stuff like that.

John Eichberger:
Well, Reo, thank you for joining us. If people want to learn more about the RIN Alliance, how can they get more information?

Reo Menning:
Sure. you can go to our website at www.rinalliance.com and find all the contact information there, to be honest. So but we look forward to talking with whoever might want to be interested, just like I said, get yourself able to take RINs. You don’t have to do it, but if you don’t have the ability to do it, you’ll never be in control of your supply chain and your cost.

John Eichberger:
And control is very important, especially when you’re selling things are out of our control. Reo, Thank you very much for joining us on Convenience Matters. Jeff, great to be on the program with you again, it’s been awhile and for everybody listening, thank you for tuning in and we’ll see you next time on Convenience Matters.

Convenience Matters Outro:
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