Feature: US RINs Complex under Pressure while Renewable Diesel Helps RVO Mandates

by Phillip Herring and Melvin Lee (S&P Global) D4 RINs drop 53.4% in 2023; D4 biomass-based biodiesel production surpasses RVO mandate; BOHO near 2023 lows -- US D4 Renewable Identification Numbers have plummeted 53.4% in 2023 while helping to meet the renewable volume obligation mandates for several renewable fuel categories primarily because of an increase in renewable diesel production and a decline in the BO-HO, the feedstock soybean oil and blendstock heating oil spread.

D4 biomass-based diesel Renewable Identification Number credits hit 79.50 cents/RIN on Nov. 7, its lowest level since Nov. 2, 2020.

2023 RVO progress

In September, the cumulative year-to-date production of biomass-based diesel (D4) surpassed the 2023 RVO mandate of 2.82 billion gallons set by the US Environmental Protection Agency. The early satisfaction of the 2023 D4 RVO can be mainly attributed to growing renewable diesel production and favorable blending economics during most of the second half of 2023.

The data also showed the US was short about 2.80 billion gallons of conventional renewable fuel (D6) production from meeting the 15 billion-gallon RVO for 2023. Due to this shortfall in D6 production, excess D4 RINs are being used to meet compliance for both D6 and D5 RINs, as both categories' 2023 RVO's have yet to be fulfilled -- thus generating demand for D4 RINs and preventing a further collapse in the RINs complex.

Carryover RINs from 2022 will be used to meet the 2023 RVO mandate, but the carryover RIN bank calculations performed by the EPA will not be known until sometime after the Renewable Fuel Standard next compliance date of Dec. 1, when all obligated parties and exporters are required to submit their RIN compliance data for the preceding year to the EPA.

For every gallon of renewable diesel blended, 1.70 D4 RINs are generated, while for every gallon of biodiesel blended 1.50 D4 RINs are generated.

Thus, the growth of the renewable diesel sector has resulted in higher-than-expected volumes of D4 RIN- eligible fuels produced and has consequentially led to the early satisfaction of the 2023 D4 RVO mandate.

Favorable blending economics for biomass-based diesel producers should continue in the near term helped by a lower BO-HO spread driven by higher ultra low sulfur diesel prices caused by the Israel-Hamas war and related Middle East geopolitical concerns and lower soybean oil prices because of poor export demand coupled with improving weather in South America and an expected large soybean crop. READ MORE

Excerpt from S&P Global: Congress set ambitious targets for cellulosic volumes in the RFS, climbing from 100 million gallons in 2010 to 16 billion gallons in 2022. For each of those years, Congress overestimated the available cellulosic supply, requiring the EPA to reduce the cellulosic mandate and issue CWCs. When the RFS was enacted, most of the cellulosic fuel was expected to be cellulosic ethanol. Starting in 2014, the EPA allowed fuels derived from landfill biogas, municipal wastewater treatment facility digesters, agricultural digesters, and separated MSW digesters to also qualify for D3 RINs. But it was still not enough fuel to meet the cellulosic mandates.

Where are we now?

Congress did not establish cellulosic biofuel volumes for 2023 and beyond, and the EPA cannot issue CWCs without the specific authority to do so. The only provision that allows the EPA to issue these credits specifies that it can only happen whenever the EPA reduces the mandated cellulosic volume. Because the EPA was unable to reduce the 2023 cellulosic volume (because it had not yet been set), the agency did not issue CWCs for the 2023 compliance year when it finalized the mandates for 2023, 2024 and 2025 in July. This is the first time that the market has seen this scenario. This has created a larger pool of cellulosic RIN purchasers, as several companies that previously sat on the sidelines and bought CWCs to meet their obligations are now required to acquire RINs.

Due in part to the absence of CWCs for the 2023 compliance year, D3 RIN prices have climbed while D4, D5 and D6 RIN prices have floundered. READ MORE

Excerpt from Engine Technology Forum: Just six months ago, the EPA issued its first and long-awaited policy setting out the volumes for renewable fuel producers (RVOs) over the next three years. The RVOs dictate the amount of renewable fuel that obligated parties, such as gasoline and diesel refiners and importers, must blend into the transportation fuel supply in a given year.

The targets are extremely important as they drive the economics of producing the supply of ethanol, biodiesel, and renewable diesel; all alternatives to conventional fossil fuels that provide valuable benefits in the form of lower greenhouse gas and other emissions. And most importantly, these fuels deliver these benefits right now, without waiting for new fuel types or the massive new infrastructure investments required for electrification; not to mention being able to be used by pretty much every existing internal combustion engine.

Unfortunately, the EPA’s game plan has sidelined the renewable fuels team early in the climate game, and we as a nation are destined to lose as a result.

While 20.94 billion gallons as an RVO for 2023 sounds like a big number; it’s not. Especially when looked at in the context of overall demand for liquid fuels. Compared to the same period in 2022, qualifying biomass-based diesel production increased by more than 30%, or 400 million gallons, in the first five months of this year. The Energy Information Administration’s Short Term Energy Outlook for June 2023 projected increases in US production of biodiesel and renewable diesel of more than 800 million gallons this year and 900 million gallons next year.

EPA’s RVO biofuel policies are set to drive stagnation instead of growth. Responding to success in biofuels and growing demand, biofuel producers have invested to expand access to feedstocks. Plans on the books for more than 20 new or expanded crushing plants for soybean oil—a rapidly growing input for renewable diesel—that would dial up the country’s crushing capacity by more than 30%, according to the American Soybean Association, could now be in jeopardy.

And that will surely translate into job loss in the Midwest and beyond; probably sooner rather than later. READ MORE