The monthly pace of credit generation for cellulosic biofuel D3 RINs is lagging behind the rate needed to keep pace with the 2023 Renewable Fuel Standard (RFS) volume target, and the removal of the D3 market-driven price cap could keep prices bolstered.
D3 RINs, which make up between 2-3pc of overall RIN generation, are tied to biofuel production from biogas, corn stover, and other forms of agricultural waste. Since the finalized biofuel blending volume target of 840mn RINs for 2023 was released in June, prices have risen from 210¢/RIN to 300¢/RIN and were last assessed at 298.5¢/RIN on Wednesday. The D3 RIN price upswing in the aftermath of the final ruling was largely driven by some speculative impulse toward lower supply after the removal of eRIN provisions. Participants viewed the market as much more tightly balanced with the elimination of eRINs and slightly higher volume targets for other D3 RIN sources (primarily CNG/LNG derived biogas).
The finalized volume target for 2023 rose by 33pc compared with 2022's 630mn target because the EPA is projecting cellulosic biofuel production to increase by around 25pc.
Through the first eight months of 2023, credit generation has totaled just over 439mn credits. D3 RIN generation last year surpassed its target by 38mn RINs, indicating the industry was able to meet its target in the aggregate. Monthly D3 generation must total 91mn credits/month for the remainder of the year to do the same. So far this year, credits per month averaged 55mn from January-August, and over the last four months of 2022, D3 generation averaged 74mn credits/month.
If this trend continues, it is unlikely that the market will be able to fulfill the EPA's target for this year, creating shortness in the D3 markets relative to demand. Obligated parties are allowed to satisfy up to 20pc of their annual volume using credit from the previous year, They can also carry a deficit following the calendar year if they fail to meet their obligation so long as it is met by the following year.
Further potential to bolster D3 RIN credits is the removal of the cellulosic waiver credit (CWC) from the 2023 ruling. This essentially removed the D3 market-driven price cap (CWC + D5 RIN), giving the D3 RIN price the freedom to reflect market fundamentals. EPA, however, still holds the cellulosic waiver authority. If the agency were to reduce cellulosic volumes under that authority, then it would be required to make CWCs available to obligated parties.
By Matthew Cope
