Growing US renewable diesel (RD) production and recent court rulings countering Environmental Protection Agency (EPA) priorities will be watched closely by the RINs markets in 2024.
The Argus Renewable Volume Obligation (RVO) — a measure of the cost of complying with US renewable fuel standards — fell by nearly 48pc from the start of 2023 through November, from a high of 21¢/USG to a low of 11¢/USG. The driving force behind lower D4 and D6 credit prices came as a side effect of the increase in production of RD across the US. Nameplate capacity of active RD facilities rose by 1.4bn USG in 2023 to 3.6bn USG in the US.
The rising RD production meant a corresponding rise in D4 credit generation, which exceeded the biofuel blending target for the 2023 compliance year. This led obligated parties to drive bids down and start using D4 credits to fulfill D6 obligations as their values converged late in the year.
For 2024, another 483mn USG of annual RD capacity is expected online by the end of the year, according to Argus estimates,setting up an even more expansive year of D4 generation.
In addition to RIN generation, the market will also closely watch the EPA's response to a late November federal court ruling that said the agency's denial of small refinery exemption (SRE) waivers en masse was unlawful. Since the creation of the renewable fuel standard, SREs served as a financial pressure-release valve for refineries with a capacity of less than 75,000 b/d. While the EPA under former president Donald Trump took a generous approach to approving SRE petitions, the EPA under President Joe Biden reigned-in the exemptions sharply as part of its efforts to decarbonize the motor fuel industry.
The outcome of next November's presidential election could spell drastic changes to SRE policy, albeit not until 2025 at the earliest. If EPA persists in limiting the issuance of SREs the market expects higher RIN prices, but if is more generous following the court rulings RIN prices will likely see fewer bidders and lower prices.
The legality of blanket SRE rejections were not the only uncharted territory the EPA moved into in 2023. In June, the EPA took an unprecedented approach as it finalized its "set rule," which established RIN volumes for not only 2023 but for 2024 and 2025 — rather than proposing and adjusting volumes on a more frequent basis as it did in the past. The new approach was intended to give obligated parties a more accurate forward looking estimate regarding what they should expect their blending requirement will be. If these finalized volumes are left unadjusted, markets will likely remain bearish in the long term.
The EPA chose not to continue the cellulosic waiver credit program for 2023 compliance yearD3 RINs and may continue to do so in 2024. The waiver let obligated parties purchase D3 credits at predetermined price ceilings, but expired as cellulosic biofuel production grew. Current year credits rose from roughly $2/RIN early in the year to $3.50/RIN in the fourth quarter. An absence of this lifeline going forward may lead to more rising prices.
