EIA: high agricultural feedstock costs offset declines in RIN prices

In June 2023, the EPA set the Renewable Volume Obligation lower than biofuel production trends, putting downward pressure on prices, which were already down from highs of nearly US$2/gal in 2021 and 2022. However, rapidly rising feedstock prices, which raise costs for biofuel producers, have counteracted the downward trend and RIN prices have increased. On 18 July 2023, the price of the biomass-based diesel (D4) RIN, which is generated from the production of biodiesel or renewable diesel, closed at US$1.54/gal., and the ethanol (D6) RIN closed at US$1.53/gal.

The EPA sets annual volume obligations for the volume of renewable fuels that must enter the US fuel supply. Obligated parties – petroleum refiners and importers of motor gasoline and diesel – comply either by blending biofuels into petroleum-based fuels or by purchasing RIN credits. Ethanol production generates D6 RINs that satisfy the total biofuel obligation. Biomass-based diesel production generates D4 RINs that satisfy the biomass-based diesel, the advanced biofuel, and the total biofuel obligations. The value of a RIN credit is the price that biofuel plants and fuel blenders need as incentive to produce and blend at levels suitable for RFS compliance.

In 2023, high renewable diesel production and biodiesel imports have resulted in D4 RIN generation that is on track to significantly exceed the required biomass-based diesel and advanced biofuel targets in the RFS. The high production has led to D4 RINs selling at a historically low premium to D6 RINs. The price of a D6 RIN sets the price floor for D4 RINs because excess biomass-based diesel blending can substitute for D6 RINs to comply with the total biofuel requirement. D4 RINs typically sell at a premium to D6 RINs because the biomass-based diesel and advanced biofuel blending requirements are typically set at levels that require high D4 RIN prices to provide incentive to produce enough. High D4 RIN generation has resulted in D4 RINs trading near the price floor set by D6 RINs. The ratio of the D6 RIN price to the D4 RIN price has averaged 0.98 in 2023, compared with an average of 0.69 from 2019 through to 2022.

Although the renewable volume obligation set under the RFS is a primary driver of RIN prices, the RFS did not significantly affect RIN prices until 21 June 2023, when the EPA announced a final rule. In that rule, the EPA set the advanced biofuel obligation (which can be met by blending cellulosic biofuel or biomass-based diesel into petroleum-based fuels) for 2023 at 5.94 billion RINs and the total renewable volume obligation for 2023 at 21.19 billion RINs.

Although the EPA set both of those volume obligations at record highs, current rates of biofuel production have exceeded the volume obligations. To reach 5.94 billion advanced RINs, obligated parties must retire an average of nearly 0.50 billion RINs per month and to reach 21.19 billion total RINs, obligated parties must retire an average of nearly 1.77 billion RINs per month. Those averages have been exceeded in 2023 as of the end of May because of increasing renewable diesel production. In May 2023, a record 0.83 billion advanced biofuel RINs and 2.11 billion total RINs were generated.

Read the article online at: https://www.hydrocarbonengineering.com/clean-fuels/20072023/eia-high-agricultural-feedstock-costs-offset-declines-in-rin-prices/