In November 2023 we published two articles (A Tale of Two RINs and A Tale of Two RINs – Digging Deeper) exploring why D4 renewable identification number (RIN) prices had been steadily falling while D3 RIN prices had been steadily appreciating. We thought it was now timely to revisit our analysis and see how these trends have continued to develop. (For a brief refresher on the Renewable Fuel Standard (RFS) and RIN types before diving into this article, see Stillwater’s RFS 101.)
Figure 1 presents the history of D3 and D4 RIN prices as reported by OPIS from April 2022 through the end of July 2024. We can see that D3 RIN prices have continued to increase since November but have experienced some significant volatility. Over the same time period, D4 RIN prices continued their downward trend through February but then appeared to have found a price floor around $0.50/RIN.
Figure 1. D3 and D4 RIN Prices (April 2022 through July 2024)
Source: OPIS, Stillwater analysis
To shed light on these price movements, we look into the supply and demand data for D3 and D4 RINs, respectively.
Figure 2 compares the monthly supply of D3 RINs, as measured by the U.S. Environmental Protection Agency (EPA) Moderated Transaction System (EMTS) data for RIN generation to demand for D3 RINs, estimated by multiplying the sum of gasoline and diesel supply to the U.S. market (as reported by the Energy Information Administration, EIA) by the applicable cellulosic biofuels percentage standard for the appropriate year.[1] It may be seen that monthly RIN generation was roughly in balance with monthly RIN obligations in 2022, fell significantly short in 2023, and falls even further behind in 2024. With the cellulosic biofuels renewable volume obligation (RVO) scheduled to increase further in 2025, this supply/demand imbalance will only get worse next year. As obligated parties under the RFS are not permitted to carry a shortfall in meeting their cellulosic biofuels obligation for consecutive years, there is an increasing risk that the continuation of these monthly shortfalls will make it impossible for the refining industry to remain in compliance with this portion of the RFS.[2] As such, EPA may intervene by issuing a partial waiver of the cellulosic biofuels RVO.
Figure 2. Estimated Monthly Supply and Demand for D3 RINs
Source: EPA EMTS, EIA, Stillwater analysis
For D4 RINs, the picture is more complex as D4 RINs are not only used for compliance with the RFS Biomass-Based Diesel (BBD) obligation but are also used for compliance with any shortfall in the implied undifferentiated Advanced Biofuel obligation[3] (partially satisfied with D5 RINs) and any shortfall in the implied Conventional Biofuel obligation[4] (primarily satisfied with D6 RINs.) Further, the availability of D4 RINs to satisfy these combined requirements is less than the reported D4 RIN generation due to the requirement that D4 RINs be retired when RIN-generating fuels are exported and for other non-compliance reasons.[5] In Figure 3 below, we compare the monthly values for D4 RIN generation (gold bars), D4 RIN demand (light blue bars), and D4 RIN availability (dark blue bars). It may be seen that D4 RIN generation was rising rapidly each month to an all-time high of over 840 million RINs in December 2023.
However, since that high point, D4 RIN generation has generally dropped and seems to have largely levelled off. This is consistent with several announcements of plant shutdowns and slowdowns in response to margins eroded by oversupply of fuel and D4 RINs. Based on EPA EMTS data through June 2024, it appears that D4 RIN demand and availability have come to near balance. This approach to market balance appears to coincide with D4 RIN prices stabilizing since their late-February lows. The future trajectory of these RIN prices can be expected to depend on how this supply/demand balance evolves over the coming months and how producers respond to increased D4 RIN demand when the obligations increase in 2025.
Figure 3. Estimated Supply and Demand for D4 RINs (April 2022 through June 2024)
Source: EPA EMTS, EIA, Stillwater analysis
Are you interested in understanding the likely trajectory of RFS RIN pricing? We have the outlook!
——