The Renewable Fuel Standard (RFS) created four nested categories renewable fuel demand, each with its own D-Code – D6 for total renewable fuels, D5 for advanced biofuels, D4 for biomass-based diesel (BBD), and D3/D7 for cellulosic biofuels. Each of these categories has a greenhouse gas threshold (see more at our RFS 101 primer).
The D4 RIN price spiked soon after the RFS2[1] launch – there simply wasn’t enough BBD production capacity to match the demand. I heard a trader refer to this first launch in the RIN price as RINsanity, and the only thing I love more than a good pun is the opportunity to use it again… which RINsanity 2 allowed. For the RINsanity sequel, prices took off due to a combo of factors, including spiking soybean oil demand, post-Covid / Ukraine War diesel price spikes, and the U.S. Environmental Protection Agency’s (EPA’s) failure to release RFS volume requirements from 2020 to 2022. The market anticipated high demand, but EPA didn’t release one… until they almost got sued and signed a consent decree.[2]
Using a joke for a third time? RINsanity 3 might be taking off now, though it’ll have to last for a few years to truly earn the title. Or not – I’ve never heard of a second sequel (a threequel?) outperforming the original. Return of the Jedi is not my favorite. Godfather 3? Fuhgeddaboutit.
Figure 1. Weekly D4 and D6 RIN Prices (2010-2026)
Source: EPA EMTS data and Stillwater Associates analysis
The root cause of D4 RIN price spikes has been the difference between the demand level set by EPA and the market’s capacity to produce biofuels. There is no natural demand for BBD; it is manifestly more expensive to produce diesel from soybean oil than petroleum. How much more expensive? Soybean oil is pricing at $240 / bbl today[3] while WTI’s Iran war price spike was a relatively cheap $110. So, the market wouldn’t produce BBD from soybean oil (the marginal gallon currently produced) unless a regulator (or regulators) tipped the scales in that direction.
Putting a finger on the scale
EPA sets the Renewable Volume Obligations (RVOs) to create a blending mandate. On top of that, state regulators set decarbonization requirements through the low-carbon fuel programs (see the California LCFS, Oregon CFP, Washington CFS, etc.). Each state’s low-carbon fuel program stacks on top of the RFS, so a single biofuel gallon can meet the demand for both. Two more programs add further complexity: 1) a carbon obligation (Cap-and-Trade Invest) on petroleum on the West Coast that biofuels don’t have to pay, and 2) a federal clean fuel production tax credit (45Z) for biofuels produced in the United States from North American feedstocks and which meet certain decarbonization targets. These programs work together to set the demand level and margin for biofuels, and the equation looks like this:
BBD Gross Margin = Diesel Price + LCFS Value + D4 RIN Value + Avoided Cap and Invest Obligation + 45z value – Price of Feedstock (often but not always soybean oil).
To forecast these prices you have to develop: 1) a forecast of the overall demand set by the RFS and LCFS 2) the marginal cost to produce biofuels to meet that demand, and 3) since the regulations keep changing, an opinion of what the regulators are going to do in the future. Which leads us back to today’s price spike (“RINsanity 3”?) and the steps over the last five years that brought us here.
Step 1: Late 2010s, the market sees very high LCFS prices and strong biofuel margins. Everyone jumps in to invest, and BBD production capacity in the U.S. triples from roughly 2.5 billion gallons per year (bgy) in 2015 to 6.4 bgy in 2023.
Step 2: EPA does not release RVOs for 2021 through 2022, Russia invades Ukraine, and global soybean oil and diesel prices skyrocket right as all the new biofuel capacity comes online, leading to RINsanity 2. Underpinning all of this is the fact that the market expects the RVO to meet and exceed the production capacity that’s come online.
Step 3: All the new production capacity floods into California, pushing the LCFS price to historic lows ($50-60 per metric ton) and an explosion in the LCFS credit bank. The LCFS price settles just high enough to cover transport from the U.S. Gulf Coast to California.
Figure 2. LCFS Credit Price & Cumulative Bank
Source: Stillwater Associates
Step 4: EPA finally releases the RVO for 2022 (lower than expected) and then sets the RVO again for 2023-2025 below the market’s capacity to produce biofuels. LCFS demand is also below market capacity. Biofuel margins tank, investment is cancelled, and the marginal producers (soybean oil through biodiesel plants and refinery conversions) idle or shut down, the market loses 500 million gallons of capacity per year. Utilization sits at 68% of capacity.
Step 5: Everything happens at once – the California Air Resources Board (CARB) revamps the LCFS creating additional demand, EPA announces RFS Set 2 RVO for 2026-2027 at a level which requires 90+% utilization, the 45Z credit begins restricting biofeedstock imports to the U.S., and the European sustainable aviation fuel (SAF) mandate in the Renewable Energy Directive (RED III) starts drawing export volumes out of the U.S.
Step 6: Utilization slowly creeps up to 70-75% capacity, but many plants remain idle, production is well below what is needed to fulfill the RVO, exports continue, and the D4 RIN price explodes – the opening scene of RINsanity 3. Meanwhile, despite deficits in the last two quarters of 2025, the LCFS is behaving like a passive rider – the credit price is covering the logistics to move volume from the U.S. Gulf Coast to California, but not much more.
RINsanity 1 ended when capacity caught up. RINsanity 2 ended when EPA effectively ratcheted down demand and set the RVO below what the market had built for.
Today, utilization is still climbing but is well below what the new RVOs assume because idled/shuttered plants don’t restart instantly even when the RVO justifies it, and plants designed for waterborne imports need to work out their logistics for domestic supply. Renewables producers are justifiably skittish, and restarting a mothballed plant, re-securing feedstock supply chains, and rehiring aren’t things that happen in a quarter.
So what happens next? Does utilization catch up to the mandate, or does EPA eventually have to temper the RVO to match utilization? Does the LCFS, now playing second fiddle to the RFS, keep drifting around its logistics-cost floor, or does CARB’s own rulemaking change that math? And, critically, how long does RINsanity 3 run?
We will dig deeper into which scenario is likely to play out this time, and on what timeline, in our next LCFS Monthly newsletter, and we incorporate these deep insights into our credit price outlooks!
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