450
No CWC post-2022
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Theoretical max D3 price (D5 + CWC)
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Figure 4 RIN price history
Courtesy: EcoEngineers
significant increase in capacity (2-5 billion RINs equiva- lent) announced to come online over the same period (see Figure 5 ). The 2023-2025 RFS requirements, released in June 2023, do not include any annual adjustment mechanism that matches market requirements to the growing poten- tial supply of RINs from biofuels. Additionally, in consid- ering biomass-based diesel supply estimates, the USEPA changed its technique for setting rules from being based on available potential supply to an assumption about feedstock supply, resulting in a year-over-year requirement growth of only 100 million RINs (60 million gallons), or less than 5% demand growth, over three years, which has left the mar- ket oversupplied with RIN-generating capacity. Similarly, in California’s LCFS, an oversupply of credits compared to deficit generation led to a drop in credit prices (see Figure 6 ). The rapid growth in RD production and its low CI has led
to a significant increase in credit generation, contributing to an oversupply of CA-LCFS credits (see Figure 7 ). Understanding CI scores Understanding the CI of the renewable fuels to be produced or being produced is critical to determining the value of any low-carbon fuel project. As noted previously, it is essential to understand when the fuel will be eligible to generate credits. For California’s LCFS, a producer can start calculating its CI score by applying for a pathway to the California Air Resources Board (CARB) after demonstrating three months of steady operations. These calculations require a detailed understanding of variables that affect the process energy demand (for example, mass balance). As such, companies need to know where their feedstock is collected, how it is transported to the production site, and the energy source at the plant location. Additionally, variables such as energy use for hydrogen production, what is recycled, and byproduct generation need to be identified. Since it takes 24 months to gain approval for the final CA-LCFS pathway application, which provides the specific CI score, CARB is providing interim solutions for producers to benefit from their low-carbon fuel produc- tion. For example, while obtaining an operational pathway, companies can initially use a default value and later apply for temporary or provisional pathways. As part of gaining an operational pathway, the producer will also need to engage a verification body to support the process of verifying the calculations. To stay ahead of RIN and LCFS credit price changes, companies must understand their CI score and how it is affected by production or process changes. Whether applying pathway petitions or registrations to be eligible to qualify for RINs under the RFS or credits under LCFS programmes, each model is slightly different and relies on different data. However, many variables must be considered, and as regulators govern these variables, they often change. If a company cannot follow the recipe, it will not generate the expected credits from either regulated or voluntary markets.
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Figure 5 Potential biomass-based diesel capacity in the US Courtesy: US Energy Information Administration (EIA)
PTQ Q4 2024
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86
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