Renewable Identification Numbers, Renewable Fuel Standard Program and the State of the Industry
Earlier this month Chevron Renewable Energy Group hosted an educational session on the Renewable Fuel Standard (RFS) program, Renewable Identification Numbers (RINs) and the State of the Industry at the Heating & Energizing America Trade (HEAT) Show. This presentation was ideally positioned based on the timing of the U.S. Environmental Protection Agency’s (EPA) final rule on the RFS.
Fuel retailers and wholesalers who attended this breakout session were able to gain an understanding of how the recent renewable volume obligations (RVOs) relate to their business. Chevron Renewable Energy Group’s Jason Lawrence, Senior Business Executive and Curtis Powers, Manager of Compliance, SEM were introduced by the National Energy & Fuels Institute’s (NEFI) Vice President and Director of Government Affairs, Jim Collura.
The new ruling provided modest increases in the renewable volume obligations (RVOs) for cellulosic biofuel, biomass-based biodiesel, advanced biofuel and renewable fuels. EPA’s rule summary is available here.
Volume Targets (billion RINs)a
| |
2023 |
2024 |
2025 |
| Cellulosic biofuel |
0.84 |
1.09 |
1.38 |
| Biomass-based dieselb |
2.82 |
3.04 |
3.35 |
| Advanced biofuel |
5.94 |
6.54 |
7.33 |
| Renewable fuel |
20.94 |
21.54 |
22.23 |
| Supplemental standard |
0.25 |
n/a |
n/a |
a One RIN is equivalent to one ethanol-equivalent gallon of renewable fuel.
b BBD is given in billion gallons.
Source: U.S. EPA
The RFS was developed to increase the production and use of renewable fuels in the transportation sector, and as such, many heating fuel providers are uncertain as to how it relates to the industry. The HEAT Show presentation, scheduled months before the EPA release, was developed to respond to that uncertainty.
Lawrence explained to the audience that the RFS program is a national policy that requires a certain volume of renewable fuel to replace or reduce the quantity of petroleum-based transportation fuel, heating oil or jet fuel.
The four renewable fuel categories under the RFS are:
- Biomass-based diesel
- Cellulosic biofuel
- Advanced biofuel
- Total renewable fuel
Each year, RFS sets requirements for the minimum number of renewable fuel gallons to be utilized as a “market forcing strategy.” As outlined in 2007, the goal was to have 36 billion gallons of renewable fuels annually in the supply chain by 2022. That goal has not yet been reached. The EPA is required to release target volumes for the following year but is often delayed. Releases often come mid-year (as with the just released 2023 volumes) and, in many cases, it becomes a retroactive requirement when volumes are set a year or more after the target year, often due to political pressures.
After this introduction to the RFS by Lawrence, Powers explained that RINs are credits used for compliance and are the “currency of compliance” of the RFS program. Here’s how RINs work:
- Renewable fuel producers generate RINs
- Market participants trade RINs
- Obligated parties obtain and then ultimately retire RINs for compliance
RINs can be traded in two forms: 1) as Assigned RINs, which are directly associated with a batch of fuel and travel with that fuel from party to party. Purchasers obtain both the renewable fuel and RINs together; and 2) as Separated RINs which had been assigned to a batch of fuel but are separated from the fuel when blended to make a transportation fuel. The producer then sells the separated RINs to obligated parties, such as non-renewable energy producers and importers, to help meet their RFS obligations.
The separation and sale of RINS enable renewable fuel producers to meet their RFS obligations and sell renewable fuels to non-obligated parties such as liquid home heating fuel producers, wholesalers and retailers at a lower cost. This, he added, is one of the reasons for the basis difference between Ultra-Low Sulfur Diesel (ULSD), an obligated transportation fuel and Ultra-Low Sulfur Heating Oil (ULSHO), which is not obligated and sold without RINs.
The EPA has assigned values to RINS from the four categories of renewable fuels, and D4 RINs for biodiesel had been set at 1.5 RINs per gallon though a party can separate or distribute up to 2.5 RINs per gallon. The proposed rule would have limited the separation or distribution to 1.5 RINs per gallon down from 2.5 RIN per gallon. The proposed rule would have reduced that to 1.5 RINs per gallon. This was also removed from the final rule released on June 21. Powers explained that, had the rules related to separation limits and RINs values for biodiesel stood, renewable energy producers would have been unable to separate the RINs, increasing the cost per gallon for non-obligated parties and increasing costs to record and retire purchased RINs.
Lawrence concluded the presentation with a review of the utilization and benefits of RINS and RVOs to the liquid heating fuels industry. He reiterated Chevron’s goal to reach a renewable fuel production capacity of 100,000 barrels per day by 2030, and that its acquisition of Renewable Energy Group put them in position to meet nearly half that goal.
“The next 100 years won’t look like the last 100,” he said. “There will be nuance to where renewable fuels go in the future. Chevron supports renewable fuels and embracing renewable fuels for the heating supply chain is necessary to get us to the next step.”
Lawrence said, “Liquid heating fuel dealers and producers have the answer in biofuels. Renewable fuels can lower carbon emissions and other greenhouse gases today.”
Chevron and other multi-national fuel producers have made a commitment to lower carbon emissions, and Lawrence suggested that when audience members consider their future, they should think about how to best embrace lower carbon fuels and integrate biofuels into their mix.
He concluded by reminding the audience that biofuel production and sales work on a different timetable than traditional heating oil, and that they should speak with their biofuel providers several months in advance of the anticipated seasonal demand to determine their biofuel requirements and commit to the gallons they would need. These agreements would ensure their pricing and supply during peak periods.
To learn more about RINs or plan your biodiesel supply for the 2023-2024 season, contact Jason Lawrence at (717) 989-1313 or [email protected].