Credits tied to biogas slump on proposed waiver to supply mandates
D3 RINs fall to over one-year low after EPA proposes partial waiver
Proposal follows petition by refining lobby arguing EPA mandates for 2024 are too high
Analyst says small 2024 shortfall is likely, but low probability of waiver credits
By Shariq Khan
NEW YORK, Nov 14 (Reuters) -Prices for cellulosic biofuel production credits fell to their lowest in over a year this week after the U.S. Environmental Protection Agency (EPA) proposed a partial waiver to its supply mandates for 2024, according to traders and market participants.
The proposal, submitted for government approval on Tuesday, follows a petition by industry lobby group American Fuel & Petrochemicals Manufacturers on Nov. 1 arguing that EPA's supply mandates for this year were too high to meet. A similar petition by AFPM on last year's mandates was denied by the EPA.
It comes amid an uncertain future for carbon credit markets after Donald Trump's victory in the U.S. presidential election this month, which made market participants bet that exemptions to renewable fuel mandates will become easier to attain.
The EPA sets annual mandates for low-carbon alternatives to be added in the U.S. fuel mix. Mandates for this year required 1.09 billion gallons of biofuels made from cellulosic sources like leaves and stems, and 1.38 billion gallons in 2025.
D3 Renewable Identification Numbers (RINs) tied to cellulosic biofuels fell from over $3 per gallon each to $2.70 each on Wednesday, the lowest since October 2023, traders said.
RINs are used by the EPA to track compliance with its mandates. Each gallon of renewable fuels generates a RIN, and suppliers who meet their targets can sell excess RINs to those falling short.
Around 97% of D3 RINs are tied to the production of biogas, a renewable energy source derived from agricultural waste, according to estimates from AEGIS Hedging, a liquidity provider for energy markets.
Data on D3 RINs generated so far indicate a shortfall is likely in 2024, Zander Capozzola, vice president of renewable fuels at AEGIS told Reuters by phone. He cautioned the shortfall is unlikely to require as large an adjustment to EPA's mandates as the market reaction suggests.
AFPM's petition had asked the EPA to issue cellulosic waiver credits, which are an alternative mode of compliance in lieu of RINs.
"They will likely trim the volumes for 2024 a bit, but we see a low probability of waiver credits," Capozzola said.
Mandates for 2025 are not yet expected to be altered, he said separately in a LinkedIn post.
Reporting by Shariq Khan in New York; Editing by Chizu Nomiyama
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