US production of renewable hydrogenated (RD) diesel, which is made from soybean oil, animal fats and used cooking oil, is growing faster than expected. This may sound like good news for the renewable fuel industry, but it comes with fears that rapid growth could push RD production levels well beyond the mandates set by the Renewable Fuel Standard (RFS), which could cause a sudden crash in the renewable ID number. (RIN) prices that, if it happens, would shake the market. In today’s RBN blog, we estimate the likelihood and possible timing of a market-shaking event.
As we mentioned in Part 1 of this series, hydrogenated RD is a type of biomass-based diesel that is produced either in greenfield facilities or in repurposed refinery units that were previously used to make petroleum-based diesel and gasoline. RD has quickly overtaken the other type of biomass-based diesel, FAME biodiesel, in market share. (FAME biodiesel is produced by reacting triglycerides with methanol to make oxygen-containing fuel molecules called fatty acid methyl ester, or FAME). Protection Agency (EPA). It would be uncharted territory for the fuel market, which has been under binding renewable fuel volume mandates for 10 years.
In Part 2 we looked at the implications of crossing this boundary. In theory, it could trigger a switch that would cause the price of D4 RINs (biomass-based diesel) to drop. Remember ours misunderstanding? series that a RIN is a 38-digit number that is generated when certain types of renewable fuels are produced. The RIN can then be unbundled and sold to non-renewable fuel producers or importers to meet RFS obligations. If renewable fuel supply increases beyond the RFS mandates, RIN prices would fall. In other words, the demand for a RIN depends on the shortage of biofuel supply compared to the applicable mandate, that shortage is what forces refiners to bid for that RIN, and refiners’ RIN purchases are the that finance the grant. (This tax and subsidy scheme is called cross-subsidy).
