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LCFS Spot Contract |
California LCFS |
Oregon LCFS |
Price December 22nd, 2023 |
$ 66.00 |
$ 90.00 |
Avg. Weekly Price December 18th - December 22nd, 2023 |
$ 69.70 |
$ 90.00 |
Average Monthly Price December 2023 |
$ 70.53 |
$ 89.31 |
California Low Carbon Fuel Standard (LCFS) credit prices pressed lower for a second consecutive week. Selling resumed late in the week as hopes for a January CARB vote on amendments were dashed with the December 19 release of the preliminary LCFS proposal for review.
Prompt credits fell $4.5/t, or 6.4%, to $66.00/t, levels not seen in a month and a half. Similar losses were seen along the forward structure.
Contango heading into 2024 stood at flat, with a $1.00/t contango into Q2 2024 and Q3 2024.
On December 19, California’s Air Resources Board (CARB) released a preliminary LCFS proposal laying out amendments which nearly mirrored those in the Standardized Regulatory Impact Assessment released in September.
CARB proposed a 30% reduction in carbon intensity by 2030, including a 5% step-down in 2025. This marks a 50% increase in carbon targets over the original 20% reduction target for 2030.
Reductions increase to 90% by 2045 compared to a 2010 baseline.
The proposal contained an automatic acceleration mechanism (AAM) which would advance stringency for a given year when unused credits more than triple average deficit generation by advancing the carbon reduction target by two years.
Amendments included eliminating the exemption for intrastate jet fuel beginning in 2028 and new tracking requirements for crop-based and forestry-based feedstocks to their point of origin. CARB expects to kick off the required 45-day public comment period in January, with a public hearing set for March 21, 2024.
Prior to this proposal the prompt market had been in a choppy holding pattern since early May yet initiated a material downtrend starting in early June.
LCFS strength had been driven by trader buying and strength in futures markets as the credits become more attractive options ahead of CARB’s more stringent scoping plan.
Buying quickly turned to selling once the workshops concluded as traders became disillusioned with the timeline for the rulemaking.
RIN Spot Contract |
D3 |
D4 |
D5 |
D6 |
Price December 22nd, 2023 |
$ 3.06 |
$ 0.81 | $ 0.81 | $ 0.81 |
Avg. Weekly Price December 18th - December 22nd, 2023 |
$ 3.01 |
$ 0.82 | $ 0.81 | $ 0.82 |
Average Monthly Price December 2023 |
$ 3.09 |
$ 0.82 | $ 0.82 | $ 0.82 |
RINs were little changed even as the BOHO spread narrowed to the lowest level in a month and a half. The 2022 vintage market posted modest losses, with the inter-vintage spread compressing to 1.3c/RIN by the close of the week.
The 5th US Circuit Court of Appeals ruled on November 22, 2023, to block denials of SREs for six refineries. The court’s decision said the EPA’s blanket SRE rejection was “impermissibly retroactive; contrary to law; and counter to the record evidence.” The decision will add a bearish undertone to an already oversupplied marketplace, save for D3 credits.
Fresh government data showed slowing RIN production across all D categories except for D7 credits.
November total RIN generation came in at 1.99 billion credits, down 11% from the previous month when total RIN generation reached a record 2.1 billion credits.
D4 generation came in at 680 million credits, down 7% from the previous month’s level. Total D4 production reached 7.12 billion credits and is on pace to reach 7.76 billion credits by years’ end. Domestic renewable diesel production accounted for 49.5% of total D4 output, up from 47% the month prior. Foreign renewable diesel made up 11% of total D4 generation, steady from last month’s share. Domestic and imported biodiesel accounted for 39% of total D4 output, down from 41% the month prior, with no foreign biodiesel reported. No D4 credits for SAF were reported in November after accounting for less than one percentage point in October.
D3 RIN generation fell less than one percent from the previous month. Total output to date is running just 15% over year-ago levels compared to a 25% growth rate used by the EPA to set the 2023 final mandate
The EPA denied 26 small refinery exemptions covering the 2016-2018 and 2021-2023 compliance years on July 14. The move was consistent with the EPA’s blanket SRE denials under the Biden Administration. The two remaining SREs are for the 2018 compliance year.
SREs were carved out in the Renewable Fuel Standard (RFS) for refiners producing 75,000 b/d or less which could prove compliance with the RFS—i.e., purchasing RINs—resulted “undue economic hardship.”
The EPA retroactively overturned 69 Trump-Era SREs starting in April of last year by denying 31 SRE waivers for 2018 and then denying all SRE petitions for 2016 through 2020. Denying SREs is bullish for RINs markets as refiners must enter the marketplace to purchase RINs to cover compliance obligations which were originally waived.
Questions? Contact our team for more information: environmental@aegis-hedging.com