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LCFS Spot Contract |
California LCFS |
Oregon LCFS |
Price July 14th, 2023 |
$ 72.00 |
$ 146.00 |
Avg. Weekly Price July 10th - July 14th, 2023 |
$ 72.20 |
$ 146.00 |
Average Monthly Price July 2023 |
$ 73.81 |
$ 145.38 |
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LCFS Futures Contract |
Pricing |
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Dec. '23 |
$ 74.00 |
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Dec. '24 |
$ 79.10 |
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Dec. '25 |
$ 84.60 |
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The California Low Carbon Fuel Standard (LCFS) credit market sank for a fourth consecutive week. Prompt credits shed $1.63/t, or 2.1%, to average $72.20/t, last week holding at the lowest levels since early April. The prompt market had been in a choppy holding pattern since early May before entering a downward trend in early June. Losses were similar down the forward curve.
LCFS strength had been driven by trader buying and strength in futures markets as the credits become more attractive options ahead of the California Air Resource Board’s new, more stringent scoping plan.
The forward structure remained in contago with the most prominent carry heading into the first quarter of 2024.
The California’s Air Resource Board’s (CARB) last workshop discussed an “auto-acceleration mechanism” as unused LCFS credits rose to record highs. During the workshop California regulators indicated that the final scoping plan may not take effect at the start of the new year much to the disappointment of stakeholders. The regulatory body indicated that the acceleration mechanism would likely not take effect until 2H 2025.
RIN Spot Contract |
D3 |
D4 |
D5 |
D6 |
Price July 14th, 2023 |
$ 3.05 |
$ 1.54 | $ 1.53 | $ 1.53 |
Avg. Weekly Price July 10th - June 14th, 2023 |
$ 3.11 |
$ 1.56 | $ 1.55 | $ 1.55 |
Average Monthly Price July 2023 |
$ 3.07 |
$ 1.56 | $ 1.55 | $ 1.55 |
Current year vintage D4 RINs rose just $0.005/RIN, or less than one percent, on average last week. The market started the week as high as $1.57/RIN as RINs reacted to the widest BOHO spread in fourteen months and ended the week at $1.538/RIN on false hopes that the EPA would approve outstanding SREs.
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.
We have been advising since last year that the Biden Administration was unlikely to approve any SREs.
In February, United Refining was denied its SRE hardship waiver by the Third Circuit court, a move which would lead to additional demand to the marketplace. Trade organization Growth Energy entered comments in support of enforcing SREs in its case against the EPA. A full denial of all SREs would represent more than 1.6 billion RINs.
Prior to this, the approval by a federal court of a SRE for Calumet Special Products 30,000 b/d refinery in Montana provided bearish undertones to RIN markets.
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.
A court ruling earlier this month halted compliance obligations for two refineries with existing SRE petitions taking issue with the retroactive nature of the SRE denial.
Notes from the court were strongly in favor of granting the SREs, as the court made it clear it intends to handle SREs as originally intended by the RFS—i.e., waive RFS compliance if undue hardship can be demonstrated—and to allow waivers which were issued in an “unlawful retroactive application.”
On June 21, 2023, the EPA issued a historic ruling establishing the demand curve for renewable fuel use for 2023-2025. This marks the crucial expansion years for the rapidly growing renewable diesel (RD) and sustainable aviation fuel (SAF) industry and fell well short of current and future production, dealing a blow to RD, SAF and BD industries.
The ‘Set Rule’ greatly underestimated the impact of surging renewable diesel growth, with the decision driven primarily by concerns over feedstock supply. In a glimmer of hope for the renewable diesel industry, the EPA left the door open for adjustments to the final ruling by taking into consideration a wide-ranging list of indicators.
Questions? Contact our team for more information: environmental@aegis-hedging.com