RFS: RIN Generation Feb '25 Highlights
The D4 Overhang, Why 45z is better than BTC for SBO, PADD 5 (California) #1
I am changing up the format a little for this article. The focus will be on how the RFS works and the overall S/D RIN Balance Sheet vs the typical RIN generation piece. If you want to see a little more about RIN Generation, you can check out the Flash report.
How RFS Works
The Renewable Fuel Standard (RFS) is broken down into 3 Renewable Volume Obligation (RVO) categories. And each category has to be fulfilled by fuel producers and fuel importers to meet compliance with the program.
Advanced Cellulosic —> D3 RINs
Advanced Non-Cellulosic —> D4+D5 RINs
Conventional —> D6 RINs
But what confuses most with regard to the RFS is the naming - Renewable Volume Obligation (RVO), when in actuality the EPA sets a RENEWABLE BLEND OBLIGATION. The EPA finalized the 2023-2025 RVOs and they lead with volumes instead blend %, confusing even more people as the industry expands.
You actually need to dig into the regulation to find the actual blend % mandate which is 12.5% for 2024 and 13.13% for 2025.
To calculate actual RVOs one will need to take the amount of Gasoline+Diesel consumed in the US, known as “fuel under obligation”, then multiply that number by the blend % mandate set forth by the EPA to get the overall RVO plus ratio out each category. See the example below.
(Gasoline + Diesel Volume) x D code RVO Blend %
Gasoline + Diesel volumes = 200 billion gallons (example, not real)
2024 Total Renewables Blend = 12.5%
2024 Total Renewables RVO = 12.5% x 200 billion gallons
2024 Total Renewables RVO = 25 billion RINs vs 21.54 billion RINs (original)
2024 Advanced RVO Blend % = 6.54/21.54 = 30.36%
2024 Advanced RVO = 30.36% x 25 billion RINs
2024 Advanced RVO = 7.59 billion RINs vs 6.54 billion RINs (original)
When coming up with the blend % mandate, the EPA leans on the EIA to come up with an estimated amount of gasoline, diesel, and renewable fuel volumes. And in the past the EIA has projected overall demand lower than actuality, thus leading to a higher actual RVO (see red + blue in graph below).
When the EPA set the finalized RVOs at the end of 2022 into 2023, gasoline + diesel demand in the US was falling off a cliff. Therefore, the estimated gasoline+diesel demand (petroleum) for 2024 and 2025 was in the 170-173 billion gallon range but demand has popped back up to over 180 billion gallons per year on a trailing-twelve month (TTM) basis. For the rest of this article I will be using this 175-180+ billion gallon number to calculate annual RVO for each category (Advanced, Conventional, etc).
