December 15, 2016

EPA Ratchets Up 2017 Mandates, Putting Pressure on RINs as New Administration Approaches

Stratas Advisors

This excerpt is from a report that is available to member of Stratas Advisors’ Global Biofuels Assessment and Global Biofuels Outlook services.

The EPA on November 23 released its finalized RFS mandate volumes for 2017, raising the overall renewable fuel requirement to 19.28 billion gallons, an increase of 1.17 billion gallons (+6.4%) over 2016, and almost 500 million gallons more than originally proposed. 

The EPA also estimated that up to 1.54 billion banked RINs will be available for 2017 compliance; this figure exceeds recent EIA estimates by several hundred million gallons and implies a less dire immediate RIN supply situation for obligated parties. 

This data suggests that obligated parties have managed a modest net increase in RIN balances in 2016 of about 100 million gallons, though it fails to significantly increase the RIN bank as a share of the following year’s mandate, keeping 2016 largely unchanged from 2015 at slightly less than 8%. 

In addition, the increase in the 2017 RFS, which effectively brings the conventional biofuel mandate to the 15 billion gallon maximum originally envisioned in the 2007 EISA, will strain RIN availability significantly.  Blending and RIN generation in 2017 is not expected to keep up with the increase in the mandate volume, and will likely result in a net drawdown of 250-500 million RINs, depending in part on rates of growth for base gasoline and diesel demand. 

This reduction would tend to continue to place pressure on RIN prices and compliance costs, unless the RFS mandates were to be substantially lowered in 2018.

The incoming presidential administration of Donald Trump adds an important element of uncertainty in this regard, as the president-elect's general preference for reduced government regulations for the energy sector would seem to conflict with the support for the RFS he demonstrated during the presidential campaign. It remains to be seen which stance will prevail as Trump continues to deliberate on cabinet selections, but momentum for adjustments to the regulation has been building in any case, especially as declining RIN balances reduce obligated parties' compliance options.