RFS mandate, SRE controversy to impact US RINs in 2020

A primary focus of the US Renewable Identification Number market in 2020 will be the Environmental Protection Agency's decision regarding the reallocation of blending volumes being waived between 2016 and the current year, which has contributed to uncertainty among biofuel producers and oil refiners.

Throughout 2019, biofuel producers and farmers quarreled with oil refiners regarding the use of Small Refinery Exemptions (SREs), a type of waiver granted by the EPA to exempt refiners from their Renewable Volume Obligations if they can prove compliance would cause financial hardships.

Political lobbies associated with farmers and biofuel producers claimed that the way the EPA issued these small refinery exemptions had destroyed demand for biofuels and cut into farm incomes during a period where agricultural exports saw a decrease due to the US-China trade dispute.

Biofuel producers called for a reallocation of waived mandate volumes into 2020 and beyond. However, an EPA proposal to use a three-year average of exemption volumes recommended by the Department of Energy rather than actual volumes waived by the EPA has drawn the ire of biofuel producers, due to the EPA ignoring the DOE's recommendations for exempted volumes.

This has led some bodies, including the National Biodiesel Board, to say that over 4 billion gallons of biofuel demand had been lost between 2015 and 2018.

In the final rule released December 19, the EPA decided to officially use the recommended exemption volumes provided by the DOE, a move that is likely to draw the ire of biofuel industry stakeholders and could lead to disputes with the Trump administration.

The counterbalancing lobbying efforts of the biofuel and oil lobbies has led to volatility in RIN prices, a trend that should continue prior to the release of the full mandate and throughout 2020.

The driving factors for RIN prices and RVO mandates in 2020 will likely include US President Donald Trump's desire to reinforce his support in the closely fought Midwestern states ahead of the November 2020 election, many of which are major corn, soybean, and biofuel producers.

Biofuel plant closures and idlings across the region have led a bipartisan group of political officials to petition the Trump administration to guarantee volumes for 2020, citing job losses and damages to rural economies.

Despite the release of the mandate on December 19, sources remain wary of unexpected changes in the future. "Like everything else with Trump, don't believe it until you see it," a trader source said after the mandate's release.

The 2020 mandate kept the ethanol blending quota at 15 billion gallons, in line with demands made by farmers, biofuel producers, and local politicians.

On the biomass-based diesel side, the mandate came in above the 2019 quota of 2.1 billion gallons and was set at 2.43 billion gallons. Advanced and cellulosic biofuel quotas were set at 2.07 billion gallons and 590 million gallons, respectively.

-- Jordan Young, jordan.young@spglobal.com

-- Edited by Shashwat Pradhan, newsdesk@spglobal.com