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LCFS Spot Contract |
California LCFS |
Oregon LCFS |
Price December 15th, 2023 |
$ 70.50 |
$ 90.00 |
Avg. Weekly Price December 11th - December 15th, 2023 |
$ 70.50 |
$ 90.00 |
Average Monthly Price December 2023 |
$ 70.91 |
$ 89.00 |
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LCFS Futures Contract |
Pricing |
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Dec. '23 |
$ 72.00 |
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Dec. '24 |
$ 77.00 |
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Dec. '25 |
$ 85.00 |
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The California Low Carbon Fuel Standard (LCFS) market lost ground as CARB appeared to miss a deadline to release a formal proposal for CARB’s scoping plan in time for a January board meeting vote.
Prompt credits fell $2.0/t, or 3.6%, to $70.50/t, with less pronounced losses along the forward curve.
The forward structure held at flat heading into 2024. Contango into Q2 2024 held at $1.00/t and $1.00/t into Q3 2024.
The prompt market had been in a choppy holding pattern since early May yet initiated a material downtrend starting in early June. LCFS strength has 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.
Materials provided showed CARB ahead of its last board meeting showed the regulator is considering a 30% reduction scenario with a 5% step down in 2025. A 25% reduction scenario with limitations to biodiesel use was considered but found to not displace enough fossil fuel. A 35% reduction scenario was also considered but found to be too costly.
CARB released a proposal ahead of its rulemaking which adopted a 30% carbon intensity reduction by 2030, curbed biogas contributions, and included an auto-acceleration mechanism. Traders now await the late-September board meeting for the next cues and the release of the final proposal for the state’s scoping plan.
During the August 16 workshop, California’s Air Resources Board (CARB) provided updated guidance on the timeline for its rulemaking process to usher in more stringent carbon intensity targets. The regulator aims to release a proposal after a late-September board meeting during which a non-voting LCFS item will be outlined. The proposal will face a 45-day public comment period allowing the item to be voted on at a board meeting in early 2024.
The new targets could come into effect by mid-to-late 2024, or CARB could wait till January 1, 2025. CARB clarified that it would not retroactively apply the ruling to any part of the 2024 compliance year.
The August 16 public workshop covered extensive modeling updates to its California Transportation Supply Model (CATS). The updated scenarios included material upward revisions in electrification of HDVs and MDVs, added in total out-of-state biomethane supply and built in a credit bank drawdown pathway. CARB did not factor alcohol-to-jet into the model as sufficient data was not available.
Stakeholders raised concerns that the electricity CI used in the model was too high and took issue with using total out-of-state biomethane (RNG) in the model, while not adjusting for out of state competition and restrictions.
RIN Spot Contract |
D3 |
D4 |
D5 |
D6 |
Price December 15th, 2023 |
$ 2.98 |
$ 0.81 | $ 0.81 | $ 0.81 |
Avg. Weekly Price December 11th - December 15th, 2023 |
$ 3.03 |
$ 0.81 | $ 0.80 | $ 0.81 |
Average Monthly Price December 2023 |
$ 3.12 |
$ 0.82 | $ 0.82 | $ 0.82 |
RINs continued to press lower as the BOHO spread held at the widest level in over two months. The 2022 vintage market posted greater losses, with the inter-vintage spread compressing to 2c/RIN.
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 a mounting oversupply of D4 credits.
October total RIN generation came in at a record 2.1 billion credits, up 7.7% from the previous month when total RIN generation came in under 2.0 billion credits for the first time since April.
D4 generation came in at under 733 million credits, up 9% from the previous month’s levels and up 54% from year-ago levels. Total D4 production reached 7.72 billion credits, overshooting the entire 2023 advanced biofuel mandate by nearly 1.3 billion credits. Domestic renewable diesel production accounted for 47% of total D4 output, foreign renewable diesel made up 11%. Domestic and foreign biodiesel accounted for 41% of total D4 output, down from 44% the month prior. SAF accounted for less than one percentage point.
D3 RIN generation fell 10% from the previous month and is running just 13% 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