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LCFS Spot Contract |
California LCFS |
Oregon LCFS |
Price September 15th, 2023 |
$ 68.00 |
$ 165.00 |
Avg. Weekly Price September 11th - September 15th, 2023 |
$ 73.10 |
$ 165.00 |
Average Monthly Price September 2023 |
$ 74.45 |
$ 164.95 |
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LCFS Futures Contract |
Pricing |
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Dec. '23 |
$ 68.22 |
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Dec. '24 |
$ 72.47 |
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Dec. '25 |
$ 79.21 |
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The California Low Carbon Fuel Standard (LCFS) market fell for a fourth consecutive week as the slow pace of regulatory reform to the program curbed buying. Prompt credits slumped $2.4/t, or 3.2%, to average $73.10/t. The market closed out the week at $68.00/t, the lowest level since early March 2023.
The forward structure saw contango narrow across the curve.
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.
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 September 15th, 2023 |
$ 2.98 |
$ 1.26 | $ 1.26 | $ 1.26 |
Avg. Weekly Price September 11th - September 15th, 2023 |
$ 2.99 |
$ 1.30 | $ 1.30 | $ 1.30 |
Average Monthly Price September 2023 |
$ 2.99 |
$ 1.32 | $ 1.32 | $ 1.32 |
Current year year vintage D4 RINs shed $0.024/RIN, or 1.8%, to average $1.302/RIN. The market reached as low as $1.263/RIN, market the lowest level since September 2021. The B22/B23 spread continued to widen as B23 losses oupaced B22s. Mounting oversupply of 2023 vintage D4 credits, and an approaching 2022 compliance deadline saw the B22/B23 spread return to levels seen in mid-June.
July total RIN generation fell to 1.98 billion credits, down by more than 80 million credits, or 3.9%, from June. July D4 RIN generation slumped 44 million credits, or 6.4%, from the month prior as renewable diesel and biodiesel margins both deteriorated throughout the month. Domestic and foreign renewable diesel generation accounted for 59% of total D4 generation, up from last month’s 56%. Sustainable Aviation Fuel (SAF) accounted for 0.4% of total D4 generation, down from last month’s 0.6%. Total D4 RIN generation of 4.32 billion credits accounted for 85% of the final advanced obligation and is on pace to exceed the obligation by 2.31 billion credits.
Total D6 generation came in at 1.27 billion credits taking the total for the first seven months of the year to 8.56 billion RINs. D6 generation is on pace to fall approximately 568 million RINs short of the 15.25 billion gallon mandate for 2023.
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.
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