Biogas credit slump tied to proposed waiver of supply mandates
Traders and market participants report that the prices for credits for cellulosic production of biofuels fell to their lowest level in more than a year after the U.S. Environmental Protection Agency proposed a partial exemption to its supply mandates by 2024.
The proposal was submitted to the government for approval on Tuesday. It follows a petition filed by American Fuel & Petrochemicals Manufacturers, a lobby group for industry, on Nov. 1, arguing that EPA’s supply mandates were too high for this year. The EPA denied a similar petition from AFPM regarding last year's mandates.
The market is uncertain about the future of carbon credits after Donald Trump's win in the U.S. Presidential election last month. Market participants have bet on exemptions from renewable fuel mandates becoming easier to achieve.
The EPA establishes annual mandates to add low-carbon fuel alternatives in the U.S. Fuel Mix. The EPA set a mandate for biofuels from cellulosic materials like leaves and stems to be added in the U.S. fuel mix.
Traders said that the D3 Renewable Identification Numbers for cellulosic Biofuels dropped from $3 to $2.70 per gallon on Wednesday. This is the lowest price since October 2023.
The EPA uses RINs to track compliance. Each gallon generated by renewable fuels is a RIN. Suppliers who reach their targets may sell any excess RINs they have to others.
AEGIS Hedging estimates that around 97% of the D3 RINs have been tied to biogas production, which is a renewable source of energy derived from agricultural waste.
Zander Capozzola told AEGIS' Zander Capozzola by phone that data on D3 RINs produced so far indicates a likely shortfall in 2024. He warned that the shortfall will not require the same adjustment to EPA mandates as market reaction would suggest.
AFPM had requested in its petition that the EPA issue cellulosic credit waivers, which is an alternative method of compliance to RINs.
"They'll likely reduce the volumes a little for 2024, but we don't see any likelihood of waiver credits," Capozzola stated.
Separately, he stated in a LinkedIn posting that he did not expect the 2025 mandates to be changed. (Reporting and editing by Chizu Nomiyama in New York, Shariq Khan reporting from New York)
(source: Reuters)
