D3-D4 RIN Price Collision?

The red line is the market price of the D3 (cellulosic biofuel) Renewable Identification Number (RIN) credit and the gold line is the market price of the D4 (bio-based diesel) RIN credit.

These two RIN credits have been on very different paths and look about to collide for the first time.

One implication of a collision is that, in theory, the two would move up together from there.

That’s because the D4 RIN’s rise is partly fueled by its ability to substitute for lower-level RINs in filling lower-level renewable fuel mandates. But the D3 RIN has that same high status in the RIN pecking order, which means it can compete with the D4 to fill any lower-level volume obligation.

The only reason that competition hasn’t yet affected things is that the D4 RIN has always been cheaper. If they collide, then, for the first time, the D3 will start stealing some of the lower-level demand that’s been helping fuel the D4’s rise. That competition will, in theory, keep their prices equal until things change.

Having to compete with the D3 wouldn’t necessarily stop the D4’s rise, but it would slow it down, and it would have other important consequences.

This possible collision and its consequences are not yet reflected in market prices. Because of the RIN’s complexity, and because of how RIN trading works, market prices are slow to factor in such possibilities. With a fundamental road map of the system, you can foresee, predict, and quantify their possibilities before they blindside the market.

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Please consider purchasing Hoekstra RIN Price Outlook. It is issued quarterly. Here’s the offer letter.

George Hoekstra george.hoekstra@hoekstratrading.com +1 (630) 330 8159