In the U.S. biofuels market, it has become normal for the prices of three Renewable Identification Number (RIN) credits to be the same. They are the D4 (biomass-based diesel), D5 (advanced biofuel) and D6 (conventional renewable biofuel) RINs. This equality is caused by special circumstances that have applied at times. The current question is what will cause the next separation among these three RIN prices?

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See other blogs in this series: What Will Cause Separation of the D4, D5, and D6 RIN Prices?

• Part 1 – Studying Boundaries with ATTRACTOR
• Part 2 – The Big Bang and the Meiselman model
• Part 3 – D6 RIN Pricing Framework
• Part 4 – The Next Big Move
• Part 5 – The ATTRACTOR RIN System Roadmap

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The D4, D5, and D6 RINs are currently priced the same.  This is a logical consequence of special circumstances that cause their values to all be determined by the factors that drive the D4 biobased diesel RIN. 

But the D5 and D6 RINs are not designed to be captive to the D4 in this way. They have their own independent functions to perform. Imminent changes in the market will likely trigger their re-engagement, as they have several times in the past, causing discontinuous changes that send them on their own separate paths. 

Two examples are when the Big Bang snapped the D6 price up 100-fold in 2012-2013, and when the RIN Cliff event crashed the D4 price down 3-fold in 2023-2024.

It is worth understanding these and other discontinuous bangs and crashes in detail.  That’s because the next big move will likely be a similar discontinuous move caused by similar events.

The next big move will likely be a similar discontinuous move caused by similar events.

The RIN Price Blueprint

The RIN price control system is defined by a network of supply curves, demand curves and boundaries that intersect to form a framework.  As prices and production rates change, the operating points, and the curves and boundaries themselves, all move.  Most of these movements are triggered not by government actions but rather by market changes. 

For example, the Big Bang was not triggered by a change in the renewable volume obligation level. It was triggered by steady growth in fuel ethanol consumption to the point of hitting the (vertical) blend wall before it hit the (vertical) renewable volume obligation boundary.

You can readily picture that event in your mind by looking at Figure 1 and imagining a rightward movement along the x-axis (which corresponds to increasing fuel ethanol consumption) until you hit the blend wall before you hit the total renewable mandate.

The collision with the blend wall was anticipated by the market, but its consequences were not — except by those with a picture like Figure 1, who did foresee and predict it and its consequences accurately, publicly, and quantitatively.

And the D4 RIN price crash of 2023 (which caused today’s anemic bio-based diesel industry margins) was triggered by three converging factors: 1) the rapid growth of renewable diesel production 2) the rapid substitution of soybean oil feedstock with cheap imported used cooking oil and 3) the (vertical) bio based diesel mandate level.  Similarly, that convergence and its consequences were foreseen and publicly predicted by those with access to ATTRACTOR’s full RIN system blueprint which allows you to accurately foresee, predict and quantify their consequences before they occur.

Accurate mental pictures of these events are very useful.  The positions of the RIN walls, cliffs, steep ramps and intersection points are all known. And slamming into walls, falling off cliffs, and suddenly hitting steep ramps are accurate analogies for the events they cause — because, just as in the physical world, slamming into financial walls causes bangs and falling off of financial cliffs causes crashes. 

Forecasting RIN prices

To reliably forecast RIN prices requires reference to a full RIN system blueprint like ATTRACTOR’s.  Any other forecasting method will, by definition, miss the walls, cliffs, boundaries and convergence points that are most essential for the purpose and that have caused most big RIN price moves in the past.

In particular, RIN price forecasts that rely instead on predictions of the future prices of crude oil, diesel fuel, gasoline, soybean oil, corn, ethanol, and other inherently unpredictable commodity prices should not be considered reliable for making important financial decisions.

A better method is to use ATTRACTOR’s roadmap to anticipate imminent collisions and free-falls like those that have triggered most big RIN price moves in the past. These events ARE inherently foreseeable because they depend on the known design of the RIN system, and their consequences are predictable through use of economic fundamentals.

The imminent collisions and free-falls that have driven most big RIN price moves ARE inherently foreseeable because they depend on the known design of the RIN system, and their consequences are predictable through use of economic fundamentals.

Recommendation

If RIN prices are important to you or your business, you should not be without the ATTRACTOR spreadsheet! Get Hoekstra Research Report 10 and the ATTRACTOR spreadsheet

Get the Attractor spreadsheet, it is included with Hoekstra Research Report 10 and is available to anyone at negligible cost.

George Hoekstra

+1 630 330-8159