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Petroleum Refining: Focus on renewable fuels and RFS requirements

Hillary Stevenson
Hillary Stevenson
Senior Director of Energy Market Intelligence at IIR Energy
James Mitchell
James Mitchell
Commodity Thought Leader, Refinitiv

In this fourth and final in a series of blogs produced in collaboration with IIR Energy – a leading supply side global market intelligence player servicing the commodity trading community – we delve into the Renewable Fuel Standard (RFS) in the US.

  1. The Environmental Protection Agency’s (EPA’s) RFS has set out new proposed volume targets and percentage standards for renewable fuels.
  2. Obligated parties are required to meet blending obligations known as renewable volume obligations (RVOs).
  3. A renewable identification number (RIN) system is used to demonstrate compliance.

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Furthering the global goal of energy transition

Previous blogs within this series have outlined the pressing need for global petroleum refining industry stakeholders to develop and optimise workable energy transition projects.

In the US, the EPA is working hard to implement changes – notably via the RFS – that will advance such transition projects.

According to the EPA, “The RFS programme is a national policy that requires a certain volume of renewable fuel to replace or reduce the quantity of petroleum-based transportation fuel, heating oil or jet fuel. The four renewable fuel categories under the RFS are: biomass-based diesel, cellulosic biofuel, advanced biofuel and total renewable fuel.

In 2022, the EPA proposed a rule that, inter alia, sets out RFS volume targets and percentage standards for 2023 – 2025, as shown in the table below:

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RVOs and obligated parties

Jim Mitchell, Head of Americas Oil Analysts, Refinitiv explains that the EPA uses a mathematical formula to determine how obligated parties (explained further below) must meet required standards. The formula determines the blending obligations for each obligated party for the following calendar year. These are known as renewable volume obligations (RVOs).

An obligated party under the RFS is a refiner or importer of gasoline or diesel that is consumed in the continental US (Hawaii also has opted into the RFS). Marketers that blend ethanol into gasoline for others and biofuel producers are not obligated parties. Thus, the mandates currently apply to parties that may have little to do with actual biofuel.

The RVO represents a percentage for each sub-mandate of each obligated party’s production volume of gasoline and diesel for the US market. For example, if the RVO for the entire mandate is 10 percent, then a refinery producing 100,000 bpd of gasoline and diesel would have to show that 10,000 bpd of biofuel were blended into the fuel supply. In addition to refiners, importers are also obligated parties.

All obligated parties have RVOs for all mandated biofuel, regardless of what fuels they typically produce or blend. Thus, a gasoline importer not only has an obligation to make sure some volume of ethanol is blended into its gasoline, but the company also has an obligation for biomass-based diesel, cellulosic fuel, other advanced fuels, and total renewable fuels production. Gasoline and diesel fuel exports produced in the US do not incur an RFS obligation.

The RIN system

IIR Energy’s Senior Director of Energy Market Intelligence, Hillary Stevenson, explains that a RIN is a unique 38-digit number assigned to each gallon of biofuel and elaborates, “Obligated parties must turn in a set number of RINs to the EPA each year to demonstrate compliance. Obligated parties can meet up to 20% of their current obligation with banked RINs, which have a two-year lifespan.”

RINs are generated by the renewable fuel producer at the time of production and must stay attached to physical gallons of biofuel until an obligated party purchases those gallons or someone mixes that ethanol into gasoline. At those times the RINs are detached and may be sold in the RIN market or transferred/kept by an obligated party.

Stevenson goes on to elaborate that IIR Energy is seeing far greater planned capacity in renewable diesel than in ethanol and explains that this is largely because of the former generating more RINs. She comments, “Renewable diesel is ramping up, driven by the significant volume of RINs that can be created. It is also interesting to see more renewable diesel development in coastal areas, whereas ethanol production is concentrated inland.”

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Ethanol is not blended at refineries, because its corrosive properties and propensity to attract moisture prevent the additive from being transported via pipeline. Ethanol is therefore shipped to terminals to be blended with gasoline via truck, barge, or rail.

Many refiners and importers do not own their own terminals and sell their gasoline blend stocks for ethanol blending to marketers that blend the gasoline with ethanol at terminals close to the consumer. Since the terminals are the ones generally buying the ethanol, the only way for these refiners and importers to comply with the RFS is to buy credits – either through transfer arrangements with the marketers or on the open market.

Mirroring a cap-and-trade system

Mitchell says that, in practice, the RFS mirrors a cap-and-trade programme – a programme in which obligated parties must obtain or generate enough credits to show that their emissions are below a set ceiling.

He explains further, “In terms of the RFS, obligated parties have to obtain or generate enough credits to show that a certain amount of ethanol is blended above a set floor. The RVO and the RIN trading systems together work like a cap-and-trade system and will gradually lower tailpipe pollutants from road fuels. These kinds of programmes work with varying results, but one thing is certain – they work gradually.”

Mitchell further points out that, against this complex and dynamic backdrop, industry stakeholders should ensure that they have access to trusted data that can inform their decisions. In support of this need, Refinitiv and IIR Energy have collaborated to combine detailed operational knowledge and comprehensive, accurate data. The result is IIR’s PetroCast Live, available on the Refinitiv platform. The solution delivers comprehensive, real-time data and is continually updated.

Stevenson concludes, “As industry stakeholders delve more deeply into global renewable fuel developments, the more granular information they will need to inform.

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All data sourced from the EPA.


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