Renewable fuels are fossil fuel replacements that aim to allow for the continued use of existing equipment (tractors, airplanes, fueling stations, etc.), while maintaining a reduced carbon intensity compared to traditional fossil fuels (diesel, jet A, natural gas, gasoline). The basic concept is to generate a circular carbon cycle by allowing plants to naturally absorb carbon dioxide from the atmosphere that then when converted into a fuel and burned has roughly a carbon-neutral impact on the environment. Ideally they can be used as direct fuel replacements, often called “drop-in ready”, but certain forms are limited to a maximum blend ratio for reliability and to maximize use in existing infrastructure.
The Energy Policy Act (EPAct) and the Energy Independence and Security Act (EISA) created and expanded the Renewable Fuel Standard (RFS) program managed by the EPA. The RFS program allows the EPA to place renewable volume obligations (RVOs) on producers or importers of transportation fuels. The Renewable Identification Numbers (RINs) credit system was developed to allow for non-renewable fuel facilities to meet their RVOs and for renewable fuel producers to receive additional revenue from the production of a renewable fuel.
The RIN credit system is designed to account for the different amounts of greenhouse gas emissions reduced from the production of a given fuel and it’s final use. A RIN is set to represent the equivalent biomass content and lower heating value of a gallon of corn ethanol, and an equivalence value can be calculated that allows for higher value fuels to generate more RINs than lower value fuels. Credits with more greenhouse gas reduction can be used to offset RVOs for lower credits, but typically are priced higher due to higher production costs for cleaner fuels. The compressed natural gas (CNG) engines and the conversion of diesel engines to CNG allows for renewable natural gas to be considered for transportation fuel RIN credit generation which wasn’t approved until 2014.
Figure 3 – Nesting Structure of RFS RIN Credits
Companies that are unable to meet the EPA RVOs look to the RIN credit market to avoid significant fines during annual compliance reviews. A renewable fuel company that produces excess RIN credits for it’s own obligation can either sell renewable fuel with the RIN credit attached or separate the RIN from the renewable fuel once blended with a fossil fuel to be sold. As each D-code RIN has separate obligations placed on it each year, the value of a given fuel RIN fluctuates with the availability of a given renewable fuel.
Figure 4 – Fluctuation of RIN credit prices cleared in EPA credit tracking system
Table 1 – Summary of Renewable Fuels RFS RIN Credits and Future Market Size
Further economic support for renewable fuel production comes from the California Air Resources Board (CARB) cap-and-trade program for GHG emissions reductions. Under this program, large greenhouse gas emission sources that emit over 25,000 metric tons of carbon dioxide equivalent per year (t-CO2e/yr) are awarded emissions credits equal to 1 t-CO2e at a steadily decreasing amount per year. Once a company has used all of it’s allowances at the cap, it must then purchase credits from other companies with excess allowances or from offset sources. Renewable fuels are allowed to generate these offsets from the reduction of CO2e emissions as determined by the fuel life cycle. As of February 2023, a 1 ton LCFS credit is priced at $110/t-CO2e.
Emissions associated with climate change come in many forms and CO2 is only one of the numerous gasses that have an effect on climate. CO2 is used as the reference standard for these other gasses and their global warming potential is calculated as the equivalent amount of carbon dioxide (CO2e) that would cause the same amount of climate change over a certain period of time; typically 100 years. The lifecycle carbon emissions analysis of animal manure RNG and landfill RNG takes into account the associated emissions avoided from producing the RNG. The main difference however is that the EPA also mandates that all landfill gases need to be collected for flaring at a typical landfill. This allows animal manure RNG to claim avoided methane released at a 25x multiple of CO2, whereas landfills can only count avoided CO2 released from the flared methane. This has a significant influence on the amount of LCFS credits that can be generated from a landfill RNG plant versus an animal manure RNG facility.
Table 2 – Global Warming Potential of Emissions