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Sustainable fuels are drawing increased investment and gaining importance as high-carbon-emitting industries start transitioning away from oil, gas, and other fossil fuels. As demand for biofuels, renewable diesel, and sustainable aviation fuel looks set to swell in the U.S. this year, some market participants are pressuring policymakers to increase the volume of renewable fuels while others are vying for small refiners to remain exempt from renewable fuel mandates.
Discontent appears to be brewing across the market as producers await the Environmental Protection Agency's finalized Renewable Volume Obligation for 2020, 2021, and 2022 under the Renewable Fuel Standard, according to S&P Global Platts. Industry players are split over whether the EPA’s RFS volumes—20.77 billion gallons for 2022—are too low or too high. Similarly, market participants are divided over whether it will help or hurt the renewable fuel market if the EPA moves forward with its proposal to remove exemptions that allow small refineries with 75,000 or less barrels per day of capacity to sidestep the program if they can prove that a disproportionate economic hardship exists for their facilities.
"Exempting refiners from meeting their obligations under the RFS leads to a lower use of renewable fuels, which, of course, is counter to the RFS goal of reducing greenhouse gas emissions and fighting global warming," Neville Fernandes, vice president of the Renewable Energy Group, told S&P Global Platts. “And with this climate crisis we're in, we need to reduce the carbon intensity of diesel as much as possible, as quickly as possible, by replacing petroleum with biofuels including biodiesel, renewable diesel, and blends of these two low-carbon, clean-burning renewable fuels.”
“In the past, all administrations have granted some [small refinery exemptions], and they've denied others. And we think that an individualized determination under the law is what's required, and unfortunately this proposal says that they're going to deny all 65 [small refineries]. That they can't envision a future in which any of those would be granted," Derrick Morgan, senior vice president for federal and regulatory affairs at the American Fuel and Petrochemical Manufacturers, told S&P Global Platts’ Capitol Crude podcast. "It's totally premature, and it's totally unfair. The DOE and the EPA need to look at these refinery exemptions one-by-one and see if there's a disproportionate economic impact."
Although sustainable fuels are by no means new, their prominence in the market has never been as important as the world’s largest economy aims to turn its climate ambitions into action.
Created by Congress in 2005 and expanded in 2007, the RFS aims to reduce the U.S.’s greenhouse gas emissions, expand renewable fuels sector, and reduce reliance on imported oil by requiring transportation fuel sold in the country to contain a minimum volume of renewable fuels. The standard volumes are set annually by the EPA for conventional, advanced, and cellulosic biofuels as well as biomass-based diesel. Energy companies that comply with the program receive renewable identification numbers, or RINs, that act as currency and can be traded with or separated from batches of fuel. Refiners unable to blend the compulsory amounts of renewable fuels into their transportation fuels are required to purchase RINs to meet their obligations.
S&P Global Platts assesses the RVO as a value calculated using daily RINs prices and biofuel mandates for per-gallon compliance costs. Trading RINs in over-the-counter markets carries the risk of one party defaulting on a deal and has fewer safeguards than trading the credits in futures exchanges, according to S&P Global Platts.
"It's impossible to predict what they will do from one administration to the next or from one year to another with an administration," David Lamp, chief executive officer and president of CVR Partners, a limited partnership of the petroleum refining company CVR Energy, told S&P Global Platts about the uncertainty of how the EPA allocates volumes and small refinery exemptions. "And [with] their mismanagement of it we get these high RINs prices, which go right to the price of gasoline, which they claim they want to reduce."
“I think it is a workable program and meets the requirement and has the potential to really support the production and consumption of low-carbon biofuels in the U.S. in order to substantially reduce greenhouse gases," the Renewable Energy Group’s Mr. Fernandes said. "It is up to the EPA to determine if they want to increase the mass of biomass-based diesel and advanced biofuels, and since there is much more biomass-based diesel scheduled to come online, per refiners' plans.”
Interest in renewable fuel futures is evident heading into 2022. From Dec. 15-Jan. 5, 2.5 million renewable cellulosic biofuel RINs credits traded on the North American environmental commodities exchange platform Nodal Exchange, according to its exchange partner IncubEx.
"I've been calling the RINs market the wild west for the last 10 years, and it really still is the wild west … You can look back throughout RIN history and there's been some pretty interesting default issues,” Kees Woodward, senior vice president at IncubEx, which launched RINs trading on Nodal Exchange, told S&P Global Platts. "Up until this year, RIN futures haven't really gotten any traction … It does seem like they're getting traction now.”
Demand for sustainable aviation fuel is also set to grow this year as the difficult-to-decarbonize airline industry makes net-zero efforts, and the Biden Administration advances policy proposals to offer federal tax incentives for using the fuel. The fourth quarter of last year saw a flurry of activity regarding sustainable aviation fuel. At the end of September, Delta Airlines signed an agreement with renewable-fuel producer Aemetis to buy 250 million gallons of low-carbon blended sustainable aviation fuel over10 years, and JetBlue partnered with the biofuel developer SG Preston for 670 million barrels of sustainable aviation fuel over a decade beginning in 2023. United Airlines launched the first-ever commercial flight using only sustainable aviation fuel on Dec. 1 after partnering with renewable-energy producers to develop the fuel and make the flight possible.
United’s "SAF flight is not only a significant milestone for efforts to decarbonize our industry, but when combined with the surge in commitments to produce and purchase alternative fuels, we're demonstrating the scalable and impactful way companies can join together and play a role in addressing the biggest challenge of our lifetimes,” the airline’s CEO, Scott Kirby, said in a statement at the time of the flight, according to S&P Global Platts.
Today is Wednesday, January 12, 2021, and here is today’s essential intelligence.
Uncertainty in the Global Economy
Economic Research: U.S. Economic Roundup: Tight Job Market Allows For More Fed Tightening
Job gains reached just 199,000 in December. While a good number during normal times, it was half the 399,000 consensus estimate and S&P Global Ratings’ forecast of 350,000. Fortunately, upward revisions the prior two months added 141,000 more jobs to bring total net job gains to 340,000 over the last three months.
—Read the full report from S&P Global Ratings
The Credit Cycle
Outlook For Charter Schools: While Growing Demand And Stimulus Funds Provide Flexibility, Risks Persist
While there are credit risks inherent to the charter school sector, such as failure to meet authorizer standards, charter nonrenewal, or revocation due to academic failures or enrollment shortfalls, overall, the S&P Global Ratings stable outlook on the sector for 2022 reflects a growing number of opportunities.
—Read the full report from S&P Global Ratings
Market Dynamics
'Significant Discipline' At Jan. 1 Reinsurance Renewals May Set Tone For '22
Reinsurance companies achieved higher-than-expected price rises at the Jan. 1, 2022, renewals, and signs look promising for more increases later this year. In recent past years, reinsurers had conceded lower rate increases for property-catastrophe cover than they originally anticipated. The Jan. 1, 2022, season was different.
—Read the full article from S&P Global Market Intelligence
Commercial Auto Insurance Rate Hikes Outpace Reductions In November 2021
Commercial auto rate increases approved in Texas during November 2021 could lead to an additional $17.3 million in premiums written across the industry, the largest for any single state, according to an S&P Global Market Intelligence analysis. In fact, three of the five most-impactful commercial auto rate increases during the month were in Texas.
—Read the full article from S&P Global Market Intelligence
Banking Industry Under Pressure
GCC Banking Sector Outlook: On The Recovery Path In 2022
Gulf Cooperation Council Banks are set to benefit from a regional economic recovery this year amid higher oil prices, still supportive government spending, and normalizing non-oil activity. S&P Global Ratings expects banks’ asset quality indicators to deteriorate only slightly as regulatory forbearance measures have helped the corporate sector to deal with the negative effects of the pandemic.
—Read the full report from S&P Global Ratings
SocGen's €4.9B LeasePlan Buy Accelerates European Banks' Auto-Leasing Drive
European banks' efforts to boost revenues amid margin-crushing, record-low interest rates is generating a flurry of activity in the lucrative auto-leasing sector, with Société Générale SA's €4.9 billion acquisition of LeasePlan Corp. NV the latest in a series of moves by lenders. The French bank, already Europe's largest auto lessor through its 80% stake in ALD SA, expects a 5% boost in earnings per share starting in 2024 from the combination of LeasePlan and ALD, according to a statement.
—Read the full article from S&P Global Market Intelligence
Technology & Media
2022 U.S. Telecom And Cable Outlook: Slowing Growth, High Capex And Shareholder Returns Could Limit Credit Quality Improvement
U.S. wireless operators posted their strongest subscriber gains and service revenue growth in several years during 2021, rebounding from sluggish operating performance due to the COVID-19 pandemic. However, aggressive promotional activity to differentiate their 5G networks pressured margins while a massive $95 billion spend in the C-band auction pushed up leverage for all the rated carriers.
—Read the full report from S&P Global Ratings
Listen: Next In Tech | Episode 47: Transformation Is Transforming Technology Services
The role of technology services companies, like systems integrators and technology consultants, is being transformed as they’re working to support their clients’ transformations. Senior analyst Dr. Katy Ring talks about this transition and the way some have shifted their relationships with tech services vendors with host Eric Hanselman.
—Listen and subscribe to Next in Tech, a podcast from S&P Global Market Intelligence
ESG in the Time of COVID-19
German Wind, Solar Capture Prices End 2021 At Record Highs
Capture prices for German wind and solar ended 2021 at all-time highs, with December's average up fivefold year on year, while the difference between technologies widened sharply, system data shows. Capture prices are based on actual hours of operation and are a more accurate reflection of value for renewable energy assets than day-ahead prices.
—Read the full article from S&P Global Platts
German Climate Minister Sets Out Plans For 572 TWh/Yr Green Electricity By 2030
Germany's new economy and climate minister Robert Habeck has outlined plans to fast track renewables in order to meet an 80% share in the power mix target by 2030. In his first official press conference as minister on Jan. 11, the co-leader of the Green Party said a first package of reforms was set to pass cabinet by end-April in order to have an impact in 2023.
—Read the full article from S&P Global Platts
Analysis: China's EAF Steelmaking Capacity On Rise Amid Decarbonization Goals
China has started implementing stringent capacity swap rules since 2021, pushing the commissioning of new EAFs that gained construction approvals during the year. This would lead to a net decrease in China's pig iron and crude steel capacity from late 2022 and onwards.
—Read the full article from S&P Global Platts
Trump-Era Coal Screens Sufficient, BLM Argues In Environmental Lawsuit
Conservation groups including Earthjustice and the Sierra Club sued the BLM in federal court in October, arguing it failed to comply with a 2018 court order to conduct environmental impact studies for its offices in Miles City, Montana, and Buffalo, Wyoming. The tracts are part of the Powder River Basin, the largest coal-producing region in the U.S. Over 85% of all federal coal production is produced from the PRB, according to BLM statistics.
—Read the full article from S&P Global Platts
The Future of Energy & Commodities
OPEC+ Hikes December Oil Output, But Falls Well Short Of Quotas Again: Platts Survey
The gap between OPEC+ crude oil quotas and production has widened, as the group's steady loosening of its pandemic cuts once again outpaced actual output gains in December, according to the latest S&P Global Platts survey. OPEC's 13 countries pumped 28.04 million b/d of crude, up 190,000 b/d from November, while nine non-OPEC partners pumped 13.98 million b/d, an increase of 120,000 b/d, the survey found.
—Read the full article from S&P Global Platts
Australia Poised To Be 2022's Comeback Kid As Bumper Rice Harvest Approaches
Australian Japonica rice output has been on a rollercoaster ride in recent years. Due to drought, Australian paddy production reached its lowest level in over a decade in 2020—50,000 mt—according to the U.S. Department of Agriculture. This was also only a minor reduction from the year before. However, since then, production has picked up substantially, with the USDA estimating 2021 paddy output at 458,000 mt.
—Read the full article from S&P Global Platts
Commodities 2022: Uncertainty To Dominate In West Of Suez Clean Tankers Markets
A dismal year for clean tanker earnings over most of 2021 ended with some improvement across a number of vessel classes in the fourth quarter, but developments in the coronavirus pandemic, along with the emergence of new refining hubs worldwide, means the direction of travel remains uncertain in 2022.
—Read the full article from S&P Global Platts
Written and compiled by Molly Mintz.