Adoption of alternative fuel continues to push forward – positively impacting decarbonization strategies throughout North America and beyond. In this edition of Future of Fuel, we’ll focus around three key themes: soaring RIN prices, the expansion of clean fuel programs, and establishing clean energy standards. Continue reading to better understand how these three themes will impact the industry moving forward.
Theme #1: Increased Demand Fuels Rising RIN Prices
According to the U.S. Energy Information Administration, limited fuel production, fewer approved Small Refinery Exemptions (SREs), and uncertainty around the Renewable Fuel Standard (RFS) levels have reportedly increased Renewable Identification Number (RIN) prices. As RIN credit prices rise, there is growing concern that banked RINs are drawing down too quickly. While we wait to see what the Biden administration does with regard to SREs requests and required volume obligations, prices could continue to grow even higher as demand increases.
In fact, Mike Koel, president at U.S. Gain, predicted rising RINs prices for 2021 late last year during a discussion with American Biogas Council given the changing fuel prices he saw throughout 2020.
The Renewable Fuels Association (RFA) released an updated analysis by Life Cycle Associates that found greenhouse gas (GHG) reductions from the RFS far exceed original projections by the EPA. Between 2008 and 2020, the RFS has resulted in cumulative savings of 980 million metric tons of carbon dioxide-equivalent GHG emissions. Although the report underreported RNG volumes, it attributed the greater savings to an updated assessment of GHG emissions for corn ethanol production, updated carbon intensity of gasoline and diesel, and increased use of advanced biofuels than originally estimated by the EPA.
Theme #2: Clean Fuel Programs Go to Vote in Midwest and Northwest
Minnesota and Washington are inching closer to regional clean fuel programs which will create financial incentives for alternative fuel deployments as well as spearhead clean energy efforts throughout new regions of the United States.
The Minnesota House of Representatives Climate and Energy Finance and Policy Committee discussed a bill in mid-March (H.F. 2083) that would establish a standard to reduce the carbon intensity (CI) of transportation fuels in the state. This discussion comes right after the introduction of the Future of Fuels Act, which creates a program requiring a 20% average reduction in CI transportation fuel by the end of 2035 (2018 baseline levels).
Washington’s Clean Fuel Standard Bill targets a CI reduction in transportation fuels used within the state of 10% below 2017 levels, by 2028, which later increases to a reduction of 20% below 2017 levels by 2035. This program, which isn’t new to the WA political process, is inching closer to a legislative vote.
If passed, both Minnesota and Washington will join California and Oregon which already have established low carbon fuel standards in place.
Theme #3: Natural Gas Secures Place in Low Carbon Future
Working towards a cleaner future through decarbonization policies continues to make headlines across the globe. Like many hot topics, perspectives vary quite broadly when it comes to the future of natural gas within decarbonization strategies, the market at stake, and the variables involved.
Experts predict demand for natural gas to slightly increase before coming to a plateau around 2035. However, a variable not factored into this model is future policy and its impact on demand.
According to a recent article published by McKinsey & Company, this is where local and global economic competitiveness comes in. The energy transition will considerably influence the instability of daily gas demand, especially after 2030. Much of this unpredictability will be driven by power generation as gas-fired power plants are increasingly exposed to more uncertainty, especially in states with higher dispersion of renewables. However, demand within the Midwest, South and others are expected to continue relying on natural gas for power generation.
Additionally, natural gas will play a key role in the decarbonization of transportation. Yes, electrification will overtake natural gas in certain applications and potentially even regions because of incentives, but there will continue to be a need for low carbon solutions in hard-to-electrify segments, such as long-haul trucking. Demand within the transportation segment for natural gas will slightly decline yet remain a key alternative fuel through at least 2040.
Tune in to our next edition of Future of Fuel to watch as the market continues to evolve. Until then – reach out to dive deeper into any of the topics above and talk about how to efficiently plan your future fueling strategy.