RFS Mandates Contribute to Soaring Diesel Prices

The Renewable Fuel Standard (RFS) has been in place since 2005, and its impact on diesel prices is often overlooked. Established to promote the use of renewable fuels, the RFS requires a certain volume of biofuel to be used in the transportation fuel supply.

The Environmental Protection Agency sets annual Renewable Volume Obligations (RVO), which are the volumetric biofuel targets for obligated parties to meet. However, the RFS mandates more ethanol than the gasoline market can physically absorb, leading to a blend wall. When this happens, refiners turn to biodiesels, and compliance begins to shift from blending to RIN acquisition.

RIN prices have surged due to high RVOs, with ethanol and biodiesel RINs hitting near-record highs of $2.37 and $2.41 respectively this summer. The increased demand for biodiesel RINs raises soybean oil prices, leading to higher biodiesel costs and diesel fuel prices.

This affects not only consumers who drive trucks but also industries that rely on commercial vehicles and freight transportation, including farming equipment, truck fleets, construction machinery, backup generators, and even electricity and home heating in some regions. The RFS's inflationary role deserves further scrutiny to evaluate its impact on diesel prices.