D4 RINs: The $1 Milestone is Within Reach
The renewable diesel market is trapped in a critical inflection point, with current production margins bleeding at negative 23 cents per gallon—a financial stranglehold that will only be broken when D4 RINs breach the $1 mark. This isn't just market volatility; RFS was designed this way, and it is an economic pressure cooker ready to explode with potential energy. Just like 2017, this will present the new administration with strong pressures from independent refiners with large RINs liabilities and no presence in the Biofuel production sector.
At current margins, producers have a clear message: we're not producing until the economics make sense. The negative 23 cents per gallon represents more than a financial loss—it's a strategic pause, a calculated wait for market conditions that justify massive industrial investment. Every cent of RIN value becomes a lifeline, pushing closer to the magical $1 threshold that will begin to unleash a wave of production capacity.
The supply dynamics are brutally straightforward. Conventional biodiesel production is collapsing, dropping from 2.2 billion gallons in 2024 to projected levels below 1.8 billion gallons in 2025. This supply contraction is happening simultaneously with a dramatic shift away from imported feedstocks, creating a supply-demand equation that can only drive RIN values higher. The 45Z tax credit uncertainty isn't a barrier—it's the catalyst that will force RIN values to match economic reality.
Domestic waste oil markets are undergoing a revolutionary transformation. Imported used cooking oil streams are evaporating, with Chinese imports plummeting from 2.7 billion pounds to potentially less than 1 billion pounds. Companies like Diamond Green Diesel and Valero aren't just waiting—they are positioning themselves to dominate a more localized market the moment economics align. RINs will also impact the mix of feedstock in the next few months as LCA requirements for 45z are no longer relevant for the time being.
The path to $1 per gallon isn't just possible—it's becoming a mathematical necessity. At current negative margins, producers have zero incentive to increase production. Each regulatory challenge, each supply chain disruption, each market uncertainty is another brick in the wall pushing D4 RINs towards that critical $1 valuation. Smart money isn't betting if this will happen—they're positioning for when it happens.
