RENEWABLE FUEL CREDITS
The Energy Policy Act of 2005, which included the Renewable Fuel Standard Program enforced by the US Environmental Protection Agency (EPA), mandates a certain amount of renewable fuel be blended into the transportation fuel used by all vehicles in the country. This Program provides monetary incentives to all domestic renewable fuel producers whose fuel is used in the transportation industry. It establishes Renewable Identification Numbers (RINs) or credits for each gallon of renewable transportation fuel produced in the United States. RINs are essentially records of individual batches of renewable fuel being blended into the US gasoline and diesel pools. RINs are created when a batch of renewable fuel is made. Each batch receives a unique identification number (hence the name). RINs become usable as credits (“released”) once the renewable fuel is blended into gasoline or diesel in the US. Once released, RINs can be traded. Refiners and fuel importers in the US are required to provide the EPA with RINs every year based on the volume of gasoline and diesel that they supply into the US market. They largely get these RINs by buying them from the blenders who release them as blending occurs.
RINs are broken down into different D‐codes depending on the source of the renewable fuel. There are five different classes of RINs: D6 (corn ethanol) priced at $1.53/gallon (as of July 18, 2023), which is included in the market price of ethanol (currently 2.48/gallon); D5 (Advanced Biofuel), priced at $1.53/gal ethanol or the energy equivalent for gasoline (such that 1 gallon of renewable bio‐gasoline that qualifies as an advanced biofuel would get $2.29/gallon because it has higher BTU/gal than ethanol); D4 (Biomass Diesel), $1.54/gal, which isn’t applicable to the Company’s prospective production; D3 (cellulosic ethanol), currently worth $3.02/gal or $1.49/gal in addition to the D6 RIN; and D7 RIN (cellulosic‐based advanced fuels), where a D7 RIN has the same value per BTU as the full D3 RIN, such that the D7 credit for Sustainable Aviation Fuel would currently be worth $4.83/gallon of SAF, and a D7 RIN for gasoline would be $4.51 because it has slightly lower BTU value per gallon than SAF.
Blue Biofuels’ management believes that ethanol originating from the Company’s CTS process will be eligible to receive the US EPA’s generous D3 RIN, and that sustainable aviation fuel and renewable bio‐ gasoline originating from the Company’s CTS process will be eligible to receive the D7 RIN. The EPA has just finalized its obligated volumes for years 2023, 2024, and 2025. These significantly increase the renewable fuel credits for cellulosic ethanol from 770 million gallons in 2022 to 840 in 2023, 1.09 billion in 2024, and 1.38 billion in 2025. In other words, the value of the D3 cellulosic RIN, for which the CTS process should qualify, is likely to remain significant. It has averaged well over $2.00 per gallon for the past couple of years and is currently $3.02 per gallon.
CLEAN FUEL PRODUCTION CREDITS
Section 45Z of the Inflation Reduction Act passed on August 16, 2022, offers a Clean Fuel Production Credits (CFPC) per gallon of transportation fuel produced with a base amount of 20 cents/gallon or $1/gallon for a qualified facility that was built while paying at least prevailing wages and which met apprenticeship requirements. For sustainable aviation fuel, those figures are 35 cents and $1.75/gallon. The CFPC currently does not apply to transportation fuel sold after December 31, 2027.
PRODUCER TAX CREDITS
SAF producer tax credits are also offered by the Inflation Reduction Act. These credits are given ONLY on the production of SAF in processing methods in facilities that have a greater than 50% reduction in greenhouse gases as compared to jet fuel from fossil fuels. This credit starts at $1.25/gal of SAF, and increases 1 cent for each percentage greater than 50 of greenhouse gas (GHG) reduction the facility performs, up to a maximum of another 50 cents, or $1.75/gal. According to the Inflation Reduction Act, a producer may receive EITHER this credit or the CFPC but not both.
LOW CARBON FUEL STANDARD CREDITS
A Low Carbon Fuel Standard Credit (LCFS) is offered by various states (primarily California) for any amount of reduced CO2 in the production lifecycle of transportation fuels as compared to the amount of CO2 emitted in the production lifecycle of fossil fuels. The production lifecycle includes transportation costs to the point of use. California is currently offering around $72.50 per metric ton of CO2 reduction. For SAF that is produced using cellulosic feedstock, this translates into a credit of around $0.49/gallon assuming a GHG reduction of 83%.
The sum of these credits could provide significant income to Blue Biofuels in addition to that from ethanol, SAF and other product sales.
