Delivering on RINs

Addressing the financial risk of the current market, IncubEx and Nodal Exchange are adding capital efficiencies to the industry with the first ever physically-delivered RIN futures contracts for D codes 3, 4, 5, and 6. It's a compelling new hedge.
By EPM Staff | October 27, 2020

Companies in renewable fuels know how challenging these markets have been. One firm and its partner exchange are addressing the financial risk and adding capital efficiencies to the industry with a new tradable contract for Renewable Identification Numbers (RINs).

Chicago-based IncubEx, which develops tradable environmental contracts with its partner Nodal Exchange, a regulated U.S. futures exchange, is launching the first ever physically-delivered RIN futures contracts for D Codes 3, 4, 5 and 6, with complementary options.

Set to launch on Nodal pending regulatory review on Nov 17., the RIN contracts offer renewable fuel generators, refiners and other market participants the capital efficiencies and other benefits of a futures contract. And since the contracts are offered on a regulated exchange, trades are anonymously matched and then cleared on Nodal. This virtually eliminates counterparty risk because the clearinghouse acts as the buyer to every seller and vice versa. Additionally, this structure eliminates the need to negotiate terms and conditions with your counterparty.

"We spent a lot of time speaking with market participants, particularly end-users to develop the right RIN contract," said Nathan Clark, managing director at IncubEx. "These new products offer obligated parties and renewable fuel generators a deliverable contract that helps hedge price risk in RIN markets and mitigate counterparty risk."

IncubEx RIN futures offer a fully standardized way to trade RINs. All trades held to delivery will result in sellers providing RINs from pre-defined lists of generation facilities. At the end of the contract period, or expiry, buyers will take delivery of RINs via the Environmental Protection Agency's EMTS electronic registry.

RIN futures on Nodal will be executable through existing brokerage relationships or via the trading screen.

"All bids and offers for futures contracts on Nodal are live, anonymous and executable," Clark said. "We believe this provides ethanol, biodiesel, biomass, and advanced biofuels participants with an instrument that not only is more capital efficient, but one that uses proven market mechanisms. Futures have worked for every major commodity including grain and energy markets. We think it will work for RIN markets too."

IncubEx and Nodal are looking to grow the suite of North American environmental products, which now totals 75 futures and options contracts on 46 distinct markets, including California Low Carbon Fuel Standard (LCFS) and Oregon Clean Fuels Program physically delivered futures and options.