Diesel more than doubled in 2026 and clean fuel credit prices still rose
Margin economics pointed down for the D4 RIN and the California LCFS credit. Both markets went the other way, for different reasons.
Gulf Coast ultra-low sulfur diesel rose from $2.10/gal in January 2026 to $4.87 in September, a gain of 132% driven by the U.S.-Iran conflict and by lower refinery output in Russia, China and the Middle East. A renewable diesel producer sells into that market, so a higher fossil price normally means less policy support is needed to keep the marginal gallon running.
Both clean fuel credit markets moved the other way. The D4 RIN under the federal Renewable Fuel Standard doubled to $2.23 by August, the latest month EPA has published. California’s Low Carbon Fuel Standard credit rose 35% to $81 a tonne in September. The soybean oil minus diesel spread, the standard proxy for the feedstock exposure those credits have to cover, narrowed to $0.50/gal in the third quarter, its lowest level since November 2019.
The two markets went up for separate reasons. The D4 RIN is pricing a federal obligation about 70% larger than in 2025 and a 2027 in which both the forecast spread and the RIN requirement per gallon work against supply. California’s credit is pricing a quarterly balance that turned short in July 2025, eight months before the conflict began.
|
+132% rise in Gulf Coast diesel between January and September 2026 |
$0.50 per gallon soybean oil minus diesel spread in September, the narrowest since 2019 |
$2.23 per D4 RIN in August, double the January price |
$81/t California LCFS credit in September, up 35% on January |
EIA Gulf Coast ULSD spot prices; USDA crude soybean oil at Decatur, Illinois; EPA EMTS; CARB monthly credit prices and credit transfer log.
|
01
|
Diesel and Both Credit Prices Rose Through 2026 |
The conflict began on 28 February 2026 with U.S. and Israeli strikes on Iran and disrupted traffic through the Strait of Hormuz, a route for roughly one-fifth of global oil and LNG shipments. Gulf Coast ULSD averaged $3.78/gal in March, 64% above February. Iran declared the strait open on 17 April under a ceasefire, although shipping risks persisted into May and diesel stayed well above its pre-war level. EIA now expects Brent crude to average $96/bbl in 2026, against $69 in 2025.
Diesel tightened again in the third quarter. Lower refinery output in Russia, China and the Middle East reduced global supply, while U.S. diesel inventories fell to 96.4 million barrels against a five-year average of 112.4 million. Saudi Arabia shut its East-West pipeline after drone attacks in September and Ukrainian drones struck a Russian refinery. Gulf Coast ULSD reached $5.18/gal on 15 September and averaged $4.87 for the month, 132% above January. U.S. retail diesel averaged $6.29/gal on 14 September, the highest nominal level in EIA’s series since 1994.
Renewable fuel credits strengthened over the same period. The D4 RIN rose from $1.10 in January to $2.23 in August, the latest month published by EPA. California’s LCFS credit increased from $60 a tonne in January to $81 in September.
Exhibit 1 · Gulf Coast diesel, the D4 RIN and the California LCFS credit, January 2025 to September 2026
Source: EIA (U.S. Gulf Coast ULSD spot); EPA EMTS (D4 RIN, current-year vintage); CARB (monthly average credit price to July 2026; August and September calculated by Climate Decode from CARB’s credit transfer log). Monthly averages. The D4 RIN runs to August 2026, the latest EPA data. Shading marks the conflict, from 28 February 2026.
Table 1 · Five prices, January to September 2026
*August 2026, the latest EPA data. Sources: EIA Gulf Coast ULSD spot; USDA ERS and AMS for crude soybean oil at Decatur, Illinois; EPA EMTS for the current-vintage D4 RIN; CARB monthly average credit prices to July 2026, with August and September calculated by Climate Decode from CARB’s credit transfer log.
|
02
|
Why a Higher Diesel Price Normally Lowers Credit Prices |
A renewable diesel producer sells into the fossil diesel market and earns policy value on top of the fuel price: D4 RINs under the Renewable Fuel Standard, LCFS credits on California sales, and the federal 45Z production credit. Feedstock is the largest variable cost. The market commonly tracks that exposure through the BOHO spread, a proxy based on 7.5 lb of soybean oil per gallon of biomass-based diesel minus the diesel price. Policy credits have to cover that spread, processing costs and the return required to keep marginal production running.
When diesel rises faster than soybean oil, the underlying fuel margin improves and less policy support is required. Had soybean oil stayed at its January price of 51.5¢/lb, or $3.86/gal, September diesel would have pushed the spread to minus $1.01/gal. On feedstock alone, the oil used in a gallon of renewable diesel would then have cost less than the fossil gallon it replaces.
The relationship was visible in 2025. As soybean oil strengthened, the spread widened from $0.87/gal in January to $1.88 in July and August, while the D4 RIN rose from $0.68 to $1.10. Across that year the monthly spread and the RIN price had a correlation of 0.87.
|
03
|
Feedstock Costs Tracked Diesel Until the Third Quarter |
Crude soybean oil at Decatur, Illinois, rose 47% between January and May 2026, from 51.5 to 75.5¢/lb, as crude oil spiked and EPA finalized larger biofuel volumes. On a per-gallon basis that added $1.80 to feedstock cost, almost exactly matching diesel’s $1.79 increase over the same period. The spread therefore ended May at $1.78, close to where it began the year. It had fallen to $1.16 in March when diesel moved first, then widened to $2.30 in June as diesel eased.
The third quarter broke that pattern. Diesel rose another $1.52/gal between June and September while soybean oil eased to 71.6¢/lb, narrowing the spread to $0.50, its lowest level since November 2019. That compression would normally reduce the RIN support the average plant requires. Between June and August the spread narrowed by $1.13/gal while the D4 RIN rose by $0.35, equivalent to about $0.60 per gallon of renewable diesel.
Exhibit 2 · Soybean oil against diesel, and the spread between them, with the 2027 forecast
Source: USDA ERS (crude soybean oil, Decatur, IL) and USDA AMS (Illinois, September 2026); EIA (Gulf Coast ULSD spot). Forecasts: EIA Short-Term Energy Outlook, October 2026 (U.S. wholesale diesel by quarter, converted to a Gulf Coast basis at the 2025 ratio of 0.96); soybean oil held at USDA’s 2026/27 forecast of 70¢/lb. Soybean oil converted at 7.5 lb per gallon.
|
04
|
The 2026 RFS Obligation Is About 70% Larger Than 2025 |
The D4 RIN rose in every published month of 2026, whether the BOHO spread widened or narrowed. Across those months the spread and the RIN price had a correlation of −0.11, against 0.87 across 2025. Diesel increased by between $0.39 and $1.47/gal in March, July and August, and in each of those months the spread narrowed and the RIN still rose. At August’s spread of $1.18/gal, the 2025 relationship would have implied a RIN near $0.86. The market price was $2.23.
The larger obligation provides the clearest explanation. EPA’s final 2026-27 rule, published on 1 April 2026, sets the biomass-based diesel requirement at 9.07 billion RINs for 2026 and 9.20 billion for 2027, including reallocated small-refinery exemptions. The 2025 requirement was 3.35 billion gallons, equivalent to about 5.3 billion RINs, so the 2026 step is roughly 70%. Meeting an obligation of that size requires supply beyond the lowest-cost plants, so the RIN has to support the marginal gallon, including idle capacity, imports or higher-cost feedstocks, even when the spot spread improves for the average producer.
The same rule reduces the RIN equivalence value for renewable diesel from 1.7 to 1.5 on 1 January 2027, because EPA attributes part of each gallon’s energy to fossil hydrogen used in production. The same physical gallon will generate 11.8% fewer RINs against a slightly larger 2027 requirement. RINs can also be carried into the following compliance year for up to 20% of an obligation, so 2026 RINs already reflect part of the expected 2027 scarcity.
Exhibit 3 · The D4 RIN against the spread, 2025 and 2026
Source: EPA EMTS; USDA; EIA; Climate Decode analysis. Monthly averages, January 2025 to August 2026. The dashed line is the 2025 relationship. Obligation volumes are from the EPA final rule for 2026 and 2027, 91 FR 16388 (1 April 2026), Table I.A.2-1; the 2025 volume is converted to RINs using the 2023-24 ratio of reported obligations to volumes, 1.59.
|
05
|
What the Forward Market Is Pricing for 2027 |
RINs and LCFS credits are bankable compliance instruments. A RIN can be used in the following compliance year and an LCFS credit does not expire, so current prices reflect expected compliance conditions well beyond the current month. A temporary move in the spot spread matters mainly when it changes that forward view.
The market treated the third-quarter diesel spike as temporary. In mid-September, diesel futures showed their steepest backwardation in five months, with the October contract 25.2¢/gal above November. EIA’s October Short-Term Energy Outlook projects U.S. wholesale diesel falling from $4.39/gal in the third quarter of 2026 to an average $3.11 in 2027 and $2.82 by the fourth quarter. Converted to a Gulf Coast basis and paired with USDA’s 70¢/lb soybean-oil forecast, the BOHO spread widens to about $2.27/gal for 2027 and $2.54 by late 2027, close to its widest level since mid-2023.
|
06
|
California’s LCFS Credit Follows Its Own Balance, Not the Diesel Price |
California’s LCFS credit barely moved when the conflict began. In March, the first full month of the war, Gulf Coast diesel jumped 64% while the LCFS credit averaged $66 a tonne, against $67 in February. It fell to $63 in April. The fuel-price shock changed the retail economics of diesel, while LCFS deficits and credit generation continued to be set by carbon intensity, volumes and the programme’s benchmarks. Three features explain the weak direct link.
|
Deficits are set by carbon intensity and volume. A gallon of fossil gasoline or diesel creates the same LCFS deficit at $2 as at $5. The deficit reflects the fuel’s carbon intensity relative to the annual benchmark and the energy sold. The amended standard nearly doubled deficits per 1,000 gallons of gasoline, from 1.65 t in 2024 to 3.04 t in the first quarter of 2026, with volumes broadly flat. Fuel prices matter only through a material change in demand, and California fuel-tax data through June show no decline large enough to alter the balance. Our quarterly outlook puts 2026 deficits at 40.6 Mt, slightly above the 39.8 Mt in our annual model. |
|
Most credits come from pathways with limited diesel exposure. Electricity and biomethane generated 57% of California’s credits in the first quarter of 2026, up from 41% in 2023, while renewable diesel credit generation has halved since the fourth quarter of 2024. Charging networks and dairy digesters have economics largely independent of diesel. Renewable diesel margins do respond to diesel, although a global price shock raises the fuel price across markets and gives little reason by itself to redirect volume into or out of California. |
|
The bank moves over years. LCFS credits do not expire, so holders focus on the pace of bank drawdown and the point at which surplus supply is exhausted. The drawdown began in July 2025, eight months before the conflict, when the amended LCFS took effect. Deficits rose 55% that quarter and have exceeded credits in every quarter since by 1.7 to 2.8 Mt. The bank peaked at 43.3 Mt in mid-2025, fell to 36.9 Mt by March 2026 and is on course for 31.1 Mt by year-end in our outlook, equivalent to about 3.6 years of the 2026 shortfall. Our annual model has the bank at 24.1 Mt by end-2027. The credit price has risen alongside that drawdown, from $49 a tonne in June 2025 to $81 in September 2026. |
Exhibit 4 · California’s quarterly credit balance and the credit bank
Source: CARB quarterly LCFS data to Q1 2026; Climate Decode estimate for Q2 2026 (fuel-tax gallons, the plug-in vehicle fleet and CARB’s biomethane trend) and forecast for Q3 and Q4 2026, from our California LCFS quarterly analysis (October 2026); end-2027 from our annual model.
|
07
|
Five Things to Watch in 2027 |
Diesel at $5 compressed the spot spread. The forward economics point the other way, and two federal changes raise the support each gallon needs from the RIN market.
|
The diesel path. If EIA’s forecast holds, the BOHO spread widens through 2027 and again becomes a stronger support for D4 RIN prices. Our RFS model prices the D4 RIN from 2027 on the spread. When EIA’s October outlook raised our Gulf Coast diesel assumption for 2027 by $0.47/gal, the modelled 2027 D4 RIN fell by $0.41. |
|
The equivalence cut. From 1 January 2027 a gallon of renewable diesel earns 1.5 RINs instead of 1.7. Holding all else equal, the RIN price has to rise by about 13% to provide the same support per gallon. |
|
EPA’s exemption reallocation. On 31 August EPA granted 29 of 34 small-refinery exemption petitions for 2025, exempting 1.76 billion RINs against the 0.99 billion assumed in the 2026-27 rule. EPA plans to propose by the end of October how those exemptions will be reallocated. Full reallocation would add about 0.77 billion RINs to the 2026 and 2027 obligations, potentially beginning in 2027. |
|
California’s bank. CARB’s second-quarter data, due in late October, will show whether the drawdown is tracking our estimate of roughly 2.4 Mt for the quarter. |
|
Soybean oil. Every 10¢/lb move in soybean oil changes the BOHO spread by about $0.75/gal, which makes feedstock prices a major driver of the 2027 renewable diesel margin. |
The larger RFS obligation and the move from 1.7 to 1.5 RINs per gallon both raise the support required from D4 RINs, while the forecast spread widens back to about $2.3/gal in 2027. California’s LCFS stays driven by its tightening quarterly balance and shrinking credit bank rather than by the price of the fuel it regulates.
About this analysis. Climate Decode models the U.S. Renewable Fuel Standard and the California LCFS separately and then tests each new data release against the balances and prices the models expected in advance. Diesel is EIA Gulf Coast ULSD spot, weekly observations averaged by calendar month. Soybean oil is USDA ERS crude soybean oil at Decatur, Illinois, through August 2026 and USDA AMS for September, converted at 7.5 lb per gallon. The BOHO spread is a spot proxy and excludes processing cost, yield and co-product revenue. D4 RIN prices are EPA EMTS weekly prices for the current-year vintage, averaging verified and unverified trades by month, latest week 24 August 2026. CARB monthly average credit prices run through July 2026; August and September are Climate Decode calculations from CARB’s LCFS credit transactions log, volume-weighted with near-zero transfers excluded, a method that reproduces CARB’s published 2025-26 monthly averages to within $1.50 a tonne. Forward spreads, obligation balances and credit price ranges are available to Climate Decode clients.
Sources
EIA Short-Term Energy Outlook (1 October 2026) and Gulf Coast ULSD spot prices; EIA Today in Energy on record retail diesel prices (18 September 2026); EPA final rule for 2026 and 2027, 91 FR 16388 (1 April 2026), Table I.A.2-1 and §80.1415(b)(1); EPA RIN trades and price information; USDA ERS Oil Crops Outlook (September 2026), Table 9, and USDA AMS Monthly National Grain and Oilseed Processor Feedstuff Report; CARB Low Carbon Fuel Standard quarterly data and credit transactions log; Holland & Knight alert on EPA’s 2025 small refinery exemption decisions (10 September 2026); World Oil on the reopening of the Strait of Hormuz (17 April 2026); The National on the closure of Saudi Arabia’s East-West pipeline (11 September 2026); S&P Global Commodity Insights on record U.S. diesel prices (15 September 2026); Argus market analysis of the Iran conflict and Gulf Coast diesel (17 March 2026); Al Jazeera on the end of the Iran conflict (6 May 2026).
This article is analytical research provided for information only and is not investment advice.
Read Next
More on Clean Fuels
The programme mechanics behind these prices, and the California balance that drives them.
About the Author
|
© 2026 Climate Decode · Market Insight · Reference CD-CF-DIESEL-2026 |
Series Home Insights Home Contact Us |