What are gasoline sulfur credits, and how do they work?
<div class=\"default-font-wrapper\" style=\"line-height: 1;font-size: 12pt; font-family: Verdana, Geneva, sans-serif;\"><span id=\"isPasted\" style=\"box-sizing: border-box; text-transform: uppercase; color: rgb(89, 89, 89); display: block; font-family: Verdana, Geneva, sans-serif; font-size: 12pt; font-style: normal; font-variant-ligatures: normal; font-variant-caps: normal; font-weight: 400; letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; widows: 2; word-spacing: 0px; -webkit-text-stroke-width: 0px; white-space: normal; text-decoration-thickness: initial; text-decoration-style: initial; text-decoration-color: initial;\">December 18, 2024</span><p data-type=\"indepth\" style=\"box-sizing: border-box; margin: 0px 0px 1em; line-height: 1.6; color: rgb(0, 0, 0); font-family: Jost, sans-serif; font-size: 16px; font-style: normal; font-variant-ligatures: normal; font-variant-caps: normal; font-weight: 400; letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; text-transform: none; widows: 2; word-spacing: 0px; -webkit-text-stroke-width: 0px; white-space: normal; text-decoration-thickness: initial; text-decoration-style: initial; text-decoration-color: initial;\"><span style=\"font-family: Verdana, Geneva, sans-serif; font-size: 12pt;\"><img src=\"https://download.qtmarketcenter.com/jay/1734527140696.png\" alt=\"EPA gasoline sulfur credit balance\" style=\"box-sizing: border-box; border-style: none; max-width: 100%; width: 914.034px;\" class=\"fr-fic fr-dii fr-fil\" success=\"true\" filename=\"1734527140696.png\"></span></p><div style=\"box-sizing: border-box; margin: 0.5em 0em; padding: 0px; font-style: normal; font-size: 0.875rem; color: rgb(0, 0, 0); font-family: Jost, sans-serif; font-variant-ligatures: normal; font-variant-caps: normal; font-weight: 400; letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; text-transform: none; widows: 2; word-spacing: 0px; -webkit-text-stroke-width: 0px; white-space: normal; text-decoration-thickness: initial; text-decoration-style: initial; text-decoration-color: initial;\"><span style=\"box-sizing: border-box; font-family: Verdana, Geneva, sans-serif; font-size: 12pt;\"><strong style=\"box-sizing: border-box;\">Data source: </strong>U.S. Environmental Protection Agency (EPA), <a href=\"https://www.epa.gov/renewable-fuel-standard-program/sulfur-averaging-banking-and-trading-abt-credit-data\" style=\"box-sizing: border-box; background-color: transparent; color: rgb(0, 126, 181); text-decoration: none;\"><em style=\"box-sizing: border-box; font-style: italic;\">Fuels Averaging, Banking, and Trading (ABT) Credit Data</em></a></span></div><hr style=\"box-sizing: border-box; border-top: 1px dashed rgb(212, 212, 212); border-right: none; border-bottom: none; border-left: none; border-image: initial; margin: 1.5em 0em !important; background: none; clear: both; color: rgb(212, 212, 212); float: none; height: 1px; overflow: visible; width: 914.034px; font-family: Jost, sans-serif; font-size: 16px; font-style: normal; font-variant-ligatures: normal; font-variant-caps: normal; font-weight: 400; letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; text-transform: none; widows: 2; word-spacing: 0px; -webkit-text-stroke-width: 0px; white-space: normal; text-decoration-thickness: initial; text-decoration-style: initial; text-decoration-color: initial;\"><p style=\"box-sizing: border-box; margin: 0px 0px 1em; line-height: 1.6; color: rgb(0, 0, 0); font-family: Jost, sans-serif; font-size: 16px; font-style: normal; font-variant-ligatures: normal; font-variant-caps: normal; font-weight: 400; letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; text-transform: none; widows: 2; word-spacing: 0px; -webkit-text-stroke-width: 0px; white-space: normal; text-decoration-thickness: initial; text-decoration-style: initial; text-decoration-color: initial;\"><span style=\"font-family: Verdana, Geneva, sans-serif; font-size: 12pt;\">The U.S. Environmental Protection Agency’s (EPA) <a href=\"https://www.epa.gov/gasoline-standards/gasoline-sulfur\" style=\"box-sizing: border-box; background-color: transparent; color: rgb(0, 126, 181); text-decoration: none;\">Gasoline Sulfur program</a> sets limits on the sulfur content of gasoline sold in the United States, with the aim of reducing a variety of <a href=\"https://www.epa.gov/gasoline-standards/learn-about-gasoline#programs\" style=\"box-sizing: border-box; background-color: transparent; color: rgb(0, 126, 181); text-decoration: none;\">vehicle emissions</a>. The program relies on tradable credits that allow U.S. refiners and gasoline importers to reach compliance with sulfur specifications. For the second year in a row, in 2023, gasoline suppliers obtained and retired more sulfur credits than they generated, a trend that could increase supplier compliance costs and the price of <a href=\"https://www.eia.gov/tools/glossary/index.php?id=octane\" style=\"box-sizing: border-box; background-color: transparent; color: rgb(0, 126, 181); text-decoration: none;\">octane</a> in gasoline if it continues.</span></p><p style=\"box-sizing: border-box; margin: 0px 0px 1em; line-height: 1.6; color: rgb(0, 0, 0); font-family: Jost, sans-serif; font-size: 16px; font-style: normal; font-variant-ligatures: normal; font-variant-caps: normal; font-weight: 400; letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; text-transform: none; widows: 2; word-spacing: 0px; -webkit-text-stroke-width: 0px; white-space: normal; text-decoration-thickness: initial; text-decoration-style: initial; text-decoration-color: initial;\"><span style=\"font-family: Verdana, Geneva, sans-serif; font-size: 12pt;\">Sulfur is a natural component in crude oil that is present in gasoline, diesel, and other petroleum fuels unless it is removed. The presence of sulfur makes vehicle emission control systems less effective and contributes to air pollution. Reducing the sulfur content in fuels enables advanced emission controls in vehicles, reducing air pollution.</span></p><h2 style=\"box-sizing: border-box; color: rgb(51, 51, 51); font-weight: 700; line-height: 1.1; margin-bottom: 0px; margin-top: 0px; font-size: 1.55556em; font-family: Jost, sans-serif; font-style: normal; font-variant-ligatures: normal; font-variant-caps: normal; letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; text-transform: none; widows: 2; word-spacing: 0px; -webkit-text-stroke-width: 0px; white-space: normal; text-decoration-thickness: initial; text-decoration-style: initial; text-decoration-color: initial;\"><span style=\"font-family: Verdana, Geneva, sans-serif; font-size: 12pt;\">The EPA’s Gasoline Sulfur program</span></h2><p style=\"box-sizing: border-box; margin: 0px 0px 1em; line-height: 1.6; color: rgb(0, 0, 0); font-family: Jost, sans-serif; font-size: 16px; font-style: normal; font-variant-ligatures: normal; font-variant-caps: normal; font-weight: 400; letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; text-transform: none; widows: 2; word-spacing: 0px; -webkit-text-stroke-width: 0px; white-space: normal; text-decoration-thickness: initial; text-decoration-style: initial; text-decoration-color: initial;\"><span style=\"font-family: Verdana, Geneva, sans-serif; font-size: 12pt;\">In 2014, the EPA finalized a rulemaking that reduced the federal gasoline sulfur emissions standard from 30 parts per million (ppm) to 10 ppm, which would apply to refiners and importers beginning in 2017. Expecting that some suppliers might struggle to meet this standard, the rulemaking allowed refiners and importers to use the EPA’s <a href=\"https://www.epa.gov/renewable-fuel-standard-program/sulfur-averaging-banking-and-trading-abt-credit-data\" style=\"box-sizing: border-box; background-color: transparent; color: rgb(0, 126, 181); text-decoration: none;\">Sulfur Averaging, Banking, and Trading</a> (ABT) program to come into compliance by trading sulfur credits.</span></p><p style=\"box-sizing: border-box; margin: 0px 0px 1em; line-height: 1.6; color: rgb(0, 0, 0); font-family: Jost, sans-serif; font-size: 16px; font-style: normal; font-variant-ligatures: normal; font-variant-caps: normal; font-weight: 400; letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; text-transform: none; widows: 2; word-spacing: 0px; -webkit-text-stroke-width: 0px; white-space: normal; text-decoration-thickness: initial; text-decoration-style: initial; text-decoration-color: initial;\"><span style=\"font-family: Verdana, Geneva, sans-serif; font-size: 12pt;\">The ABT program measures the volume-weighted average sulfur content of the gasoline that a particular refiner produces or gasoline importer supplies. Market participants generate credits equal to 10 ppm minus the volume-weighted average sulfur content of the gasoline they supply (in ppm), and then they multiply that difference by the overall annual gasoline volume they supply in gallons. Suppliers whose volume-weighted average sulfur level is above the 10 ppm standard must instead acquire and retire credits to become compliant.</span></p><p style=\"box-sizing: border-box; margin: 0px 0px 1em; line-height: 1.6; color: rgb(0, 0, 0); font-family: Jost, sans-serif; font-size: 16px; font-style: normal; font-variant-ligatures: normal; font-variant-caps: normal; font-weight: 400; letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; text-transform: none; widows: 2; word-spacing: 0px; -webkit-text-stroke-width: 0px; white-space: normal; text-decoration-thickness: initial; text-decoration-style: initial; text-decoration-color: initial;\"><span style=\"font-family: Verdana, Geneva, sans-serif; font-size: 12pt;\">The more gasoline a supplier sells within the United States, the more credits they produce (if below the 10 ppm standard) or obligations they incur (if above the 10 ppm standard).</span></p><h2 style=\"box-sizing: border-box; color: rgb(51, 51, 51); font-weight: 700; line-height: 1.1; margin-bottom: 0px; margin-top: 0px; font-size: 1.55556em; font-family: Jost, sans-serif; font-style: normal; font-variant-ligatures: normal; font-variant-caps: normal; letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; text-transform: none; widows: 2; word-spacing: 0px; -webkit-text-stroke-width: 0px; white-space: normal; text-decoration-thickness: initial; text-decoration-style: initial; text-decoration-color: initial;\"><span style=\"font-family: Verdana, Geneva, sans-serif; font-size: 12pt;\">The Tier 3 transition</span></h2><p style=\"box-sizing: border-box; margin: 0px 0px 1em; line-height: 1.6; color: rgb(0, 0, 0); font-family: Jost, sans-serif; font-size: 16px; font-style: normal; font-variant-ligatures: normal; font-variant-caps: normal; font-weight: 400; letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; text-transform: none; widows: 2; word-spacing: 0px; -webkit-text-stroke-width: 0px; white-space: normal; text-decoration-thickness: initial; text-decoration-style: initial; text-decoration-color: initial;\"><span style=\"font-family: Verdana, Geneva, sans-serif; font-size: 12pt;\">The reduction in the emissions standard from 30 ppm to 10 ppm in 2017 marked the transition from the <a href=\"https://www.epa.gov/regulations-emissions-vehicles-and-engines/final-rule-control-air-pollution-new-motor-vehicles-tier\" style=\"box-sizing: border-box; background-color: transparent; color: rgb(0, 126, 181); text-decoration: none;\">Tier 2 sulfur standard</a> to the <a href=\"https://www.epa.gov/regulations-emissions-vehicles-and-engines/final-rule-control-air-pollution-motor-vehicles-tier-3\" style=\"box-sizing: border-box; background-color: transparent; color: rgb(0, 126, 181); text-decoration: none;\">Tier 3 sulfur specification</a>. To facilitate this change, the EPA made allowances for a transitional period in which refiners could continue to retire credits that were generated under the previous Tier 2 (30 ppm) standard to achieve compliance under the new Tier 3 (10 ppm) standard. This transitional period ended in 2020.</span></p><p style=\"box-sizing: border-box; margin: 0px 0px 1em; line-height: 1.6; color: rgb(0, 0, 0); font-family: Jost, sans-serif; font-size: 16px; font-style: normal; font-variant-ligatures: normal; font-variant-caps: normal; font-weight: 400; letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; text-transform: none; widows: 2; word-spacing: 0px; -webkit-text-stroke-width: 0px; white-space: normal; text-decoration-thickness: initial; text-decoration-style: initial; text-decoration-color: initial;\"><span style=\"font-family: Verdana, Geneva, sans-serif; font-size: 12pt;\">From 2017 to 2019, most retired credits were generated between 2014 and 2016—before the new 10 ppm standard was implemented. From 2017 to 2019, certain small-volume refineries were also allowed to produce transitional sulfur credits under the old 30 ppm standard, but transitional credits could only be used by other exempted small refineries to comply with the sulfur reduction targets.</span></p><span style=\"font-family: Verdana, Geneva, sans-serif; font-size: 12pt;\"><img src=\"https://download.qtmarketcenter.com/jay/1734527141580.png\" alt=\"annual volume of sulfur credits retired by year generated\" style=\"box-sizing: border-box; border-style: none; max-width: 100%; width: 914.034px; color: rgb(0, 0, 0); font-family: Jost, sans-serif; font-size: 16px; font-style: normal; font-variant-ligatures: normal; font-variant-caps: normal; font-weight: 400; letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; text-transform: none; widows: 2; word-spacing: 0px; -webkit-text-stroke-width: 0px; white-space: normal; text-decoration-thickness: initial; text-decoration-style: initial; text-decoration-color: initial;\" class=\"fr-fic fr-dii fr-fil\" success=\"true\" filename=\"1734527141580.png\"></span><div style=\"box-sizing: border-box; margin: 0.5em 0em; padding: 0px; font-style: normal; font-size: 0.875rem; color: rgb(0, 0, 0); font-family: Jost, sans-serif; font-variant-ligatures: normal; font-variant-caps: normal; font-weight: 400; letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; text-transform: none; widows: 2; word-spacing: 0px; -webkit-text-stroke-width: 0px; white-space: normal; text-decoration-thickness: initial; text-decoration-style: initial; text-decoration-color: initial;\"><span style=\"box-sizing: border-box; font-family: Verdana, Geneva, sans-serif; font-size: 12pt;\"><strong style=\"box-sizing: border-box;\">Data source: </strong>U.S. Environmental Protection Agency (EPA), <a href=\"https://www.epa.gov/renewable-fuel-standard-program/sulfur-averaging-banking-and-trading-abt-credit-data\" style=\"box-sizing: border-box; background-color: transparent; color: rgb(0, 126, 181); text-decoration: none;\"><em style=\"box-sizing: border-box; font-style: italic;\">Fuels Averaging, Banking, and Trading (ABT) Credit Data</em></a></span></div><hr style=\"box-sizing: border-box; border-top: 1px dashed rgb(212, 212, 212); border-right: none; border-bottom: none; border-left: none; border-image: initial; margin: 1.5em 0em !important; background: none; clear: both; color: rgb(212, 212, 212); float: none; height: 1px; overflow: visible; width: 914.034px; font-family: Jost, sans-serif; font-size: 16px; font-style: normal; font-variant-ligatures: normal; font-variant-caps: normal; font-weight: 400; letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; text-transform: none; widows: 2; word-spacing: 0px; -webkit-text-stroke-width: 0px; white-space: normal; text-decoration-thickness: initial; text-decoration-style: initial; text-decoration-color: initial;\"><p style=\"box-sizing: border-box; margin: 0px 0px 1em; line-height: 1.6; color: rgb(0, 0, 0); font-family: Jost, sans-serif; font-size: 16px; font-style: normal; font-variant-ligatures: normal; font-variant-caps: normal; font-weight: 400; letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; text-transform: none; widows: 2; word-spacing: 0px; -webkit-text-stroke-width: 0px; white-space: normal; text-decoration-thickness: initial; text-decoration-style: initial; text-decoration-color: initial;\"><span style=\"font-family: Verdana, Geneva, sans-serif; font-size: 12pt;\">From 2017 to 2019, some refiners were able to produce gasoline under the 10 ppm specification, thereby generating surplus Tier 3 credits. This approach allowed those suppliers to begin building a surplus bank of credits under the new standard that could be used to come into compliance when the standard came into full force.</span></p><p style=\"box-sizing: border-box; margin: 0px 0px 1em; line-height: 1.6; color: rgb(0, 0, 0); font-family: Jost, sans-serif; font-size: 16px; font-style: normal; font-variant-ligatures: normal; font-variant-caps: normal; font-weight: 400; letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; text-transform: none; widows: 2; word-spacing: 0px; -webkit-text-stroke-width: 0px; white-space: normal; text-decoration-thickness: initial; text-decoration-style: initial; text-decoration-color: initial;\"><span style=\"font-family: Verdana, Geneva, sans-serif; font-size: 12pt;\">In 2020, all retired sulfur credits needed to be produced under the Tier 3 standard for the first time. The small-volume refiner exemption expired, and banked credits produced under the Tier 2 standard could no longer be used.</span></p><h2 style=\"box-sizing: border-box; color: rgb(51, 51, 51); font-weight: 700; line-height: 1.1; margin-bottom: 0px; margin-top: 0px; font-size: 1.55556em; font-family: Jost, sans-serif; font-style: normal; font-variant-ligatures: normal; font-variant-caps: normal; letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; text-transform: none; widows: 2; word-spacing: 0px; -webkit-text-stroke-width: 0px; white-space: normal; text-decoration-thickness: initial; text-decoration-style: initial; text-decoration-color: initial;\"><span style=\"font-family: Verdana, Geneva, sans-serif; font-size: 12pt;\">Sulfur specifications since 2020</span></h2><p style=\"box-sizing: border-box; margin: 0px 0px 1em; line-height: 1.6; color: rgb(0, 0, 0); font-family: Jost, sans-serif; font-size: 16px; font-style: normal; font-variant-ligatures: normal; font-variant-caps: normal; font-weight: 400; letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; text-transform: none; widows: 2; word-spacing: 0px; -webkit-text-stroke-width: 0px; white-space: normal; text-decoration-thickness: initial; text-decoration-style: initial; text-decoration-color: initial;\"><span style=\"font-family: Verdana, Geneva, sans-serif; font-size: 12pt;\">Significantly less gasoline consumption during the COVID-19 pandemic reduced gasoline sales, so fewer sulfur credits were retired in 2020. At the same time, credit generation surged as low-sulfur gasoline producers continued operations to meet market needs. By analyzing EPA data, we estimate the total number of banked sulfur credits—credits that have been generated but not retired—was about 440 billion in 2020. We also estimate the number of banked credits remained at a similar volume through 2021.</span></p><p style=\"box-sizing: border-box; margin: 0px 0px 1em; line-height: 1.6; color: rgb(0, 0, 0); font-family: Jost, sans-serif; font-size: 16px; font-style: normal; font-variant-ligatures: normal; font-variant-caps: normal; font-weight: 400; letter-spacing: normal; orphans: 2; text-align: start; text-indent: 0px; text-transform: none; widows: 2; word-spacing: 0px; -webkit-text-stroke-width: 0px; white-space: normal; text-decoration-thickness: initial; text-decoration-style: initial; text-decoration-color: initial;\"><span style=\"font-