Biofuels Groups, Refiners Fight Over EPA ‘Reset’ Of RFS Biofuel Volumes

Source: By Stuart Parker, Inside EPA News • Posted: Tuesday, February 8, 2022

Biofuels groups and refiners are advancing conflicting interpretations of EPA’s ability to “reset” statutory biofuel blending mandates under the renewable fuel standard (RFS), as part of wider arguments for and against EPA’s proposed volumes for the RFS that would cut volumes for 2020, keep them low for 2021 and only increase volumes this year.

EPA’s long-delayed Dec. 7 proposal would retroactively cut volumes for the 2020 compliance year, and keep them at levels reflecting what the agency believes was actual consumption in 2021, before raising volumes this year, along with a restoration of 500 million gallons in blending volume cut from the 2016 RFS.

The agency relies on the Clean Air Act “reset” authority to permanently change the statutory blending targets for 2020 and 2021.

After 2022, statutory volumes expire and EPA is free to set volumes as it sees fit under its own authority. The agency intends to propose volumes for 2023 later this year, under the RFS “set” regulation.

“EPA invokes its reset authority for the first time. Contrary to EPA’s proposed approach, the reset is not a valid mechanism to re-open previously finalized standards, to override congressional directives and priorities, or to engage in an amorphous balancing of factors as it sees fit,” says pro-biofuels group Growth Energy in its Feb. 4 comments.

“Congress intended [the] reset mechanism to be a targeted prospective correction for the specific conditions that triggered the reset,” Growth Energy says. Under the air act, if blending volumes fall by 50 percent of the statutory level in a single year, or are 20 percent lower than the statutory volumes in two consecutive years, EPA must reset the statutory mandates to lower levels.

“In conducting a reset, EPA must still establish volume requirements that, first and foremost, further Congress’s market-forcing policy and objectives, to the extent that a volume of renewable fuel use is feasible and will not cause important and severe harm of the type that would trigger another waiver. Further, EPA must always take into account the best available science when performing a reset,” the group says.

Biofuels groups in general strongly oppose EPA’s invocation of the reset power to retroactively reduce 2020 obligations for refiners, and also the decision to limit 2021 mandates to reflect actual fuel consumption during a dip in demand caused by the COVID-19 pandemic. They support, however, EPA’s proposal to set the “implied” volume for conventional ethanol at the statutory level of 15 billion gallons for 2022. There is no explicit volume for conventional ethanol under the RFS.

Growth Energy says “many aspects of the proposal would seriously damage the RFS program and violate EPA’s legal duties, by, for example, substantially undervaluing the benefits of conventional ethanol for climate change, relieving obligated parties of their failure to meet their 2020 obligations . . . and nullifying the program for 2021.”

The group further disagrees with EPA’s analysis of potential adverse environmental impacts of the program. “There is no credible evidence that the proposed standards will adversely affect wetlands, ecosystems, species, habitat, water quality/availability, or soils,” the group says.

The Renewable Fuels Association (RFA) in its Feb. 4 comments says, “We are strongly supportive of the proposed volumes for 2022 for all categories of renewable fuel. We specifically commend EPA for proposing to set the implied requirement for conventional renewable fuels at the statutory level of 15 billion gallons.”

RFA is, however, “very troubled by EPA’s questionable proposed use of its ‘reset’ authority to reopen the 2020 [volume]. Doing so would set a dangerous precedent and contradict the agency’s long-held position that it does not have the authority to retroactively adjust RFS standards once finalized.”

“If EPA’s proposed cuts for 2020 and 2021 were finalized, they would have devastating results for our economy and environment. The proposed cuts could potentially erase 2.9 billion gallons of conventional renewable fuel blending requirements, reduce corn demand by 1.05 billion bushels, and increase gasoline consumption by as much as 2 billion gallons,” RFA says.

Refiners’ Support

Refiners in their comments praise EPA’s proposed cuts for 2020 and 2021, but strongly oppose higher blending volumes for 2022. They worry that insufficient RFS compliance credits, known as renewable identification numbers (RINs), will be available in the RIN “bank” of credits rolled-over from one compliance year to the next.

The American Fuel and Petrochemical Manufacturers (AFPM) in Feb. 4 comments says it “supports EPA’s exercise of its reset and cellulosic-waiver authorities for 2020 and 2021.” This is lawful, required to match RFS volumes to actual fuel consumption and is compelled by EPA’s inflation of the 2020 volumes to account for small refinery exemptions (SREs) that EPA expected to issue for that year, but never did, AFPM says.

AFPM and many small refiners oppose EPA’s separate proposal to deny all remaining requests for SREs, which is the subject of a public comment process closing Feb. 7.

“AFPM strongly opposes EPA’s proposed record-high biofuel volumes for 2022. The proposed volumes are unachievable and would result in the RIN bank being drawn down significantly, if not fully depleted. This is inconsistent with the EPA’s own acknowledgment of the importance of the RIN bank and intention to maintain it with adequate margins and liquidity,” the group says.

While biofuel producers question the need for a large bank, EPA in the proposal says it must maintain a sufficient number of banked RINs.

Further, AFPM says, “EPA has a non-discretionary duty to exercise” its “reset authority, which it has been required to do for the total, cellulosic, and advanced fuel categories since it finalized its standards for 2019. EPA’s Proposal is a proper exercise of this authority for 2020 and 2021.”

However, “its approach to reset for 2022 is inconsistent and not appropriate. EPA must use its reset authority as Congress intended: a mandatory mechanism to reduce statutory volumetric targets when they have proven to be unachievable.” Reset “is therefore a tool to lower aspirational biofuel mandates and should be utilized to lower the renewable fuel requirements for 2022.”

AFPM adds that EPA need not “restore” the 500 million gallons in blending volume it cut from the 2016 RFS, after the U.S. Court of Appeals for the District of Columbia Circuit faulted the cut and remanded the rule to EPA in a 2017 decision.

“The court did not direct EPA to take this step — it did not order ‘restitution’ or any other form of action resembling the approach that EPA proposes here. This proposed action would unduly burden current obligated parties” — refiners and importers of fuel — “and threaten the functioning of the program,” AFPM says.

The American Petroleum Institute (API) in its Feb. 4 comments says, “API supports EPA’s use of the Reset authority to reduce the standards to match the volumes of renewable fuels that were actually used for 2020 and 2021 in transportation.”

Further, “EPA has proposed standards for 2022 that are a significant increase over the proposed volumes for 2021. API believes the 2022 proposed volumes are too high and will not be achievable in the market without the use of carryover RINs.”

But sufficient carryover RINs may not be available to meet this need, API warns. “The imbalance between RIN supply and RIN demand in 2022 will likely result in a significant drawdown of the carryover RIN balance.”

In contrast to other refinery sector groups, API, representing larger, integrated oil companies that blend their own biofuels, does not support further small refinery waivers.

“Small refinery exemptions for 2020, 2021, and 2022 should not be granted, and no volumes should be reallocated,” the group says.

This puts API at odds with small refineries such as Pennsylvania-based Monroe Energy that support SREs. In Feb. 4 comments, Monroe says “the Clean Air Act requires the Agency when resetting statutory volume targets to consider the impact of renewable fuels on the infrastructure of the United States, the cost to consumers of transportation fuel, the cost to transport goods, and other factors including job creation.”

EPA “failed to analyze the factors appropriately and give them adequate weight in its decision-making. Had EPA fully considered the true costs of the RFS program on independent refiners, refinery workers, and consumers, the Agency would have conclude