Governors' Biofuels Coalition

In a report released Dec. 16, “Options For Reforming the Renewable Fuel Standard,” the Washington, DC, group detailed 40 possible options Congress and the administration can consider as they weigh approaches for reforming the RFS, including easing EPA approvals of additional low-carbon cellulosic biofuels, changing how the agency accounts for GHGs in various aspects of the program, revising how the program’s goals are set and dozens of others.

But for many of the options, the group also outlined potential hurdles, including limited EPA resources, potential for unnecessary complexity and other factors that underscore the difficulty policymakers face as they prepare to consider ways to overhaul the program in 2015.

Underscoring the difficulties, key players in the debate over reforming the program issued statements saying the report bolstered their positions. The American Petroleum Institute (API) used the report’s release as a platform to reiterate the oil industry’s call for “repeal” of the RFS, with a spokesman saying that the RFS is “inherently flawed and has been horribly mismanaged by EPA.”

At the same time, the ethanol industry called out the BPC report for reiterating the “tired talking points” of the oil industry. The “report continues to push some of the same, tired talking points that the oil industry has espoused since the program began,” Tom Buis, president and CEO of the ethanol trade group Growth Energy, said in a statement.

Created in 2007 energy legislation, the RFS requires fixed volumes of different categories of biofuels — each with different carbon footprints — to be blended into the fuel supply by 2022 but gives EPA authority to waive the requirements and set new mandates.

But the annual process of EPA setting targets has been contentious. Biofuel proponents, for example, press the agency to set ambitious targets, even if there is not adequate production, in part to drive demand and investment.

But refiners and other obligated parties that must meet the rules’ blend targets urge officials to set requirements at levels that are achievable, fearing they will have to purchase costly compliance credits from the agency to offset the lack of production. They have also warned that increasing the mandates risks running into a “blend wall” when concentrations are so high it risks damaging engines and fuel infrastructure as a result of the fuel’s corrosivity.

Such disputes have fueled congressional interest in the program where oil industry backers have pushed legislation to repeal the program.

Adding to the dispute, EPA last month announced that it would delay the 2014 RFS in part to address blend mandates for low-carbon cellulosic fuels. Instead, the agency said it would delay issuing the rule until next year, when it would issue it possibly in tandem with annual standards for 2015 and 2016.

EPA’s acting air chief Janet McCabe told a House oversight committee hearing Dec. 10 that the agency hopes to address the multiple challenges facing the program when its sets annual biofuel blending standards next year, suggesting that Congress should stay away from the issue. “Resolving the fundamental issues that we are facing as part of the 2014 standards rulemaking should go a long way to enabling EPA to complete annual rulemakings on time,” she said.

But the delay added to the program’s uncertainty and prompted some Democrats, including Sens. Ben Cardin (MD) and Tom Udall (NM), to call for legislative reforms.

BPC Options

To aid the pending congressional and regulatory reform efforts, BPC created an advisory panel, including industry, environmentalists and other representatives who developed 40 possible reforms in five categories: production, consumption, mandate, implementation, or environment and agriculture.

Many of the recommendations aim to improve EPA’s methods for accounting for GHGs, including keeping the conventional biofuel standard for corn ethanol “flat” for a period while it works to promote more advanced, low-carbon fuels and improve the infrastructure for increasing the availability of higher blends of ethanol.

BPC also recommends ways EPA can promote a greater variety of biofuels that fit the low-carbon cellulosic or advanced biofuel categories by broadening the number of biofuel feedstocks that can receive credit under the program.

BPC recommends EPA expand the definition of cellulosic biofuels to include a wider variety of feedstocks that EPA calls “pathways” under the RFS to qualify for the production of the lowest-carbon biofuels, thereby overcoming many of the obstacles that have impeded production of these fuels in previous years — forcing the agency to waive the statutory requirement.

EPA has received some success in recent months approving new biofuel pathways, including a pathway rule finalized earlier this year that allowed biofuels derived from biogas to be credited as cellulosic biofuel under the program. The inclusion of biogas spurred the generation of thousands of renewable identification numbers (RINs) that refiners are required to purchase in order to comply with the RFS.

BPC is essentially recommending that EPA continue this policy to help overcome the lack of cellulosic RINs that have been a key criticism leveled against the agency by refiners in lawsuits where the U.S. Court of Appeals for the District of Columbia Circuit has sided with the oil industry. The D.C. Circuit ruled in 2012 that EPA cannot set a requirement based on an aspirational target in which the fuel has not been produced.

By expanding the number of feedstocks and pathways for fuels that can meet the 60 percent lifecycle GHG threshold, EPA can help increase the amounts of cellulosic biofuels available to be blended in the nation’s fuel supply and bring them a step closer to meeting the 36 billion gallon biofuel goal by 2022, approximately half of which must be attained from blending these low-carbon biofuels.

BPC says this approach would take some legislative changes “to modify core components of the definition” of cellulosic biofuels, yet “regulatory action could be used to modify previous interpretations or to develop new interpretations.” The report says “[t]he implementing legislation defined cellulosic biofuels as ‘renewable fuel derived from any cellulose, hemicellulose, or lignin that is derived from renewable biomass’ and provide a 60 percent reduction in greenhouse gas emissions. EPA has refined these definitions by providing regulatory interpretations for specific circumstances.”

“This option potentially increases the number of technology pathways of biofuels that could qualify as cellulosic,” the BPC report continues. But this policy option could be disadvantaged, as “Some argue that broadening the cellulosic category (or any category) too much could undermine [GHG] emissions reductions, as well as sidestep the mandatory ‘renewable’ and ‘biomass’ components of the program.”

Broader Definition

BPC also recommends that EPA consider the environmental impacts “of broadening” the cellulosic definition to include a variety of pathways. In this vein, BPC also suggests in a separate policy option that EPA revise its GHG accounting methodology used under the current program. “This option could increase the environmental performance of future production of biofuels,” the report states as an advantage of recalculating “the lifecycle [GHG] emissions assessments, possibly using a modified assessment methodology.”

“This option could leverage and incorporate more recent data in its analysis, leading to more accurate and timely results,” the report reads.

Nevertheless, this option could inject “additional complexity” into the process “by creating new tiers of GHG qualifications based on when [a biofuel] facility began operation. All prior facilities would be grandfathered in and would not increase environmental performance unless they upgrade or expand capacity at the facility.” Because of this complexity, BPC says “[p]ursuing this option may distract EPA’s already limited resources for the RFS.”

BPC also recommends modifying the cellulosic waiver credit mechanism as an additional policy option. Waiver credits are made available to refiners to purchase if adequate RINs from commercial production are not available to comply the annual renewable fuel obligation.

“According to the implementing legislation, whenever EPA reduces the cellulosic biofuel volume, it must make cellulosic waiver credits available for sale. The credit price is set as the higher of $0.25/gallon or the amount by which $3.00/gallon exceeds the average wholesale price of gasoline, adjusted for inflation,” the report explains. However, this credit price “creates a limitation on the incentive for innovation in the cellulosic category.”

“[F]or example, cellulosic was only credited 42 cents more than other categories in 2013. A modification could be done by changing the formula to increase the credit value, creating a floor and/or ceiling on the price of cellulosic [RINs], or by decoupling it from the price of gasoline. Additionally, prioritization could be created for purchasing RINs from produced cellulosic biofuels over the purchase of cellulosic waiver credits.”

Put simply: “If the cellulosic waiver credit price increases, it may encourage additional investment in cellulosic biofuels.” But like many of the report’s policy options there are disadvantages. BPC warns that reforming the compliance credit could backfire. “Depending on how this option is implemented, it could increase (or eliminate) the effective price cap on cellulosic biofuels, potentially resulting in higher compliance costs for obligated parties,” the report reads.