EPA Biofuel Data Could Aid Bid To Raise RFS’ Low-Carbon Fuel Targets

Source: By  John Siciliano, Inside EPA • Posted: Friday, January 16, 2015

EPA’s latest renewable fuel tracking data shows a sizable increase in the volume of cellulosic and other low-carbon biofuels being produced, making it more likely that the agency will decide to increase the renewable fuel standard’s (RFS) blending requirements for those fuels to their highest levels since the program began when it issues new targets later this year.

EPA’s Moderated Transaction System (EMTS), which tracks the number of renewable identification number (RIN) credits available for compliance, shows cellulosic D3 RINs comprising just under 33 million gallons, the highest amount recorded since the program was enacted, and a significant increase over the 17 million gallon requirement that EPA proposed, but has not yet finalized, in its 2014 RFS plan.

The increase in the number of cellulosic RINs — each RIN represents a gallon of fuel — is significant because it shows the RFS may be at a turning point where low-carbon biofuels that have faced significant hurdles in the past are now beginning to progress toward the statutory goal of comprising approximately half of the program’s 36 billion gallon requirement by 2022.

Higher volumes would also mean EPA will be less vulnerable to litigation from the refinery industry, which has successfully blocked past EPA cellulosic mandates because the targets were aspirational and did not match actual production.

Under the RFS, EPA sets annual fuel production targets for various renewable fuels that emit fewer GHGs than conventional gasoline. Cellulosic and advanced biofuels have the lowest carbon footprint of the fuels required to comply, with cellulosic generally having to emit 60 percent fewer GHGs than petroleum while advanced biofuels must emit 50 percent fewer GHGs.

But EPA’s targets drive fights between refiners and other obligated parties that must meet the rules’ blend targets and biofuels advocates who seek larger targets in part to drive demand.

Refiners, who say EPA should set achievable targets, have been especially concerned because the agency has in the past set targets for cellulosic fuels that are significantly higher than what has been produced, forcing refiners to purchase costly compliance credits from the agency to offset the lack of production.

But producers and others have suggested that more cellulosic and other fuels were becoming available as large companies ramped up production. Some of that may have been spurred by EPA’s growing approvals of fuels that can be used to meet the mandates, aiding administration efforts to bolster low-carbon fuel mandates.

For example, last July, EPA approved a rule that approves several feedstocks to qualify for credit under the cellulosic and advanced fuel categories, including compressed and liquefied natural gas produced from biogas from landfills, municipal wastewater treatment facilities, agricultural digesters and similar biogas producers.

Even though cellulosic production was increasing, EPA was unable to finalize its 2014 RFS volumes because of controversy between refiners and biofuel producers. Instead, EPA said in a statement late last year that it will issue the 2014 standard early in 2015 possibly in conjunction with the 2015 standard. The agency said it hopes to use the rules to boost use of renewable fuels, “particularly cellulosic biofuels, which will reduce the greenhouse gases emitted from the consumption of transportation fuels and diversify the nation’s fuel supply.”

New Production

Given the higher cellulosic RIN volumes now documented in the agency’s database, officials may be able to justify issuing new mandates that require refiners to blend significantly higher volumes of the low-carbon fuel.

A cellulosic biofuel industry proponent says the uptick in cellulosic RINs was expected in 2014. The source says the increases can be attributed to EPA’s approval of additional fuel pathways last year that qualified biogas as an RFS pathway for cellulosic biofuels.

Biogas industry sources had told InsideEPA/climate that there are hundreds of millions of gallons ready to help meet the RFS cellulosic mandate as a result of the pathway approval.

The 2014 RIN increases — current as of Jan. 15 — even exceed the aggressive volume obligations that industry sources say White House climate adviser John Podesta had been weighing last year when EPA sent a final version of the 2014 rule to the Office of Management and Budget (OMB) for pre-publication review.

Podesta had sought to increase the cellulosic requirement to at least 25 million gallons, while also seeking increases for the “advanced” biofuel category that must meet a 50 percent GHG reduction compared to petroleum. But the agency was unable to finalize the rule given significant industry disagreements.

Despite the new RIN numbers, EPA is not saying how it will treat cellulosic biofuels in the final 2014 RFS rule, especially given its recent decision to delay the rule until sometime in 2015. In a statement to InsideEPA/climate, an EPA spokeswoman says the agency does not wish to “speculate” on whether it will raise the cellulosic volumes in the final rule, nor will it comment on what the higher RIN amounts will mean for the RFS.

“EPA cannot speculate on the 2014 RFS volume obligations,” the spokeswoman says. “The 2014 proposal generated significant comment and controversy” and “EPA will continue to work through the difficult issues that are involved in the RFS program with the intent of getting back on the statutory rulemaking schedule as soon as possible.”

“The agency intends to take action on the 2014 standards rule in 2015. Looking forward, one of EPA’s objectives is to get back on the annual statutory timeline by addressing 2014, 2015, and 2016 standards in the next calendar year,” the spokeswoman adds, referring any further questions on the rule to a Dec. 9 Federal Register notice outlining EPA’s decision to delay finalization of the 2014 rule until an unspecified date in 2015.

Nevertheless, the notice does infer that growth in cellulosic biofuel production in the last year may be a factor in its decision to delay final action in order to consider questions regarding future blending levels.

2014 Proposal

EPA’s proposed 2014 RFS drew significant criticism when it was proposed in November 2013. Corn ethanol producers threatened to sue EPA if the agency proceeded with its plans to reduce the conventional biofuel targets by nearly 1 billion gallons below the statutorily required volumes, the first time the agency had proposed such an approach.

EPA also reduced the advanced biofuel target below the RFS 2013 volumes, despite industry projections that demonstrated that production would rise in 2014. EPA also kept the biomass-based diesel volumes static at 2013 volume levels under the proposal, infuriating the biodiesel industry that said the proposed rule was sending the wrong signal to the industry.

The agency did, however, raise the volume obligation for cellulosic biofuels by over 16 million gallons above the final 810,185 gallon obligation for 2013, which enraged the oil industry that also threatened to sue EPA if the agency continued to mandate blending these low-carbon fuels at levels that far exceed actual production.

The oil industry and refiners, who are obligated to blend biofuels under the RFS, won a key court battle in 2012, forcing EPA to rescind its 2012 RFS targets for cellulosic biofuels, and refund the industry for having to purchase compliance credits from EPA because there were no cellulosic fuels produced to comply.

The U.S. Court of Appeals for the District of Columbia Circuit vacated the 2012 cellulosic requirements by ruling that EPA could not base the cellulosic blending requirements on an aspirational target, but only on actual production.

But the new EMTS volume counts highlight a different scenario for EPA, one where the agency can set higher volume requirements for cellulosic biofuels that are legally defensible and the oil industry’s past victory is less relevant. The total volume of D3 RINs represents 32,959,514 gallons of production available for purchase by refiners for compliance, according to the EMTS. The original RIN total for cellulosic fuels crested at 32,984,942, but 25,428 have been retired either because of purchases or to adjust for miscounting.

In a Jan. 15 statement, the Renewable Fuels Association touted the new EPA data, saying it shows “that RIN generation for cellulosic biofuel — long labeled by oil companies as ‘phantom fuels’ — was nearly double the volume proposed by EPA in November 2013.”