Future RFS Remains A Mystery As EPA Deals With Immediate Concerns

Source: By Stuart Parker, Inside EPA • Posted: Sunday, September 19, 2021

EPA’s plans for the long-term future of the renewable fuel standard (RFS) remain shrouded in uncertainty, sources say, as the agency strives to meet short-term objectives for the program that will have a significant bearing on its prospects after 2022, when current statutory biofuel blending mandates expire.

The White House Office of Management and Budget (OMB) is now reviewing EPA’s proposals for biofuel blending volumes under the RFS for 2021 and 2022, and possibly a retroactive reduction in volumes for 2020. The 2021 rule is already nine months overdue, and even if it is released in the near future, EPA seems unlikely to be able to take public comment and produce a final version before early 2022.

These pressing questions are diverting attention away from another rulemaking, now known as the “set,” which will define blending mandates after 2022, sources say.

Under the Clean Air Act, once actual production of certain fuels, such as cellulosic ethanol, falls below certain thresholds relative to the goals set by Congress, EPA can lower the statutory levels.

While the agency previously submitted a draft version of such a rule, previously known as a “reset” because the agency planned to complete it before the end of the statutory mandate, to OMB for review, the measure was never released.

Compounding the situation is EPA’s need to formulate a policy with regard to small refiners’ requests for compliance waivers from RFS blending mandates. The Supreme Court over the summer found that refiners can win the economic hardship waivers even if they lacked them in prior years, overturning a U.S. Court of Appeals for the 10th Circuit’s ruling on the issue.

But EPA still supports other aspects of the lower court’s decision that weigh against waiver issuance even as dozens of waiver requests still remain undecided at EPA.

The related short-term questions over annual blending volumes and waivers, combined with uncertainty over biofuels provisions that Congress may approve, militate against EPA staff being able to fully focus on the so-called “set” rule that will govern long-term blending volumes, sources say.

For years, EPA was planning its “reset” rule that would have reduced statutory volumes for advanced and cellulosic biofuels to lower levels than those set by Congress at the outset of the program in 2007. Liquid cellulosic fuel production has fallen far short of expectations, triggering a reset mechanism that requires EPA to reduce the statutory volumes to levels more closely matching production.

An EPA spokesperson did not respond to a request for comment by press time.

Statutory Targets Gone

Under the RFS, advanced biofuels, including biodiesel, must achieve a 50 percent greenhouse gas reduction relative to unblended gasoline, and cellulosic fuels a 60 percent reduction. Conventional corn ethanol, which still satisfies the overwhelming majority of the RFS mandate, must achieve a 20 percent reduction, although biofuels advocates say it in fact achieves reductions far in excess of this.

But EPA never issued the reset rule, and statutory volumes expire in 2023, except for biodiesel, for which the dedicated RFS volume already expired several years ago. EPA has set the biodiesel volumes under its own authority since then.

With all the statutory targets gone, EPA will now have to set volumes on its own authority without resorting to waiver authorities to depart from targets set by Congress.

EPA’s regulatory agenda lists the set rule as due for proposal by a Nov. 30 statutory deadline, but the agenda also indicates it will not likely be proposed until December, and some sources believe later than that. EPA aims to finalize the rule in time for 2023.

Yet little is known publicly about the parameters of that rule, including how many years it will set volumes for, or what volumes EPA intends to set. Some sources say it is possible EPA will bifurcate the rule into two different periods, with volumes set for a limited number of years initially, to be followed by a second period for the longer-term.

“I question how feasible it is now” to meet the Nov. 30 deadline, says one refining sector source, saying it would be “very difficult” for EPA staff to craft a proposal before the blending volumes for 2021 and 2022 are “put to bed.”

In many respects, the post-2022 volumes are contingent on the outcome of current policy choices on volumes and waivers, the source says.

The rule provides an opportunity for various stakeholders to push their preferred positions, however. For example, small refineries will seek to “level the playing field” with their larger competitors by asking for policy changes they have sought for several years now. Smaller “merchant” refiners often lack the capacity to blend their own biofuels like major oil companies do, forcing the merchant refiners to purchase RFS compliance credits at sometimes high prices.

Containing the price of credits, known as renewable identification numbers (RINs), is therefore a priority for smaller refiners, along with setting blending volumes at lower levels. The merchant refiners also favor moving the RFS’ compliance obligation from refiners to fuel blenders, a request EPA has consistently denied.

Legally, “they have a lot of leeway to do a lot of different things,” although under the Clean Air Act EPA must comply with dozens of technical criteria when setting the post-2022 blending volumes, the refining source says.

The American Petroleum Institute (API), which represents several large oil companies that blend their own biofuels, raises the long-term prospect of replacing the RFS entirely.

“The RFS Set rulemaking presents a significant opportunity to improve the RFS program and support our industry’s commitment to solutions that reduce emissions and ensure affordable transportation fuel choices for Americans,” API Vice President of Downstream Policy Ron Chittim tells Inside EPA.

Chittim says, “In the annual rule that’s yet to be released, EPA would best serve the public interest by keeping compliance volumes feasible and maintaining program stability by not exceeding the ethanol blend wall. While API is committed to working with EPA to chart a viable course for the RFS — both in the current years and in the future — ultimately, the best way to accelerate U.S. climate progress is through an economy-wide carbon price policy rather than costly market mandates.” The “blend wall” refers to vehicle and infrastructure constraints that limit the ability of refiners to blend more ethanol into the fuel supply.

Climate Goals

One fuels industry source says that EPA should consider the RFS a tool for meeting its broad climate goals, using the set to enlarge volume for advanced biofuels. “I think it should be a very aggressive, ambitious increase in the advanced mandate,” the source says. The set rule is “an important opportunity for the administration to re-calibrate how they want to achieve” greenhouse gas reductions.

For biofuel producers, the set rule presents the chance to make counterarguments in favor of increased biofuels blending. For example, a source with the National Biodiesel Board (NBB) says the association’s position is that “EPA should provide as much certainty for future years as possible and send a strong signal of support for sustainable growth. Essentially, we would like to see annual increases for as many years as possible into the future.”

A second biofuels industry source stresses the need for regulatory certainty, requiring volumes rules for more than one year at a time, and also says that EPA likely has not decided yet how many years to cover. The source also says that EPA may still propose the set rule before the proposed volumes rules for 2021 and 2022 are finalized.

Other biofuels groups are likely to push for both stability and long-term growth in the RFS blending volumes — although they may not agree on which volumes to expand.

One farm sector source says, “our recommendation on the set rule is that EPA use this proposed rule to maximize the benefits of the RFS through continued growth in renewable fuel blending and take full advantage of the immediate decarbonization biofuels provide. We urge EPA to consider agriculture’s contributions to the success of the RFS, including relying on the most recent assessment for [Department of Energy] Argonne Lab on carbon intensity and [lifecycle analysis].”

Biofuels groups face resistance from beyond the oil sector and its supporters in Congress, as some environmentalists remain skeptical of the climate benefits of corn ethanol in particular, and are worried about its broader environmental impact.

While the RFS will continue after 2022, one environmentalist says that it should be phased out, which is the “only really viable solution” if the United States is to reduce its GHG emissions by the level required. Continuing with RFS mandates only perpetuates the country’s dependence on liquid fuels — and therefore oil — the source says.

Moreover, liquid cellulosic biofuels, with much lower GHG emissions than corn ethanol, have “always been a fantasy,” and have never been produced in meaningful volumes, the source says. The bulk of cellulosic biofuel today is in fact biogas derived from landfill methane and agricultural operations, sources note. — Stuart Parker (sparker@iwpnews.com)