RFS Faces 2015 Challenges As EPA Seeks To Bolster Low-Carbon Biofuels

Source: By John Siciliano, Inside EPA • Posted: Friday, January 9, 2015

EPA’s flagship renewable fuel standard (RFS) program faces considerable challenges in 2015 as the administration looks to finalize long-overdue blend mandates that could begin to balance the production of low-carbon cellulosic and advanced biofuels with more conventional corn-based ethanol.

The corn sector, for example, is likely to oppose any effort that reduces their blending requirements relative to other fuel sources while the oil industry, which is urging Congress to repeal the program, is already charging that EPA’s approval of some low-carbon fuels is at odds with statutory requirements.

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.

The trend appears likely to taper off due to a combination of increasing cellulosic and advanced biofuel production. Companies like Kior, POET-DSM, Abengoa and several other biofuel firms are set to begin producing millions of gallons a year of cellulosic biofuels, which would bring the market up to statutory levels in a matter of years if the trend persists.

These efforts have been further enhanced 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 waste-water treatment facilities, agricultural digesters and similar biogas producers.

EPA also used the rule to qualify electricity used to power electric vehicles produced from the biogas sources to be counted as cellulosic biofuel under the RFS.

And late last month, the agency suggested that it would likely approve sorghum for use as a fuel for credit in the cellulosic category because it meets or exceeds the 60 percent GHG threshold.

The pathway decisions will likely lead to thousands of renewable identification number (RIN) credits being produced that refiners can use to comply with the program’s cellulosic requirements, undermining oil industry efforts to repeal the program due to lack of adequate production.

Blend Mandates

In fact, White House climate advisor John Podesta was said to be advocating for raising mandates for the cellulosic category from 17 million gallons to over 25 million gallons. This increase is modest when compared to the billions of gallons of corn-based ethanol produced annually, but it is a sign that cellulosic producers will likely meet their annual production targets in the next year with significant volumes to follow.

Seeking to capitalize on this trend, EPA announced late last year that it was delaying its final 2014 RFS blend mandates until 2015 in part because it is hoping to increase blend mandates for low-carbon cellulosic fuels as part of the Obama administration’s broader effort to reduce GHGs. EPA also announced that it would consider setting the RFS blending requirements for 2015 and 2016 in tandem with the 2014 rule, an announcement that could also give the administration more time to take advantage of growing cellulosic production levels.

Although the ethanol industry has said the 2014 RFS delay could be helpful in allowing EPA more time to assess the market, others in the advanced biofuel industry say the delay could potentially hurt the industry, or at least slow investment in cellulosic biofuels.

The administration also appears to enjoy some support for the idea of increasing low-carbon fuel blend mandates. The oil industry, which is seeking to repeal the program, says it favors reducing the conventional biofuel requirement that is primarily met by blending corn-based ethanol into gasoline at 10 percent of the nation’s fuel supply.

The American Petroleum Institute (API) and refiners want EPA to keep the conventional ethanol requirements static, and even reduce the volumetric requirements to a percent that is below the 10 percent volume that ethanol currently occupies in the fuel market, fearing that increasing the requirements 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.

And some lawmakers and environmentalists would also like to see the conventional biofuel mandate removed from the RFS in favor of cellulosic fuels that do not require feed grains to be produced in large quantities and are more in line with the president’s climate change goals.

But the ethanol industry wants EPA to increase the conventional fuel category standard and has even threatened to sue EPA if it follows API’s recommendations under the blend wall scenario, arguing that the agency violated the statutory definition of the agency’s waiver authority.

Under the Clean Air Act provisions that created the program, EPA can only reduce the conventional target based on supply problems and not on circumstances that effect demand, which is the basis of the blend wall scenario. EPA’s 2014 proposed rule said as much, but senior officials have promised over the last several months that the conventional standard would be restored.

BPC Report

In a sign of how difficult it will be for EPA to increase mandates for low-carbon fuels, the Bipartisan Policy Center (BPC) released a report late last year that detailed a suite of possible reforms that would help advance the administration’s GHG goals, though some of the proposals drew strong condemnation from one side or the other.

For example, the report suggested that EPA keep the conventional standard static at 10 percent of the nation’s fuel supply while moving forward to advance the second generation of biofuels that produce less GHGs and do not require feed grains for production.

But this suggestion met with a swift rebuke from the ethanol industry that said the BPC report’s recommendations echoed the “tired” arguments of refiners and API, which urged EPA to reduce the conventional targets or risk breaching the so-called “blend wall.”

The report also recommended that EPA approve new pathways for compliance. But after EPA approved new pathways last July, the oil industry charged that the approvals are at odds with the RFS statute that defined the chemical make-up of cellulosic fuels.

While there is little on which the various industry players agree, many say they are hurt by the regulatory uncertainty created as a result of EPA’s delay and they want the agency to issue the annual blending obligations in a timely way or risk eroding the growing market for low-carbon fuels. With a Congress that is unlikely to agree on legislative reforms, EPA’s upcoming rules may be the only option for overhauling the RFS. —