RFS Roundup – August Special

Source: By Sara Taginawa and Jessie Stolark, EESI • Posted: Monday, August 7, 2017

There’s been a flurry of activity over the past week concerning the Renewable Fuel Standard (RFS).  From a long awaited decision from the D.C. Circuit on EPA’s reading of the statute, to an administrative decision on the Point of Obligation, EESI rounds up the last week’s news on all things RFS for readers.

Friday, July 28: The D.C. Court of Appeals released its decision in a long-anticipated ruling on EPA’s interpretation of the RFS statute. The court delivered a major victory to biofuel producers by agreeing with petitioners that the EPA had incorrectly interpreted the statute when they decided to lower fuel volumes in 2016.

Tuesday, August 1: EPA held a public hearing on the proposed 2018 fuel volumes, which the administration had lowered for the first time.  While testimony was mixed, most were in favor of EPA increasing fuel volumes above the proposed volumes.

Thursday, August 3: Reports began leaking on Thursday that the administration will reject proposals to move the Point of Obligation (or POO) under the RFS from fuel refiners and importers to blenders. Small refiners have argued that complying with the RFS is an undue burden. It is reported that the administration will release their final ruling on “POO” in the next two weeks.

Court Strikes Down EPA’s Interpretation of “Inadequate Domestic Supply”

On July 28, the U.S. Court of Appeals, D.C. Circuit, released its long awaited decision on the EPA’s general authority to reduce volumes of renewable fuels called for in the RFS.  Petitioners argued that the EPA had incorrectly interpreted their ability to lower fuel volumes if EPA had sufficient evidence for “inadequate domestic supply.”  In setting fuel volumes for 2016, EPA argued that insufficient consumer access to higher ethanol blends constituted “inadequate supply.”

Delivering a major win to the biofuels industry, the court agreed with the petitioners.  In their opinion, the judges state, “the term ‘inadequate domestic supply’ refers to the supply of renewable fuel available to refiners, blenders, and importers to meet the statutory volume requirements … EPA exceeded its authority under the ‘inadequate domestic supply’ provision when it interpreted the term ‘supply’ to allow it to consider demand-side constraints in the market for renewable fuel.”  In their decision, the U.S. Court of Appeals vacates EPA’s 2016 decision and remands the rule to the agency.

It is unclear at this point what EPA will have to do to satisfy the requirements of the ruling. The decision also calls into question the validity of 2017 and 2018 volumes, since EPA is using the same argument on inadequate supply to inform fuel volumes for subsequent years.

Hearing on RFS 2018 Volumes

On August 1, the EPA held a public hearing on the proposed Renewable Fuel Standard (RFS) targets for 2018 and proposed biomass-based diesel volumes for 2019. Under the EPA’s current proposal, the cap for corn ethanol would remain at 15 billion gallons; however, volume requirements for advanced biofuels would be reduced from 4.28 billion gallons to 4.24 billion gallons in 2018. This includes a 73 million gallon reduction in cellulosic biofuels.

A majority of speakers, including Iowa Governor Kim Reynolds and Nebraska Governor Pete Ricketts, testified in support of maintaining a strong RFS and increasing volumes over those called for in the EPA’s proposal. Reynolds stated, “Each time the EPA has raised biodiesel volumes, the industry has risen to the challenge. Really, that’s what the RFS does. It’s a market-forcing policy. It’s bold, and the EPA’s volume requirements should reflect that.” Others agreed that any rollback of advanced biofuel volumes would send the wrong signal to investors.

Critics of the RFS argued that the mandates hurt small businesses, which cannot afford the infrastructure to blend renewable fuels into the existing supply and often have to purchase RINs, the credits used to show RFS compliance. Others argued that ethanol mandates increase the cost of growing corn and suggested biofuels compete in a free market. However, several corn farmers noted that they are able to earn more per bushel under the RFS.

Point of Obligation

On Thursday, August 3rd, it was reported that the administration is set to reject a change in the RFS Point of Obligation. Independent refiners, led by Carl Icahn’s CVR Energy, have argued that requiring refiners to blend renewable fuels is an undue burden. They requested EPA move the compliance requirement further downstream, to fuel retailers.  Moving the Point of Obligation downstream was opposed by both the biofuels industry as well as the American Petroleum Institute, whose members include major retail gasoline outlets.

The Obama administration was poised to reject the petition, but Mr. Icahn’s role as special advisor to President Trump had thrown the rejection of the petition into question.  The move is seen as a nod from the President to his Corn-Belt supporters.

September, and Beyond

When lawmakers return from August recess, ethanol boosters expect to keep up the drumbeat on lifting restrictions on the summertime sale of E15.  While the Senate Environment and Public Works (EPW) committee held a hearing on the Consumer and Fuel Retailer Choice Act (S. 517) in July, the bill has not progressed. Senator Ernst (R-IA), a bill sponsor, commented recently to reporters, “We are in a holding pattern right now. We are trying to push friends and allies to join us in this effort … If we can gain a little more support from our friends across the aisle, we might be able to move the bill.”

Other issues that will likely resurface this fall include issues around the Renewable Identification Number (RINs) marketplace — the tradable compliance mechanism for the RFS, and the EPA’s intent to examine an RFS “reset.”

Authors: Sara Taginawa and Jessie Stolark

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