Last Thursday, the Environmental Protection Agency released its proposed rule for the 2013 Renewable Fuel Standard (“RFS2”) volume obligations. Every year the EPA is required to determine and publish the annual volume requirements for each class of renewable fuel that obligated parties will have to comply with for the upcoming year under the RFS2 program. The volumes required under the proposed rule for 2013 are as follows (generally in ethanol equivalent volume): 14 million gallons of cellulosic biofuel, 1.28 billion gallons of biomass-based diesel (actual volume), 2.75 billion gallons of advanced biofuel, and 16.55 billion gallons of renewable fuel. As always the categories are nested and the advanced biofuel volume includes the volumes set for the cellulosic and biomass-based diesel categories. The renewable fuel category accounts for all renewable fuel including traditional corn starch ethanol.
Three of the four categories are consistent with the volumes set forth by statute. The volume for cellulosic biofuel, however, is set by this rule because it must be the lesser of the statutory volume and EPA’s projection of industry production for any given year. As with each ruling prior to this one under the program, EPA set a dramatically lower cellulosic biofuel volume than the statutory volume based on its assessment of the industry’s status. Rather than 1 billion gallons as would otherwise be required by statute, EPA is requiring obligated parties to account for 14 million gallons of cellulosic fuel. Despite the dramatic reduction from the statutory requirement, this is significant because it is an increase over the 2012 standard of 10.45 million gallons that has been the subject of considerable recent controversy.
Just a few days earlier, the D.C. Circuit Court ruled that EPA impermissibly set the 2012 standard with an eye toward promoting industry growth when, by statute, the agency should have simply made an accurate projection of what the industry could produce in the given year. While petitioners in that case asserted that the EPA volume for cellulosic ethanol should be equivalent to that which the Energy Information Administration (“EIA”) projects, the court instead determined that EPA’s projected volume should be simply based on the EIA projections.
In developing the 2013 requirement for cellulosic ethanol, the EPA relied on EIA estimates but also its analysis of more than 100 biofuel production facilities. The proposed rule includes a detailed analysis of all of the plants currently registered with EPA and able to produce cellulosic RINs. Of those 6 plants, it assumes two (INEOS Bio and KiOR) will be generating cellulosic biofuel RINs in 2013 in an amount equal to 14 million gallons of ethanol. The EIA estimate for 2013 is 13.1 million gallons of ethanol – which is also nearly exclusively based on production from those two plants.
Although the EPA also has authority to reduce the advanced biofuel category based on its decision to reduce the cellulosic biofuel category, the agency decided to keep the broader category at the statutory volume based on its projections of other domestic advanced renewable fuels as well as the ability to import sugarcane ethanol from Brazil. Comments on the proposed rule must be received no later than 45 days after the rule is published in the Federal Register.