EPA Issues Proposed RFS2 Rules for 2011
The EPA has issued proposed RFS2 rules for 2011 that provide some indications that the agency is dedicated to jump starting the advanced biofuels industry. Most notably, the EPA held fast to an overall mandate of 13.95 billion gallons of renewable fuel. While the agency intends to deviate downward on cellululosic biofuels with a cut of 90% or more anticipated, the proposed rule maintains the overall Advanced biofuel mandate at 1.35 billion gallons and the Biomass-based diesel requirement at 800 million gallons. Thus the agency is paying significant attention to the existing capacity of the biodiesel industry despite the lack of approval for the blender's credit six months into the year. Biofuel supporters hope that this policy gap will be addressed shortly or that RIN values will continue to increase for Biomass based diesel.
The proposed rule contains two other notable components: tentative but retroactive RIN credit for canola, sorghum, pulpwood and palm oil biofuel producers; and a petition process for foreign countries to avoid the onerous feedstock obligations that now apply in favor of the aggregate approach available within the US. The referenced feedstocks have been under consideration by EPA for Life Cycle Analysis since prior to the original RFS2 Final Rule was released but the work has still not been completed. The severe challenge for this group of biofuel producers is that EPA has previously indicated that RIN generation would trigger only when the pathway was certified. EPA's proposed new flexibility is an improvement but still falls short of providing full RIN value for these producers due to the lag time and uncertainty associated with the approach. The proposed petition process for foreign countries is an apparent attempt to level the playing field for foreign producers who now must trace and certify feedstocks such as soy and corn in a manner not required within the US.
The rules will be published in the Federal Register shortly and the public comment period will likely run to approximately August 13th.
White Paper Explains New Advanced Renewable Fuel Standard/RFS2
My colleague Graham Noyes and Clayton McMartin of Clean Fuels Clearinghouse recently published a white paper on the massive and staggeringly complex revision of the federal Advanced Fuel Standard (RFS) issued by the U.S. Environmental Protection Agency on February 3, 2010. Graham and Clayton describe how this second generation renewable fuel initiative (RFS2) will bring industry and government together in ways never before experienced by the fuels industry.
With a view to helping market participants develop comprehensive cost/benefit and compliance strategies, Graham and Clayton structure their discussion according to the following key topics:
- Legal background and new statutory requirements of RFS2;
- Compliance implications of updates to the Renewable Identification Numbers (“RINS”) process; and
- Issues important to particular market participants, including producer obligations, new fuel pathways, importer issues and RIN trading economics.
Download a free copy of the Renewable Fuel Standard/RFS2 White Paper (PDF)
Secretary Chu Announces $80M for Biofuels
DOE Secretary Chu's announcement today regarding $80 million of ARRA funding for biofuels is potentially a positive development for the long-term development of the biofuels industry. What is worrisome from a practical perspective is the division of funding. The National Alliance for Advanced Biofuels and Bioproducts, centered in St. Louis, received $44 million to develop a systems approach for the sustainable commercialization of algal biofuel and bioproducts. The National Advanced Biofuels Consortium, based here in the Pacific Northwest, received up to $34 million to develop infrastructure compatible biomass-based fuels. Meanwhile eight infrastructure projects received up to $1.6 million to support expanded fueling infrastructure for ethanol blends. While the Administration is ahead of the curve in recognizing the importance of long-term support for the development of advanced biofuels, it is overlooking the increasingly challenging environment in first generation biofuels. Simply put- and purely in my opinion- there will be no second generation of biofuels if the first generation does not again thrive. The ethanol industry has hit a blend wall that the EPA has not been willing to help them overcome in the short term. Adding $1.6 million in E-85 infrastructure is but a chip in that wall when one considers the massive costs involved in building a national infrastructure. On the biodiesel side, the current industry has not yet received an extension of its tax credit and was already facing severe challenges. The investors who supported the expansion of the first generation biofuels industry are still tracking their investments and the policy support for the industry. While government funding will further the development of the science of advanced biofuels, private sector involvement will be essential to the ultimate commercialization of these fuels. To accomplish its ultimate goals, the Administration will need to begin to address these issues in a systematic manner.
EPA Extends RFS 2 Comment Period
Last week, the US EPA extended the rulemaking period on RFS 2 until September 25, 2009. This extends the period by 60 days. While this rulemaking is highly complicated and contentious, it is unclear that extending the comment period will improve this situation. In addition, the effective date of the regulations continues to be delayed. This could undermine Congress' intentions in passing the Energy Independence and Security Act that established RFS 2. Let's hope EPA is able to move quickly and efficiently in finalizing and implementing the regulations.
EPA Stalls Regarding RFS Waiver
EPA Administrator Stephen Johnson granted himself a continuance last week to make his decision on whether to grant Texas Governor Rick Perry’s request for a waiver of the Renewable Fuel Standard (RFS). As an attorney accustomed to living with deadlines, I certainly appreciate the lure of being able to grant oneself a continuance. Like many others participating in the biofuels industry, however, it is somewhat frustrating to encounter yet another delay on the policy front.
To be fair, Administrator Johnson has his work cut out for him in resolving this issue. Advocates on both sides see potentially substantial impact from a decisive ruling on the waiver. The waiver provision has been described as a pressure relief valve for the RFS. The interesting thing about this pressure valve is that no one knows what pressure the valve will withstand before it releases. Oil industry advocates would prefer a “hair trigger” type pressure release valve whereas biofuel advocates would like to see a more robust fixture.
Governor Perry’s request has some unique attributes. He actually based his request not on the RFS causing difficulty for the petroleum industry- which would have been difficult since ethanol has typically been less costly than gasoline and in ample supply- but on food and livestock supply arguments. Governor Perry’s request also precedes the ramp up period in the RFS when the real challenges will likely begin and thus his request could be viewed as an early attempt to hobble the RFS.
Let us hope that cooler heads prevail. Given the tremendous energy security and cost issues presently caused by our fossil fuel dependence, now is not the time for the EPA to start buckling on the RFS. As noted by the NBB’s CEO, Joe Jobe, "If the RFS is waived or cut in half in 2008, then the growth of all biofuels, including 'advanced biofuels' such as biodiesel, will be severely hindered." As Jobe and others have noted, these advanced biofuels may hold the real key to relieving the pressure on both fuel and food prices in the future.
