Tuesday, April 8, 2014

Proposed Changes to the Renewable Fuel Standard: Status and Background

The Renewable Fuel Standard (or RFS) program was created under the Energy Policy Act of 2005, and established the first renewable fuel volume mandate in the United States. The alternative fuel-use mandate was updated by the 2007 Energy Independence and Security Act. In November 2013, the U.S. Environmental Protection Agency (EPA) proposed changes to the RFS for the 2014 calendar year, marking the first time since the RFS was put in place that EPA suggested that the nation reduce its mandated minimum level of usage. The RFS changes would apply to cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuel.

The RFS and EPA's proposal to change the standards have broad economic and environmental ramifications.  The demand for those fuels can drive agricultural land use decisions by farmers throughout the U.S., particularly in the Midwestern corn belt states, where plentiful corn and soy can be used as feedstocks for biofuels.  EPA's proposal has been followed closely by agriculture, land use, biofuel, petroleum-based fuel, environmental and food stakeholders, among others. Over 140,000 comments were submitted during the proposal's 60-day comment period. The EPA has said that it intends to complete a review of those comments and make a decision regarding its proposal in June. This summary of the history and status of the RFS is provided in anticipation of the agency's decision.

The 2007 Energy Independence and Security Act (Pub.L. 110-140; originally called the Clean Energy Act of 2007), among other things, mandated that 35 billion gallons of ethanol-equivalent biofuels and 1 billion gallons of biomass-based diesel be consumed in the United States by 2022 (the RFS - a subtitle of the Energy Independence and Security Act). The 2022 RFS goal, along with intermediate annual goals, were established based on a belief that biofuels offered a viable alternative to petroleum-based fuels, which would increase national fuel security, and potentially lower petroleum-based fuel prices.[1]

2014 RFS Proposal
In November, 2013, the EPA proposed to reduce the 2014 requirements for ethanol and advanced biofuel under the RFS.  The EPA did so in an attempt to address what it calls the “practical realities in the marketplace” more evident in 2013 than in 2007, when the Energy Independence and Security Act was enacted.  The proposed cuts marked the first time since the RFS was put in place that EPA suggested that the nation reduce its mandated minimum level of usage. Specifically, EPA proposed new “volume requirements and associated percentage standards that would apply under the RFS2 program in calendar year 2014 for cellulosic biofuel, biomass-based diesel, advanced biofuel [2], and total renewable fuel.”

In proposing the reduction, the EPA cited an "inadequate domestic supply" of biofuels, its concerns regarding the amount of ethanol that can be used in modern fueling infrastructure and in automobiles, and the agency’s low confidence that the U.S. could produce a substantial amount of next-generation biofuels (such as those derived from cellulosic feedstocks) in 2014. The high cost of producing cellulosic biofuels (compared to petroleum-based fuels) added to the advanced biofuel market ambiguity underlying the EPA proposal.

Under the proposed rule, EPA would cut ethanol and advanced biofuel usage in 2014 by 16 percent, compared with the level set out in the Energy Independence and Security Act. The agency proposed to mandate 13 billion gallons of conventional ethanol (1.4 billion gallons below what the Act requires), and 2 billion gallons of advanced biofuels made from feedstocks other than cornstarch (a reduction of 1.75 billion gallons below the goal set by the act).

Reaction to the EPA Proposal
The proposal, leaked to the public in draft form ahead of its official, late November release, has been very controversial. The proposed RFS change generated over 140,000 written public comments (6,000 of which are unique) before the 60-day comment period ended on January 28. Hundreds of the comments were over 100 pages long. EPA has set a goal of finalizing the rule by midnight June 20.

The oil, livestock and food industries generally have contended that the EPA should cut the RFS even deeper than proposed by the agency. Refiners argue that they have been hurt by the RFS due to the limits placed on the amount of ethanol that can be used in fueling infrastructure.

Biofuel producers and farmers have generally opposed the RFS cut from the opposite perspective, arguing that EPA has no legal basis for proposing the deep reductions. They contend that cutting the standard would hurt the domestic ethanol industry and stymie investment in advanced biofuels. Advanced biofuel producer comments have centered on the effects that the EPA proposal would have on next-generation fuel investment (i.e., those that do not use corn starch as a feedstock). Many Midwestern congressional members have echoed these sentiments, suggesting that EPA’s proposal would stifle rural economies and chill investment in the development of next-generation biofuels.

[1] The RFS program was first created under the Energy Policy Act (EPAct) of 2005, and that earlier standard is sometimes referred to as “RFS1” (with the 2007 standard called “RFS2”)
[2] “Advanced biofuels” or “second generation biofuels” are fuels that can be manufactured from various types of biomass other than “first generation biofuels” (which include sugars and vegetable oils).  Second generation biofuels are made from lignocellulosic biomass or woody crops, and agricultural residues or waste.

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