Regulatory DevelopmentsAugust 6, 2013
On August 6, 2013, the U.S. Environmental Protection Agency (EPA) signed its belated final rule establishing the 2013 renewable volume obligations (RVO) for the four fuel categories that are part of the federal Renewable Fuel Standard (RFS) Program under the Clean Air Act (CAA): cellulosic biofuel; biomass-based diesel; advanced biofuel; and total renewable fuel. These standards apply to all gasoline and diesel produced or imported in 2013. The final rule will become effective once it is published in the Federal Register. EPA's final rule and fact sheet are available online.
Key elements of the just released 2013 final rule include that EPA has lowered the 2013 cellulosic RVOs down to 6 million gallons, while maintaining the overall advanced biofuel RVOs. It also includes language indicating that EPA "anticipates that in the 2014 proposed rule [it] will propose adjustments to the 2014 volume requirements, including the advanced biofuel and total renewable fuel categories."
The following are the 2013 RVOs for all four RFS categories:
Biomass-based diesel: 1.28 billion gallons;
Advanced biofuels: 2.75 billion gallons;
Cellulosic biofuels: 6.00 million gallons; and,
- Conventional ethanol: 13.8 billion gallons.
Under the RFS, EPA is required to set the RVOs for the following year by November 30. The Agency has been criticized, particularly by obligated parties under the RFS, including refiners, for not releasing the final 2013 RVOs by last November's deadline. While EPA usually issues its proposed rule for the following year's RVOs by mid-summer (which would have been about June, 2012 for this year's numbers), it did not issue the proposed rule for the 2013 RVOs until February of this year. Because of these delays, the final rule allows for additional time for obligated parties to demonstrate compliance with the 2013 standards by extending the compliance deadline from February 28, 2014, to June 30, 2014.
EPA's delay in issuing the 2013 RVOs in final was likely the result -- at least in part -- of several recent legal challenges by the refining industry to EPA's final rules setting the cellulosic and overall RVOs for 2011 and 2012. In January, 2013, the U.S. Court of Appeals for the D.C. Circuit ruled in one of these cases that while EPA could continue to set RVOs based in part on information from individual companies on projected gallons, it could not continue to set the annual cellulosic RVOs at the highest achievable volume level to drive production of that fuel. The numbers have to be based on actual volumes expected to be produced and available to obligated parties.
EPA is setting the final 2013 RVO for cellulosic biofuels at 6 million gallons, down from the 14 million gallon cellulosic RVO contained in the proposed rule. This adjustment is in line with the RVO setting factors determined by the court earlier this year and reflects the number of RFS-compliant cellulosic volumes that will likely be available on the market this year. Last week, INEOS Bio announced that it is now producing cellulosic biofuels at commercial scale at its Indian River BioEnergy Center in Vero Beach, Florida.
It is a significant development that EPA states in its final rule the likelihood that it may adjust (reduce) the 2014 RVOs beyond just those for cellulosic biofuels. Under the law, under certain circumstances, the Agency may adjust the overall RVO targets or those of any individual category. To date, despite repeated requests by obligated parties, EPA has maintained the volumetric targets contained in the RFS law for overall and advanced RVOs. It has only reduced requirements for cellulosic biofuels, as that nascent industry has taken longer than anticipated to commercialize.
In its fact sheet on the final rule (see link above), EPA explains why it anticipates making an adjustment in the 2014 RFS rulemaking. It states that EPA "recognizes that ethanol will likely continue to predominate the renewable fuel pool in the near future, and that for 2014 the ability of the market to consume ethanol in higher blends such as E85 is highly constrained as a result of infrastructure- and market-related factors." EPA further states that it does not currently foresee a scenario in which the market could consume enough ethanol sold in blends greater than E10, and/or produce sufficient volumes of non-ethanol biofuels to meet the volumes of total renewable fuel and advanced biofuel required by the CAA for 2014. EPA thus "anticipates that in the 2014 proposed rule [it] will propose adjustments to the 2014 volume requirements, including the advanced biofuel and total renewable fuel categories." EPA expects that it will estimate the available supply of cellulosic biofuel and advanced biofuel volumes, assess the ethanol blendwall and current infrastructure and market-based limitations to the consumption of ethanol in gasoline-ethanol blends above E10, and then propose to establish volume requirements that are "reasonably attainable in light of these considerations and others as appropriate."