Broad dissatisfaction with proposed RFS obligations
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July 22, 2019
Broad dissatisfaction with proposed RFS obligations

The EPA’s proposed 2020 Renewable Volume Obligations (RVOs) for petroleum refiners, which are required under the Clean Air Act’s Renewable Fuel Standard (RFS), were greeted with almost universal disapproval from the ethanol industry and the farmers who grow crops that are converted into ethanol. The objections derive from two issues. First, the proposal indicates no intention on the part of the EPA to reallocate renewable fuel volumes lost because of hardship exemptions from RVOs the Agency granted to small refineries. Second, the EPA is proposing to respond to a court remand to reconsider its original 2016 RVOs by adhering to its 500-million-gallon (gal) reduction of those obligations. The Renewable Fuel Association (RFA) succinctly summarized the negative reactions to the proposal.

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“By neglecting to prospectively reallocate small refinery exemptions and blatantly ignoring a court order to restore improperly waived gallons, the EPA’s proposed 2020 RVOs completely betray President [Donald] Trump’s commitment to uphold the integrity of the RFS,” said the RFA.

RFS goals

Established by federal law, the RFS generally mandates that transportation fuels—typically gasoline and diesel—sold in the United States contain annually increasing amounts of fuels produced from renewable sources, such as agriculture, rather than through geological processes, such as those involved in forming petroleum. The EPA, which is responsible for implementing the RFS, can waive the statutory volumes and establish its own if warranted. The most common biofuel currently produced in the United States is cornstarch ethanol, which is distilled from the sugars in corn. The EPA says the goals of the RFS are to expand the nation’s biofuel sector while reducing reliance on imported petroleum oil and to reduce greenhouse gas (GHG) emissions.

Increase for cellulosic biofuel

Under the current proposal, the 2020 RVO would be 20.04 billion gal, compared to the 2019 requirement of 19.92 billion gal. The proposed RVO comprises 15 billion gal of conventional ethanol—the implied statutory volume requirement, says the EPA—and 5.04 billion gal of advanced biofuel, which includes 540 million gal of cellulosic biofuel, a slight increase from the previous volume requirement. Biodiesel targets, which are set 2 years in advance, were proposed at 2.43 billion gal for 2021, the same volume finalized for 2020.

Exemptions

Federal law empowers the EPA to grant small refineries temporary exemptions from their RVOs because of “disproportionate economic hardship.” In 2016, the Obama administration’s EPA received 14 applications for small refinery exemptions for RFS compliance year 2015. The Agency approved 7 of those applications and denied 7. In contrast, the Trump EPA approved 54 exemptions for 2016 and 2017. The exemptions effectively lowered the total RVO for 2017 by 1.82 billion gal and cut the 2016 RVO by nearly 800 million gal. An additional 38 requests for 2018 exemptions are pending. No exemptions were included in the 2019 final RVO rule because none were requested. For 2020, the Agency says no exemptions will be granted until the final rule is promulgated. The Agency adds that it will continue to review requests for waivers from small refineries on a case-by-case basis.

“We are frustrated the EPA did not account for potential waived gallons going forward in the proposed rule,” said National Corn Growers Association President Lynn Chrisp. “If the EPA continues to grant retroactive waivers, the RVO numbers are meaningless and the EPA is not following the law. Farmers are facing a very tough economic environment and the continued waiver abuse chips away at farmers’ bottom line.”

Response to remand

In Americans for Clean Energy v. EPA, the U.S. Court of Appeals for the D.C. Circuit found that in its 2015 RFS rule governing the 2016 RVOs, the Agency improperly interpreted the “inadequate domestic supply” waiver provision based on demand-side constraints that affect the consumption of renewable fuel by consumers rather than on supply-side factors affecting the volume of renewable fuel available to refiners, blenders, and importers to meet the statutory volume requirements. Accordingly, the court remanded the rule to the EPA for further consideration.

“In light of the retroactive nature of an increase in the volume requirement for total renewable fuel of 500 million gallons and the additional burden that such an increase would place on obligated parties, we are proposing to find that the applicable 2016 volume requirement for total renewable fuel and the associated percentage standard should not be changed.,” the Agency now states.

According to the RFA, the D.C. Circuit “reconsideration” remand effectively ordered the EPA to restore the 500 million gal “illegally” waived from the 2016 RVO.

“EPA’s stubborn refusal to obey a court order to restore lost demand is yet another kick in the teeth to U.S. renewable fuel producers and farmers already facing the worst market conditions in a generation,” states the RFA. “EPA’s suggestion that following the court’s directive would place an ‘additional burden’ on obligated parties is an insult and an affront to the farmers and ethanol producers who trusted this administration would follow the law.”

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