The US Environmental Protection Agency unveiled Dec. 1 a proposal that would steadily raise the amount of renewable fuel that US refiners must annually mix with gasoline and diesel over the next three years, in a rulemaking that marks the first proposal for which there are no congressional recommendations on the books.
Reactions from biofuel advocates were mixed as some applauded the long-anticipated proposal tied to the EPA's Renewable Fuel Standard program for creating a clear pathway for accelerating growth and investment in renewable fuels while others thought the agency could have been more aggressive in setting certain renewable volume obligations (RVOs), given new investments in production capacity and distribution infrastructure.
Oil refiners continued their opposition to the Biden administration's handling of the RFS program which they contend fails to take into account actual consumer demand and infrastructure realities.
The new proposal would require refiners to blend 20.82 billion gallons of renewable fuel in 2023, up from the 20.63 billion gallons required under the 2022 RVO. It then boosts the total renewable fuel obligation to 21.87 billion gallons in 2024 and to 22.68 billion gallons in 2025.
The EPA proposed to set the 2023 advanced biofuel mandate at 5.82 billion gallons, up 3.4% from the 2022 mandate; set the 2024 advanced biofuel mandate at 6.62 billion gallons, up 13.7% from the 2023 proposal; and put the 2025 mandate at 7.43 billion gallons, up 12.2% from the 2024 proposed figure.
The new biofuel blending requirements, if finalized, would maintain the implied ethanol blending level in 2023 at 15 billion gallons, but raise it in 2024 and 2025 to 15.25 billion gallons.
The EPA is also continuing its plan to restore 500 million gallons of illegally waived RFS requirements from the 2016 RVO — with that volume being added in the form of a 250-million-gallon "supplemental obligation" on top of the 2023 blending mandate. A similar supplemental was added to the 2022 mandate.
That aspect of the proposal addresses a 2017 remand by the DC Circuit Court of Appeal that struck down the method used by the EPA to lower the 2016 RVO.
The EPA estimates that the proposed rulemaking would lessen US oil imports by roughly 160,000 to 180,000 barrels of oil per year over the 2023-2025 timeframe. The anticipated energy security benefits over that period are valued between $200 million and $223 million per year, the agency said.
Oil sector criticism
The American Petroleum Institute and American Fuel & Petrochemical Manufacturers both described the EPA's proposal as a "missed opportunity."
Will Hupman, API's vice president of downstream policy, said the group was actively working to reduce emissions in the transportation sector but was concerned that EPA's proposal failed to "establish an achievable framework that appropriately balances the growing role for lower carbon fuels with current market realities and infrastructure constraints."
Geoff Moody, senior vice president of government relations and policy at AFPM, echoed what he saw as misalignment between the proposed conventional volumes and demand and infrastructure realities.
He also took issue with the proposal's inclusion of new regulations to allow Renewable Identification Numbers (RINs) to be generated for electricity made from renewable biomass that is used for transportation fuel.
RINs are tradable credits EPA issues to track production and use of alternative transportation fuels. For corn-based ethanol, one gallon of ethanol yields one RIN.
The proposal "must also hold true to the legacy of RFS as a liquid fuels program — not an electric vehicle program — by rejecting yet another massive regulatory subsidy for electric vehicle manufacturers," Moody said.
The Fueling American Jobs Coalition, which represents independent refiners, fuel retailers and union workers, said the proposed blending levels risked exacerbating high fuel prices, looming diesel shortages, domestic refining capacity losses and other inflationary pressures.
"A chorus of voices calling for RFS reform has repeatedly warned that independent refiners cannot continue to meet unreasonably high biofuel blending requirements by purchasing RINs credits, which have increased in price by more than 1,200% since early 2020," the coalition said.
"These refiners have reported paying more for RINs than all of their other operational costs combined, including payroll, utilities, and maintenance," it continued. "The broken RINs scheme is pushing independent refiners to the brink of closure, putting thousands of family-sustaining jobs and America's remaining domestic refining capacity in jeopardy."
Current-year advanced biofuel (D6) RINs tumbled 14.25 cents Dec. 1 to $1.6825/RIN while current-year biomass-based diesel (D4) RINs fell 17 cents to $1.7725/RIN.
The current year renewable volume obligation – a calculated per-gallon cost of buying RINs – fell nearly 8% to 20.34 cents/gal.
Market sources were mixed on the reason for the move lower. Some pointed to expectations for a larger D4 mandate amid growing renewable diesel production capacity while others said the selloff was overdone and prices could rebound in the coming sessions.
Mixed bag for biofuels
While the Renewable Fuels Association is still reviewing the nearly 700-page proposal, President and CEO Geoff Cooper said it overall seemed to be a big step in the right direction.
"If EPA put the RFS back on track in 2022, this proposal puts the RFS into overdrive as we see it as really creating a clear pathway for the future of the [RFS] and finally creating some certainty and stability," he told reporters on a call Dec. 1, while touting climate, energy security and consumer price benefits from increased biofuel production.
Further, he contended that the "very strong" conventional ethanol blending volumes would "really help stimulate more rapid growth and expansion in higher blends of ethanol like E15 and E85," as current US gasoline consumption of around 133 billion gallons would only allow for around 13.5 billion gallons of ethanol if every gallon were E10, a fuel blend of 10% ethanol and 90% gasoline.
"So in order to reach these volumes that are being proposed by EPA, it's really going to stimulate the marketplace to rapidly expand its offerings of E15," Cooper said. "And that's why it's so important that we get a permanent resolution to this ridiculous summertime barrier that has slowed growth in E15 in the past."
Current law prohibits the sale of E15 in conventional gasoline markets, which make up about 70% of the US gasoline market, from June 1 to Sept. 15 due to EPA restrictions on air pollution from gasoline. Legislation passed the House earlier in the year and has been introduced in the Senate to allow the fuel to be sold year-round.
Clean Fuels Alliance America, however, criticized the EPA's proposal as the group said the RVOs for biomass-based diesel undercut biodiesel and renewable diesel capacity.
The EPA proposed a biomass-based diesel mandate of 2.82 billion gallons for 2023, up from 2.76 billion gallons, and increased that to 2.89 billion gallons for 2024 and 2.95 billion gallons for 2025.
Those volumes "ignore the more than 3 billion gallons currently in the market and fail to take into account the planned growth of the clean fuels sector," Clean Fuels Vice President of Federal Affairs Kurt Kovarik said in a statement.
The Energy Information Administration forecasts biodiesel and renewable diesel consumption to grow by 500 million gallons in 2023, expects 2.4 billion gallons of added renewable diesel capacity to come online by 2024 and sees another 1.8 billion gallons in announced planned capacity.
Clean Fuels asked the agency to consider the infrastructure and rate of future commercial production for advanced biofuels like biodiesel, renewable diesel and sustainable aviation fuel when setting RFS volumes.
And Growth Energy CEO Emily Skor asked the EPA to be vigilant in ensuring the integrity of the RFS while considering new pathways for compliance, including new renewable fuel sources like those tracked by eRINs. The proposal seeks to tie electricity generation from renewable biomass to the RFS program for the first time, prescribing how eRINs would be implemented and managed under the RFS program.
"All new pathways must include safeguards to address double-counting, fraud risks, and other requirements to ensure that truly renewable energy is being harnessed to fuel our transportation needs," Skor said. "At the same time, the agency must clear the backlog of pathway approvals for advanced and cellulosic biofuels, including cellulosic biofuels from kernel fiber and advanced biofuels from corn oil produced at ethanol wet mills, and better leverage this opportunity to account for all of the innovation taking place in the renewable transportation industry."
Public input
The EPA is seeking comments on its proposal, and stakeholders will have an opportunity Jan. 10 to express their thoughts on the RFS proposal during a virtual public hearing hosted by the EPA. That hearing may spill over to Jan. 11, depending on how many people sign up to testify.
"We're eager to continue the dialogue on how biofuels can bolster US energy security, protect consumers from high fuel costs, strengthen the rural economy, and help reduce greenhouse gas emissions," EPA Administrator Michael Regan said in a Dec. 1 statement.
The RFS "set" rule refers to the need for the agency, in coordination with the departments of Energy and Agriculture, to determine RVOs for 2023 and beyond, years for which Congress no longer specifies RFS volume targets.
While there are no longer congressional targets to guide the EPA's rulemaking, the agency is statutorily required to consider certain environmental, economic and energy security factors. And by law, RVOs for 2023 and beyond must also maintain the volume of advanced renewable fuel at a level at or above, in percentage terms, the volume finalized for advanced biofuels in 2022.
"The agency is seeking comment on the proposed volumes and how to appropriately balance these factors so that the program works for renewable fuel growers and producers, refiners and the union workers who operate these facilities, and fuel consumers," the EPA said in a press release.
"Because this rule is an opportunity to take a fresh look at many aspects of the program, EPA is also seeking comment on how this rule can intersect with continued viability of domestic oil refining assets, including merchant refineries, how best to support novel fuels like sustainable aviation fuels and clean hydrogen, and how to account for the new and updated incentives in the Inflation Reduction Act," the agency said.
Under a consent agreement reached with ethanol group Growth Energy to settle litigation over delays in promulgating annual mandates for the RFS program, the EPA must sign a final rule on the new blending requirements by June 14, 2023.