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The cold shower: EPA finalizes US Renewable Fuel Standard volumes for 2023-25

[originally published in Biofuels Digest]

In Washington, the cause of rapid decarbonization received its annual cold shower from the Environmental Protection Agency. EPA announced a final rule to establish low-carbon renewable fuel volume requirements for 2023–2025, and received low marks from the associations representing heavy-duty fuels. Here’s the Tale of the Tape:

What the EPA said

This final rule includes steady growth of biofuels for use in the nation’s fuel supply for 2023, 2024, and 2025. The Energy Independence and Security Act (EISA) of 2007 does not specify statutory volumes after 2022, and EPA in this rule is establishing final biofuel volume targets for all categories under the “set” authority. When determining biofuel volumes for years after 2022, EPA must consider a variety of factors specified in the statute, including costs, air quality, climate change, implementation of the program to date, energy security, infrastructure issues, commodity prices, water quality, and supply.

Response from the Stakeholders

In Washington, Sen. Chuck Grassley (R-Iowa), one of the Senate’s only corn farmers, today condemned the EPA final rule for setting minimum biofuels blending levels for the next three years below current production capabilities, in what he termed a Biden Biofuels Bait-and-Switch”.

“For an administration obsessed with reducing carbon emissions, this rule makes absolutely no sense. The EPA’s proposed rule signaled an increase in biofuels products for the next three years, and the industry is more than capable of meeting those production levels. Today’s RFS rule waters down the earlier proposal. It’s an insulting bait-and-switch for the American biofuels industry, and totally inconsistent with this administration’s climate agenda.

“American biofuels producers are leading the way in cleaner, cheaper, homegrown fuel. Rather than partnering with the biofuels industry, the Biden administration is turning its back on an opportunity to reduce emissions, consumer costs and reliance on foreign oil,” Grassley said.

The Clean Fuels Alliance America expressed extreme disappointment with the rule. As CFAA noted, “EPA finalized moderate increases in the biomass-based diesel and non-cellulosic advanced volumes each year but did not increase the overall renewable fuel market. EPA failed to change biomass-based diesel volumes for 2023 despite the rapid increase in U.S. production of biodiesel, renewable diesel and sustainable aviation fuel during the first months of the year.”

“EPA is undercutting the certainty that our industry hoped for from a three-year RFS rule,” said Kurt Kovarik, Vice President of Federal Affairs with Clean Fuels. “U.S. clean fuel producers, oilseed processors, fuel distributors and marketers have all made significant investments to grow the industry rapidly over the next several years. The industry responded to signals from the Biden administration and Congress aiming to rapidly decarbonize U.S. fuel markets, particularly aviation, marine, and heavy-duty transport, and make clean fuels available to more consumers. The volumes EPA finalized today are not high enough to support those goals.”

“Clean Fuels appreciates the bipartisan support of Representatives, Senators and Governors who asked EPA to ensure that final volumes supported achievable, aggressive growth of advanced biofuel volumes,” Kovarik added. “It is a shame that EPA failed to fully consider the data provided by other federal agencies and industry experts demonstrating the upward trajectory of our industry.”

“Worst of all, EPA ignores the hundreds of millions of gallons of biodiesel, renewable diesel and sustainable aviation fuel generated in the first half of 2023,” Kovarik continued. “In past years when EPA set RFS volumes after the statutory deadline and after the compliance year is nearly half over, the agency properly accounted for available gallons and RINs.”

The Advanced Biofuels Association called some strikes as well as balls in evaluating the EPA final rule.

“EPA’s 2023, 2024, and 2025 RVOs are a missed opportunity to invest in and expand the adoption of low-carbon advanced biofuels,” said ABFA president Michael McAdams. The ruling disagrees with studies conducted by numerous organizations about America’s surging advanced biofuel production capacity, including the Energy Information Agency, and underestimates the existing and planned capacities of advanced biofuels by hundreds of millions of gallons per year. Advanced Biofuels are required to deliver greater than 50% reductions in GHG emissions and are therefore the most effective channel to effectively reduce carbon emissions within the RFS program.

“To arrest climate change, the Biden Administration should leverage the tools at its disposal that can be deployed economically using our existing national fuel infrastructure. By choosing not to reflect the available and growing supply of advanced biofuels in this three-year rule, the EPA is overlooking a chance to reduce 7 trillion pounds of CO2 from our atmosphere. This rule reneges on the Biden Administration’s proclaimed vision for carbon reduction.

“The Advanced Biofuels Association and our members believe in an all-of-the-above solution to our energy and climate challenges, inclusive of electrification and low-carbon advanced biofuels. However, the EPA’s latest ruling does not fully reflect the volumes of advanced, biomass-based diesel, and cellulosic fuels available and could discourage continued investment in sustainable fuels that deliver up to an 80% reduction in emissions versus traditional fossil fuels.

“Although our request for a 500-million-gallon yearly increase in the biomass-based diesel pool was not met, our industry is appreciative that the rule ramps up to 460-million-gallons in the D4 pool by 2025. This boost serves as a commendable acknowledgement of the progress made by those of us involved in the delivery of renewable diesel, biodiesel, and sustainable aviation fuel (SAF). The ABFA will continue to work with the EPA, Department of Energy (DOE), United States Department of Agriculture (USDA), and other key stakeholder groups to deliver the hundreds-of-millions of gallons of advanced biofuels that will not be mandatory under the RFS.”

The Renewable Fuels Asssociation saw positives, but criticized a lack of ambition.

“The RFS was intended to drive continual growth in all categories of renewable fuels well beyond 2022; instead, today’s final rule flatlines conventional renewable fuels at 15 billion gallons and misses a valuable opportunity to accelerate the energy sector’s transition to low- and zero-carbon fuels,” said RFA President and CEO Geoff Cooper. “By removing half a billion gallons of lower-carbon, lower-cost fuel, today’s rule needlessly forfeits an opportunity to further enhance U.S. energy security and provide more affordable options at the pump for American drivers.”

“Despite the rule’s failure to finalize the strong proposed conventional renewable fuel volumes, the action “includes solid volumes for other renewable fuel categories and brings some stability and predictability to the marketplace for the next two and a half years,” Cooper said. “Despite the disappointing reduction in conventional renewable fuel numbers, we appreciate the fact that President Biden and EPA Administrator Michael Regan have continued to prioritize renewable fuels in our nation’s energy and climate strategy.”

“EPA’s final rule includes a total volume obligation of 20.94 billion gallons for 2023, of which 15 billion gallons will come from conventional renewable fuels like corn ethanol. The rule also includes a supplemental volume requirement for 250 million gallons in 2023 to make up for illegally waived volumes in 2016. EPA finalized total volumes of 21.54 billion and 22.33 billion gallons in 2024 and 2025, respectively, with conventional renewable fuel requirements of 15 billion gallons for each of those two years.”

Yep, no RINs just yet for renewable electricity this time around

EPA revealed that it would not implement RINs for electricity (eRINs) as part of today’s final rule. As the organization noted in oral testimony and written comments to EPA, the agency’s initial proposal for incorporating eRINs into the RFS was overly complex and inconsistent with RIN generation provisions for all other renewable fuels.

Hey, what about all that extra production in 2023?

As CFAA noted, EPA’s Public Data for the Renewable Fuel Standard shows that qualifying biomass-based diesel production increased by more than 30% — or 400 million gallons – in the first five months of 2023, compared to the same period in 2022. The Energy Information Administration’s Short Term Energy Outlook for June 2023 projects increases in U.S. production of biodiesel and renewable diesel of more than 800 million gallons in 2023 and 900 million gallons in 2024. In the final rule released today, EPA increases RFS volumes for these fuels by only 590 million gallons over the three-year period: 60 million gallons in 2023, 220 million gallons in 2024, and 310 million gallons in 2025.

In a response to comments, EPA responded on this point.

“Since 2013, when EPA first set the required volume for BBD based on our analysis of the statutory factors in CAA section 211(o)(2)(B)(ii), we have always established the BBD volume at a level that was lower than the quantity of BBD we projected would be produced and used to meet the other renewable fuel standards. We have taken the same approach in this rulemaking. This approach has provided ongoing incentives for increased production of BBD, while also preserving market opportunity for other advanced biofuels within the RFS program. From 2013 to 2022 BBD use has increased from 1.65 billion gallons to 3.12 billion gallons, and the volume of BBD supplied exceeded the BBD volume requirement each year, with the exception of years where the BBD volume requirements were set retroactively. These data demonstrate that our approach to establishing the BBD volume requirements can and does provide significant incentives for the increased production and use of BBD. We project that the volumes we are finalizing in this rule will continue to incentivize growth in the production and use of BBD (see RIA Table 3.1-3).”

Hey, what about those huge projected renewable diesel volumes, why were there not allowances made for them?

As McAdams noted, “It is disappointing that the Biden Administration’s EPA chose not to recognize the projected growth of the biomass-based diesel pool in this rule, despite the groundbreaking carbon reductions being delivered by renewable diesel plants coming online today. More than 20 renewable diesel facilities have been proposed or are currently under construction. Moreover, the ABFA provided the agency with studies conducted by third-party analysts, which found that there are sufficient feedstocks available, accounting for food, to support a more significant increase in renewable volumes.

The EPA responded via comments on this point.

“EPA considered the projected production capacity of biodiesel and renewable diesel. As discussed in RTC Section 4 and RIA Chapter 6.2.2, actual production of biodiesel and renewable diesel has consistently fallen short of the available production capacity. We project that this observed trend is likely to continue in 2023–2025, and that biodiesel and renewable diesel production will be limited to a volume below the production capacity for these fuels by other factors, such as the availability of qualifying feedstock. In this final rule we have updated our assessment of available feedstocks for biodiesel and renewable diesel production. Our updated projections account for expected increases in soybean oil production in the U.S. and increased canola oil production in Canada due to recent investments in oilseed crushing capacity. See RTC Section 4 and RIA Chapter 6.2 for more information on our assessment of biodiesel and renewable diesel production and use in 2023– 2025.”

The Bottom Line

For ethanol, it was a benign RFS finalization. There are 15 billion RINs available for renewable fuel above and beyond those targeted for cellulosic and other advanced biofuels — those will likely be met via corn ethanol, and  ethanol advocates have been more focused on E15 approval to ensure there is a place to put those gallons, than the gallonage, of late.

For heavy-duty, a disappointing level of ramp up that will disincentivize capacity building. It creates a cycle of disappointment. Companies propose a surge in production capacity. EPA under-expands the mandate, citing that actual capacity generally lags planned capacity. So, absent an aggressive mandate, projects are cancelled or postponed, actual capacity lags planned capacity, and future regulators will point to this shortfall as a reason to go slow on advancing renewable fuels. Yet, what actually caused the shortfall in the first place?

Having noted all of that, we see 2023-2025 as the pre-season. The big capacity expansion is in the second half of the decade. Industry has two years to prove that all the factors are aligned for 2026-2030 and justify a massive expansion of mandates that will decisively shift the US towards net zero.

These are: Costs, air quality, climate change, implementation of the program to date, energy security, infrastructure issues, commodity prices, water quality, and supply. Let us point to three of these for which the case has yet to be perfectly expressed: Costs, infrastructure issues, commodity prices, and (feedstock) supply. There’s time to address all of these, and it’s time to address them, all of them. Pointing to planned capacity is not enough, as we have now seen. EPA may have delivered another cold shower on mid-summers day, but we may yet, if efforts are made, be washed clean.

The complete rule

Yep, it’s here.

The complete comments

Read ’em here. 

More stakeholder reaction

American Coalition for Ethanol
“If EPA’s goal with the Renewable Fuel Standard, said American Coalition for Ethanol CEO Brian Jennings, “is to maximize reductions in greenhouse gas (GHG) emissions from the transportation sector, today’s final rule falls short by arbitrarily limiting conventional biofuel use to 15 billion gallons in 2024 and 2025 compared to the Agency’s proposal of 15.25 billion gallons for each of those years. Higher blending targets would enable fuels such as E15 and E85 to quickly displace carbon pollution from gasoline, but EPA’s proposal will rein in those opportunities. We are supportive of finalizing the 250-million-gallon remedy as a supplemental requirement for 2023 and agree with removing the controversial eRIN proposal from the final rule.
ACE’s experience with EPA’s oversight of the RFS over time requires us to remain vigilant to ensure mismanagement or unwarranted waivers are not used to undermine the physical blending of ethanol that has required litigation to rectify in previous years. We will also continue to press the Agency to once and for all update its antiquated greenhouse gas (GHG) model assumptions about corn ethanol. We continue to urge EPA to follow the science and adopt the latest GREET model for its lifecycle modeling, consistent with what Congress required of Treasury in the Inflation Reduction Act 45Z clean fuel production tax credit.”

NATSO, representing America’s travel plazas and truck stops, and SIGMA: America’s Leading Fuel Marketers

“This rule takes seriously the old adage, ‘First, do no harm,” said David Fialkov, Executive Vice President of Government Affairs for NATSO and SIGMA. “Low-carbon fuel and biofuel investments that have already been made will likely continue to be at least modestly profitable. Lower-carbon gasoline and diesel products should continue to be available at a modest price discount compared with petroleum alternatives. These are good things. The agency raised advanced biofuel blending mandates and is reconsidering the eRIN program for EV charging in response to industry comments, including ours. For that we are grateful.At the same time, it’s hard not to be confused and disappointed with the amount of emission reductions that are being left on the table. Instead of pumping the gas pedal, the EPA is keeping the RFS in neutral.

“The final blending targets will result in fewer transportation energy emission reductions than the market is demonstrably capable of delivering. Petroleum refineries that had been considering converting to renewable fuel facilities will now be less likely to do so. Fuel retailers that are considering investing in low-carbon biofuel blending infrastructure may be rewarded—but they may not.

“It is particularly perplexing that EPA is not doing all it can to maximize investment in lower-carbon renewable diesel and biodiesel for heavy-duty trucks. These fuels are commercially available today, and every truck that runs on them emits at least 50 percent fewer greenhouse gas emissions than trucks running on diesel. The final rule is a missed opportunity to meaningfully increase commercial penetration of these lower-carbon diesel alternatives.

“Viewed in conjunction with the Agency’s recent proposed tailpipe emission standards, it is now clear that the Biden Administration is dangerously overestimating the speed at which the country will be able to transition to zero emission vehicles, and at the same time underestimating the country’s desire toconsume lower-carbon liquid fuels in the meantime. Anyone serious about reducing transportation emissions should find this disconnect extremely troubling.

“It’s long past time for the Biden Administration to start viewing the RFS as a tool in its broader climate tool chest, rather than a political nuisance.”

American Fuel & Petrochemical Manufacturers CEO Chet Thompson

“Refiners are pleased to see that EPA has chosen to abandon its unlawful attempt to turn the RFS—a liquid fuel program designed to promote U.S. energy independence—into yet another nine-figure government subsidy program for electric vehicles. eRINs do not belong in the RFS and shouldn’t be resurrected.

“Congress provided EPA flexibility in the years after 2022 to modernize RFS volumes to derive better carbon benefits from the program and help the program work better for all stakeholders. Setting unachievable conventional biofuel targets is a missed opportunity.”

AFPM added: In its December 2022 Set Rule proposal, EPA sought to create a new “eRIN” obligation which would have compelled refineries to directly subsidize electric automakers for producing vehicles capable of charging with electricity from biogas. eRINs, which were reflected in EPA’s cellulosic biofuel proposals for 2024 and 2025, have been removed from the final rule and legislation has since been introduced to make explicitly clear that Congress never intended for electric vehicles to siphon market share away from liquid transportation biofuels as part of the RFS.

Tom Haag, President of the National Corn Growers Association (NCGA)

“Today’s final RFS volumes came in below levels EPA proposed for conventional biofuels for 2024 and 2025, holding ethanol volumes steady at 15 billion gallons. A multi-year RFS volume rule offers stability and certainty for renewable fuels. However, when it comes to addressing pressing energy, environmental and economic challenges, EPA’s final rule falls short of the emission reductions and cost-saving benefits the higher proposed ethanol volumes would have provided.”

Emily Skor, CEO of Growth Energy:

“The RFS remains one of America’s most successful clean energy policies, but, yet again, its full potential as a climate solution remains untapped. EPA’s decision to lower its ambitions for conventional biofuels runs counter to the direction set by Congress and will needlessly slow progress toward this administration’s climate goals. We should be expanding market opportunities for higher blends like E15, not leaving carbon reductions on the table. While the final rule offers a modest improvement in advanced volumes, EPA inexplicably failed to extend that recognition to conventional biofuels. The bioethanol industry has more than adequate supply to meet the higher volumes that were originally proposed in December 2022. Choosing not to put that supply to good use in decarbonizing the transportation sector runs counter to this administration’s previously-stated commitments and undermines the goal of reaching net-zero by 2050.”

Brooke Coleman, Executive Director of the Advanced Biofuels Business Council (ABBC):

“It’s a step back from the proposal and too many advanced biofuel gallons were left on the table, but we’re seeing some progress on cellulosic biofuels. It also takes long-overdue steps toward putting an end to small refinery exemptions. There is no path to a decarbonized economy without taking advantage of America’s world-class biomanufacturing sector. Ultimately, however, achieving real-world growth under this rule will depend heavily on the administration making the right decisions on a range of issues, from Inflation Reduction Act (IRA) tax credit eligibility to market access for higher biofuel blends.”