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Fuel for Thought: Is it time to take politics out of the US EPA's Renewable Fuel Standard?

If there is a consensus among US producers of transportation fuels about the long-delayed Environmental Protection Agency's proposed Renewable Volume Obligation for 2020, 2021 and 2022 under the Renewable Fuel Standard it is that no one is completely satisfied.

Some political divisions remain the same. Oil refiners continue to vie with the corn and ethanol industry for the gasoline market share, but growing demand for renewable diesel and biodiesel have shifted dynamics to those fuels, giving that lobby, which includes several major oil refiners, a stronger presence.

"It's a mixed bag for us," said Derrick Morgan, senior vice president for federal and regulatory affairs for the trade group American Fuel and Petroleum Manufacturers which represents refiners.

The EPA's revised downward the 2020 total volume obligation to 17.13 billion gallons from 20.09 billion gallons to reflect actual pandemic demand. And the 2021 preliminary proposed RVO of 18.52 billion gallons will be finalized based on actual demand.

EPA raised the RVO to 20.77 billion gallons in 2022, including 15 billion gallons of ethanol, which some refiners feel will be difficult to meet by blending, given it will exceed the 10% blend wall for blending into gasoline to create E10, which is sold at most service stations across the country.

But the ethanol industry disagrees.

Ethanol, biofuel RVO% rise in 2022 on EPA mandate

EIA projects 2022 gasoline consumption at 138.1 billion gallons, so a 15-billion gallon RFS requirement "can be easily met with mostly E10, along with modest volumes of E85 and E15, modest volumes of non-ethanol conventional biofuels, and carry-in RIN [Renewable Identification Number] credits," said Geoff Cooper, head of the Renewable Fuel Association, the main industry group for ethanol producers.

Cooper said legislative history shows Congress intended for the RFS to push ethanol use well beyond the "so-called E10 blend wall," looking to appeal the recent district court reversal allowing year-round E15 sales.

Further reading: Commodities 2022: Logistical challenges to weigh on US ethanol

Biofuel producers like Renewable Energy Group also expressed disappointment on EPA's lower proposed volumes for 2020 and 2021, but felt the 2022 increase for advanced biofuels volumes was promising.

"Our main focus was on 2022, which was positive," said Neville Fernandes, vice president at REG in an interview, noting the proposed growth for the biomass-based diesel and advanced biofuel categories led in the right direction.

With this climate crisis we're in, we need to reduce the carbon intensity of diesel as much as possible, as quickly as possible, by replacing petroleum with biofuels including biodiesel, renewable diesel and blends of these two low-carbon, clean-burning renewable fuels
- Neville Fernandes, REG

Small refinery exemptions

The preliminary volume requirements proposed by the EPA for 2022 biomass-based diesel is 2.76 billion gallons, up from the 2.43 billion gallons in 2020 and 2021.

Advanced biofuel volumes for 2022 are 5.77 billion gallons, up from the 5.2 billion gallons and 4.63 billion gallons in 2021 and 2020, respectively.

"However, we think that the biomass-based diesel and the total advanced numbers could be higher, based on anticipated production of renewable diesel and biodiesel and demand in the United States," Fernandes said, noting there are several renewable diesel projects due to come online in 2022.

But the hot button item of the EPA's mandate was its proposal to do away with 60-plus pending small refinery exemptions. The SREs, built into the RFS, are a lifeline for refineries with less 75,000 b/d of capacity, granting an exemption if a disproportionate economic hardship exists for the facility.

This contentious issue was partly settled in April when the US Supreme Court on appeal reversed the decision of the 10th Circuit federal appeals court rejecting the requirement that the refineries have continuous exemptions from 2011. However, other aspects of the lower court's ruling were not reviewed by the Supreme Court.

The EPA claims those aspects have not been overturned. This includes recovery of RFS compliance costs. The EPA claimed in its Dec. 7 statement obligated parties recover compliance costs when they sell fuel products, thus no disproportionate economic hardship is created.

However, refiners feel that entire 10th Circuit appeals court was vacated, thus overturning alternate rulings. And they note the SRE was written into the RFS when the law was being formulated.

"That was the intent of Congress," said CVR's Lamp. "They put it in on purpose. EPA is just trying to ignore it like it isn't the law, but intent of the law they can't ignore."

But by exempting small refiners from complying with the RVOs, it decreases the size of the RINs market, which is a detriment for increasing the volume of renewable fuels, a factor particularly important in addressing greenhouse gas emissions, said REG's Fernandes.

"Exempting refiners from meeting their obligations under the RFS leads to a lower use of renewable fuels, which, of course, is counter to the RFS goal of reducing greenhouse gas emissions and fighting global warming," he said.

"And with this climate crisis we're in, we need to reduce the carbon intensity of diesel as much as possible, as quickly as possible, by replacing petroleum with biofuels including biodiesel, renewable diesel and blends of these two low-carbon, clean-burning renewable fuels," he said.

Fernandes noted the large number of exemptions given out by the Trump Administration, about 1.82 billion RINs in 2017 and 1.43 billion RINs in 2018, which were exempted by the 35 and 31 SREs granted, respectively, reduced the market for ethanol, biodiesel, and renewable diesel.

RINs, RVO costs

Political uncertainty

The uncertainty of how the EPA allocates volumes and SREs creates problems for both biofuel and hydrocarbon-based fuel producers, according to CVR's Lamp .

"It's impossible to predict what they will do from one administration to the next or from one year to another with an administration," he said. "And [with] their mismanagement of it we get these high RINs prices, which go right to the price of gasoline, which they claim they want to reduce."

Lamp said the law is "fundamentally flawed" because it is a volume mandate not a percentage mandate, which would adjust to demand changes.

"They had the opportunity to fix this and they just blew it," he said.

But REG's Fernandes thinks the program can be amended to make it more responsive to market conditions.

"I think it is a workable program and meets the requirement and has the potential to really support the production and consumption of low-carbon biofuels in the US in order to substantially reduce greenhouse gases," Fernandes said.

"It is up to the EPA to determine if they want to increase the mass of biomass-based diesel and advanced biofuels, and since there is much more biomass-based diesel scheduled to come online, per refiners' plans, that is what we are going to ask for in our testimony comment," he said, referring to the RVO comment period which is open through Feb. 4.

CVR Energy is one of the refiners with a renewable diesel project in the works, converting a hydrocracker at its Wynnewood, Oklahoma, refinery to make renewable diesel to cut its RFS exposure.

Lamp said CVR will "comply with the law" but will "litigate the small refinery waiver side of it 'til the cows come home."

Explore this topic: Commodities 2022