Biofuels industry focuses on SREs in 2020 RFS RVO comments

By Erin Voegele | September 03, 2019

The comment period of the U.S. EPA’s proposed rule to set 2020 renewable volume obligations (RVOs) under the Renewable Fuel Standard, along with the 2021 RVO for biomass-based diesel closed Aug. 30. More than 5,600 comments were filed on the rulemaking.

The rule proposes to require 20.04 billion gallons of renewable fuels to be blended with the U.S. fuel supply next year, up from 19.92 billion gallons in 2019. The proposed RVO includes 5.04 billion gallons of advanced biofuels, 2.43 billion gallons of biomass-based diesel, and 540 million gallons of cellulosic fuel. The 2020 RVO for biomass-based diesel was finalized in a separate rulemaking last year. The rulemaking also proposes to set the 2021 RVO for biomass-based diesel at 2.43 billion gallons, level with the 2020 RVO.

When compared to the 2019 RVOs, the proposal would increase the RVO for cellulosic biofuel by 120 million gallons. Due the nested nature of the RFS RVOs, the implied RVOs for advanced biofuel and renewable fuel would remain at the 2019 level.

On a percentage basis, the RVO would require biofuels to comprise 10.92 percent of U.S. transportation fuel, including 2.75 percent advanced biofuel, 1.99 percent biomass-based diesel, and 0.29 percent cellulosic biofuel.

Comments filed by representatives of the ethanol industry largely focused on the EPA’s need to reallocate volumes waived through SREs.

“There is every reason to expect that the continued abuse of the system for granting small refinery exemptions will render the 2020 volumes meaningless again, given that the agency just approved an additional 31 small refinery exemptions without a transparent demonstration of severe economic harm,” wrote Geoff Cooper, president and CEO of the Renewable Fuels Association. “Issuing small refinery exemptions after an RVO rule is finalized—as EPA has now done for the 2016, 2017 and 2018 compliance years—has the practical impact of reducing the effective RVOs to levels well below those specified in the rule.”

In its comments, RFA calls on the EPA to address this problem and ensure that the 2020 RVOs are administered in a manner consistent with the statute simply by accounting for small refinery exemptions when it calculates the percentage standards, as has been recommended during the interagency review process for two consecutive years.

In fact, Cooper noted, the formula used by EPA for calculating the annual percentage standards has always included a variable for “projected volume[s]” of gasoline and diesel for exempt small refineries, and EPA has in fact included non-zero values for these variables in past RVO rules. “Failing to include a non-zero projection of exempted gasoline and diesel from small refineries after the EPA has granted large-scale exemptions for three straight years defies reality and is a flagrant abuse of the Agency’s waiver authorities under the program,” he said.

The Coalition for Renewable Natural Gas and stakeholders in the RNG and waste industries filed comments Aug. 30 urging the EPA increase the cellulosic RVO in its final rule. The groups want the EPA to set the gaseous fuels portion of the cellulosic RVO at a minimum of 650 million gallons to incorporate all the RNG produced and available next year, including production from more than three dozen new facilities that are currently under construction.

“Close to 200 million gallons of new renewable natural gas fuel will be produced for the RFS in 2020 from 40 additional RNG production sites that companies are currently building up and down North America’s coasts and across its heartland,” said Johannes Escudero, CEO of the RNG Coalition. “Setting the RNG portion of the cellulosic biofuel requirement to at least 650 million gallons will continue to grow investment in this domestic renewable fuel as Congress intended, while providing a solution to organic waste disposal issues and increasing America’s fuel security.”

RNG available next year will also include growth in production from many of the 102 operational RNG sites in the U.S. and Canada, and millions of gallons stranded by small refinery exemptions (SREs) and excess rollover volumes, all while demand for RNG biofuel continues to grow. 

“Major, nationwide fleets continue to invest in and expand their use of RNG due to its many benefits and track record of reliability and quality,” the groups said in the comments. 

The RNG Coalition and NGVAmerica announced earlier this year that in 2018, RNG fulfilled about 32 percent of all the transportation fuel used in the United States’ natural gas vehicles. 

“While RNG may be newly popular, it is hardly new. Since 1982, RNG has flowed freely through our nation’s robust natural gas pipeline infrastructure reaching consumers in industrial, commercial and residential settings alike,” said RNG Coalition General Counsel David Cox. “By utilizing proven treatment technology to remove carbon dioxide, nitrogen, oxygen, siloxanes, sulphur, moisture and other trace components from raw biogas, RNG meets every standard of quality for productive and beneficial use.” 

The National Biodiesel Board urged the EPA to increase the advanced biofuel RVO for 2020 and the biomass-based diesel RVO for 2021 to accommodate domestic biodiesel and renewable diesel producers’ proven ability to increase output. The NBB also called on the agency to properly account for small refinery exemptions (SREs) and the 500 million gallons of biofuel unlawfully waived in 2016.

"The RFS is intended to increase production and use of advanced biofuels such as biodiesel and renewable diesel,” said Kurt Kovarik, vice president of federal affairs at the NBB. “EPA's proposal to flat-line both biomass-based diesel and advanced biofuels—combined with its small refinery exemption spree—will roll back growth of our industry.

"EPA's small refinery exemptions are turning the RFS upside down and blocking our industry's progress,” Kovarik continued. “By handing out waivers to everyone that asks, EPA is destroying demand for hundreds of millions of gallons of biodiesel and renewable diesel and forcing U.S. producers to close up shop and lay off workers. EPA cannot continue to pretend it isn't harming biodiesel producers."

EPA's recent grant of 31 small refinery exemptions for 2018 destroyed demand for as much as 250 million gallons of biodiesel and renewable diesel. Following the decision, one of the largest U.S. producers of biodiesel and renewable diesel closed three facilities, impacting more than 100 workers. NBB is asking EPA to restore the lost volumes in the 2020 rule and adjust its RVO formula to include a reasonable estimate of future small refinery exemptions.

Kovarik continued, "EPA must also restore 500 million gallons of biofuel demand that it unlawfully waived in 2016. The agency uses the same logic that the Court overturned in the 2016 case—demand-side constraints—to resist restoring the waived volumes. The agency must ensure the RFS volumes are made whole and that the renewable fuel industry can have confidence in the program's volumes."

 

Finally, Cooper wrote, EPA’s proposal “makes a mockery” of the 2017 federal court decision in Americans for Clean Energy v. EPA, by refusing to add back 500 million gallons of renewable fuel the court determined were inappropriately waived by EPA. “RFA strongly urges the EPA to include the 500 million gallons in the final 2020 RVO, as required by the court.”

The American Coalition for Ethanol commented on several facets of the proposed rule including: the difference between EPA’s proposed 2020 RVO and the real-world effect SREs have on RFS blending obligations; the need for EPA to reallocate the gallons waived through SREs, in addition to restoring the 500 million gallons in compliance with the Americans for Clean Energy et al v. EPA lawsuit; how EPA’s abuse of the SRE provision harms rural America and violates statutory authority; the need for EPA to adopt the latest GREET model with respect to the proposed rule to “reset” the 2021 and 2022 RFS volumes to ensure EPA makes determinations on scientifically defensible GHG assessments; and our concerns about the Agency’s regulatory approach to the retail sale of E15 through blender pumps.  

Several corn farmers and biofuel producers were cited in ACE’s comments, including ACE member plant Southwest Iowa Renewable Energy CEO Mike Jerke, who recently said EPA’s abuse of small refinery waivers “guts the RFS and breaks the president’s promise.” He goes on to explain that the Aug. 9 announcement of 31 SREs for the 2018 compliance year, the USDA’s August 12 crop report and the trade war with China have combined to potentially take $10.6 billion away from farmers and ethanol plants and transferred much of that to oil companies.

ACE’s comments highlight the radical changes made to EPA’s handling of SREs under the Trump administration. “During RFS compliance years 2016 through 2018, the average number of SRE applications skyrocketed to more than 30 per year and the average approval rate increased to 90 percent. What’s more, the Trump administration waited until after the compliance year had closed to approve “retroactive” refinery exemptions. By tilting the scale and the calendar in favor of refineries, the Trump administration has never reallocated the waived blending obligations as required by the statute. Not only has EPA allowed 85 SREs for the 2016 through 2018 RFS compliance years, it has not reallocated the 4.04 billion gallons of statutory volume exempted over that timeframe. If one were to assume, for example purposes, all this waived volume constitutes ethanol from corn, this is equivalent to losing a 1.4-billion-bushel crop, or the entire market for Minnesota corn farmers in 2018.”

“The best way to spur market-based demand for farmers and improve conditions in rural America is to increase the production and use of renewable fuels,” ACE said. “This is even more critical given the uncertainty created by trade wars and efforts to renegotiate existing trade pacts. EPA’s rule allowing U.S. retailers the ability to offer E15 to their customers all year opens the door for greater market access long-term, but the net effect of E15 year-round is still in the hole when it comes to ethanol demand through the RFS without restoring the waived gallons for small refineries.”

Growth Energy called on the EPA to restore biofuel demand lost to SREs. “The president made a ‘giant’ promise on ethanol, but rural communities cannot afford to wait any longer,” said Emily Skor, CEO of Growth Energy. “More biofuel plants are closing their doors with each passing week, and farm families have run out of options. The EPA must take immediate action to restore lost demand under the 2020 biofuel targets and repair the damage from abusive refinery exemptions granted to oil giants like Exxon and Chevron.”

In written comments to the EPA, Growth Energy noted that the EPA’s secretive exemption process violates the letter and spirit of the RFS, which Congress adopted to promote growth in U.S. biofuel production.

“EPA’s proposal actively encourages blending less, not more biofuel,” wrote Growth Energy. “By maintaining the status quo of an unaccounted number of exemptions, EPA would permit the oil industry to revert to its 2013 level of usage and still achieve compliance. This is entirely illogical and unlawful. At this point, it is fair to say that EPA is destroying the RFS program. The overwhelming problem is EPA’s misguided and unlawful handling of compliance exemptions for small refineries. After initially allowing, through 2015, the number of exemptions granted each year to naturally dwindle, as intended, EPA has completely reversed course and suddenly begun granting dozens of exemptions covering billions of RINs, while providing no acceptable explanation as to why…”

“EPA’s radical escalation of small refinery exemptions, coupled with its refusal to require that exempt volumes be made up, have thwarted Congress’s intent and effectively exempted the RFS program out of existence,” added Growth Energy.

Additional information is available at www.Regulations.gov under Docket ID No. EPA-HQ-OAR-2019-0136