EPA proposes RFS implementation plan

By | October 26, 2006
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The renewable fuels industry has been preparing comments for the U.S. EPA since the agency proposed a renewable fuels standard (RFS) implementation plan Sept. 7. Established by the Energy Policy Act of 2005, the RFS creates a floor of 7.5 billion gallons of renewable fuel use in the United States by 2012.

To meet that objective, the EPA will require that any party producing gasoline for U.S. consumption be subject to a renewable volume obligation. Obligated partiesincluding refiners, importers and blendersmust comply with a blending standard by percentage every year. Until the implementation plan was released, fuels were required to be blended at the default standard of 2.78 percent, which would amount to about 4 billion gallons in 2006. The new regulation proposes that the blending standard for 2007 be at 3.71 percent.

"The EPA has worked diligently with all stakeholders, including the [Renewable Fuels Association (RFA)], to create a credit trading mechanism that provides oil refiners the flexibility they need while honoring congressional intent to expand the use of renewable fuels," said Bob Dinneen, president of the RFA.

Because all parties are not yet equal in their ability to blend, store and distribute ethanol, the EPA developed a credit trading program to enable universal compliance, explained Brian Jennings, executive vice president of the American Coalition for Ethanol (ACE).
"The system allows renewable fuels to be used where they are most economical, while providing a flexible means for industry to comply with the standard," the EPA stated. The credit trading system would require that a renewable identification number (RIN) be issued with each shipment of biofuel. Blenders can use the RIN for their own compliance, as well as trade or sell excess RINs to others.

In general, a RIN is a gallon of corn-based ethanol. Under the proposal, renewable fuels blended into conventional gasoline or dieseland those used in their unblended form as motor vehicle fuelwould qualify. To determine RINs, the EPA determined "equivalence values" based on the fuels' energy content in comparison to the energy content of ethanol, and adjusted as necessary for their renewable content. "The result is an equivalence value for corn ethanol of 1.0 and for cellulosic ethanol of 2.5," according to the EPA's 239-page ruling. "The proposed methodology can be used to determine the appropriate equivalence value for any other potential renewable fuel, as well."

Jennings said the structure of the credit trading program will "make or break" the RFS. "An issue of key importance to ACE members is whether the proposed rule is consistent with the letter and spirit of the law with respect to credit trading," he said. "If not designed correctly, the RFS credit trading mechanism may permit an excessive number of credits or gallons to roll over from one year to another, thereby reducing biofuels demand and undermining the effectiveness and intent of the RFS program."

The cap of maximum RINs that could be rolled over from year to year is proposed at 20 percent, a number the American Petroleum Institute would like to see increased. Fuel Issues Manager Al Mannato said his organization is generally supportive of the approach that the EPA is taking and plans to submit additional comments to the EPA.

A public hearing was held Oct. 13 in Chicago. Written comments can still be submitted to the EPA by Nov. 12. Jennings said ACE has encouraged its members to contact the organization with comments on the proposal. The RFA will make similar comments. "We look forward to reviewing this rule in detail and offering comments in the coming weeks," Dinneen said.

The 2006 standard will remain applicable until the effective date, which will be sometime in 2007, according to Mannato. He said the effective date will be approximately 60 days from the time the administrator signs the final rule, and about 30 days after it is published in the Federal Register. "The current schedule is to publish the final rule sometime in the first quarter of 2007," Mannato said.