EPA finalizes 2020 RVOs, SRE rule; disappoints biofuels industry

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A final rule released by the U.S. EPA on Dec. 19 includes a slight boost in the 2020 Renewable Fuel Standard cellulosic biofuel and advanced biofuel targets, but no other changes to proposed renewable volume obligations (RVOs). The rule also maintains EPA’s much criticized proposed plan to account for future small refinery exemptions (SREs)—a move slammed by members of the biofuels industry.

The rulemaking sets the 2020 RVO at 20.09 billion gallons, up from 19.92 billion gallons in 2019. This includes 590 million gallons of cellulosic biofuel, up from a proposed 540 million gallons; 2.43 billion gallons of biomass-based diesel, which was finalized in a 2019 RFS rulemaking; and 5.09 billion gallons of advanced biofuel, up from a proposed 5.04 billion gallons. The implied 2020 RVO for conventional biofuel, which is primarily met with corn ethanol, is 15 billion gallons.

The rulemaking also maintains the proposed 2021 RVO for biomass-based diesel at 2.43 billion gallons, flat with the 2021 RVO.

On percentage basis, the rule calls for renewable fuel to comprise 11.56 percent of U.S. transportation fuel in 2020, up from a proposed 10.92 percent. The final standards include 0.34 percent for cellulosic biofuel, 2.1 percent for biomass-based diesel, and 2.93 percent for advanced biofuel.

The final rule also finalizes the EPA’s proposed plan to reallocate volumes lost to SREs. Despite heavy criticism by the biofuel industry and Midwestern lawmakers, the agency finalized its plan to account for SREs using a three-year rolling average of U.S. Department of Energy recommendations, rather than actual SREs as initially promised by President Trump. The EPA has largely disregarded DOE’s SRE recommendations in recent years. In addition, DOE recommendations have not historically been made publically available. The EPA, however, does publish approved SRE volumes in an online dashboard.  

Within the supplemental notice of proposed rulemaking released on Oct. 15 the EPA did provide data on past DOE recommendations. For compliance year 2016, the EPA said the DOE recommended SREs equating to 440 million RINs. The EPA, however, actually approved SREs accounting for approximately 790 million RINs. Similarly, the DOE’s compliance year 2017 recommendation reached 1.02 billion RINs, far lower than the estimated 1.82 billion RINs finalized by the EPA. For compliance year 2018, the DOE recommended the EPA approve SREs accounting for 840 RIN million RINs, far lower than the 1.43 billion RINs worth of SREs approved by the agency.

In the final rule, the EPA announced its new general policy approach to SREs going forward, including for now-pending 2019 petitions as well as future 2019 and 2020 petitions. “Although final decisions on any exemption petition must await EPA’s receipt and adjudication of those petitions, EPA intends to grant relief consistent with DOE’s recommendations where appropriate,” the agency said in the final rule. “This policy extends to DOE’s recommendations of partial (50 percent) relief: where appropriate we intend to grant 50 percent relief where DOE recommends 50 percent relief.”

In a statement released announcing the final rule, EPA said it plans to closely examine labeling requirements for E15 and move forward with clarifying regulations as needed. In addition the agency said it “will continue to actively engage with stakeholders to expand the number of approved fuel pathways and add diversity to the biofuel mix in the United States.” According to the EPA, it has approved 25 petitions for new fuel pathways since January 2017. The agency said it “will continue to further explore opportunities to remove regulatory burdens that prevent marketplace entrance and growth to natural gas, flexible fuel vehicles, and E85 fuels.”

The final rule does not take action on the U.S. Court of Appeals for the D.C. Circuit’s remand of its 2016 RFS rule. The court vacated EPA’s use of the general waiver authority under a finding of inadequate domestic supply. The court found that such use exceeded EPA’s authority under the Clean Air Act because the agency had impermissibly considered demand-side factors in its assessment rather than limiting its assessment to supply-side factors. The court remanded the rule back to EPA for further consideration. In its proposed rule to set 2020 RVOs, the EPA proposed that the applicable RVO for total renewable fuel and the associated percentage standard should not be changed. “In light of the many comments received, we are still actively considering this issue,” the agency said in the final rule. “We are therefore not taking final agency action on this issue in today’s final rule. We are instead deferring action on this issue to a separate action, which we anticipate in early 2020.”

The EPA also said that USDA, through a future action, will pursue opportunities through the budget process to consider infrastructure projects that would accommodate higher biofuel blends.

The biofuel industry has largely responded to the final rule with criticism, slamming the agency for its bait-and-switch on SRE policy.

The Renewable Fuels Association expressed disappointment, arguing that the rule opens the door for SREs to continue to erode RFS volumes and destroy demand for America’s biofuel producers and farmers.

“After EPA’s overwrought abuse of the SRE program in recent years, agency officials had a chance to finally make things right with this final rule—but they blew it,” Geoff Cooper, president and CEO of the RFA. “EPA’s rule fails to deliver on President Trump’s commitment to restore integrity to the RFS, and it fails to provide the market certainty desperately needed by ethanol producers, farmers, and consumers looking for lower-cost, cleaner fuel options. While the final rule is an improvement over the original proposal, it still does not guarantee that the law’s 15-billion-gallon conventional biofuel blending requirement will be fully enforced by EPA in 2020.”

“After doing the exact opposite in recent years, EPA is now suggesting it will follow DOE’s recommendations on 2020 SRE petitions,” Cooper continued. “So, now the waiting game begins. We’ll have to wait with bated breath until at least the spring of 2021 to see whether EPA truly makes good on its promise to follow DOE recommendations on 2020 SREs.”

“With historically low RIN credit prices, record high RIN stocks, and ample supplies of low-cost ethanol available, it will be difficult—if not impossible—for refiners to claim they need a ‘hardship’ exemption for 2019,” Cooper said. “Still, EPA’s approach to the 2019 SRE petitions will probably be a pretty good indicator of whether the agency is truly interested in following DOE recommendations and exercising more restraint and judiciousness moving forward.”

RFA also urged the administration to expeditiously move ahead on the other elements of the biofuels package announced by EPA on October 4, including streamlining E15 labeling requirements, removing other barriers to the sale of E15, addressing ethanol trade barriers, and launching a program to expand infrastructure for higher ethanol blends.

“Offsetting the RFS volumes lost to SREs was only one piece of the plan promised by the President and rolled out by EPA in October,” Cooper said. “And while the plan released by EPA today for addressing SREs doesn’t go nearly far enough, the ethanol industry is eager to work with EPA and USDA to quickly implement the other relief measures included in the package.”

The American Coalition for Ethanol said the final rule fails to uphold President Trump’s biofuel deal. “Over the course of the past few months, we’ve gone from promises of a ‘giant package’ to the reality of a lump of coal,” said Brian Jennings, CEO of ACE. “To say we are disappointed is an understatement. While it was well understood this rulemaking would not make farmers and the ethanol industry ‘whole’ for the damage EPA has done by abusing the small refinery exemption provision of the RFS, we were led to believe the rule would represent a step in the right direction, an opportunity to account in a meaningful way for refinery waivers.

“We are forced yet again to continue defending the RFS and fighting EPA’s mismanagement of the program in the third branch of government, but this is another painful reminder our industry needs to go on offense with a new plan to increase demand on ethanol’s low carbon and high octane advantages,” Jennings continued.

Growth Energy said more action is needed by EPA to restore biofuel growth. “President Trump pledged to deliver certainty and stability for America’s farmers and biofuel producers by restoring integrity to the RFS,” said Emily Skor, CEO of Growth Energy. “While we’re encouraged that EPA is finally taking steps to follow the law and account for biofuel demand lost to secretive oil refinery exemptions, this rule leaves important work unfinished.

“Integrity is restored to the RFS only if the agency accurately accounts for exemptions it will grant,” Skor continued. “The rule uses an accounting formula based on Department of Energy recommendations, which EPA has a poor track record of following. All eyes will now be on EPA’s next round of refinery exemptions and future targets, which will signal whether Administrator Wheeler is truly committed to ending demand destruction.

“Additionally, Administrator Wheeler must act swiftly to break down remaining market barriers to E15 as promised in the October 4 EPA announcement,” she said. “When the RFS is working as intended and government has eliminated market access barriers, drivers across the nation will able to take full advantage of the administration’s move to unleash sales of E15 year-round.”

“We are grateful to all our champions who have worked tirelessly to restore growth under the RFS, and we look forward to working with them in the year ahead to restore the biofuels market for America’s struggling farmers and biofuel producers,” Skor added.

The Coalition for Renewable Natural Gas did not address the EPAs SRE actions in a statement it released, but did welcome news that the agency boosted the 2020 cellulosic RVO in the final rule. “The RFS has helped spur the remarkable growth of America’s RNG industry.  We welcome today’s final rule providing for a 41 percent increase in the program’s cellulosic biofuel target, and we appreciate the Administration’s willingness to promote the expanded production and use of cellulosic biofuels,” said Johannes Escudero, CEO and executive director of the RNG Coalition. 

“From here, we look forward to working constructively with EPA and the administration to make further improvements to the RFS that promote market stability and account for the impact of carryforward RINs in future rulemakings,” Escudero continued. “The RNG industry stands ready to provide increasing volumes of high-quality cellulosic biofuel to consumers in the years to come.”

The National Biodiesel Board expressed disappointment with the lack of growth in the 2020 RVOs and the EPA’s methodology for accounting for SREs. “EPA’s final rule for the 2020 RFS volumes is simply out of step with Congressional intent and President Trump’s promises,” said Kurt Kovarik, vice president of federal affairs at the NBB. “This week, Congress and the president are extending the biodiesel tax incentive through 2022 and sending an unmistakable signal that they support continued growth of biodiesel and renewable diesel. At the same time, EPA Administrator Wheeler is doing everything he can to block that growth.”

“Despite his statement to the press, Administrator Wheeler’s method for estimating future small refinery exemptions does not provide assurance to the biodiesel and renewable diesel market,” Kovarik continued. “The best estimate of future exemptions is an average of the 38 billion gallons exempted over the past three years. Even if EPA had included that estimate, though, there is nothing in today’s rule to ensure that the agency will get these exemptions under control.”

The Biotechnology Innovation Organization said EPA’s final rule adds more uncertainty in U.S. renewable fuel policy. “Unfortunately, this final rule from EPA does not alleviate concerns we had when the draft rule was published earlier this year,” said Stephanie Batchelor, vice president of BIO’s Industrial and Environmental Section. “The lack of growth for advanced and cellulosic biofuels, and the failure to fully reallocate the gallons lost from the drastic expansion of small refinery exemptions, will continue to stifle investment in green energy breakthroughs. This final rule will have a long-lasting negative impact on the country’s renewable fuels industry as we’ve already seen plants close because of the agency’s manipulation of the policy to date.”

“While BIO appreciates the tireless work of biofuel champions on Capitol Hill in pressing the administration to bring certainty to renewable fuel policy—in particular, Senators Chuck Grassley and Joni Ernst, and Representatives Cindy Axne, Rodney Davis and Abby Finkenauer—we are greatly concerned that the administration continues to undermine the RFS and fails to understand that the intent of the program is to grow the market for clean, innovative fuels,” Batchelor continued.

A full copy of the final rule can be downloaded from the EPA’s website.