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EPA Proposes Major Biofuels Regulation – Renewables

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On December 1, 2022, the Environmental Protection Agency
(“EPA”) proposed a sweeping new rule for the Renewable
Fuel Standards (“RFS”) Program, the federal
government’s flagship program for facilitating the production
of renewable transportation fuels to offset fossil fuels.
Administered correctly, the Program could be a critical tool to
combat climate change, including by incentivizing needed low-carbon
fuels for air travel and other difficult-to-electrify sectors.

The proposed rule is significant in many ways. It sets the
volume targets and percentage standards for renewable fuels for the
next three years (from 2023 to 2025). It establishes a new
regulatory program for “eRINs,” which are credits for
“renewable electricity” produced from biogas and used to
power electric vehicles. It also makes a host of other changes to
how the RFS program is administered.

We summarize several of the key provisions below. Comments to
the proposed rule are due to EPA by February 10,
2023
.

Renewable Fuels Volume Targets and Percentage Standards for
2023-2025

Every year EPA must set the total volume of renewable
transportation fuel required to be produced to offset fossil fuels.
“Obligated parties,” that is, gasoline/diesel refiners
and importers, must either blend renewable fuels with fossil fuels
or obtain credits, called RINs, that renewable fuel producers
generate for each gallon of renewable fuel they produce. These
volume requirements are converted to percentage standards.
Obligated parties must multiply the percentages by the total amount
of fossil fuel they produce to determine how many RINs they must
procure each year.

As of this year, EPA’s power to set volume targets and
percentage standards has been largely dictated by specific volume
requirements in the Clean Air Act. Beginning in 2023, however, the
Clean Air Act directs EPA to determine the volume targets and
percentage standards itself.

Accordingly, EPA has proposed volume and percentage standards
for 2023, 2024, and 2025:

1258020a.jpg

1258020b.jpg

Setting these requirements for multiple years potentially
provides certainty to industry. Yet the approach carries certain
risks. In the past, EPA has developed the percentage standards
using the Energy Information Administration’s (“EIA”)
forecasts projecting gasoline and diesel volumes for the coming
year in EIA’s Short Term Energy Outlook (“STEO”).
However, because the STEO’s are only published annually for the
coming year, EIA does not have STEO reports prepared for 2024 and
2025. EPA instead relied on EIA’s 2022 Annual Energy Outlook
(“AEO”) to calculate its percentage standards. Unlike the
STEO which focuses on providing forecasts for just the upcoming
year, the AEO provides projections through 2050, a timeframe that
is less predicable and more variable, which could prove to mean
EPA’s percentage standards are less precise and accurate than
in prior years using the STEO.

As part of its efforts to comply with the remand of EPA’s
2016 RFS rule by the D.C. Circuit Court of Appeals in Americans
for Clean Energy v. EPA
, 864 F.3d 691, in which the court
determined EPA improperly lowered the fuel requirement by 500
million gallons, EPA has also proposed a supplemental volume
requirement of 250 million gallons of renewable fuel for 2023. EPA
imposed the same supplemental requirement in 2022, for a total of
500 million gallons over two years to compensate for its improper
lowering of the requirement in the 2016 RFS rule. EPA indicated
that the supplemental volume requirement will be treated “like
all other 2023 standards in all respects. That is, producers and
importers of gasoline and diesel that are subject to the 2023
standards would also be subject to the supplemental
standard.”1

Introducing eRINs

The proposed rule also creates a new program for regulating the
generation of “eRINs” from renewable electricity. EPA
issued rules in 2010 and 2014 allowing a pathway to produce
renewable electricity using biogas to generate power for electric
vehicles. Yet, according to EPA, the existing regulations are
“not sufficient to enable electricity to fully participate in
the RFS program,” and no entity has been approved to generate
credits from renewable electricity.

The proposed rules would permit vehicle manufacturers to
generate eRINs based on the light-duty electric vehicles they sell
by entering into contracts with electricity generators that produce
electricity from biogas. EPA would allow only the manufacturer to
generate the eRIN, though it expects the eRIN’s value will be
distributed across all parties in the production chain.

Regulatory Changes for Biogas

EPA also proposes reforms to its approach to biogas as a
renewable fuel feedstock. Specifically, EPA proposes to regulate
biogas as a biointermediate—that is, a partly processed
feedstock that is sent to another location to be converted into
fuel. EPA approved a handful of biointermediates in a prior
rulemaking but left biogas off the list. EPA now proposes to add
biogas, with certain caveats. Importantly, EPA is not changing its
rules for existing pathways for using biogas to produce compressed
and liquefied renewable natural gas.

Other Key Points

The proposed rule refers to EPA’s ongoing work on a revised
approach to modeling greenhouse gas reductions for biofuels. EPA
plans to address greenhouse gas modeling in a future regulatory
action.

The proposed rule addresses other matters too numerous to
summarize here but no less important to how the RFS Program could
be administered going forward. These include RIN apportionment for
anaerobic digesters, requests for comments on hydrogen fuel
lifecycle analysis, proposed definitions for “ocean-going
vessels” and what types of fuels are “produced from
renewable biomass,” food waste recordkeeping requirements, and
bond requirements for foreign RIN-generating renewable fuel
producers.

Footnote

1. Proposed Rule at 127.

The proposed rule portends substantial changes to the RFS
program. Will those changes help or hurt the production of needed
low-carbon fuels? Parties wishing to comment on the proposed rule
must do so by February 10, 2023.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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