EPA Issues Proposed Revisions to Renewable Fuels Program

            On May 26, 2008, EPA published its revisions to the renewable fuels program RFS2.  The proposed rule established the renewable fuels mandate for 2010 and implements a number of provisions of the Energy Independence and Security Act of 2007 (“EISA”). 

            The proposed rule sets out the requirements for biofuels to qualify for the RFS program.  The proposed regulations state that renewable fuels must achieve a 20% reduction in greenhouse gas emission over fossil fuels.  This is calculated over the life cycle of the biofuel.  The proposed rule would exempt from this requirement biofuel production capacity that was in place or under construction when Congress passed EISA in 2007.  Apparently, the purpose is to ensure the viability of corn based biofuels until cellulosic alternatives are available. 

The proposed rule increases the renewable fuels obligations of refiners, importers and blenders by including generally all transportation fuels in the computation of an entity’s renewal fuels obligation, i.e., diesel, marine, etc.  The rule requires the use of fuels other than corn based ethanol as follows:  cellulosic biofuel beginning in 2010; biomass-based diesel beginning 2009; advanced biofuel beginning 2009. 

EPA has not proposed, but has sought comment on whether to exclude conventional blendstock (CBOB) (blended with ethanol to produce conventional gasoline) and reformulated blendstock (RBOB) (blended with ethanol to produce reformulated gasoline) from the calculation of the renewable fuels obligation of refiners, importers and blenders.  This alternative would shift the renewable fuels obligation down to the ethanol blenders.  The current and proposed regulations provide that a person who only blends ethanol to make finished fuel is not an obligated party with respect to the blendstock.  If EPA adopts this alternative, it may have a significant adverse impact on parties who have contracted based on the current regulatory scheme. 

As part of the rulemaking EPA provided two scenarios on how the 34 billion gallon renewable fuels mandate for 2022 might be met.  The first relies on two fuels E-10 (10% ethanol) and E-85 (85% ethanol).  In order to meet the 2022 goal with these fuels, there will have to be a large increase in the use of E-85.  According to EPA, this will require an increase in the production of flex fuel vehicles (FFV); an increase in the number of retail locations offering E-85; an increase in E-85 fueling frequency (currently estimated at 5%); and reduction in the price differential between E-10 and E-85.   

The second scenario relies on the assumption that E-15 or E-20 would be generally available by 2013.  Under this scenario, E-10 would be sold as premium gasoline and E-15 or 20 would be sold as regular.  Substantial use of E-85 would still be required to meet the 2022 mandate.  The second scenario assumes a resolution of issues concerning potential equipment damage from E-15 or 20, the availability of insurance for underground storage tank releases and the preservation of those warranties which are predicated on the use of no more than 10% ethanol. 

This article was authored by James R. Snyder, Jackson Kelly PLLC. For more information on the author see here.