The EPA issued a final Renewable Fuel Standard (RFS) rule that announces the biofuel volume targets for 2023 – 2025 and provides a first look into the EPA’s plans for implementing the program moving forward.

• The RFS statute provided volumes through 2022 and then opened the door for the EPA to set the volumes in the following years, so this highly anticipated rule is the start of a new phase of the RFS.
• The 2023 volume requirements include a supplemental requirement of 250 million gallons to account for a 2017 court ruling.
• The EPA’s proposed rule included provisions that offered credits from biomass-generated electricity used for transportation, but this controversial proposal was removed from the final rule.

On July 12, 2023, the U.S. Environmental Protection Agency (EPA) published the final rule, Renewable Fuel Standard (RFS) Program: Standards for 2023-2025 and Other Changes, which sets the final volume requirements and percentage standards for the use of cellulosic biofuel, biomass-based diesel, advanced biofuel and total renewable fuel used as transportation fuel, heating oil and jet fuel. In addition, the rule finalizes a supplemental standard to compensate for 500 million gallons of renewable fuel that the EPA wrongfully waived from the 2016 volume requirement. The volume requirements also reflect the EPA’s position that it will not be granting small refinery exemptions in the foreseeable future because empirical data has consistently shown that all refineries pass through their Renewable Fuel Standard (RFS) compliance costs to customers by increasing prices for gasoline and diesel fuel. Lastly, although the proposed rule included a mechanism for the creation of credits from qualifying renewable electricity, this credit scheme was not finalized.

Statutory Overview

The RFS program was established by the Energy Policy Act of 2005, and later amended by the Energy Independence and Security Act of 2007. The latter statute set annual volume targets for the use of four categories of renewable fuel in each year through 2022: cellulosic biofuel, biomass-based diesel, advanced biofuel and total renewable fuel. These volume targets represent the amount of renewable fuel required to be used as transportation fuel, heating oil and jet fuel each year. To meet these targets, the EPA establishes “renewable volume obligations” or “RVOs,” which are percentages of renewable fuel that gasoline refiners and importers must blend into their products. Producers of renewable fuel generate credits, known as Renewable Identification Numbers (RINs), for each gallon of renewable fuel produced, so refiners and importers can purchase these credits to comply with their RVOs in lieu of blending renewable fuel themselves.

For 2023 and after, the statute directs the EPA to determine the applicable volume targets in coordination with the Department of Energy (DOE) and the Department of Agriculture (USDA). The EPA sets the targets based on a review of the program’s implementation for prior years and an analysis of factors including:

• The impact of the production and use of renewable fuels on the environment, including on air quality, climate change, conversion of wetlands, ecosystems, wildlife habitat, water quality and water supply;
• The impact of renewable fuels on the energy security of the United States;
• The expected annual rate of future commercial production of renewable fuels, advanced biofuels in each category (cellulosic biofuel and biomass-based diesel);
• The impact of renewable fuels on the infrastructure of the United States, including deliverability of materials, goods and products other than renewable fuel, and the sufficiency of infrastructure to deliver and use renewable fuel;
• The impact of the use of renewable fuels on the cost to consumers of transportation fuel and on the cost to transport goods; and
• The impact of the use of renewable fuels on other factors, including job creation, the price and supply of agricultural commodities, rural economic development and food prices.

Final RFS Volumes and Percentages

In the final rule, the EPA set the volume targets for 2023, 2024 and 2025 based on its analysis of the six statutory factors, in coordination with the DOE and the USDA. The final volumes are reflected in the tables below. As shown, the EPA’s volume targets for cellulosic biofuel, advanced biofuel and renewable fuel are measured in billon RINs, while biomass-based diesel targets are measured in physical gallons (rather than RINs). And as explained above, the EPA determined the RVO percentage standards for 2023, 2024 and 2025 that obligated parties apply against their individual gasoline and diesel production to calculate the exact number of RINs that they must purchase for compliance.

Notably, the EPA also finalized a supplemental volume requirement of 250 million gallons of renewable fuel for 2023 to account for its unlawful waiver of 500 million gallons in 2016. The EPA’s waiver of the 2016 volumes was rejected by the U.S. Court of Appeals for the DC Circuit, and after years of delaying its response, the EPA agreed to add supplemental 250-million-gallon requirements for 2022 and 2023.

Takeaways from Changes to the Proposed Rule

The final RVOs differ from the proposed rule, and in some cases, rather substantially. The EPA provided both technical and policy explanations for these changes:

• eRIN Volumes: The EPA’s proposed rule included provisions to allow RINs from renewable biomass electricity (eRINs) to be generated for the first time. The EPA had correspondingly forecasted that large volumes of eRINs would be generated in 2024 (600 million cellulosic RINs) and 2025 (1.2 billion cellulosic RINs). Due to political pressure from both refining and environmental groups, the EPA dropped the eRIN amendments and volumes from the final rule, resulting in significant decreases in the cellulosic RVO volume and percentage standards.
• Increase in Non-eRIN Cellulosic RVOs: In the final rule, the EPA significantly increases the RVOs for the amount of RINs that will be generated on renewable natural gas (RNG). The EPA uses an industry average rate of growth that it applies to forecast the number of RNG RINs that will be generated in the following year. Previously, the EPA had looked at the rate of growth in RNG RIN generation over the immediately preceding 24-month timeframe. In the final rule, the EPA looks at the rate of growth in RNG RIN generation over the timeframe of 2015 – 2022. This results in a significantly higher rate of growth in the final rule (25.0%) relative to the proposed rule (13.1%), and higher projected volumes of RNG used as compressed natural gas (CNG)/liquified natural gas (LNG) for each year from 2023 – 2025. This is a technical adjustment rather than a policy-driven decision.
• Significantly Lower RVO Percentages: The final standards have lower RVO percentages from what had been forecasted by industry observers. This is due to the EPA making significant adjustments to the way it forecasts gasoline and diesel consumption in the United States. For the first time, the EPA no longer factors in gasoline and diesel that is exported by non-refiners when calculating final percentage standards. Now, the EPA applies an upward adjustment factor of 3.5% to the Energy Information Administration (EIA) gasoline and diesel consumption figures when calculating the RVO percentages. This reduces the RVO percentages significantly and unexpectedly.
• Lowering of Conventional Volumes: In the proposal for the 2024 and 2025 standards, the EPA attempts to require an implied ethanol mandate of 15.25 billion gallons—substantially above the amount of ethanol that is consumed as transportation fuel in the United States. Further, in bowing to pressure from certain groups, the EPA reduced the implied ethanol volume by 250 million gallons to 15 billion gallons for those years.

Conclusion

The EPA’s final rule has set the stage for the next phase of the RFS. Further, related actions are expected in the near-term, including a rulemaking to again attempt to allow the production of renewable biomass electricity to generate eRINs. In addition, legal challenges to the rule are expected. The deadline for filing petitions for review challenging this rule in the U.S. Court of Appeals for the DC Circuit is September 10, 2023.

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