RINs on renewable electricity - is now the time for EPA action?

Eversheds Sutherland (US) LLPFor more than a decade, the Federal Renewable Fuel Standard (RFS) has provided powerful incentives that have driven the introduction of new transportation fuels into the US marketplace due to valuable credits known as Renewable Identification Numbers (RINs) generated on these fuels under the RFS. Ethanol and biodiesel were the first main beneficiaries. In recent years more novel fuel types like renewable diesel, renewable natural gas and sustainable aviation fuel have begun to become more mainstream. The most talked-about new transportation fuel, renewable electricity, has been unable to generate RINs—not because doing so is prohibited by the RFS, but because EPA has simply failed to act on applications by renewable electricity providers to generate RINs. EPA has both the authority and information necessary to act on this issue, but a legal challenge against the Agency is ripe and may be necessary to prompt quicker action and ahead of the slew of other agency priorities. Success in such a lawsuit would yield valuable benefits to those in the renewable electricity value chain.

Renewable electricity’s qualification to generate RINs under the RFS

It has been seven years since EPA first approved a pathway and provided for detailed regulations on how parties can generate RINs on electricity used as a transportation fuel that is produced from the combustion of biogas sourced from landfills, anaerobic digesters and wastewater treatment facilities. Electricity produced from such sources is an established technology that has long helped states meet their renewable portfolio standards as well as increasingly meet state low carbon fuel standards that are comparable to the federal RFS. Despite qualifying under the RFS for RIN generation and a variety of states allowing renewable electricity from biogas to generate comparable credits to RINs, EPA has failed to approve any of the registrations that have been submitted by renewable electricity providers from biogas to generate RINs.

A similar but different dynamic exists for renewable electricity produced from combusting biomass other than biogas, such as woody biomass. While EPA has not yet approved a pathway to generate RINs on electricity produced from woody biomass, the RFS statute passed by Congress, as well as the regulations implemented by EPA, clearly allow for such a pathway. Under the RFS, renewable biomass converted to transportation fuel qualifies as renewable fuel and is eligible for RIN generation. Despite the express qualification for a pathway, EPA has failed to act on the various pathway applications that have been submitted by those seeking to combust woody biomass to produce electricity and use it as a transportation fuel.

EPA’s failure to act on applications to generate RINs on electricity

Apparently, EPA has failed to act on these electricity pathways due to an inability to decide who in the value chain should be entitled to generate the RIN—the electricity producer, the electricity marketer, the charging station provider or the vehicle manufacturer. However, such a decision is relatively straightforward with EPA regulations already providing that these parties negotiate amongst themselves via commercial contract regarding who should generate the RIN. Additionally, the California Air Resources Board long ago address how to deal with this situation under the California analog to the RFS—the California Low Carbon Fuel Standard.

Instead, EPA’s inability to act on this issue appears more based on a combination of federal bureaucracy and politics. When electricity pathways and registrations were first submitted to EPA under the Obama Administration, the Agency took a deliberate and measured approach to all issues under the RFS. Due to market conditions at the time, renewable electricity RIN generation simply does not appear to have been a priority for the Obama Administration. During the Trump Administration, EPA spent considerable time attempting to lower the burdens of the RFS and not necessarily create new avenues for RIN generation. While the Biden Administration should be poised to act given its climate-first energy policy, the current EPA could be falling victim to ongoing bureaucratic hand-wringing and extensive lobbying advocating that only one entity can be picked to be the RIN generator.

When the Consolidated Appropriations Act of 2021 (COVID Omnibus) was passed by Congress and signed by the President in December 2020, the accompanying explanatory statement allocated at least $500,000 to EPA to eliminate the backlog of applications related to generating RINs on electricity from biogas and biomass. The explanatory statement also provided that EPA should act on these registrations and pathways by March 27, 2021. EPA failed to meet this deadline and has yet to approve any electricity RIN generation registrations or pathways.

EPA’s continued failure to act suggests that it may only be prompted to act through the tried and true method of action under the RFS—litigation against the Agency.

Potential for success in legal challenge to EPA’s failure to act

Under the Clean Air Act, of which the RFS is a part, EPA is required to act on registration applications within a reasonable time. Courts have interpreted this to mean EPA must act within weeks and months, not years. Parties may sue EPA to act on such registrations for unreasonable delay, but a notice of intent to sue EPA may be required in advance of such a suit.

A number of electricity RIN generation registrations and pathways have been pending for years even though the RFS regulatory framework already permits the generation of RINs on electricity from biogas and biomass. This alone may be a successful argument in a suit to force EPA action, but when this years-long delay is coupled with the fact that EPA missed the March 2021 target to act as set forth by Congress, the delay is likely to become only more unreasonable in the eyes of a reviewing court. Litigation brought by a trade association is currently pending in the US Court of Appeals for the DC Circuit, but the litigation focuses more broadly on EPA not adopting 2019 RFS volume mandates that include RINs from electricity and is consolidated with a variety of challenges on other issues. Litigation that is focused on specific pending registrations or EPA’s missed deadline would serve to focus the Agency and complement the ongoing, but slow-moving, current action.

While it may seem counterintuitive to initiate a lawsuit against a federal agency that will ultimately oversee and regulate your generation of very valuable environmental credits, it is actually quite commonplace for regulated parties to pursue agencies for unreasonably delaying a registration application. The gears of the federal government move slowly, but providing a notice of intent to sue EPA can be an effective method of kick-starting an agency action.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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