EPA Issues New RFS Rule; Expands Advanced Biofuel Pathways

by BakerHostetler

On July 2, EPA published a final rule that amends three separate sets of regulations relating to fuels. These regulations clarify the number of cellulosic biofuel renewable identification numbers (RINs) that may be generated for fuel made with a range of cellulosic feedstocks, establish new and amended pathways for the production of renewable fuels made from biogas, and clarify or amend a number of Renewable Fuel Standard (RFS) program regulations that define terms or address registration, recordkeeping, and reporting requirements. The rule did not finalize provisions regarding the proposed advanced butanol pathway or proposed pathway for the production of renewable diesel, naphtha and renewable gasoline from biogas, or the proposed additional compliance requirements for non-RIN-generating foreign renewable fuel producers. It also did not finalize provisions related to the definition of “producer” for renewable natural gas and electricity from biogas sources, the definition of responsible corporate officer, or the proposed amendments to compliance related provisions for the alternative reporting method.

The amendments to the pathways regulations are noteworthy because they expand the number of renewable fuels that qualify as cellulosic or advanced fuels under the RFS program. According to the rule, three new “fuels” will qualify as cellulosic and advanced fuel: (1) compressed natural gas, (2) liquefied natural gas, and (3) electricity so long as each is produced from biogas from landfills, municipal wastewater (MSW) treatment facility digesters, agricultural digesters, and separated MSW digesters. The production of these fuels will qualify for cellulosic RINs that can be sold to convention fuel producers and blenders to meet the RFS volume requirements.

Though the rule expands the number of fuels that may qualify as advanced biofuels, it appears to raise two significant questions related to the RFS program. First, the new pathways rule does not avert the lack of production of advanced biofuel in the domestic market. In the rule, the EPA claims that it will assist regulated parties in complying with RFS volume requirements. One of these requirements involves satisfying the proposed cellulosic target of 17 million gallons in the draft 2014 RFS, which is considerably greater than the 810,000 gallon requirement in the 2013 RFS. However, the rule fails to state the volume of cellulosic fuel anticipated to be available on account of the new pathways, and thus leaves the proposed volume requirements in the draft 2014 RFS for cellulosic biofuel as purely speculative.

Second, EPA’s rule most likely contravenes the Clean Air Act’s statutory definition of “cellulosic biofuel” by establishing a pathway for fuel to qualify as cellulosic biofuel despite being produced partially from non-cellulosic sources. However, the Clean Air Act defines cellulosic biofuel as “renewable fuel derived from any cellulose, hemicellulose, or lignin that is derived from renewable biomass and that has lifecycle greenhouse gas emissions, as determined by the Administrator, that are at least 60 percent less than the baseline lifecycle greenhouse gas emissions.” 42 U.S.C. § 7545(o)(1)(E). Arguably, the statutory definition appears to require that “cellulosic biofuel” be derived from only the listed sources. EPA reinterpreted the statute by calling the definition “ambiguous” and issued an interpretive rule stating that “fuels made from feedstocks that are ‘predominantly’ cellulosic should be considered cellulosic biofuel and that all of the volume of fuels from such feedstocks could generate cellulosic biofuel RINs.” EPA defines “predominantly” to be 75% or greater. Thus, EPA finds that a fuel made from 75% cellulosic feedstock would be considered 100% cellulosic biofuel. This produces in a situation where fuel derived from 75% cellulosic content will receive 100% of a RIN, while fuel derived from 74% cellulosic content will receive only 74% of a RIN.

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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