Fuel for Thought: Is It Time to Remove Politics from the US EPA’s Renewable Fuels Standard?

If there is consensus among U.S. transportation fuels producers on the Environmental Protection Agency’s proposed renewable energy volume requirement for 2020, 2021, and 2022 under the Renewable Fuels Standard, it is that no one is completely satisfied.

Some political divisions remain the same. Petroleum refiners continue to compete with the corn and ethanol industry for gasoline market share, but the growing demand for renewable diesel and biodiesel has shifted the momentum towards these fuels, giving this lobby , which includes several large oil refiners, a stronger presence.

“It’s a mixed bag for us,” said Derrick Morgan, senior vice president of federal and regulatory affairs for the American Fuel and Petroleum Manufacturers business group that represents refiners.

The EPA has revised the total volume requirement for 2020 downward to 17.13 billion gallons from 20.09 billion gallons to reflect actual pandemic demand. And the proposed preliminary RVO for 2021 of 18.52 billion gallons will be finalized based on actual demand.

The EPA increased the RVO to 20.77 billion gallons in 2022, including 15 billion gallons of ethanol, which some refiners estimate to be difficult to achieve by blending, as it will exceed the blending wall by 10% for mixing into gasoline to create E10, which is sold in most gas stations nationwide.

But the ethanol industry disagrees.

The EIA projects gasoline consumption of 138.1 billion gallons in 2022, so a RFS requirement of 15 billion gallons “can be easily met with mostly E10, as well as modest volumes of E85 and E15, modest volumes of conventional biofuels without ethanol and carryover NIR. [Renewable Identification Number] credits, ”said Geoff Cooper, director of the Renewable Fuel Association, the leading industrial group of ethanol producers.

Cooper said legislative history shows Congress intended the RFS to push ethanol use far beyond the “E10 blending wall,” seeking to appeal the recent district court overturn allowing E15 sales all year round.

Further reading: Commodities 2022: Logistical challenges to weigh on American ethanol

Biofuel producers like the Renewable Energy Group have also expressed disappointment at the drop in volumes proposed by the EPA for 2020 and 2021, but saw the 2022 increase in advanced biofuel volumes as promising.

“Our primary target was 2022, which was positive,” said Neville Fernandes, vice president of REG in an interview, noting that the proposed growth for the biomass diesel and advanced biofuels categories was moving in the right direction. .

With this climate crisis in which we find ourselves, we must reduce the carbon intensity of diesel as much as possible, as quickly as possible, by replacing oil with biofuels, in particular biodiesel, renewable diesel and blends of these two products. low carbon and clean burning. renewable fuels
– Neville Fernandes, REG

Exemptions for small refineries

The preliminary volume requirements proposed by the EPA for 2022 biomass-based diesel are 2.76 billion gallons, up from 2.43 billion gallons in 2020 and 2021.

Advanced biofuel volumes for 2022 are 5.77 billion gallons, compared to 5.2 billion gallons and 4.63 billion gallons in 2021 and 2020, respectively.

“However, we believe the biomass-based diesel and total number advanced could be higher, based on the expected production of renewable diesel and biodiesel and demand in the United States,” Fernandes said, noting that there are several renewable diesel projects to come. online in 2022.

But the hot spot of the EPA’s mandate was its proposal to remove more than 60 pending exemptions for small refineries. The SREs, integrated with the RFS, are a lifeline for refineries under 75,000 bpd of capacity, granting an exemption in the event of disproportionate economic hardship for the installation.

This contentious issue was partially resolved in April when the U.S. Supreme Court on appeal overturned the 10th Circuit Federal Court of Appeals ruling dismissing the requirement that refineries be granted continuing exemptions from 2011. However, other aspects of the lower court’s decision were not considered by The Supreme Court.

The EPA claims these aspects were not waived. This includes the recovery of RFS compliance costs. The EPA said in its Dec. 7 statement that parties must recover the costs of compliance when selling petroleum products, so that no disproportionate economic hardship is created.

However, refiners believe the entire 10th Circuit appeals court has been freed, overturning the alternative decisions. And they note that the SRE was written in the RFS when the law was formulated.

“That was the intention of Congress,” CVR’s Lamp said. “They put it on purpose. The EPA is just trying to ignore it like it’s not the law, but the intent of the law that they can’t ignore.”

But by exempting small refiners from RVO compliance, it shrinks the size of the RIN market, hampering the increase in the volume of renewable fuels, a particularly important factor in combating greenhouse gas emissions, said Fernandes of REG.

“Exempting refiners from their obligations under the RFS leads to less use of renewable fuels, which of course defeats the RFS’s goal of reducing greenhouse gas emissions and to fight against global warming, ”he said.

“And with this climate crisis we find ourselves in, we need to reduce the carbon intensity of diesel as much as possible, as quickly as possible, by replacing oil with biofuels, including biodiesel, renewable diesel and blends of these. two – burn renewable fuels, ”he said.

Fernandes noted the large number of exemptions granted by the Trump administration, approximately 1.82 billion RIN in 2017 and 1.43 billion RIN in 2018, which were exempted by the 35 and 31 SRE granted, respectively, have shrinks the market for ethanol, biodiesel and renewables. diesel.

RIN, RVO costs

Political uncertainty

The uncertainty of how the EPA allocates volumes and ERS is creating problems for producers of biofuels and hydrocarbon-based fuels, according to CVR’s Lamp.

“It is impossible to predict what they will do from administration to administration or from year to year with an administration,” he said. “And [with] their mismanagement, we get these high RIN prices, which go right to the price of gasoline, which they claim to want to reduce. “

Lamp said the law is “fundamentally flawed” because it is a volume mandate and not a percentage mandate, which would adapt to changes in demand.

“They had the opportunity to fix this problem and they just messed it up,” he said.

But REG’s Fernandes believes the program can be tweaked to make it more responsive to market conditions.

“I think this is a feasible program and meets the requirements and has the potential to really support the production and consumption of low carbon biofuels in the United States to dramatically reduce greenhouse gases,” said said Fernandes.

“It’s up to the EPA to determine if they want to increase the mass of biomass-based diesel and advanced biofuels, and since there is significantly more biomass-based diesel slated to come online, according to the reports. refiners’ plans, that’s what we’re going to ask for in our testimonial commentary, ”he said, referring to the RVO comment period which is open until Feb. 4.

CVR Energy is one of the refiners with a renewable diesel project underway, converting a hydrocracker at its refinery in Wynnewood, Oklahoma, to manufacture renewable diesel to reduce its RFS exposure.

Lamp said CVR “will comply with the law” but “will content the waiver side of the small refinery until the cows get home.”

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