• Climate Change
• Environmental

Renewable Fuel Standard Program Update

Beveridge & Diamond, P.C., February 4, 2008

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Renewable fuel producers, blenders and purchasers will want to take note of significant changes to the federal Renewable Fuel Standard (“RFS”) program¹ introduced by the Energy Independence and Security Act of 2007 (“EISA”)² passed by Congress in December 2007.

Renewable fuel producers must now ensure that renewable fuel from new facilities commencing construction after December 19, 2007 achieves at least a 20% reduction in lifecycle greenhouse gas (“GHG”) emissions compared to baseline (2005) lifecycle GHG emissions. This new requirement represents one of several important changes enacted by Congress at the end of last year and that the U.S. Environmental Protection Agency (“EPA”) must begin implementing as part of the RFS program. 

Under the RFS program, EPA sets an annual benchmark representing the amount of renewable fuel that must be used by each gasoline refiner, blender (other than oxygenate blenders), or importer (“obligated parties”). The RFS program includes registration, recordkeeping and reporting requirements for all renewable fuel producers and obligated parties, and established a trading market in renewable fuel credits, known as Renewable Identification Numbers (“RINs”).³ 

The EISA requires EPA to revise its regulations within the next year to implement the new changes to the RFS program, which we have summarized below. Companies in the renewable fuel sector should engage in the rulemaking process early to ensure that workable rules are developed that will support, and not undermine, the renewable fuels market. 

I.          What Qualifies as a Renewable Fuel?

The EISA includes several important definitional changes relating to a fuel’s qualification as a renewable fuel for purposes of satisfying the RFS.  Previously, the term “renewable fuel” included all fuels produced from plant or animal products or wastes. Under the EISA, new land use and GHG reduction factors are introduced to the definition of “renewable fuel” that will in some cases limit the ability of a fuel to qualify for RINs under the RFS.

Specifically, the term “renewable fuel” is now defined under the EISA to mean a “fuel that is produced from renewable biomass and that is used to replace or reduce the quantity of fossil fuel present in a transportation fuel.” The term “renewable biomass” is in turn limited to:

• planted crops that are harvested from agricultural land cleared or cultivated prior to December 19, 2007 and that is actively managed or fallow, and nonforested;

• planted trees from actively managed tree plantations on non-federal land cleared prior to December 19, 2007;

• animal waste material and animal byproducts;

• slash and pre-commercial thinnings from non-federal forestlands that are not subject to a global or State ranking of “critically imperiled,” “imperiled,” or “rare”;

• biomass obtained from the immediate vicinity of buildings or public infrastructure at risk from wildfire;

• algae; or

• separated yard or food waste.

Importantly, renewable fuel may no longer be produced from biomass that is harvested from newly cleared or cultivated land. Moreover, several new renewable fuel subcategories are also introduced by the EISA, including:

• “Conventional biofuel,” which means renewable fuel that is ethanol derived from corn starch;

• “Advanced biofuel” which means a renewable fuel, other than ethanol derived from corn starch, that has lifecycle GHG emissions that are at least 50% less than baseline lifecycle GHG emissions;

• “Biomass-based diesel,” which means renewable fuel that is biodiesel that has lifecycle GHG emissions that are at least 50% less than baseline lifecycle GHG emissions; and

• “Cellulosic biofuel,” which means renewable fuel derived from any cellulose, hemicellulose or lignin that is derived from renewable biomass that has lifecycle GHG emissions that are at least 60% less than the baseline lifecycle GHG emissions.           

The term “lifecycle greenhouse gas emissions” means EPA’s determination of the “aggregate quantity of greenhouse gas emissions” – including both direct emissions and significant indirect emissions such as emissions from land use changes – related to “the full fuel lifecycle.”  Lifecycle GHG emissions expressly include all stages of fuel and feedstock production and distribution, from feedstock generation or extraction through the distribution and delivery and use of the finished fuel to the ultimate consumer, where the mass values for all GHGs are adjusted to account for their relative global warming potential. “Baseline lifecycle greenhouse gas emissions” are defined as the “average lifecycle greenhouse gas emissions” for gasoline or diesel sold or distributed as transportation fuel in 2005, as also determined by EPA.

EPA is directed to promulgate regulations to implement the EISA changes, including development of accounting protocols and methodologies for determining lifecycle GHG emissions. A number of critical issues are implicated by the new requirement to account for lifecycle emissions, including:

• will there be a certification process such that renewable fuel purchasers can be assured that the renewable fuel meets the carbon standard?

• how is lifecycle carbon calculated, i.e., what methodology will be used?

• will there be “philosophical” restrictions on calculating reductions, such as the concept of “additionality”?

• will third-party verification be required?

II.        How Will the Renewable Fuel Standard Change? 

Each year, EPA sets an annual standard representing the amount of renewable fuel that must be used by each obligated party to ensure the national renewable fuel mandate set by Congress is achieved (the 2008 RFS announced by EPA on November 27, 2007 was 4.66 percent). The EISA increases the annual average volume of renewable fuel that must be contained in transportation fuel sold in the United States from 5.4 billion gallons (as required under prior law) to 9 billion gallons (under EISA) in 2008 and from 7.5 to 15.2 billion gallons by 2012. The EISA also extends the timeframe of the annual national mandate, culminating in a total requirement of 36 billion gallons of renewable fuel by 2022. 

In addition, beginning in 2009 the annual required volume of renewable fuel must include escalating volumes of advanced biofuel, cellulosic biofuel and biomass-based diesel (pursuant to the definitions discussed above). EPA must ensure that transportation fuel sold in the United States contains at least the volumes specified by the EISA, and as noted, with respect to any renewable fuel produced from new facilities that commence construction after December 19, 2007, EPA must ensure that a 20% reduction in lifecycle GHG emissions is achieved compared to baseline lifecycle GHG emissions.⁴

The EISA also requires studies and reports related to the impacts of the RFS, including a report that must be submitted to Congress in 2010, and every three years thereafter, assessing the future impacts of the RFS requirements on:

• environmental issues (including air quality, effects on hypoxia, pesticides, sediment, nutrient and pathogen levels in waters, acreage and function of waters, and soil environmental quality);

• resource conservation issues (including soil conservation, water availability, and ecosystem health and biodiversity); and

• the growth and use of cultivated invasive or noxious plants and their impacts on the environment and agriculture.  

Many important questions are implicated by the new RFS, which will have to be fleshed out in forthcoming EPA regulations. Chief among these are:

• Does the 20% reduction in lifecycle carbon mandated by the new language in section Clean Air Act Section 211(o)(2)(A)(i) apply only to volumes of renewable fuel, or alternatively, volumes of all fuel blended with renewable fuel, i.e., fuel sold in commerce? The natural reading would be that carbon reductions apply only to renewable fuel per se, but the provision is oddly drafted, reading “in the case of any such renewable fuel produced from new facilities that commence construction after the date of enactment of this sentence, achieves at least a 20% reduction in lifecycle greenhouse gas emissions compared to baseline lifecycle greenhouse gas emissions.” Industry stakeholders should be aware that special interest groups could try to spin this language at the rulemaking stage.

• As a corollary to the above concern, is the provision applicable only to renewable fuel plants, such as ethanol plants or biodiesel production facilities, or would the requirement also apply to new blending facilities?

• How can refiners/blenders who purchase renewable fuel for blending with petroleum fuel ensure that the renewable fuel meets the statutory requirements? Will there be a verification process (either internal or third-party)? What contracting safeguards are available?

• As alluded to above, what methodology will be used to determine lifecycle GHG baseline and reductions? In the carbon world, such as under the Kyoto Protocol Clean Development Mechanism (“CDM”) and comparable voluntary carbon markets, questions about methodology and carbon accounting can be critical and complex.  Industry will need to engage with EPA to develop a workable protocol.

For more information, please contact David M. ("Max") Williamson, (202) 289-6084, dwilliamson@bdlaw.com, or Alan J. Sachs, (410) 230-1345, asachs@bdlaw.com. 

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¹ Clean Air Act § 211(o); 42 U.S.C. § 7545(o).

² H.R. 6; Pub. L. 110-140 (Dec. 19, 2007).

³  For more information about EPA’s RFS program generally, please see Beveridge & Diamond, P.C. update dated July 18, 2007, “New RFS Program Requirements for Fuel Producers and Importers,” available online at: http://www.bdlaw.com/news-202.html.

⁴  EPA is expressly authorized, under specific circumstances, to lower the percent reductions in lifecycle GHG emissions for various categories of renewable fuel by a maximum of 10%.  In addition, an exemption is provided for calendar years 2008 and 2009 allowing ethanol plants fired with natural gas or biomass to be “deemed” in compliance with the 20% reduction requirement regardless of actual lifecycle emissions.