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Renewable Fuel Standard Program Update: EPA Misses December 2008 Deadline, While EU Approves New Renewable Fuel Mandates with GHG Emissions Requirements

Beveridge & Diamond, P.C., January 7, 2009

Amid continued reports of struggles at the U.S. Environmental Protection Agency (EPA) to develop a methodology for quantifying lifecycle greenhouse gas (GHG) emissions from renewable fuels, the Agency failed to meet a December 19, 2008 deadline set by the Energy Independence and Security Act of 2007 (EISA) for finalizing regulations to implement changes to the federal Renewable Fuel Standard program, known as "RFS2."  

Meanwhile, on December 17 the European Union formally adopted its own climate change package, which includes a 20 percent overall renewable energy target by 2020, a specific renewable fuel target of 10 percent by 2020 for transportation fuels for each Member State, a complex lifecycle GHG emissions reduction formula for qualifying  biofuels compared to fossil fuels, and GHG reduction targets for fossil fuels in many transportation fuels.  In addition, by 2010, the European Commission must develop its own methodology to measure GHG emissions associated with indirect land use changes related to biofuels production.  Companies importing fuels to the E.U. that wish to qualify for theses mandates will also need to ensure compliance with the new requirements. 

For more information about EPA's Renewable Fuel Standard Program or the EU's new fuels mandates, please contact David M. ("Max") Williamson at (202) 289-6084, dwilliamson@bdlaw.com, or Alan J. Sachs at (410) 230-1345, asachs@bdlaw.com

A.  EPA Fails to Promulgate Required RFS2 Changes in 2008

EPA is required by the 2007 EISA to establish mandatory levels of biofuels (such as ethanol) and biodiesel in the U.S. fuel supply as part of an overall national policy to promote renewable fuel sources as well as reductions in GHG emissions and energy independence (see Beveridge & Diamond, P.C. “Renewable Fuel Program Standard Update,” available online at: http://www.bdlaw.com/news-news-270.html).  The 2007 energy act substantially increased the volume of biofuels in the U.S. fuel supply over those levels required by the earlier 2005 Energy Policy Act, and also imposed a new greenhouse gas content requirement in response to allegations that some biofuels were less environmentally friendly than traditional fossil fuels.[1]  EPA was required to finalize new regulations by December 19, 2008, but has not to date issued even a proposed rule.  EPA announced in November that, given the delay, obligated parties will continue to be subject (with a few exceptions) to EPA’s existing RFS regulations for the 2009 compliance period (see Beveridge & Diamond, P.C. “Renewable Fuel Program Standard Update: EPA Announces 2009 RFS Targets,” available online at: http://www.bdlaw.com/news-news-414.html).

A primary cause for the regulatory delay is the Agency's struggle with the required GHG lifecycle analysis.  The EISA requires renewable fuel from new facilities commencing construction after December 19, 2007 to achieve at least a 20 percent reduction in lifecycle GHG emissions compared to baseline (2005) lifecycle GHG emissions.  Fuels that do not meet this target will not qualify as "renewable fuels" and cannot be sold into the renewable fuels trading market.[2]  EISA defines the term “lifecycle greenhouse gas emissions” to mean 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 by the ultimate consumer, where the mass values for all GHGs are adjusted to account for their relative global warming potential.

Industry representatives have reported that although EPA developed an analysis with estimates of lifecycle emissions, the White House Office of Management and Budget (OMB) and the U.S. Departments of Energy (DOE) and Agriculture (USDA) have voiced objections to the Agency's methodology.  Concurrently, environmental groups have been pressing EPA to analyze indirect land-use changes that may result from an increase in biofuels production, particularly from land use changes abroad, such as clearing of Amazonian rainforest for feedstock production.  Meanwhile, the biofuels industry is urging the Agency to proceed more cautiously, arguing that scientific evidence is not developed enough to draw conclusions or support analysis of indirect land-use changes at this time.  Industry may also wish to re-evaluate the lifecycle emissions from traditional fossil fuels that provide the baseline for the GHG reductions required by EISA. 

Should EPA fail to propose its RFS2 regulations before the close of the Bush Administration on January 20, it may take several additional months before the incoming Obama Administration is able to work through the issues implicated by the RFS mandate.  Moreover, USDA recently established an Office of Ecosystem Services and Markets as required under the May 2008 Farm Bill, and the Obama Administration may instruct EPA and USDA to work together more closely on development of the RFS2 regulations.

B.  EU Adopts Directive Requiring GHG Lifecycle Reduction for Biofuels and Fossil Fuels

Meanwhile, the EU Parliament approved on December 17 a new Renewable Energy Directive requiring that renewable energy make up at least 20 percent of the EU's total energy consumption by 2020.  Each Member State must meet a renewable energy minimum target, which varies by Member State.  By contrast, with respect to transportation fuels for all forms of transport, the new Directive also requires each Member State to meet 10 percent of its transportation fuel needs for all forms of transport through biofuels, renewable electricity or hydrogen.  

The EU Parliament declined to mandate a proposed renewable fuels interim target of 5 percent by 2015 or a proposed stipulation that at least 40 percent of renewable fuels come from "second-generation" biofuels (i.e., fuels developed from waste, residues, or non-food cellulosic and ligno-cellulosic biomass), or electricity or hydrogen.  However, the Directive does provide that second-generation biofuels will be double-credited for quota purposes, and renewable electricity consumed by electric cars will be counted at 2.5 times its input. 

The new biofuels mandate will replace existing voluntary renewable fuel targets established in 2003 and implemented by individual Member States through a variety of policies.  In 2005, biofuels accounted for only 1 percent of all transportation fuels consumed in the EU. 

1.  GHG Emissions Requirements for Biofuels

The new Directive requires that biofuels achieve at least a 35 percent lifecycle GHG emission reduction compared to fossil fuels in order to be taken into account for purposes of measuring compliance with the Directive’s mandates or to be eligible for financial support for the consumption of biofuels.  From 2017 onwards, the lifecycle GHG emissions of qualifying biofuels produced in existing production plants must be at least 50 percent lower than fossil fuels, while biofuels produced in new installations must achieve a lifecycle GHG reduction of at least 60 percent.  The Directive includes methodologies for calculating GHG impacts of biofuels without currently taking into account any net carbon emissions from land use changes, while requiring that the EU develop a methodology by 2010 to measure the GHG emissions from indirect land use changes traceable to biofuel production. 

The Directive also states that biofuels made from crops grown in an area with "recognised high biodiversity value" (i.e., forest undisturbed by significant human activity, areas designated for nature protection purposes, or highly biodiverse grassland), or an area that was peatland in January 2008, should not count towards the transport target.  The European Commission is also required to monitor the social impact of the EU's biofuel policy and if necessary propose corrective action, especially if increased biofuels production leads to rising food prices or does not comport with social sustainability criteria.

2.  GHG Emissions Requirements for Fossil Fuels

In addition, the EU adopted amendments to the Fuel Quality Directive to require that all transport fuels for use by road vehicles and non-road mobile machinery -- including fossil fuels -- achieve a lifecycle GHG emissions reduction requirement of 6 percent below 2010 levels by 2020, including emissions attributable to a fuel's induced land-use changes, transport and distribution, extraction, processing and combustion.  The Directive imposes a mandatory 6 percent reduction on fuel suppliers, with recommended intermediate targets of 2 percent by 2014 and 4 percent by 2017.  It also provides for a review of that mandate in 2012, aimed at the possible expansion of the lifecycle GHG reductions to 10 percent below 2010 levels, with additional potential reductions contemplated through the use of electric vehicles or GHG-saving technologies such as carbon capture and storage, and through credits purchased under the Clean Development Mechanism.  EU fuel suppliers, as well as foreign suppliers importing fuels into the EU, will need to ensure compliance with these GHG emissions reduction requirements, which Member States must begin implementing “as gradually as possible.” 

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[1]  In 2009, the RFS is intended to result in the use of 11.1 billion gallons of renewable fuel.  The RFS is designed to escalate each year until culminating in a total requirement of 36 billion gallons of renewable fuel by 2022.

[2]  EISA establishes specific quotas and GHG reduction mandates for various other subcategories of renewable fuels, including:

  • “Conventional biofuel,” which means renewable fuel that is ethanol derived from corn starch is subject to the 20% lifecycle GHG emission reduction;
  • “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.
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