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EPA Proposes New Renewable Fuel Standard Regulations Using Lifecycle Greenhouse Gas Analysis

Beveridge & Diamond, P.C., May 8, 2009

The U.S. Environmental Protection Agency (“EPA”) proposed regulations on May 5 to implement significant changes to the federal Renewable Fuel Standard program (known as “RFS-2”).  In what may have implications for regional and international efforts to regulate renewable fuels – as well for broader climate change and energy regulation now being considered by Congress and the Obama Administration – the RFS-2 proposal represents the EPA’s first-ever use of lifecycle analysis of greenhouse gas (“GHG”) emissions in a regulatory program. 

Required by the Energy Independence and Security Act of 2007 (“EISA”) to have the new rules in place by December 19, 2008, EPA’s proposal was delayed in large part due to the complexity of adding lifecycle assessments to the eligibility determination for renewable fuels.   However, unlike California’s recently adopted Low-Carbon Fuel Standard (LCFS), which concluded that indirect land-use changes associated with most corn ethanol contribute to a “carbon intensity” that is comparable to or greater than that of conventional gasoline,[1] EPA’s proposal does not determine whether corn-based ethanol or other biofuels will ultimately qualify as “renewable fuel” under the RFS.  Instead, the proposal lays out two possible options for assessing GHG emission impacts over both a 30- and 100-year time period, reflecting the Agency’s assessment that the displacement of petroleum by biofuels over time can in some instances “pay back” earlier land use emission impacts. 

EPA’s lifecycle emissions analysis will now be subject to formal peer review and a public workshop, in addition to a 60-day public comment period on the full proposal upon its publication in the Federal Register.  Background documents, including a pre-publication version of the 549-page RFS-2 proposal, are available at: http://www.epa.gov/OMS/
renewablefuels/#regulations
.  For more information about the new proposal, or renewable fuel or climate change regulation more generally, please contact Russ LaMotte at rlamotte@bdlaw.com or Alan Sachs at asachs@bdlaw.com.

A.    General Requirements and New Changes to the RFS Program

Under the RFS program, EPA sets an annual benchmark representing the amount of renewable fuel that must be used by each fuel refiner, blender, or importer (“obligated parties”).  The RFS program, initiated in 2007, 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”). 

As required by the EISA, changes under EPA’s new proposal to the existing RFS program include:

  • Significant expansion of the escalating volumes of renewable fuel required each year (to reach 36 billion gallons by 2022);
  • Separation of the volume requirements into four categories of renewable fuel (“conventional biofuel,” “advanced biofuel,” “biomass-based diesel,” and “cellulosic biofuel”);
  • Important changes to the definition of renewable fuel (including a new requirement that crops used to produce qualifying renewable fuels be harvested from agricultural land cleared or cultivated prior to December 2007);
  • Expansion of the types of fuels subject to the standards to include diesel and certain nonroad fuels;[2] and
  • Inclusion of specific types of waivers and EPA-generated credits for cellulosic biofuels.

EPA’s proposed changes are intended to become effective on January 1, 2010.  Obligated parties will remain subject to the Agency’s existing RFS regulations until the new regulations are finalized. 

In order to implement the RFS-2 program, parties that generate, own, transfer or use RINs will need to re-register under the RFS-2 provisions and modify their compliance approaches to accommodate the proposed changes.  Regulated parties will also need to establish new contractual relationships to cover the different types of renewable fuel required under RFS-2.  In addition, newly regulated parties (for example, diesel producers or importers) may now need to develop compliance systems for the RFS program for the first time.

B.    New GHG Lifecycle Emissions Analysis

The 2007 EISA introduced a new eligibility requirement for corn ethanol from plants constructed after December 2007, which must now release at least 20 percent less lifecycle GHG emissions when compared to average emissions from petroleum fuels in order to qualify as a renewable fuel under the statute.[3]  In addition, lifecycle GHG emissions must be at least 40 to 44 percent less than baseline lifecycle GHG emissions to qualify as an advanced biofuel, 50 percent less than baseline lifecycle GHG emissions to qualify as a biomass-based diesel, and 60 percent less than baseline lifecycle GHG emissions to qualify as a cellulosic biofuel.

Lifecycle GHG emissions are defined by the EISA to mean the aggregate quantity of GHGs related to the full fuel cycle -- from feedstock generation and extraction through distribution and delivery and use of the finished fuel.  In its proposal, EPA indicates that compliance with the EISA mandate makes it necessary to assess direct and indirect impacts of petroleum-based and renewable fuels that occur both within the United States and in other countries.  For biofuels, this includes evaluating significant emissions from indirect land use changes that occur in other countries as a result of the increased production and importation of biofuels in the United States.[4]

Importantly, EPA notes that although biofuel-induced land use change can produce significant near-term GHG emissions, the displacement of petroleum by biofuels over time can “pay back” earlier land conversion impacts.  As a result, EPA’s proposal includes two options for assessing future GHG emission impacts: a 30-year time period that values equally all emission impacts, regardless of time of emission impact; and a 100-year time period that discounts future emissions at two  percent annually. 

For example, assuming 100 years of corn ethanol produced in a basic dry mill ethanol production facility and using a two percent discount rate, corn ethanol represents a 16 percent reduction in GHG emissions compared to the 2005 baseline gasoline assumed to be replaced.  By contrast, assuming 30 years of corn ethanol production and use and no discounting of the GHG emission impacts, EPA predicts that corn ethanol will have a five percent increase in GHG emissions compared to petroleum gasoline.  EPA’s proposed regulations rely on the 100-year model, identifying eight different production pathways (for example, natural gas or biomass-heated ethanol plants) under which ethanol may qualify toward an obligated party’s RFS obligations.  Specific types of biodiesel, cellulosic biodiesel, non-ester renewable diesel and cellulosic gasoline are also expected to meet or exceed eligibility requirements for renewable fuels under the 100-year model.

The California Air Resources Board (“CARB”) has specifically noted that its recently adopted LCFS is intended to “complement” the federal RFS, which according to CARB’s analysis will achieve only about 30 percent of the LCFS’s anticipated GHG benefits.  Unlike the California LCFS, the RFS program does not prescribe specific GHG controls on transportation fuels.  Instead, it requires that obligated parties use specified volumes of renewable fuels that meet the program’s lifecycle GHG reduction thresholds. 

Moreover, the two programs rely on different models and assumptions to determine lifecycle GHG values, meaning that fuels qualifying under the federal RFS will not necessarily qualify under the California program.   While EPA notes in its proposal that it will continue to coordinate with California on the biofuels lifecycle GHG analysis work in particular, these different models raise broader policy questions that may be further complicated by the possible adoption of a national low-carbon fuel standard or other regional mandates.  

C.    Additional Renewable Fuel Initiatives         

On the same day EPA released its proposed regulations, President Obama signed a directive establishing a Biofuels Interagency Working Group (“BIWG”), which will be jointly chaired by the EPA Administrator and the secretaries of Agriculture and Energy.  The BIWG is tasked with developing a “comprehensive” market development program, coordinating fuel infrastructure policies, and developing policies to reduce the overall environmental footprint of growing biofuel crops. 

In addition, the President ordered the U.S. Department of Agriculture (“USDA”) to more quickly increase distribution of federal loan guarantees and grants in the biofuels sector, while the U.S. Department of Energy (“DOE”) announced that it will begin making available more than $786 million from the American Recovery and Reinvestment Act for advanced biofuels research, development and test projects.


[1]  See Beveridge & Diamond, P.C., “California Adopts First Low-Carbon Fuel Standard,” available at: http://bdlaw.com/news-562.html.

[2]  While EPA is proposing that fossil-based heating oil and jet fuel will not be included in the fuel used by a refiner or importer to calculate its renewable fuel volume obligation, renewable fuels used as or in heating oil and jet fuel may generate RINs for credit purposes.

 

[3]  In its proposal, EPA has interpreted this “grandfathering” provision to exclude ethanol produced following an expansion of  an existing ethanol facility beyond the plant’s inherent capacity.

 

[4]  EPA’s proposal suggests that land use impacts of petroleum production would not have an appreciable impact on the 2005 baseline GHG emissions assessment, but the Agency notes that it will “more carefully consider potential land use impacts of petroleum-based fuel production for the final rule” and expressly invites comments that would support such an analysis.

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