Policy update
Final EPA rule for Renewable Fuel Standard 2014–2016 volumes
On November 30, 2015 EPA released its final rule for volume standards for the Renewable Fuel Standard (RFS) program in 2014-2016 as well as the biomass-based diesel volume for 2017. This final rule follows a proposal released in May 2015, as well as a controversial proposal to set 2014 volume standards that was withdrawn in that year. This policy update provides an overview of the main elements of the final rule, how it differs from the proposal, and what it indicates about EPA’s approach for implementing the RFS beyond 2016.
For the first time, EPA is setting volumes for the advanced biofuel and renewable fuel categories that are lower than the statutory levels. The total renewable fuel volume for 2016 is 18.11 billion gallons, compared to 22.25 billion gallons as set in the statute (the RFS categories are nested: cellulosic biofuel and biomass-based diesel are both subsets of advanced biofuel, which is a subset of renewable fuel). EPA is using its waiver authority to reduce volumes of advanced and renewable fuel, which are mostly met with ethanol, because the U.S. market has become saturated with E10 (10% ethanol in gasoline), and there are significant constraints on supplying higher blends of ethanol, including manufacturer warranties for vehicles and fueling infrastructure. Cellulosic biofuel has fallen short of its statutory targets in every year of the program due to lower than expected production. Biomass-based diesel is the only biofuel category that EPA has set above its statutory mandate, and at this point it is not constrained by a blend wall. Volumes for 2014 and 2015 are retrospectively set based on actual production.
In the final rule, EPA has increased volumes of all categories for 2016 above the proposal. The main elements behind this change are:
- An increase in the forecast for total gasoline consumption, which means more ethanol can be consumed under the blend wall.
- An increase in expected production of advanced biomass-based diesel.
- An increase in expected production and imports of grandfathered biodiesel from facilities pre-dating the RFS that do not meet the criteria for advanced biomass-based diesel.
- An increase in the production of cellulosic biogas.
It is notable that in the final rule, EPA does not expect more gallons of higher ethanol blends (particularly E85, which is 51-83% ethanol blended in gasoline) compared to the proposal. EPA estimates 2016 consumption of E85 at 200 million gallons, compared to 150 million gallons consumed in 2014.
One of the most important elements of this rule is that it sets out new strategies to set volumes beyond 2016. Moving forward, EPA is likely to set the total renewable fuel volume based on estimations of how much ethanol is likely to be consumed under the 10% blend wall and as higher ethanol blends. The agency has signaled an intention to continue increasing biomass-based diesel volumes, but the rate of increase may slow as the industry faces challenges in increasing capacity. Cellulosic biofuel volumes will be estimated using a more conservative methodology than in past rule makings and will represent expected actual production. EPA may be required in 2016 to undertake a fundamental revision of cellulosic and advanced biofuel volumes for all remaining years until 2022.
