Is the Renewable Fuel Standard inadvertently driving up U.S. palm oil imports?
Where does the U.S. stand on biofuels now?
The Trump administration has voiced general support for the country’s Renewable Fuel Standard (RFS), but how its implementation of the RFS would differ from previous administrations has so far remained an open question. Some insight about the new policy direction was gained on July 5, when the U.S. Environmental Protection Agency (EPA) released a proposed rule for required volumes of cellulosic biofuel, advanced biofuel, and total renewable fuel supplied in transportation fuel in 2018 as well as biomass-based diesel supplied in 2019.
In an unusual move, EPA is proposing a reduction of the total required volume of renewable fuel in 2018 compared to 2017, from 19.28 billion to 19.24 billion ethanol-equivalent gallons. The proposed volume for cellulosic biofuel in 2018, at 238 million gallons, is around one-quarter less than the required 2017 volume, and the volumes for all other types of fuel are essentially unchanged from last year’s rule. As required in the statute, the volume for biomass-based diesel (BBD, which includes biodiesel and renewable diesel) must be set 1 year in advance of the other fuel categories. The BBD volume set in this proposal is thus for 2019; at 2.1 billion gallons it is unchanged from last year’s rule.
There is one precedent for reducing year-on-year RFS volumes: In 2014, EPA cut the total renewable fuel volume from 2013 because of limitations in blending ethanol in gasoline (the “blendwall”). Its decision to do so was highly controversial, and the agency is still being sued over it. The real change is that now, for the first time, EPA is proposing to set volumes lower than what it estimates can be physically produced and consumed in the United States. Even in its 2014 rulemaking, EPA set volumes that would require slightly more ethanol than could comfortably be consumed within the blendwall, pushing the envelope for the deployment of higher ethanol blends as well as increased use of BBD. In the proposed rule for 2018, the agency even solicits comments at least four times specifically on whether the RFS volumes should be further reduced—this request is unprecedented.
What explains the departure from the previous trend, and how is it justified in the proposal? We can understand some of the rationale from examining the language. The main justification given for reducing volumes in 2018 is cost. The current proposal mentions “cost” 123 times, compared to 91 times in the proposal for 2017 volumes, but it also explicitly states that cost was a larger consideration compared to previous volume rules: “this year we are proposing to balance these considerations in a different manner in setting the 2018 standards, placing a greater emphasis on cost considerations.” Both proposals acknowledge that biofuels cost more than conventional fossil fuels, but there was little indication that this played a role in setting the volumes for 2017.
The current proposal mentions “energy security” more than the previous proposal (14 vs. 9 mentions) and “GHG” less (16 vs. 20 mentions). However, one area where the current proposal appears to focus more on GHG impacts is on the diversion of feedstocks for BBD production. There are several pages worth of discussion about the GHG emissions and price impacts associated with producing new material when biofuel feedstocks are diverted from other uses, such as food, livestock feed, and oleochemicals. EPA argues that increasing BBD volumes would worsen these negative impacts. Our research fully supports this line of reasoning; in fact, in 2016, we published an assessment of the limited supply of BBD feedstocks and submitted comments in response to the proposed rulemakings for 2013, 2014–2016, and 2017, arguing that BBD volumes should be limited to avoid feedstock diversion. Our research shows that BBD production can have particularly worrisome impacts, even when made from waste fats, because BBD feedstocks are substituted in non-fuel uses by palm oil. Palm oil is associated with very high GHG emissions from tropical peat degradation.
However, the bigger picture is that this proposal doesn’t spend many words on justifying the reduction in volumes. In this proposal, EPA uses the words “permitted” or “permissible” six times to describe its decision to reduce biofuel volumes—as in, “We believe this proposed new approach … is permissible under the statute.” Even in the controversial 2014–2016 rulemaking, EPA only stood on its authority so bluntly half as many times, and that was in the course of devoting dozens of pages to justifying its decision.
So what does this tell us about the new administration’s direction? The messages on cost, GHG emissions, and latitude in interpreting the statute may not be entirely consistent, but one thing is clear: EPA is now intent on dialing down RFS obligations, and that is a real change.