US biofuel regulations: What to know now to get ahead in the energy transformation

US biofuel regulations: What to know now to get ahead in the energy transformation

By Ohana Medeiros

Measures and regulations to protect the environment from carbon emissions are not new, but the use of alternative and advanced biofuels requires knowledge of some programs in the United States. It is equally important to understand how the government intends to maintain the standards to achieve their benchmarks as well as how to comply with these biofuel regulations and successfully overcome the roadblocks for wider implementation.

There are many laws and incentives regarding biofuel in the United States that  aim not only to regulate this field, but also to promote the use of alternative fuels. In the incentives area, the Biorefinery Assistance Program (Section 9003) promotes advanced biofuels by providing loan guarantees for commercial-scale biorefineries, helping them from construction until retrofitting.

One of them that is in evidence at the Federal level is the Renewable Fuel Standard (RFS) program, which was developed by the Environmental Protection Agency (EPA) in consultation with the US Department of Agriculture and the Department of Energy as regulated by the US Congress. It resulted from a series of acts to preserve the environment, such as the Clean Air Act, the Energy Policy Act of 2005, and the Energy Independence and Security Act of 2007 (EISA), and it aims to reduce the volume of petroleum-based transportation fuel, heating oil, and jet fuel used in the United States by gradually replacing or mixing in four types of renewable fuel over the years:

  1. Biomass-based diesel
  2. Cellulosic biofuel
  3. Advanced biofuel
  4. Total renewable biofuel

Refiners and importers of gasoline and diesel fuel are required to comply with the regulation by blending renewable fuels into conventional fuel, or by buying Renewable Identification Numbers (RINs) – a type of credits – from refiners that do blending, in order to achieve an EPA-specified Renewable Volume Obligation (RVO). These credits have to be obtained for each category of renewable fuel to show compliance with the annual standard.

However, some refiners may be exempted from complying with the biofuel regulations, if they can prove that adopting the required measures could cause economic or financial losses compromising the health of the business, or that there is insufficient domestic supply. In that case, the RFS volume can be waived in whole or in part.

The EPA is charged with enforcing RFS requirements, which means that renewable fuel producers and importers that eventually come to generate invalid RINs are subject to enforcement actions such as receiving a Notice Of Violation (NOV), being obliged to resubmit reports to remove the invalids RINs, paying a penalty, and mandatory submitting of a RIN Integrity Report.

Renewable fuels and RFS targets

To qualify as a renewable fuel under the RFS program, the EPA must determine that a fuel meets the requirements of the statute and biofuel regulations, for example, that it reduces greenhouse gas (GHG) emissions compared to a 2005 petroleum baseline. Requirements vary for each type of renewable fuel:

  • Biomass-based diesel must meet a 50% lifecycle GHG reduction.
  • Cellulosic biofuel must be produced from cellulose, hemicellulose, or lignin and must meet a 60% lifecycle GHG reduction.
  • Advanced biofuel can be produced from qualifying renewable biomass (except corn starch) and must meet a 50% GHG reduction.
  • Renewable (or conventional) fuel typically refers to ethanol derived from corn starch and must meet a 20% lifecycle GHG reduction threshold.

Some of the renewable fuel already approved by the EPA includes ethanol made from sugarcane, jet fuel made from camelina, cellulosic ethanol made from corn stover, compressed natural gas from municipal wastewater treatment facility digesters, and others.

In 2007, EISA established volume standards of renewable fuel that should be blended each year starting in 2009, which was 11.1 billion gallons of total renewable fuel, until 2022, reaching a total of 36 billion gallons for this year.

Figure 1: Congressional volume target for renewable fuel. Source: EPA.

Unfortunately, since 2013 the RFS volume requirements for both total renewable fuel and total advanced biofuel have not been met. This is mostly due to a waiver authority given to EPA, which used this power multiple times to reduce the volumes that must be blended, addressed to the obligated parties. For instance, the overall 2020 compliance year total RVO was reduced from 20.09 billion gallons to 17.13 bn gal. 

Also, the States have their own programs to stimulate higher use of  alternative and advanced biofuels, such as the Low Carbon Fuel Standard in California. The initiative aims to reduce GHG emissions by setting benchmarks for each fuel, based on the carbon intensity (CI) of gasoline and diesel fuel and their respective substitutes. If a fuel generates carbon below the benchmarks, it gives credits. Otherwise, if the fuel has a higher CI than the benchmark, it generates deficits. Very similar to the RFS Program. 

US biofuel regulations: challenges and perspectives

Several issues, including infrastructure constraints, technology advancements, and limited federal aid, have contributed to the challenges of fulfilling Congress’s total volume demand. For example, insufficient production of cellulosic biofuel and the EPA’s delay in approving fuel pathways, oil prices, consumer demand, and, most recently, the COVID-19 pandemic have been significant factors. 

Additionally, it is still unknown how multiple circumstances impact the RFS operations, such as how the biofuel regulations have adapted to gasoline consumption in response to fluctuating crude oil and gasoline prices, rising feedstock prices, and the global pandemic. Also, it is uncertain what the impacts are on biofuel policies generated by agricultural trade issues.

The small refiners’ exceptions have to be considered as a challenge to achieving Congress’s target, although its total renewable fuel standard was modified. During the Trump administration (2017-2021), 118 refiners petitioned for the RFS exception, and 66 of them were approved, 6 were denied, and 68 remained pending. In comparison, in the 4 years prior to that (2013-2016) 115 requests were made, of which 42 were granted, 58 were denied, and 1 remained pending. In both periods, there were petitions that were declared ineligible and others were withdrawn, in an insignificant amount. For the future, it seems that there won’t be any more exceptions: in December 2021, the EPA proposed a rejection of the pending applications, indicating a possible change of course to, once again, prioritize the RFS goals over the conventional fuel market.

While the President Biden made it clear both on the campaign trail and in office that fighting climate change and reducing carbon dioxide while supporting rural and clean energy jobs are core goals of his mandate, even if it means setting aggressive targets — at which point the RFS standards will come in handy — the White House has been pressured by refinery labor unions, farmers, and consumers. Merchant refiners claim they need measures to save them from the crises resulting from the COVID-19 pandemic, due to the low demand for transport fuels; on the other side, the biofuel sector has said that their business has been hurt by a proposal from Biden administration in December 2021 to scale back the blending mix of fuels.

Despite this, the EPA position seems to be inclined toward raising standards in the statute reset regarding US renewable fuels beginning in 2023, if we take the proposal of rejecting pending exemption applications as an ongoing tendency. Another relevant factor for believing that renewable fuels will be prioritized is the White House directive to the agency to elaborate a way to include in the tradable credits the use of renewable fuels to power electric vehicle charging. The speculation is that the program will focus on advanced biofuels such as renewable diesel made from plant oils or animal fats, rather than on corn-based ethanol.

The future of biofuel regulations in the United States is in fact uncertain. However, an analysis of the political scenario and the recent positions of the EPA shows that increasing biofuel use and implementing new technologies and directions for the transportation fuel area remain a government commitment. Both federal and state levels have their own programs and incentives to increase the use of alternative and advanced biofuels, with the main goal to promote a safer environment for the future. As hard as it is to change and adapt, the transportation fuel area should be concerned with reinventing itself to make biofuels its main asset, rather than trying to fight the future.

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