Risk on the Horizon for RFS Advanced Pool?

The time is now to make sure policymakers in Washington, D.C., understand the importance of staying the course on fuels of the future.
By Michael McAdams | September 06, 2017

On July 28, the U.S. Court of Appeals for the District of Columbia Circuit issued its ruling in case of Americans for Clean Energy v. EPA.  In the decision, the Court stated:

“We agree with Americans for Clean Energy and its aligned petitioners…that EPA erred in how it interpreted the ‘inadequate domestic supply’ waiver provision. We hold that the ‘inadequate domestic supply provision’ authorizes EPA to consider supply-side factors affecting the volume of renewable fuel that is available to refiners, blenders, and importers to meet the statutory volume requirements.  It does not allow EPA to consider the volume of the renewable fuel that is available to ultimate consumers or the demand-side constraints that affect the consumption of renewable fuel by consumers.” 

In so finding, the court order vacated the EPA’s decision to reduce the total renewable fuels volume obligation (RVO) for 2016 through the use of the “inadequate domestic supply waiver” authority, remanding the 2014-‘16 RVO rule back to EPA for further consideration.  This will require EPA to retroactively adjust its 2016 mandate. EPA will likely do this at same time it releases the final 2018 RVO, prior to the statutory Nov. 30 deadline this year. 

At this point, it is unclear how EPA will accomplish the retroactive adjustment. There are a number of options, and, unsurprisingly, stakeholders have begun advocating for disparate approaches. Refiners, particularly merchant refiners, have claimed that if EPA requires them to make up RINs not granted under the original 2016 RVO, RIN prices will rise, and they will endure economic harm. Some from the corn ethanol industry are arguing that EPA should go back and pick up the shortage in 2014, 2015 and 2016. The Renewable Fuels Association focused in on the 500 million-plus gallons below the statute that they feel were shorted in 2016. Other legal sources argue that using the cellulosic waiver authority to waive down the advanced and overall pools would avoid impacting the market significantly, resulting in less economic damage.

The fact of the matter is that in retroactively setting the RVO mandates, there is once again regulatory uncertainty surrounding the RFS program. Comments on the proposed 2018 RVO are due end of August. It is unclear what EPA will do for the 2018 RVO at this point, though EPA will need to take a different approach than what was attempted in the original 2014-‘16 rule, given that method was rejected by the court. Therefore, we must be engaged more than ever to impress upon EPA’s leaders that the success of advanced and cellulosic fuels was among Congress’s major objectives for the RFS2. Indeed, this is why Congress specifically called for 36 billion gallons—21 billion gallons over and above the 15 billion gallon mandate they granted to conventional fuels.

Despite this mandate, it would be too easy for EPA, in response to this case, to simply waive down the 2016 advanced pool mandate from 3.6 billion to 3 billion. That would more than account for the difference between the statutory mandate and the original RVO mandate in 2016.

Another option for EPA to consider, which was endorsed by the court in this decision, is using the number of actual gallons produced during the 2016 compliance year in each pool. The court supported this option, as it limits damage by tying actual RIN generation to the RVO mandate.

The decisions on both the 2016 and 2018 RVOs, which will most likely be issued in November, are crucial signals for the industry. In their structure, they will reveal EPA’s stance on advanced and cellulosic biofuels. Moreover, this set of circumstances has already led to increased conversation about possibly resetting the RFS as early as 2020. 

If we are to have jet, diesel, drop-in, and other advanced fuels beyond the first generation, EPA’s approach must not undercut the original intent of Congress to promote innovative technologies that produce advanced biofuels. EPA cannot walk away from the intent of the statute by simply tweaking a few numbers. The time is now to make sure policymakers in Washington, D.C., understand the importance of staying the course on these fuels of the future.

Author: Michael McAdams
President, Advanced Biofuels Association