On July 6th, the Environmental Protection Agency (EPA) proposed renewable volume obligations for 2018 under the Renewable Fuel Standard (RFS). The proposal also includes a proposed 2019 volume mandate for biomass-based diesel (the 2018 biomass-based diesel number was finalized in late 2016). The proposal represents the Trump Administration’s first real public statement of policy with respect to the RFS.
EPA will now take public comments on the proposal for forty-five days, and is expected to issue “final” volume mandates in late November.
As a general matter, the proposal represents a continuation of the Obama Administration’s policies with respect to the RFS, though it does contain subtle indications that the Trump Administration will be less aggressive in establishing renewable fuel mandates:
|Volumes Used to Determine the Proposed Percentage Standards|
|Cellulosic biofuel||123 mill gal||230 mill gal||311 mill gal||238 mill gal||n/a|
|Biomass-based diesel||1.73 bill gal||1.90 bill gal||2.0 bill gal||2.1 bill gal||2.1 bill gal|
|Advanced biofuel||2.88 bill gal||3.61 bill gal||4.28 bill gal||4.24 bill gal||n/a|
|Total renewable fuels||16.93 bill gal||18.11 bill gal||19.28 bill gal||19.24 bill gal||n/a|
All volumes are ethanol-equivalent, except for biomass-based diesel which is actual.
|Proposed Percentage Standards|
|Total renewable fuels||9.52%||10.10%||10.70%||10.62%|
* Charts curtesy of NACS Daily, “EPA Issues Proposed Renewable Volume Obligations for 2018,” July 6, 2017 (Source)
While the Obama Administration viewed the RFS as a tool to implement environmental policy, the Trump Administration appears to view the RFS as a tool to implement agriculture and energy independence policies. So far this different approach has not resulted in a significant difference in policy results. It is important however for market participants to recognize this paradigm shift for purposes of anticipating what direction the Trump EPA will move as it continues to implement the RFS.
Like the Obama Administration had done, EPA proposed to use its statutory “waiver authority” to lower the volume of renewable fuel that must be incorporated into the fuel supply below the levels Congress established a decade ago. The retail fuel community has historically supported exercise of this waiver authority in order to align the renewable volume mandates with what the market can reasonably be expected to absorb.
EPA proposed to lower the volume mandates for cellulosic biofuel, advanced biofuel, and total renewable fuel relative to the 2017 requirements. In its explanation accompanying the proposal, EPA indicates that – consistent with the Trump Administration’s “America First” policy – the Agency’s preference is to avoid relying on biofuel imports to satisfy the renewable volume mandates under the RFS.
This will likely generate an important debate during the comment period: Is the RFS supposed to encourage consumption of cleaner burning fuels (in which case biofuel imports should be fair game)? Or is the RFS designed to encourage increased domestic production of renewable fuels?
Under the RFS, EPA sets an annual benchmark representing the amount of renewable fuels that each “obligated party” – defined as a fuel refiner or importer – is responsible for generating. Importantly, the EPA did not propose or even solicit comments on changing the definition of “obligated party” to require downstream fuel marketers to become obligated parties rather than refiners or importers. Certain refiners have strongly pushed EPA in recent months to pursue this shift in order to avoid having to fulfill their responsibilities under the RFS. This issue will likely be considered in future regulatory proceedings.
EPA’s proposal also asks for comments regarding the current Renewable Identification Number (RIN) trading structure, and whether it provides an opportunity for market manipulation and further whether changes might alleviate such concerns.
Read more from the July Issue of our Fuel for Thought newsletter.