Regulatory Developments, Special Topics in Environmental Management

An Update on RFS Actions

This summer saw three important actions in the EPA’s implementation of the Clean Air Act’s (CAA) Renewable Fuel Standard (RFS). First, in June, the Agency proposed its renewable fuel percentage standards for 2019 and for 2020 for biomass-based diesel. Second, several days later, the EPA issued its second report to Congress on the environmental and resource conservation impacts of the RFS. And third, in early August, the Agency published a final rule that added a pathway under the RFS for fuel produced from distillers’ sorghum. This article summarizes these actions and their implications for the regulated sectors and the environment.
gasoline pump
The RFS was created under the Energy Policy Act of 2005, an amendment to the CAA, and expanded in 2007 under another CAA amendment called the Energy Independence and Security Act of 2007 (EISA).  The objective of the RFS is straightforward—reduce the use of fossil fuel, primarily in transportation, with fuels produced from renewable resources. In the EISA, Congress established specific minimum yearly volumes for the nation for four categories of renewable fuel (cellulosic biofuel, biomass-based diesel, advanced biofuel, and renewable fuel—that is, all renewable fuels, including corn ethanol, the most abundant renewable). These target volumes have proven to be overly ambitious, particularly in the areas of cellulosic ethanol and overall renewable fuel. For example, for 2018, Congress set a renewable fuel target of 26 billion gallons (gal). The EPA final standard for that year was 19.29 billion gal. The CAA amendments provide the EPA with the authority to waive the statutory volumes based on market conditions.

Renewable identification numbers (RINs) are credits used for compliance and are the currency of the RFS program. Entities subject to the RFS generate an RIN for each gallon of renewable fuel produced, market participants trade RINs, and obligated parties obtain and then ultimately retire RINs for compliance.

The RFS is one of the few programs under the environmental statutes that essentially compel the EPA to balance the somewhat opposing interests of two giant industry sectors—the conventional petroleum fuels industry and agriculture. The RFS requires that petroleum refineries blend the final yearly renewable-fuel amounts into the fuel they distribute to the nation. Petroleum producers believe this requirement runs contrary to the energy needs of the American public and, particularly, vehicle owners. Meanwhile, farmers believe the RFS offers an excellent opportunity to produce more corn and other renewable fuel raw materials and sell it profitably to ethanol manufacturers. What this boils down to is that the petroleum industry reacts somewhat favorably each time the EPA falls short of requiring the statutory annual volumes (while at the same time repeatedly calling the RFS program “broken”) while agriculture continually complains that the Agency is inventing excuses for not meeting the statutory volumes. These conflicting arguments continued unabated after the EPA proposed the 2019 fuel percentage standards.

Proposed Standards

The proposed volume requirements are as follows:

2018
Requirements

2019
Statutory Volumes

2019
Proposed Volumes

2020
Proposed Volumes

Cellulosic biofuel (million gallons)

288

8,500

321

n/a

Biomass-based diesel (billion gallons)

2.1

>1.0

2.1

2.43

Advanced biofuel (billion gallons)

4.29

13.00

4.88

n/a

Renewable fuel (billion gallons)

19.29

28.00

19.88

n/a

 

Cellulosic biofuel. If the projected volume of cellulosic biofuel production is less than the applicable volume specified in EISA Section 211, the EPA must lower the applicable volume used to set the annual cellulosic biofuel percentage standard to the projected production volume. In the proposal, the EPA said it based the cellulosic biofuel volume requirement on several factors, including individual facilities’ cellulosic biofuel production capacities, production start dates, and production plans; a review of cellulosic biofuel production relative to the EPA’s projections in previous annual rules; and the Agency’s own engineering judgment. The EPA added that it anticipates that its final projection of cellulosic biofuel will be based on additional data obtained before issuing the final rule, including the U.S. Energy Information Administration’s estimate of cellulosic biofuel production for 2019.

Advanced biofuel. This category comprises noncellulosic biofuel. The EPA said the proposed volume took into account the various constraints on the ability of the market to make advanced biofuels available; the ability of the standards the EPA sets to bring about market changes in the time available; the potential impacts associated with diverting biofuels and/or biofuel feedstocks from current uses to the production of advanced biofuel used in the United States; the fact that the biodiesel tax credit is currently not available for 2019; the tariffs on imports of biodiesel from Argentina and Indonesia; and the cost of advanced biofuels.

Total renewable fuel. The Agency proposed that the reduction in total renewable fuel would be the same as the reduction in advanced biofuel, such that the resulting implied volume requirement for conventional renewable fuel would be 15 billion gal.

2020 biomass-based diesel. Congress requires that the biomass-based diesel (BBD) requirement must not be lower than 1 billion gal. Since 2013, the EPA has increased the BBD volume each year. “Given current and recent market conditions, the advanced biofuel volume requirement is driving the production and use of biodiesel and renewable diesel volumes over and above volumes required through the separate BBD standard, and we expect this to continue,” the EPA states.

The EPA’s proposal was published in the July 10, 2018, Federal Register (FR).

Second Report to Congress

EISA Section 204 requires that the EPA triennially report to Congress on the environmental and resource conservation impacts of the RFS program, specifically air and water quality, water quantity, ecosystem health and biodiversity, soil quality, invasive species, and international environmental impacts. The findings of the current report do not differ significantly from those of the first report, which was issued in 2011. Generally, the Agency found that the RFS program is having an adverse effect on the environment because of increased use of farmland to produce the corn and soybeans used to manufacture ethanol. In the report, the EPA emphasizes that it does not assess any environmental effects that result from the displacement of fossil fuels with renewable fuels. The Agency states:

“For example, the environmental impacts of growing corn, refining ethanol from that corn, and burning that ethanol in an internal combustion engine has a different environmental impact than drilling for oil, refining gasoline, and burning that in an internal combustion engine. EPA recognizes that a fully comprehensive assessment of the benefits and impacts of biofuel production and use would be broader than what is represented by this report, but conducting such an evaluation is beyond the scope of this study.”

Land-use change. Evidence since enactment of the EISA suggests an increase in acreage planted with soybeans and corn, with strong indications from observed changes in land use that some of this increase is a consequence of increased biofuel production. The EPA notes that the connections between land-use change due to biofuels and environmental effects have not been evaluated sufficiently to allow quantification specifically attributable to biofuel production.

Air quality. Each stage of the renewable fuel cycle (e.g., production, distribution, and usage) contributes to emissions of volatile organic compounds (VOCs), particulate matter (PM), nitrogen oxides (NOx), and other pollutants. These impacts depend on feedstock type, land-use change, and feedstock production practices. For example, ethanol from corn grain has higher emissions across the life cycle than ethanol from other feedstocks, and ethanol facilities relying on coal have higher air pollutant emissions than facilities relying on natural gas and other energy sources.  Only limited data exist on the impacts of biofuels on the tailpipe and evaporative emissions of light-duty vehicles using advanced gasoline engine technologies; the Agency says additional studies in this area would improve understanding.

Water quality. The increased intensity of corn production on land already under cultivation and the expansion of corn and soybean cultivation onto grasslands negatively impact water quality. “Recent modeling studies conclude that row crop agriculture plays an important role in driving downstream impacts such as harmful algal blooms, particularly in fresh waters, and hypoxia, particularly in coastal waters, and suggest that biofuel feedstock production is a contributing factor,” states the EPA. “Continued adoption and expansion of sustainable conservation practices are expected to decrease nutrient loadings and associated adverse impacts.”

Water quantity. The report notes that there are indications of increased water use due to increases in irrigated areas for corn and elevated land conversion rates in more arid Western states. “Adverse water availability impacts will most likely arise in already-stressed aquifers and surface watersheds,” says the Agency. “Irrigation practices are dependent on a number of economic and agronomic factors that drive land management practices making attribution of increased irrigation and water quantity to biofuels difficult.”

Ecosystem health and biodiversity. The finding here is overwhelmingly negative. The EPA states: “Loss of grasslands and wetlands are occurring in ecologically sensitive areas, including the Prairie Pothole Region. Row crop expansion is resulting in the loss of habitat and landscape simplification. Increasing pesticide use for feedstock production is associated with negative impacts to pollinators, birds, soil-dwelling organisms, and other ecosystem services both in terrestrial and aquatic habitats. Increased fertilizer applications of [nitrogen] for corn and [phosphorus] for corn and soybean have known negative effects on aquatic biodiversity.” The Agency adds, “Opportunities exist for continued adoption and expansion of practices and technologies that will enhance ecosystem services and sustainable feedstock production.”

The EPA’s report is available here.
GHG, vehicle emissions

Grain Sorghum Pathway

The renewable fuel regulations allow entities to petition the EPA to establish new RFS pathways, that is, provisions to allow specific feedstocks to produce renewable fuels that obligated entities can use to meet their RIN requirements. The major work of the Agency in reviewing such petitions is conducting a life-cycle analysis (LCA) of the greenhouse gas (GHG) emissions associated with the new pathway. The EPA received a petition from the National Sorghum Producers (NSP) to evaluate the GHG emissions associated with biofuels produced using as a feedstock grain sorghum oil derived from dry mill ethanol production and then provide a determination of the renewable fuel categories, if any, for which such biofuels may be eligible.

The EPA’s LCA analysis determined that biodiesel and heating oil produced from distillers’ sorghum oil via a transesterification process meets the 50 percent GHG reduction threshold required for advanced biofuel and biomass-based diesel. Furthermore, the Agency found that renewable diesel, jet fuel, naphtha, and liquefied petroleum gas produced from distillers’ sorghum oil via a hydrotreating process also meets the 50 percent GHG emissions reduction threshold. Accordingly, the EPA is adding these pathways to the list of approved renewable fuel production pathways in the RFS regulations.

The Agency anticipates that with the approval of the RFS pathway, a potential of 12 million to 21 million ethanol-equivalent gal of biofuel will be produced from distiller sorghum oil per year. While, this is a modest amount in the overall RFS picture, the approval was enthusiastically welcomed by the NSP.

“This pathway for sorghum oil reaches far beyond the farmer,” said Tom Willis, the NSP’s board director. “This is an avenue for creating jobs in rural America we so desperately need, and it helps provide energy security from a renewable water-conserving source.”

According to the NSP, in addition to the nine ethanol producers already extracting oil from sorghum, several other facilities will now be able to purchase and use sorghum. The pathway also makes possible additional investments in fuel infrastructure in the Sorghum Belt, says the NSP.

The EPA’s final rule was published in the August 2, 2018, FR.