Responding to Congress’ Optimistic Renewable Fuel Standard (RFS)

In 2005, Congress enacted 15 U.S.C. § 1511, the renewable fuel standard (RFS) for motor vehicle fuels, in response to mounting public concern over perceived reliance on foreign oil and the effects of burning carbon-based fuel.  The goal was to achieve introduction of increasing volumes of renewable fuels into commerce with annually increasing requirements.
Financial incentives for ethanol production led to an initial rate of consumption that surpassed the original RFS goals.  An estimated 6.8 billion gallons of ethanol were consumed in the United States in 2007, 2.1 billion more than the RFS mandate for that year.  Since corn ethanol production and consumption had come so far so fast, Congress felt safe amending the RFS in the Energy Independence and Security Act of 2007 to require a greater volume of renewable fuels to be introduced for each year from 2008 to 2012 and adding mandates for subsequent years, with a 36 billion gallon directive set for 2022.  This revised RFS also made changes to provide that a certain volume of renewable fuels must come from advanced biofuels, defined as renewable fuels other than ethanol derived from corn starch, and requires this volume of advanced biofuel to be further broken down so that it is partially met with cellulosic biofuel and biomass-based diesel.

The EPA has responded to the requirements with regulations aimed at fuel producers, requiring refiners, blenders, and importers to sell a certain percentage of renewable fuels with the amount to be determined based on their total sales.  Fuel producers are also able to satisfy the RFS by purchasing Renewable Identification Numbers (RINs), which function as proofs of sale of renewable fuels from other producers.

While the regulatory burden to comply or face fines is on fuel producers, the fuel-purchasing public is impacted by the reliance on corn-based ethanol to meet the RFS and ever-increasing advanced biofuel mandates.   Some environmental organizations argue the demand for corn-based ethanol leads to inflated food prices, brings no net environmental benefit due to the commitment of more land to corn crops and current farming practices, and decreases fuel economy (ethanol has around two-thirds the energy content of gasoline, so it takes about one-third more ethanol to generate equivalent power).

The current market for ethanol sales in the transportation sector is essentially saturated, having hit the so-called “blend wall.”  Nearly all gasoline sold in this country already contains 10% ethanol by volume (commonly referred to as E10) and there is resistance to a recent EPA decision to permit the sale of gasoline with up to 15% ethanol by volume (E15) in vehicles manufactured after 2000.  In addition to general concerns about the environmental impact of increasing ethanol production for use in fuel, resistance to widespread use of E15 in certain model year vehicles is partially based on the likelihood of misfueling and engine damage.  The damage from E15 on engines and vehicle fueling components could end up costing the motoring public a great deal down the road.

Fuel producers have also expressed concern that gasoline prices will rise to offset the production of “advanced biofuels.”  The amended RFS includes requirements on the degree to which the renewable fuel mandate must be met with advanced biofuels, including cellulosic biofuels.  As recognized in a recent ruling by the  U.S. Court of Appeals for the D.C. Circuit, the production of cellulosic biofuels did not materialized in 2010 or 2011 despite EPA mandates that fuel producers introduce five million and six million gallons for the two respective years, leaving producers to purchase additional RIN credits or face penalties for not blending in a nonexistent fuel.  The court recognized EPA’s argument that the benefit of forcing fuel producers to purchase a certain volume of the experimental fuel would be the creation of a market for the cellulosic biofuel industry, allowing it to get its footing in the hopes that such facilities will eventually churn out salable fuels with a smaller carbon footprint.  In his opinion for the court, Senior Circuit Judge Williams noted that forcing the technology in this manner was putting pressure on one industry to establish itself and penalizing another for the newer industry’s shortcomings, which sent the message: “Do a good job, cellulosic fuel producers.  If you fail, we’ll fine your customers [the mainstream fuel producers].”  The court paid special attention to a provision in the revised RFS qualifying the promulgation of regulations for cellulosic ethanol a “safety valve” of sorts, that directed the EPA to set the annual amount of required cellulosic biofuels at a volume based on production predictions generated by the Energy Information Administration (EIA).  Since the Agency’s mandate for the 2012 calendar year was based partially on numbers provided by EIA and partially on internal policies designed “toward ‘promoting growth’ in the cellulosic biofuel industry,” the Court found it had abused its discretion in establishing the standards and it would have to base such mandates on neutral and objective bases consistent with Congress’ directive.

The EPA has proposed increased cellulosic fuels targets for 2013 which, like the 2012 targets invalidated by the D.C. Circuit, exceed the production quantity predictions offered by the EIA.

Written by Ashley Ailsworth, GIELR staff