Analyzing EPA's RFS2 Final Rule

December 27, 2011 08:12 PM
 
Untitled Document

via a special arrangement with Informa Economics, Inc.

Another decision still pending

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


EPA’s announcement on Tuesday did not change a lot compared to what they proposed back in June relative to the Renewable Fuels Standard 2 (RFS2) volumes for 2012, but EPA still has yet another decision pending on the 2013 biomass-based diesel that was to have already been decided.

EPA was required to determine and publish the applicable annual renewable fuel percentage standards for each compliance year by November 30 of the previous year. In other words, today’s announcement was to have been made by Nov. 30, 2011, but EPA said Dec. 20, “The rule is still under the interagency review process led by OMB and we will issue it as soon as that review is complete.”

Indications are OMB signed off on the regulation Dec. 23.

To calculate the percentage standard for cellulosic biofuel for 2012, EPA used a volume of 10.45 million ethanol-equivalent gallons. EPA is also using the applicable volumes that are specified in the statute to set the percentage standards for biomass-based diesel, advanced biofuel, and total renewable fuel for 2012.

Final Volumes for 2012

Category

Actual Volume

Ethanol Equivalent Volume 1/

Cellulosic biofuel

8.65 mill gal

10.45 mill gal

  Level proposed

3.45 - 12.9 mill gal

3.55 - 15.7 mill gal

Biomass-based diesel

1.0 bill gal

1.5 bill gal

  Level proposed

1.0 bill gal

1.5 bill gal

Advanced biofuel

2.0 bill gal

2.0 bill gal

  Level proposed

2.0 bill gal

2.0 bill gal

Renewable fuel

15.2 bill gal

15.2 bill gal

  Level proposed

15.2 bill gal

15.2 bill gal

1/ = Biodiesel and cellulosic diesel have equivalence values of 1.5 and 1.7 ethanol equivalent gallons respectively. As a result, ethanol-equivalent volumes are larger than actual volumes for cellulosic biofuel and biomass-based diesel.

Four separate standards are required under the RFS program, corresponding to the four separate volume requirements in the table above. The percentage standards represent the ratio of renewable fuel volume to non-renewable gasoline and diesel volume. Thus, in 2012 about 9% of all fuel used will be from renewable sources.

Final Percentage Standards for 2012

Cellulosic Biofuel

0.006%
(0.002-0.010% proposed)

Biomass-based diesel

0.91
(0.91% proposed)

Advanced biofuels

1.21%
(1.21% proposed)

Renewable Fuel

9.23%
(9.21% proposed)

The major difference between the final and proposed rule lie in the cellulosic ethanol area. The levels in the final rule from EPA differ from proposed levels based on an analysis of the current production capacity in the US and ability to import cellulosic ethanol. Here’s how EPA explains their decision:

“In today's final rule we specify the projected available volume for 2012 that forms the basis for the percentage standard for cellulosic biofuel. To arrive at this final volume, we took into consideration additional factors such as the current and expected state of funding, the status of the technology, progress towards construction and production goals, and other significant factors that could potentially impact fuel production or the ability of the produced fuel to generate cellulosic Renewable Identification Numbers (RINs). We also considered projections of cellulosic biofuel provided by the EIA.

“In our assessment we focused on domestic sources of cellulosic biofuel. While imports of cellulosic biofuels are possible and could be eligible to generate RINs, we believe this is unlikely due to local demand for cellulosic biofuels in the countries in which they are produced as well as the cost associated with transporting these fuels to the US. Of the domestic sources, we estimated that six facilities can make volumes of cellulosic biofuel available for transportation use in the US in 2012.”

 These facilities are listed in the accompanying table along with EPA’s estimate of the projected 2012 volume for each.

Projected Available Cellulosic Biofuel Plant Volumes for 2012

Company

Location

Fuel type

Projected available volume (million ethanol-equivalent gallons)

American Process Inc.

Alpena, MI

Ethanol

0.5

Fiberight

Blairstown, IA

Ethanol

2.0

INEOS Bio

Vero Beach, FL

Ethanol

3.0

KiOR

Columbus, MS

Gasoline, Diesel

4.8

KL Energy Corp.

Upton, WY

Ethanol

0.1

ZeaChem

Boardman, OR

Ethanol

0.05


Total

10.45








Reaction. As noted, EPA said it would set the required volume of cellulosic fuel at 8.65 million gallons for 2012. Congress had previously set a goal of using 500 million gallons next year, on the way to 16 billion gallons in 2022. EPA has the option to cut the cellulosic-fuel target based on industry capacity to produce the more advanced fuels, and that is what occurred. While EPA set the requirement well below Congress's goal, its decision still rankled some refiners. Companies will have to buy credits from the EPA if they cannot find enough cellulosic ethanol to purchase — even if the fuel may not be available. "The [EPA's] cellulosic number is still conjecture-based fantasy," said Stephen Brown, vice president for government affairs for refiner Tesoro Corp. The credits cost about $1.20 per gallon, according to Charles Drevna, president of the National Petrochemicals and Refiners Association. "Once again, refiners are being ordered to use a substance that is not being produced in commercial quantities — cellulosic ethanol — and are being required to pay millions of dollars for failing to use this nonexistent substance. This makes no sense," he said.

As for advanced biofuels, EPA noted they can reduce the applicable volume of advanced biofuel and total renewable fuel if it is determined that the projected volume of cellulosic biofuel production for 2012 falls short of the statutory volume of 500 million gallons. EPA said they have made that determination for 2012, and “must evaluate the need to lower the applicable volumes for advanced biofuel and total renewable fuel.”

Toward that end, EPA said, “To address the need to lower the advanced biofuel standard, we first consider whether it appears likely that the biomass-based diesel volume of 1.0 billion gallons specified in the statute can be met in 2012. We believe that the 1.0 billion gallon standard can indeed be met. Since biodiesel has an Equivalence Value of 1.5, 1.0 billion physical gallons of biodiesel would provide 1.5 billion ethanol-equivalent gallons that can be counted towards the advanced biofuel standard of 2.0 billion gallons. Of the remaining 0.5 bill gallons, 10.45 mill gallons will be met with cellulosic biofuel. We believe that there will be sufficient volumes of other advanced biofuels, such as imported sugarcane ethanol, additional biodiesel, or renewable diesel, such that the applicable volume for advanced biofuel can remain at the statutory level of 2.0 billion gallons.”

EPA further said they believe “there will be sufficient volumes to satisfy the 15.2 billion gallon applicable volume of total renewable fuel specified in the Act, so the 2012 total renewable fuel percentage standard is based on that volume.”

Also, for years after 2012, EPA is required to determine the applicable volume of biomass-based diesel at least 14 months prior to the year in which the volume will be required. Thus, for the 2013 compliance year, EPA was required to specify the applicable volume of biomass-based diesel by November 1, 2011.

Earlier this year, EPA proposed an applicable volume of 1.28 billion gallons for biomass-based diesel (BBD) for 2013. This is the volume that was projected for 2013 in the RFS final rulemaking. However, in today’s announcement, EPA acknowledged that yet another deadline will not be met:

“We are continuing to evaluate the many comments on the NPRM from stakeholders, and are not finalizing an applicable volume for 2013 BBD at this time in today’s rulemaking. We recognize that the statute calls for EPA to promulgate the applicable volume of BBD for 2013 no later than 14 months before that year. We intend to issue a final rule setting the applicable biomass-based diesel volume for calendar year 2013 as expeditiously as possible.”


Comments: So on renewable fuels, EPA has already missed two required deadlines, with only one of those deadlines “met” via today’s announcement – the level of renewable fuels that will be blended into motor fuels in 2012. Still awaited, however, is the biomass-based diesel volume for 2013.



NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


 


 

 

 

 

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