February 5, 2015
The Renewable Fuel Standard (RFS): Compliance and Penalties
Background
renewable fuel. Every year, EPA sets the annual standard,
in volume and in percentage, for the various renewable fuel
The Renewable Fuel Standard (RFS) requires that
categories. For instance, EPA set the 2013 cellulosic biofuel
renewable fuel be blended into the nation’s transportation
standard at 810,185 ethanol-equivalent gallons and
fuel supply. However, it does not explicitly require the
calculated the percentage standard to be 0.0005% of total
production of biofuels. The mandate—based on volume (in
U.S. transportation fuel use. The obligated parties—those
billions of gallons)—increases annually from 9.0 billion
that refine or import gasoline or diesel fuel—must submit
gallons in 2008 to 36.0 billion gallons in 2022 (see Figure
credits to EPA indicating they have met their annual
1). Within the overall RFS mandate, there is a smaller
renewable volume obligation to confirm RFS compliance.
mandate to use advanced biofuels, which include fuels
This annual obligation is calculated by multiplying the
other than cornstarch ethanol that meet greenhouse gas
annual percentage standard announced by EPA by the total
emission reduction requirements relative to gasoline. Two
gasoline and diesel sales of the obligated party.
subcategories of the advanced biofuel category specifically
identified in the Energy Independence and Security Act
How Is Compliance Measured When the
(EISA; P.L. 110-140) are cellulosic biofuels and biomass-
Amount of Renewable Fuel Required
based diesel. The advanced biofuel category also includes
Does Not Exist?
other fuels, such as biogas and butanol. Outside of the
advanced biofuel requirement, the remainder of the RFS
Compliance necessitates that renewable fuels be supplied at
generally is met using ethanol produced from cornstarch.
the levels specified in the annual standard. To date,
compliance has not been an issue for the overall mandate (it
Responsibility for administering the RFS lies with the U.S.
is largely met using cornstarch ethanol). However,
Environmental Protection Agency (EPA). The agency
insufficient supplies of cellulosic biofuel have obligated
approves fuels that are eligible for the RFS, establishes
EPA to lower the cellulosic portion of the RFS each year.
annual standards for the various categories given certain
Conventional biofuel, which constituted approximately
conditions (i.e., reducing the volume amounts set in
83% of the RFS for 2013 (13.8 billion gallons), is being
statute), and ensures industry compliance, among other
produced at levels needed to meet the annual standards. In
things.
addition, biomass-based diesel—which constituted close to
8% of the RFS for 2013 (1.28 billion gallons)—has been
Figure 1. Renewable Fuel Standard (RFS) Mandate
produced at the levels needed to meet the annual standards.
(in billions of gallons)
Cellulosic biofuels would have constituted nearly 6% of the
RFS for 2013 (1 billion gallons) under the schedule in the
statute.
Cellulosic Biofuel Waiver Credits
Congress gave EPA authority to reduce or waive the
cellulosic biofuel mandate under certain conditions, mainly
if EPA concludes there will be insufficient supply to meet
the level set in statute. EPA reduced the cellulosic biofuel
standard for four consecutive years starting in 2010 and
proposed to do so again for 2014 (see Table 1). If EPA
reduces the cellulosic biofuel mandate, statute requires it to
set the new required volume by November 30 of the

Source: Energy Independence and Security Act (EISA; P.L. 110-140),
preceding year, and it must issue cellulosic biofuel waiver
§202.
credits for obligated parties to purchase for that compliance
Notes: Volume requirements for years following 2022 are to be
year. The per-gallon waiver credits provided by EPA must
determined by the Environmental Protection Agency (EPA) in future
equal the reduced cellulosic biofuel volume requirement set
rulemaking.
for that year. Obligated parties can use only the waiver
credits to meet their cellulosic biofuel annual obligation.
How Is Compliance Measured?
The cellulosic biofuel waiver credit price (set in statute) has
decreased over time from $1.56 per credit in 2010 to $0.42
Annual RFS compliance is accounted for using an EPA
per credit in 2013.
credit system that tracks the movement of renewable fuel
from production (or importation) to the blending stage. The
A legal challenge of EPA’s methodology for estimating
foundation of the system is the credit—the Renewable
actual cellulosic biofuel production volumes led to the 2012
Identification Number (RIN) assigned to each gallon of
standard being vacated by the court, and EPA proposed to
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The Renewable Fuel Standard (RFS): Compliance and Penalties
rescind the 2011 standard. In such cases, EPA has refunded
For example, the American Automobile Association (AAA)
or proposed to refund the money paid by obligated parties
stated that the amount of ethanol EPA proposes to be
to purchase cellulosic biofuel waiver credits.
blended into gasoline for 2014 exceeds what is actually
possible (given infrastructure and market limitations) and
Table 1. RFS Cellulosic Biofuel Requirements,
could subject obligated parties to fines. It is possible that a
2008-2014
potential lack of biofuel supply could lead to a lack of
(in billions of gallons)
RINs, and obligated parties could potentially face penalties.
However, when this scenario seemed possible for 2014,
Cellulosic Biofuel
EPA proposed lowering the 2014 standard, in part, so that
Cellulosic Biofuel
(EPA Reduced
obligated parties would not violate the RFS. Further, the
Year
(RFS Mandate)
Standard)
American Petroleum Institute (API) has mentioned fine
when referring to cellulosic biofuel waiver credits, which
2008
0 —
are an alternative compliance mechanism. API stated that
2009
0 —
by being required to purchase cellulosic biofuel waiver
credits, they were paying for a product that does not exist.
2010
0.1
0.0065
Because EPA in some years did not void the cellulosic
2011
0.25
0.006
biofuels standard, the cellulosic biofuel waiver credit has
become the only compliance mechanism. Obligated parties
2012
0.5
0.0105
do pay a fee to purchase the waiver credits, but doing so
2013
1
0.0008
protects them from much larger civil penalties.
Additionally, the waiver credits are likely a significantly
2014
1.75
0.017
cheaper compliance mechanism than if obligated parties
Source: EISA, §202 and various EPA rulemakings.
had to pay for the actual fuel.
Notes: In its 2014 proposed rule, EPA proposes to rescind the 2011
standard and to reduce the 2014 cellulosic biofuel mandate to 17
What’s Next?
million ethanol-equivalent gallons. The 2012 standard was vacated in
response to a legal challenge.
RFS compliance for 2014 can be determined only once
EPA issues the 2014 final rule, which was due November
Penalties
30, 2013. However, EPA announced in late 2014 that it will
take action on the 2014 final rule in 2015.
There are penalties for RFS violations. Those subject to a
penalty include any party that violates the RFS, any party
The RFS is one of several policies about which
that fails to meet its annual volume obligation, and any
stakeholders disagree regarding the policy’s impact on
party that causes another party to fail to meet its annual
other stakeholders. For instance, some in the biofuel
volume obligation. The actual penalty varies (e.g., civil
industry rarely acknowledge that there is a limit to how
penalties can be up to $37,500 per day for each violation,
much ethanol can be blended into the nation’s
plus the economic benefit of not complying with the
transportation fuel supply, among other things. Further, the
standards). EPA reports a party could be subject to a civil
petroleum industry’s call for reform or repeal of the RFS
penalty “as specified in sections 205 and 211(d) of the
could lead to the effective loss of multiple years of financial
Clean Air Act, for every day of each such violation and the
and technical support for the biofuel industry from the
amount of economic benefit or savings resulting from each
government, academia, and the private sector because,
violation.” Thus far, the only penalties issued have been for
without the RFS, biofuel would not be economically
parties involved in fraudulent biomass-based diesel RIN
competitive with gasoline. Thus far, many of the
activity.
stakeholders have looked to Congress, the
Administration—specifically the EPA—and the courts to
Why Do Some Stakeholders State That
remedy what they perceive as faults with the RFS,
They Are Being Fined Due to the RFS?
including cellulosic biofuel waiver credits and penalties.
EPA typically associates the term fine with enforcement of
More Information
civil or criminal violations of the Clean Air Act, but it more
often uses the term penalty. The complexity of the RFS, the
For more information, see CRS Report R43325, The
interrelated aspects of other EPA biofuel efforts (e.g., E15
Renewable Fuel Standard (RFS): In Brief; CRS Report
waiver request), and the fierce protection of market share
R42824, Analysis of Renewable Identification Numbers
by some stakeholders can make it difficult to understand
(RINs) in the Renewable Fuel Standard (RFS); CRS Report
RFS enforcement. However, an obligated party can incur a
R41106, The Renewable Fuel Standard (RFS): Cellulosic
civil penalty only when an RFS violation as described in the
Biofuels; and CRS Report RS22870, Waiver Authority
“Penalties” section above occurs. Thus far, the notices of
Under the Renewable Fuel Standard (RFS).
violations issued by EPA for the RFS have been limited to
Kelsi Bracmort, kbracmort@crs.loc.gov, 7-7283
relatively few cases.

Certain stakeholders and members of the media have used
IF10121
the term fine when referring to different aspects of the RFS.
www.crs.gov | 7-5700

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