The Renewable Fuel Standard (RFS): Compliance and Penalties

The Renewable Fuel Standard (RFS): Compliance and Penalties

link to page 1 link to page 1 link to page 2

Updated June 19, 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
proposes to do so again for 2014, 2015, and 2016 (see
Table 1). If EPA reduces the cellulosic biofuel mandate,
statute requires it to set the new required volume by

Source: Energy Independence and Security Act (EISA; P.L. 110-140),
November 30 of the preceding year, and it must issue
§202.
cellulosic biofuel waiver credits for obligated parties to
Notes: Volume requirements for years following 2022 are to be
purchase for that compliance year. The per-gallon waiver
determined by the Environmental Protection Agency (EPA) in future
credits provided by EPA must equal the reduced cellulosic
rulemaking.
biofuel volume requirement set for that year. Obligated
parties can use only the waiver credits to meet their
How Is Compliance Measured?
cellulosic biofuel annual obligation. The cellulosic biofuel
waiver credit price (set in statute) has decreased over time
Annual RFS compliance is accounted for using an EPA
from $1.56 per credit in 2010 to $0.42 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 proposing to
https://crsreports.congress.gov

link to page 2 The Renewable Fuel Standard (RFS): Compliance and Penalties
rescind the 2011 standard. In such cases, EPA has refunded
violations issued by EPA for the RFS have been limited to
or proposed to refund the money paid by obligated parties
relatively few cases.
to purchase cellulosic biofuel waiver credits.
Certain stakeholders and members of the media have used
Table 1. RFS Cellulosic Biofuel Requirements,
the term fine when referring to different aspects of the RFS.
2008-2016
For example, the American Automobile Association (AAA)
(in billions of gallons)
stated that the amount of ethanol EPA proposes to be
blended into gasoline for 2014 exceeds what is actually
Cellulosic
possible (given infrastructure and market limitations) and
Cellulosic
Biofuel (EPA
could subject obligated parties to fines. It is possible that a
Biofuel (RFS
Reduced
potential lack of biofuel supply could lead to a lack of
Year
Mandate)
Standard)
RINs, and obligated parties could potentially face penalties.
2008
0
—
However, when this scenario seemed possible for 2014,
EPA proposed lowering the 2014 standard, in part, so that
2009
0
—
obligated parties would not violate the RFS. Further, the
American Petroleum Institute (API) has mentioned fine
2010
0.1
0.0065
when referring to cellulosic biofuel waiver credits, which
2011
0.25
0.006
are an alternative compliance mechanism. API stated that
by being required to purchase cellulosic biofuel waiver
2012
0.5
0.0105
credits, they were paying for a product that does not exist.
2013
1
0.0008
Because EPA in some years did not void the cellulosic
biofuels standard, the cellulosic biofuel waiver credit has
2014
1.75
0.033
become the only compliance mechanism. Obligated parties
2015
3
0.106
do pay a fee to purchase the waiver credits, but doing so
protects them from much larger civil penalties.
2016
4.25
0.206
Additionally, the waiver credits are likely a significantly
Source: EISA, §202 and various EPA rulemakings.
cheaper compliance mechanism than if obligated parties
had to pay for the actual fuel.
Notes: In its latest proposed rule, EPA proposes to rescind the 2011
standard and to reduce the 2014, 2015, and 2016 cellulosic biofuel
What’s Next?
mandates to 33, 106, and 206 million ethanol-equivalent gallons,
respectively. The 2012 standard was vacated in response to a legal
RFS compliance for 2014 can be determined only once
challenge.
EPA issues the 2014 final rule, which was due November
30, 2013. EPA reports it intends to finalize the standards for
Penalties
2014, 2015, and 2016 by November 30, 2015.
There are penalties for RFS violations. Those subject to a
The RFS is one of several policies about which
penalty include any party that violates the RFS, any party
stakeholders disagree regarding the policy’s impact on
that fails to meet its annual volume obligation, and any
other stakeholders. For instance, some in the biofuel
party that causes another party to fail to meet its annual
industry rarely acknowledge that there is a limit to how
volume obligation. The actual penalty varies (e.g., civil
much ethanol can be blended into the nation’s
penalties can be up to $37,500 per day for each violation,
transportation fuel supply, among other things. Further, the
plus the economic benefit of not complying with the
petroleum industry’s call for reform or repeal of the RFS
standards). EPA reports a party could be subject to a civil
could lead to the effective loss of multiple years of financial
penalty “as specified in sections 205 and 211(d) of the
and technical support for the biofuel industry from the
Clean Air Act, for every day of each such violation and the
government, academia, and the private sector because,
amount of economic benefit or savings resulting from each
without the RFS, biofuel would not be economically
violation.” Thus far, the only penalties issued have been for
competitive with gasoline. Thus far, many of the
parties involved in fraudulent biomass-based diesel RIN
stakeholders have looked to Congress, the
activity.
Administration—specifically the EPA—and the courts to
remedy what they perceive as faults with the RFS,
Why Do Some Stakeholders State That
including cellulosic biofuel waiver credits and penalties.
They Are Being Fined Due to the RFS?
More Information
EPA typically associates the term fine with enforcement of
civil or criminal violations of the Clean Air Act, but it more
For more information, see CRS Report R43325, The
often uses the term penalty. The complexity of the RFS, the
Renewable Fuel Standard (RFS): In Brief; CRS Report
interrelated aspects of other EPA biofuel efforts (e.g., E15
R42824, Analysis of Renewable Identification Numbers
waiver request), and the fierce protection of market share
(RINs) in the Renewable Fuel Standard (RFS); CRS Report
by some stakeholders can make it difficult to understand
R41106, The Renewable Fuel Standard (RFS): Cellulosic
RFS enforcement. However, an obligated party can incur a
Biofuels; and CRS Report RS22870, Waiver Authority
civil penalty only when an RFS violation as described in the
Under the Renewable Fuel Standard (RFS).
“Penalties” section above occurs. Thus far, the notices of
https://crsreports.congress.gov

The Renewable Fuel Standard (RFS): Compliance and Penalties

Kelsi Bracmort, Specialist in Natural Resources and
Energy Policy

IF10121

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.

https://crsreports.congress.gov | IF10121 · VERSION 4 · UPDATED