The Renewable Fuel Standard: Is Legislative Reform Needed?

The Renewable Fuel Standard: Is Legislative Reform Needed?

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March 8, 2018
The Renewable Fuel Standard: Is Legislative Reform Needed?
There is widespread and heightened interest in the
plants with a production capacity of nearly 5.5 billion
Renewable Fuel Standard (RFS) among some Members of
gallons. In 2017—when the statute called for 15 billion
Congress and stakeholders. Recent developments—
gallons—there were some 200 plants with a production
including meetings between some Members of Congress,
capacity of 15.8 billion gallons.
the President and members of his cabinet, and industry
representatives pertaining to the RFS, as well as the
As a whole, advanced biofuel production capacity has not
bankruptcy filing by Philadelphia Energy Solutions (PES)
similarly kept pace with the mandate. The statute contains a
which the company attributes partly to the RFS compliance
carve-out within the advanced biofuel mandate wherein it
system—have reinvigorated the RFS reform discussion.
identifies statutory volume amounts for two specific types
Concerns about the RFS, and policy options that might
of advanced biofuel: cellulosic biofuel and biomass-based
address the concerns, evolve from many angles as the RFS
diesel. While biomass-based diesel has met the statutory
integrates at least three sectors into a single mandate—
volume amounts (production surpassed 2 billion gallons
energy, transportation, and agriculture—with an
around 2015), cellulosic biofuel has not. Since 2014, the
environmental component.
lack of cellulosic biofuel production has led EPA to use its
waiver authority to reduce requirements for three of the
The Renewable Fuel Standard
four fuel categories for which annual volume amounts are
The Renewable Fuel Standard requires that the nation’s
identified in statute: the cellulosic biofuel mandate, the
transportation fuel contains a minimum volume of
advanced biofuel mandate, and the total renewable fuel
renewable fuel (as defined by statute at 42 U.S.C. 7545).
mandate. For 2017, the EPA requirement for cellulosic
The minimum volume increases annually, starting with 4
biofuel was 311 million gallons, compared to the 5.5 billion
billion gallons in 2006 and increasing to 36 billion gallons
gallons of cellulosic biofuel called for in the statute.
by 2022, with the U.S. Environmental Protection Agency
(EPA) determining the volume amounts following 2022. In
Figure 1. RFS Fuel Classification
its most simple form, the RFS can be split into two
categories: conventional biofuel (i.e., corn starch ethanol)
and advanced biofuel (e.g., cellulosic ethanol, sugarcane
ethanol, biomass-based diesel) (see Figure 1). Eligible
biofuels for the RFS must meet greenhouse gas emission
reduction thresholds, be derived from renewable biomass,
and may only be used for transportation fuel (including jet
fuel) or home heating oil. RFS compliance is met using a
tradable credit system, whereby obligated parties submit
credits (i.e., Renewable Identification Numbers, or RINs) to
EPA that equal the number of gallons specified in their
annual obligation. EPA has authority to waive the annual
statutory volumes required, in whole or in part, if certain
conditions prevail. Further, starting in 2016, the waiver
authority allows EPA to reset the RFS for subsequent years
if certain conditions prevail.

Source: CRS.
RFS Performance
Other than reaching the statute’s volume requirements,
Potential Issues for Congress
stakeholders have expressed a wide range of priorities for
In its continuing oversight of the RFS program, Congress
the program, including increased biofuel production and
has shown particular interest in three primary matters: RFS
consumption, greenhouse gas emission reduction, reduced
compliance (particularly RIN prices and market
consumer fuel costs, displacement of conventional fuels,
transparency), advanced biofuel production (particularly
new transportation fuel infrastructure, job creation, energy
cellulosic biofuel production), and EPA’s reset authority.
independence, or a stronger U.S. position in the global
renewable energy market. Each of these priorities would
RFS Compliance
lead to different performance metrics.
RFS compliance involves five different RIN types which
are assigned based on a fuel’s “D code.” For instance, corn
Conventional biofuel production capacity in the United
starch ethanol is assigned a D6 RIN. RIN transactions are
States has kept pace with the mandate, almost tripling since
registered with the EPA Moderated Transaction System
2007. In 2007—when the statute called for 4.7 billion
(EMTS), but the system is limited in the types of
gallons of conventional biofuel—there were some 100 U.S.
information that it captures: for example, it is not clear
whether EMTS accurately reflects prices for all RIN trades.
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The Renewable Fuel Standard: Is Legislative Reform Needed?
EPA reports that the companies that may register with
called for in statute it would make up 76% of the advanced
EMTS are transportation fuel producers, exporters, and
biofuel pool and 44% of the total renewable fuel pool.
importers. Any company that seeks to own or trade RINs
Advanced biofuels have not materialized at the volumes
(i.e., “third parties”), or implement RIN Quality Assurance
identified in statute due to a slower-than-expected growth in
Plans under the RFS, may also register. In short, EMTS is
gasoline consumption, emerging technology issues, lack of
the system to report RIN transactions; EMTS is not the RIN
consistent support from the federal government, a lack of
market.
“drop-in” biofuels that can be used in the existing fuel
infrastructure, and an EPA that some report as being too
The RIN market is not overseen by federal authorities in a
slow in its approval of some advanced biofuel pathways,
way similar to other markets. There is a 2016 memorandum
among other things.
of understanding between EPA and the U.S. Commodity
Futures Trading Commission (CFTC) that allows the
RFS Reset
agencies to share data and analysis and for CFTC to advise
The waiver authority for the RFS allows the EPA
EPA on conducting appropriate oversight among other
Administrator to modify the applicable volumes required
things. EPA acknowledges “the RFS program is based on a
given certain conditions. Specifically, the statute requires
‘buyer beware’ liability and compliance approach.”
that the EPA Administrator modify the applicable volumes
of the RFS in future years starting in 2016 if the
Obligated parties may use the market to obtain the RINs
Administrator waives the renewable fuel mandate, the
needed to demonstrate their compliance. Ultimately, how
advanced biofuel mandate, the cellulosic biofuel mandate,
they obtain the RINs is up to them. They may choose to
or the biomass-based diesel mandate by at least 20% for
purchase the biofuel with RINs attached, or they may
two consecutive years or by at least 50% for a single year.
purchase RINs separated from the biofuel. Because the RIN
This “reset” has now been triggered for both advanced
market allows for participation from “third parties,” there
biofuel and cellulosic biofuel. Thus, EPA may modify the
could be circumstances where an obligated party would
future volume amounts for these two fuel categories.
purchase RINs from such a third party. Thus, some
However, EPA has not yet taken action on this matter.
obligated parties that do not have the infrastructure to blend
Further, the total renewable fuel category may be eligible
biofuels would be subject to the movements of the RIN
for a reset in the near future if EPA reduces the 2019 total
market differently (e.g., PES) than other obligated parties.
renewable fuel volume required. (For the first time, in 2018,
The extent of an obligated party’s access to the RIN market
EPA reduced the total renewable fuel volume required by
depends on that obligated party’s structure.
more than 20% of the statutory level.)
The cost to show RFS compliance—by purchasing RINs—
Congressional Interest
has always been a concern when RIN prices escalate. RIN
Congress may further investigate the RFS, including
price escalation can happen for a variety of reasons,
options that address the above issues. For instance, would
including the announcement of an annual standard,
prices decrease if the RIN structure were modified (e.g.,
discussion of changes to the program, and/ or market
addition of a D8 RIN for corn starch ethanol blended into
speculation. From 2015 through 2017, conventional biofuel
gasoline above 10%) or if the sale of higher ethanol-
(i.e., corn starch ethanol) accounted for 78-83% of the RFS
gasoline blends (e.g., E15) were expanded (e.g., by waiving
mandate, based on the EPA required volumes. Thus, D6
the Reid Vapor Pressure requirements under the CAA for
RINs are the predominant type submitted to EPA, and the
such fuels)? Would the RIN market be more transparent if it
type at the center of most RIN price discussions.
were overseen by a different agency (e.g., CFTC), if there
were additional reporting requirements, or if periodic access
Some are concerned that the overall RIN market is not
to the market was granted to observers not registered with
transparent. Because of this lack of transparency, some
EMTS? Would the advanced biofuel statutory requirement
market participants argue that market volatility may be the
be attainable if feedstocks other than biomass were eligible,
result of manipulation. On the other hand, some
if EPA finalized a renewable electricity pathway, or if
stakeholders see volatility in the market as a sign that it is
incentives were granted to advanced “drop-in” biofuels?
working. These concerns likely stem from who has access
Any resolution would likely involve congressional
to observe market transactions, the costs associated with
agreement, stakeholders’ willingness to compromise, and
those transactions, and from obligated parties that must use
the ability of both Congress and the executive branch to
the market to purchase additional RINs for compliance.
articulate and enforce a comprehensive and forward-
Currently, access by the public to the RIN market is limited,
looking set of goals for the RFS program.
with EPA providing some public data for the RFS and some
secondary sources providing RIN price information.
More Information
For more information, see CRS Report R43325, The
Advanced Biofuel Production
Renewable Fuel Standard (RFS): An Overview, and CRS
The growth in biofuel production for the RFS was supposed
Report R44045, The Renewable Fuel Standard (RFS):
to slowly transition from primarily biofuels made mostly
Waiver Authority and Modification of Volumes.
from food crops to biofuels made from non-food crops. The
transition has not happened. In the schedule set by
Kelsi Bracmort, Specialist in Natural Resources and
Congress, cellulosic biofuel would constitute most of the
Energy Policy
advanced biofuel portion of the mandate. Indeed, come
2022, if cellulosic biofuel materialized in the volumes
IF10842
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The Renewable Fuel Standard: Is Legislative Reform Needed?

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