EPA Proposes Remarkable Amendments To Renewable Fuels Standard (RFS2) Program Regulations

Sometimes EPA-proposed rules can be a welcome surprise. On May 21, 2013, EPA issued a Notice of Proposed Rulemaking (NPRM) proposing a series of potentially beneficial modifications to the federal Renewable Fuels Standard (RFS2) program (40 CFR Part 80, Subpart M), requiring that a minimum annual volume of biofuels be used in the national transportation fuel supply.

The proposed rule, if finalized, could have myriad effects on the economics of biofuel and biogas projects and the volume of RFS2-qualifying advanced fuels brought to market in coming years. For the first time, advanced butanol, an alcohol less corrosive than ethanol and containing nearly as much energy per volume as gasoline, could be commingled with ethanol gasoline blends. This feature alone may help assuage concerns from fuel refiners who have pushed Congress to fundamentally alter the RFS program in the wake of the rising cost of corn ethanol-based renewable fuel credits (formally known as Renewable Identification Numbers or "RINs"). But the real surprise here is EPA's proposal to permit electricity (used to charge electric vehicles) generated from certain kinds of biogas to create saleable RINs.

You read that right. Electricity.

The proposal, which contains significant amendments to several parts of the RFS2 regulations (as well as technical amendments to other provisions) will be open for public comment for 30 days after publication in the Federal Register, particularly on how to calculate RINs for the newly allowed renewable fuel "pathways" and on whether to allow other renewable fuel production methods to generate RINs (e.g., wastewater biogas-to-electricity, jet fuel).

Here are some highlights of this dense NPRM:

Expansive Interpretation of Cellulose-Derived Renewable Fuels

As part of its final RFS2 rules in 2010, EPA allowed several types of cellulosic fuels to generate biofuel RINs (see 40 CFR § 80.1426), but limited the RINs to that portion of the fuel derived from cellulose (versus other substances contained in plant materials, like amino acids and starches). As a result there has been uncertainty over how much of the resulting renewable fuel would be RIN-eligible.

In its proposal, EPA has chosen to broadly interpret the statutory definition of cellulosic biofuel, particularly the clause "renewable fuel derived from [cellulosic materials]." As a result, except for separated yard waste, food waste and municipal solid waste, EPA proposes to classify "[100 percent] of...

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