US EPA proposes stalling 2021 biodiesel RVO at 2020 level

By Erin Voegele and Ron Kotrba | July 05, 2019

The U.S. EPA released its proposed rule July 5 to set 2020 renewable volume obligations (RVOs) under the Renewable Fuel Standard and the 2021 RVO for biomass-based diesel.

The agency has proposed to set the 2020 RVO at 20.04 billion gallons, up from 19.92 billion gallons in 2019, including 5.04 billion gallons of advanced biofuels—2.43 billion gallons of which must be biomass-based diesel and 540,000 million gallons cellulosic biofuel. The 2020 RVO for biomass-based diesel was set last year at 2.43 billion gallons.

When compared to the 2019 RVOs, the proposal would increase the 2020 RVO for cellulosic biofuel by 120 million gallons. Due to the nested nature of the RFS RVOs, the implied RVOs for advanced biofuel and renewable fuel would remain at 2019 levels.

The rulemaking also proposes to set the 2021 RVO for biomass-based diesel at 2.43 billion gallons, level with the 2020 RVO.

On a percentage basis, the RVO would require biofuels to comprise 10.92 percent of U.S. transportation fuel, including 2.75 percent advanced biofuel, 1.99 percent biomass-based diesel, and 0.29 percent cellulosic biofuel.

Not only would the proposed biomass-based diesel RVO for 2021 stall growth for biodiesel at the 2020 level, but according to the National Biodiesel Board it could actually reduce market space for biodiesel and renewable diesel compared to this year because it does not account for small refinery exemptions.

“EPA's proposed rule would turn the RFS program on its head,” said Kurt Kovarik, NBB’s vice president of federal affairs. “It is likely to reduce America’s use of cleaner, lower-carbon biodiesel and renewable diesel for transportation over the next several years, encouraging more petroleum use. The proposal sends a chilling signal to America’s biodiesel and renewable diesel producers of EPA’s intent to limit market growth for cleaner fuels. EPA appears to have simply repeated the previous biomass-based diesel volume of 2.43 billion gallons for 2021 without analyzing our industry’s ability to achieve higher volumes. Worse, EPA refuses to reconcile its RFS rules with its small refinery exemption handout spree. EPA Administrator Andrew Wheeler asserts that by law he must grant RFS hardship exemptions to every refiner that asks. Yet in the proposed rule, EPA claims it can’t possibly predict whether oil refineries will once again take advantage of EPA’s open spigot on these handouts. We know that Administrator Wheeler’s public statements and EPA’s calculation of small refinery exemptions in the annual volumes can’t both be true.”

EPA’s calculation of the 2020 annual percentage standards uses “zero” as the number of gallons of diesel and gasoline produced by exempt small refineries, according to the NBB. For 2015, 2016 and 2017, EPA exempted nearly 28 billion gallons of gasoline and diesel produced by small refineries, without accounting for them in the RFS program. Those exemptions reduced demand for biodiesel and renewable diesel by hundreds of millions of gallons. According to University of Illinois Professor Scott Irwin, the demand destruction for biodiesel and renewable diesel could reach 2.45 billion gallons over the next few years causing a $7.7 billion economic loss for the biodiesel industry.

“Even one small refinery exemption has the potential to put a biodiesel plant out of business, impacting hundreds of jobs in the surrounding community,” Kovarik said. “Consider a so-called small refinery such as Exxon’s in Billings, Montana, which reportedly received an RFS hardship exemption. It can process more than 60,000 barrels of oil each day—producing 1.9 million gallons of gasoline and diesel every day and 712 million gallons every year. The annual RFS obligations for that fuel would provide a market for more than 17 million gallons of biodiesel and renewable diesel for the year. There are dozens of biodiesel producers who produce less than that on an annual basis and who could be put out of business.”

Grant Kimberley, executive director of the Iowa Biodiesel Board, said, “The administration must understand that a feeble RFS also affects Americans beyond the biodiesel manufacturing industry itself. Farmers are already in one of their worst years in recent memory, with many trying to hold on to their family farms. This proposal is yet another blow to them when farm income is down by 50 percent compared to five years ago, according to the USDA. Supporting their participation in the energy market through common sense policies like the RFS can soften this blow. Meanwhile, we stay in painful limbo on trade with China, the biodiesel tax credit remains expired, and the commerce department has relaxed duties on imports on Argentine biodiesel. We’re becoming fed up with the lack of commitment to this industry in Washington.”

In addition to proposing 2020 RVOs and the 2021 RVO for biomass-based diesel, the rulemaking also contains several proposed amendments to RFS program regulations. According to the EPA, the proposed changes include clarification of diesel RVO calculations, pathway petition conditions, a biodiesel esterification pathway, distillers corn oil and distillers sorghum oil pathways, and renewable fuel exporter provisions.

The EPA also proposes a number of changes to the RFS regulations as part of the Renewables Enhancement and Growth Support rule, which was proposed in late 2016 and has yet to be finalized. The agency said it is considering whether several of the proposed changes included in the REGS rule could be finalized as part of the 2020 RVO rule. This includes allowing production of biomass-based diesel from separated food waste; flexibilities for renewable fuel blending for military use; heating oil used for cooling; separated food waste plans; RFS facility ownership changes; additional registration deactivation justifications; new renewable identification number (RIN) retirement section; new pathway for coprocessing biomass with petroleum to produce cellulosic diesel, jet fuel and heating oil; public access to information; redesignation of renewable fuel of a PTD for nonqualifying uses, and other revisions to the fuel program.

The Renewable Fuels Association issued a statement criticizing the rulemaking for neglecting to prospectively reallocate SREs and blatantly ignoring a court order to restore improperly waived gallons.

According to the Renewable Fuels Association, EPA approved 54 exemptions for 2016 and 2017 and an additional 38 requests for 2018 exemptions are pending. Not a single exemption request has been denied by EPA since 2015. The exemptions effectively lowered the total RFS requirement for 2017 by 1.82 billion gallons and cut the 2016 requirement by nearly 800 million gallons.

Making matters worse, the RFA said EPA’s proposal continues to flout the D.C. Circuit Court’s 2017 order requiring the agency to restore 500 million gallons of renewable fuel obligations that it inappropriately and illegally waived from the 2016 RVO. Unbelievably, the agency is proposing to snub the court’s ruling by refusing to restore the 500 million gallons remanded volume.

A full copy of the prepublication version of the proposed rule can be downloaded from the EPA website. According to the rulemaking, a public comment period will be open until 30 days after a public hearing on the proposal is held. The agency is expected to announce the date and location of that hearing soon.

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