Posted July 21, 2009

There are a few positives for biodiesel producers imbedded in the U.S. EPA's proposed rule to implement the revised renewable fuel standard (RFS2), according to Clayton McMartin, president of Clean Fuels Clearinghouse. The treatment of renewable identification numbers (RINs) is potentially a big deal, he said. "Producers probably should write EPA in support of this part of the rule."

Under the previous rule the volumes used to calculate the renewable fuel obligations for petroleum refiners were based on gasoline production only, which in the future will be expanded to include diesel going into transportation fuels, McMartin pointed out. An equally big change will be the ability to transfer or trade RINs on biodiesel produced for both transportation and off road uses.

Under RFS1, any RINs associated with off road uses for biodiesel were be retired. Under the proposed rule for RFS2, biodiesel bound for most off road uses will be able to generate renewable identification numbers. McMartin added that producers will want to be sure to register their 2009 biodiesel production for RINs since the EPA also proposes allowing retired RINs on 2009 production to be reinstated and used for compliance in 2010, or when the rule becomes effective. McMartin said, "it is for this reason that we are having all of our biodiesel producers generate RINs for all of their production, even if they know that they will turn right around and retire the RINs for the product that goes into the 2009 off-road market. By taking these steps, the producer will have all the records necessary for reinstating the RINs, should the RFS2 rule be adopted as proposed."

The treatment of RINs for off road uses is related to the change in the definition of renewable fuels made in the Energy Independence and Security Act which modified the renewable fuels standard. Under the expanded definition, RINs can be assigned to renewable fuels head for transportation fuels and non road uses, of which construction and agriculture are the two largest. The EPA non road definition also includes locomotives and marine uses, with the exception of ocean-going vessels. Additional renewable fuel uses also may generate RINs for heating oil and jet fuel. However, renewable fuels used in industrial boilers would not generate RINs.

McMartin also reported there will likely be some fundamental changes in the RFS2. In conversations with staff members for key Senators, McMartin said, "There is no support for grandfathering biodiesel but there is support for removing the indirect land use change issue." The Climate Bill as passed by the House in late June included language to grandfather biodiesel facilities built prior to the passage of the Energy Bill in the same way ethanol plants are, without GHG thresholds. However, that biodiesel production would be incorporated into the conventional renewable fuel production volumes. The staffer McMartin talked to stressed that shouldn't be an issue, however, because there is support in the Senate to also block the indirect land use issue.

In the House compromise worked out to garner support to pass the Climate Bill, a scientific review of indirect land use impacts would be done with the USDA and EPA required to jointly review those findings before the land use impact could be incorporated into the RFS rule. Congress would also be able to weigh in again, if it chose, effectively delaying the issue for six years.

Within a few days of the House version of the Climate Bill passing, EPA announced it would extend the comment period for the RFS2 to Sept. 25 which is likely to delay implementation once again. "RFS2 will not be going into effect Jan. 1, 2010," McMartin said. "The regulatory process can't support it."

To read the part of the rule dealing with these issues visit the EPA Web site.

The National Biodiesel Board has launched an Action Center on its Web site that includes links to the EPA Web site, instructions for commenting on the rule, sample comments and additional background information.