The Environmental Protection Agency (EPA) sets the annual percentage standards for ethanol, cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuels that apply to all gasoline and diesel produced or imported each year. EPA blending requirements for the Renewable Fuel Standard (RFS) to date have been reduced to address the “blend wall” – the fact that most of the American automobile fleet can only tolerate fuels with a maximum of 10 percent ethanol before fuel system corrosion becomes an issue.
Certain industry participants are required under the Energy Policy Act (EPAct) of 2005 and the Energy Independence and Security Act (EISA) of 2007 to comply with these standards which require production of a minimum amount of renewable fuels or face stiff financial penalties. The primary businesses subject to these requirements are refineries and importers of petroleum products. If a refinery or importer fails to produce sufficient volumes of renewable fuels, they are permitted to purchase credits, known as Renewable Identification Numbers or RINs, on the open market to make up any deficit. RINs represent actual biofuels produced by other businesses.
On April 10, 2015, EPA announced that it intends to propose January 31, 2016 as the compliance deadline for both the 2013 and 2014 RFS blending requirements. These new deadlines are largely the result of a proposed consent decree spurred by litigation initiated by the American Petrochemical Institute and American Fuel and Petrochemical Manufacturers.
According to the Society of Independent Gasoline Marketers of America (SIGMA):
“Industry groups are concerned that the deadline will create a sudden price spike for RINs because refiners and importers will require a significant number of credits—for both 2013 and 2014—all on one day. Renewable fuel producers further fear that such a spike could renew calls by the petroleum industry to repeal the RFS program as it did in 2013 during a similar RIN price spike.”
In proposed requirements released today, the standard for 2014 was adjusted to reflect the volumes of renewable fuels that were actually used in 2014. However, because the compliance deadline for 2013 has been extended to match the 2014 deadline, refiners may be scrambling to ensure they have sufficient RINs to meet their obligations under the EPAct and EISA.
The standards released today are as follows:
Click here to view table.
These standards are lower than those set out in the EP Act and EISA, reflecting the continuing limitations of the American automobile fleet and the limited ability of the industry to produce renewable fuels. However, following what it interprets as the “ambitious” spirit of the legislation, the proposed volumes require substantial year-over-year increases for 2015 and 2016, leaving significant market uncertainty about the technical feasibility of reaching these targets.