The U.S. Environmental Protection Agency (EPA) finalized a rule that is likely to substantially increase production of certain kinds of valuable renewable fuels and create new markets for materials previously regarded as waste. Several of the key changes adopt comments submitted by McGuireWoods LLP on behalf of clients.

Signed July 2, 2014, EPA’s new rule - Regulation of Fuels and Fuel Additives: RFS Pathways II, and Technical Amendments to the RFS Standards and E15 Misfueling Mitigation Requirements - allows renewable fuels and electricity produced from biogas from landfills, wastewater treatment sludge and animal manure to generate “cellulosic” renewable fuel credits, the most valuable form of the credits known as “renewable identification numbers” (RINs), which are publicly traded on an EPA-moderated exchange. The rule will become effective 30 days after its publication in the Federal Register. (Publication typically occurs within a few days or weeks after signing.)

EPA’s Renewable Fuels Standard (RFS) program requires importers and producers of transportation fuel to include percentages of various kinds of renewable fuel in the overall volume they import or produce each year. Importers and producers acquire RINs to demonstrate that they have met the requirements.

EPA sets the required percentages, called the Renewable Volume Obligation (RVO), in an annual rulemaking under a congressional mandate that calls for the country to use 36 billion gallons of renewable fuels in transportation by 2022; 16 billion gallons of that amount must be cellulosic biofuels. To qualify as cellulosic, renewable fuels must be “derived from any cellulose, hemi-cellulose, or lignin” – the principal constituents of plant cell walls – and have 60 percent fewer greenhouse gas emissions than baseline.

EPA’s RVO for 2013 requires importers and producers of transportation fuel to include just 6 million gallons of cellulosic biofuel. To meet the 2022 mandate, the volume of cellulosic transportation fuel will have to increase a staggering 266,600 percent from 2013 levels. Pundits view the rule as a critical first step toward achieving that increase.

In the rule, EPA deferred its decision on the definition of “producer” and expressly decided not to identify which entity in these new biogas value chains is eligible to generate RINs. Instead, the agency will evaluate new registration packages for these pathways on a case-by-case basis, implying for now that the parties will decide by contract who claims the RINs.

As for the documentation requirements, the agency made slight revisions. Those changes allow registrants to use affidavits, in addition to contracts and other documents, to track the raw biogas from production to use as a transportation fuel.

In addition to the RIN-related changes, EPA used the rule to amend the E15 misfueling mitigation and the ultra-low sulfur diesel survey requirements and to make several other technical corrections.