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. 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 the [listed and eligible] biofuel as cellulosic … where the cellulosic material makes up a predominant percentage of the organic material from which the fuel is produced.” Thus, the entire volume of cellulosic biofuels will be able to generate applicable RINs.

This same methodology would also be applied to any additional cellulosic pathways on a case-by-case evaluation basis. For fuels that derived from lower-cellulose feedstocks (e.g., jet fuel), EPA is seeking additional comment on how to assign RINs to the fuel.

Expanding RFS2 Eligibility to Include Renewable Electricity, Renewable Diesel and Naphtha Produced from Landfill Biogas

In response to industry petitions, EPA proposes to allow three new fuel pathways to generate RINs: renewable electricity produced from certain kinds of biogas, renewable diesel and naphtha produced from qualifying biogas.

  • Electricity from Landfill Biogas is a Qualifying Cellulosic Biofuel. Based on its GHG accounting, EPA proposes that electricity generated from landfill gas feedstocks is a cellulosic biofuel, capable of generating RINs. While EPA implies that the electricity may need to be used to charge electric vehicles (EVs), the proposed rule is unclear about the level of verification required to demonstrate that the electricity is being used for a transportation purpose.
  • Fuel from Landfill Biogas is Derived From Cellulose. A 1989 EPA study of methane production from municipal solid waste found that approximately 90 percent of the methane was from cellulose or hemicellulose. Relying on this study, EPA is now proposing to classify 100 percent of the renewable fuel volume produced from landfill biogas as “derived from” cellulose, hemicellulose or lignin and therefore entitled to generate cellulosic RINs if the fuel meets the required 60 percent GHG emissions reduction threshold relative to gasoline (i.e., the landfill biogas must produce 60 percent fewer GHG emissions over its lifecycle compared to gasoline).
  • Fuel Must Achieve Required GHG Emissions Reduction Thresholds. For both the new landfill gas-to-electricity and landfill gas-to-liquids pathways, EPA proposes to use flared biogas as the GHG emissions baseline to determine compliance with the 60 percent lifecycle threshold versus gasoline.

EPA postulates that landfill gas-to-electricity achieves a 96 percent reduction and that landfill gas-to-liquids and naphtha would achieve 52 percent and 51 percent reductions versus gasoline. This latter magnitude of reductions, when coupled with a case-by-case demonstration of 15 percent emission reductions achieved for on-site energy recycling and consumption, would allow these additional fuels to meet the 60 percent threshold.

  • Landfill Gas Liquids and Naphtha may be Advanced Biofuels. EPA is seeking comments on its lifecycle GHG analysis of landfill gas-to-liquids and naphtha production, and is proposing to allow only renewable diesel for use as conventional diesel fuel to qualify under the RFS program. EPA invites comment on whether jet fuel and heating oil produced from landfill biogas ought to qualify for renewable fuel credits.
  • Electricity from Biogas Produced from Waste or Wastewater Sludge Not Evaluated. EPA is specifically seeking comment on whether biogas-to-electricity derived from waste or wastewater feedstocks should qualify as cellulosic or advanced biofuels.

Changes to all Biogas-related Pathways for RIN Generation

The NPRM makes numerous changes to RIN generation criteria and parameters for all new and existing biogas-related pathways:

  • RIN Limitations on Biogas-based Electricity. Just as existing regulations require that to generate RINs, renewable transportation fuels made from biogas must be added to a common carrier pipeline, the NPRM proposes that a landfill gas-to-electricity producer must load “the renewable electricity to a power grid shared by the second company that withdraws the electricity, such that the two companies must be physically connected to the same grid or located within the same area.”
  • Proposed Clarification of the RIN “Producer” for Renewable Electricity and CNG/LNG. EPA proposes that the producer of eligible RINs for both renewable electricity and biogas-based compressed natural gas/liquefied natural gas is the company that distributes the fuel. The producer will be responsible for the registration, reporting and recordkeeping to track and verify RIN generation.
  • Unclear Which Party Entitled to Renewable Electricity “RINs.” The NPRM proposes to identify the company that distributes electricity for use as a transportation fuel as the applicable RIN “producer.” However, the proposal leaves open questions of whether the electricity-generating facility or the load-serving electric utility will be recognized as “distributing” the eligible cellulosic biofuel to the electric vehicle end-user.

Other Noteworthy RFS2 Modifications

Finally, the NPRM makes several important modifications to the RFS2 regulations intended to streamline administrative headaches. These include:

  • revisions to registration and RIN reporting methods (including sell and buy transactions for assigned RINs);
  • extension of detailed verification reporting requirements to foreign fuel producers and importers; and
  • modifications to existing eligibilities and pathways for compressed natural gas (CNG) produced by bio-digesters (including expansion of the types of materials that may be used to produce CNG in a digester to include animal wastes, biogenic fats, oils and greases, separated food and yard wastes, and crop residues).