EPA’s RFS Final Rulemaking 2023-25: The Bottom Line

By Jennifer LeRow, Project Director, Lee Enterprises Consulting
Special to The Digest

The U.S. Environmental Protection Agency (EPA) officially released the long-awaited Renewable Volume Obligation (RVO) numbers and other important updates to the Renewable Fuel Standard (RFS) in its Final Rule on June 21, 2023, establishing annual obligations for the years 2023-2025. The optional 2026 RVO previously proposed in December of 2022 was not included.

This historic rulemaking represents the agency’s inaugural act using its “set” authority to determine the annual volumes of renewable fuels to be used to displace petroleum products in the domestic transportation sector. Prior to this rulemaking, RVOs were to be set annually according to statutory volumes defined by Congress, which expired after 2022. EPA was faced with a significant challenge, as it was statutorily required to consider numerous factors when using its “set” authority, including the impacts of the program on cost, air and water quality, climate change, previous implementation, environmental justice, U.S. energy security and independence, available infrastructure, prices of related commodities (feedstocks, fossil fuels, food impacts), and supply factors.

Also of note are a number of constraints placed on the EPA when establishing the annual volumes under its newfound set authority beginning in the year 2023:

• EPA must set the advanced biofuel annual volume each year at a number equal to or greater than the ratio of advanced biofuels to total renewable fuel in the year 2022; that means that the ratio must be at least 27.3% each year,
• Biomass-based diesel must be at least 1 billion gallons, and
• Cellulosic volumes must be established at realistic levels that will not intentionally force the EPA to use its waiver authority for any given year.

After issuing its proposed rule, EPA was faced with the onerous task of reading through almost 5,000 public comments submitted to the docket by February 10, 2023, and meeting with industry stakeholders prior to sending the final rule to the Office of Management and Budget (OMB) for review on May 15, 2023. The EPA was also required by a court-decreed deadline to issue its final rule no later than June 14, 2023, which was later extended one week until June 21^st.

Much of the feedback that EPA received in comments and meetings applied pressure on the legitimacy of eRINs under the RFS, as well as antitrust issues surrounding the unprecedented move in regulatory parties and Renewable Identification Number (RIN) generation from the renewable fuel producers to the currently limited number of Original Equipment Manufacturers (OEMs) of electric vehicles.

Other arguments presented studies and data that showed the supply of renewable fuels coming online was much higher than the proposed volumes, in addition to feedstock studies and supporting data that illustrated higher-than-assumed availability with no impact on food prices or land use change. Further, the EPA received quite a bit of push-back on changes to statutory definitions throughout the program, in addition to potentially crippling recordkeeping and third-party oversight requirements that were proposed. As usual, the EPA’s proposal to raise the ethanol volumes was countered by stakeholders citing the “E10 blend wall.”

It seems the EPA listened, and they did raise the annual volumes for certain categories in the years 2023 – 2025. Many stakeholders were pleased, and of course, others insist it is still not enough. Additionally, they peeled eRINs out of the program, at least for now. Other potentially problematic proposals were also tabled for the time being, including alternatives to previously proposed recordkeeping and oversight requirements in some areas. EPA also delayed the finalization of any significant revisions to critical definitions that could cause dramatic changes for regulated parties until after more discussion and consideration of the implications.

Renewable Volume Obligations

Table 1: Final Volumes per Component Category Breakdown

 

Table 2: Final Volumes per Statutory Category – the Actual RVOs

Table 3: Final Percentage Standards

*250 million supplemental volume due to court decree placed in Total Renewable Fuel for the year 2023 intended for corn ethanol, but may be filled by Advanced Biofuels

Changes Not Adopted in This Rulemaking

Many of the more complex provisions proposed did not make it into the Final Rule, including:

• eRINs, citing potential antitrust issues, at least for the time being,
• changes to coprocessing and biointermediate rules,
• changing the definition of renewable biomass, which is intertwined with coprocessing and biointermediates, and
• increasing the “ethanol mandate” from 15 billion gallons to 15.25 in the years 2024 and 2025, citing infrastructure constraints.

They also tapered down the onerous recordkeeping and additional supply chain registration requirements previously proposed for certain stakeholders, including feedstock aggregators and other members of the waste feedstock supply chains.

Changes That Were Adopted in this Rulemaking

Of the provisions that were retained was biogas regulatory reform, outlined in its own section of the EPA’s Final Rule and Response to Comments. Also of note is that since EPA delayed the eRINs program, the Cellulosic RVOs were reduced by the forecasted number of eRINs. While the decreases do not appear to be commensurate, they are indeed, because the EPA made sure to allocate volumes back to cellulosic RNG as appropriate. Compliance Deadlines for Obligated Parties were also outlined.

Also good news is the fact that there were increases from the proposed numbers in the advanced biofuel pool. Although it is nowhere near supply coming online in the next few years, it is a win. EPA asserts in its responses that consciously causing changes to the prior-year RIN Bank based on supply when demand cannot digest is inappropriate, citing that short-term energy outlooks are impacted by self-reporting by obligated parties that use a number of internal accounting methods that do not depict true demand.

Table 4: Differences Between Proposed and Final RVOs

Note:

• Key: Renewable Fuel (RF), Advanced Biofuel (AB), Biomass-Based Diesel (BBD), Renewable Diesel (RD), Biodiesel (BD).
  • Total RF – AB = Eth = 15 billion
  • AB = Total RF – Eth
  • BBD in gallons is now multiplied by 1.6 instead of the previous 1.5 to calculate actual RINs for the RVO, due to the 1.7 multiplier used to generate RINs for RD fuels coming online
  • Other AB not classified as Cellulosic or BBD is what’s leftover
  • The leftovers are expected to be filled with the below-mentioned fuels, but also by:
    • D4 qualifying BBD (and potentially biogas) in excess of the BBD & cellulosic volumes

Table 5: Number and Type of RINs Expected to Fill the Final RVO Requirements

Changes Related to Separated Food Waste

EPA’s previously finalized recordkeeping provisions included the requirement that renewable fuel producers collect and maintain all feedstock records on aggregators and their suppliers, but it was contested in court. Under the recent proposal, EPA would have required the feedstock suppliers and aggregators to register with the EPA and independently participate in the QAP program if the renewable fuel producer could not collect the highly confidential records. Due to stakeholder concerns over straining the availability of independent third-party reviewers, EPA altered its approach in the Final Rulemaking. The feedstock suppliers must complete a simplified registration with the EPA (less the Third Party Engineering Review and Separated Food Waste Plan) and participate in the renewable fuel producers’ QAP, maintaining all of the required documents in-house instead of releasing them to the renewable fuel producers. PTD (Product Transfer Document) language requirements for aggregated separated wastes were also updated. Further, the proposal to treat aggregated feedstock as a biointermediate was not included in the Final Rule.

Biogas Regulatory Reform

RIN Generation:

Among the biggest changes to the rules for RNG is who will be generating the RINs for RNG used as renewable CNG or renewable LNG for transportation use. The RIN generator will be the RNG producer who upgrades the biogas to RNG when they inject it into the national pipeline system. This may trigger changes in RNG agreements between parties. Other parties who are registered to generate RINs for renewable CNG or LNG before July 1, 2024 have until January 1, 2025 to be compliant with the new rule.

RIN Separation:

Obligated Parties not part of the transactions will no longer be permitted to separate any biogas RINs when they come into their inventories. The only biogas RIN separation event occurs when a party withdraws the RNG from the pipeline and uses it to produce CNG/LNG from RNG, or when a party uses or dispenses the CNG/LNG as transportation fuel.

Other Pathway Registration, Reporting, and Recordkeeping Impacts:

QAP remains voluntary since EMTS will be developed to track RNG RIN contractual agreements, also resulting in less documentation requirements.

New testing, measurement, and QAP procedural requirements were introduced that should be discussed with the producers’ QAP providers and/or third-party auditors.

New regulated parties in the biogas to CNG/LNG chain have been introduced, and each of them must register as appropriate with the EPA to ensure proper registration, reporting, and recordkeeping: 1) Biogas Producer, 2) RNG Producer/Importer (biogas closed distribution system RIN generator), 3) Renewable Electricity Generator, 4) RNG RIN Separator, and 5) Any party that produces renewable fuel from biogas used as a biointermediate or RNG that is used as feedstock.

RFS Third-Party Oversight Enhancement

An entire section has been devoted to enhancements and increased Third-Party Oversight provisions to better mitigate fraudulent and illegal activity.

For third-party engineers, this includes additional procedures and deadlines for triennial reviews that can be started no earlier than July 1 of the year prior to the January 31 deadline. They are increasing the independence requirements to mirror those required of independent auditors, introducing electronic certification for third-party engineers, and adding increased demands on the engineering review reports to establish evidence of thorough site visits and appropriate independent data verifications. Three-year engineering reviews must be conducted while the renewable fuel facility is actually producing and not in shut-down or maintenance mode. Constraints on future employment of a third-party engineer by a renewable fuels facility previously audited were introduced to ensure impartiality. Other prohibited acts and liability provisions were also introduced.

For third-party auditors, EPA felt they needed to clarify independence requirements to minimize conflicts of interest and invalid RIN generation, including 1) “Acting impartially when performing all auditing activities,” 2) “prohibiting independent third-party auditors that were involved in the design or construction of a facility from auditing that facility,” and 3) “prohibiting a person employed by an independent third-party auditor who is negotiating for future employment with the owner or operator of the audited party from participating in that audit.” In response to stakeholder feedback and in light of the foregoing provisions, they did not finalize the proposal to disallow QAP third-party auditors from offering any other auditing services within a year of performing QAP services as long as they were not involved in the design or construction of the facility.

Other Changes to the Regulation

In addition to the foregoing more complex program changes finalized, the EPA made a few other changes that stakeholders should be aware of.

The previous 1.5 multiplier used to calculate how many RINs are expected to be generated for biomass-based diesel (originally assuming biodiesel) was proposed to be increased to 1.57, but the EPA instead raised it to 1.6 in its Final Rule to account for the additional volumes of renewable diesel coming online with an energy equivalence value of 1.7.

EPA also updated its methodology on how to calculate the ratio of D5 advanced RINs to D3 cellulosic RINs when multiple feedstocks are simultaneously converted to biogas in anaerobic digesters to ensure a conservative cellulosic estimate.

Ocean-going vessels meeting the EPA’s Category 3 definition will no longer incur RVOs for transportation fuel use.

Finally, the EPA provided assurance that it will continue to work with other agencies to update its modeling, creating the potential to offer better RIN values for lower carbon-intensity fuels, using its set authority.

Conclusion

Industry stakeholders have asked that the EPA not use this final rule as the grounds for future rulemakings under their set authority and that they consider relevant factors for future years that include changes in the availability of feedstocks, renewable fuel volumes by category, and new modeling options, among others. EPA also cited that they set the volumes under the assumption that there will be no additional SREs (Small Refinery Exemptions), and their most recent denial of 26 Small Refinery Exemptions on July 14, 2023, supports that stance.

Throughout this new and unknown territory, the EPA has been and continues to be very engaged with a broad spectrum of stakeholders. Their thorough response to comments and regulatory impact analysis, in hand with the changes from the Proposed Rule to the Final Rule shows that commitment. Be aware that although some of the proposed changes were not included in this final rulemaking for the years 2023 – 2025, they may be included, in whole or in part, in future rulemakings. Lee Enterprises Consulting can help you navigate the potential impacts of the current and possible future rulemakings on your business.

About the Author.  Jennifer is a recognized expert in RINS and RIN Marketing, having worked with them since their inception.  She has focused her efforts to address liquidity and validity, and was actively involved in discussions and troubleshooting during the development of the EPA’s QAP program. Jennifer has had the privilege of addressing members of Congress, the EPA, and the Departments of Energy and of Defense on such matters, and has delivered numerous webinars, conference presentations, and RIN education classes.  She is the Director of Regulatory Compliance at Braya Renewable Fuels, which owns a Renewable Diesel and SAF refinery and is part of a private equity portfolio focused on low-carbon advanced biofuels and she serves as a Project Director at Lee Enterprises Consulting, overseeing matters involving RINs, RIN Marketing, Renewable Diesel, Ethanol, Compliance Registration & Reporting.