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US EPA 'analyzing' potential shift in RFS obligation from refiners to blenders

Washington (Platts)--16 Mar 2016 632 pm EDT/2232 GMT


The US Environmental Protection Agency is considering a request by several independent refiners to shift the responsibility for complying with the federal biofuels mandate to blenders, a top agency official said Wednesday.

But any such move would not be addressed in the 2017 Renewable Fuel Standard that lays out the coming year's required blending volumes, which are due to be finalized by November 30, he said.

"We are analyzing it," Chris Grundler, director of the EPA's Office of Transportation and Air Quality, testified before two House of Representatives oversight subcommittees. "We decided that ... such a major change in the regulation and the law should not be part of this annual rulemaking process."

Should the EPA decide to make the change, a separate rulemaking process likely would be launched.

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Under the RFS, which requires an annual increase in the amount of biofuels blended into the US transportation fuel pool, refiners must demonstrate compliance by obtaining credits, called RINs, that are generated for every gallon of biofuels produced, either by blending the biofuels themselves or by buying the credits on the open market.

Refiners, particularly those without blending capabilities, have long argued the cost of complying with the mandate is an unfair burden, particularly when US consumers have not demonstrated sufficient demand for ethanol blends above 10%.

Valero and Monroe Energy in February petitioned the EPA and the US Court of Appeals for the District of Columbia to make blenders responsible for obtaining RINs, instead of refiners. They said this would help prompt retailers to install blender pumps for higher ethanol blends, which would benefit the biofuels industry.

"The current structure of the RFS hampers the growth of renewable fuels into the US fuels market because the obligation is not placed at the natural compliance point," Valero said in February. "Moving the point of obligation to the title holder of the fuel above the terminal rack -- the primary point of compliance -- will incentivize the type of infrastructure investment necessary to achieve greater penetration for renewable fuels."

Blenders have said they are opposed to any change.

FAMILIAR ARGUMENTS

At the hearing, Grundler said the EPA is in the process of drafting its 2017 RFS. The agency is expected to release its proposed rule this summer.

He said the 2017 volumes are expected to require more biofuels than the 2016 rule.

"The trends are going up," Grundler said. "We foresee steady growth in these fuels as competition increases and more facilities come online to produce these advanced fuels."

The EPA in November roiled both the biofuels and oil industries with its RFS rule, which covered 2014-2016, with biofuels advocates saying the volumes were not high enough and the oil industry saying they were too high.

The rule is being challenged in federal appeals court by both industries.

For 2016, the rule requires 18.11 billion gallons of biofuels to be blended with US transportation fuels, of which 3.61 billion gallons must be advanced biofuels, including 1.90 billion gallons of biodiesel and 230 million gallons of cellulosic biofuels.

Most of the hearing covered familiar ground in the unsettled RFS debate: whether the program raises food prices, causes more greenhouse gas emissions and ends up costing consumers more at the pump.

Several lawmakers expressed interest in repealing or reforming the RFS, and there are several bills that have been introduced to that end. Some would eliminate corn ethanol from the mandate, others would repeal it entirely.

Most congressional watchers say the likelihood of any of those bills being passed this year is next to nil, even with oil industry trade group American Petroleum Institute saying that RFS repeal is one of its top legislative priorities.

In particular, regional politics, where the RFS enjoys bipartisan support in Corn Belt states, makes any change to the program difficult.

--Herman Wang, herman.wang@platts.com
--Edited by Keiron Greenhalgh, keiron.greenhalgh@platts.com

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