July 11, 2023
The thing that everyone has been talking about for the past few months has finally happened. *Cue the drumroll please* EPA released the final “Set” rule. Boasting nearly 500 pages, the final “Set” rule included several provisions, such as: the formal withdrawal of eRINs from the final rule, new Renewable Volume Obligations (RVOs) for 2023-2025, EPA setting a precedent for releasing RVOs every three years, an amendment to the separated food waste record-keeping rule, biogas reform rules, and many other provisions. Don’t worry, I read all 468 pages so that you don’t have to experience the absolute joy of reading regulatory language.
Just as a side note, the release of this final rule is a pretty historic event for many Renewable Fuel Standard (RFS) participants. The Clean Air Act gave EPA statutory target volumes until the year 2022. After that, EPA has been tasked with setting those volumes itself, by analyzing a variety of factors, as required by statute. With this new way of doing things, not only could EPA publish new RVOs, but this was the perfect opportunity to address some other regulatory items that have been affecting the RFS, but not necessarily addressed in a prior rulemaking.
Alright, let’s get into it. First, let’s talk about EPA’s decision to formally withdraw eRINs from its final rule. There was a lot of talk prior to this rule being published that EPA was going to withdraw the eRIN proposal from its final rule. So much so that last month, I even wrote an entire article on the topic. In its final rule, EPA noted that it had reviewed many of the comments submitted on the eRIN proposal and that, in considering some of the objections, EPA needed more time to develop a better formulated system. EPA did make clear, however, that while eRINs are not included in this proposal, it still intends to develop an eRIN program. This sentiment has also been touted by the Biden Administration, promising some sort of electric energy incentive program to be unveiled by the end of 2023. In other words, EPA’s eRIN program is a “to be continued” conversation, rather than something they are going to forget about.
Second, let’s talk about EPA’s newly set precedent of setting RVOs every three years instead of one. This is probably one of the most unique changes finalized. Since the first iteration of the RFS, EPA has set RVOs annually. Many times, EPA set them late, giving RFS participants little sense of security and depriving them of the ability to accurately plan for the future. By expanding the release of RVOs for three years, EPA noted that it intended to provide RFS participants and stakeholders with a little more certainty, so that all entities can accurately plan for upcoming years.
As part of the release of RVOs, EPA is also mandating a “Supplemental Standard.” The Supplemental Standard first appeared as an RVO in 2022, when EPA had to address the holding in Americans for Clean Energy (ACE) v. EPA[1], (“Ace”), which required EPA to account for 500-million gallons improperly waived in 2016. EPA’s issuance of the remaining 250-million gallons for 2023 completes the requirements of Ace. As in 2022, EPA is implementing the supplemental standard in the same way, by adding an additional percentage standard to each category of RVO.
For our next point, let’s discuss the record-keeping requirements for the Separated Food Waste rule. A couple of years ago, EPA promulgated new record keeping requirements for biofuel producers using separated food waste as a feedstock. According to EPA, a biofuel producer who used separated food waste to refine into renewable fuel needed to keep accurate records documenting the location of any establishment from which the separated food waste is collected. This included the requirements to document the amount of food waste collected and the date.
As you can imagine, many producers across that side of the industry were in an outcry. Not only was this record-keeping requirement something that was new in the eyes of the industry, but it was unduly burdensome, particularly on biofuels producers who produced biofuels from used cooking oil (UCO). In order to alleviate some of that burden but also stay with the record-keeping requirements, EPA finalized alternative requirements which are less burdensome, but still meet the record keeping mandates. In order to meet the alternative requirements, the following things will need to be met[2]:
- The feedstock aggregator (entity that collects and combines feedstock) will need to register with EPA and must keep all applicable records of feedstock collection.
- The renewable fuel producer will need to participate in the QAP program
- PTDs will need to be supplied to the transferee for feedstocks after leaving the feedstock aggregator that include the volume, date, location at time of transfer, and transferor and transferee information
Additionally, EPA is also requiring that the feedstock aggregator and renewable fuel producer that processes those feedstocks will also be subject to the same liability provisions that apply to biointermediate producers and renewable fuel producers that process biointermediates. EPA also noted that if the kept records do not demonstrate that the renewable fuel was made from renewable biomass, then the record-keeping requirements are not met, regardless of who holds the records.
Finally, let’s talk about Biogas Regulatory Reform rules, which addressed some of the issues EPA’s initial Biogas Regulations failed to adequately address. In 2014, EPA promulgated a “Pathways II” rule, which dealt with the way biogas was to be treated under the RFS. When EPA created that rule, it did so with the understanding that biogas was treated and refined into Renewable Natural Gas (RNG) at a single facility. However, in looking into how the biogas industry has done things over the past years, many biogas producers have been using multiple facilities to create RNG, many times resulting in the creation of a biointermediate, which is eligible to generate RINs. The problem this created was, by virtue of the fact that RINs could be validly generated at many different points, it led to the double-counting of RINs (the ability of multiple RIN generators to generate RINs for the same batch of fuel) simply because there wasn’t a clear designation of what type of entity should generate the RINs. Additionally, the previous rule lacked clear language on how RIN generators would demonstrate that the resulting Compressed Natural Gas (CNG)/Liquid Natural Gas (LNG) was created from renewable biomass and used as transportation fuel. Since this requirement is an underlying fundamental principle of the RFS, EPA had to address this issue.
In its final rule, EPA fixed many of those types of issues by specifying which parties could generate RINs and which ones were precluded from doing so. EPA also altered some of the requirements for traceability as the previous rule promulgation led to RNG producers and CNG/LNG dispensers needing to keep multiple types of documentation, slowing down EPA’s efficiency on tracking RINs. Additionally, EPA is also enacting the following measures to make sure RIN Tracking is more effective and prevent against the double counting of RINs[3]:
- Holding all directly regulated parties in the biogas disposition/generation chain liable for transmitting or using invalid RINs,
- Tracking RNG through reporting requirements
- Leveraging third-party oversight (i.e. third-party engineering reviews, RFS QAP, and annual attest engagements)
It is EPA’s belief that these types of enacted mechanisms will prevent fraud and double counting of RINs.
Has there been any pushback against EPA for any of these provisions? For setting RVOS for three years instead of one, not really. Both renewable fuel groups and nonrenewable fuel groups alike have complimented EPA on its foresight. However, there has been some commentary on the final numbers for RVOs. Renewable fuel groups are saying EPA is underestimating the number of gallons the biofuels industry is capable of producing and blending to make transportation fuel and thus, set RVOs too low. Nonrenewable transportation fuel groups are saying that the recently released RVOs are too high and place too much of a burden on obligated parties. Who has the correct thinking on this? I think what position you hold within the RFS is going to color that view.
For the other provisions? I haven’t seen anything that really speaks to those types of objections. However, more may come out in the forthcoming months. So, what happens now? Great question. Now, we let the RFS function under this new rulemaking and see how it goes. Time, like anything else, will be the best indicator of how effective the new “Set” rule will be.
[1] 864 F.3d 691 (2017)
[2] Renewable Fuel Standard (RFS) Program: Standards for 2023-2025 and Other Changes, EPA-HQ-OAR-2021-0427; FRL-8514-02-OAR, 274 (Jun. 21, 2023).
[3] Id. at 190-191.