February 9, 2022
During law school, as far as my law professors were concerned, the word “extension” did not exist in the English language. You could ask for an extension and they would look at you like you had antennas growing out of your head and act like they’ve never heard the word before. EPA, on the other hand, not only knows the word, but uses it…with fervor…
Recently, EPA finalized the proposal to extend compliance deadlines for obligated parties under the Renewable Fuel Standard (RFS) as well as the conditioning of deadlines on the release of Renewable Volume Obligations (RVOs). More specifically, EPA finalized the following items[1]:
- The 2019 compliance deadline is extended again for only small refineries to 60 days after the final publication of the 2021 RFS Standards (RVOs)
- The compliance deadlines for 2020, 2021, and 2022 are extended for all obligated parties
- For the future (2023 and beyond), the annual compliance deadlines are one of the following:
- March 31 of the following compliance year (like it is now)
- The next quarterly reporting deadline after the effective date of the final rule establishing the subsequent compliance year’s RFS standards (RVOs); or
- The next quarterly reporting deadline after the annual compliance reporting deadline for the prior compliance year.
Didn’t you just write an article, like, two months ago talking about how compliance deadlines drive the RFS? Yes I did, read 17 More Days Until Christmas! How Compliance Deadline Move the RFS Forward, for more details. So, with this rule change, doesn’t that mean that obligated parties are completely off the hook for ever having to really comply with the regulations? Well, no, that’s not how this works.
An extension, while a foreign concept to some people (*Ahem* law professors), is not equivalent to a waiver. By extending a compliance deadline, EPA is also not simultaneously saying “oh, also, just don’t worry about it.” This is not a communication with a secret code or message for only obligated parties to find. It just means that they have a longer time to comply.
Now, let’s talk about the elephant in the room, conditioning compliance deadlines on the annual release of RVOs. In theory, does conditioning compliance deadlines on EPA action mean that EPA could perpetually not release RVOs on time, therefore never setting a compliance deadline, having the effect of permanently excusing obligated parties from complying with the law? Sure, I won’t lie to you, that is the worst-case scenario, and it is possible.
The next obvious question is whether that possibility is likely, and I have to say no, not really. While EPA is not known for the timely release of RVOs, there is a difference between not being timely and not doing something. Additionally, and I really need you to see this, the release of RVOs is required by law. While EPA may not always be timely, the law clearly requires EPA to release annual RVOs, which EPA has consistently done (even if they haven’t always been on time).
Additionally, an annual compliance deadline, while one motivating factor, is not the only motivating factor an obligated party has to comply with the law. While EPA may have finalized some more “flexible” compliance deadlines, it did not change how many RINs may be used for an obligated party’s annual compliance. An obligated party still may fulfill their obligation using prior year RINs (RINs generated in the year immediately prior to the current compliance year), so long as the use of prior years does not amount to more than 20 percent of their overall obligation[2]. So, even if the compliance deadline for 2021 RVOs gets pushed to 2025, for example, obligated parties still have to satisfy that obligation with 2020 and 2021 RINs. As you might expect, the further from 2021 an obligated party gets, the more difficult those RINs will be to find. It would be an obligated party’s best interest to continue to purchase RINs in the current compliance year, if only to make their future compliance a bit easier.
Another thing that gets overlooked if you only consider the worst-case scenario is EPA only grants extensions of compliance deadline in the event EPA does not timely release RVOs. The very first bullet point for the 2023 compliance year clearly notes that the “default” compliance deadline is still 2023. This means, only if EPA’s failure to comply with statutory deadlines does the deadline become something other than March 31.
Finally, the thing that gets overlooked frequently is the loudness of the voice of RFS stakeholders and participants. While EPA is in the business of promulgating rules and regulations for the progress of the goals of the Clean Air Act, creating these rules in the absence of consideration of RFS participants and stakeholders is just poor policy methodology. EPA wants to encourage the progress of the RFS and the Clean Air Act. It knows doing so without the cooperation of RFS participants is only going to result in hardship.
Could some of my old law professors take a page from EPA’s extension handbook? Definitely. Then again, maybe it would be better for EPA to adopt the same attitude as my professors and forget the word “extension” is a word in English.
[1] 87 F.R. 5696 (Feb. 2, 2022).
[2] 40 C.F.R. § 80.1427(a)(5)-(6) (2020).