Swing and a Miss! EPA Misses Statutory Deadline for Renewable Volume Obligations

December 9, 2020

Sometimes, it’s perfectly acceptable to be late. You stopped for coffee on your way to work and the line was long, but you needed your morning cup of joe so that people won’t mind it when you speak to them. You’re late, but for a worthy cause. Other times, people completely lose their minds when you’re even the tiniest bit late. EPA currently knows a little bit about this.

By November 30 of any compliance year, EPA is supposed to have released the finalized rule for the Renewable Volume Obligations (RVOs) for the upcoming compliance year. The proposed rule for the RVOs usually comes out in the spring so that the rule can be finalized by the statutory deadline. Yet, even though the RVOs were delivered to the OMB mid-May, the OMB still lists the review of the proposed rule as ongoing, nearly seven months later. Setting RVOs by November 30 is required by statute. However, this year, that deadline came and went, and EPA said…nothing.

Now, to be fair to EPA, this year has been nothing short of interesting, to say the least. Between the global pandemic, small refiner waivers, and an election year, EPA has had their hands full. It would also be unfair to say that delays in the year 2020 are unexpected…just like vaccines and stay-at-home orders. At a visit to Wisconsin last August, Administrator Wheeler stated that he expected to release the RVOs, but he was uncertain as to when that might happen. Administrator Wheeler mentioned that [EPA] was “facing some unusual challenges.” In Administrator Wheeler’s own words, since releasing the 2021 RVOs to the OMB last May, “[t]he entire landscape has changed.”

Ok, so EPA is late pulling together a finalized rule, big deal. Actually, that’s the point, it is a big deal. RVOs serve as a representation of the number of gallons of renewable fuel that need to replace, gallon for gallon, nonrenewable fuel. If you are an obligated party, the RVOs serve as either a representation of the number of gallons that you need to blend to replace the number of nonrenewable fuel gallons that you are responsible for putting on the market or you need to buy RINs to retire against that obligation. If you’re lost as to what this means, please read: Easy Peezy Lemon Squeezy: the Ins and Outs of the Renewable Volume Obligation, written by yours truly.

More to the point, the RVOs drive everything from production of renewable fuel to blending of renewable fuel, to the generation (creation) of RINs. When EPA significantly alters the RVOs, the entire renewable fuel industry is affected, this includes when EPA is late releasing the one thing that serves as a major drive for the industry. Now, I know I am making this sound like the only reason producers and blenders of renewable fuel do their jobs is because of the RVOs and the Renewable Fuel Standard (RFS). It is worthwhile to note that, while those two things are major contributors, they are not the only factors in this decision. However, the industry likes to know what EPA is expecting for the upcoming compliance year, and the RVOs are an excellent benchmark for the industry.

So, how upset is the general public? With everything else going on, they can’t be that mad, right? Well, not to be too emphatic, but RFS participants are about one more fight away from a Taylor Swift-style break up with EPA. They are never ever getting back together. Producers of renewable fuel, specifically ethanol, have faced multiple hardships this year, everything from falling demand due to less travel, to waived gallons from Small Refiner Waivers. Ethanol plants across the nation have either ratcheted down production due to falling demand or have switched to making medical-grade hand sanitizer in the wake of COVID-19. While clean hands are great and all, hand sanitizer doesn’t quite replace the high demand of gallons produced for the transportation market. Further, failing to release the RVOs on time creates greater market uncertainty for RFS participants in a market already not known for stability.

Blenders of renewable fuel have not had an easy 2020 year either. Blenders drive the RFS by blending renewable fuel to replace, gallon for gallon, nonrenewable fuel on the transportation market. Blenders of renewable fuel are also responsible for ensuring RINs flow from the producer to the obligated party. By blending the fuel, renewable fuel blenders allow the RIN to become separated from the gallon of renewable fuel and ultimately traded to an obligated party. The RVOs give blenders an idea of how many gallons, and thereby, how many RINs the market might expect to see. Blenders of renewable fuel have also faced decreases in production of blended fuel due to a decrease of demand and potential supply shortages. Further, like producers, blenders of renewable fuel count on the RVOs as a measure of market certainty. Without finalized RVOs, blenders of renewable fuel may not be aware of how many RINs they will be responsible for getting to market.

Will EPA have a rule soon? Great question. In his statement last August, Administrator Wheeler promised RFS participants that while RVOs will not be released on time, they won’t be two years late. I don’t know about you, but I don’t feel reassured by that statement. But I guess, better late than never, right?

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