EPA Issues First Renewable Fuels Standard Ruling: A Collective 2.78% for 2006
28 December 2005
The Environmental Protection Agency has announced its first rulemaking under the provisions of the Renewable Fuel Standard (RFS) program as authorized in the Energy Policy Act of 2005.
The Act directs EPA to issue RFS regulations by 8 August 2006, and provides that if EPA has not adopted such regulations by that date, then 2.78% of the gasoline sold or dispensed to consumers for calendar year 2006 must be renewable fuel. The RFS volume standard specifies 4 billion gallons of renewable fuel in 2006.
EPA does not believe that it can meet the August 2006 statutory deadline. EPA is therefore establishing a limited set of regulations adopting that initial 2.78% target, thereby providing those liable for its implementation—refiners, importers, and blenders—some guidance. This first ruling is designed to provide a smooth transition to the long-term RFS program.
In adopting the 2.78% target, EPA is determining compliance on a collective, rather than an individual, basis for 2006. Under this approach, refineries, blenders, and importers together will be responsible for meeting the default 2.78% standard, and compliance with this standard will be calculated over the pool of gasoline sold to consumers.
An individual refinery, blender, or importer will not be responsible for meeting the 2.78 percent standard for the specific gasoline it produces. EPA will determine compliance after 2006 using gasoline and renewable fuel consumption data available from the Energy Information Administration, supplemented by information readily available from other sources.
With this short-term resolution, biodiesel appears to be in a little bit of statutory limbo. Both the default standard and the annual standard to be met under the long-term program are expressed in the statute in terms of percent renewable fuel in gasoline (and clearly, biodiesel is not blended into gasoline). The long-term program will allow for biodiesel integration in the program through credit trading, but the default standard provision (the EPA’s 2.78% for 2006) does not specify the manner in which use of biodiesel is to be counted towards compliance. However, EPA, says, “for the purposes of this rule we believe it is appropriate to include biodiesel in the pool of renewable fuel used to determine compliance with the default standard.”
If EPA determines that the default standard had not been met in 2006 on this collective basis, any deficit will be carried forward and applied as an adjustment to the standard for 2007. The regulations implementing the default standard for 2006 will not include any provisions for credit generation or trading, given the collective nature of the obligation.
The default standard of 2.78% provided in the Act applies exclusively to calendar year 2006, and the collective compliance approach will likewise apply only to 2006. For 2007 and beyond, EPA will determine and publish the applicable renewable fuel standard for each year and develop a renewable fuel standard credit trading program per statutory direction.
This rule will specifically identify liable parties, lay out the compliance program including record keeping and reporting requirements, and delineate all elements of the credit trading program. All these and many other issues impacting the full RFS program will be addressed in a subsequent EPA rulemaking and are not discussed in the direct final rule.
Regulation of Fuels and Fuel Additives: Renewable Fuel Standard Requirements for 2006 (pre-publication in Federal Register)
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