Leading advocates for advanced liquid and gasified biofuels in the US urged the US Environmental Protection Agency (EPA) to strengthen the final 2018 Renewable Volume Obligation (RVO) for the federal Renewable Fuel Standard (RFS) by setting stronger cellulosic fuel targets. (Earlier post.)
A letter sent to EPA Administrator Scott Pruitt, signed by leaders of the American Biogas Council, Advanced Biofuels Business Council, Biotechnology Innovation Organization, and Coalition for Renewable National Gas, urged Pruitt to reverse course on a proposal that would undercut “the next American manufacturing wave” by “looking backwards” in setting 2018 goals and issuing waiver credits that suppress demand for cellulosic fuels.
Noting that “the RFS is a proven tool for promoting growth,” the organizations suggested that the ability to achieve success with the next manufacturing wave of advanced and cellulosic biofuels will depends on careful administration of the RFS in several key areas:
The RFS must continue to be administered in a forward-looking manner. Put another way, if the EPA fails to consider or discounts imminent supply of D3-eligible fuel, investment in cellulosic biofuel wanes due to the uncertainty around whether the RFS will drive obligated parties to buy these new gallons (or equivalent). Likewise, if EPA fails to properly consider imminent D3 supply, it increases the risk of D3 RIN oversupply, which in turn depresses D3 RIN prices, decreases market liquidity and dampens investor interest in the critical first stages of commercial growth. Unfortunately, the organizations said, the 2018 proposal appears to be forecasting cellulosic biofuel volumes by looking backwards.
Alternative compliance mechanisms should not be administered in such a way as to undercut interest among obligated parties in securing actual “D3-eligible” liquid or gasified biofuels. Congress anticipated the challenge of predicting the emergence of new technology by allowing the EPA to issue Cellulosic Waiver Credits (CWCs) as a backstop against any shortage of D3-eligible, cost-competitive gallons post-RVO. Unfortunately, the EPA’s current approach to administering CWCs is to make available the maximum amount of CWCs (defined by statute as equal to the cellulosic RVO) at the outset of the year. Because the CWC price is set by statute, obligated parties know that there will always be an alternative to purchasing physical liquid or gaseous D3 gallons at year-end for a price only slightly above or equal to the price of the physical D3 gallons. A critical first step to resolving this issue would be to stop making CWCs available on a gallon-for-gallon basis with the cellulosic RVO.