Chapter Six: Bureaucratic Wheels Turn Slowly

EPA Releases Rule for RFS

Meanwhile, back at the EPA, the agency finally released proposed regulations for the Renewable Fuel Standard (RFS) on September 7, 2006, almost exactly 13 months after the Energy Act authorizing it was signed by President Bush.

State of Nebraska photo

EPA Administrator Stephen L. Johnson went to Mead, Nebraska to announce the proposal, designed to double the use of renewable fuels such as ethanol and biodiesel, largely produced by American crops.

“Nebraska’s rolling cornfields have filled America’s breadbaskets. Now, by helping meet the President’s renewable energy goals, these same fields are filling America’s gas tanks,” said Johnson.

“The new regulation proposes that 3.71% of all the gasoline sold or dispensed to US motorists in 2007 be renewable fuel. Last December, EPA issued a rule implementing the Energy Policy Act’s default standard of 2.78% for 2006, which will continue to apply through this calendar year.

In 2006, there will be about 4.5 billion gallons of renewable fuel consumed as motor vehicle fuel in the United States. The RFS program requires that this volume increase to at least 7.5 billion gallons by 2012. The RFS program is designed to cut petroleum use by approximately 3.9 billion gallons a year in 2012—roughly 1.0 to 1.6% of the petroleum that would otherwise be used by the transportation sector—and reduce greenhouse gas emissions by up to 14 million tons annually.”

Mead, Nebraska was selected for the announcement to spotlight E3 Biofuels, a plant that combined a large feedlot with an ethanol plant that uses manure from the feedlot to power the ethanol plant in a closed-loop system designed to significantly reduce the fossil fuel used in the production of ethanol.

Both the American Coalition for Ethanol and the Renewable Fuels Association were eager to see the new rule implemented. “The RFS was a watershed moment for the U.S. ethanol industry. It has created the fastest growing energy sector anywhere on the planet,” said Renewable Fuels Association President Bob Dinneen. “The success of the RFS is critical to the continued growth of the U.S. ethanol industry. I want to commend the commitment and dedication of Administrator Johnson, EPA staff and the Bush Administration to getting this program fully implemented as quickly as possible.”

American Coalition for Ethanol Executive Vice President Brian Jennings said,“The enactment of the Renewable Fuels Standard is the single most significant step forward that Congress has taken in decades to secure our nation’s energy independence. The RFS is crucial to the future growth and success of the U.S. ethanol industry, and it is imperative that the proposed rule be simple yet enforceable.”

A RIN for the Money

EPA’s goal was to get the rule finalized and implemented by early 2007. One of the biggest challenges was creating a system of credits that could be used by refiners to demonstrate compliance with the blending obligations under the program.

The agency worked with industry stakeholders to create a credit trading mechanism that provided oil refiners with the flexibility they wanted while honoring congressional intent to meet the obligations in a timely manner.

The system was developed to “allow renewable fuels to be used where they are most economical, while providing a flexible means for industry to comply with the standard,” according to EPA. The credit trading system would require that a renewable identification number (RIN) be issued with each shipment of biofuel. Blenders would be able to use the RIN for their own compliance, as well as trade or sell excess RINs to others.

In general, a RIN is a gallon of corn-based ethanol. Under the proposal, renewable fuels blended into conventional gasoline or diesel and those used in their unblended form as motor vehicle fuel would qualify. To determine RINs, the EPA determined “equivalence values” based on the fuels’ energy content in comparison to the energy content of ethanol, and adjusted as necessary for their renewable content. “The result is an equivalence value for corn ethanol of 1.0 and for cellulosic ethanol of 2.5,” according to the EPA’s 239-page ruling. “The proposed methodology can be used to determine the appropriate equivalence value for any other potential renewable fuel, as well.” (EPA proposes RFS implementation plan -Ethanol Producer mag)

ACE’s Brian Jennings said at the time that the structure of the credit trading program will “make or break” the RFS. “If not designed correctly, the RFS credit trading mechanism may permit an excessive number of credits or gallons to roll over from one year to another, thereby reducing biofuels demand and undermining the effectiveness and intent of the RFS program.”

The cap of maximum RINs that could be rolled over from year to year was proposed at 20 percent, but the oil industry wanted to see that higher but organizations such as the American Petroleum Institute were generally supportive of the proposal.

A public hearing was held Oct. 13 in Chicago and the deadline for written comments was Nov. 12, so it would still be 2007 before the program could begin to be implemented.

Ethanol Tops the Headlines for 2006

As 2006 came to a close, ethanol was clearly the story of the year. The dramatic growth in biofuels made from crops was the runaway favorite for the year’s top stories in agriculture.

“Emergence of biofuels as a factor in the farm economy really came out in 2006,” said USDA chief economist Keith Collins in a USDA Radio News report. “As that became realized in the second half of 2006 we saw commodity markets just explode.”

Brownfield Network ranked “growing demand during 2006 for crops that are increasingly used as sources of energy and that show promise for other uses” number one in its “2006 Ag Year in Review.”

The December edition of “Ethanol Today” celebrated the “biggest year yet” for the ethanol industry.

As icing on the cake, before adjourning for the year on December 10, Congress approved legislation extending the 54-cent-per-gallon tariff on imported ethanol as part of the Omnibus Tax bill.

Optimism in the ethanol industry was probably higher than it had ever been – before or since – going into 2007.

Part Two: 2007-2010
Chapter Seven: Driving RFS1 to RFS2