EPA’s Contradictory Rule Is A Gut Punch to Advanced Biofuels

ericksonBy Brent Erickson, Executive Vice-President, BIO

After a painful and damaging two-year delay, the Environmental Protection Agency (EPA) last week published Renewable Fuel Standards (RFS) for 2014, 2015 and 2016. Unfortunately, the agency finalized a rule riddled with contradictions and confusing logic. EPA asserts that Congress gave it the authority to slow down the RFS program; but that is directly contrary to what Congress envisioned.

Congress clearly intended to rip the Band-Aid off America’s addiction to fossil fuels by aggressively replacing them with cleaner biofuels. Instead of providing the certainty of an open and competitive market for cleaner transportation fuel, EPA has left the advanced biofuel industry in limbo, issuing a rule that will likely continue to undercut investment and slow progress in commercializing advanced biofuels at a time when a stable and predictable regulatory framework is badly needed.

EPA’s new rule states a surprising concern to provide relief to oil refiners and to avoid requiring them to change their business model. That concern is not only unwarranted, but also inconsistent with the rest of the rule. The agency roundly and correctly rejects petitions from state governors, petroleum refiners, and national petroleum trade associations calling for a general waiver of the RFS based on economic harm.

Further, EPA emphasizes that renewable fuels, according to the definition established by Congress, reduce or replace fossil fuels. And biofuels have replaced 1.9 billion barrels of foreign oil over the past decade under the RFS, reducing CO2 emissions by 589.3 million metric tons. Congress clearly intended to change the business model of oil refiners, since their model is based on fossil fuel use. EPA never makes clear why the oil refiners require the relief the agency is handing them.

EPA also completely (and, again, correctly) rejects the petroleum industry’s claim that Renewable Identification Number (RIN) prices cause economic harm. Congress directed EPA to establish the RIN system as a tradeable credit for the oil refiners’ use of renewable fuels, in order to equalize the burden among obligated parties. Nevertheless, EPA is now reversing Congress’s directive and absolving the oil industry of any responsibility to do anything more than acquire RINs from others’ use of renewable fuels.

In addition, EPA’s slowdown of the RFS program flies in the face of Congressional intent and statutory text. Congress set aggressive requirements for the RFS program through 2022 to ensure that renewable fuels would rapidly displace fossil fuels, significantly reducing U.S. greenhouse gas emissions and diminishing reliance on foreign oil. Congress established a clear procedure for resetting the pace, if necessary, after 2016 (and only under certain specified conditions).

But after denying the governors’ and refiners’ petitions for use of the general waiver authority, the agency essentially asserts that it can use the same authority to put the RFS program in low gear before 2016. After years of using the proper methodology for determining renewable fuel volumes as Congress intended and directed, EPA suddenly and inexplicably reversed course (first in its initial proposed rule for 2014, issued in November 2013, and then in its final rule for 2014 through 2016), opening itself to legal challenge for violating the plain text of the statute and contravening the statute’s fundamental purposes.

The rapid buildup for the RFS program mandated by the statute was designed to provide market pull for biofuel producers and certainty for the innovators who are commercializing new advanced and cellulosic biofuels. The agency fully acknowledges that its delay undercut investment and hampered the advanced biofuels industry’s ability to produce fuels. BIO estimates that the agency’s delay and flawed interpretation of the general waiver authority has caused a $13.7 billion shortfall in investment for the sector over the past several years.

And yet, EPA uses its own two-year delay in rulemaking as a justification for further slowing the program; the rule consistently references the inability of the industry to meet statutory goals in past years or within the remaining 13-month window of the rule. More troubling, the rule provides no guidance for the industry on how future rules and standards will be set and gives affected parties no confidence that the agency will refrain from similar departures from statutory requirements, and regulatory certainty, in future years.

In recent hearings, Senators have reiterated Congress’ intent to rapidly grow renewable fuel use and the advanced biofuel sector. Contrary to the agency’s assertion, the recently published rule will continue to undermine the renewable fuel industry’s certainty and investors’ confidence, resulting in ongoing shortfalls in investment and delays in commercializing advanced biofuels. Maybe that is what some in the oil industry wanted. Advanced and cellulosic biofuels simply need room to grow without being forced to cannibalize the conventional biofuels markets.

EPA increased the volumes to a small degree, but largely misapplied Congress’s command throughout the new rule. It may well be up to the federal judiciary to put the agency back on track when it comes to applying the appropriate methodology and complying with the requirements of the statute.

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