The Renewable Fuel Standard (RFS): Waiver Authority and Modification of Volumes
Released: 2019-01-23T00:00:00

Introduction

The Renewable Fuel Standard (RFS) requires that the nation's transportation fuel supply contains renewable fuels. This mandate—established in the Energy Policy Act of 2005 (EPAct05; P.L. 109-58 ) and expanded in the Energy Independence and Security Act of 2007 (EISA; P.L. 110-140 )—requires the use of renewable fuel, although it does not explicitly require the production of that fuel. Obligated parties, such as refiners or importers of gasoline or diesel fuel, are responsible for complying with the RFS requirements. The Environmental Protection Agency (EPA) administers the mandate, which is an amendment to Clean Air Act (CAA) provisions governing the regulation of fuels. The statutory renewable fuel volume increases annually until 2022, with EPA determining the volume after 2022 within certain limitations. In general, EPA has the authority to waive the RFS requirements, in whole or in part, if certain conditions outlined in statute prevail.

The RFS is a complex and highly technical policy initiative. It deals with multiple sectors of the economy and requires the use of some advanced renewable fuel production technologies that have yet to reach maturity. The RFS also incorporates thresholds for greenhouse gas emission reduction. This complexity is exacerbated by multiple stakeholders with differing perspectives on what the RFS should accomplish, how it should be implemented, and whether it should exist, which leads to debate about the RFS and its future. Congressional debate about the RFS is expected to continue with special attention to how EPA administers the program. As Congress continues its oversight of the RFS, it may be useful to understand the RFS waiver authority granted to EPA. This report discusses the waiver provisions of the RFS, including the modification-of-applicable-volumes ("reset") section.

RFS Requirements

EPAct05 established a renewable fuel program requiring that transportation fuel sold or introduced into commerce in the United States, on an annual average basis, contain a specified amount of renewable fuel. The RFS mandate, as amended by EISA, calls for the consumption of 9 billion gallons of total renewable fuel in 2008, ascending to 36 billion gallons in 2022, with EPA determining the annual volume after 2022. The statute identifies four categories of renewable fuels that must be used to meet the mandate. However, these four categories can be aggregated into two major categories: unspecified biofuel (mainly cornstarch ethanol) and advanced biofuel (e.g., cellulosic biofuel, biomass-based diesel, and other advanced biofuels), shown in Figure 1 . Over time, the growth in the RFS transitions from biofuels that, in practice, are made mostly from food and feed crops to biofuels made from nonfood and nonfeed crops. For instance, in 2022, the statute requires that advanced biofuels constitute close to 60% of the 36 billion gallon mandate and unspecified biofuels constitute about 40%.

RFS Annual Volume Reduction Deadlines

Congress gave the EPA Administrator waiver authority to adjust the renewable fuel volumes specified in statute given certain conditions (e.g., inadequate domestic renewable fuel supply). The EPA Administrator is required to set the standards by November 30 of the preceding year (e.g., under statute the 2020 standard is required to be finalized by November 30, 2019). Further, when the EPA Administrator reduces the cellulosic biofuel volume, the Administrator also may reduce the total renewable fuel and total advanced biofuel volumes by the same or a lesser volume. For biomass-based diesel, the statute specifies volumes for four years (2009-2012) and requires EPA to announce the remaining annual biomass-based diesel volume "14 months before the first year for which such applicable volume will apply" (e.g., the 2021 biomass-based diesel standard is required to be finalized by November 2019).

Current RFS Requirements

EPA issued the final 2019 standards (and the 2020 standard for biomass-based diesel) in November 2018. The RFS statutory requirements and the EPA requirements for 2014 through 2019 are provided in Table 1 .

RFS Waiver Provisions

The RFS provisions of the CAA contains a set of waiver provisions. The provisions contain three separate waivers—a general waiver, a cellulosic biofuel waiver, and a biomass-based diesel waiver—that the EPA Administrator may use to waive, in whole or in part, the volume of renewable fuel mandated by statute. The waivers referred to in this report should not be confused with small refinery exemptions. If a waiver is issued, it expires after one year (60 days for the biomass-based diesel waiver), unless the Administrator renews the waiver. Additionally, starting in 2016, the waiver provision allows for a modification of applicable volumes. The waivers and the modification of applicable volumes are described in further detail in the following sections of this report.

General Waiver

The RFS statute gives the EPA Administrator the authority to waive the overall RFS requirements, in whole or in part, if

domestic renewable fuel supply is inadequate to meet the mandate, or implementation of the requirement would severely harm the economy or environment of a state, a region, or the United States.

The Administrator may issue the general waiver at his or her discretion or if petitioned by a state or fuel provider. In those instances in which the Administrator receives a petition for a waiver, the Administrator has 90 days after receipt of the petition to approve or disapprove it. Prior to making a decision, the Administrator is required to consult with the Secretary of Agriculture and Secretary of Energy and to allow for public notice and the opportunity for comment. If a general waiver is granted, any adjustment applies to the total national renewable fuel requirement. Thus, EPA may not issue a general waiver for an individual state or supplier within a state.

Cellulosic Biofuel Waiver

CAA Section 211(o) obligates the EPA Administrator to reduce the cellulosic biofuel mandate when the projected production capacity for a given year is less than what is identified in statute. The law does not require the EPA Administrator to consult with the Secretary of Agriculture or the Secretary of Energy when issuing a cellulosic biofuel waiver, or to give public notice and opportunity for comment. However, the Administrator must base the projection on the U.S. Energy Information Administration estimate provided under the applicable percentages provision. Although it is not required by the statute to do so, EPA has consulted with federal agencies, industry, and others when the agency has considered issuance of a cellulosic biofuel waiver. EPA also has provided opportunity for public comment. The Administrator must set the new required amount at the "projected available volume during that calendar year" by November 30 of the preceding year. Should the Administrator reduce the cellulosic biofuel volume, the Administrator also may reduce the volumes of advanced biofuel and renewable fuel by the same or lesser volume. When the Administrator issues a cellulosic biofuel waiver, the Administrator must offer cellulosic biofuel waiver credits for obligated parties to purchase for that compliance year in lieu of using actual cellulosic biofuel.

Biomass-Based Diesel Waiver

The RFS statutory provisions give the EPA Administrator authority to reduce the amount of biomass-based diesel required for up to 60 days if the Administrator determines that there are significant market circumstances (including feedstock disruptions) "that would make the price of biomass-based diesel fuel increase significantly." If these market circumstances continue past the initial 60-day period, the Administrator may issue another waiver for an additional 60 days. The Administrator is to consult with the Secretaries of Energy and Agriculture prior to issuing such a waiver. If the Administrator issues a biomass-based diesel waiver, the Administrator also may reduce the volumes of advanced biofuel and renewable fuel by the same or lesser volume. To date, EPA has not used the biomass-based diesel waiver authority.

Modification of Applicable Volumes

The last section of the waiver provision is the modification-of-applicable-volumes section, referred to by some as the "reset" section for the RFS. This section requires that the EPA Administrator modify the applicable volumes of the RFS in future years starting in 2016 if certain conditions are met. Specifically, it provides that, starting in 2016, the EPA Administrator shall modify the applicable volumes of the RFS for subsequent years if the Administrator waives the renewable fuel mandate, the advanced biofuel mandate, the cellulosic biofuel mandate, or the biomass-based diesel mandate by at least 20% for two consecutive years or by at least 50% for a single year. This reset section does not state what the modified amount must be. Rather, it requires that the Administrator determine the applicable volumes—in coordination with the Secretaries of Energy and Agriculture—based on a review of program implementation thus far and analysis of certain factors (e.g., the impact of the production and use of renewable fuels on the environment).

RFS Waiver Authority Use

EPA has repeatedly used its cellulosic biofuel waiver authority to reduce the cellulosic biofuel volume required, and, since 2014, to also reduce both the advanced biofuel and total renewable fuel volume required. In November 2018, EPA announced that it used the cellulosic biofuel waiver to reduce the applicable total renewable fuel, advanced biofuel, and cellulosic biofuel volume requirements for 2019. According to the agency, the "13.0 billion gallons specified in the statute for advanced biofuel cannot be reached in 2019 … primarily due to the expected continued shortfall in cellulosic biofuel."

The EPA Administrator issued a general waiver for prior final rules (which covered 2014 through 2016) and repeatedly issued cellulosic biofuel waivers for 2010 through 2018. The Administrator used the waivers for 2014, 2015, and 2016 to reduce the total renewable fuel (including a lowering of the unspecified biofuel mandate), advanced biofuel, and cellulosic biofuel volume requirements. The Administrator has not granted a biomass-based diesel waiver.

RFS Waiver Impacts

Waiver authority is intended, in part, to assist EPA with implementation of the RFS. One of EPA's program tasks is to use the waiver authority, when required, to determine the annual final standard, and to announce that final standard by the statutory deadline. The challenge of projecting advanced biofuel production, political pressure from some stakeholders, and other factors may have contributed to past delays in issuing final standards under the waiver authority. Such delays could lead to difficulty for obligated parties who have to demonstrate program compliance and for renewable fuel producers who are interested in producing the required fuel. For 2016 through 2019, EPA has issued the final rule according to the statutory schedule.

There are three stakeholders that generally have had distinct views about the impacts of the waiver authority: the advanced biofuel industry, the conventional biofuel industry, and the petroleum industry. Some advanced biofuel advocates assert that granting of waivers, in conjunction with other factors, could weaken confidence in renewable fuel markets and the chosen technologies, specifically cellulosic biofuel. Advanced biofuel production, particularly cellulosic biofuel production, has not been produced at the levels called for in the statutory provisions by relatively large margins. Some conventional biofuel advocates have not always been content with EPA's proposals to use the waiver authority to reduce conventional biofuel volumes. Conventional biofuel production has remained in line with what the statutory provisions require. Some in the petroleum industry assert that the waiver authority is an option that addresses the use of more ethanol than can be used by certain vehicles (i.e., the blend wall) or supported by existing infrastructure. While perspectives about EPA's use of the waiver authority vary among stakeholders, the waivers have provided EPA with the flexibility to establish volume requirements that have been attained.

Impacts of RFS Modification of Applicable Volumes

The 2019 final rule has triggered the reset section of the waiver provision for total renewable fuel. Previous final rules had already triggered a reset for both advanced biofuels and cellulosic biofuels. EPA reports that in early 2019 it will issue a rulemaking that proposes to "reset" the cellulosic biofuel, advanced biofuel, and total renewable fuel volume targets for the years 2020-2022. Many have questions and concerns about how EPA may implement the reset section (the modification-of-applicable-volumes section of the RFS). This section requires the EPA Administrator to modify the applicable volumes of the RFS in its entirety starting in 2016 if certain conditions are met. It is not clear how EPA may carry out this action .

The Administrator has the discretion to set the modified amounts. Depending on how the reset is applied, there could be interest in its impact on public and private investment for biofuels. There might also be interest in the reset's potential impact on the transition of the program from mostly conventional biofuel to mostly advanced biofuel by 2022. Additionally, there may be interest about whether a reset could address the concerns expressed by some obligated parties (i.e., refiners) about high compliance costs. Going forward, reset implementation could have implications for the entire fuel industry, given the potential for EPA to reduce the applicable volumes or maintain ambitious targets.