Regulation of Fuels and Fuel Additives: Renewable Fuel Standard ...
Regulation of Fuels and Fuel Additives: Renewable Fuel Standard ...
Regulation of Fuels and Fuel Additives: Renewable Fuel Standard ...
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C. Default St<strong>and</strong>ard Applicable To 2006<br />
The Energy Act was enacted in August <strong>of</strong> 2005 <strong>and</strong> included provisions for a<br />
renewable fuel program that was to begin in January <strong>of</strong> 2006. We recognized that a<br />
rulemaking implementing the full RFS program, including both program design <strong>and</strong> the<br />
various analyses necessary, would require a substantial effort involving many<br />
stakeholders. This process was expected to take longer than one year, <strong>and</strong> as a result we<br />
knew it would not be completed in time to be implemented by January <strong>of</strong> 2006.<br />
The Energy Act anticipated this possibility <strong>and</strong> specified a default st<strong>and</strong>ard<br />
applicable for just 2006. The default st<strong>and</strong>ard specified that the percentage <strong>of</strong> renewable<br />
fuel in gasoline sold or dispensed to consumers in the U.S. in calendar year 2006 must be<br />
2.78 volume percent 1 . The default st<strong>and</strong>ard would be applicable if the Agency did not<br />
promulgate regulations to implement the full RFS program for 2006. Since the full<br />
program could not be promulgated during 2006, the default st<strong>and</strong>ard <strong>of</strong> 2.78 percent<br />
applies to calendar year 2006.<br />
However, the provision for the default st<strong>and</strong>ard in the Act does not provide<br />
adequate specificity on how to implement the default st<strong>and</strong>ard. For instance, the Act's<br />
default st<strong>and</strong>ard provision does not specify the liable parties <strong>and</strong> the specific nature <strong>of</strong><br />
their obligation. It also does not discuss compliance mechanisms, reporting<br />
requirements, or credit generation <strong>and</strong> use. The resulting uncertainty associated with the<br />
default st<strong>and</strong>ard would have created confusion <strong>and</strong> risked a problematic initial<br />
implementation <strong>of</strong> the RFS program.<br />
As a result, the Agency published a rule on December 30, 2005 that interpreted<br />
<strong>and</strong> implemented the default provision, to provide certainty to parties involved in the<br />
production <strong>and</strong> distribution <strong>of</strong> gasoline <strong>and</strong> renewable fuels 2 . In that action, the Agency<br />
clarified the default st<strong>and</strong>ard for 2006 with regulations identifying the liable parties as<br />
refiners, importers, <strong>and</strong> blenders. The default st<strong>and</strong>ard was interpreted as establishing a<br />
collective obligation, rather than an individual obligation. Under this interpretation,<br />
refiners, blenders, <strong>and</strong> importers are responsible as a group for meeting the default 2.78<br />
percent st<strong>and</strong>ard, <strong>and</strong> compliance with this st<strong>and</strong>ard is calculated over the pool <strong>of</strong> all<br />
gasoline sold to consumers. An individual refiner, blender, or importer is not responsible<br />
for meeting the 2.78 percent st<strong>and</strong>ard for the specific gasoline it produces. The<br />
regulations implementing the default st<strong>and</strong>ard for 2006 did not include any provisions for<br />
credit generation or trading, given the collective nature <strong>of</strong> the obligation. However, any<br />
shortfall in renewable fuel production in 2006 would be added as a deficit carryover to<br />
the st<strong>and</strong>ard for 2007. Based on information available to date, this does not appear to be<br />
necessary. Total ethanol production in the U.S. exceeded 4.0 billion gallons in 2005 by a<br />
small margin, <strong>and</strong> several hundred million gallons <strong>of</strong> additional ethanol production<br />
capacity has come online in 2006. Thus it is anticipated that the total ethanol production<br />
volume <strong>and</strong> ultimate use in 2006 will be more than sufficient to meet the default st<strong>and</strong>ard<br />
<strong>of</strong> 2.78 percent.<br />
1<br />
The default st<strong>and</strong>ard <strong>of</strong> 2.78 percent represented approximately 4.0 billion gallons <strong>of</strong> renewable fuel.<br />
2<br />
70 FR 77325 (December 30, 2005)<br />
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