Regulation of Fuels and Fuel Additives: Renewable Fuel Standard ...

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