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

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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) - 14 -
Today's proposal outlines the full RFS program, covering all of the provisions required in the Act. It applies in calendar year 2007 and beyond, since the direct final rule described above addresses RFS compliance for 2006 only. D. Development Of The Proposal The RFS program was prescribed in section 1501 of the Act, including the required total volumes, the timing of the obligation, the parties who are obligated to comply, the definition of renewable fuel, and the general framework for a credit program. As with many legislative actions, various aspects of the program require additional development by the Agency beyond the specifications in the Act. The credit trading program and related compliance mechanisms are a central aspect of the program, and the Agency is responsible for developing regulations to ensure the successful implementation of the RFS program, based on the framework spelled out in the statute. Under the RFS program the credit trading provisions will comprise a critical element of compliance. Many obligated parties do not have easy access to renewable fuels or the ability to blend them, and so will rely on the use of credits to comply. The RFS credit program is also unique in that the parties liable for meeting the standard (refiners, importers, and blenders of gasoline) are not generally the parties who make the renewable fuels or blend them into gasoline. This creates the need for trading mechanisms that ensure that the means to demonstrate compliance will be readily available for use by obligated parties. Given these considerations, the first step we took in developing the proposed program was to seek input and recommendations from the affected stakeholders. There were initially a wide range of thoughts and views on how to design the program. However, there was broad consensus that in the end the program should satisfy a number of guiding principles, including for example that the compliance and trading program should provide certainty to the marketplace and minimize cost to the consumers; that the program should preserve existing business practices for the production, distribution, and use of both conventional and renewable fuels; that the program should be designed to accommodate all qualifying renewable fuels; that all renewable volumes produced are made available to obligated parties for compliance; and finally that the Agency should have the ability to easily verify compliance to ensure that the volume obligations are in fact met. Over the course of several months, these guiding principles helped to move us toward today's proposal. - 15 -
Page 1 and 2: The Administrator signed the follow
Page 3 and 4: Ave., NW, Washington DC. This Docke
Page 5 and 6: Table of contents: I. Background A.
Page 7 and 8: C. Requirements for Producers and I
Page 9 and 10: G. Executive Order 13045: Protectio
Page 11 and 12: The increased use of renewable fuel
Page 13: establish the applicable national v
Page 17 and 18: enewable fuel feedstock market pric
Page 19 and 20: Unlike VOC and NOx, emissions of CO
Page 21 and 22: These renewable feedstocks are then
Page 23 and 24: 5. Potential Water Quality Impacts
Page 25 and 26: enewable fuel volume which each par
Page 27 and 28: certain volume of renewable fuel. E
Page 29 and 30: est practices would have the option
Page 31 and 32: As stated, the renewable fuel stand
Page 33 and 34: enewable fuel volumes in the calcul
Page 35 and 36: For illustrative purposes, we have
Page 37 and 38: These credit provisions have meanin
Page 39 and 40: Stdi = The RFS program standard for
Page 41 and 42: gasoline. The Act is unclear on whe
Page 43 and 44: . Ethanol Made From Any Feedstock I
Page 45 and 46: generate thermal energy used to pro
Page 47 and 48: animal wastes, including poultry fa
Page 49 and 50: limit this program solely to a stra
Page 51 and 52: presence of the denaturant. For ins
Page 53 and 54: First, doing so could create an inc
Page 55 and 56: For purposes of this preamble, the
Page 57 and 58: capability for all of the small ref
Page 59 and 60: trading program, without any per ga
Page 61 and 62: obligated parties. However, there i
Page 63 and 64: particular importance for 2013 and
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have to significantly change their
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The D code would identify cellulosi
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Another case in which a RIN may not
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Section IV. In the context of demon
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equired volumes shown in Table I.B-
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We request comment on the valid lif
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e used for current year compliance.
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equirements by roughly 10 to 30 per
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4. Provisions For Exporters Of Rene
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Previous-year RINs: RINs that came
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a. Responsibilities Of Renewable Fu
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another, in electronic or paper for
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e a one-to-one correspondence betwe
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Parent batch Actual volume (gal) Ba
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should also have the right to separ
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3. Distribution Of Separated RINs O
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obligated parties to exercise marke
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Our proposed program is designed to
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As discussed in Section III.D, it i
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additional enforcement burdens plac
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B. Requirements for Obligated Parti
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fuel and containing identifying inf
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We request comment on our proposed
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We also request comment on our prop
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The refiner or importer would be li
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Plant Feedstock Corn a Table VI.A.1
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Leading the Midwest in ethanol prod
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EPA forecasts ethanol production to
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As shown in Table VI.A.2-1 and Figu
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3. Current Ethanol and MTBE Consump
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Oxygenate Use (Bgal) 4.5 4.0 3.5 3.
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change from the 2004 base case. 53
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per gallon to biodiesel produced fr
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ased on the assumption that the ble
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Modifications to the rail, barge, t
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other waste materials as discussed
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elatively small fraction of the tot
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production costs using prices for s
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the capital cost of making the nece
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information on biodiesel freight co
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For further details on RVP reductio
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assuming only that blending of etha
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costs). At a $70 per barrel crude o
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gasoline use scenarios will cost th
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the incentive to blend in ethanol b
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supporting this rulemaking. We hope
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We base our estimates of fuel quali
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Table VIII.A.1.b-2 Effect of MTBE a
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pre-1998 model year onroad diesel e
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1. Primary Analysis The national em
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Table VIII.B.1-4 Annual Emissions N
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RFG due to the absence of an RVP wa
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increase in ambient ozone levels is
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developing a model of secondary org
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IX. Impacts On Fossil Fuel Consumpt
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intended to help fuel producers est
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efficiency and to reduce air emissi
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combined those displacement indexes
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3. Displacement Indexes (DI) The di
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Table IX.C.1-1 Fossil fuel impacts
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as on the exports of agricultural p
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which may change in response to an
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X. Agricultural Sector Economic Imp
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XI. Public Participation We request
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ways to comply with any previously
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small refiner under this proposal.
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meet these criteria to be considere
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“economically significant” as d
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40 CFR Part 80 is proposed to be am
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(b) Renewable Fuel Standard for 200
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(2) The term “Renewable fuel” i
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RFStdi = Renewable Fuel Standard in
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a party’s renewable volume obliga
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(a) YYYY is the calendar year in wh
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(ii) The value for EEEEEE in an ext
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(2) A deficit is calculated accordi
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(a) (1) Any party that exports any
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(e) If a refiner is complying on an
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calendar year; however, disqualific
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§80.76, if such information has no
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(1) A summary report of the annual
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(4) Reports shall be submitted on f
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(1) Fail to acquire sufficient RINs
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(b) The following attest procedures
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(B) That the RFS-FRGAS remained seg
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EPA employees or EPA contractors, f
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(iv) Determine the date and time th
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(ii) Be licensed as a Certified Pub
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