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

Prior to 2013, the Act specifies that cellulosic biomass ethanol or waste derived
ethanol will be considered equivalent to 2.5 gallons of renewable fuel when determining
compliance with the renewable volume obligation. As discussed in Section III.D below,
a batch’s RIN would indicate whether it was cellulosic or non-cellulosic ethanol.
Beginning in 2013, the 2.5 to 1 ratio no longer applies for cellulosic biomass ethanol. In
its place, the Act requires that the applicable volume of required renewable fuel specified
in Table I.B-1 include a minimum of 250 million gallons that are derived from cellulosic
biomass. As shown in Table III.A.2-1 above, we have estimated this value (250 million
gallons) as a percent of an obligated party’s production for 2013. Thus, an obligated
party would be subject to two standards in 2013 and beyond, a non-cellulosic standard
and a cellulosic standard.
3. Compliance In 2007
The Energy Act requires that EPA promulgate regulations to implement the RFS
program, and if EPA did not issue such regulations then a default standard for renewable
fuel use would apply in 2006. As described in Section I.C, we promulgated a direct final
rule to interpret and implement the application of the statutory default standard of 2.78
percent in calendar year 2006. However, the Act provides no default standard for any
other year. Instead, the regulations we promulgate are required to address renewable fuel
usage, including calendar year 2007. The program we are proposing today will therefore
apply in 2007. While we plan to promulgate the final rule as soon after today's proposal
as possible, it will likely not be effective by January 1, 2007. Therefore, our proposal
must address how, and for what time periods, the applicable standard and other program
requirements will apply to regulated parties for gasoline produced during 2007.
We have identified several options for 2007 compliance. One option would be to
extend the collective compliance approach used for 2006 to 2007. Although the Act
contains no default standard applicable to 2007, under this approach we would apply the
renewable fuel standard that we calculate for 2007 to obligated parties on a collective
basis rather than on an individual basis. Under this approach, no individual facility or
company would be liable for meeting the applicable standard. At the end of 2007 we
would determine if the industry as a whole had met the standard on average, and any
deficit would be carried over into 2008. This approach would be essentially equivalent to
deferring the start of the program to 2008, but with the addition of an industry-wide
deficit carryover provision. Current projections from the Energy Information
Administration (EIA) on the volume of renewable fuel expected to be produced in 2007
indicate that an industry-wide deficit carryover would most likely be unnecessary under
this collective compliance approach.
However, given the requirements of the Act, we do not believe that a collective
compliance approach is appropriate for 2007. The Energy Act requires us to promulgate
regulations that provide for the generation of credits by any person who overcomplies
with their obligation. It also stipulates that a person who generates credits must be
permitted to use them for compliance purposes, or to transfer them to another party.
- 36 -