Last week, part of EPA's much anticipated 2014 proposed RFS rule, or at least a draft of the rule, was leaked and widely disseminated. If the text of the leaked proposed rule is representative of the actual proposed rule, the oil and gas industry would likely view it more favorably than would the biofuels industry. In the leaked version of the proposal, EPA would use its authority under the RFS to adjust downward the cellulosic, advanced, and overall renewable fuel volume requirements for 2014. It would require obligated parties to blend or use 15.21 billion gallons of renewable fuel in 2014, as opposed to the 18.15 which is required under the 2007 statute.
In the past few months, AFPM and API filed a joint petition, and Valero Energy Corporation filed a petition, requesting that EPA grant a partial waiver of the 2014 statutory RFS requirements. Generally, AFPM and API argued that because the 2014 RFS requirements would require obligated parties to blend more E10 than they are permitted to under the law, they would necessarily restrict the U.S. fuel supply, which would harm consumers. To avoid this harm, AFPM and API requested that EPA waive the 2014 RFS requirements to no more than 9.7 percent of the U.S. fuel supply. Valero's letter pointed out that due to the blend wall, RIN prices are higher than they should be, which reportedly is causing economic harm to affected parties, including consumers.
The Renewable Fuels Association (RFA) and the Biotechnology Industry Organization (BIO) sent separate letters to EPA urging EPA to deny the AFPM and API joint petition. They both assert that there are several options obligated parties have to meet their 2014 RFS requirements, including the greater use of E85, E15, and drop-in fuels.
Both U.S. Department of Agriculture (USDA) Secretary Tom Vilsack and EPA Administrator Gina McCarthy have issued statements denouncing the leak and reiterating that the final version of the 2014 RFS proposed rule is still being deliberated.
On the first day of its new term on October 15, the U.S. Supreme Court announced that it would grant review of parts of EPA's greenhouse gas (GHG) regulations. The Court will review part of the June 2012 decision issued by the U.S. Court of Appeals for the District of Columbia Circuit, which upheld EPA's GHG program. It will review whether EPA's GHG regulations for motor vehicles should have triggered Prevention of Significant Deterioration permitting for stationary sources. The case and its outcome could impact the current efforts of the Obama Administration to develop and finalize new GHG regulations for new and existing stationary sources. It is reported that the Court is likely to hear arguments in the first few months of the new year.
On Tuesday, October 8, 2013, the American Petroleum Institute (API) filed a lawsuit with the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit Court) challenging the U.S. Environmental Protection Agency's (EPA) final rule setting the 2013 renewable volume obligations (RVO) under the federal Renewable Fuel Standard (RFS). While the petition for review lacks details about the lawsuit as such petitions are for notice purposes only, it is reported that API's main arguments against the rule will be that it was issued too late to be effective and that the 2013 cellulosic RVO set at six million gallons is higher than cellulosic gallons available on the market.
Under the RFS, EPA must issue the following year's RVOs by November 30. EPA did not release its final 2013 RFS rule setting all of this year's RVOs until August 6, 2013. Earlier this year, the D.C. Circuit Court directed EPA to set the cellulosic gallon requirement to levels of actual production expected based on company and other information. The court stated that EPA could not set the volumes at the maximum level of production possible to drive production.
API has been advocating for the full repeal of the RFS on legislative, regulatory, and legal levels. It also challenged EPA's 2011 and 2012 final RFS rules in court. In August 2013, API, along with the American Fuel & Petrochemical Manufacturers (AFPM), petitioned EPA to grant a partial waiver of the yet-to-be-proposed 2014 RFS RVOs.
Several biofuel trade groups have responded to this latest legal challenge. Growth Energy and the Renewable Fuels Association (RFA) denounced the lawsuit. In its press release, available online, RFA called it a "lawsuit in search of a problem."
The U.S. government is shut down until the U.S. Senate and House of Representatives approve the same version of legislation to fund it and the President then signs it into law. House Republicans have been trying to tie funding the government with defunding certain parts of the Affordable Care Act (ACA), which went into effect on October 1. The Senate has rejected every funding bill sent to it by the House because each has contained provisions to marginalize the ACA. The Senate has also rejected a piecemeal approach to funding the government. This has created a very high stakes game of ping pong between the two chambers of Congress.
Aside from the impact on the entire economy, the government shutdown directly impacts all regulatory and legislative efforts affecting the biofuels and renewable chemicals industries, including work on the Toxic Substances Control Act (TSCA) and the Renewable Fuel Standard (RFS). It will almost certainly delay upcoming expected rulemakings, including the U.S. Environmental Protection Agency's (EPA) proposed rule setting the 2014 renewable volume obligations (RVO) under the RFS. It is reported that nearly 95 percent of EPA's staff has been furloughed during the shutdown, leaving only 17 employees working in EPA's Office of Air and Radiation and three working in the Office of Water.
The shutdown also postpones hearings and other legislative efforts impacting industry, including the hearing scheduled October 3, 2013, before the Senate Agriculture, Nutrition and Forestry Committee on "Advanced Biofuels: Creating Jobs and Lower Prices at the Pump."
All legislative and regulatory efforts on the federal RFS are at a standstill until the government re-opens. RFS legislative and regulatory efforts, however, were strong in the days before the government shutdown.
Last week, the Biotechnology Industry Organization (BIO) sent a letter to EPA Administrator Gina McCarthy urging EPA to deny the joint petition by the American Petroleum Institute and American Fuel & Petrochemical Manufacturers requesting EPA grant a partial waiver of the 2014 RVOs under the RFS. Petitioners had argued that waiving the RVOs for 2014 to 9.7 percent of the U.S. gasoline supply is necessary so their members may fulfill their volume obligations under the RFS without exceeding the 10 percent ethanol "blend wall."
In its letter, BIO argued that petitioners may not make the waiver request because the RVO requirements do not apply to them as trade associations and, in any case, the joint petition is premature since EPA has not even yet released its proposed 2014 RVOs. In addition, BIO argued that the projected harm by the petitioners due to the blend wall is the result of "ongoing dilatory tactics of the very parties seeking the waivers" and that there exist ample options for obligated parties to comply with the 2014 RVOs. The Renewable Fuels Association (RFA) sent a similar letter to EPA opposing the joint petition.
Also last week, the heads of six biofuel trade associations met with Republican staff of the House Energy and Commerce Committee about Committee Chair Fred Upton's (R-MI) efforts to reform the federal RFS law. The six associations represented were: BIO; the National Biodiesel Board; Growth Energy; RFA; the Advanced Ethanol Council; and the National Corn Growers Association. The associations were unified in their message to staff that the RFS should remain intact as-is, with no changes. The associations argue that the consistency and stability of the RFS law drives investment in biofuels, especially advanced and cellulosic biofuels, and it contains sufficient administrative flexibility to enable EPA to make appropriate adjustments to its implementation, including any necessary lowering of annual RVO requirements for obligated parties. It is reported that the biofuels groups were told not to expect any legislative proposal to be released before EPA issues its proposed rule to set the 2014 RVOs.
In addition, last week, 20 conservative leaning business groups sent a letter to Congress urging the repeal of the RFS. Also, Americans for Tax Reform, a conservative anti-tax group led by Grover Norquist, began a letter writing campaign to Congress advocating for RFS repeal.
Finally, biofuels supporter Senator Chuck Grassley (R-IA) sent a letter to EPA asking what measures EPA is taking to investigate claims of RFS Renewable Identification Number (RIN) market manipulation and speculation.
If the Continuing Resolution (CR) currently funding the government is allowed to expire on September 30, it could prove devastating to the U.S. Environmental Protection Agency (EPA). Unlike other federal agencies, EPA cannot claim exceptions for many of its employees. In the event the CR expires, as EPA Administrator Gina McCarthy asserted in public remarks this week, EPA "would effectively shut down." It would only have skeletal staff and would surely impact Renewable Fuel Standard (RFS) and Toxic Substances Control Act (TSCA) work, among others.
This fear about current EPA funding comes at a time when the Republican Members of the Senate Committee on Environment and Public Works sent a letter this week to Committee Chair Barbara Boxer (D-CA) urging her to move ahead with a hearing on EPA's Fiscal Year (FY) 2014 budget request. EPA requested $8.2 billion for FY 2014, which is 3.5 percent less than 2012 enacted funding levels for the Agency.
The U.S. Environmental Protection Agency (EPA) reportedly has completed its proposed rule setting the 2014 renewable volume obligations (RVO) for obligated parties under the federal Renewable Fuel Standard (RFS). The proposal is now being reviewed by the Office of Management and Budget before being published in the Federal Register, which will open the public comment period. By law, EPA is required to set the following year's RFS RVOs by November 30. The 2013 RVOs were not prepared in final until August of this year, which was likely due to EPA concerns about setting the volumes amidst legal, legislative, and regulatory challenges by obligated parties to the final 2011 and 2012 RVOs.
EPA included language in the final 2013 RFS rule indicating that it may reduce the overall RVOs in its upcoming 2014 RFS rulemaking. Just before EPA issued the 2013 final rule containing this language, leading trade groups representing the oil and gas industry, the American Petroleum Institute (API) and American Fuel & Petrochemical Manufacturers (AFPM), filed a joint waiver petition with EPA requesting that the Agency reduce the overall 2014 statutory RVOs to 9.7 percent of the U.S. transportation fuel supply due to what they argue are their blend wall concerns. The joint waiver petition is available online. This week, Valero Energy Corporation, the world's largest independent refiner, also sent in a petition requesting that EPA waive the 2014 RVOs. Valero cited the burdensome and high costs of Renewable Identification Numbers (RIN) needed for RFS compliance.
Several members of the biofuels industry have stated publicly that they believe there are several options that could, at least in part, address the impending so-called blend wall. The Renewable Fuels Association made this point in its letter to EPA urging the Agency to deny the waiver petition. RFA's letter is available online.
On September 6, 2013, EPA's Office of the Inspector General (IG) issued a report finding that the Agency does not meet the control standards for monitoring some of the new programs and activities designed to prevent and reduce instances of fraudulently generated RINs under the federal RFS. EPA's one-page report summary is available online and its 23-page full report is available online.
The EPA IG findings come at a vulnerable time for the RFS and its allies. Trade groups representing the oil and gas industry, among others, have called on EPA to modify the RFS in several ways, including to protect against RIN fraud. Those groups, as well as the National Biodiesel Board, worked with EPA to design a new plan to help protect against RIN fraud. EPA issued a proposed rule outlining the plan in February of this year. A copy of the proposed rule as published in the Federal Register is available online. The plan is expected to be completed soon.
On August 28, 2013, the Solid Waste Association of North America (SWANA) and the National Solid Wastes Management Association (NSWMA) sent a letter to U.S. Environmental Protection Agency (EPA) Administrator Gina McCarthy urging EPA to (1) issue quickly a final rule clarifying how biogenic carbon emissions will be treated under Prevention of Significant Deterioration (PSD) and Title V permitting requirements and (2) determine that biogenic carbon emissions from municipal solid waste (MSW) should be categorically excluded from the new PSD and Title V greenhouse gas (GHG) reporting requirements. A copy of the letter is available online. In July, the U.S. Court of Appeals for the District of Columbia vacated EPA's rule temporarily exempting bioenergy and other biogenic sources of GHG emissions from the new GHG permitting requirements, which has created uncertainty for the industry going forward. BRAG's report on this decision is available online.
In their joint letter, SWANA and NSWMA argue that emissions from the biogenic portions of MSW should be permanently exempted from the new GHG reporting requirements in part based on EPA's recent calculation of the lifecycle GHG analysis of landfill gas as a renewable fuel feedstock. Under this analysis, EPA "assumed that the biogenic portions of MSW (which produce the biogas) pose no land use-related GHG emissions associated with its production and use as a fuel feedstock." In addition, the groups state subjecting the biogenic emissions to the new reporting requirements could deter renewable fuel production and progress on projects designed to promote the beneficial use of landfill gas and energy.
On August 1, 2013, over 100 groups sent a similar letter to EPA urging the Agency to find that bioenergy and other biogenic sources of GHG emissions are carbon neutral for purposes of new GHG permitting requirements under EPA's Tailoring Rule. More information on this letter is available online.
EPA was scheduled to post a video on its YouTube channel providing an overview of the Agency's plans to regulate GHG emissions from existing power plants. Under President Obama's Climate Action Plan (CAP) announced on June 25, 2013, EPA is directed to propose emissions guidelines for existing power plants by June 1, 2014. EPA's YouTube page is available online.
U.S. House Energy and Commerce Subcommittee on Energy and Power Chair Ed Whitfield (R-KY) has announced that he will hold a hearing on the President's CAP on September 18, 2013. Chair Whitfield, who does not support the CAP, has invited representatives from 13 federal agencies, including EPA, to testify at the hearing. The Subcommittee's press release (available online) states that "we seek to hear from relevant Federal agencies about U.S. climate change policies and the administration's second term climate agenda, and to obtain fuller information regarding the Federal government's past, current, and planned domestic and international activities, climate research programs, initiatives, and new regulatory requirements."