Renewable Fuel Standard (United States)

The RFS requires renewable fuel to be blended into transportation fuel in increasing amounts each year, escalating to 36 billion gallons by 2022. Each renewable fuel category in the RFS must emit lower levels of greenhouse gases relative to the petroleum fuel it replaces.[2]

The first RFS, usually referred to as RFS1, required that 4 billion gallons of biofuel be used in 2006. This requirement was scheduled to rise to 7.5 billion gallons in 2012. These requirements were passed as part of the Energy Policy Act of 2005. The Energy Independence and Security Act of 2007 changed and broadened these rules. EISA was signed into law by President George W. Bush and the bill was overwhelmingly supported by members of congress from both parties.[3]

The changes required by the 2007 legislation are usually referred to as RFS2. RFS2 required the use of 9 billion gallons in 2008 and scheduled a requirement for 36 billion gallons in 2022. The quota for 2022 was to allow no more than a maximum of 15 billion gallons from corn starch ethanol and a minimum of 16 billion gallons from cellulosic biofuels.[3]

In reaction to the implementation of the RFS, passage of EISA, and other measures to support ethanol, the Organization of Petroleum Exporting Countries (OPEC) expressed alarm. In 2007, OPEC's secretary general, Abdalla El-Badri, said that increased use of biofuels by the United States could cause OPEC to decrease production. Other OPEC leaders openly worried about "security of demand."[4]

The United States Environmental Protection Agency (EPA) administers the RFS with volume requirements for several categories of renewable fuels.[5] The EPA issued detailed regulations for implementing RFS1 in April 2007. These regulations established rules for fuel suppliers, created the Renewable Identification Numbers (RIN) system for compliance and trading credits, and rules for waivers. The EPA calculates a blending standard for each year based on estimates of gasoline usage created by the Department of Energy's Energy Information Administration. Separate quotas and blending requirements are determined for cellulosic biofuels, biomass-based diesel, advanced biofuels, and total renewable fuel. Exemptions for small producers are considered when calculating blending ratios.[3][6] Advanced biofuels are required to meet stricter air pollution requirements than regular corn-based ethanol.[7]

The individual obligations for producers are called Renewable Volume Obligations (RVO). An RVO is determined by multiplying the output of the producer by the EPA's announced blending ratios for each of the four standards described above. The producer has to show compliance through the RIN system. It can purchase RINs to makeup for any shortfall in production. Surplus RINs can be sold. This is done through the EPA's Moderated Transaction System.[3] The EPA established an RVO of 18.11 billion gallons total for 2016.[6]

On May 29, 2015, the EPA set an RVO lower than the benchmarks established by Congress. This generated criticism from all sides of the issue. The EPA was also blamed for missing legal deadlines to revise the RVO targets. Some say this introduced market uncertainty, harming both consumers and producers. The EPA made this announcement in May to meet a June 1, 2015 deadline established by the settlement to a lawsuit brought by fossil fuel and chemical trade associations. The EPA defended the targets calling them "ambitious but responsible" and arguing that "Biofuels remain an important part of the overall strategy to enhance energy security and address climate change." The EPA announcement called for a 27-percent increase in the use of advanced biofuels from 2014 to 2016. Most gasoline used in the United States is blended to E10, which contains only 10% ethanol. The May 2015 rule changes thus created modest incentives to make greater use of E85 and E15, which contain more ethanol.[8]

Many in the biofuel industry argue that the EPA abused its waiver authority by setting RVOs lower than the statutory minimums. They say Congress clearly intended for the law to apply according to supply that could be available rather than demand. They contend that the EPA has conflated the two. Under EISA, the statutory standard for 2017 is 24 billion gallons. On May 19, 2016, the EPA proposed an RVO of 18.8 billion gallons of biofuel for 2017. This was up from 18.4 billion gallons in 2016. Ethanol supporters and oil companies alike criticized this target.[9] On July 28, 2017, the District of Columbia Court of Appeals rejected the EPA's 2015 waivers.[10]

On June 22, 2016, the EPA announced that it was considering changes to the enforcement of blending standards. The agency has received petitions calling for compliance to be shifted away from refiners to blenders or "the entity that holds title to the gasoline or diesel fuel, immediately prior to the sale from the bulk transfer/terminal system … to a wholesaler, retailer or ultimate consumer."[11]

After 2022, the EPA has wide discretion to set RVOs in accordance with the goals outlined under EISA.[12] According to the EISA, "the applicable volumes of each fuel specified in the tables in clause (i) for calendar years after the calendar years specified in the tables shall be determined by the Administrator, in coordination with the Secretary of Energy and the Secretary of Agriculture, based on a review of the implementation of the program during calendar years specified in the tables..."[13]

A question of statutory interpretation of the Standard was raised at the Supreme Court in a 2021 case, HollyFrontier Cheyenne Refining, LLC v. Renewable Fuels Assn. Under the Standards, smaller refineries, those with under 75,000 barrels per year, had been exempt from blending until 2010 due to potential economic hardship related to blending, and then could apply to the EPA for extending that exemption on an annual basis if they could demonstrate continued hardship. Three small refineries had let their exemption period lapse but later applied to renew their exemption, which the EPA granted. Several renewable fuels association sued on the EPA's actions, arguing that they could only extend a continuous exemption period. While the Tenth Circuit overturned the EPA's decision, the Supreme Court in their 6–3 decision reversed the Tenth Circuit and ruled in favor of the refineries, stating that under the ordinary meaning of "extension", there was no need for a refinery to have maintained a continuous exemption period to apply for such an extension.[18]