The Renewable Fuels Standard (RFS), which has been in place since 2005, can be a complex issue to untangle and understand.
The initial iteration of the Renewable Fuel Standard (RFS1) was signed into law by President George W. Bush, a Republican from Texas, as part of the Energy Policy Act of 2005 and was promulgated by the Environmental Protection Agency to displace 7.5 billion gallons of refined gasoline and diesel (domestically used) with lower carbon fuels by 2012. The purpose: reduce emissions and increase energy security. Although the law was signed in 2005, it wasn’t effectively in-place until two years later (Sept. 1, 2007) once rules for implementing were completed.
By 2006, ethanol had already made up 3.8 percent of the total 141 billion gallons of gasoline consumed in the U.S. that year. The ethanol and agricultural industry estimated that 11.8 billion gallons of ethanol would be available as early as 2008. Plus, a growing interest in biodiesel manufacturing was beginning to gain momentum and seek additional support under the RFS.
Acknowledging the U.S.’s ability to produce lower carbon renewable fuels,theEnergyIndependenceand Security Act of 2007 was signed into law. EISA, which was also known as the second iteration of the Renewable Fuels Standard (RFS2), set new goals of 36 billion gallons of renewable fuels by 2022 with goals to be reassessed at that time.
RFS2, which applied to refiners, refined fuel importers and fuel reformulators (also called obligated parties), set the stage for a new multi-billion-dollar fuel market.
It is clear, based upon how the RFS rules were written, that Congress and the EPA expected obligated parties to make provisions to gain access to renewable fuels directly and establish terminal infrastructure to do so. To a great extent, this did not occur and blending infrastructure costs subsequently fell to fuel marketers who took on the risk of the new renewable fuels market.
Although RFS2 is a mandate on obligated parties, it is a strict incentive program for the renewable fuel blender. Each gallon of renewable fuel has a unique Renewable Identification Number (RIN) attached. This RIN becomes the incentive as blenders are able to sell the RIN to the obligated party, so the obligated party can show the EPA annual renewable fuel volume obligations have been met.
Under RFS1, RIN credits varied from 2 cents to 15 cents per gallon of renewable fuel. By mid-2011, ethanol RIN values hit a staggering $2.99 per gallon. The cost of compliance for obligated parties was growing quickly.
At no time during the periods of high RIN values did the EPA attempt to reduce the ultimate goals of the RFS set by Congress. The intent of the law was clear, and obligated parties were given two ways to meet the goals. They could either buy RIN credits to show their compliance or they could directly buy gallons of renewable fuels with the RIN credits attached. Why some obligated parties decided to sell off downstream assets, capable of blending renewable fuels and collecting RINs, during this period will remain a mystery.
The current EPA administration appears to share the opinion that Congress did not really mean to establish a Renewable Fuel Standard for the United States and that they are somehow responsible for private industry business decisions.
EPA is violating Congress's intent by using the hardship waivers for refiners generating less than 75,000 barrels per day as a mechanism to lower RIN prices rather than actually alleviating economic hardship. This, by itself, has decimated RIN values that are intended to help build out the infrastructure to complete the task of the RFS. Many NATSO members have invested millions of dollars and taken great risks based upon the goals set by Congress.
The tools to assist industry are even more complex as we move from a global market to a protectionist market filled with trade wars. The Trump Administration is currently exploring the exporting of RINs. However, when gallons of renewable fuels are exported out of the U.S., RIN credits are to be retired and no longer marketable or useable for meeting RFS obligations.
The RFS is a domestic fuels program and is not intended to disrupt global markets. To allow these RIN credits to be used against Renewable Volume Obligations is to ask for shortages of fuel in the U.S. while exports sky-rocket. This is especially damning since our countervailing duties and anti-dumping laws recently went into effect against Indonesia and Argentina.
The RFS has seen its share of turbulence and strife. From fraudulent RIN generators to convoluted rules and moving RIN market targets, the RFS has seen it all. It stands, however, as the one of the best fuel policies to ever touch our industry and has rewarded those willing to take on the risks of offering new fuels.
In June, NATSO launched a new business venture known as the Alternative Fuels Council to help fuel retailers leverage the resources necessary to learn about and incorporate alternative fuels into their supply offerings.
The Alternative Fuels Council will work with members of the truckstop and travel plaza community and other fuel retailers to navigate the litany of state and federal fuel regulations, and to utilize available government incentives for alternative fuels, including the Renewable Fuel Standard (RFS). The Alternative Fuels Council will also help its partners implement profitable strategies related to alternative fuel supply options and fuel infrastructure.
Meet the Experts
For over two decades Jeff Hove has served the petroleum industry through state and federal legislative and rule-making representation. Hove also worked with biodiesel and ethanol producers to educate producers and renewable fuel blenders on the equipment and fuel quality impacts of renewable fuels. Following the implementation of the Renewable Fuel Standard in 2007, Hove helped petroleum marketers and renewable fuel blenders realize greater profits by buying and trading RINs under the RFS.
Ginger Laidlaw joins NATSO to assist members of the truckstop and travel plaza community navigate the complex compliance requirements of state and federal fuel regulations, including the RFS. Laidlaw has worked with renewable fuel marketers, blenders and producers for over six years, and previously worked as an environmental consultant for several years.
Learn more at NATSOAltFuels.com.
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