On July 6, the Environmental Protection Agency (EPA) proposed renewable volume obligations for 2018 under the Renewable Fuel Standard (RFS). The proposal also includes a proposed 2019 volume mandate for biomass-based diesel (the 2018 biomass-based diesel number was finalized in late 2016). The proposal represents the Trump Administration’s first real public statement of policy with respect to the RFS, and was closely watched by NATSO and the rest of the fuels community.
EPA will now take public comments on the proposal for forty-five days, and is expected to issue “final” volume mandates in late November. NATSO will be filing comments with the Agency.
As a general matter, the proposal represents a continuation of the Obama Administration’s policies with respect to the RFS, though it does contain subtle indications that the Trump Administration will be less aggressive in establishing renewable fuel mandates. While the Obama Administration viewed the RFS as a tool to implement environmental policy, the Trump Administration appears to view the RFS as a tool to implement agriculture and energy independence policies. So far this different approach has not resulted in a significant difference in policy results, but it is important for market participants to recognize this paradigm shift for purposes of anticipating what direction the Trump EPA will move as it continues to implement the RFS.
Like the Obama Administration had done, EPA proposed to use its statutory “waiver authority” to lower the volume of renewable fuel that must be incorporated into the fuel supply below the levels Congress established a decade ago. NATSO has historically supported exercise of this waiver authority and urged EPA to utilize it in order to bring the renewable volume mandates in line with what the market can reasonably be expected to absorb.
In the proposal, EPA proposed to lower the volume mandates for cellulosic biofuel, advanced biofuel, and total renewable fuel relative to the 2017 requirements. In its explanation accompanying the proposal, EPA indicates that – consistent with the Trump Administration’s “America First” policy – the Agency’s preference is to avoid relying on biofuel imports to satisfy the renewable volume mandates under the RFS.
This represents a mixed blessing for NATSO members – on the one hand, NATSO supports free markets with minimal artificial restrictions on product supply chains. At the same time, in the event that protectionist policies are implemented, NATSO agrees with EPA that such policies must be reflected in the form of lower RFS mandates (reflecting the lack of supply coming in from overseas).
Two such protectionist policies currently being considered that NATSO opposes are converting the biodiesel blenders tax credit to a producer credit (thereby limiting it to domestically produced product), and an International Trade Commission case seeking to limit biodiesel and renewable diesel exports from Argentina and Indonesia, respectively.
Under the RFS, EPA sets an annual benchmark representing the amount of renewable fuels that each “obligated party” – defined as a fuel refiner or importer – is responsible for generating. Importantly for NATSO members, the EPA did not propose or even solicit comments on changing the definition of “obligated party” to require downstream fuel marketers – including many NATSO members – to become obligated parties rather than refiners or importers. Certain refiners have strongly pushed EPA in recent months to pursue this shift in order to avoid having to fulfill their responsibilities under the RFS. This issue will likely be considered in future regulatory proceedings.
EPA’s proposal also asks for comments regarding the current Renewable Identification Number (RIN) trading structure, and whether it provides an opportunity for market manipulation and further whether changes might alleviate such concerns.
NATSO met with EPA prior to the proposal and the Agency appears to have taken most of NATSO’s recommendations.
The RFS specifies four categories of renewable fuels, each with separate volume mandates. The proposed 2018/2019 volume obligations are below, alongside previous years’ mandates for reference (NOTE: the 2018 biomass-based diesel number was finalized in late 2016; the rest of the 2018 number were proposed on July 6, along with the 2019 biomass-based diesel number):
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