The EPA on January 9 issued the final rule for the 2012 Renewable Fuel Standard, calling for production and use of 15.2 billion gallons of renewable fuel, representing just over 9 percent of the total fuel market. The renewable fuel total includes 2 billion gallons of advanced biofuel, with at least 8.65 million gallons of cellulosic biofuel.
Importantly, EPA’s 2012 rule maintains a course –consistent with the 2010 and 2011 rules – that continues to promote growth in the production and use of advanced biofuels. While the cellulosic biofuel standard is lower than the target set in 2007, it is an achievable production level based on a careful survey of U.S. biofuel producers. The map of Existing and Planned Biorefineries represents all planned and existing biorefineries in the U.S., including those currently producing cellulosic biofuel. The EPA rule ensures that the fuel market – which is still dominated by petroleum gasoline – will be open to competitively priced advanced biofuels.
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With oil prices projected to stay above $100 per barrel, and gasoline prices at the pump well above $3.00, advanced biofuels have a clear opportunity to reach price competitiveness. More importantly, though, they have the potential to continue improving affordability, while oil continues its upward climb. Consumers spent $481 billion on gasoline in 2011, averaging $4,155 for each household or about 8.4 percent of the average family’s budget. About $1 billion every day was sent overseas to pay for imported oil.
The National Petroleum Refiners Association is the biggest critic and opponent of the RFS. It has continued to complain that the cellulosic biofuel standard is equivalent to a fine on their industry. In fact, NPRA made this argument to the EPA during the comment period on the 2012 RFS rules.
However, EPA rejected that argument. At issue is the use of cellulosic waiver credits. When the EPA lowers the annual cellulosic biofuel standard from the 2007 targets – as it has done since 2010, in recognition that actual production is not hitting these targets – it must issue these credits. The price for the credits is set by a formula established by Congress when it wrote the law, representing the difference between $3.00 and the average wholesale price of gasoline for the previous 12 months. For 2010, the waiver credit was $1.56. For 2011, it was $1.03. And for 2012, it will be $0.78. If the wholesale price of gas tops $3.00, the credit will be set at $0.25. For a full explanation of how the RFS works, see “The Renewable Identification Number System and U.S. Biofuel Mandates” from the USDA Economic Research Service.
The cellulosic waiver credit provides an alternate method of compliance for the cellulosic mandate. The credits are made available for purchase only at the end of the year, when refiners file their final compliance reports. Refiners are allowed to purchase these to make up any shortfall in their purchase of cellulosic biofuel gallons. Some biofuel producers have complained that the credits allow refiners and blenders to avoid buying the actual gallons of cellulosic fuel. But what they actually do is establish a predictable price point for determining the cost-competitiveness of cellulosic biofuel.
In a recent analysis of the RFS rule, BIO explained the importance of this mechanism for promoting growth of the industry while ensuring that advanced biofuels are cost competitive for consumers. BIO incorporated the paper in its comments to EPA on the proposed rule, and EPA explicitly referenced the comments in rejecting the NPRA’s argument about being penalized. In essence, refiners have as much freedom as possible to choose the lowest cost method of compliance with the Renewable Fuel Standard, by selling either cellulosic biofuel or advanced biofuels (if cellulosic biofuel is unavailable or too costly).
The RFS rules balance the interests of consumers, cellulosic biofuel producers, and the refiners.The EPA has been consistent in its implementation of the RFS, promoting the stability necessary for growth. This consistency is the fundamental driver for continued growth and development of the biofuels industry.