On Wednesday July 25, the House Energy & Commerce Committee held a hearing to educate members on the complexities of the compliance markets for biofuels, as Environment and Economy Subcommittee Rep. Shimkus (R-IL), chair, explores reforming the Renewable Fuel Standard (RFS). Shimkus (R-IL) and Energy and Commerce Committee Chair Walden (R-OR) have signaled their desire to significantly overhaul the RFS due to unrelenting calls from small oil refiners to lower compliance costs, as well as complaints from biofuels producers and refiners alike about a lack of transparency in the biofuels marketplace.
Over the past ten years, RIN (Renewable Identification Numbers) prices have gone from pennies to $1.40 at various periods. Both the oil and biofuels industries have complained about the lack of transparency in RIN marketplaces. At the hearing, witnesses discussed the merits and downsides to ideas that various lawmakers have floated, such as capping RIN prices, and EPA handing over market compliance to the Commodity Futures Trading Commission.
At the hearing, one theme emerged – volatility in the RINs marketplace and policy uncertainty has curtailed the production of advanced and cellulosic biofuels. While first generation ethanol (primarily corn ethanol) is capped at 15 billion gallons under the statute, the majority of growth in the biofuels industry going forward must come from growth in the cellulosic category. Cellulosic feedstocks must deliver greenhouse gas reductions greater than 60 percent as compared to gasoline, and include crop residues and purpose-grown crops, as well as wastes. While the growth in volume of these fuels has been much slower than what was anticipated, uncertainty created by former EPA administrator Pruitt has caused additional cooling in the cellulosic space.
According to witness Paul Niznick, Senior Consultant for Argus Media Incorporated, the effects of uncertainty in the marketplace have hit cellulosic fuel production, because, “Variability in RIN markets and more broadly, uncertainty in the policy going forward are critical, because none of these [cellulosic] projects can go forward without the RFS RINs price incentives making it economical to blend these fuels.” While technological breakthroughs for cellulosic feedstocks and fuel production must continue to grow volumes, there are several administrative changes to the program which could greatly help grow the volume of cellulosic fuels in the short-term.
In her testimony, Sandra Dunphy, Director of Energy Compliance Services for Weaver and Tidwell, L.L.P., outlined several steps the EPA and Congress could take in the near-term that would help grow the volume of cellulosic fuels, and in turn, reduce RIN prices overall. They include actions the EPA can take administratively, as well as Congressional actions:
- Allow renewable fuel to be processed at two separate facilities to qualify for RINs. Currently, the renewable fuel must be produced at a standalone facility. However, as the bioeconomy has matured, it makes sense to allow intermediate materials to be converted to fuel at a secondary facility. Despite the EPA proposing to do this in 2016, it has not yet been enacted.
- Allow biogas used to power electric vehicles to qualify for RINS. Again, EPA has been mulling this change since 2014, but it has been on hold ever since.
- Allow use of biofuels in marine vessels to qualify for RINs.
- Broaden the definition of biomass to include municipal solid waste, sawdust and wood chips from lumber mills, wood waste from construction demolition, railroad ties, diseased and insect-infested trees, logging residues and pulpwood. This would include diseased and dead whole trees that have no other markets and need to be removed from the landscape.
- Allow cellulosic and non-cellulosic fuels that are co-processed at a single facility to qualify. For example, biogas digesters cannot co-digest non-cellulosic feedstocks and receive the more valuable cellulosic RIN credit. This has been identified as a major barrier to building more anaerobic digester systems. The same is true of cellulosic ethanol that is co-produced at a first-generation ethanol facility.
While it’s unknown how many gallons of cellulosic fuels these changes could create, it’s clear that additional gallons of cellulosic fuel could be wrung from addressing this low-hanging fruit. Despite the complexities of the issue, Rep. Shimkus (R-IL) commented at the hearing that he expects to introduce legislation to reform the statute after the August recess.
For more information see:
- Background on Renewable Identification Numbers Under the Renewable Fuel Standard, House Energy & Commerce Committee