The EPA finally released the long awaited RFS2 ruling today February 3rd, 2010. The ruling for the first time spells out specific volume standards for cellulosic biofuel, advanced biofuel and biomass-based diesel. An additional focus of RFS2 was to calculate and manage the life cycle green house gas (GHG) impact of each category of fuel. With the GHG assessment in place., RFS2 moved to revise allocations in the 2010 standard by dramatically increasing biomass-based diesel to 1.15 billion gallons and reducing cellulosic biofuel to just 6.5 million gallons. The EPA rightfully acknowledged the pending commercial scale production shortfall of cellulosic biofuel and adjusted accordingly. The conventional biofuel standard was unchanged.
On the biodiesel front the EPA has tossed a life-line to an industry struggling from overcapacity and a lack of a demand. The 1.15 billion gallon mandate will only be partially met with ‘09 RIN carryover and should provide a great opportunity for producers to restart production in 2010. Soybean oil, fats and waste oil feedstocks have all been determined eligible for the 50% GHG reduction threshold required to receive biomass-based diesel RINs. Palm oil based biodiesel is still under a GHG review, but appears a plausible feedstock based on EPA commentary. The results of the EPA GHG review of palm oil and other potential biofuel feedstocks is expected within 6 months or less.
Conventional corn based ethanol has been protected within RFS2 and does not receive much pressure on the GHG or indirect land use front. If not already grandfathered, the bulk of the industry’s plants are modern gas-fired units which have been determined by EPA to meet the 20% GHG reduction standard. All biofuel, including corn-based ethanol, must meet this minimum 20% threshold to be eligible for RINs within RFS2. The only ethanol plants potentially at risk would be new coal-fired units.
The primary contentious issues resulting from RFS2 are likely to remain indirect land use change (ILUC) and the 2010 start date. A review of the public comments confirms a strong desire by obligated parties to push the start date to January 1st, 2011. The EPA has made a clear move for 2010 implementation and it is uncertain what recourse, if any, obligated parties may have to attempt to delay the start date. ILUC remains controversial as groups such as RFA continue to rail on the topic. RFA and others take issue with the validity of various international land use change assumptions and their resultant impact on GHG life-cycle calculations. This is spurred on in particularly by the greater than 50% GHG reduction assigned to sugar cane based ethanol which allows this fuel to fit within the Advanced Biofuel carve-out.
Moving forward the biofuel industry will continue to digest this new and complex rule while EPA will also continue to work to clean up a few remaining loose ends. This leaves some level of uncertainty, but for the most part this rule comes as a relief to an industry that has been waiting an inordinately long amount of time for the EPA to act.