US Energy Independence and US Energy Independence and Security Act of 2007Security Act of 2007

- Renewable Fuel Provisions -- Renewable Fuel Provisions -

Paul MachielePaul Machiele

Fuel Programs Center DirectorFuel Programs Center Director

Office of Transportation and Air QualityOffice of Transportation and Air Quality

U.S. Environmental Protection Agency U.S. Environmental Protection Agency

October 2, 2008October 2, 2008

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Presentation OverviewPresentation Overview

►Refresher on Energy Policy Act Refresher on Energy Policy Act 20052005Renewable Fuel Standard (RFS)Renewable Fuel Standard (RFS)

►Overview of new RFS provisions in Overview of new RFS provisions in Energy Independence and Security Energy Independence and Security Act (EISA)Act (EISA)

►Other Key EISA requirementsOther Key EISA requirements

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► Final Renewable Fuel Standard (RFS)Final Renewable Fuel Standard (RFS) Required by August 2005 Energy Policy Act Required by August 2005 Energy Policy Act Final Rule Signed April 9Final Rule Signed April 9th,th, 2007 2007 Published May 1stPublished May 1st 20072007 Official Program Start - Sept 1, 2007Official Program Start - Sept 1, 2007

► EPA converts RFS into percent of gasoline productionEPA converts RFS into percent of gasoline production Based on annual EIA predictions of gasoline consumption each OctBased on annual EIA predictions of gasoline consumption each Oct Obligation Applies to refiners, importers, gasoline blendersObligation Applies to refiners, importers, gasoline blenders 4.0 billion gallons/yr in 2006 -- growing to 7.5 bgy in 20124.0 billion gallons/yr in 2006 -- growing to 7.5 bgy in 2012 2013+: Minimum of same % of renewables for 2012 (0.25 bg must be 2013+: Minimum of same % of renewables for 2012 (0.25 bg must be

cellulosic)cellulosic)

► Major Compliance Element - Trading and Banking ProvisionsMajor Compliance Element - Trading and Banking Provisions Flexible Program - Based on a RIN – Renewable Identification Number (i.e. Flexible Program - Based on a RIN – Renewable Identification Number (i.e.

credits)credits) Allows for compliance when, where, and how it makes the most senseAllows for compliance when, where, and how it makes the most sense

► Renewable values based on volumetric energy content Renewable values based on volumetric energy content compared to corn ethanolcompared to corn ethanol Corn-ethanol: Corn-ethanol: 1.01.0 Biodiesel (alkyl esters):Biodiesel (alkyl esters): 1.51.5 Cellulosic biomass ethanol: Cellulosic biomass ethanol: 2.5 2.5

(As specified in EPAct)(As specified in EPAct)

Overview: EPAct 2005 RFS Overview: EPAct 2005 RFS

ProgramProgram

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Current RFS Program: Up and Current RFS Program: Up and RunningRunning

► Extensive educational outreach effort Extensive educational outreach effort

► Registration, Recordkeeping, ReportingRegistration, Recordkeeping, Reporting

► Program began September 1, 2007Program began September 1, 2007

► Growing pains of implementing a new program Growing pains of implementing a new program are beginning to lessenare beginning to lessen

► RINs (Credits) – Market valuesRINs (Credits) – Market values 0.25 c/gal to 5 +/- c/gal since December 0.25 c/gal to 5 +/- c/gal since December

signing of EISAsigning of EISA

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► EISA signed by the President December 19, EISA signed by the President December 19, 20072007

► Major modifications to the current RFS Major modifications to the current RFS program beginning in 2009program beginning in 2009 Greater volume for 2008Greater volume for 2008

► RFS 2 – Building off of the foundation of RFS1RFS 2 – Building off of the foundation of RFS1

► Rule development process similar to RFS 1Rule development process similar to RFS 1 Engage early and often with stakeholders throughout the Engage early and often with stakeholders throughout the

processprocess

► Final RFS 2 Rule required by December 19, Final RFS 2 Rule required by December 19, 2008, effective 1/1/092008, effective 1/1/09 Proposal expected this Fall, FRM next SummerProposal expected this Fall, FRM next Summer Currently evaluating implementation optionsCurrently evaluating implementation options

New Challenges and Direction: New Challenges and Direction: Energy Independence & Security Act of Energy Independence & Security Act of

20072007

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RFS2: 4 Nested Standards (bill RFS2: 4 Nested Standards (bill gal)gal)

Total Total Renewable FuelRenewable Fuel

(20%* GHG)(20%* GHG)

Total Advanced Total Advanced BiofuelBiofuel

(50%* (50%* GHG)GHG)

Biomass-Biomass-Based DieselBased Diesel

(50%* GHG)(50%* GHG)

Cellulosic Cellulosic BiofuelBiofuel

(60%* GHG)(60%* GHG)

20082008 9.09.0

20092009 0.50.5 0.60.6 11.111.1

20102010 0.650.65 0.10.1 0.950.95 12.9512.95

20112011 0.800.80 0.250.25 1.351.35 13.9513.95

20122012 1.01.0 0.50.5 2.02.0 15.215.2

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20222022 1.0 (Bgal)1.0 (Bgal) 16.0 (Bgal)16.0 (Bgal) 21.0 (Bgal)21.0 (Bgal) 36.0 (Bgal)36.0 (Bgal)

* Can be adjusted downward by 10%

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RFS2 VolumesRFS2 Volumes

0

5

10

15

20

25

30

35

40

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

Year

Bil

lio

n G

allo

ns

Advanced Biofuel: Unspecified

Advanced Biofuel: Biomass-Based Diesel

Advanced Biofuel: Cellulosic Biofuel

Conventional Biofuel

RFS1

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RFS2 Obligations and CoverageRFS2 Obligations and Coverage

► Standard applies to Gasoline and Diesel Fuel Standard applies to Gasoline and Diesel Fuel production – highway and nonroadproduction – highway and nonroad Does not apply to jet fuel, marine residuals, heating oil; Does not apply to jet fuel, marine residuals, heating oil;

though renewables used here countthough renewables used here count

► Obligation is placed on refiners, importers, blenders Obligation is placed on refiners, importers, blenders of gasoline and dieselof gasoline and diesel

► Definitions significantly changed from RFS1 and/or Definitions significantly changed from RFS1 and/or now include new elementsnow include new elements Lifecycle GHG thresholdsLifecycle GHG thresholds Grandfathering provisionsGrandfathering provisions New Renewable Biomass definitionNew Renewable Biomass definition

► Each November EPA will set the cellulosic, advanced Each November EPA will set the cellulosic, advanced biofuel, and total renewable standards for the biofuel, and total renewable standards for the following year based on projections of supply of following year based on projections of supply of renewable fuelsrenewable fuels

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Fuel Lifecycle GHG Fuel Lifecycle GHG AssessmentAssessment

► Also called fuel cycle or well-to-wheel analysis, compilation Also called fuel cycle or well-to-wheel analysis, compilation of the GHG impacts of a fuel throughout its lifecycle of the GHG impacts of a fuel throughout its lifecycle “including direct emissions and significant indirect “including direct emissions and significant indirect emissions such as significant emissions from land use emissions such as significant emissions from land use changes”changes” Production / extraction of feedstockProduction / extraction of feedstock Feedstock transportationFeedstock transportation Fuel productionFuel production Fuel distributionFuel distribution Tailpipe emissionsTailpipe emissions

► Can be used to compare one or more fuels performing the Can be used to compare one or more fuels performing the same function (e.g., miles driven)same function (e.g., miles driven)

► Using a number of Models / Tools for Assessments of GHG, Using a number of Models / Tools for Assessments of GHG, Ag sector impacts (domestic/international), energy sector Ag sector impacts (domestic/international), energy sector impacts, etc.impacts, etc.

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Further Work on Life Cycle Further Work on Life Cycle ModelingModeling

► Conducting LCA for a range of renewable fuelsConducting LCA for a range of renewable fuels Corn ethanolCorn ethanol Biodiesel/Renewable dieselBiodiesel/Renewable diesel Imported ethanolImported ethanol Cellulosic ethanolCellulosic ethanol Others as data allowsOthers as data allows

► Modeling enhancements underwayModeling enhancements underway Domestic and international agricultural sector land-use Domestic and international agricultural sector land-use

and agricultural practice changesand agricultural practice changes Agricultural N2O emissionsAgricultural N2O emissions Updating petroleum baseline for 2005Updating petroleum baseline for 2005 Updating renewable fuel production process dataUpdating renewable fuel production process data

► We continue to have discussions with:We continue to have discussions with: Industry groupsIndustry groups Academics and other expertsAcademics and other experts CA and EU regulatorsCA and EU regulators

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““Commence Construction” Commence Construction” AllowanceAllowance

► Post Enactment facilities must meet Post Enactment facilities must meet minimum 20% GHG reductionminimum 20% GHG reduction

► Pre-enactment facilities are Pre-enactment facilities are grandfathered – estimated at >14 bggrandfathered – estimated at >14 bg Including those that start production in Including those that start production in

calendar years 2008 and 2009, and are calendar years 2008 and 2009, and are fired with natural gas, biomass, or any fired with natural gas, biomass, or any combinationcombination

► Will seek comment on a range of Will seek comment on a range of options based on input from options based on input from stakeholdersstakeholders Protective of pre-EISA investmentsProtective of pre-EISA investments Level playing field for future investmentsLevel playing field for future investments Practical implementationPractical implementation

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New Renewable Biomass DefnNew Renewable Biomass Defn

► Renewable fuels must now be produced Renewable fuels must now be produced from renewable biomass:from renewable biomass: Harvested from land “cleared or cultivated” prior Harvested from land “cleared or cultivated” prior

to enactment of EISAto enactment of EISA For trees, not from Federal landsFor trees, not from Federal lands

► Implementation of this provision presents Implementation of this provision presents some unique challengessome unique challenges Tracking feedstocks nationally and internationallyTracking feedstocks nationally and internationally Practical system for implementationPractical system for implementation Potential for shell game regardlessPotential for shell game regardless

► Development of this provision has required Development of this provision has required extensive stakeholder interaction and extensive stakeholder interaction and coordination with USDAcoordination with USDA

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► General:General: Anyone subject to requirements can petition waiver or Anyone subject to requirements can petition waiver or relaxation of the four standardsrelaxation of the four standards Severe harm to the economy; Inadequate supplySevere harm to the economy; Inadequate supply EPA must approve or disapprove within 90 days but requires opportunity EPA must approve or disapprove within 90 days but requires opportunity

for notice and commentfor notice and comment Limited to one year, but can be renewedLimited to one year, but can be renewed

► Biomass Based Diesel:Biomass Based Diesel: EPA can lower the standard in the Act EPA can lower the standard in the Act If significant supply or other market circumstances lead to high pricesIf significant supply or other market circumstances lead to high prices Up to 15% or 30% if renewedUp to 15% or 30% if renewed Can reduce advanced biofuel and total renewable fuel standards Can reduce advanced biofuel and total renewable fuel standards

accordinglyaccordingly

► Cellulosic Biofuel Standard:Cellulosic Biofuel Standard: Irrespective of the volumes required in Irrespective of the volumes required in the Actthe Act Administrator must set the cellulosic standard each November for the Administrator must set the cellulosic standard each November for the

following year based on projected available volumefollowing year based on projected available volume If cellulosic standard is set less than volume required in Act EPAIf cellulosic standard is set less than volume required in Act EPA must must

make EPA-RINs available for sale at the greater ofmake EPA-RINs available for sale at the greater of► 25 cent/gallon25 cent/gallon► $3.00 per gallon less the wholesale price of gasoline $3.00 per gallon less the wholesale price of gasoline

EPA may reduce the standards for advanced biofuel and total renewable EPA may reduce the standards for advanced biofuel and total renewable fuel accordinglyfuel accordingly

What Ifs: EISA Waiver What Ifs: EISA Waiver AuthoritiesAuthorities

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Analyses for Rulemaking – Analyses for Rulemaking – Expect This and Much MoreExpect This and Much More

► Renewable fuel production and use projections, technology Renewable fuel production and use projections, technology and cost assessmentsand cost assessments

► GHG Lifecycle Modeling, Inventory, and BenefitsGHG Lifecycle Modeling, Inventory, and Benefits

► Other Pollutant Inventory, Air Quality and BenefitsOther Pollutant Inventory, Air Quality and Benefits

► Agricultural Sector ImpactsAgricultural Sector Impacts

► Water and Soil ImpactsWater and Soil Impacts

► Macroeconomic ImpactsMacroeconomic Impacts

► Energy SecurityEnergy Security

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Next Steps on the RuleNext Steps on the Rule

►Rulemaking processRulemaking process Actively draftingActively drafting Ongoing discussions with StakeholdersOngoing discussions with Stakeholders

►Proposal – Fall of 2008Proposal – Fall of 2008►Final – ~Summer 2009Final – ~Summer 2009

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Two Key EISA Two Key EISA Studies/ReportsStudies/Reports

AuthoritAuthority / y / Section Section

Action Action (Reg,(Reg,Research Research ororReport)Report)

TitleTitle Overview of RequirementOverview of Requirement Lead / Lead / TimingTiming

Sec. 204Sec. 204 Study/Study/ReportReport

Env. and Env. and Resource Resource Conservation Conservation Impacts Impacts

EPA shall assess and report EPA shall assess and report to Congress on the impacts to Congress on the impacts to date and likely future to date and likely future impacts of Section 211(o) of impacts of Section 211(o) of CAA. CAA.

EPA - Within EPA - Within 3 years and 3 years and every 3 every 3 years after.years after.

Sec. 209Sec. 209

Study/Study/Report/Report/Potential Potential for for RegulatorRegulatory Actiony Action

Anti-Anti-backslidingbacksliding

Study whether renewable Study whether renewable fuel volumes adversely fuel volumes adversely affect air quality as result of affect air quality as result of changes in vehicle changes in vehicle emissions. Includes study of emissions. Includes study of different blend levels. different blend levels. Requires promulgation of Requires promulgation of fuel fuel regs to mitigate to regs to mitigate to greatest extent possible any greatest extent possible any adverse impacts. adverse impacts.

EPA - Study EPA - Study within 18 within 18 months. months. Promulgate Promulgate regulations regulations within 3 within 3 years.years.

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Thank youThank you

Paul MachielePaul MachieleFuel Program Center DirectorFuel Program Center Director

Office of Transportation and Air Quality Office of Transportation and Air Quality machiele.pamachiele.paul@epa.govul@epa.gov

QuestionsQuestions