Biofuel Policy Updates January 24, 2014

Here’s a quick wrap-up of some recent developments relating to biofuel policies in the U.S., particularly relating to the U.S. Renewable Fuel Standard (RFS) and the California Low Carbon Fuel Standard (LCFS).

2014 RFS volume mandates. The end of the public comment period is approaching on the US EPA’s proposed rule for the 2014 volume mandates (renewable volume obligations, or RVOs) under the RFS. As I reported in my 2013 year-end summary, this proposal represented the first time that EPA was proposing to reduce not only the targets for cellulosic fuels, but also the mandated volumes both for advanced biofuels (a category which includes cellulosic fuels) and the overall target for all renewable fuels. The biofuel industry and its proponents have been up in arms about this proposal, conducting an intense war of words in the media, the Twittersphere, and elsewhere, with numerous companies, trade groups, elected officials and others publicly voicing their opinions opposing these reductions in the RVOs. The public comment period closes on January 28, 2014, and it is not known how quickly EPA will respond and set the final 2014 volume mandates. My prediction is that EPA will respond to the public comments by raising the volumes from the levels in the proposed rule, but not restore them to the levels originally set in the RFS legislation.

Challenges to the RFS. In October 2013,  the American Petroleum Institute (API) and the American Fuel & Petrochemical Manufacturers (AFPM) filed petitions with the EPA challenging the 2013 cellulosic biofuel volume mandates, in view of an August 2013 announcement from KiOR that the company was lowering its projections for the amount of cellulosic biofuels it would be able to produce that year. On January 23, 2014, EPA announced, in letters to API and AFPM posted on its website, that it was partially granting these petitions for reconsideration of the 2013 cellulosic RVOs, based on the “new information” from KiOR, and that EPA expected to propose such revised volume mandates in upcoming rulemaking. I haven’t yet seen any industry reaction to this announcement, but I’m sure that responses from the biofuel industry will be swift and harsh, especially coming so closely on the heels of EPA’s proposed reduction in the 2014 RVOs. Note that the October 2013 petitions are different from the petitions filed by API and AFPM in August 2013 asking for a partial waiver of the 2014 RVOs, and are also in addition to a lawsuit these groups and others had filed in the U.S. Court of Appeals challenging the 2013 volume mandates.

California Low Carbon Fuel Standard. The full 9th Circuit U.S. Court of Appeals issued a decision on January 22, 2014 that it would not, after all, rehear a case previously decided in favor of the California Air Resources Board (CARB), when a 3-judge panel of the Court ruled by a 2-1 vote that the LCFS did not unconstitutionally discriminate against out-of-state fuel producers. That panel decision reversed a lower court decision that went against CARB. The decision not to rehear the case leaves the decision by the 3-judge panel in place and would allow CARB to continue to administer the LCFS program. However, seven justices on the Court signed on to a dissent that is widely believed could signal the path for the industry groups who are the plaintiffs to appeal the case to the U.S. Supreme Court. The crux of the dispute is whether the requirement that the energy costs of transporting fuel into California from other states be considered in determining the carbon intensity of fuels under the LCFS discriminates against out-of-state fuels in violation of the Constitution’s provisions that prohibit states from interfering with interstate commerce.