A Foot in the Door

After a decade-plus pursuit, some biomass-based power generators will have the opportunity to participate in the federal Renewable Fuel Standard program.
By Anna Simet | January 17, 2023

The RFS Power Coalition has been pursuing inclusion of biomass-based power in the federal Renewable Fuel Standard for longer than a decade. The RFS, created under the Energy Policy Act of 2005 and expanded under the Energy Independence and Security Act of 2007, requires an increasing volume of renewable fuel to replace oil-based transportation, heating or jet fuel. Obligated parties, which include refiners or importers of gasoline or diesel fuel, achieve compliance by blending renewable fuels into transportation fuel, or obtaining renewable identification numbers (RINs), which are the credits, or currency, used for compliance. RINs are generated by submitting detailed feedstock and process information, among other requirements, and receiving pathway or process approval by the U.S. EPA.

Each year, the EPA sets renewable volume obligations (RVOs) for the following year, including quantities of cellulosic biofuel, biomass-based diesel, advanced biofuel and total renewable fuel. Each fuel falls under a RIN pool, from D3 to D7, based on the feedstock used, fuel produced, energy input, GHG reduction thresholds and other criteria. Despite a provision in the 2007 statute that that nonliquid fuels—renewable electricity from biomass or renewable natural gas (RNG), for example—could be deemed as electric vehicle transportation fuels if properly demonstrated, the electricity component has never been acted upon. That is, until now. More than a decade after the pursuit began, the RFS Power Coalition has a foot in the door.  The EPA released its proposed “set” rule on Dec. 1, setting the 2023, 2024 and 2025 RVOs, and including long-awaited regulatory provisions to allow RINs to be generated for renewable electricity used to fuel vehicles, or eRINs, the first major progress in implementing an extremely complex facet of the RFS.

In mid-December, the coalition held a webinar featuring Bob Cleaves, attorney and president of the Biomass Power Association, who guided attendees through an analysis of the proposed set rule’s eRIN provisions. Cleaves, who has spearheaded the effort, began by explaining that though a lawsuit against the EPA a few years ago was not successful, ultimately, the campaign and efforts at the congressional and federal levels led to this development. “While this rule is focused on RNG and biogas in the near-term, what we’re really focused on is the fact that EPA has already begun to review pathway petitions for our industry, for the use of our fuels to make electricity,” he says. “EPA does not give our [industry’s] potential to contribute enough credit in this proposed RSF rule …” While the proposal is limited to biogas, Cleaves says, in the regulatory impact analysis, EPA does recognize that nonbiogas potential, such as wood and the biogenic portion of MSW, is significant.

When the RFS was originally enacted, the levels were fundamentally set by Congress until 2022. “But post-2022, it is entirely within the EPA’s discretion as to how to set those volumes moving forward,” Cleaves says. “And it’s important to note that the RFS does not sunset—it’s not a statute, it’s not like the production tax credit or other federal incentives that have an end date. There is no end date to the RFS, and that’s a really important consideration.”

In the proposed rule preamble, the EPA says that “The RFS program is entering a new phase, and we are introducing a new regulatory program governing renewable electricity.”

Cleaves says it is a sweeping change, particularly as it relates to cellulosic biofuels. “It’s a long time coming … [the RFS] is very complicated and we’ve been involved in suggesting a number of different ways in which they could implement this program … I think the agency has done a very good job with the architecture of the program.”

The 2023, 2024 and 2025 RVOs are in the proposed set rule, a deviation from the single-year projections as has been done in the past. “EPA decided to do a three-year projection to create additional market certainty,” Cleaves says. “Essentially, the volumes go from a modest 720 million gallons—which is entirely non-eRINs, it’s RNG to CNG and LNG—and then dramatically increases in 2025 and 2026 (to 1.42 billion gallons and 2.13 billion gallons, respectively), even though EPA isn’t formally setting a target for 2026.”

Cleaves points out that liquid cellulosic biofuel from wood has never taken off, and that RNG, CNG and LNG are meeting about 95% of the D3 RIN category. “That modestly increases over the three-year period, but the real action is eRINs,” he says. There is a dramatic ramp up from 2025 and beyond.”
Currently, EPA has set eRINs at 600 million in 2024, doubling to 1.2 billion in 2025.
Cleaves says BPA has not yet done a thorough analysis, but he believes that fairly quickly after 2025, the nation will run out of biogas-to-electricity sources, and that’s when the opportunity for nonbiogas, biomass-based electricity will come into play. “A number of our members have received pathway application completeness determination by the EPA, which from my standpoint means that EPA is acknowledging that our types of electricity qualify under the RFS and the eRIN program, provided that the lifecycle analysis proves out. We have a lot of confidence that’s going to happen.”

From Cleaves’ perspective, a critical issue regarding the rule—one that the EPA seems to acknowledge—is uncertainty regarding whether projected demand for EVs exceeds the currents supply, and how and when nonbiogas feedstock sources used to make electricity will help satisfy that demand. “It’s unlike ethanol, where if you produce a gallon, you qualify under the RFS—you don’t have to prove that’s used for transportation,” he says. Rather, eRINs are to be based on the number of EVs deployed, instead of the amount of renewable electricity that could be theoretically matched with EVs. “We, as an industry, are really beholding to the projected demand for EVs, which I think has made the EPA’s job particularly challenging,” Cleaves says, adding that many groups release annual projection reports for EV uptake, but they’re typically inaccurate due to market factors that are impossible to predict.

The EPA is also cognizant of uncertainties related to how quickly electricity generators and original equipment manufacturers (OEMs) will be able to complete the necessary steps to register. “This is an administrative burden that I think is very significant for the agency and market participants—the overall rate of participation and registration,” Cleaves says. “Importantly, I think EPA is saying ‘If we get it wrong, we’ll consider adjusting it,’ and I think it’s highly likely EPA will get it wrong … we need to figure out how the agency can make a mid-course correction. This will be a focus of our comments on the proposed rule.”

Program Structure
In the case of eRINs, OEMs—the auto manufacturers such as Tesla, General Motors, Ford—are the RIN generators, and can do so based on light duty EVs through established contracts with parties who produce renewable electricity from qualifying biogas sources. “The qualifying electricity produced—put on a commercial electric grid serving the conterminous U.S.—is contracted for eRIN generation, so long as the OEM demonstrates that the vehicles it produces have used a corresponding quantity of electricity,” Cleaves says. “The requirements for biogas generation and electricity producers are in the proposed rule, but only the OEM is allowed to generate the RIN … in this rule, electricity generated from solar, wind and hydropower do not quality under the RFS, because the program is only focused on renewable biomass.” 

As for the disposition chain, the concept was introduced in 2014, when the EPA began approving RINs for RNG through contracts and affidavits. In order for a fuel to quality for RINs, there must be proof or demonstration that it’s used for transportation. “The EPA has done this by matching contracts and affidavits—the amount of RNG generated with the amount of gas that’s consumed,” Cleaves says. “They’ll generally follow the same approach with eRINs, but it’s a little more complicated.”

The reason for that is it’s physically impossible to distinguish renewable from nonrenewable electricity when it’s put onto the grid, according to Cleaves. “So, EPA is saying there has to be an accounting or records management system.”

The only parties that ultimately matter for eRIN creation are the generator and the OEM, Cleaves emphasizes. “The generator is in the best position for certifying the amount of electricity put on the grid—through revenue-grade meters—and certifying that the fuels they’re using are compliant with the RFS. The OEM is in the best position to calculate how much electricity is consumed by the fleets they sell in the U.S. Those two pieces of data need to be matched, and that’s essentially how the program works.” 

Many more details regarding how OEMS will calculate EV RINs are included in the proposed rule, as well as details of recording, recordkeeping and the contract-based structure with electricity generators, or RIN generation agreements, and “a comprehensive set of regulatory requirements,” Cleaves says. He notes that though OEMs generate the RINs, they will not be the sole proceed earner. “EPA expects the parties [OEMs and generators] to share revenue through contracts outside of the EPA’s regulatory regime,” he says. “An interesting feature is that EPA is indicating that because of energy losses and charging efficiencies, OEMs need to contract 24.2% more electricity than what is actually consumed in the fleet.”

The EPA estimates there are roughly 500 landfill-to-electricity and 200 digester-to-electricity projects in the U.S., many of which are small and will have third-party burdens to participate in the program, Cleaves notes. “These onboard challenges in 2024 and 2025 are significant, to say the least,” he says, reiterating that the program has many complexities, but EPA has done a good job to try to minimize them.

 Looking Ahead
While Jan. 1., 2024, is the program start date, OEMs will be permitted to generate eRINs for renewable electricity produced from Jan. 1 through April 1 without an EPA-accepted registration, provided certain conditions are met.

In the meantime, Cleaves says the BPA will be following a number of topics, including whether projected EV numbers are realistic. “This will impact not only us, but the biogas industry,” he says. “If you’re facing the decision of taking out a genset and putting in an RNG system, are you going to do that now, given this eRIN program? If you have mothballed a biomass plant, will it be worth reopening—if not in 2024 or 2025, what about in 2026 or 2027?”

Another issue is that the rule is very narrowly focused on biogas, with no timeline for integration of other sources of renewable biomass-based electricity. “Based on our interactions with the EPA and the fact that we already have three facilities listed on the EPA’s pathway website, we do know that nonbiogas sources of electricity will be an important part of the eRIN future,” Cleaves says. “We hoped EPA would recognize that in the draft rule … you really can’t tell a complete story without talking about nonbiogas sources. A really important question for us—and we don’t have many answers right now—is how quickly will EPA act on nonbiogas pathways?”

Cleaves says it’s understandable why the program is designed for OEMs to play the role they have been given. “But has the EPA gone a little too far in giving them market power over the program?” he adds. “I think time will tell.”

The proposed rule is due to be finalized by June 14.

Author: Anna Simet
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