EPA’s Renewable Fuels Standard and congressional support for biofuels
In its Renewable Fuels Standard rules (RFS), EPA implements congressional intent to reduce our dependence on imported oil by encouraging the production of biofuel crops. Congress set modest goals under the original RFS in the 2005 Energy Policy Act amending the Clean Air Act. The ambitious 2007 Energy Independence and Security Act (called “RFS2”) brought an ambitious expansion into biofuels. Under RFS2, Congress established ambitious ethanol targets (e.g., 36 billion gallons by 2022, 15 billion gallons from corn ethanol), required EPA to apply lifecycle greenhouse gas performance threshold standards, and added biodiesel targets.
The United States is counting on biofuels to reduce its dependence on carbon-intensive petroleum-based fuels and meet its 2020 goal of reducing carbon pollution from transportation fuels by 17 percent below 2005 levels. As an infant industry, biofuels have shown promise. The new industry won the support of Congress ten years ago, and under the RFS program they are being given the chance to prove that they are a sustainable component of the U.S. energy future.
Biofuel policy has triggered a national conversation that includes war, weather, crop prices, and gas prices—favored topics around the Corn Belt. A ten-year old farm boy bored with his dad’s buddies discussing these issues in a coffee shop circa 2000, when corn ethanol production was only 1.6 billion gallons, could enlist in the armed services in 2013 knowing that his Humvee, helicopter, jet, or aircraft carrier would burn biofuel made from millions of farms. U.S. 2013 production was 13.21 billion gallons of corn ethanol (short of the projected 13.8 billion gallons, but an impressive expansion) and 1.34 billion gallons of biodiesel. The Army and Navy have embraced biofuels, and the Air Force has committed to using 50 percent of domestic fuel from alternative sources by 2016. Congress is considering bills to make the military carbon neutral by 2050, and biofuels will surely play a role.
The U.S. Department of Agriculture’s Economic Research Service calls the last decade “the Ethanol Decade.” USDA Economic Research Service The Ethanol Decade: An Expansion of U.S. Corn Production, 2000-09/ EIB-79 (2011). We are still waiting for the “Cellulosic Ethanol Decade,” which may start in 2030, or perhaps 2040. Cellulosic ethanol finally arrived in 2013, meeting 1 percent of its RFS2 target; cellulosic ethanol has failed to fulfill the RFS2’s 100-million-gallon goal for that “next generation” biofuel. Projected new technologies (e.g., genetically engineered enzymes) could yield cellulosic ethanol made from woody, nonsugar-based biomass a viable option. After 20 years as a running industry gag (“it’s always five years away”), cellulosic ethanol may finally begin to meet expectations. On the other hand, some think that this fuel could take another 20 years to reach its projected potential. Jonathan Fahey, Next Generation of Biofuels Is Still Years Away, Nov. 13, 2013). If new technologies give it a boost, we might see a “Cellulosic Decade” before 2050.
EPA’s November 2013 rulemaking for 2014
EPA announced two major RFS rulemakings in 2013. First, the agency sought public comment last November on several requests for waivers of 2014 RFS obligations, including waiver requests by the American Petroleum Institute and the American Fuel & Petrochemical Manufacturers. These petitioners argued that a shortage of available renewable fuel sources would result in an inadequate supply of total gasoline and diesel products, leading to increased domestic fuel prices. The petitioners cited a 2012 economic analysis to support their position. 78 Fed. Reg. 71,607 (Nov. 29, 2013).
Second, EPA simultaneously announced its proposed 2014 RFS standards, which would adjust and waive certain renewable fuel standards, given “an inadequate domestic supply of these fuels.” 78 Fed. Reg. 71,732 (Nov. 29, 2013) (the “2014 RFS rule”). The RFS proposed rule addresses practical limits on the percentage of ethanol in blends (i.e., the ethanol “blend wall”) and other issues. Critics of ethanol are concerned about damage resulting from ethanol’s corrosive effect on engines not designed for its use. Since recent gasoline consumption in the United States has been less than Congress anticipated back in 2007, EPA proposed the first RFS reductions in the blend wall: 15.21 billion gallons of renewable fuels, not the 18.15 billion gallons required by RFS2.
The United States has also seen expansion in biodiesel production, with record production in 2013 that exceeded (by over 500 million gallons) the proposed 2014 RFS goal of 1.28 billion gallons. The 2014 RFS rule, however, would allow a federal biodiesel tax credit ($1.00 per gallon) to expire at the end of 2013 (i.e., unblended biodiesel (B100) for on-road fuel). 78 Fed. Reg. 71,732 (Nov. 29, 2013). This could stall the expansion that bio-based diesel saw in 2013 in the United States. While EPA’s proposed rule would increase biodiesel’s required output to 1.28 billion gallons per year, producers sought an even higher output requirement of 1.7 billion gallons given a projected 7 percent increase in soybean production in 2014 and the 1.8 billion gallons produced in 2013. Over half of the biodiesel feedstock is soybeans, but oils from corn, canola, and waste grease also serve as sources for biodiesel. Future biodiesel feedstocks could also come from algae-based fuels (“oilgae”), perhaps as a byproduct of wastewater treatment if the industry can genetically enhance target species to increase the oil content.
Reactions to EPA’s new RFS proposal
EPA’s proposal for the 2014 RFS rule made the rounds of the coffee shops in the Farm Belt, stirring producers to action. While the program has enough layered complexities and acronyms to make public commenting a challenge, the proposal attracted over 16,000 comments. In support of biofuels as a sustainable fuel option, biofuel producers commented that any reduction in the 2014 renewable fuel blending mandate would violate the Clean Air Act. Comments from meat producers and other “users” of common commodity crops for food and feed evinced concern about biofuels increasing food prices (“food vs. fuel”), but biofuel producers dispute the claims that corn, soy, and other crops diverted to biofuel production caused price spikes. When corn’s price recently dropped from around $8 to under $4 per bushel, for example, related food prices for edible corn did not drop.
After considering the comments it received, EPA will soon issue the 2014 RFS standards along with guidance for biofuel producers, perhaps this summer. Producers are already ordering seed, however, and all signs point to a shift away from corn to other crops like soybeans.
Various lawsuits have tried to derail EPA’s RFS targets in the past. In 2008, Texas sued EPA arguing that biofuel targets cause “severe harm” to the economy. EPA successfully countered these allegations, citing congressional support for biofuels. Similar legal challenges mounted in 2012, raising drought-related impacts on U.S. corn production and the corrosive effect of ethanol on engines, also failed. In court challenges, judges have recognized the “lack of a causal link” between renewable fuel mandates in the RFS and high prices of food commodities. Shannon S. Broome and Paul Esformes, Food v. Fuel: Are Legal Attacks on the Renewable Fuel Standard Just a Bunch of Empty Calories?, 28 Nat. Resources & Env’t at 33–35 (Fall 2013).
More litigation attacked ethanol plants that failed to meet the RFS2’s sustainability criterion (20 percent better than oil), but all were “deemed compliant.” Indeed, with the advent of cheap natural gas and a recent dip in corn prices, many of those beleaguered ethanol plants will operate at well over the requirement to be 20 percent more sustainable than oil.
Biofuels have to be green to survive in global markets, including the climate-focused European Union and California. Both have carbon-trading schemes to reduce carbon footprints.
To ship to California, biofuel producers who benefitted from the RFS may have to comply with the sustainability criteria for biofuels in California’s Low Carbon Fuel Standard (LCFS). The California LCFS wants the footprint of transportation fuels reduced by at least 10 percent by 2020. Biofuel producer groups recently sued the California program for unduly burdening interstate commerce with unfair sustainability criteria.
While the producers lost their attack under the “dormant” Commerce Clause, they earned a stinging dissent as part of the denial of the petition for rehearing asserting “an expansive and discriminatory exercise of state power over interstate commerce” that “promotes California industry at the expense of out-of-state interests.” Rocky Mountain Farmers Union v. California Air Resources Board, 740 F.3d 507, 519 (9th Cir. 2014) (M. Smith, J., with whom Judges O’Scannlain, Callahan, Bea, Ikuta, & N.R. Smith join, dissenting from order denying petition for rehearing en banc). In defense of the majority, the judge who authored the panel majority opinion upholding the LCFS found the dissent was “encouraging Supreme Court review” and stated in the denial of rehearing en banc:
[T]he Supreme Court… can set constitutional limits, binding in all circuits, as to what the individual states in our Union may do to combat global warming. The Supreme Court also can give meaning to, or limit, the general principle that state experimentation is often a desirable predicate to actions by other states or the federal government.
Id. at *20–*21 (Gould, J., concurring in the denial of rehearing en banc). Indeed, an industry group has already filed a petition for certiorari, American Fuel & Petrochemicals Ass’n v. Corey, No. 13-1149 (Mar. 20, 2014). The Supreme Court has granted additional time for the California Air Resources Board and others to respond to the petition to May 21, 2014.
Based on past experience with California’s environmental initiatives (Proposition 65, for example) there are limits on California’s ability to dictate to some sectors of the U.S. economy (e.g., trucking). The LCFS, like the RFS, is one of many drivers that will require biofuels to meet sustainability criteria. The RFS provides a federal boost to producing biofuels sustainably but may not completely preempt California’s definition of sustainable biofuel.
The European Union’s sustainability requirements
Like the RFS and California, the RED sets ambitious goals with sustainability criteria for biofuels. The United States Trade Representative does not appear ready to ask the World Trade Organization to stop Europe from imposing sustainability requirements for its imports of biofuels and feedstocks such as corn and soybeans.
As a result, to export to Europe, where the European Union’s (EU’s) Renewable Energy Directive (RED) calls the tune, U.S. corn and soybean producers will have to prove they are sustainably producing crops or face the EU’s use of Brazilian default data. While producers would probably rather offer the EU a trade challenge under the World Trade Organization (the international analog to the commerce clause), they rely on exports to maintain prices and grain buyers expect RED compliance.
In fact, upon arrival at the grain elevator to sell corn, some U.S. producers have been asked to certify compliance with the EU’s long sustainability questionnaire. One grain trade letter to growers stated that Cargill had decided to ask “corn producers to self-certify” [to] the “EU sustainability requirements”—a lengthy questionnaire to allow Cargill to make future ethanol sales to the EU. Letter from Jeff Hansen, Cargill Corn Milling, to Valued Corn Supplier (2010) (on file with author).
These pressures have led producer groups to address sustainability, urging the EU to accept aggregate data demonstrating sustainable production. For example, a soybean producer website addresses the demands of overseas buyers for sustainably produced soybeans. Soy Export Sustainability, LLC, Sustainability Certificate Portal (https://certification.ussec.org/). Along the same lines, the “Field to Market” alliance is preparing its Fieldprint Calculator, and new initiatives like the National Initiative on Sustainable Agriculture will provide a producer voice in sustainability.
EPA will continue to adjust the RFS to implement congressional intent, adapting to evolving circumstances and technology. The U.S. Supreme Court could clip California’s low-carbon fuel standard wings and ensure reasonably harmonized market demands in the United States. Laws like the EU’s RED will proliferate, plaguing producers with lengthy questionnaires and audits. The debate over the sustainability of biofuels will continue as the RFS moves ahead toward congressionally mandated goals, triggering food-fuel debates while providing sustainably produced fuel.