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10 Policy Recommendations to Improve the Renewable Fuel Standard

By Stuart Iler

Thursday, March 5, 2015

For some time, there have been strong advocates on both sides of the Renewable Fuel Standard (RFS) debate calling for either outright repeal of the RFS or holding firm on the existing requirements. This past year, the Bipartisan Policy Center (BPC) chose to explore a middle ground where we think tangible progress can be made to reform—but not repeal—the RFS.

Specifically, in order to support constructive dialogue in this ongoing debate, BPC’s Energy Project convened an advisory group of diverse stakeholders who agreed to discuss legislative and/or regulatory reforms that could put the RFS on a stable footing. The advisory group met three times over the course of 2014, and their discussions, deliberations, agreements and disagreements informed the creation of 40 policy options to improve the RFS. Although these options do not represent the consensus of the advisory group, they are intended as a first step in exploring the ways in which constructive reforms could create a more robust and effective RFS program.

Given the complexity of the RFS, the inventory was designed to address biofuels challenges at multiple scales, across many topical areas, through multiple mechanisms and over varying periods of time. As such, no one policy option will serve as a single solution to all of the challenges of the RFS; options must be combined—and considered in tandem—if they are to meet one or more desired objectives.

After thorough consideration of all 40 ideas, BPC staff selected a balanced subset of 10 options that provide a near-term opportunity for concrete action. These options span a wide range of topic areas—including biofuels production, biofuels consumption and the implementation of the RFS program—and take the form of both legislative and regulatory recommendations. The 10 policy options are as follows:

  • Implement automatic consequences if the U.S. Environmental Protection Agency (EPA) fails to meet statutory deadlines;
  • Modify the cellulosic waiver credit mechanism, such as by changing the formula to increase the credit value, creating a floor and/or ceiling on the price of cellulosic Renewable Identification Numbers (RINs), or by decoupling the waiver credit from the price of gasoline;
  • Standardize the technology pathway approval process to better align with the current processes in other locations, such as Canada and the European Union;
  • Create an explicit methodology for discretionary use of waiver authority, possibly including quantitative definitions of severe economic harm;
  • Create a longer-term period and increased amount of RINs for banking and borrowing;
  • Create a mandate for ethanol based on percentage of consumption, in addition to the volumetric RFS mandate categories;
  • Remove the Federal Trade Commission labeling requirement for infrastructure-compatible drop-in fuels if they meet the petroleum specification;
  • Create/expand incentive programs—such as government R&D, grants, loan guarantees or tax incentives—for the production of advanced biofuels, with long-term stability that phases out slowly;
  • Give the Department of Defense longer-term procurement ability; and
  • Increase data availability, such as that related to volumes, prices, trades, and fuel blends.

In BPC’s Options for Reforming the Renewable Fuel Standard report, each of these options is described in more detail and is accompanied by lists of potential advantages, disadvantages and additional considerations for stakeholders and policymakers to discuss.

As one specific example, consider the first option above. This recommendation addresses delays in the finalization of the RFS annual percentage standards by the EPA. By law, these standards should be issued by November 30 of each year for the following compliance year, though in practice, the values have often been finalized well into the applicable compliance year or even later. Such delays create significant uncertainty for all stakeholders, including producers of biofuels and the obligated parties that must comply with the mandated volumes.

Therefore, this policy option recommends the establishment of automatic consequences if EPA misses this or other statutory deadlines, such as by setting the start date for compliance a certain number of months after publication of the final volume requirements. The option also leaves open the possibility for other automatic consequences, but suggests some potential considerations—including the need to explore possible drawbacks—if lawmakers decide to pursue this course of action. For both this and the remaining options, the report strives to make concrete recommendations while recognizing that, in all cases, there are important details, complications and decisions to consider before moving forward with the implementation of any particular reform.

Overall, no single policy option will be able to address all of the challenges associated with the RFS. But these 10 options—which span a number of RFS topic areas and include both legislative and regulatory recommendations—represent a near-term set of steps to achieve tangible progress in improving the RFS.

Explore the policy ideas or read the full report and summary documents.

KEYWORDS: BIOFUELS, DEPARTMENT OF DEFENSE, ENVIRONMENTAL PROTECTION AGENCY, FEDERAL TRADE COMMISSION, RENEWABLE FUEL STANDARD