Handling of the Renewable Fuels Standard in AEO2014
Release Date: 4/30/14
The Renewable Fuel Standard (RFS) was established by the Energy Policy Act of 2005  and was expanded by the Energy Independence and Security Act of 2007 (EISA2007) . It requires the EPA to set requirements for the renewable content of gasoline and diesel fuel. Refiners and importers of gasoline and diesel fuel are obligated to blend renewable fuels in proportion to the volumes of gasoline and diesel fuel sold. There are four interrelated requirements, for cellulosic biofuels, biomass-based diesel, advanced biofuels, and total renewable fuels. Compliance with the RFS is tracked via Renewable Identification Numbers (RINs), which are generated when eligible biofuels are produced or imported and conveyed with the physical volume of renewable fuel through subsequent sales until they are blended with a petroleum product. Once the fuel is blended, the RINs can be separated from the physical volumes and "retired"—that is, turned in to the EPA to demonstrate compliance. RINs also can be sold or saved ("banked") for compliance either in the year they were generated or in the following year.
EPA sets the RFS target volumes every year in reference to legislated targets in EISA2007, public comments, and input from other government agencies. Since the expansion of the RFS program for the 2009 compliance year, the EPA has adhered to the legislated volumes of total renewable fuel, advanced biofuel, and biomass-based diesel but has often set the requirement for cellulosic biofuel well below the legislated target, given the very low commercial availability of cellulosic biofuel. EISA2007 also included new Corporate Average Fuel Economy (CAFE) standards, which have played and will continue to play a role in reducing gasoline consumption. Declines in gasoline consumption reduce the number of gallons of ethanol that can be used in E10, a fuel containing 10% ethanol by volume that is compatible with all existing gasoline-powered vehicles. EPA announced in its 2013 RFS final rule that it expected to reduce the total renewable fuel and advanced biofuel obligations to levels below the statutory levels for 2014, in order to allow the ethanol share of the gasoline pool to remain close to 10%.
The AEO2014 projections for quantities and costs of gasoline, diesel, and other liquid fuels are handled by the National Energy Modeling System's Liquid Fuels Market Model (LFMM), which includes a representation of the U.S. petroleum refining system, biofuels production, and marketing of liquid fuels to end users. The modeling structure allows for additions and adjustments in the liquid fuels supply chain in order to meet new demand or to comply with changing product specifications. A variety of feedstocks and technologies for the production of RIN-eligible renewable fuels can be represented, depending on the market and regulatory conditions (including future product specifications for gasoline and diesel fuel) for each AEO2014 case.
AEO2014 assumes that cellulosic fuel production and requirements will grow gradually from current low levels. For biomassbased diesel, the assumed production requirement is constant at 1.92 billion ethanol-equivalent gallons. The advanced biofuels production requirement, on the other hand, decreases by 425 million gallons from 2014 to 2015.
The reintroduction of the $1.00-per-gallon biodiesel blending tax credit in 2013 incentivized biodiesel production above the RFS level. That tax credit sunset at the end of 2013, and the AEO2014 Reference case does not assume that it is reinstated. The California Low Carbon Fuels Standard is expected to draw more sugarcane ethanol into California, generating more advanced RINs. After 2015, the total quantity of advanced biofuels needed to meet the RFS is assumed to increase only slowly, remaining well below the legislated target of 21 billion gallons in 2022. The total biofuels production requirement was set at 15.2 billion gallons in 2014 to reflect the gasoline market's limited ability to absorb additional ethanol in the near term. The total renewable fuels requirement is also assumed to grow slowly and remains well below the legislated target of 36 billion gallons in 2022.
- U.S. Government Printing Office, "Energy Policy Act of 2005, Public Law 109-58" (Washington, DC: August 8, 2005), http://www.gpo.gov/fdsys/pkg/PLAW-109publ58/pdf/PLAW-109publ58.pdf.
- U.S. Government Printing Office, "Energy Independence and Security Act of 2007, Public Law 110-140" (Washington, DC: December 19, 2007), http://www.gpo.gov/fdsys/pkg/PLAW- 110publ140/pdf/PLAW-110publ140.pdf.