Bioenergy Outlook: Defending the renewable fuels standard

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Courtesy of BioCycle Magazine

Although major advances in climate change and renewable energy policies are unlikely this year, there is still much that can and must be done. It is true that there are major obstacles to progress in Washington DC, but further repeating the discouraging prognosis will not be helpful. Instead, Bioenergy Outlook — BioCycle’s new bioenergy column — will, in this and occasional future columns, make some practical suggestions as to achievable policy goals for the bioenergy industry. The first such suggestion is defending and strengthening the Renewable Fuels Standard (RFS).

First created in 2005 and then revised in 2007, the RFS is a fairly straightforward concept. Retail sellers of gasoline are required to mix a certain amount of renewable fuel into their fossil fuel. The percentage ratchets up very slowly every year. The original law was mostly about corn ethanol, and if you notice at the gas station that your pump contains some small amount of ethanol, that’s the RFS in action. Renewable fuels are by and large more expensive than traditional fuels, and gasoline retailers are a very effective and fair way to spread the cost of encouraging renewable fuel development across the entire driving public.

This is an important aspect of renewable energy policy to acknowledge and confront head on. Renewables cost more, and if a society wants them it must spread that cost in the most efficient and fair way possible. A variety of options exist to do this: Government incentives spread the cost across the taxpayer base; credits and tariffs spread the cost across the energy user base (whether that is electric ratepayers or vehicle users); and bans, restrictions or limits force affected industries to pass the cost of the regulation to their customers or suppliers. If any one of those cost spreading mechanisms is over-used, it can harm the economy or result in economic injustice. But they are all valid and legitimate methods if used intelligently.

In 2007, the RFS was overhauled as part of a new energy law, and became known as “RFS2.” Under RFS2, an overall percentage requirement for all blending of renewable fuels including ethanol still exists, but there are now subsection carve outs to encourage newer, nonethanol fuels. These new categories are biodiesel, cellulosic biofuels and advanced biofuels. An anaerobic digester facility that produces compressed renewable natural gas for use as transportation fuel is producing an “advanced biofuel” under the regulations.

Since every gasoline retailer everywhere in the country cannot always blend in the exact amounts of biofuels required — especially now with the new carve outs that require the blending of fuels not widely used — there is a system of marketable credits known as Renewable Identification Numbers (“RINs”) that can be used to ensure compliance. Once produced, batches of renewable fuels can be separated from their RIN, and the RIN can be sold separately so that Obligated Parties (what the law calls the gasoline retailers subject to the requirement) can comply by purchasing credits instead of actual fuel. Although RIN markets are just emerging and are still unstable, it appears very likely that RFS2 will create, over time, successful industries producing the various categories of next generation biofuels at prices low enough to encourage vehicle fleet upgrade and conversion.

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