US Energy Independence and Security Act of Renewable Fuel Provisions - Paul Machiele Fuel Programs Center Director Office of Transportation and Air Quality U.S. Environmental Protection Agency October 2, 2008

2 Presentation Overview ► Refresher on Energy Policy Act 2005 Renewable Fuel Standard (RFS) ► Overview of new RFS provisions in Energy Independence and Security Act (EISA) ► Other Key EISA requirements

3 ► Final Renewable Fuel Standard (RFS)  Required by August 2005 Energy Policy Act  Final Rule Signed April 9 th, 2007  Published May 1st 2007  Official Program Start - Sept 1, 2007 ► EPA converts RFS into percent of gasoline production  Based on annual EIA predictions of gasoline consumption each Oct  Obligation Applies to refiners, importers, gasoline blenders  4.0 billion gallons/yr in growing to 7.5 bgy in 2012  2013+: Minimum of same % of renewables for 2012 (0.25 bg must be cellulosic) ► Major Compliance Element - Trading and Banking Provisions  Flexible Program - Based on a RIN – Renewable Identification Number (i.e. credits)  Allows for compliance when, where, and how it makes the most sense ► Renewable values based on volumetric energy content compared to corn ethanol  Corn-ethanol: 1.0  Biodiesel (alkyl esters):1.5  Cellulosic biomass ethanol: 2.5 (As specified in EPAct) Overview: EPAct 2005 RFS Program

4 Current RFS Program: Up and Running ► Extensive educational outreach effort ► Registration, Recordkeeping, Reporting ► Program began September 1, 2007 ► Growing pains of implementing a new program are beginning to lessen ► RINs (Credits) – Market values  0.25 c/gal to 5 +/- c/gal since December signing of EISA

5 ► EISA signed by the President December 19, 2007 ► Major modifications to the current RFS program beginning in 2009  Greater volume for 2008 ► RFS 2 – Building off of the foundation of RFS1 ► Rule development process similar to RFS 1  Engage early and often with stakeholders throughout the process ► Final RFS 2 Rule required by December 19, 2008, effective 1/1/09  Proposal expected this Fall, FRM next Summer  Currently evaluating implementation options New Challenges and Direction: Energy Independence & Security Act of 2007

6 RFS2: 4 Nested Standards (bill gal) Total Renewable Fuel Total Renewable Fuel (20%* GHG) (20%* GHG) Total Advanced Biofuel Total Advanced Biofuel (50%* GHG) (50%* GHG) Biomass- Based Diesel (50%* GHG) Cellulosic Biofuel (60%* GHG) (Bgal) 16.0 (Bgal) 21.0 (Bgal) 36.0 (Bgal) * Can be adjusted downward by 10%

7 RFS2 Volumes RFS1

8 RFS2 Obligations and Coverage ► Standard applies to Gasoline and Diesel Fuel production – highway and nonroad  Does not apply to jet fuel, marine residuals, heating oil; though renewables used here count ► Obligation is placed on refiners, importers, blenders of gasoline and diesel ► Definitions significantly changed from RFS1 and/or now include new elements  Lifecycle GHG thresholds  Grandfathering provisions  New Renewable Biomass definition ► Each November EPA will set the cellulosic, advanced biofuel, and total renewable standards for the following year based on projections of supply of renewable fuels

9 Fuel Lifecycle GHG Assessment ► Also called fuel cycle or well-to-wheel analysis, compilation of the GHG impacts of a fuel throughout its lifecycle “including direct emissions and significant indirect emissions such as significant emissions from land use changes”  Production / extraction of feedstock  Feedstock transportation  Fuel production  Fuel distribution  Tailpipe emissions ► Can be used to compare one or more fuels performing the same function (e.g., miles driven) ► Using a number of Models / Tools for Assessments of GHG, Ag sector impacts (domestic/international), energy sector impacts, etc.

10 Further Work on Life Cycle Modeling ► Conducting LCA for a range of renewable fuels  Corn ethanol  Biodiesel/Renewable diesel  Imported ethanol  Cellulosic ethanol  Others as data allows ► Modeling enhancements underway  Domestic and international agricultural sector land-use and agricultural practice changes  Agricultural N2O emissions  Updating petroleum baseline for 2005  Updating renewable fuel production process data ► We continue to have discussions with:  Industry groups  Academics and other experts  CA and EU regulators

11 “Commence Construction” Allowance ► Post Enactment facilities must meet minimum 20% GHG reduction ► Pre-enactment facilities are grandfathered – estimated at >14 bg  Including those that start production in calendar years 2008 and 2009, and are fired with natural gas, biomass, or any combination ► Will seek comment on a range of options based on input from stakeholders  Protective of pre-EISA investments  Level playing field for future investments  Practical implementation

12 New Renewable Biomass Defn ► Renewable fuels must now be produced from renewable biomass:  Harvested from land “cleared or cultivated” prior to enactment of EISA  For trees, not from Federal lands ► Implementation of this provision presents some unique challenges  Tracking feedstocks nationally and internationally  Practical system for implementation  Potential for shell game regardless ► Development of this provision has required extensive stakeholder interaction and coordination with USDA

13 ► General: Anyone subject to requirements can petition waiver or relaxation of the four standards  Severe harm to the economy; Inadequate supply  EPA must approve or disapprove within 90 days but requires opportunity for notice and comment  Limited to one year, but can be renewed ► Biomass Based Diesel: EPA can lower the standard in the Act  If significant supply or other market circumstances lead to high prices  Up to 15% or 30% if renewed  Can reduce advanced biofuel and total renewable fuel standards accordingly ► Cellulosic Biofuel Standard: Irrespective of the volumes required in the Act  Administrator must set the cellulosic standard each November for the following year based on projected available volume  If cellulosic standard is set less than volume required in Act EPA must make EPA- RINs available for sale at the greater of ► 25 cent/gallon ► $3.00 per gallon less the wholesale price of gasoline  EPA may reduce the standards for advanced biofuel and total renewable fuel accordingly What Ifs: EISA Waiver Authorities

14 Analyses for Rulemaking – Expect This and Much More ► Renewable fuel production and use projections, technology and cost assessments ► GHG Lifecycle Modeling, Inventory, and Benefits ► Other Pollutant Inventory, Air Quality and Benefits ► Agricultural Sector Impacts ► Water and Soil Impacts ► Macroeconomic Impacts ► Energy Security

15 Next Steps on the Rule ► Rulemaking process  Actively drafting  Ongoing discussions with Stakeholders ► Proposal – Fall of 2008 ► Final – ~Summer 2009

16 Two Key EISA Studies/Reports Authority / Section Action (Reg, Research or Report)Title Overview of Requirement Lead / Timing Sec. 204 Study/Report Env. and Resource Conservation Impacts EPA shall assess and report to Congress on the impacts to date and likely future impacts of Section 211(o) of CAA. EPA - Within 3 years and every 3 years after. Sec. 209 Study/Report/ Potential for Regulatory Action Anti-backsliding Study whether renewable fuel volumes adversely affect air quality as result of changes in vehicle emissions. Includes study of different blend levels. Requires promulgation of fuel regs to mitigate to greatest extent possible any adverse impacts. EPA - Study within 18 months. Promulgate regulations within 3 years.

17 Thank you Paul Machiele Fuel Program Center Director Office of Transportation and Air Quality Questions