EPA to Initiate Reset Rule for Renewable Fuel Standard for 2020-2022

The U.S. Environmental Protection Agency (EPA) is expected to propose a rule that could suggest a reset for the 2020-2022 volumetric targets for the Renewable Fuel Standard (RSF). This would be the first time EPA will initiate the reset rule, despite having the capacity to do so in years past. The proposal is supposed to be issued early next year.

At the advent of the Renewable Fuel Standard in 2006, EPA set volumetric targets that the industry was expected to meet on an annual basis. The idea was that the RFS would incentivize renewable fuel production and the target would give the industry a goal. The annual targets gradually increase through the year 2022.

The volumetric targets are meant for the entire renewable fuel industry to collectively achieve. Part of the requirements of EPA, for the success of the RFS, is to monitor and amend the volumetric targets on a yearly basis. EPA is granted statutory authority under the Clear Air Act to waive a portion of the annual volumetric target if the industry may be unable to reach the target. This ability is known as EPA’s waiver authority.

EPA’s use of the waiver authority is not without its challenges. Most recently, EPA’s use of the wavier authority was subject to court action resulting in a re-evaluation of the formula the EPA uses to set industry targets. Americans for Clean Energy, among other litigants, brought suit challenging EPA’s interpretation of “inadequate domestic supply.” Americans for Clean Energy specifically challenge EPA’s final rule on biomass-based diesel for the years 2014-2016 and 2017. The challenge was upheld by the courts. As a result, the D.C. Circuit court vacated the 2016 total renewable fuel volume requirement and remanded the 2015 final rule to EPA for reconsideration consistent with the court’s decision.

If EPA uses its waiver authority to waive at least 20 percent of the industry’s volumetric targets for any two consecutive years or at least 50 percent of the volumetric target for any given year, EPA is given the ability to “re-set” volumetric targets for future years, regardless of previously set industry targets. This rule is generally known as the “reset rule.” As early as 2014, EPA “trigged” the use of the reset rule by lowering volumetric targets. EPA was not statutorily permitted to initiate the reset rule for future years until 2016. To date, EPA has not used the reset rule to amend industry volumetric targets.

Proponents of the renewable fuel industry suggest that the reset rule runs counter to the goals of the RFS. The rule gains criticism because it directly affects renewable fuel production and use. Proponents of the reset rule suggest that it allows EPA to address the supply issues of the industry. The ability of EPA to initiate the reset rule allows EPA to correct for feedstock shortages and additional supply issues that the renewable fuel industry experiences from time to time.

The 2019 proposed volumetric target is higher than 2018’s volumetric target but well below the statutory requirements. If the 2019 proposed volumetric target is finalized, it will allow the EPA to be able to use the reset rule.