USA: Fuels: Renewable Fuel Standard

Introduction

With the passage of the Energy Policy Act of 2005, the US Congress amended the Clean Air Act and created the Renewable Fuel Program. The goal was to reduce greenhouse gas emissions, expand the nation’s renewable fuels sector and reduce reliance on imported oil. Congress later amended the Renewable Fuel Standard (RFS) with the Energy Independence and Security Act of 2007. The EPA implemented the program with final rules in 2007 and 2010 [6110][6111]. The consolidated version can be found in the Federal Register [6112].

The RFS program requires a certain volume of renewable fuel to replace or reduce the quantity of petroleum-based transportation fuel, heating oil, or jet fuel. Congress sets targets for the total amount of renewable fuel to replace petroleum-based fuels each year. To achieve the targets set by Congress, the EPA translates the volume targets into individual compliance obligations, known as Renewable Volume Obligations (RVOs), that each refiner or importer of gasoline or diesel fuel must meet every year.

Compliance

Obligated Parties achieve compliance with their RVOs by obtaining and retiring credits known as Renewable Identification Numbers (RINs). Obligated parties under the RFS program are refiners or importers of gasoline or diesel fuel. When renewable fuel is produced or imported, the renewable fuel producer or importer, also referred to as the RIN Generator, generates a certain number of RINs for each gallon. The RIN generator reports these RINs to the EPA by entering them into the EPA Moderated Transaction System (EMTS), which is the EPA’s database of record for all transactions involving RINs. At this point in the process, the RINs are considered “attached” to renewable fuel. The renewable fuel and its attached RINs can be sold to other renewable fuel producers, fuel blenders, obligated parties, or any other party that has registered with the EPA to trade RINs. Figure 1 summarizes the process from RIN generation to RIN retirement [6113].

Depending on the type of renewable fuel generated, one gallon of renewable fuel is equivalent to 1 to 1.7 RINs. The RIN value, measured in gallons, is equal to a renewable fuel’s Equivalence Value. Table 1 lists equivalence values for some renewable fuels. Sometimes the term “ethanol-equivalent gallon” is used. One RIN is equal to one ethanol-equivalent gallon of renewable fuel.

In many instances, the renewable fuel and the attached RINs are bought by fuel blenders who combine the renewable fuel with petroleum-based fuel and sell the blended fuel to service stations. When renewable fuel is blended with another fuel, the associated RINs are “separated” from the renewable fuel. Blenders can then sell these separated RINs to other registered market participants. These separated RINs are often bought by obligated parties to meet their renewable volume obligation. Once a RIN has been used to meet a compliance obligation, it is considered retired.

Obligated parties that have blending operations may purchase renewable fuel and the attached RINs and blend the fuel themselves. They would separate the RINs and retire them for compliance and may sell any excess separated RINs on the market. The market structure allows obligated parties flexibility in how they achieve compliance with their renewable volume obligations.

RIN trades occur on public exchanges by private contracts or through other types of transactions. As of January 2022, about 2,400 parties had registered with the EPA to trade RINs, of which about 800 were actively entering RIN transactions. Of the active participants, approximately 400 were obligated parties, 300 were renewable fuel producers, and 100 were RIN owners. Trade volume for 2022 included 194,870 transactions involving the trade of over 25 billion RINs valued at approximately $38 billion. Further data is available from the EPA [6117].

Requirements for Reporting RIN Transactions

The RFS rules and regulations implemented with the Energy Independence and Security Act of 2007 (RFS2) require companies to enter RIN transactions into the EMTS within five or ten business days, depending on the type of transaction. Prior to the RFS2, market participants submitted RIN transactions on a quarterly or annual basis. Parties enter into a trade agreement outside of the EMTS, and each of the trading partners enters a separate record in the EMTS. The EMTS compares the buyer and seller entries for accuracy and consistency. If the buy and sell records pass the quality-assurance checks, the EMTS transfers the RINs between accounts. RIN generation in EMTS must also pass quality-assurance checks before the RINs are added to the renewable fuel producer’s account.

The RFS2 prohibits any party from creating or transferring invalid RINs. The regulation lists several types of invalid RINs, including RINs that duplicate a valid RIN, RINs that are based on incorrect volumes of renewable fuel, RINs that do not represent a renewable fuel as defined in the regulation, and RINS that were otherwise improperly generated. Invalid RINs can enter the RIN market through recordkeeping or reporting mistakes by the company or through fraudulent RIN generation.

While the potential for RIN fraud has been partly addressed by the EPA, audit results published in 2023 by the EPA Office of Inspector General still found several shortcomings [6113].

Fuel Pathways

For a fuel to qualify as a renewable fuel under the RFS program, it must meet several requirements. One important requirement is that it must achieve a reduction in greenhouse gas (GHG) emissions compared to a 2005 petroleum baseline.

There are four renewable fuel categories under the RFS. Each one is assigned a “D-code”—a code that identifies the renewable fuel type—based on the feedstock used, fuel type produced, energy inputs and GHG reduction thresholds, among other requirements.

• Advanced Biofuel (D-code 5)
  • Can be made from any type of renewable biomass. Excludes corn starch ethanol.
  • Must reduce lifecycle greenhouse gas emissions by at least 50% compared to the 2005 petroleum baseline.
• Biomass-based Diesel (D-Code 4)
  • Examples include biodiesel and renewable diesel.
  • Must reduce lifecycle greenhouse gas emissions by at least 50% compared to the 2005 diesel baseline.
• Cellulosic Biofuel (D-Code 3 or D-Code 7)
  • Renewable fuel produced from cellulose, hemicellulose or lignin.
  • To be eligible for D-Code 7 RINs, the fuel must be cellulosic diesel.
  • Must reduce lifecycle greenhouse gas emissions by at least 60% compared to the 2005 petroleum baseline.
• Renewable (or Conventional) Fuel (D-Code 6)
  • Includes ethanol derived from corn starch, or any other qualifying renewable fuel.
  • Fuel produced in new facilities or new capacity expansions (commenced construction after December 19, 2007) must reduce lifecycle greenhouse gas emissions by at least 20% compared to the 2005 petroleum baseline.

Under the RFS, electricity is only considered a renewable fuel if it is produced from renewable biomass and is used as a transportation fuel and for no other purposes. In early 2024, there were two approved fuel pathways for renewable electricity produced from biogas, one with D-Code 3 and one with D-Code 5. There were also a number of pathways pending approval based on the combustion of various biomass residues. EPA data from 2024 does not show any RINs related to renewable electricity production [6119]. In July 2023, the EPA withdrew a proposed eRIN scheme that would have given EV manufacturers tradable RFS credits.

Renewable natural gas (RNG) is only considered a renewable fuel if it is produced from renewable biomass and is used as a transportation fuel and for no other purposes. In early 2024, there were two approved fuel pathways for RNG, one with D-Code 3 and one with D-Code 5. According to 2024 EPA data, nearly all RINs related to RNG production had a D-Code 3 (cellulosic) and RNG production was responsible for 99% of the total cellulosic biofuel RINs generated [6119][6118]. Starting January 1, 2025, RINs may only be generated for RNG injected into a natural gas commercial pipeline system for use as transportation fuel.

The RFS program’s four renewable fuel standards are nested within each other. In other words, the fuel with a higher GHG reduction threshold can be used to meet the standards for a lower GHG reduction threshold. For example, fuels or RINs for advanced biofuel (i.e., cellulosic, biodiesel or sugarcane ethanol) can be used to meet the total renewable fuel standards (i.e., corn ethanol). Table 2 shows which RIN type and D-code can be used to demonstrate compliance with the four categories of fuel that together comprise an obligated parties’ renewable volume obligation (RVO).

A cellulosic diesel RIN with a D code of 7 cannot be used to demonstrate compliance with both a cellulosic biofuel RVO and a biomass-based diesel RVO.

For cellulosic standards, additional flexibility is provided. Cellulosic Waiver Credits (CWC) are offered by EPA at a price determined by formula in the statute. Obligated parties have the option of purchasing CWCs plus an advanced RIN in lieu of blending cellulosic biofuel or obtaining a cellulosic RIN.

Biofuel facilities (domestic and foreign) that were producing fuel prior to enactment of the Energy Independence and Security Act of 2007 are “grandfathered” under the statute and are not required to meet the GHG reduction targets.

EPA continues to review and approve new fuel pathways, including fuels made with new technologies or with new feedstocks [6112][6114][6115].

Renewable Fuel Volume Obligations

Obligated parties have RVOs for each of the four renewable fuel categories (cellulosic biofuel, biomass-based diesel, advanced biofuel and renewable fuel) calculated as:

RVO_i = (RFStd_i × (GV_i + DV_i)) + D_i–1(1)

where:
RVO_i = The RVO for a renewable fuel category for an obligated party for calendar year i, in gallons.
RFStd_i = The standard for a renewable fuel category for calendar year i in percent, Table 3.
GV_i = The non-renewable gasoline volume which is produced or imported by an obligated party in calendar year i, in gallons.
DV_i = The non-renewable diesel volume produced or imported by an obligated party in calendar year i, in gallons.
D_i–1 = Deficit carryover from the previous year for a renewable fuel category, in gallons.

The EPA projects the volumes of gasoline, diesel fuel and renewable fuel that will be used in a calendar to calculate the value of the annual standards. These are published in the Federal Register, usually by November 30 of the year preceding the compliance period. Table 4 summarizes the final volume standards that have been published by the EPA since 2013 [6116]. There is no statutory volume requirement for “conventional” biofuel. Conventional volumes are calculated as (total - advanced).