By Jeryl L. Olson and William R. Schubert

The U.S. Environmental Protection Agency has proposed its renewable fuel standards for the year 2013.  The proposed rule would require producers, importers, and distributors of gasoline and diesel to add greater proportions of renewable fuels to their products.

The 2013 proposed rule includes a standard for the nationwide volume of “cellulosic biofuel” in the amount of 14 million ethanol-equivalent gallons, based on the EPA’s market projection. That is considerably higher than last year’s projection-based standard (10.45 million ethanol-equivalent gallons), which the U.S. Court of Appeals for the D.C. Circuit struck down just days ago in American Petroleum Institute v. EPA (No. 12-1139, Jan. 25, 2013).  The opinion, in which the D.C. Circuit ruled that the EPA exceeded the scope of its authority (see 42 U.S.C. § 7545(o)), stated that the EPA had employed “a methodology in which the risk of overestimation is set deliberately to outweigh the risk of underestimation” in order to promote the growth of a nascent biofuel industry  (see slip op. at 6, 10).  The opinion pointed out that the EPA had overestimated its projections in both 2010 and 2011, while the actual production of “cellulosic biofuel” for both of these years remained at zero (see slip op. at 5, 8).

The proposed rule nonetheless predicts that this year will buck the trend.  It states that 2013 “is expected to be a year of transition for the cellulosic biofuel industry, as many companies are shifting their focus from technology development to commercialization.” Further, it states that:

“[a]s cellulosic biofuel producers gain experience and continue to progress towards commercial-scale biofuel production, it is reasonable to expect that the production costs and capital costs will continue to decline.”

The 2013 proposed standards adopt the 2013 statutory target volume for “advanced biofuel” (2.75 billion ethanol-equivalent gallons), and “total renewable fuel” (16.55 billion ethanol-equivalent gallons).  As proposed, the EPA’s rule would not relax these volume requirements, although the Clean Air Act would potentially allow a reduction of up to 986 million ethanol-equivalent gallons (equal to the difference between the 2013 projected volume of “cellulosic biofuel” and the statutory target of 1 billion ethanol-equivalent gallons) for each of these categories.

The EPA’s proposed “advanced biofuel” volume of 2.75 billion ethanol-equivalent gallons depends heavily on the availability of imports.  Specifically, it assumes that the U.S. market will have access to a substantial quantity of sugarcane ethanol produced in Brazil.  The proposed rule acknowledges, however, that public policy decisions (such as the recent biodiesel tax credit extension in the U.S. or a possible increase in blending requirements for biodiesel in Brazil) could undermine this assumption.

Another key issue that the EPA is seeking comments on is whether it should extend the renewable fuel standards exemption for “small refineries.”

The proposed 2013 renewable fuel standards rule (docket no: EPA-HQ-OAR-2012-0546) has not yet been officially published as of the time of this writing.  As soon as it is published in the Federal Register,  the public will have 45 days to submit comments, and 15 days to request a hearing.  Comments can be submitted either directly to the EPA or through