On June 3, the EPA finalized their 2022 RFS requirements along with changes to the final 2020 and 2021 obligation years. There are several key actions that could have reverberating effects across the U.S. renewables landscape:
1. Retroactive cuts were made to renewable requirements – 2020 total renewable requirements were retroactively cut by nearly 3 billion gallons, as COVID-19 related shutdowns, coupled with broad economic slowdowns created difficult market dynamics for both renewable and non-renewable producers. Originally set at 11.56% total renewable fuel, 2020 will now represent a required 10.82% total renewable obligation, with much of the cut in corn ethanol based renewables. 2021 and 2022 top line requirements were kept roughly in line with their previous proposals, but when looking under the hood, the 2021 and 2022 numbers show a return to normalcy for corn-ethanol fuel.
2. 2022 guidance raises requirements to pre-COVID levels – 2022 sees corn-ethanol return to the 15-billion-gallon requirement threshold. This return to normal signals a renewed commitment to the long term RFS goals.
3. EPA removes Small Refiner Exemptions (SRE) – The EPA also ended the previous administration's approach to small refinery exemptions (SRE).Previously, an SRE could be granted under any hardship, essentially exempting small participants from the RFS pool. Now, SRE waivers will only be granted if the hardship is caused by the RFS itself. This restoration of 69 SREs spanned five years, from 2016 to 2021. The EPA is also reviewing a process to provide an alternate retirement schedule that allows small refiners additional time and a larger pool of RINs to comply with previous obligation requirements.
4. New provisions for bio intermediates – Requirements were finalized that biocrude, free fatty acid feedstock, undenatured ethanol, and other advanced intermediate processing must occur at a single facility before being transported to final processing into an RFS fuel. By separating their processing, bio intermediates now qualify for the RFS program.
While these updates largely re-align the RFS with its historical mission to increase renewable production and consumption, the changes underscore the ever-present risk with renewable fuel obligation inventory management. Whether unforeseen, pandemic induced, economic slowdowns or political regime change, RFS requirements are at a heightened risk of substantial fluctuation.
These fluctuations represent challenges and opportunities in Energy Trading and Risk Management. Furthermore, they highlight the need for robust and flexible ETRM solutions and deep domain expertise. Capco understands these challenges and can help your organization achieve the level of systems maturity needed to translate them into opportunities. Reach out to us to learn how we can help.