By Paul Winters
Published in Biobased Diesel Daily on 5/5/2023
EPA’s own RIN-generation data shows the agency’s 2023-’25 RFS biomass-based diesel volume proposals are severely inadequate.
The U.S. EPA is due to finalize the 2023 Renewable Fuel Standard obligations by June 14. The agency proposed volumes for 2023, 2024 and 2025 last December that would support only minimal growth for noncellulosic advanced biofuels and biomass-based diesel. The rule contained increases in the renewable volume obligations (RVOs) of just 60 million to 70 million gallons of biodiesel and renewable diesel and 100 million noncellulosic advanced RINs for each of the three years.
The proposal was a sharp reversal from the rule resetting 2020, 2021 and 2022 volumes, which was finalized in June last year—also many months late. For 2022, EPA increased the biomass-based diesel RVO by 330 million gallons. And EPA Administrator Michael Regan pledged that the rule would be a “jump off” point, setting future volumes on an upward trajectory.
The industry met that challenge—and more. In 2022, U.S. production of biodiesel and renewable diesel grew by 500 million gallons, responding to the increased RFS volumes as well as growing demand from fleets seeking immediate decarbonization solutions.
And U.S. production continues to surge. In February, the U.S. Energy Information Administration projected that close to 6 billion gallons of U.S. renewable diesel capacity could be online in the next few years. That projection was validated in a March analysis by researchers at the University of Illinois and USDA’s Economic Research Service.
Now, EPA’s own public data for the RFS dashboard shows that the growth is real. Biomass-based diesel (D4) RIN generation for this January through March is already 33 percent higher compared to the same three-month period in 2022, reflecting the new U.S. production capacity coming online. And the 33 percent production-rate bump is likely to increase as new capacity ramps up.
The additional biodiesel and renewable diesel gallons produced in the first three months of 2023 (compared to 2022) already has filled at least three times over the 60-million increase in biomass-based diesel volumes that EPA proposed for the entire year.
Stated another way, the additional biodiesel and renewable diesel gallons generated in the first three months of 2023 have nearly filled the total biomass-based diesel volume increase (190 million gallons) that EPA proposed for the entire three-year rule period for 2023-’25.
For obligated parties to meet the proposed overall 2023 RFS volumes, the agency projected a need for 5.389 billion D4 RINs by the end of the year. Those RINs, according to the agency projections, would be needed to meet not just the biomass-based diesel and noncellulosic advanced volumes, but also the overall volume and the 250-million-gallon supplementary obligation addressing the court remand from 2016. For 2024, the agency projected a need for 5.689 billion D4 RINs and for 2025, 5.760 billion D4 RINs.
It has become crystal clear that EPA must substantially increase the biomass-based diesel and noncellulosic advanced volumes as it finalizes the new rule to account for the rapid increase in D4-RIN generation. The overall and supplementary volumes simply do not provide sufficient space for spillover.
In the first three months of 2023, producers generated more than 1.65 billion D4 RINs, according to EPA’s data. If the monthly rate of generation remains 33 percent above 2022 volumes for the full year, the number of RINs generated by the end of the year could exceed 7.7 billion. By September, the biodiesel and renewable diesel industry will have exceeded the number of RINs that EPA projected would be needed for the entire year. And shortly after, the industry could generate all of extra RINs needed to meet the projected increases for 2024 and 2025.
The market would face severe constraints just months after EPA finalizes the rule for the year unless the agency changes course.
How much does the agency need to boost the final volumes? A look back is instructive.
EPA retroactively reset the 2021 and 2022 volumes by taking stock of available RINs. The agency counted all RINs generated for the compliance year and then subtracted RINs retired for U.S.-produced fuels that were exported or for foreign-generated fuels that were diverted to other overseas markets.
EPA’s dashboard data indicates that U.S. biomass-based diesel exports for the first three months of 2023 are similar to those in the first three months of 2022. And it also appears that D4-RIN retirements for foreign-generated renewable diesel are also comparable for the same periods. In 2022, producers and exporters retired a little over 800 million D4 RINs for biomass-based diesel exported from the United States or never imported.
Conservatively assuming a consistent increase in RIN generation and the same exports for 2023, there could be a total of 6.9 billion D4 RINs available by the end of 2023. That is 1.9 billion more RINs available this year compared to 2022.
Assuming the 1.57 RINs-per-gallon conversion rate that EPA proposed in the 2023 rule, that projection of available RINs is equivalent to a total of 4.4 billion gallons of biomass-based diesel fuel being used in the United States this year alone.