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EPA Renewable Fuel Standard Elevates Status of Renewable Biogas

This week, the U.S. Environmental Protection Agency released final rules that approve new pathways for production of cellulosic biofuel. The decision paves the way for an increase in requirements for the sale or use of cellulosic biofuel, which has been held back by a lack of supply. Under the renewable fuel standard (RFS), refiners must blend an increasingly larger amount of biofuel into the gasoline supply or purchase credits known as RINs from biofuel producers. Since its inception, the program has generated demand for billions of gallons of corn ethanol. However, over time the program limits the total amount of biofuel that can come from conventional ethanol and moves to require a larger amount of cellulosic biofuel, which is coveted because it has a lower greenhouse gas profile, doesn’t compete with food sources and has other environmental advantages. The RFS law sets a target level of 36 billion gallons of biofuel by 2022 with a total of 21 billion gallons coming from a mix of cellulosic and advance biofuel.

Renewable natural gas or biomethane already qualified under the RFS as an advanced biofuel, but the July 2nd decision means that CNG and LNG produced from renewable sources such as landfills, manure digesters and sewage treatment plants will now qualify as cellulosic biofuel. The decision also qualifies electricity that is generated from biogas and used to power electric vehicles. The RFS program has been mired in controversy since the level of biofuel sold in the U.S. began approaching the blend-wall (or the point at which E10 gasoline had saturated the market. E10 is considered the blend-wall because there are concerns about using higher ethanol blends in gasoline, particularly with respect to older vehicles and off-road equipment.)

Since EPA has not announced the cellulosic levels for 2014, it is hard to say how much impact the new rule could have on demand for biomethane fuel. Speculation is that EPA will increase the cellulosic requirements now that additional pathways have been identified. The RFS statutory levels for 2013 for cellulosic biofuel originally was set at 1.75 billion gallons. EPA, however, revised the level downward and only required 6 million gallons of the fuel to be sold. EPA has yet to release the 2014 targets and is not expected to do so until September. The statutory level for 2014 is 1.75 billion gallons.

What does this mean in dollar terms? It means renewable biomethane producers will earn more for their product. How much is not certain as finding information on RIN prices is not easy. A recent Bloomberg article reports that corn-ethanol based RINs were selling at 49 cents per gallon for 2014 and 48.5 cents for 2013. The same article said that advanced biofuel RINs were selling at 52 cents for 2014 and 46 cents for 2013. The values of RINs are based on a gallon of ethanol which has lower energy content than a gallon of gasoline or gasoline gallon equivalent of natural gas.

To view the rule, go to: http://www.epa.gov/otaq/fuels/renewablefuels/regulations.htm.

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