BioFuel legislation compliance in the United States

Compliance with the Renewable Fuel Standard (RFS), established under the Energy Policy Act of 2005 and expanded by the Energy Independence and Security Act of 2007, is a critical aspect of the U.S. strategy to increase the use of renewable fuels in the transportation sector. Here's how companies are complying and the consequences of non-compliance:

Compliance Mechanisms:
Renewable Identification Numbers (RINs): The RFS program uses a system of tradable credits known as RINs. When a company produces or imports renewable fuel, it generates RINs. Obligated parties, like refiners and importers of gasoline and diesel, must obtain and retire a certain number of RINs each year, proportional to the amount of fuel they bring into the market. This system ensures that a specified volume of renewable fuel is used in the transportation sector.

Many companies comply with the RFS by blending biofuels such as ethanol into gasoline. Most gasoline sold in the U.S. contains at least 10% ethanol (E10).  Some oil companies have started investing in renewable fuel production facilities, either by building their own plants or by forming partnerships with existing biofuel producers.

Who must comply?

The Renewable Fuel Standard (RFS), a U.S. federal program, primarily mandates compliance from certain types of companies within the transportation fuel industry. These companies are typically categorized as "obligated parties" under the RFS program. The key types of companies that are required to comply include:

• Petroleum Refiners: Companies that refine crude oil into transportation fuels such as gasoline and diesel are obligated under the RFS. They must ensure that a portion of the fuel they produce or import is made up of renewable fuel.
• Importers of Transportation Fuels: Importers who bring gasoline and diesel into the United States are also considered obligated parties. Like refiners, they are responsible for ensuring that a certain percentage of their fuel mix is composed of renewable fuels.
• Blenders of Transportation Fuels: In some cases, fuel blenders can also be considered obligated parties, especially if they are engaged in substantial blending of renewable fuels into gasoline or diesel. However, the primary responsibility often lies with refiners and importers.

These obligated parties must meet specific renewable volume obligations (RVOs), which are calculated based on their share of the transportation fuel market. Compliance is typically demonstrated through the acquisition and retirement of Renewable Identification Numbers (RINs), which are credits generated with the production of renewable fuel.
The RFS does not typically impose direct obligations on entities like biofuel producers, unless they are also engaged in refining or importing petroleum-based fuels. However, biofuel producers are integral to the RFS system as they generate the RINs necessary for obligated parties to demonstrate compliance.
It’s important to note that the specific requirements and definitions of obligated parties can evolve with changes in legislation or regulatory adjustments by the Environmental Protection Agency (EPA), which administers the RFS program.

Penalties for Non-Compliance:
Non-compliance with the RFS can result in significant penalties. The Environmental Protection Agency (EPA), which administers the RFS, can impose fines and other penalties on companies that fail to meet their RIN obligations. The cost of these penalties can be substantial, potentially running into millions of dollars, depending on the extent of the shortfall.

Examples of Compliant Companies:

• POET, LLC: As the largest producer of ethanol in the U.S., POET generates a significant number of RINs, contributing to the RFS goals.
• Archer Daniels Midland (ADM) and Valero Energy Corporation: These companies are involved in both the production of renewable fuels and the obligated refining sector, managing their RFS obligations through internal production and market trading of RINs.
• Chevron and BP: Major oil companies like Chevron and BP have been blending renewable fuels into their gasoline products and investing in renewable fuel production to comply with the RFS.

Compliance with the RFS is a critical part of how the U.S. is tackling climate change and reducing dependence on fossil fuels. The system is designed to be flexible, allowing companies to choose how they meet their obligations, whether through direct blending, RIN trading, or investing in renewable fuel production. Despite challenges and controversies, the RFS remains a cornerstone of U.S. energy policy regarding renewable fuels.