On December 7, 2021, the U.S. Environmental Protection Agency (“EPA”) released its proposed 2020, 2021, and 2022 Renewable Volume Obligations (“RVOs”). RVOs determine the amount of renewable fuel (typically, ethanol) certain fuel refiners and others involved in the transportation fuel supply chain (“Obligated Parties”) are required to blend into their own fuel production during a given year. Obligated Parties failing to meet their RVOs for any year must buy Renewable Identification Numbers (“RINs”) or other credits, or risk default under the Renewable Fuel Standard (“RFS”).

Each of the EPA’s proposed targets was lower than targets previously set by the Energy Independence and Security Act of 2007 (“EISA”). In explaining the shortfall, the EPA cited the COVID-19 pandemic and a resulting drop in transportation fuel demand.

Notably, although the proposed RVOs fall short of the higher targets the biofuels industry had hoped for, they represent the highest RVO targets proposed to date.

Perhaps more importantly to the biofuels industry, the EPA signaled a shift in its approach to Small Refinery Exemptions (“SREs”), which historically provided refiners producing fewer that 75,000 barrels of motor fuels per day with relief from RFS-imposed RVOs. Since SREs applied to individual refineries, not the aggregate production of multiple refineries with a single owner, large companies operating multiple individual refineries were historically able to obtain relief from RVOs by claiming an SRE for each such individual refinery. As a result, SREs have been increasingly scrutinized for years.

However, in another recent act, the EPA proposed denying a substantial number of pending SRE applications. The proposed denials confirm the present administration’s policy of preventing large owners of multiple refineries from obtaining SREs for their individual, smaller refineries.

Coupled with historically high RVOs (which suggest a likelihood of greater increases to come), the EPA’s intent to deny a material number of SRE applications demonstrates its increasing willingness to uphold the intent of the RFS – and RIN prices have increased accordingly. If the EPA declines to grant the SREs at issue, renewable fuel and biogas producers are likely to see further increases in the value of RINs and similar credits.

Reach out to Andrew Eastman or another member of Husch Blackwell’s Biofuels, Biomass & Landfill Gas team for more information on the latest developments involving the RFS.