US Energy Independence and Security Act of 2007 - Renewable Fuel Provisions -

1. US Energy Independence and Security Act of 2007- Renewable Fuel Provisions - Paul Machiele Fuel Programs Center Director Office of Transportation and Air Quality U.S. Environmental Protection Agency October 2, 2008

2. Presentation Overview • Refresher on Energy Policy Act 2005Renewable Fuel Standard (RFS) • Overview of new RFS provisions in Energy Independence and Security Act (EISA) • Other Key EISA requirements

3. Overview: EPAct 2005 RFS Program • Final Renewable Fuel Standard (RFS) • Required by August 2005 Energy Policy Act • Final Rule Signed April 9th, 2007 • Published May 1st2007 • Official Program Start - Sept 1, 2007 • EPA converts RFS into percent of gasoline production • Based on annual EIA predictions of gasoline consumption each Oct • Obligation Applies to refiners, importers, gasoline blenders • 4.0 billion gallons/yr in 2006 -- growing to 7.5 bgy in 2012 • 2013+: Minimum of same % of renewables for 2012 (0.25 bg must be cellulosic) • Major Compliance Element - Trading and Banking Provisions • Flexible Program - Based on a RIN – Renewable Identification Number (i.e. credits) • Allows for compliance when, where, and how it makes the most sense • Renewable values based on volumetric energy content compared to corn ethanol • Corn-ethanol: 1.0 • Biodiesel (alkyl esters): 1.5 • Cellulosic biomass ethanol: 2.5 (As specified in EPAct)

4. Current RFS Program: Up and Running • Extensive educational outreach effort • Registration, Recordkeeping, Reporting • Program began September 1, 2007 • Growing pains of implementing a new program are beginning to lessen • RINs (Credits) – Market values • 0.25 c/gal to 5 +/- c/gal since December signing of EISA

5. New Challenges and Direction: Energy Independence & Security Act of 2007 • EISA signed by the President December 19, 2007 • Major modifications to the current RFS program beginning in 2009 • Greater volume for 2008 • RFS 2 – Building off of the foundation of RFS1 • Rule development process similar to RFS 1 • Engage early and often with stakeholders throughout the process • Final RFS 2 Rule required by December 19, 2008, effective 1/1/09 • Proposal expected this Fall, FRM next Summer • Currently evaluating implementation options

6. RFS2: 4 Nested Standards (bill gal) * Can be adjusted downward by 10%

7. RFS2 Volumes RFS1

8. RFS2 Obligations and Coverage • Standard applies to Gasoline and Diesel Fuel production – highway and nonroad • Does not apply to jet fuel, marine residuals, heating oil; though renewables used here count • Obligation is placed on refiners, importers, blenders of gasoline and diesel • Definitions significantly changed from RFS1 and/or now include new elements • Lifecycle GHG thresholds • Grandfathering provisions • New Renewable Biomass definition • Each November EPA will set the cellulosic, advanced biofuel, and total renewable standards for the following year based on projections of supply of renewable fuels

9. Fuel Lifecycle GHG Assessment • Also called fuel cycle or well-to-wheel analysis, compilation of the GHG impacts of a fuel throughout its lifecycle “including direct emissions and significant indirect emissions such as significant emissions from land use changes” • Production / extraction of feedstock • Feedstock transportation • Fuel production • Fuel distribution • Tailpipe emissions • Can be used to compare one or more fuels performing the same function (e.g., miles driven) • Using a number of Models / Tools for Assessments of GHG, Ag sector impacts (domestic/international), energy sector impacts, etc.

10. Further Work on Life Cycle Modeling • Conducting LCA for a range of renewable fuels • Corn ethanol • Biodiesel/Renewable diesel • Imported ethanol • Cellulosic ethanol • Others as data allows • Modeling enhancements underway • Domestic and international agricultural sector land-use and agricultural practice changes • Agricultural N2O emissions • Updating petroleum baseline for 2005 • Updating renewable fuel production process data • We continue to have discussions with: • Industry groups • Academics and other experts • CA and EU regulators

11. “Commence Construction” Allowance • Post Enactment facilities must meet minimum 20% GHG reduction • Pre-enactment facilities are grandfathered – estimated at >14 bg • Including those that start production in calendar years 2008 and 2009, and are fired with natural gas, biomass, or any combination • Will seek comment on a range of options based on input from stakeholders • Protective of pre-EISA investments • Level playing field for future investments • Practical implementation

12. New Renewable Biomass Defn • Renewable fuels must now be produced from renewable biomass: • Harvested from land “cleared or cultivated” prior to enactment of EISA • For trees, not from Federal lands • Implementation of this provision presents some unique challenges • Tracking feedstocks nationally and internationally • Practical system for implementation • Potential for shell game regardless • Development of this provision has required extensive stakeholder interaction and coordination with USDA

13. What Ifs: EISA Waiver Authorities • General: Anyone subject to requirements can petition waiver or relaxation of the four standards • Severe harm to the economy; Inadequate supply • EPA must approve or disapprove within 90 days but requires opportunity for notice and comment • Limited to one year, but can be renewed • Biomass Based Diesel: EPA can lower the standard in the Act • If significant supply or other market circumstances lead to high prices • Up to 15% or 30% if renewed • Can reduce advanced biofuel and total renewable fuel standards accordingly • Cellulosic Biofuel Standard: Irrespective of the volumes required in the Act • Administrator must set the cellulosic standard each November for the following year based on projected available volume • If cellulosic standard is set less than volume required in Act EPA must make EPA-RINs available for sale at the greater of • 25 cent/gallon • $3.00 per gallon less the wholesale price of gasoline • EPA may reduce the standards for advanced biofuel and total renewable fuel accordingly

14. Analyses for Rulemaking – Expect This and Much More • Renewable fuel production and use projections, technology and cost assessments • GHG Lifecycle Modeling, Inventory, and Benefits • Other Pollutant Inventory, Air Quality and Benefits • Agricultural Sector Impacts • Water and Soil Impacts • Macroeconomic Impacts • Energy Security

15. Next Steps on the Rule • Rulemaking process • Actively drafting • Ongoing discussions with Stakeholders • Proposal – Fall of 2008 • Final – ~Summer 2009

16. Two Key EISA Studies/Reports

17. Questions Thank youPaul MachieleFuel Program Center DirectorOffice of Transportation and Air Quality machiele.paul@epa.gov