United States: EPA's Proposed RFS Rule: Impacts On Biogas And RNG

Last month's proposed rulemaking for the Renewable Fuel Standard ("RFS") from the Environmental Protection Agency ("EPA") proposed significant changes to the RFS Program, which we summarized in a prior post. One of the major changes in the proposed rule is its treatment of biogas and renewable natural gas ("RNG"): the rule would open up new potential RIN generation from biogas through changes to the eRIN program and the establishment of RNG as a biointermediate. Here, we dig into these proposed changes.

eRIN Changes

EPA introduced changes to its eRINs program for the biogas industry. The agency identified that reliance on RNG produced from biogas has been growing rapidly since 2016, partially as a result of the RFS Program, but acknowledged the "impending constraints" on the growth of RNG resulting from the slower growth of vehicles relying on RNG, which, in turn, could constrain the use of biogas.

However, EPA also recognized the large, untapped market for biogas that could be used to make renewable fuels under the RFS Program by converting biogas to renewable electricity.

To mitigate these constraints and take advantage of the untapped market, EPA now proposes to allow vehicle original equipment manufacturers ("OEM") to generate eRINs for light-duty electric vehicles they sell by establishing contracts with parties producing electricity from qualifying biogas. Notably, eRIN generation is limited to OEMs, which EPA believes will streamline the implementation burden of the eRIN program. The agency also predicts that positioning the OEMs as the eRIN generators will encourage an increase in reliance on renewable electricity as a renewable fuel, as OEMs are directly invested in the electric vehicle market's growth. EPA also predicts that OEMs will share RIN value with renewable electricity and biogas producers via RIN generation agreements that will compensate renewable electricity producers in exchange for the OEM utilizing their electricity to generate RINs.

Although many entities support the expansion of the eRIN program, some parties find the designation of OEMs as RIN producers controversial. This is the first time in the RFS program's history that an entity not directly in the fuel supply chain has been allowed to generate RINs. Further, as EPA highlights, many parties feel that charging infrastructure both is more directly in the fuel supply chain and has greater needs for support via RINs.

At this time, EPA is not reopening consideration of already-approved pathways to produce renewable electricity, and is not establishing new feedstocks for eRIN generation; rather, it is proposing a set of implementation requirements, including recordkeeping and reporting requirements, that apply to biogas-to-electricity pathways specifically. EPA is also limiting eRIN generation to light-duty vehicles, because it does not believe mid- and heavy-duty vehicles are able to produce necessary data at this time while the market remains in development.

Generation of eRINs is will not be permitted until January 1, 2024 to allow parties time to familiarize themselves with the RFS and register.

Biointermediate Classification

The proposed rule also updates the definition of biointermidate to include "biogas used to make a renewable fuel other than renewable CNG/LNG or renewable electricity," now permitting biogas and RNG to be used as a biointermediate under the RFS.

EPA establishes new regulatory reforms to facilitate the use of biogas and RNG as biointermediates. Under the rule, EPA would permit biogas to be used as a biointermediate such that renewable fuel produced from biogas could be produced through sequential operations at multiple facilities. EPA highlights several regulatory changes, including:

• Identifying that the party that upgrades the biogas to RNG ("the RNG producer") will be the RIN generator.
• Requiring that the RNG producer assign RINs generated for the RNG to the specific volume of RNG when injected onto a commercial pipeline.
• Requiring that only the party that can demonstrate that the RNG was used as transportation fuel may separate the RIN.
• Establishing regulatory requirements for key parties (including the biogas producer, RNG producer, RNG RIN owners, and RNG RIN separators).
• Establishing provisions addressing when biogas or RNG is used as renewable electricity or as a biointermediate.

The designation of RNG as a biointermediate presents a great opportunity for the expansion of RIN-generating fuels derived from RNG. However, EPA must also approve additional pathways for such fuels in order for the biointermediate designation to realize its value.

EPA also proposes that when RNG is used as a biointermediate, the party that uses the RNG as a biointermediate must retire the assigned RIN for RNG, and then generate a separate RIN using the procedures for RIN generation for the new renewable fuel. EPA also notes that the applicable RIN generation procedures for RNG as a biointermediate will vary depending on what fuel is made from the RNG.

Additional Points

The proposed rule also includes several other provisions relevant to RNG, including: establishing a new definition for RNG, creating several new requirements related to RIN assignment and separation, and implementing several new regulatory requirements related to registration and recordkeeping.

As noted above, the proposed rule identifies that the RNG producer will be the sole RIN generator. RNG producers will generate RINs for RNG produced and injected by the RNG producer into a commercial pipeline. This change reflects EPA's prediction that the use of biogas as an intermediate will greatly expand as a result of this Proposed Rule and a resulting need to designate a RIN generator. EPA lays out several reasons for designating RNG producers as the RIN generator, including that (1) the risk of double-counting will be reduced because RINs will be tracked in the EPA Moderated Transaction System ("EMTS") from RNG injection through withdrawal via assignment and separation of RINs (unlike CNG producers, which would need to track RIN generation via contractual arrangements); and (2) RNG producers can best determine whether RNG was produced from qualifying biogas and determine the correct amount of biomethane for RIN generation.

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As we can see, the Proposed Rule introduces substantial changes to how RINs generated by RNG is regulated. What impacts will this have on the biogas RNG generation chain? Parties must comment on this proposed rule by February 10, 2023.

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