Renewable Fuel Standard (RFS2)—Overview Webinar (Text Version)
This is a text version of the video for the Renewable Fuel Standard (RFS2)—Overview webinar presented on February 25, 2010, by Robert White, Renewable Fuels Association; and Paul N. Argyropoulos, Office of Transportation and Air Quality at the U.S. Environmental Protection Agency.
COORDINATOR: Welcome and thank you for standing by. At this time, all participants are in a listen-only mode until the question-and-answer session of today's conference. At that time, you may press star one if you would like to ask a question.
I would like to inform all parties that this call is being recorded. If you have any objections, please disconnect at this time. I would now like to turn the call over to Ms. Sandra Loi. Thank you, ma'am. You may begin.
SANDRA LOI: Thank you and good morning, everyone. Thank you for joining us for our monthly educational Webinars that we host here. For those who don't know me, I'm Sandra Loi from the National Renewable Energy Lab, and I support the Department of Energy's Clean Cities program. And I think it's probably mostly coordinators, but I know we may have some visitors and some stakeholders on the line, so I just wanted to introduce myself.
And as I mentioned, this is our monthly educational Webinar. I organize these primarily for coordinators to kind of keep them up to date on what's going on in the various industries and fuels.
So today, the focus is on the Renewable Fuel Standards 2 ruling, which was recently released the first week of February. So I know that there have been a lot of questions, and a lot of folks were at the National Biodiesel Conference, and that was a hot topic there, and there was a lot of discussion there and I think still a lot of questions.
So we pulled together two speakers today. Robert White from the Renewable Fuels Association and Paul Argyropoulos from the EPA, who will both be touching on the Renewable Fuel Standards.
And I'm going to actually start off with Robert White. As I mentioned, he's with the Renewable Fuels Association. A lot of you folks already know him. He's the director of Market Development for the RFA. And—which as you all know is a nonprofit trade organization that serves as the voice of the ethanol industry providing advocacy, authoritative analysis and important industry data to its members, Congress, Federal and state government agencies, strategic partners, the media and other opinion-leader audiences.
As the director of Market Development, Robert leads the effort to increase the availability and consumption of higher blends of ethanol. Along with consumer education and marketing, he works with petroleum marketers and retailers, state and federal agencies, fleets, and consumers and is also a sought-after technical expert for the ethanol industry on ethanol, E85, and blender pumps.
So as I mentioned, we've got the two speakers. Robert's going to get us started, and then he'll go through his presentation, and he's going to focus on the RFS2 and more on the ethanol side of the world, and Paul will give us more of an overall look at the RFS2 ruling.
And we will hold questions until the end, so please take notes as we're going along, and if anything jumps out at you that you have a question on, please hold onto that until we get to the end.
And, Robert, I will go ahead and pass it off to you.
ROBERT WHITE: Okay. Thank you, Sandra. Good morning, everyone. I apologize in advance; I'm suffering from a horrible cold right now, so hopefully that doesn't affect this. But a pleasure to be with you as always.
Wanted to remind everyone that the RFA was a lead recipient along with PERC, the National Biodiesel Foundation, and the Clean Vehicle Education Foundation on an Area of Interest 3: Education and Outreach Award, and we'll have a lot more information for all of you soon on what all that's going to entail.
But this is just one of the few things that we wanted to get started on a regular basis was participating in this, particularly, monthly Webinar and thought it'd only be appropriate to start off with a hot topic. And thank you for Sandra and others for getting this going.
So today, obviously the RFS2 final ruling—what I'm going to talk about is from the ethanol industry's viewpoint. What Paul will be presenting obviously will have a different flavor to it. We are very happy with some of the things in the final ruling and also very concerned with others.
But to set the stage, I just wanted to provide in this PowerPoint a lot of information. And I will not read the slides. I will not talk about everything on the slides, but you will have that information so that you can take it away, and we can follow up with the questions that may not get answered today or concerns down the road.
So to give you a quick snapshot of where the ethanol industry is today, we have a production capacity of a little over 13 billion gallons. We think the final number for 2009 will be around 10.6, and we think the current capacity utilization is somewhere around 93%.
That 93% comes from ethanol plants that are going through bankruptcy challenges, some that were shuttered last year just simply because of economics. But if you go around the industry today, most of the plants that are in the right side of the balance sheet, they are definitely running well above 100%.
Most plants can run somewhere around the 110% to 120% range, and so you can see some rapid swings in the amount of availability of ethanol based on that production capacity and what they're running.
There are roughly 200 plants in 26 states that are plants that are under construction and expanding. And of course, there are dozens of the next-generation facilities in various stages of development all over the country, and that's something that you'll continue to see.
The transportation fuel system—you are all aware of this because you fight it on a daily basis—roughly 140 billion gallons of gasoline blended each year, and it seems to be dropping. And I know that EIA recently thought that that might have peaked in 2007. We all hope so. But we have a lot of work to do to continue to drop that amount of petroleum use needed.
We think that the 2009 ethanol production levels will be approximately 8% of overall gasoline usage. And I threw that diesel number in there just for your information.
Now when you look at ethanol and how it came about, of course, you've got really three options: E10, E85, and the mid-level blends that you're starting to hear more about dispensed by the blender pumps. A lot of the blender pumps do not offer these mid-level blends; they're simply using the technology to blend E10 and E85.
But as you can see, the 98% of all the ethanol sold in the country today is at an E10 or below level. Most of that is coming from environmental concerns, state mandates, or simply the RFS really kicking in and forcing some of that ethanol downstream.
So if you look at a quick flashback in time in 2007, you can see that—just like to point out the Southeast if nothing else—a 2% concentration in Florida, 3% in Georgia, and then up in the Carolinas, Tennessee and Mississippi. If you fast forward just two years, you can see what can change dramatically and how changes in fuel regulations, changes in federal policy, and all that can swing the amount of alternative fuel that can be put into the system very rapidly despite what some of the naysayers have definitely said over the years.
So jumping right into the RFS2, the Lifecycle Greenhouse Gas Analysis is one that was very important to us in particular with our corn-based ethanol members. And as we all know, there was a 20% threshold that it was trying to be met, but our major concern was with indirect land use change.
Now indirect land use change was left into the final ruling, but due to some of the analysis that was further done after the original proposed rule, all corn ethanol was grandfathered into the reduction of at least 20% of the greenhouse gas emissions in the final rule. And if you look at it, you dig down into the numbers, you can see that that range went from 7% to 32% compared to the baseline gasoline. As I said, this was very important because there was some concern that corn ethanol would not even meet the 20% threshold, and we're seeing that obviously in one major state way out to the West.
Major reasons for the improved greenhouse gas performance levels—and there's really five of them when you break it down. The first one was the impact of price on yield improvements. And the Food and Ag. Policy Research Institute, their model included an elasticity factor for yields that respond directly to the changes in price—what we see both in the United States and internationally.
Now we think that the factor may be a little lower than it perhaps should be, but it did have a positive impact. We'd like to see that explored a little bit further, but no doubt it was more positive than what we had seen in the past.
Distillers grains, if you're unfamiliar with the ethanol production process, you really—when you put corn in the front of an ethanol plant, you get three products out. For every bushel or 56 pounds of corn that goes in the front door, you get 18 pounds of distillers grains, which is commonly used as livestock feed, you get 18 pounds of CO2, and roughly 18 pounds of ethanol or 2.83 gallons, somewhere in that area.
Now a lot of the analysis was leaving out the main food equivalency of distillers grains or that energy content because, in ethanol production, all you use is the starch. So now the EPA made some adjustments that include one pound of distillers grains will replace 1.196 pounds of total corn and soybean meal.
Now how that is important, especially when you're looking at indirect land use, if you get more value for the distillers grains, that means that you—technically, if you're doing a correlation theory, there's less soy bean meal needed, so there's less soy bean acres needed. So the displacement, or that indirect land use change, lessens based on a true value of the distillers grains.
And you can see that also in the swine and poultry sector the displacement ratio remained the same. But definitely in the beef and diary cattle sector that was very important because that's where the bulk of the distillers grains ends up.
The other four—I guess there were six total; I apologize—the other four reasons for GHG performance from the proposed rule was one that involved Brazil. And like I said, the Food and Ag. Policy Research Institute, or FAPRI, updated the additional ag. detail in Brazil. So you had more of an overall snapshot on the detail on agricultural land use in Brazil for their six geographic regions.
Satellite data was incorporated, and that basically can show you more of an overall snapshot, and what was key here was the longer timeframe use. So instead of a quick, you know, number of years, you had an overall time period that you were working with.
And then next available land types—when you take in consideration adding idle crop land enforced to the analysis of the overall U.S. Ag. Sector, what we assume anyway, it apparently reduced the amount of land converted internationally.
So if you took in consideration all of the available arable land here in the United States that could be used for whatever resources but were just available land types, it lowered the overall amount of land on the international side.
And the last one: foregone sequestration. Newest analysis included most conservative foregone forest sequestration estimates that account for natural gains and losses over time. What's critical here is that you obviously have a lot of things that play that can cause land use change—a lot of things that can flux the amount of planted crop land up or down over the time—timeframe and the life span of the land use itself.
Some of the key challenges as we look through this—timeframe for accounting of emissions. EPA used a 30-year timeframe to account for the lifecycle greenhouse emission versus a 100-year discount or timeframe used in the proposed rule.
Now based on what we can determine, we think if the hundred year 2% discount rate was used in the final rule analysis that corn ethanol would have seen an actual 35% reduction instead of just a 21.
Now the other thing and the reason why we would like to see this revisited is the 30-year versus the hundred-year—the justification was really threefold. The lifespan of the biofuel production facility is what they're saying is more consistent with that.
You know, myself, being from Kansas, we have an ethanol plant that opened in 1928 there, and it's still operational. So we have to, you know, look at how these life spans of these biofuel production facilities actually are determined.
Future emissions are less certain. That's true on both sides of the fence whether it's on baseline gasoline or ethanol or the future feedstocks that will be used. And there's significant greenhouse gas reductions that are needed in the near-term to avoid catastrophic climate change.
Now based on those living in the Northeast or in the mid-West, this year climate change is almost comical—you know, no one says global warming for sure anymore. But the fact that we need to make a bigger impact in the near-term versus the overall long-term, say in 100 years, is obviously a little debatable.
Fertilizer assumptions and modeling—there were some changes here; most of it revolved around nitrous oxide and the estimates used in one of the modeling scenarios there. You know, fertilizer usage changes a great deal each year. Fertilizer production varies a lot. Farmer's are very savvy in the amount of fertilizer that they can or won't use in most cases, and a lot of that's driven by price. So there are some assumptions here that we think obviously could be reviewed a little bit more, but no doubt it will remain an area of concern.
Some of the unchanged portions that are—that we want to highlight of course is crop yields. The EPA did consider a high yield case of 230 bushels per acre by 2022 in the sensitivity analysis. But, however, it stuck with the yield trajectory of just 183 bushels an acre by 2022.
Now why we think this is important is if you look at Monsanto, Pioneer, and some of the other seed companies. They're suggesting that by 2022 we'll be at 250, 300, 300-plus bushels per acre. And in fact, we saw a huge jump in the amount of yield per acre this year clear up to into the 163 range from just 154 two years ago. So we think that this is not quite as aggressive as it perhaps could be.
And the main reason if you look down at the next paragraph is that high-yield sensitivity case would have shown a 23% reduction versus 21%, and we think it's actually going to be even higher than that. We're not quite sure why this was left at this level, but it's important to note.
Baseline gasoline is something that will continue to get some attention just simply because we all are very well aware, especially in our daily workings with trying to reduce our dependence on petroleum, that the baseline gasoline is going one direction and our alternative fuel efficiencies and introductions and emissions appear to be going the other.
And so we think there needs to be some consideration for that because no doubt the high carbon sources that we're starting to get our oil from, whether it's Canadian tar sands that I saw again in the news this morning, we all have to take into consideration that baseline gasoline might not truly be a baseline gasoline. That it is in fact changing one direction where the alternatives are going the other.
On the cellulosic ethanol side, EPA refined its lifecycle analysis for cellulosic ethanol and modeled all pathways that will far exceed the 16% reduction requirement that was outlined in EISA.
They essentially examined two different feedstock types—both corn stover and switch grass—and if you look down, the reductions are great. Greenhouse gas emissions from the switch grass side—110% biochemical, 72% thermochemical. If you go down to corn stover, it's 130% and 93%. These numbers are phenomenal.
And, you know, it's great, and when we start seeing more cellulosic production, and it's at a main stream and true production—commercial-production level—there's no doubt that this will bring great news and great reductions across the country.
Brazilian sugar cane ethanol—I personally found it a little interesting that it was specifically Brazilian sugar cane ethanol, but you can see that there were some benefits definitely more in weight of the Brazilian side than on the U.S. side.
If you look in the second bullet point, there you can see that the revisions of the indirect land use change emissions were cut virtually in half for corn ethanol. But at the same time, the sugar cane ethanol side dropped by 93%.
And some of that is, I guess, why you want to understand—that is, if you look down in the last paragraph, you can see the result of the modifications is that sugar cane ethanol is now assumed to reduce emissions by an average of 61%, which would put it well above the 50% reduction threshold for advanced biofuel.
Now this change obviously separates sugar cane and ethanol and corn-based ethanol into two different categories. Corn ethanol will not reach the advanced biofuels range.
So we go back and look up the difference in the reductions—it's once again something that we think needs a little bit of analysis because we don't understand how if U.S. corn ethanol is assumed to induce more indirect land use change in Brazil than Brazil sugar cane itself, you know, something seems to be out of place.
Renewable biomass—EPA finalized an aggregate compliance mechanism to determine the compliance with renewable biomass, and most of this is crops and crop residues. And this must be U.S. based; this is not considering anything from outside the continental United States or—excuse me, outside of the United States as a whole.
It appears they eliminated the requirements that qualifying feedstock must come from continuously, actively managed land. And part of that will be significant as you look at idol crop land, you know, the crop reduction program, and other set-aside acreage that are available that could be put into use down the road.
They did put in a baseline level of 402 million acres, and that's the equivalent of the 2007 total crop land. And if you look at the total acres, in one year if it's above 397 million acres total, the EPA will investigate the increase. And if it definitely goes above 402 million acres, they'll start recording where the requirements and what made that happen.
Range land was not set in the agricultural lands. That would qualify for the renewable biomass sector. That's something down the road obviously could be an issue or revisited.
Tolerance levels for determining the grandfathering plants. As you can see here, there was—EPA suggested it would allow 10% tolerance on baseline volumes for which derivatives could be generated by the corn ethanol producers without complying with the 20% greenhouse gas reduction threshold although the tolerance level was revised down to 5%.
So for example, you have a 60-million-gallon ethanol plant and if they were somehow allowed to produce up to 63%—as I told you earlier, most could probably do that without much challenge—the additional 3 million gallons would be grandfathered along with the original 60%. This only applies to existing plants.
That's pretty important because as new plants are built, you definitely want the newest technology; you want the most efficient plant, and this rule will actually help push that. I mean most will want that anyway just because of economics, but it's important to note.
So equivalency values—you know, it's important to understand that there are different value levels based on the higher BTU content per gallon with some of the biofuels. For example, biobutanol assigned 1.3 RINs in comparison to the 1 RIN assigned to each gallon of ethanol regardless of the feedstock.
You have equivalency values and nested standards for advanced biofuels and biomass-based diesel. These vary, you know, these nested standards for various biofuels established under EISA clearly eliminated the need for equivalence values established under the RFS1, and it's why they were eliminated in that side.
We think that it was Congress' intent that the RFS2 be based on straight volumes, and the effect of maintaining equivalence values will be to reduce the actual volumes of imported oil that will be displaced by renewable fuels. As time goes on and the RIN value obviously swings as we saw this last year, the equivalence values might get more play than others.
Only got about three or four more minutes, so I'm going to kind of speed this up. Like is said, I made sure there's enough information in here that you could take this away and get a pretty good understanding of our viewpoint of the RFS2.
You have the cellulosic ethanol standard here. The 2010 side was reduced. We expect—or EPA's numbers anyway and not saying we disagree by any means—they expect a little over 2 million gallons of their 5.04-million-gallon requirement to come from cellulosic diesel and biocrude with the other coming from cellulosic ethanol. If you look at the overall volume obligation for cellulosic ethanol, it's 0.004%.
The economic stability of our country and definitely of the ethanol industry put a definite slowing on the production and the construction in the cellulosic arena. There was not a lot of outside investment being made, and so the timeline on this was a little slower than most had hoped for.
So I just want to flip through some quick slides—wrap up. This is important. When you start looking at the broad agreement that corn ethanol reduces direct greenhouse gas emissions, you can see that you've got four different looks at the overall reduction based on average gasoline.
And these are CARB's numbers, so even if CARB will suggest that in their analysis that you have a 30% to 50% greenhouse gas reduction, and of course cellulosic ethanol will yield even more indirect land use change. You've all heard this before, but it's very important to understand if supposedly there's another acre of corn needed in the mid-West for ethanol, it reduces a soy bean acre, which induces a reduction in soy bean exports, which means there's an increase in soy bean cultivation in South America, which means you have to cut more trees down, and then you have greenhouse gas emissions from indirect land use change.
This is a greater correlation than we've seen in probably any other thing in history. The one thing to continue to note is that CARB and EPA's analysis of indirect land use change does not match up. And something that we think needs to be considered—there's no scientific consensus on how to measure it, and it's very important because it does mean perhaps the livelihood of some of—definitely the producers that are already in the business.
If you look at low carbon fuel standards and carbon intensity values for gasoline and ethanol, this is a very good graph that shows you all of the examples of California, mid-West, dry mill, wet mill, Brazilian sugar cane, you know, CARB, gasoline—straight-line gasoline—and the reduction that you would see what's in dark there—and I forget my color blindness—but what's in dark at the top of each of those lines is the impact from the indirect land use change being included.
As you look down across that board, if indirect land use change was agreed upon that it's sometimes a crazy thought process that you would see that all of these categories would meet the requirement and would have a direct emissions decrease that would be fitting for all sides.
If you look across—this is from the Brazilian Ministry of Technology, our data, and of course the National Biodiesel Boards—you can see that since 2004, while there was a blip on the screen in 2008 Amazon deforestation is actually going down while ethanol production has increased substantially in the U.S. And you can see that correlation gets harder and harder to make.
Here's an output per acre. Obviously, if you look at the yields in 1980, there were 84 million acres planted that got 6.6 million bushels of corn. In 2009 just 2 million more acres but 13 million—or, excuse me, 13 billion—bushels of corn planted. And if you look at 2007, 7 million less acres planted and at the same time yielding almost 2 billion—or actually, 200 million—more bushels of corn.
Efficiency indicators—you can look through all this; it's nothing important. The ethical difficulties aside, real-work data continues to disprove indirect land use change.
These are your talking points if you care to use them. We like to point out this one—should get a couple laughs—that all fuels definitely have an indirect and hidden direct greenhouse gas effects whether it's defending our oil supplies or the tar sands in Alberta, the deforestation for Shell pipeline, or deforestation in Ecuador.
The corn crop—obviously the big one to look is the lower right-hand corner. Carry out for those not in the ag. World—1.76 billion bushels of corn from the 2009 corn crop do not have a home. It is not about food and fuel; there's plenty of food, if you will, to go around. 1.76 billion bushels of corn times 56 pounds does not have a market at this point. It's one of the highest in a decade, and it's important to note as people say that, you know, the ethanol industry is using all the corn.
This one on the right-hand side clearly shows the trend line for yield and what I spoke about earlier—in 2022 why you would believe it would be much higher than the 183 utilized in the final rule.
With that—I think I'm only a couple minutes over—I'll turn it back over to Sandra and let Paul take his course.
SANDRA LOI: Great. Thank you, Robert. Thank you so much for that presentation. That was great.
I'm going to go ahead and introduce Paul Argyropoulos. He is a senior policy advisor in the EPA's Office of Transportation and Air Quality. Paul's responsible for providing advice and analysis to the Office Director on a broad range of transportation program issues with a focus on fuels.
He chaired EPA's interagency work group for the National Renewable Fuel Standard Program and implemented under both the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007.
Prior to his current position, Paul spent seven years with Hart Downstream Energy Services serving in a number of positions, including as Executive Director of the International Fuel Quality Center and Director of the U.S. Federal Affairs for Hart Energy Consulting.
And I will go ahead and pass it off to you, Paul.
PAUL ARGYROPOULOS: Well thank you, Sandra. And also thanks to Rob. You covered things very nicely. Obviously, you most certainly have one perspective, and I will try and present EPA's perspective effectively as well on some of these key issues, which you pointed out.
But I think first off to say, we're extremely proud and happy that we have the final rule out. We certainly have done a lot of work here. Our staff has put in tremendous amount of effort onto this. We think we've done an admirable job, and of course we couldn't have done that without many of the key stakeholders out there, including those in the renewable fuels industry and specifically in RFA as well.
So the work and the refinement that has gone on since the proposal has greatly enhanced the final rule, and even though there's a lot of things that are still yet to be done, it will be an evolution. But we have what we believe a very solid program from which to provide certainty and to implement the provisions and the intent as set forth in EISA. So we're happy about that.
And I also just want to let everybody know, while I will do everything to answer questions after this, most certainly, we have an official process here where questions would come into the agency, and we would provide in our frequently asked questions interpretation specific responses to those questions. Those would be the official responses.
So while I'll answer the questions, I most certainly would encourage you to not use them—my responses directly, particularly for compliance purpose. But more directly, submit those to the agency so that we can use our official process for that.
And with that, I'll go ahead and move forward with my presentation. And I'm going to cover it maybe even more quickly since Rob did such an effective job on a lot these key issues.
But I'm going to roll through some of the key changes that EISA put forth, and obviously there are some really high-impact areas, which people would be interested in. I'll talk about some of the key highlights and steal some upfront thunder on what we did in the RFS2 and where we ultimately ended up.
I'll talk specifically about the 2010 standards and how those are applied. And I will also provide some background on the renewable biomass provisions, which again Rob provided some material on that as well.
Talk about some of the key changes. Briefly hit on some of the lifecycle results—again which Rob did an admirable job—and then talk about—a little bit about the impacts because we do need to assess and understand those impacts.
The key changes—well, we have a program in place; it was the RFS1 program, which was implemented under EPAct 2005. And obviously, a lot of changes—one of the keys was increasing it from 7.5 billion gallons to 36 billion gallons. It also extended the timeline from 2012 out to 2022. It expanded coverage to include not just gasoline but also gasoline on road, off road, and on-road and off-road diesel.
And really of high interest and importance is the fact that we had a—one renewable fuel standard for compliance purposes under EPAct, and now this EISA set forth four separate categories, and I'll get into details on what those are later.
And there's a number of things that ultimately provide the distinction for what qualifies you for those categories, including a lifecycle assessment as well as some other definitional requirements set forth in the act.
The biomass restrictions—what it basically did was it restricted the types of feedstocks that can be used. And in some cases actually, the amount of volume that could come from specific feedstocks, including corn starch and also the types of land that it can be used to grow and harvest on. And I'll talk a little about that as well.
And recognizing that in some ways some of these things particularly, the cellulosic provisions were of a stretch goal type nature, and there is greater uncertainty around there. Congress also provided some waivers for us.
But at the same time, some ways for us to address some of that uncertainty and still encourage market development. And in particularly what we have as cellulosic credits, which would be purchased from EPA if the actual wet gallons or RINs are not available in the market. So those are some of the key changes that EISA put forth.
Well, what did we do in the final rule? This is where I'm stealing my own thunder. We indeed set the full 2010 volume standards. We put forth a program that allows for an effective transition from RFS1 to RFS2.
The actual RFS2 regulations will go into effect in July even though we are setting the full 2010 standards. And I'll talk a little bit about how that is going to happen and how the transition will be handled.
We of course have these new categories, so we have separate standards where the obligated parties must individually comply with these new requirements. And I'll show you what the volumes are as well as what the percentages—how we turned those into a percentage in the next few slides as well. This slide indicates what those specific standards are for each of the categories on a volumetric basis.
And also just to let everybody know—and as Rob had also pointed out that what we've done between the proposal and final—tremendous amount of work. But what it has demonstrated even under what Rob had indicated a more constraining type view using a 0% discount rate and a 30-year timeline for evaluation, these fuels are demonstrating to significantly reduce greenhouse gas emissions and meet the standards. And we'll talk a little bit about detail of that as well.
The rule also set a more efficient pathway for evaluating these things and also for addressing feedstocks that we had not yet had an opportunity to evaluate, and I'll give you details on that as well.
And one thing, which Rob had talked about, was maintaining the RFS energy-based approach. And again we established that based on some language that was actually in EPAct in recognizing the value—the energy value, for instance, specifically for biomass-based diesel or at that time, which was just referred to as biodiesel in displacing the imported crude product, and we ultimately maintain that.
We expected that Congress knew about the program and also would have made modifications. Even though they did select direct volume standards for each of these categories, they did not change the approach that we had put forth under the EPAct program.
Okay. So what are the four standards again? I'm just going to breeze through these. We've got biomass-based diesel—it must meet a 50% reduction in greenhouse gas emissions compared to an EISA legislatively established 2005 baseline; cellulosic biofuels—60%; other non-cellulosic advanced fuels—50% reduction; and then all the other fuels—total renewable fuels—sometimes people refer to them as conventional biofuels—has a minimum of 15 billion gallons additionally and the application of a 20% lifecycle greenhouse gas reduction. And again we have some grandfathering provisions, which I'll talk a little bit about in more detail on a subsequent slide.
The program and the way it's set up—there are nested standards, and this is my attempt of showing what "nested standards" really means. If you look at the advanced biofuel categories there, referenced as "nested standards," you have biomass-based diesel, non-cellulosic advanced, and cellulosic advanced.
If you add those categories together they will equal the green category for total advanced. If you then look at the conventional or other renewable fuel category in the far left shaded in yellow—if you add that column to the total advanced column, you will then get the total renewable fuel column values.
These are the standards as set forth in EISA. They aren't necessarily what we would be setting in the future. We have the requirement and the discretion to set the standards and, excuse me, again also based on market evaluation, for instance, of the cellulosic biofuel requirements. So that's how they are ultimately nested. And I'll show you and demonstrate later on how these particular products can be used in multiple categories.
And again, the energy equivalence volume basis—what we did was we set the value based on—and if you look at it from a volumetric perspective—ethanol, one gallon of ethanol equals one RIN or one credit.
In displacing petroleum, if you look at the value of these other products, they have higher density—energy density value. Those based on whatever the calculation and the formula that we have is would then make a determination of the actual RIN value that they would be able to attain as well.
These values are what are used under EPAct for the overall renewable volume-obligation requirements. So you total them up based on these values at the end, and then you ultimately demonstrate compliance.
And now most certainly you will look at these based on what you're using them for and in what category. And then of course depending upon the product and the fuel pathway evaluated they also must meet both definitional requirements for the feedstock as well as requirements for meeting greenhouse gas life emissions reductions—threshold reductions. And then you would still use these values as well.
So the 2010 standards—again, full standards implemented—12.95 even though we're basically having the rule become effective July 1, we think it's the most straightforward way to interpret the act and to really provide the market certainty with what Congress intended.
We also as we had done in 2008 and then indicated in our proposal last year in setting the 2010 standard for biomass-based diesel, we're combining the 2009—since we didn't have standards last year in place to regulate this—and the 2010 standard for a combined 1.15-billion-gallon requirement. So it's 2009, 2010 added together.
Now there's a number of ways that the obligated parties can use these RINs for compliance purposes, and it's stated here. It's not quite as simple as stated here, but generally speaking, this allows—it was to incentivize 2009 blending. It's also to allow obligated parties to meet this combined standard in 2010.
The cellulosic standard—while we had proposed last year that we maintain the 100-million-gallon requirement as set forth in EISA, the reality of what we determined based on our updated market analysis for what we expect might be available in conventional and commercial application this year, looking at EIA and a lot of other detailed information, including talking with individual cellulosic producers, we established a standard of 6.5 million gallons.
We're also required to make EPA allowances available based on the formula in the act. Should these credits not be available in the market, then the obligated parties can come to the agency based on this formula and also purchase these credits for compliance purposes. They could also carry a deficit forward. There's lot of bells and whistles and flexibility built in this program to allow the market to basically maneuver itself in the most effective and efficient way.
And we did have the authority to reduce the total advance standard; however, we chose not to do that. The total advance for this year is 0.95 billion gallons. And we expect, because of the biomass-based diesel category and compliance in that category and the energy value, that you can make the 0.95-billion-gallons standard up. So therefore, we did not reduce the total advance standard.
This slide basically shows the volumetric standards for 2010 and also then turned into a percentage. This is what we do for the obligated parties. And each one of these obligated parties must show compliance based on the, you know, blending or the accumulation of these credits at the end of the compliance year that they have met these standards—obviously with some other flexibilities allowed in the details of the program.
Well, how are we transitioning from RFS to RFS2? It would happen whether we started January 1 or April 1 or whenever else, so you'll have these RINs or these codes out there. We maintained these codes that we had under RFS1 with changes in actually what the codes mean.
But you will have this anyway, and so we've devised this process and this method to be able to accept the volumes under RFS1 and count them towards the RFS2 standard.
The last bullet there shows that the RR codes—for instance, it's a code within this 38-digit RIN number—what they mean under RFS1 and then how they could be used for accounting purposes under RFS2.
Renewable biomass provisions—again, this was touched on by Rob. Needless to say, we did a lot of work on this working very closely with USDA and collecting data. We looked at the trends. There has been a contraction in the amount of land that's being used to produce agricultural products.
The aggregate compliance approach only applies to agricultural products in this country, and it only applies to domestic agricultural feedstocks that will be used in this country.
And what we've done is we've established the baseline. It accounts for our interpretation of what Congress wanted the renewable biomass definition to apply to. We've allowed the baseline to include the CRP land—approved CRP land out there as part of the baseline. And our expectation is that given the trends that we've seen, this is the most effective way to manage this particular part of the definition for the time being.
And again, Rob had talked about if you exceed the baseline, then you would need to implement these record-keeping and reporting requirements that do apply under the non-ag. sector.
So those other feedstocks such as woody biomass and other products in the non-ag. sector where they are going to need to be tracked back to the feedstock source, the type of feedstocks, the volume of the feedstocks—and the renewable fuel producers would be required to maintain records of those to demonstrate that indeed they have met the definition of renewable biomass.
We allow a number of different approaches. One is to do this individually; the other is for the industry to get together and put together a consortium, submit the program to EPA for approval—and then they would be allowed to accept feedstocks under this consortium approach approved by EPA for participation and production of the renewable fuels based on that consortium.
We also allow this to—the aggregate approach to be considered and verified for other international countries. And I know Canada is interested in doing this in the agricultural sector—there may be others as well. So we—obviously, we needed to try and treat things as fairly as we could, but we still need the type of verification based on data, et cetera, that we did to make this determination in the U.S.
Grandfathering—Rob touched on this as well. Basically, facilities that were in production or under construction prior to enactment—all their volumes, regardless of what they were doing at the time, what energy source, whether it was coal or not—whatever process they were using is allowed to be used for compliance purposes in RFS2.
Facilities in 2008 and 2009 that commenced construction—they also, if they're using natural gas or biomass or a combination thereof—they're deemed to be in compliance with this program and meeting the 20%.
And of course the good news is that these new facilities also coming online after these grandfathering, as long as they choose one of the pathways and the technologies that these pathways have for meeting the minimum threshold requirement—they also would be able to generate RINs for use for compliance in this purposes.
Real quickly here on this—this just shows from the nested-standards perspective and how you could use RFS1 RINs to make a determination for RFS2. For instance, the renewable biomass—well, the renewable diesel RINs and/or the biomass-based diesel RINs under RFS2—you would look at what was produced under RFS1, the specific RR code that it has, and then you could verify that it was biodiesel and, therefore, can use it for compliance purposes under RFS2.
But I think the interesting thing here is that the second chart—and that shows you that the RVO is the renewable volume obligation, and for each of these obligations as we showed earlier, there are restrictions. These codes show which products—or which products, which have these codes, can be used for compliance under these particular categories.
And if you'll notice, all of the products for renewable fuel that have "G" codes of three, four, five, six, or seven could be used in that general renewable fuel compliance category. For advanced biofuels, it would be categories three, four, five, and seven.
And then as you move up to cellulosic, the restriction is it must be cellulosic by definition, and it must be 60% by requirement and evaluation. So therefore, you only have two products—well, two codes, I should say—multiple products obviously could potentially meet these standards, which could be used by these obligated parties for compliance purposes.
We have lots of other changes. I'm not going to get into this, but needless to say that we've got a new program, which accounts for the RINs. It verifies the RINs in a much more effective and timely manner than it has in the past under the RFS1 program, and that's a critical component moving forward. Everybody supported that.
The lifecycle things—again, Rob had touched a lot on these things as well. We did a lot of work. The modeling—again, you can dispute the results and things, but we took into account a lot of the uncertainty. We addressed that uncertainty in our evaluation. We used that in how we aggregated the—and made the compliance determinations, and that's why we ended up with these results.
And again, we had a higher level of number of years of satellite data available to us. We had much higher resolution. We had much broader country coverage of the types, and the resolution of the satellite data shows us not only where the land was but also more specifically the type—what conversion was going on.
And in addition to that, we had much better data on the actual greenhouse gas profiles of the different types of land, so that was a critical component as well.
And again we did a lot of these things and understanding the sensitivities of this and narrowing the uncertainty to a great extent by all this new data that we did have. We talked about the price in due yields effects and the impacts that we have there.
Of course, the yields was another one. We had a different baseline yield. We used our—basically our high yield as the baseline from the NPRMs. In the final, we used our high-yield scenario from the NPRM, and that became our baseline. And that's based on the fact that USDA said, "Well, we actually were using a conservative effort."
We did do some high-yield scenarios, and obviously, that would have an impact on the amount of indirect land use and potentially other factors as well that could impact the greenhouse gas profile of these things.
It doesn't stop now, but we do have a point in time from which to move forward, and this will continue to evolve, and we'll continue to do evaluations of new feedstocks in the future, new process technologies. So it will be important that this work continues.
This just shows here again that, you know, these products are meeting the standards. This doesn't give the specifics of what the analysis shows, but it shows that these particular products, which are deemed to be the primary commercialized products at least in the near-term that are going to be out there used for compliance purposes.
And we applied these things to—for instance, even though we really focused on Brazilian ethanol because that is where sugar cane-based ethanol—that's where the biggest amount of volume of the products expected to come from right now—but we are applying those same results to sugar cane produced here in the U.S. or in other areas.
Same thing with biomass-based diesel and from soy. We looked at the U.S. because that's primarily where we expect the soy-based feedstocks to come from here in the U.S., and we're applying those same results to other international markets producers as well.
And we will be looking at extending our fuel pathway analysis to cover others. For instance, sorghum and palm oil and woody pulp to ethanol—those pathways are already undergoing analysis, and they will be issued in a supplemental later on this year as part of this final rulemaking.
So again, this gets into some of the details there and recognizing we haven't modeled all the paths. There's a great interest in new pathway evaluations. We're going to be continuing to look at our methodology, have it checked with the National Acad of Sciences and others. And again those are processes for initiating these evaluations are already underway. We obviously can't do this on a yearly basis, but we expect to do this on a very regular basis to every extent possible, and I think at least every three years.
The impacts—I won't go into this, but needless to say, if you look at it, there are significant benefits, reducing petroleum consumption 7% across the entire annual gasoline and diesel in 2022. And again, all these analyses are done in 2022 when the program's fully implemented. It is based on a full implementation.
These greenhouse gas reductions are significant; there are significant values for the agricultural sector, and there are also some emissions and air quality impacts. Some emissions go down; others go up, but we have to conduct an evaluation based on the expanded use of renewables as part of Section 209 of EISA as well.
If you've got questions—specific questions—this is where you would go. You could look at our Web site—lots of information and again the e-mail address to send the details to.
And with that, I appreciate everybody's time and information. SANDRA LOI: Thank you, Paul. That was really great—very thorough. And thank you both. I want to go ahead and open up the lines for questions.
COORDINATOR: At this time, if you would like to ask a question, please press star one on your phone. Please unmute your phone and record your name clearly when prompted. Your name is required to introduce your question. To withdraw your request, you may press star two. Once again, it's star one if you would like to ask a question. One moment please.
And our first question comes from (Maggie Kelman). Your line is open.
(MAGGIE KELMAN): Hi. This question is for Robert White. I wondered, Robert, if you can talk a little bit about your expectations on how RFS2 will impact retailers. Do you know yet? Is it too early to say?
ROBERT WHITE: Well, it depends on obviously how integrated they are into the system. The mid-level folks that we normally call the "jobbers," this could be a very, very good thing for them. And in most cases, it allows them to be in the RIN process that would actually be the blenders, and they would have the ownership of the RINs to then sell back to the obligated parties.
You know, the folks that come to mind right off the top of my head are the, you know, the Quick Trips, the—perhaps the Murphy Oils, some of the larger players that may have one, two, three thousand stations across the country. If they're the ones blending the ethanol in this case, then they would have the ability to sell those RINs back as the obligated parties need them.
And that's something that has started to get a lot of attention after the final rule was published. And I've talked to several of them since, and they think that's going to be a great incentive for more of them to enter into the E85 or at least the, you know, the blender-pump market simply because of that adding value to their overall position.
(MAGGIE KELMAN): Thanks.
ROBERT WHITE: Sure.
COORDINATOR: Our next question comes from (Sue). Your line is open.
(SUE): Yeah. I understand through the new renewable standards that cellulosic ethanol from federal forest land is excluded. But the next point you made was that, should they develop a consortium approach, then possibly federal forest land could be included. I was wondering if that is true. I'm from southern Oregon, and we have a lot of overstocking of fuels buildup in forests that could be used for cellulosic ethanol.
PAUL ARGYROPOULOS: Okay. Well, yeah. I'll try and clarify that. The reality is there are some allowances for the extraction of biomass from federal forests, but it is restricted—wildfire, et cetera—all the details are in the act.
So feedstocks under those circumstances as allowed for by regulation could be used to produce ethanol or another renewable fuel for use for compliance in this program. However, the biomass restrictions apply, so it really is very specific to what is allowed and what isn't allowed and under what circumstances that that biomass could be used as a feedstock for purposes of this program.
It doesn't mean that there might not be other allowances under other programs for using feedstocks out of federal lands for bioenergy or other bio products. But for purposes of this program, it is restricted.
(SUE): Okay. Thank you.
COORDINATOR: I show no further questions at this time. But once again, if you would like to ask a question, please press star one.
SANDRA LOI: Are there any additional questions, anyone?
ROBERT WHITE: Paul, it must be you. I know I'm not that good.
PAUL ARGYROPOULOS: No, I think it's got to be a combination here.
SANDRA LOI: (Andrea), is there anyone else on the line or…?
COORDINATOR: Yes, we do have a question in the queue from (Amber). Your line is open.
(AMBER PEARSON): Hi, this is (Amber Pearson). This is not a big deal question, but I just wanted to know if these are going to be posted—these presentations?
SANDRA LOI: Yes, the Webinar has been recorded, and the presentations will be posted. I'm hoping in the next two weeks or so maybe—hopefully less than that. But, yes, they will be available, so if you need to reference back or have other folks that couldn't make it today that are interested in looking at the information, it will be posted up on the toolbox. And I'll send out a note to the coordinators to let them know when it's up there.
PAUL ARGYROPOULOS: And also, Sandra, in the meantime…
SANDRA LOI: Yes.
PAUL ARGYROPOULOS: …if someone would like our—at least my presentation—all they have to do is e-mail me, and I'll gladly send it out if they need it before then.
SANDRA LOI: Okay, well, either way. And I have them as well, so if you folks want to come to me as well—any of us, I'm sure, would be happy to send you the presentations in advance. So that'd be great.
If we don't have any more questions, I wanted to just go ahead and thank everyone. And as I said, we will have the recording and the presentations posted up on the Web in the next two weeks or so—hopefully less.
And I believe that the technical response team will also be doing a follow-up question of the month, which will focus on this RFS2 ruling. And again, wanted to thank all the speakers and all those on the line listening in today.
Have a great day.
PAUL ARGYROPOULOS: Thanks, everybody.
ROBERT WHITE: Thank you.
SANDRA LOI: Thank you.
COORDINATOR: That concludes today's conference. Thank you for participating. You may disconnect at this time.