The Renewable Fuel Standard (RFS): Compliance and Penalties

Updated June 19, 2015

The Renewable Fuel Standard (RFS): Compliance and Penalties

Background

The Renewable Fuel Standard (RFS) requires that

renewable fuel be blended into the nation’s transportation

fuel supply. However, it does not explicitly require the

production of biofuels. The mandate—based on volume (in

billions of gallons)—increases annually from 9.0 billion

gallons in 2008 to 36.0 billion gallons in 2022 (see Figure

1). Within the overall RFS mandate, there is a smaller

mandate to use advanced biofuels, which include fuels

other than cornstarch ethanol that meet greenhouse gas

emission reduction requirements relative to gasoline. Two

subcategories of the advanced biofuel category specifically

identified in the Energy Independence and Security Act

(EISA; P.L. 110-140) are cellulosic biofuels and biomassbased diesel. The advanced biofuel category also includes

other fuels, such as biogas and butanol. Outside of the

advanced biofuel requirement, the remainder of the RFS

generally is met using ethanol produced from cornstarch.

Responsibility for administering the RFS lies with the U.S.

Environmental Protection Agency (EPA). The agency

approves fuels that are eligible for the RFS, establishes

annual standards for the various categories given certain

conditions (i.e., reducing the volume amounts set in

statute), and ensures industry compliance, among other

things.

Figure 1. Renewable Fuel Standard (RFS) Mandate

(in billions of gallons)

renewable fuel. Every year, EPA sets the annual standard,

in volume and in percentage, for the various renewable fuel

categories. For instance, EPA set the 2013 cellulosic biofuel

standard at 810,185 ethanol-equivalent gallons and

calculated the percentage standard to be 0.0005% of total

U.S. transportation fuel use. The obligated parties—those

that refine or import gasoline or diesel fuel—must submit

credits to EPA indicating they have met their annual

renewable volume obligation to confirm RFS compliance.

This annual obligation is calculated by multiplying the

annual percentage standard announced by EPA by the total

gasoline and diesel sales of the obligated party.

How Is Compliance Measured When the

Amount of Renewable Fuel Required

Does Not Exist?

Compliance necessitates that renewable fuels be supplied at

the levels specified in the annual standard. To date,

compliance has not been an issue for the overall mandate (it

is largely met using cornstarch ethanol). However,

insufficient supplies of cellulosic biofuel have obligated

EPA to lower the cellulosic portion of the RFS each year.

Conventional biofuel, which constituted approximately

83% of the RFS for 2013 (13.8 billion gallons), is being

produced at levels needed to meet the annual standards. In

addition, biomass-based diesel—which constituted close to

8% of the RFS for 2013 (1.28 billion gallons)—has been

produced at the levels needed to meet the annual standards.

Cellulosic biofuels would have constituted nearly 6% of the

RFS for 2013 (1 billion gallons) under the schedule in the

statute.

Cellulosic Biofuel Waiver Credits

Source: Energy Independence and Security Act (EISA; P.L. 110-140),

§202.

Notes: Volume requirements for years following 2022 are to be

determined by the Environmental Protection Agency (EPA) in future

rulemaking.

How Is Compliance Measured?

Annual RFS compliance is accounted for using an EPA

credit system that tracks the movement of renewable fuel

from production (or importation) to the blending stage. The

foundation of the system is the credit—the Renewable

Identification Number (RIN) assigned to each gallon of

Congress gave EPA authority to reduce or waive the

cellulosic biofuel mandate under certain conditions, mainly

if EPA concludes there will be insufficient supply to meet

the level set in statute. EPA reduced the cellulosic biofuel

standard for four consecutive years starting in 2010 and

proposes to do so again for 2014, 2015, and 2016 (see

Table 1). If EPA reduces the cellulosic biofuel mandate,

statute requires it to set the new required volume by

November 30 of the preceding year, and it must issue

cellulosic biofuel waiver credits for obligated parties to

purchase for that compliance year. The per-gallon waiver

credits provided by EPA must equal the reduced cellulosic

biofuel volume requirement set for that year. Obligated

parties can use only the waiver credits to meet their

cellulosic biofuel annual obligation. The cellulosic biofuel

waiver credit price (set in statute) has decreased over time

from $1.56 per credit in 2010 to $0.42 per credit in 2013.

A legal challenge of EPA’s methodology for estimating

actual cellulosic biofuel production volumes led to the 2012

standard being vacated by the court and EPA proposing to

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The Renewable Fuel Standard (RFS): Compliance and Penalties

rescind the 2011 standard. In such cases, EPA has refunded

or proposed to refund the money paid by obligated parties

to purchase cellulosic biofuel waiver credits.

Table 1. RFS Cellulosic Biofuel Requirements,

2008-2016

(in billions of gallons)

Year

Cellulosic

Biofuel (RFS

Mandate)

Cellulosic

Biofuel (EPA

Reduced

Standard)

2008

0

—

2009

0

—

2010

0.1

0.0065

2011

0.25

0.006

2012

0.5

0.0105

2013

1

0.0008

2014

1.75

0.033

2015

3

0.106

2016

4.25

0.206

Source: EISA, §202 and various EPA rulemakings.

Notes: In its latest proposed rule, EPA proposes to rescind the 2011

standard and to reduce the 2014, 2015, and 2016 cellulosic biofuel

mandates to 33, 106, and 206 million ethanol-equivalent gallons,

respectively. The 2012 standard was vacated in response to a legal

challenge.

Penalties

There are penalties for RFS violations. Those subject to a

penalty include any party that violates the RFS, any party

that fails to meet its annual volume obligation, and any

party that causes another party to fail to meet its annual

volume obligation. The actual penalty varies (e.g., civil

penalties can be up to $37,500 per day for each violation,

plus the economic benefit of not complying with the

standards). EPA reports a party could be subject to a civil

penalty “as specified in sections 205 and 211(d) of the

Clean Air Act, for every day of each such violation and the

amount of economic benefit or savings resulting from each

violation.” Thus far, the only penalties issued have been for

parties involved in fraudulent biomass-based diesel RIN

activity.

Why Do Some Stakeholders State That

They Are Being Fined Due to the RFS?

EPA typically associates the term fine with enforcement of

civil or criminal violations of the Clean Air Act, but it more

often uses the term penalty. The complexity of the RFS, the

interrelated aspects of other EPA biofuel efforts (e.g., E15

waiver request), and the fierce protection of market share

by some stakeholders can make it difficult to understand

RFS enforcement. However, an obligated party can incur a

civil penalty only when an RFS violation as described in the

“Penalties” section above occurs. Thus far, the notices of

violations issued by EPA for the RFS have been limited to

relatively few cases.

Certain stakeholders and members of the media have used

the term fine when referring to different aspects of the RFS.

For example, the American Automobile Association (AAA)

stated that the amount of ethanol EPA proposes to be

blended into gasoline for 2014 exceeds what is actually

possible (given infrastructure and market limitations) and

could subject obligated parties to fines. It is possible that a

potential lack of biofuel supply could lead to a lack of

RINs, and obligated parties could potentially face penalties.

However, when this scenario seemed possible for 2014,

EPA proposed lowering the 2014 standard, in part, so that

obligated parties would not violate the RFS. Further, the

American Petroleum Institute (API) has mentioned fine

when referring to cellulosic biofuel waiver credits, which

are an alternative compliance mechanism. API stated that

by being required to purchase cellulosic biofuel waiver

credits, they were paying for a product that does not exist.

Because EPA in some years did not void the cellulosic

biofuels standard, the cellulosic biofuel waiver credit has

become the only compliance mechanism. Obligated parties

do pay a fee to purchase the waiver credits, but doing so

protects them from much larger civil penalties.

Additionally, the waiver credits are likely a significantly

cheaper compliance mechanism than if obligated parties

had to pay for the actual fuel.

What’s Next?

RFS compliance for 2014 can be determined only once

EPA issues the 2014 final rule, which was due November

30, 2013. EPA reports it intends to finalize the standards for

2014, 2015, and 2016 by November 30, 2015.

The RFS is one of several policies about which

stakeholders disagree regarding the policy’s impact on

other stakeholders. For instance, some in the biofuel

industry rarely acknowledge that there is a limit to how

much ethanol can be blended into the nation’s

transportation fuel supply, among other things. Further, the

petroleum industry’s call for reform or repeal of the RFS

could lead to the effective loss of multiple years of financial

and technical support for the biofuel industry from the

government, academia, and the private sector because,

without the RFS, biofuel would not be economically

competitive with gasoline. Thus far, many of the

stakeholders have looked to Congress, the

Administration—specifically the EPA—and the courts to

remedy what they perceive as faults with the RFS,

including cellulosic biofuel waiver credits and penalties.

More Information

For more information, see CRS Report R43325, The

Renewable Fuel Standard (RFS): In Brief; CRS Report

R42824, Analysis of Renewable Identification Numbers

(RINs) in the Renewable Fuel Standard (RFS); CRS Report

R41106, The Renewable Fuel Standard (RFS): Cellulosic

Biofuels; and CRS Report RS22870, Waiver Authority

Under the Renewable Fuel Standard (RFS).

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The Renewable Fuel Standard (RFS): Compliance and Penalties

Kelsi Bracmort, Specialist in Natural Resources and

Energy Policy

IF10121

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