The U.S. Environmental Protection Agency (“EPA”) is required by Congress each year to set a renewable fuel standard. The EPA recently announced the final 2011 fuel standards for the Renewable Fuels Standard Program (“RFS2”), which became effective July 1, 2010. Ethanol and other renewable fuels must account for at least 13.95 billion gallons of fuel sales in the U.S. in 2011, which is up from the 12.95 billion gallons mandated in 2010. The EPA announcement can be found here.

With RFS2, the EPA is matching mandates to production capacity and thus the completed RFS2 requires the following volumes in four fuel categories: (1) cellulosic biofuels, 6.6 million gallons; (2) biomass-based diesel, 800 million gallons; (3) advanced biofuels, 1.35 billion gallons; and (4) renewable fuels, 13.95 billion gallons. For the total renewable fuels requirement of 13.95 billion gallons, it is expected that 1.35 billion gallons will be from biodiesel, advanced biofuels and cellulosic biofuels, while the remaining 12.6 billion gallons will be from corn ethanol. However, a cap is placed on starch-based biofuels, i.e., corn ethanol, in the completed RFS2. The cap consists of 15 billion gallons.

The volume set for cellulosic biofuels, 6.6 million gallons, was lowered from the original 250 million gallons dictated for 2011 by the 2007 Energy Independence and Security Act passed by Congress; this act also allows the EPA to revise the mandated volumes for each year. The EPA revised downward the volume for cellulosic biofuels based upon limited industry growth and lack of commercial scale availability. However, the number is considered high enough to provide incentive for future growth in the cellulosic biofuels industry but low enough to balance the uncertainty in actual production levels. The EPA further notes five likely plants that will be able to provide the mandated 6.6 million gallons of cellulosic biofuels. These plants are DuPont Danisco, Fiberight, KL Energy Corp, Range Fuels, and KiOR.

Despite revising downward the cellulosic biofuels mandate to 6.6 million gallons, the EPA maintained the 1.35 billion gallons of required advanced biofuels, only one of which is cellulosic biofuels. The EPA expects the difference to be made up by other qualifying biofuels, which may possibly include biofuels from Brazil, renewable diesel, etc. until U.S. biofuels production capacity increases.

Lastly, in the completed RFS2, the EPA indicates it will allow retroactive Renewable Identification Numbers (“RIN”). A RIN is 38-digit code applied to each produced or imported gallon of ethanol in the U.S. It allows the tracking of each gallon of ethanol and essentially serves as a renewable energy credit. The EPA will also allow a means for foreign producers to establish greenhouse gas (“GHG”) characteristics for feedstock and then apply for a waiver of tracking and certification requirements based upon a predictable GHG performance. This already occurs for U.S. sourced material.