EPA Proposes Renewable Energy Credits for EV Manufacturers

EPA has released a long-awaited proposal for implementing and managing transportation fuel credits from renewable electricity as part of the Renewable Fuel Standard (RFS) program.[1] The program is part of a larger proposed rule establishing (liquid) renewable transportation fuel requirements for upcoming compliance years and making other changes to the program, including revisions to how biogas is treated. EPA’s proposal would allow light-duty electric vehicle (EV) manufacturers to generate tradeable Renewable Identification Numbers from renewable electricity (eRINs) starting in 2024. Notably, only electricity generated from a qualifying renewable biomass feedstock would qualify for eRINs; electricity from solar, wind, and hydropower would not. The agency estimates 600 million eRINs would be generated in 2024 and 1.2 billion in 2025. If finalized as proposed, the eRIN program has the potential to significantly expand the markets for both EVs and renewable biomass and further speed the electrification of ground transportation in the United States.

The Renewable Fuel Standard and Its Historical Treatment of Electricity

The RFS as we currently know it was established by Congress in 2007 as part of the Energy Independence and Security Act (EISA),[2] which amended Section 211(o) of the Clean Air Act. Refiners and importers of gasoline or diesel must show that specified volumes of different types of “renewable fuels” have been blended (introduced) into the fuels that they sell. They do this by generating or acquiring RINs as proof that renewable fuels were blended, then retiring those RINs. Producers of renewable fuels generate RINs by producing a gallon (or gallon equivalent) of renewable fuel, such as ethanol, biodiesel, or, since 2014, renewable compressed natural gas (CNG) or liquified natural gas (LNG). Some refiners and importers are able to achieve compliance by producing and blending their own renewable fuels and retiring the resulting RINs; others must purchase RINs on the market to meet their obligations.

EISA defined renewable fuel as “fuel that is produced from renewable biomass and that is used to replace or reduce the quantity of fossil fuel present in a transportation fuel.”[3] In turn, it defined “renewable biomass” as one of seven categories of feedstocks such as crop residue, tree residue, and animal waste and byproducts.[4] For example, landfills, agricultural digesters, and wastewater treatment plant digesters produce (renewable) biogas which can be refined into CNG and LNG used to power vehicles.[5]

Although EPA issued rules following EISA that provided for pathways for electricity generated from renewable biomass and used as transportation fuel,[6] the agency left out key elements of a fully functional regulatory scheme that precluded it from “registering” parties as eRIN generators. For example, the regulations did not specify (1) how or where the quantity of electricity is measured; (2) how a RIN generator shows that the electricity was used as transportation fuel; (3) how the RIN generator demonstrates that the electricity is not double counted; nor, and most importantly (4) which party is the RIN generator.

It was in this context that EPA included for the first time a comprehensive eRIN framework in its periodic rulemaking setting Renewable Volume Obligations (RVOs) for the coming years.

The Proposal

Applicability

EPA’s eRIN proposal contains several foundational requirements. First, only renewable electricity produced from biogas under an already-approved pathway[7] is eligible under the proposed rule to generate eRINs, though the agency “anticipate[s] promulgating additional eRIN pathways in the future.” Second, only renewable electricity used to power light-duty EVs (both pure battery EVs and plug-in hybrid EVs, based on their battery-only range) are eligible to generate eRINs, because the light-duty EV market is more mature and has more reliable data than other ground transportation markets. Third, with respect to geographic scope, any electricity produced from qualifying biogas and transmitted via an interconnection supplying consumers in the conterminous United States would be eligible to participate in the program, as would otherwise eligible foreign-produced renewable electricity. Finally, EPA proposes to allow eRIN generation starting January 1, 2024 to give participants (and the agency) a measure of lead time.

Structure

For most fuels under the RFS program, it is unnecessary to track the fuel from its points of production to use to show that it was actually used as transportation fuel.[8] Renewable natural gas (RNG) and renewable electricity present problems, however, because their main uses are outside the transportation context and they are commingled with non-renewable gas and electricity during transmission. When EPA introduced pathways for renewable compressed natural gas (CNG) and liquified natural gas (LNG) in 2014, it did so together with a transportation fuel demonstration system relying on accounting protocols, recordkeeping requirements, and requirements for contracts and affidavits attesting that a specific volume of RNG was used only as transportation fuel.[9] Because of the interconnectivity and non-transportation uses of the electrical grid, EPA is proposing a structure reliant on the contractual relationship between a generator and an end-user, similar to the framework used by the RFS program’s current approach to CNG/LNG, as well other renewable electricity programs.

With this in mind, EPA identified the “three core parties” in the eRIN generation/disposition chain as the biogas producers, renewable electricity generators, and original equipment manufacturers (OEMs) that produce light-duty EVs.[10] EPA then “expect[s] that these three parties would share, through contracts outside of EPA’s regulatory regime, the revenue from eRINs.”

The question then becomes which parties or party may generate the eRIN in the first place. In contrast to the much smaller renewable CNG/LNG generation/disposition chain—which allows for any party in the chain to generate RINs—EPA decided here that for administration’s sake, only one party should be able to generate eRINs. Furthermore, EPA proposed that OEMs should be that party, given that (1) OEMs have a substantial stake in the continued growth of the EV market and commensurate charging necessities; (2) there is a relatively small number of OEMs, which facilitates program administration; and (3) OEMs are relatively sophisticated.

How, then, does EPA envision the system working “on the ground?” First, biogas producers would produce biogas under existing biogas-to-electricity pathways. Then, renewable electricity generators would either use biogas directly supplied to their electricity generating units (EGUs) (e.g., a landfill or digester with an onsite EGU) or procure RNG (along with its assigned RIN) from the natural gas commercial pipeline system to generate electricity, while also demonstrating that qualifying renewable fuel was used in the generation.[11] Finally, OEMs generate RINs on a quarterly basis according to the lesser of the amount of (1) electricity used by their fleets (based on individual fleet data, proposed formulas, and prescribed factors, and accounting for line losses and charging efficiencies) and (2) qualifying renewable electricity by a power producer under a bilateral contract that gives the OEM exclusive rights to claim eRINs based on that power generation. Then, obligated parties could purchase the resulting eRINs from the OEMs to comply with their RVOs just as they purchase RINs from other parties under the existing RFS program. Notably, participation in the eRIN program would not “limit or preclude renewable electricity generators from participation in other state or local programs (e.g., California’s Low Carbon Fuel Standard (LCFS), state renewable portfolio standards (RPS), etc.) or to also claim environmental benefits under such other programs.”

Equivalence Value for Renewable Electricity

EISA established target volumes of renewable fuel to be attained in various years but did not prescribe exactly how those gallons should be counted across the range of potential renewable fuel types. For instance, biogas cannot be easily measured in gallons in the same way that liquid renewable fuels can. Thus, EPA established “equivalence values” unique to each biofuel that determine how many RINs can be generated for each physical gallon and how each gallon counts towards meeting the applicable standards. These equivalence values are based on volumetric energy content (a/k/a energy density) scaled to ethanol, the most common biofuel used to meet RFS targets.

Although EPA had defined the equivalence value for renewable electricity in previous rulemakings, the agency is proposing to revise it here to more accurately reflect the overall efficiency of biogas-derived electricity compared to renewable CNG/LNG used to fuel vehicles directly. Essentially, EPA summed up the energy losses between the “points of measurement” for the renewable electricity pathway and the RNG pathway and incorporated those into the proposed electricity equivalence value “to put them on more equitable footing.” Using this process, EPA proposed that 6.5 kWh of electricity amounts to one eRIN, which would replace the current 22.6 kWh per eRIN, much to the delight of eRIN generators. The agency considered alternative values here, and also pointed out that its proposed value was close to the value suggested by a prominent clean transportation advocacy group and the corresponding value used by California’s LCFS program.

Registration, Reporting, and Recordkeeping

As it does with renewable fuel producers, EPA is proposing that biogas producers, renewable electricity generators, eRIN generators, and RNG producers register with EPA prior to participation in the RFS program. With registration, producers would submit information like feedstocks and processes used and baseline production volumes, and OEMs would submit information around anticipated light-duty EV fleet size and disposition. Finally, biogas producers, renewable electricity generators, and OEMs also would have to affirmatively “associate with” one another as part of their registrations, in order to track relationships between parties and facilitate the functionality of EPA’s RIN transaction tool. EPA is also proposing to establish various reporting, product transfer, recordkeeping, attestation, and testing and measurement requirements. Additionally, as the program matures, the role of proposed eRIN compliance and enforcement provisions modeled after existing RFS provisions will become more prominent.

Call for Public Comment

As part of the rulemaking, EPA is requesting comment on “all aspects” of its eRIN proposal. The agency is seeking input on its preferred alternative as well as alternative approaches that vary in many respects. It specifically asks for input on (1) which party (or parties) is eligible or allowed to generate the eRIN; (2) which parties should be regulated as part of the generation/disposition chain for the eRIN; (3) what types of data are used and required as a basis for generating the eRIN; and (4) how compliance with statutory and regulatory requirements is assured. EPA is also requesting comment on its substantially revised equivalency value for renewable electricity. OEMs in the medium- and heavy-duty EV markets should consider providing comments on how an eRIN program should look in that space. Market participants in Canada, Mexico, and Hawaii may want to comment on the geographic scope of the proposal. Finally, EPA noted the program’s proposed 2024 start date may be overly ambitious; interested parties may want to give feedback on this timing, considering how long they expect getting contracts, production, and/or generation into place may take.

Comments must be received by February 10, 2023, absent an extension. EPA also said it will hold a virtual public hearing on the proposal on January 10.[12]

If you are interested in learning more about the new eRIN program or in submitting comments, please contact Jack Lyman.