Proposed Change to RVO Calculation Concerns RNG Industry

The Environmental Protection Agency (EPA) is proposing a change in how it calculates the renewable volume obligation (RVO) as it pertains to cellulosic fuel. And many investors in renewable natural gas (RNG) worry that if it passes as it is, it would create an oversupply of product and could disincentivize RNG use for transportation.

The RVO is an assessment, in the form of a draft rule, to set biofuel volumes that parties must purchase for compliance with the Renewable Fuel Standard (RFS), which mandates that a percentage of annual fuel consumption come from renewable fuels, advanced biofuels, and cellulosic biofuels. The latter is a subset of advanced biofuel with the most stringent requirements; it must achieve at least 60 percent greenhouse gas emission reduction.

Cellulosic fuel’s inclusion in the RFS has sparked more projects and driven growth of this commodity.

The proposed change would mean beginning Nov. 30, 2017, gas production data from 2016 would be compared to 2017 data to develop growth rate percentage.

“We [the RNG Coalition] are trying to ensure the final rule does not only consider historic data, but current information reflecting what is happening in the renewable natural gas market,” says David Cox, general counsel for the RNG Coalition. “When you only look at historic data you miss … projects under construction that will produce fuel in 2018.

According to COX, the RNG industry has 32 projects under construction and in development, which represent more than 130 million gallons of additional fuel available for 2018.

“That’s missed by historical market assessments,” says Cox.

Further, the RVO in the draft rule is 238 million ethanol gallon equivalents of gas. Last year’s final rule was 311 million gallons. Pushing the number back neither aligns with growth or Congress’ intent to expand the cellulosic biofuel industry, argues Cox.

Stakeholders believe they stand at risk of an oversupplied market, as what they call an inaccurate RVO would result in more RINS (renewable fuel credits) available than the obligation.

“With an RVO that is less than current production, some will have to find alternate markets, shelve their projects, or risk plummeting prices because of the oversupply of D3 [cellulosic fuel] RINs," says Luke Morrow, president of Morrow Renewables. "This could decimate the D3 market and have a negative impact on D5 [advanced biofuel] prices."

Morrow designs, installs, and operates high-BTU (British thermal unit) landfill gas projects across the U.S. and sells the plants to other operators. The company built two facilities this past year, investing more than $9 million. Morrow currently operates six high-BTU facilities and says it will start a seventh one this fall.

“Having a year-to-year market was already tough for capital planning. Now we are also facing some extreme pricing and uncertainty risks as a result of the draft rule,” he says.

Among stakeholders who recently testified before the EPA, Renewable Fuels Association (RFA) President and CEO Bob Dinneen said:

Trillium CNG provides compressed natural gas, station design, and construction, among services, with multiple projects in the works. Officials from the company believe the proposed RVO short changes actual and potential growth.

“The EPA has sufficient data from industry to use project-specific outlooks, as they have in years past," says Bill Cashmareck, managing director of Trillium CNG. "Projects currently in development, under construction, and in front of the EPA for registration approval should push 2017 total RNG production close to or above what the EPA is proposing for 2018."

Cox believes the EPA’s intent was to simplify the process and increase transparency. The data in the proposed model is public information when, prior, most of it was not. So the RNG Coalition collected affidavits from all U.S. projects to make the data publicly available.

The public comment period ended Aug. 31. The final rule will be released Nov. 30.

“I am optimistic because the industry has stepped up to respond to the EPA’s concerns. We will continue to do that. We still have a lot of work, but we are more organized than we have ever been,” says Cox.