In Foley's December 21, 2022 Dashboard Insights post, we examined the U.S. Environmental Protection Agency's (EPA) 2023 renewable fuel standard (RFS) proposal as a potentially transformative change for electric vehicle (EV) manufacturers.
The EPA's RFS proposal would allow oil refiners, who are required to blend renewable fuels into their production or buy equivalent credits (known as RINs), the option to buy such credits directly from EV manufacturers beginning in 2024. Most RINs currently generated under the RFS are for blending liquid fuels such as ethanol made from corn into gasoline, and the EPA is required to publish producer volume obligations for the RFS at regular intervals, by mid-June for 2024, under a consent decree with renewable fuel trade association Growth Energy.
The standards circulated in December introduced a new and long-awaited category of OEM-derived RIN, referred to as an e-RIN, that would be tied to power generated from renewable gas used to charge EVs.
As currently proposed only biofuels based renewable power generation (i.e. landfill gas) would qualify to partner with OEMs to generate e-RINs. E-RINs would generally be allocated directly to automakers (OEMs), which then may be apportioned between different stakeholders (e.g. suppliers, power producers, and renewable gas facilities) by contract. The concept – a central part of President Joe Biden's climate change plan – is intended to incentivize rapid EV and EV-infrastructure adoption.
However, on April 25, 2023, members of the U.S. House of Representatives Committee on Energy and Commerce submitted a comment letter to the EPA raising concerns as to whether the agency was actually authorized to extend e-RIN Generation to OEMs under the Clean Air Act.
The letter asserted that legislation may be necessary to expand RIN production rules beyond persons who "refine, blend, or imports gasoline that contains a quantity of renewable fuel greater than the quantity required", and requested clarification from the Agency on:
- the statutory authorities EPA's rulemaking relies on and plans to study impacts;
- the potential for expanded market opportunities for renewable gas producers and adverse grid impacts; and
- whether or not OEMs would be the only entities permitted to generate e-RINs.
While pro-e-RIN trade groups and pro e-RIN lawmakers quickly submitted their own competing letters the next week urging the EPA to immediately adopt higher RIN volumes as well as the adoption of e-RIN standards, these, too, suggest that a final ruling on e-RINs by mid-June may prove an ambitious goal.
In a May 5th letter submitted by California, Florida and Connecticut congressional lawmakers, proponents stressed both the importance of e-RIN adoption as well as the importance of including "waste-to-energy" producers (such as organic digesters that avoid landfill dumping) in any final RFS rule that creates a pathway for landfill biogas. While this advocacy undoubtedly reflects strong interest in the e-RIN program, it further indicates that the jury is still "out" on the exact form final e-RIN rules may take for light-duty vehicles. At a high level, many stakeholders continue lobbying efforts and advocacy regarding EV-regulation at an aggressive pace, and the industry dynamics remain fast-changing. Industry participants not actively involved with the rulemaking process must wait to see if the EPA will promulgate e-RIN rules by its June 14th deadline, bifurcate its rulemaking to disseminate regulations on e-RINs at a later date, or take an entirely new tack on EV RFS credits due to the push-back.
Rules for medium and heavy-weight vehicles are not expected to be promulgated until rules for light-duty vehicles are complete, but their ultimate form is also expected to play a significant role in the adoption and investment in EVs by consumers and businesses. At the state level, new incentive - such as a recent change under Michigan law to permit municipalities and school districts to use sinking-fund millages in addition to bond-financing for fleet electrification - will continue to influence spending decisions and the pace of EV adoption.
Foley continues to closely monitor regulatory developments at both the state and federal levels relating to EV adoption and electrified mobility. For more information regarding recent auto trends, check out Foley's Automotive Update.
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