The Renewable Fuels Standard (RFS2) is not achieving its original targets for greater renewable fuel use. Supplies of cellulosic biofuels have been one to two orders of magnitude lower than the RFS2 statutory targets. As a result, U.S. Environmental Protection Agency (EPA) has had to reduce the cellulosic biofuel target almost every year. There have also been shortfalls in other RFS2 biofuel categories. As a result, EPA is proposing to set the 2014 renewable fuel standards at the levels actually produced and used. Furthermore, EPA arrives at its proposed renewable fuel standards for 2015 and 2016 by invoking its two waiver authorities1 to reduce required volumes of not only cellulosic biofuel but also of advanced biofuel and total renewable fuel as well. EPA cites the much lower than expected penetration of E85 (gasoline with up to 85% ethanol by volume) as a key reason for lowering the required RFS2 volumes from those of the original statutes. 

NERA Economic Consulting was retained by Valero Energy Corporation to analyze how requiring refiners to blend renewable fuels has affected the Renewable Fuel Standard (RFS2) program’s ability to achieve its goal of promoting renewable fuel use at minimum cost to consumers. In this report, the NERA team discusses how transferring the obligation for compliance with RFS2 from refiners to producers of finished transportation fuels (blenders) would remove a fundamental flaw in the current implementation of RFS2.