A Conversation with Experts on the US EPA’s Proposed eRIN Pathway

The Bioeconomy Coalition of Minnesota invited electric vehicle and renewable natural gas experts to a coalition meeting to discuss the implications of a newly proposed rule for the Renewable Fuel Standard (RFS). In this post, we’ll summarize the proposed rule and share the coalition meeting discussion with experts from the Alliance for Automotive Innovation and the American Biogas Council.

Key takeaways from the discussion:

• In December 2022, the US Environmental Protection Agency (EPA) proposed a set of modifications to the RFS to bolster and expand the program, including activating a renewable electricity credit generation (eRIN) pathway.
• Under this rule, the eRIN pathway would allow original equipment manufacturers (OEMs) to be credit generators.
• The proposed rule would start on January 1, 2024.

EPA proposes renewable electricity credit generation (eRIN) pathway

In December 2022, the US EPA proposed a set of modifications to the RFS to bolster and expand the program. This latest expansion includes a new rule allowing auto manufacturers to generate credits from renewable electricity produced from qualifying renewable biomass feedstock (i.e., biogas).

Auto manufacturers, biogas producers, and renewable electricity generators stand to benefit from this new rule.

Bioeconomy Coalition of Minnesota supports RFS expansion to incentivize renewable electricity generation

Expanding the RFS to incentivize more renewable electricity generation, including from sources like biogas from anaerobic digestion, is a policy priority for the Bioeconomy Coalition of Minnesota. Such expansion was one of the recommendations of the report, Policy and Regulatory Considerations to Develop Food Waste Digestion to Minnesota, produced by the Great Plains Institute for the Partnership on Waste and Energy.

Rule summary and status: renewable electricity credit generation (eRIN) pathway

The EPA issues annual RFS rules to establish the renewable fuel volumes that oil and gas companies must buy to continue selling gasoline and diesel in the US.

In its most recent proposed rule, the agency established those renewable volumetric obligations for 2023, 2024, and 2025. In addition, the rule included two other modifications to the RFS:

• EPA prescribed that OEMs can generate credits, known as eRINs, by contracting with entities that produce renewable electricity from biogas and use it in electric, light-duty vehicles.
• EPA proposed an improved methodology for counting the RFS credits that would be generated by adding food waste to manure or wastewater biogas systems.

After the proposed rule was published in the Federal Register on December 30, 2022, the EPA held a public hearing in January 2023 and accepted comments through February 10, 2023. The agency will weigh feedback received prior to issuing a final rule. Two years after implementation, there will be an opportunity to review the rule and issue improvements.

eRINs in the Renewable Fuel Standard

RIN stands for renewable identification number, which is the credit generated and traded to comply with the RFS when renewable fuel is produced under the RFS program. Different types of RINs are generated according to different fuel pathways, which account for three components: fuel type, feedstock, and production process. The EPA assigns different D codes, which identify the type of renewable fuel, to the RINs generated by qualified fuel pathways.

Today, eRINs have two EPA-approved pathways: D3 and D5; both are from biogas. (Learn more about the fuel types, feedstocks, and production process requirements corresponding to D3 and D5 RINs on the EPA’s website.)

Most biogas produces D3 RINs, except food waste which generates a D5 RIN that is currently worth 75 percent of the D3 RIN. Consequently, if food waste were added to a D3-generating manure or wastewater biogas system (a common practice for digestors), then the D3 RINs would be devalued to D5 status.

This has meant that biogas producers have not been taking in as much food waste. The proposed rule would allow producers to keep the value of the D3 RINs from digesting manure or wastewater and D5 RINs from the additional food waste-generated biogas.

While the EPA has acknowledged two renewable fuel pathways for renewable electricity generation (pathway Q, which allows for cellulosic biofuel, and pathway T which allows for advanced biofuel), the agency had not previously indicated how participants could generate those credits.

Under this proposed rule, auto manufacturers or OEMs can generate eRINs by determining their vehicles’ electricity consumption and contracting with a renewable energy generator to produce the electricity using qualifying renewable biomass to cover their vehicles’ consumption. This system would allow for the credit from renewable electricity generation to be shared throughout the supply chain.

Experts Weigh in

To better understand the implications of the proposed rule from electric vehicle and renewable natural gas (RNG) experts, we invited the Alliance for Automotive Innovation’s Dan Bowerson and the American Biogas Council’s Patrick Serfass to speak at a recent meeting of the Bioeconomy Coalition of Minnesota.

Q: What is your organization’s perspective on the proposed rule?

Dan: The Alliance for Automotive Innovation (Auto Innovators) is a trade association that represents light-duty vehicle manufacturers, tier-one suppliers such as battery manufacturers, and autonomous vehicle startups. The eRINs pathway has been on our radar for some time, and we have been advocating for the EPA to use this pathway. During the comment period, Auto Innovators expressed concerns with some of the proposed data assumptions, but overall, we see the rule as strengthening the RFS.

Patrick: The American Biogas Council (ABC) is the trade association for the entire biogas industry in the US. The RFS has helped create growth for the industry, and the proposed rule would play a large role in continuing that growth.

The ABC is extremely appreciative that the EPA is finally taking action on the eRIN pathway that has existed for seven years but hasn’t been activated. It will really help to develop biogas projects on small farms and in small towns. At the same time, we’re concerned with the proposed change that the vehicle manufacturers would generate the RIN instead of the existing precedent that the biogas producer generates it. But if the choice is between an eRIN pathway with OEMs as the credit generator or no eRIN pathway, then we support the former.

Ultimately, the proposed rule would continue to support the growth the biogas industry has experienced under the RFS. This increase in revenue would support smaller-scale biogas projects that would not be possible without the proposed rule, and the food waste modification can really help increase food waste recycling in the US and greater renewable energy generation. Together, these two pieces are a real boost for renewable energy and fuels.

The eRIN pathway and this food waste provision offer two good opportunities for the biogas industry if the renewable volumetric obligations (RVOs) are set at the right value. If they are too low, there is the risk of an oversupply of RINs from biogas production and a crash in the value of the RIN. If the RVOs are set too high, then oil and gas companies that need to buy RINs to be compliant could sue the EPA to lower the cost of the RINs because they think EPA required them to buy too many.

Q: OEMs serve as credit generators in state clean transportation standards. The auto industry is used to working with point-of-sale incentives, but partnering with the vehicle user to generate credits over the lifetime of the vehicle is different. How does this function for OEMs?

Dan: In the California Low Carbon Fuel Standard program for residential electric vehicle charging, the electric utility generates the base credits. These credits are received by using a fuel with a lower carbon intensity. An OEM can generate incremental credits for residential electric vehicle (EV) charging by documenting that the electricity used to charge the vehicle is cleaner than the baseline grid (like charging during times of high solar power generation). This requires a contractual relationship with the renewable electricity generator where the parties agree to share the value.

Q: In the proposed eRIN rule, how will the value be shared with the vehicle user?

Dan: The rule will be unique because it applies to new and legacy vehicles, not just new sales. OEMs will enter into contracts with renewable electricity producers, and once the rule is applied on January 1, 2024, OEMs can take credit for eRINs in their existing fleets. The EPA does not have the authority to direct where revenue from the RINs goes, unlike some states who can funnel some of the funds for point-of-sale incentives. However, OEMs will want to make sure that their products are competitive in the market. They will likely find ways to direct revenue back to their customers. This is likely how the rule will play out regarding the vehicle user. The vehicle user may not receive direct payments, but indirect impacts like lower EV prices and incentives are expected.

Q: There is concern from the biogas industry about what the eRIN split will be between the different entities in the supply chain from biogas producer to vehicle. The EPA has made a few pronouncements hinting at what they think the split will be. What do OEMs think the split will be?

Dan: OEMs, biogas producers, and renewable electricity generators are having ongoing conversations about what the split will be. There will be contracts in place to benefit all three parties.

Patrick: With RNG, in the RFS, roughly 85 percent of the RIN revenue goes to the biogas producer, and 15 percent goes to the entity that delivers biogas to the user. At the next level down the chain, the revenue is split 75-25 between the producer and the entity dispensing the fuel. In the end, about 64 percent of the RIN revenue stays with the producer, and 36 percent goes to other entities.

In the proposed biogas to electricity pathway, a few smaller projects are anticipating a 50-50 split between the producer and entity dispensing the fuel. In that case, about 43 percent of the RIN value would go to the producer.

This drop from 64 percent to 42 percent of the revenue going to the biogas producer is why many in the industry are concerned about the OEM generating the RIN in the proposed rule.

Q: The proposed rule to produce electricity from biogas versus making RNG from biogas and injecting it into the pipeline presents opportunities for smaller biogas producers. Will it tip things to benefit electricity or pipeline injection more, or will we see a mix of both types of projects?

Patrick: It depends. Eighty percent of existing biogas projects in the US are already producing electricity, with many needing to renew their power purchasing agreement in the next two years. They would benefit from the proposed rule.

Smaller volume biogas projects that are not being developed right now would benefit greatly from the proposed rule and the ability to generate additional revenue from selling RINs. In general, smaller volume biogas projects are likely to produce electricity because the capital cost is less compared to RNG.

Medium-sized biogas projects will likely have to decide between producing RNG or electricity. There are a few other considerations in addition to the proposed rule that will weigh on that decision, including state clean transportation standards and Inflation Reduction Act tax credits and incentives.

Larger projects will likely stay as RNG production facilities due to familiarity and interest from the voluntary, renewable gas market. There will still be companies that are interested in buying RNG that will continue to support RNG projects.

Q: Do you think states with a clean fuel standard will be looking at encouraging renewable electricity for transportation?

Dan: Yes, we should expect all states with a clean fuel standard to include electricity credit generation. California, Oregon, Washington, and British Columbia all have a clean fuel standard in varying stages of development. We expect several more states to introduce clean fuel standard legislation this year.

Patrick: Yes, most states considering a clean fuel standard policy include renewable electricity for vehicles as an eligible way to participate in the program. And it’s already being used in California’s and Oregon’s existing programs, for example. But we also want state clean fuel standards to incentivize decarbonization of more than just the transportation sector. These policies should also encourage renewable fuel to heat and power buildings.

Conclusion

The proposed eRIN pathway would begin on January 1, 2024, and could be a considerable regulatory incentive for auto manufacturers, biogas producers, and renewable electricity generators. It could also help deploy lower-carbon transportation fuels and reduce transportation-related emissions.

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