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EPA Proposes Rule for Final RFS Implementation

New rule will ensure that in 2007, 3.71% of all gasoline sold or dispensed will be renewable fuels.

Environmental Protection Agency Administrator Steve Johnson signed the EPA rule on implementation of the Renewable Fuels Standard set out in the Energy Policy Act of 2005 Thursday during an EPA signing ceremony.

The default rule aims to implement a provision in the 2005 energy law requiring the EPA to issue regulations to ensure gasoline blended in the United States has a total of 2.78% renewable fuels such as ethanol for the rest of this calendar year. EPA's new proposed rule will ensure that in 2007, 3.71% of all gasoline sold or dispensed will be renewable fuels. Additionally, EPA will release its proposed credit trading and compliance provision elements to the RFS.

The RFS requires minimum volumes of renewable fuels be used in America's motor fuels market annually. The RFS will also allow oil refiners the flexibility to use renewable fuels where it makes the most sense for their company. According to industry projections, the U.S. will consume some 5 billion gallons of ethanol in 2006, well above RFS requirements.

Last year, the EPA issued a default rule that allowed the Renewable Fuels Standard to take effect in January of this year. Given the limited time available to EPA to develop comprehensive rules regulating the RFS, and with the need to provide regulatory certainty for the marketplace for the coming year, EPA issued the limited set of regulations to implement the RFS for 2006. EPA spent most of this year meeting with various stakeholders on how to make a flexible, reliable credit trading program.

The announced rule Thursday now opens up a public comment period. Full RFS implementation is expected early 2007.

The RFS requires oil refiners to use 4 billion gallons of renewable fuels in motor fuel in 2006. The required annual usage increases incrementally until 2012, when oil refiners will be required to use 7.5 billion gallons of renewable fuel. While ethanol will constitute the vast majority of renewable fuel used, other fuels like biodiesel will also qualify under the program.

Additionally, oil refiners will be allowed to accrue credits for blending more ethanol than required that can then be traded or sold to other refiners who have chosen not to blend the required amounts for whatever reason. This provision was critical to securing the final compromise that led to the passage of the RFS.

"EPA has worked diligently with all stakeholders, including the RFA, to create a credit trading mechanism that provides oil refiners the flexibility they need while honoring congressional intent to expand the use of renewable fuels," says Renewable Fuels Association President Bob Dinneen. "We look forward to reviewing this rule in detail and offering comments in the coming weeks. The success of this program is paramount to the future of America's renewable fuels industry and setting our nation on a path toward greater energy independence."

Since EPAct was signed last August, more than 30 ethanol biorefineries have begun construction is states such Oregon, Arizona and Texas. This new construction represents more than 2 billion gallons of new production capacity, some 30,000 new jobs and hundreds of millions of dollars in new economic activity in rural communities across the country.

Currently, 101 ethanol biorefineries nationwide have a capacity to produce more than 4.8 billion gallons annually. Additionally, 44 biorefineries are under construction and 7 are expanding that will add more than 3 billion gallons of capacity when complete.

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