(May 18, 2010) After I read the original draft Greenhouse Gas (GHG) reporting regulations, I phoned US EPA contacts as well as some staff in Senate and House representatives offices and asked: Given that all major US stationary GHG sources and importers of carbon-based energy and building products are required to report GHGs from biomass use and will eventually be liable for domestic production and the US consumer end use GHGs:

• how will products derived from sustainable biomass be awarded a zero-GHG rating, and

• how will foreign upstream GHGs associated with fossil fuel and biomass-based products be addressed?

Clearly, the existing US domestic GHG reporting rule obliges any US forest stand management operation and wood products plant that discharges 25,000 TCO2e/year or more to report their US production GHGs—not counting carbon stock losses. If the US GHG reporting regulations do not oblige biomass feedstock and finished product importers to account for foreign upstream supply chain GHGs, there is the potential that the US reporting regulation will favour imported biomass at the expense of biomass feedstocks and products that are sustainably produced in the US.

There was a rather amazing concensus among the divergent group I contacted with these questions. In all cases, they referred me to the existing US Renewable Fuel Standard (RFS) as the model that final US GHG regulations will replicate in the future.

The RFS is the regulation that implements the renewable fuel content mandate that is outlined in the 2005 US Energy Security Act and which was further amended in the 2008 Energy Security Act.

The legislation obliges US distributors of gasoline and diesel fuels to demonstrate that the products they sell in the US incorporate increasing percentages of “renewable” content. The legislation leaves it to the EPA to promulgate regulations to implement and enforce this renewable content requirement.

In regards to RFS regulation, the essential components for foreign biomass feedstock and bio-based energy products, in the current regulatory context and then expanded into the GHG regulatory context, are as follows:

• The US EPA authorizes certified biomass feedstock and/or biomass-based fuel suppliers to create “Renewable Identification Numbers” or “RINs”, where one RIN represents one US gallon of certified renewable biomass or biofuel.

• Any biomass and/or biofuel that is shipped with a RIN is deemed to be “renewable”. Any biomass or biofuel that is shipped without a RIN is deemed to be a fossil fuel (does not get a zero-GHG rating at the point of combustion) for purposes of compliance with the existing US Renewable Fuel Standard and—I am told—any future GHG regulations.

• US gasoline and diesel fuel distributors prove compliance with the existing US renewable fuel content requirements by surrendering RINs equal to their legally-binding content targets to the US EPA.

• Existing US GHG reporting regulations oblige US producers and importers of biomass feedstock and biomass-based energy products to report biomass combustion GHGs in the same manner that they report fossil fuel GHGs.

• We are told to anticipate that the default procedure is that all biomass combustion will wear a GHG charge as if it was fossil fuel combustion. Then obligated parties (US biomass feedstock and/or finished product producers and importers) will be permitted to surrender RINs to the US EPA as units of compliance with any future US GHG standard.

So the critical question is: what conditions will Canadian biomass feedstock and finished product exporters need to meet to receive authority from the US EPA to create and ship RINs with their biomass commodity exports?

EPA officials as well as legislation drafters in Senate and House representative offices all respond that the same procedures that are outlined in the RFS regulation will be carried through into all US renewable electricity/portfolio standard and GHG regulation. In other words, the full trade implications of any final US GHG legislation will not be obvious until the EPA finalizes regulations pursuant to that legislation. But it is reasonable to anticipate that those final regulations will reflect existing practice as outlined in the existing RFS.

Read the primary conditions “foreign suppliers” have to meet to gain authorization to ship product with RINs starting on page 109. The regulation outlines separate requirements for “small refiners”, “cellulosic ethanol refiners” and “all other foreign RIN owners”.

In my view, the obligations this existing law imposes on Canadian biomass feedstock and bioenergy suppliers to the US should be deemed entirely unacceptable. They include obliging Canadian producers that are certified to issue RINs to sign a contract stipulating that:

• “any United States Environmental Protection Agency inspector or auditor must be given full, complete and immediate access to conduct inspections and audits of the foreign producer facility…

• “Inspections and audits may be either announced in advance by EPA, or unannounced…

• “Inspections and audits by EPA may include interviewing employees…

• “any documents requested that are related to matters covered by inspections and audits must be provided to an EPA inspector or auditor on request….

• “An agent for service of process located in the District of Columbia shall be named, and service on this agent constitutes service on the foreign producer or any employee of the foreign producer for any action by EPA or otherwise by the United States related to the requirements of this subpart…

• “The forum for any civil or criminal enforcement action related to the provisions of this section for violations of the Clean Air Act or regulations promulgated thereunder shall be governed by the Clean Air Act, including the EPA administrative forum where allowed under the Clean Air Act…

• “The foreign producer, or its agents or employees, will not seek to detain or to impose civil or criminal remedies against EPA inspectors or auditors, whether EPA employees or EPA contractors, for actions performed within the scope of EPA employment related to the provisions of this section…

• “Sovereign immunity. By submitting an application to be an approved foreign producer…or by producing and exporting [feedstocks or finished products with RINs] to the United States under such approval, the foreign producer, and its agents and employees, without exception, become subject to the full operation of the administrative and judicial enforcement powers and provisions of the United States without limitation based on sovereign immunity, with respect to actions instituted against the foreign producer, its agents and employees in any court or other tribunal in the United States for conduct that violates the requirements applicable to the foreign producer under this subpart…

• Bond posting. Any foreign producer shall…post a bond of the amount calculated using the following equation: Bond = G *$ 0.01 Where: Bond = amount of the bond in U.S. dollars. G = The largest volume of [RIN-related products] produced at the foreign producer’s facility and exported to the United States, in gallons, during a single calendar year among the most recent of the following calendar years, up to a maximum of five calendar years:..”

The regulations expressly states:

“Withdrawal or suspension of foreign producer approval. EPA may withdraw or suspend a foreign producer’s approval where any of the following occur:…

(2) A foreign government fails to allow EPA inspections as provided in paragraph (f)(1) of this section.

(3) A foreign producer asserts a claim of, or a right to claim, sovereign immunity in an action to enforce the requirements in this subpart.

(4) A foreign producer fails to pay a civil or criminal penalty that is not satisfied using the foreign producer bond specified in paragraph (g) of this section.”

If/when this existing practise—to date not challenged by any Canadian legislator—is incorporated in US GHG and renewable electricity/portfolio standard regulations, the US EPA will have completely bypassed Canadian legislators and made any major Canadian exporter of carbon-based products directly accountable to the US Congress and subject to US law.

When we are working together to develop an inventory-based methodology for accounting for forest and forest product carbon, I will be trying to ensure that the final methodology will have sufficient environmental integrity to both (1) meet with US standards and (2) support a WTO challenge of the current and anticipated future US EPA dictates that Canadian plants become directly subject to US laws.

For purposes of determining whether a biomass-based product is renewable and its producer will be authorized to issue RINs, the original RFS defines renewable energy that is cellulosic in origin somewhat ambiguously: “derived from any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis, including dedicated energy crops and trees, wood and wood residues, plants, grasses, agricultural residues, fibers, animal wastes and other waste materials, and municipal solid waste…”

This original definition has spawned confusion and numerous disputes in the US market.  This led to significant amendments to the original RFS regulation—but no changes in the conditions that apply to foreign suppliers—and a new law was adopted on March 26, 2010.

I repeat: the above wording exists in existing law and determines how US distributors of gasoline and diesel will comply with existing US renewable fuel standards. The existing law does not, at this time, directly apply to renewable electricity and GHG standards. However, I have received many and frequent assurances from EPA officials and staff of elected Congress persons active on the climate change file that they see no need to develop an entirely separate procedure for demonstrating “renewable” for purposes of generating RINs to establish a zero-GHG charge for biomass used in all future regulated carbon-based products sold in the US.

The new version of the RFS states:

• “This final rule also implements the revised statutory definitions and criteria, most notably the new greenhouse gas emission thresholds for renewable fuels and new limits on renewable biomass feedstocks. This rulemaking marks the first time tha greenhouse gas emission performance is being applied in a regulatory context for a nationwide program…

• “it requires that all renewable fuel be made from feedstocks that meet the new definition of renewable biomass including certain land use restrictions…

• “Parties that intend to generate RINs, own and/or transfer them, or use them for compliance purposes after July 1, 2010 will need to…modify their information technology (IT) systems to accommodate the changes…these changes include…adding a process for verifying that feedstocks meet the renewable biomass definition, and calculating compliance with four standards instead of one…

• “We have established five categories of biofuel feedstock sources…These [include]:…2. Forest material including eligible forest thinnings and solid residue remaining from forest product production…

• “the final renewable biomass recordkeeping and reporting provisions require that individual producers obtain documentation about their feedstocks from their feedstock supplier(s) and take the measures necessary to ensure  they know the source of their feedstocks and can demonstrate to EPA that they have complied with the EISA definition of renewable biomass. Specifically, EPA’s renewable biomass reporting requirements for producers who generate RINs include a certification on renewable fuel production reports that the feedstock used for each renewable fuel batch meets the definition of renewable biomass. Additionally, producers will be required to include with their quarterly reports a summary of the types and volumes of feedstocks used throughout the quarter, as well as maps of the land from which the feedstocks used in the quarter were harvested.

The EISA definition includes:

 

• how will products derived from sustainable biomass be awarded a zero-GHG rating, and

• how will foreign upstream GHGs associated with fossil fuel and biomass-based products be addressed?

Clearly, the existing US domestic GHG reporting rule obliges any US forest stand management operation and wood products plant that discharges 25,000 TCO2e/year or more to report their US production GHGs—not counting carbon stock losses. If the US GHG reporting regulations do not oblige biomass feedstock and finished product importers to account for foreign upstream supply chain GHGs, there is the potential that the US reporting regulation will favour imported biomass at the expense of biomass feedstocks and products that are sustainably produced in the US.

There was a rather amazing concensus among the divergent group I contacted with these questions. In all cases, they referred me to the existing US Renewable Fuel Standard (RFS) as the model that final US GHG regulations will replicate in the future.

The RFS is the regulation that implements the renewable fuel content mandate that is outlined in the 2005 US Energy Security Act and which was further amended in the 2008 Energy Security Act.

The legislation obliges US distributors of gasoline and diesel fuels to demonstrate that the products they sell in the US incorporate increasing percentages of “renewable” content. The legislation leaves it to the EPA to promulgate regulations to implement and enforce this renewable content requirement.

In regards to RFS regulation, the essential components for foreign biomass feedstock and bio-based energy products, in the current regulatory context and then expanded into the GHG regulatory context, are as follows:

• The US EPA authorizes certified biomass feedstock and/or biomass-based fuel suppliers to create “Renewable Identification Numbers” or “RINs”, where one RIN represents one US gallon of certified renewable biomass or biofuel.

• Any biomass and/or biofuel that is shipped with a RIN is deemed to be “renewable”. Any biomass or biofuel that is shipped without a RIN is deemed to be a fossil fuel (does not get a zero-GHG rating at the point of combustion) for purposes of compliance with the existing US Renewable Fuel Standard and—I am told—any future GHG regulations.

• US gasoline and diesel fuel distributors prove compliance with the existing US renewable fuel content requirements by surrendering RINs equal to their legally-binding content targets to the US EPA.

• Existing US GHG reporting regulations oblige US producers and importers of biomass feedstock and biomass-based energy products to report biomass combustion GHGs in the same manner that they report fossil fuel GHGs.

• We are told to anticipate that the default procedure is that all biomass combustion will wear a GHG charge as if it was fossil fuel combustion. Then obligated parties (US biomass feedstock and/or finished product producers and importers) will be permitted to surrender RINs to the US EPA as units of compliance with any future US GHG standard.

So the critical question is: what conditions will Canadian biomass feedstock and finished product exporters need to meet to receive authority from the US EPA to create and ship RINs with their biomass commodity exports?

EPA officials as well as legislation drafters in Senate and House representative offices all respond that the same procedures that are outlined in the RFS regulation will be carried through into all US renewable electricity/portfolio standard and GHG regulation. In other words, the full trade implications of any final US GHG legislation will not be obvious until the EPA finalizes regulations pursuant to that legislation. But it is reasonable to anticipate that those final regulations will reflect existing practice as outlined in the existing RFS.

Read the primary conditions “foreign suppliers” have to meet to gain authorization to ship product with RINs starting on page 109. The regulation outlines separate requirements for “small refiners”, “cellulosic ethanol refiners” and “all other foreign RIN owners”.

In my view, the obligations this existing law imposes on Canadian biomass feedstock and bioenergy suppliers to the US should be deemed entirely unacceptable. They include obliging Canadian producers that are certified to issue RINs to sign a contract stipulating that:

• “any United States Environmental Protection Agency inspector or auditor must be given full, complete and immediate access to conduct inspections and audits of the foreign producer facility…

• “Inspections and audits may be either announced in advance by EPA, or unannounced…

• “Inspections and audits by EPA may include interviewing employees…

• “any documents requested that are related to matters covered by inspections and audits must be provided to an EPA inspector or auditor on request….

• “An agent for service of process located in the District of Columbia shall be named, and service on this agent constitutes service on the foreign producer or any employee of the foreign producer for any action by EPA or otherwise by the United States related to the requirements of this subpart…

• “The forum for any civil or criminal enforcement action related to the provisions of this section for violations of the Clean Air Act or regulations promulgated thereunder shall be governed by the Clean Air Act, including the EPA administrative forum where allowed under the Clean Air Act…

• “The foreign producer, or its agents or employees, will not seek to detain or to impose civil or criminal remedies against EPA inspectors or auditors, whether EPA employees or EPA contractors, for actions performed within the scope of EPA employment related to the provisions of this section…

• “Sovereign immunity. By submitting an application to be an approved foreign producer…or by producing and exporting [feedstocks or finished products with RINs] to the United States under such approval, the foreign producer, and its agents and employees, without exception, become subject to the full operation of the administrative and judicial enforcement powers and provisions of the United States without limitation based on sovereign immunity, with respect to actions instituted against the foreign producer, its agents and employees in any court or other tribunal in the United States for conduct that violates the requirements applicable to the foreign producer under this subpart…

• Bond posting. Any foreign producer shall…post a bond of the amount calculated using the following equation: Bond = G *$ 0.01 Where: Bond = amount of the bond in U.S. dollars. G = The largest volume of [RIN-related products] produced at the foreign producer’s facility and exported to the United States, in gallons, during a single calendar year among the most recent of the following calendar years, up to a maximum of five calendar years:..”

The regulations expressly states:

“Withdrawal or suspension of foreign producer approval. EPA may withdraw or suspend a foreign producer’s approval where any of the following occur:…

(2) A foreign government fails to allow EPA inspections as provided in paragraph (f)(1) of this section.

(3) A foreign producer asserts a claim of, or a right to claim, sovereign immunity in an action to enforce the requirements in this subpart.

(4) A foreign producer fails to pay a civil or criminal penalty that is not satisfied using the foreign producer bond specified in paragraph (g) of this section.”

If/when this existing practise—to date not challenged by any Canadian legislator—is incorporated in US GHG and renewable electricity/portfolio standard regulations, the US EPA will have completely bypassed Canadian legislators and made any major Canadian exporter of carbon-based products directly accountable to the US Congress and subject to US law.

When we are working together to develop an inventory-based methodology for accounting for forest and forest product carbon, I will be trying to ensure that the final methodology will have sufficient environmental integrity to both (1) meet with US standards and (2) support a WTO challenge of the current and anticipated future US EPA dictates that Canadian plants become directly subject to US laws.

For purposes of determining whether a biomass-based product is renewable and its producer will be authorized to issue RINs, the original RFS defines renewable energy that is cellulosic in origin somewhat ambiguously: “derived from any lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis, including dedicated energy crops and trees, wood and wood residues, plants, grasses, agricultural residues, fibers, animal wastes and other waste materials, and municipal solid waste…”

This original definition has spawned confusion and numerous disputes in the US market.  This led to significant amendments to the original RFS regulation—but no changes in the conditions that apply to foreign suppliers—and a new law was adopted on March 26, 2010.

I repeat: the above wording exists in existing law and determines how US distributors of gasoline and diesel will comply with existing US renewable fuel standards. The existing law does not, at this time, directly apply to renewable electricity and GHG standards. However, I have received many and frequent assurances from EPA officials and staff of elected Congress persons active on the climate change file that they see no need to develop an entirely separate procedure for demonstrating “renewable” for purposes of generating RINs to establish a zero-GHG charge for biomass used in all future regulated carbon-based products sold in the US.

The new version of the RFS states:

• “This final rule also implements the revised statutory definitions and criteria, most notably the new greenhouse gas emission thresholds for renewable fuels and new limits on renewable biomass feedstocks. This rulemaking marks the first time tha greenhouse gas emission performance is being applied in a regulatory context for a nationwide program…

• “it requires that all renewable fuel be made from feedstocks that meet the new definition of renewable biomass including certain land use restrictions…

• “Parties that intend to generate RINs, own and/or transfer them, or use them for compliance purposes after July 1, 2010 will need to…modify their information technology (IT) systems to accommodate the changes…these changes include…adding a process for verifying that feedstocks meet the renewable biomass definition, and calculating compliance with four standards instead of one…

• “We have established five categories of biofuel feedstock sources…These [include]:…2. Forest material including eligible forest thinnings and solid residue remaining from forest product production…

• “the final renewable biomass recordkeeping and reporting provisions require that individual producers obtain documentation about their feedstocks from their feedstock supplier(s) and take the measures necessary to ensure  they know the source of their feedstocks and can demonstrate to EPA that they have complied with the EISA definition of renewable biomass. Specifically, EPA’s renewable biomass reporting requirements for producers who generate RINs include a certification on renewable fuel production reports that the feedstock used for each renewable fuel batch meets the definition of renewable biomass. Additionally, producers will be required to include with their quarterly reports a summary of the types and volumes of feedstocks used throughout the quarter, as well as maps of the land from which the feedstocks used in the quarter were harvested.

The EISA definition includes:

• “…Planted trees and tree residue from tree plantations cleared prior to December 19, 2007 and actively managed on that date…

• “Slash and pre-commercial thinnings from non-federal forestlands that are neither old-growth nor listed as critically imperiled or rare…

• “Biomass cleared from the vicinity of buildings and other areas at risk of wildfire.”

• “EPA’s final renewable biomass recordkeeping provisions require renewable fuel producers to maintain sufficient records to support their claims that their feedstocks meet the definition of renewable biomass, including maps or electronic data identifying the boundaries of the land where the feedstocks were produced, documents tracing the feedstocks from the land to the renewable fuel production facility…and for producers using planted trees or tree residue from tree plantations, written records that serve as evidence that the land from which the feedstocks were obtained was cleared prior to December 19, 2007 and actively managed on that date.

Both versions of the US RFS and more background can be downloaded here.

Aldyen Donnelly, May 18, 2010