EPA’s Decision to Remove Proposed EV Volumes from Biofuel Blending Rule

The Environmental Protection Agency’s (EPA) decision to exclude electric vehicle (EV) makers from the Renewable Fuels Standard (RFS) has created quite a stir in the industry. While EV makers like Tesla have gained government incentives, this recent blow has left some wondering what it means for the future of electric cars. In this blog post, we’ll take a closer look at the EPA’s decision and its impact on the EV industry.

The Renewable Fuels Standard is a federal law that requires a certain volume of renewable fuel to be blended into transportation fuel each year. The law was introduced to reduce greenhouse gas emissions from the transportation sector and promote energy independence. However, the EPA’s recent decision to exclude EV makers from the RFS has raised concerns about the agency’s commitment to reducing emissions and supporting clean energy.

The main issue with the EPA’s decision is that electric cars offer a way to reduce transportation emissions without relying on biofuels. Biofuels like ethanol and biodiesel have been controversial due to their impact on food prices, land use, and greenhouse gas emissions. Electric cars, on the other hand, run on clean electricity and emit no tailpipe emissions. By excluding EV makers from the RFS, the EPA is effectively promoting biofuels over electric cars, which could slow down the transition to a cleaner transportation system.

EV makers were slated to get so called D3 RINs. D3 is for certain types of biofuels. The designation matters because different RINs cost different amounts. A D3 RIN cost roughly $3 in 2022, so the EV industry was looking at a $3 billion boost. Since Tesla is about 65% of the EV industry, it was looking at $2 billion in pure profit for doing nothing more than selling EVs, an amount equal to about 15% to 20% of estimated 2023 operating profit.  

What is a RIN or Renewable Identification Numbers

RINs are unique serial numbers designated to batches of biofuels or other renewable fuels that have undergone production, commercialization, and acquisition credits. RINs are regulated by the Environmental Protection Agency (EPA) under the Renewable Fuel Standard (RFS) program. The EPA assigns RINs to producers of biofuels, and these RINs are used to track the production and usage of renewable fuels. Similar to a VIN (Vehicle Identification Number) on a car, a RIN is assigned to a particular batch of renewable fuel and will follow that batch through its entire pathway – from production to use.

One RIN is assigned for every gallon of biofuel produced, and this RIN can be traded and can help petroleum refiners, blenders, and importers meet their annual biofuel targets – as set by the Renewable Fuel Standard. For instance, if a petroleum refiner produces gasoline consisting of 10% of ethanol, they can purchase a corresponding amount of RINs to demonstrate that they have met the required 10% standard. As such, the RIN acts as a sort of transaction currency, facilitating the trading and tracking of renewable fuels.

Low Carbon Fuel Standard Credits and Tesla

The transportation sector is the largest emitter of greenhouse gases in the United States, accounting for nearly 30% of total emissions. To combat this, a Low Carbon Fuel Standard (LCFS) has been put in place to incentivize the use of clean fuels, such as electricity, hydrogen, and biofuels. This standard has given rise to Low Carbon Fuel Standard Credits, which can be earned by producing or using clean fuels to offset emissions from traditional petroleum-based fuels. Tesla, with its all-electric cars, has become a major player in the LCFS market, earning hundreds of millions of dollars in credits every year.

What are Low Carbon Fuel Standard Credits?

Low Carbon Fuel Standard Credits are a way to incentivize the use of clean fuels in the transportation sector. The LCFS requires fuel producers and importers to gradually reduce the average carbon intensity of their fuels over time. To offset emissions from traditional petroleum-based fuels, the LCFS allows companies to earn credits by producing or using clean fuels. These credits can be traded in a market-based system, allowing companies that exceed their required reductions to sell credits to companies that fall short. This creates a financial incentive for companies to develop and use clean fuels.

How does Tesla earn Low Carbon Fuel Standard Credits?

Tesla, with its innovative all-electric cars, has become a major player in the LCFS market, earning millions of dollars in credits every year. For every kilowatt-hour of electricity used to charge a Tesla vehicle, the company earns a specified amount of credits based on the carbon intensity of the electricity. This incentivizes Tesla owners to charge their vehicles with renewable energy sources, such as solar panels or wind turbines, and provides a financial benefit to Tesla for helping to reduce carbon emissions.

How much has Tesla earned in LCFS Credits?

Tesla has sold carbon credits to a number of car manufacturers, including Chrysler, as a way for them to comply with the standards. It’s reported that Chrysler bought US$2.4 billion worth of Tesla’s Carbon Credits, accounting for the majority of the company’s sales in years past. It’s unclear who the major buyers were in 2022.

In 2018 Tesla sold $419 million in carbon credits. The big move came in 2020 with $1.58 billion in revenues from the sale of credits. Tesla then stunned the carbon markets with its landmark $679 million credit sales in Q1 of 2022.

In the meantime, electric car advocates are calling for stronger policies to promote the adoption of EVs. One such policy is the federal EV tax credit, which provides up to $7,500 in tax credits for the purchase of a new electric car. The credit has played a significant role in the growth of the EV market, and advocates are urging lawmakers to expand and extend the credit to help make electric cars more affordable and accessible to more people.

The EPA’s decision to exclude EV makers from the Renewable Fuels Standard is a setback for the electric car industry, but it’s not yet a death knell. Electric cars offer a way to reduce greenhouse gas emissions without relying on biofuels, and their adoption is key to a cleaner, more sustainable transportation system. While the EPA’s decision is concerning, there’s still a chance that they could reverse course and include EV makers in the RFS. In the meantime, electric car advocates are calling for stronger policies to promote the adoption of EVs, such as the federal EV tax credit. The future of electric cars may be uncertain, but there’s no doubt that they will continue to play a vital role in reducing emissions and promoting a cleaner, more sustainable future for all.