Though a source of confusion for some, and admittedly complex, the Renewable Fuels Standard uses a combination of Renewable Identification Numbers and Renewable Volume Obligations for proper implementation.
The system involves consumers, blenders and now traders on the open market, but it all stems from the RFS.
According to the Energy Information Association, the RFS, a regulation that mandates certain amounts of biofuels must enter the petroleum-based fuel market, was first implemented in 2005 and revised in 2007.
Currently, the regulation calls for blending of 36 billion gallons of renewable fuels into the fuel supply by 2022, and EIA says this is where RVOs come in.
First, the volumes for the four RFS categories – cellulosic, biodiesel, advanced and total – are assigned to refiners and importers of gasoline and diesel using RVO percentages. RVOs are calculated by dividing each RFS target by the total estimated supply of non-renewables in the fuel supply.
Targets for 2013 are cellulosic, 0.0008%; ethanol equivalent for biodiesel, 1.12%; advanced biofuels, 1.6%, and total, 9.63%.
Once obligated parties have been assigned targets, they must account for their obligations by surrendering RINs – a 38-character number assigned to each gallon of renewable fuel produced or imported – within 60 days of the end of the year.
The confusion arises with the stipulation that RINs don't have to be used the year they are generated. Up to 20% of a year's RFS mandate can be met with RINs generated the year before.
Further, when renewables are blended or sold as 100% biofuels, RINs are separated from the physical biofuel and can be used to comply with the year's mandate or traded to other parties for their compliance.