[Federal Register Volume 78, Number 158 (Thursday, August 15, 2013)]
[Rules and Regulations]
[Pages 49794-49830]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-19557]
[[Page 49793]]
Vol. 78
Thursday,
No. 158
August 15, 2013
Part II
Environmental Protection Agency
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40 CFR Part 80
Regulation of Fuels and Fuel Additives: 2013 Renewable Fuel Standards;
Final Rule
Federal Register / Vol. 78, No. 158 / Thursday, August 15, 2013 /
Rules and Regulations
[[Page 49794]]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 80
[EPA-HQ-OAR-2012-0546; FRL-9834-5]
RIN 2060-AR43
Regulation of Fuels and Fuel Additives: 2013 Renewable Fuel
Standards
AGENCY: Environmental Protection Agency (EPA).
ACTION: Final rule.
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SUMMARY: Under section 211(o) of the Clean Air Act, the Environmental
Protection Agency is required to set the renewable fuel percentage
standards each November for the following year. Today's action sets the
annual percentage standards for cellulosic biofuel, biomass-based
diesel, advanced biofuel, and renewable fuels that apply to all motor
vehicle gasoline and diesel produced or imported in the year 2013. In
general the standards are designed to ensure that the applicable
national volumes of renewable fuel specified in the statute are used.
For cellulosic biofuel, the statute specifies that EPA is to project
the volume of production and must base the cellulosic biofuel standard
on that projected volume if it is less than the applicable volume set
forth in the Act. Today EPA is finalizing a cellulosic biofuel volume
for 2013 that is below the applicable volume specified in the Act. EPA
is also leaving the applicable volumes of advanced biofuel and total
renewable fuel at the statutory levels for 2013 based on its assessment
of the availability of renewable fuel for compliance purposes.
DATES: This final rule is effective on August 15, 2013.
ADDRESSES: EPA has established a docket for this action under Docket ID
No. EPA-HQ-OAR-2012-0546. All documents in the docket are listed in the
www.regulations.gov index. Although listed in the index, some
information is not publicly available, e.g., CBI or other information
whose disclosure is restricted by statute. Certain other material, such
as copyrighted material, will be publicly available only in hard copy.
Publicly available docket materials are available either electronically
in www.regulations.gov or in hard copy at the Air and Radiation Docket
and Information Center, EPA/DC, EPA West, Room 3334, 1301 Constitution
Ave. NW., Washington, DC. The Public Reading Room is open from 8:30
a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The
telephone number for the Public Reading Room is (202) 566-1744, and the
telephone number for the Air Docket is (202) 566-1742.
FOR FURTHER INFORMATION CONTACT: Julia MacAllister, Office of
Transportation and Air Quality, Assessment and Standards Division,
Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor, MI
48105; Telephone number: 734-214-4131; Fax number: 734-214-4816; Email
address: [email protected], or the public information line for
the Office of Transportation and Air Quality; telephone number (734)
214-4333; Email address [email protected].
SUPPLEMENTARY INFORMATION:
General Information
Does this action apply to me?
Entities potentially affected by this final rule are those involved
with the production, distribution, and sale of transportation fuels,
including gasoline and diesel fuel or renewable fuels such as ethanol
and biodiesel. Potentially regulated categories include:
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Examples of potentially regulated
Category NAICS \1\ Codes SIC \2\ Codes entities
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Industry................................. 324110 2911 Petroleum Refineries.
Industry................................. 325193 2869 Ethyl alcohol manufacturing.
Industry................................. 325199 2869 Other basic organic chemical
manufacturing.
Industry................................. 424690 5169 Chemical and allied products
merchant wholesalers.
Industry................................. 424710 5171 Petroleum bulk stations and
terminals.
Industry................................. 424720 5172 Petroleum and petroleum products
merchant wholesalers.
Industry................................. 454319 5989 Other fuel dealers.
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\1\ North American Industry Classification System (NAICS).
\2\ Standard Industrial Classification (SIC) system code.
This table is not intended to be exhaustive, but rather provides a
guide for readers regarding entities likely to be regulated by this
final action. This table lists the types of entities that EPA is now
aware could potentially be regulated by this action. Other types of
entities not listed in the table could also be regulated. To determine
whether your activities will be regulated by this action, you should
carefully examine the applicability criteria in 40 CFR part 80. If you
have any questions regarding the applicability of this action to a
particular entity, consult the person listed in the preceding section.
Outline of This Preamble
I. Executive Summary
A. Purpose of This Action
B. Summary of Major Provisions in This Notice
1. Cellulosic Biofuel Volume for 2013
2. Advanced Biofuel and Total Renewable Fuel in 2013
3. Applicable Volumes Used To Set the Annual Percentage
Standards for 2013
4. Applicable Percentage Standard for Cellulosic Biofuel in 2012
5. Administrative Actions
C. Effective Date
D. Impacts of Final Actions
II. Projection of Cellulosic Biofuel Volume for 2013
A. Statutory Requirements
B. Status of the Cellulosic Biofuel Industry
C. Cellulosic Biofuel Volume Assessment for 2013
1. Comments on the Proposed Rule
2. Projections From the Energy Information Administration
3. Current Status of Cellulosic Biofuel Production Facilities
4. Other Potential Sources of Domestic Cellulosic Biofuel
5. Imports of Cellulosic Biofuel
6. Summary of Volume Projections
D. Cellulosic Biofuel Volume for 2013
III. Assessment of Advanced Biofuel and Total Renewable Fuel for
2013
A. Statutory Authorities for Reducing Volumes
1. Cellulosic Waiver Authority
2. General Waiver Authority
3. Modification of Applicable Volumes for 2016 and Beyond
B. Available Volumes of Advanced Biofuel in 2013
1. Biomass-Based Diesel
a. Feedstocks
i. Feedstock Availability
ii. Impacts From Feedstock Use
b. Limitations in the Use of Biodiesel
2. Domestic Production of Advanced Biofuel Other Than Biomass-
Based Diesel and Cellulosic Biofuel
3. Imported Sugarcane Ethanol
a. Brazilian Ethanol Export Capacity
i. Brazilian Sugarcane and Ethanol Production Capacity
ii. Brazilian Domestic Demand for Ethanol
iii. Additional Market Factors
[[Page 49795]]
b. United States-Brazil Ethanol Trade
i. Direct Transportation Emissions
ii. Indirect Emissions
C. Compliance With the Total Renewable Fuel Standard in 2013
D. Final Applicable Volume Requirements for 2013
E. Volume Requirements for 2014
IV. Applicable Percentage Standards for 2013
A. Background
B. Calculation of Standards
1. How are the standards calculated?
2. Small Refineries and Small Refiners
3. Final Standards
V. Annual Administrative Announcements
A. 2013 Price for Cellulosic Biofuel Waiver Credits
B. Assessment of the Domestic Aggregate Compliance Approach
C. Assessment of the Canadian Aggregate Compliance Approach
D. Vacatur of 2012 Cellulosic Biofuel Standard
VI. Comments Outside the Scope of This Rulemaking
VII. Public Participation
VIII. Statutory and Executive Order Reviews
A. Executive Order 12866: Regulatory Planning and Review and
Executive Order 13563: Improving Regulation and Regulatory Review
B. Paperwork Reduction Act
C. Regulatory Flexibility Act
D. Unfunded Mandates Reform Act
E. Executive Order 13132: Federalism
F. Executive Order 13175: Consultation and Coordination With
Indian Tribal Governments
G. Executive Order 13045: Protection of Children From
Environmental Health Risks and Safety Risks
H. Executive Order 13211: Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use
I. National Technology Transfer and Advancement Act
J. Executive Order 12898: Federal Actions To Address
Environmental Justice in Minority Populations and Low-Income
Populations
K. Congressional Review Act
IX. Statutory Authority
I. Executive Summary
The Renewable Fuel Standard (RFS) program began in 2006 pursuant to
the requirements in Clean Air Act (CAA) section 211(o) which were added
through the Energy Policy Act of 2005 (EPAct). The statutory
requirements for the RFS program were subsequently modified through the
Energy Independence and Security Act of 2007 (EISA), resulting in the
publication of major revisions to the regulatory requirements on March
26, 2010.\1\
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\1\ 75 FR 14670
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The national volumes of renewable fuel to be used under the RFS
program each year (absent an adjustment or waiver by EPA) are specified
in CAA section 211(o)(2). The volumes for 2013 are shown in Table I-1.
Table I-1--Required Applicable Volumes in the Clean Air Act for 2013
[Bill gal]
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Cellulosic biofuel............................................ \a\ 1.0
Biomass-based diesel.......................................... \b\
>=1.0
Advanced biofuel.............................................. \a\ 2.75
Renewable fuel................................................ \a\
16.55
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\a\ Ethanol-equivalent volume.
\b\ Actual volume. The ethanol-equivalent volume would be 1.5 if
biodiesel is used to meet this requirement.
Under the RFS program, EPA is required to determine and publish
annual percentage standards for each compliance year by November 30 of
the previous year.\2\ The percentage standards are used by obligated
parties (refiners and importers) to calculate their individual
compliance obligations. The percentage standards are applied to the
volume of gasoline and/or diesel fuel that each obligated party
produces or imports during the specified calendar year to determine the
volumes of renewable fuel that must be used as transportation fuel,
heating oil or qualifying fuel oil, or jet fuel. The percentage
standards are calculated so as to ensure use in transportation fuel of
the national ``applicable volumes'' of four types of biofuel
(cellulosic biofuel, biomass-based diesel, advanced biofuel, and total
renewable fuel) that are either set forth in the Clean Air Act or
established by EPA in accordance with the Act's requirements.
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\2\ The delay in the release of this final rule is addressed in
more detail in Section I.C below.
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The cellulosic biofuel industry is transitioning from research and
development (R&D) and pilot scale to commercial scale facilities,
leading to increases in production capacity. Construction has begun on
several facilities with multiple facilities having progressed to the
start-up phase. Based on information from the Energy Information
Administration (EIA), detailed information from biofuel production
companies and a consideration of various potential uncertainties, as
well as the comments we received on the Notice of Proposed Rulemaking
(NPRM),\3\ we are projecting that 6 million ethanol-equivalent gallons
of cellulosic biofuel will be available in 2013.
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\3\ 78 FR 9282, February 7, 2013.
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We have evaluated the types of advanced biofuels that can be
produced or imported in 2013, including biodiesel, renewable diesel,
biogas, heating oil, sugarcane ethanol, and others. While there is some
uncertainty in the projected availability of advanced biofuel in 2013,
we have determined that volumes to meet the statutory applicable volume
of 2.75 bill gal should be sufficiently available. In addition, the
combination of available volumes of advanced and non-advanced biofuel
\4\ from both domestic and foreign sources, the ability of the
transportation sector to consume some quantity of ethanol in blend
levels higher than E10, and carryover Renewable Identification numbers
(RINs) from 2012 has led us to conclude that the statutory volumes for
both advanced biofuel and total renewable fuel can be met in 2013. As a
result, we are not reducing the national applicable volumes in the
statute for either advanced biofuel or total renewable fuel volume of
16.55 bill gal.
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\4\ Non-advanced is composed primarily of corn ethanol, but may
also include such things as biodiesel produced in facilities that
are grandfathered under Sec. 80.1403.
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A. Purpose of This Action
EPA is today setting annual percentage requirements for obligated
parties for cellulosic biofuel, biomass-based diesel, advanced biofuel,
and total renewable fuel for 2013. Table I.A-1 lists the statutory
provisions and associated criteria relevant to determining the national
applicable volumes used to set the annual percentage standards in
today's final rule.
TABLE I.A-1--Statutory Provisions for Determination of Applicable Volumes
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Criteria provided in statute for determination
Applicable volumes Clean Air Act reference of applicable volume
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Cellulosic biofuel in 2013........... 211(o)(7)(D)(i)........ Required volume must be lesser of volume
specified in CAA 211(o)(2)(B)(i)(III) or EPA's
projected volume.
[[Page 49796]]
Advanced biofuel in 2013............. 211(o)(7)(D)(i)........ If applicable volume of cellulosic biofuel is
reduced to the projected volume, EPA may reduce
advanced biofuel and total renewable fuel by
the same or lesser volume. No other criteria
specified.
Total renewable fuel in 2013......... 211(o)(7)(D)(i)........ If applicable volume of cellulosic biofuel is
reduced to the projected volume, EPA may reduce
advanced biofuel and total renewable fuel by
the same or lesser volume. No other criteria
specified.
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EPA must annually determine the projected volume of cellulosic
biofuel production for the following year. If the projected volume of
cellulosic biofuel production is less than the applicable volume
specified in section 211(o)(2)(B)(i)(III) of the statute, EPA must
lower the applicable volume used to set the annual cellulosic biofuel
percentage standard to the projected volume of production available
during the year. In today's final rule, we present our analysis of
cellulosic biofuel production and final projected volume for 2013. The
analyses that led to the 2013 applicable volume requirement were based
on our evaluation of EIA's projection for 2013, individual producers'
production plans and progress to date, and comments received in
response to the NPRM.
When we lower the applicable volume of cellulosic biofuel below the
volume specified in CAA 211(o)(2)(B)(i)(III), we also have the
authority to reduce the applicable volumes of advanced biofuel and
total renewable fuel by the same or a lesser amount. Today's action
includes our consideration of the 2013 volume requirements for these
biofuels.
In today's final rule we have also set the annual percentage
standards (shown in Section I.B.3 below) that will apply to all
producers and importers of gasoline and diesel in 2013. The percentage
standards are based on the 2013 applicable volumes for the four types
of renewable fuel and a projection of volumes of gasoline and diesel
consumption in 2013 from the Energy Information Administration (EIA).
B. Summary of Major Provisions in This Notice
1. Cellulosic Biofuel Volume for 2013
The cellulosic biofuel industry in the United States continues to
make advances in its progress towards large scale commercial
production. Ongoing research and development work has resulted in
increasing product yields, while at the same time lowering enzyme and
catalyst costs. New supply chains have been developed, and several
companies have reached contract agreements to provide the necessary
feedstock for large scale cellulosic biofuel production facilities.
Companies are continuing to invest significant sums of money to further
refine cellulosic biofuel production technology and to construct the
first commercial scale facilities. From 2007 through the second quarter
of 2012 over $3.4 billion was invested in advanced biofuel production
companies by venture capitalists alone.\5\ For more information on the
current status of the cellulosic biofuel industry in the United States
and the advances being made, see Section II.B.
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\5\ Solecki M, Dougherty A, Epstein B. Advanced Biofuel Market
Report 2012: Meeting U.S. Fuel Standards. Environmental
Entrepreneurs. September 6, 2012. Available Online http://www.e2.org/ext/doc/E2AdvancedBiofuelMarketReport2012.pdf.
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2013 is also expected to be a year of transition for the cellulosic
biofuel industry, as several companies are shifting their focus from
technology development to commercialization. This transition began in
2012 with the production of the first cellulosic RINs under the current
regulations and the completion of construction at commercial scale
production facilities from INEOS Bio and KiOR. KiOR announced the
shipment of the first renewable transportation fuel produced from their
Columbus, MS facility on March 18, 2013. INEOS Bio is expected to begin
producing fuel from their Vero Beach, FL facility in the summer of
2013. Abengoa, one of the largest producers of ethanol in the United
States, is planning to begin producing cellulosic ethanol at commercial
scale later in 2013 or early 2014. Several others companies, including
DuPont and Poet, expect to be constructing their first commercial scale
facilities in 2013, with the intention of beginning production in 2014.
If these facilities are able to operate as anticipated, it would
represent significant further progress in the commercial viability of
cellulosic biofuel production.
As part of estimating the volume of cellulosic biofuel that would
be made available in the U.S. in 2013, we researched all potential
production sources by company and facility. This included sources that
were still in the planning stages, those that were under construction,
and those that are already producing some volume of cellulosic ethanol,
cellulosic diesel, or some other type of cellulosic biofuel. Facilities
primarily focused on research and development were not the focus of our
assessment as production from these facilities represents very small
volumes of cellulosic biofuel, and these facilities typically have not
generated RINs for the fuel they have already produced. From this
universe of potential cellulosic biofuel sources we identified the
subset that could be producing commercial volumes of qualifying
cellulosic biofuel for use in 2013. To arrive at a projected volume for
each facility, we took into consideration EIA's projections and factors
such as the current and expected state of funding, the status of the
technology utilized, progress towards construction and production
goals, and other significant factors that could potentially impact fuel
production or the ability of the produced fuel to qualify for
cellulosic biofuel Renewable Identification Numbers (RINs) in 2013.
Further discussion of these factors can be found in Section II.B.
In our assessment we focused on domestic sources of cellulosic
biofuel. At the time of this final rule no internationally-based
cellulosic biofuel production facilities have registered under the RFS
program and therefore no volume from international producers has been
included in our projections for 2013. Of the domestic sources, we
estimated that up to four facilities may produce commercial scale
volumes of cellulosic biofuel available for use as renewable fuel in
the U.S. in 2013. Two of these four facilities have made sufficient
progress to project that commercial scale production from these two
facilities will occur in 2013, and we have therefore included
production from them in our projected available volume for 2013. All
four facilities are listed in Table I.B.1-1 along with our estimate of
the projected 2013 volume for each.
[[Page 49797]]
Table I.B.1-1--EPA Projected Available Cellulosic Biofuel Plant Volumes for 2013
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Projected 2013
Company Location Fuel type Capacity (mill First available
gal per year) production volume \a\
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Abengoa...................... Hugoton, KS.... Ethanol........ 24 1Q 2014 \b\.... 0
Fiberight.................... Blairstown, IA. Ethanol........ 6 1Q 2014 \b\.... 0
INEOS Bio.................... Vero Beach, FL. Ethanol........ 8 Mid 2013....... 0-1
KiOR......................... Columbus, MS... Gasoline and 11 March 18, 2013. 5-6
Diesel.
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Total.................... ............... ............... 49 ............... 6
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\a\ Volumes listed in million ethanol-equivalent gallons.
\b\ Start-up dates for these facilities are projections.
The EIA projections,\6\ variation in expected start-up times, along
with the facility production capacities, company production plans, the
progress made in the first half or 2013, and a variety of other factors
have all been taken into account in predicting the actual volume of
cellulosic biofuel that will be available for use in 2013. For more
detailed information on our projections of cellulosic biofuel in 2013
and the companies we expect to produce this volume see Section II.
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\6\ EPA received a letter from Adam Sieminski, EIA administrator
on October 18, 2012 containing cellulosic biofuel projections for
2013 and a letter updating to these projections from A. Michael
Schaal, Director of the office of Petroleum, Natural Gas, and
Biofuels Analysis, EIA on May 8, 2013. Both of these letters are
discussed in further detail in Section II.
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2. Advanced Biofuel and Total Renewable Fuel in 2013
The statute authorizes EPA to reduce the applicable volume of
advanced biofuel and total renewable fuel specified in the statute if
we reduce the applicable volume of cellulosic biofuel for a given year
below the statutory applicable volume specified in Section
211(o)(2)(B)(i)(III). As shown in Table I.B.1-1, for 2013 we have
projected cellulosic biofuel production at 6 million ethanol-equivalent
gallons, significantly less than the applicable volume of 1.0 bill gal
set forth in the statute. Therefore, we have also evaluated whether to
lower the applicable volumes for advanced biofuel and total renewable
fuel. The statute provides no explicit criteria or direction for making
this determination. As in the proposed rule, we have focused our
evaluation for this final rule on the availability of renewable fuels
that would qualify as advanced biofuel and renewable fuel, the ability
of those fuels to be consumed, and carryover RINs from 2012. We also
considered the many comments received on our proposed approach,
including suggested alternative approaches. Comments related to the
advanced biofuel standard and our responses to those comments are
discussed in Section III of this preamble.
The CAA specifies an applicable volume of 2.75 bill gal of advanced
biofuel for 2013. To determine whether to lower this volume, we
considered the sources that are expected to satisfy any advanced
biofuel mandate including: cellulosic biofuel, biomass-based diesel,
other domestically-produced advanced biofuels, and imported sugarcane
ethanol.
As described in Section II, we project that 6 mill gallons of
cellulosic biofuel will be available in 2013. This volume will fulfill
0.006 bill gal of the 2.75 bill gal advanced biofuel requirement.
We established an applicable volume of 1.28 bill gal for 2013
biomass-based diesel in a separate action,\7\ an increase from the 1.0
bill gal minimum provided in the statute. We expect that this
requirement will be fulfilled primarily with biodiesel.\8\ Since
biodiesel has an Equivalence Value of 1.5, 1.28 billion physical
gallons of biodiesel will provide 1.92 billion ethanol-equivalent
gallons that can be counted towards the advanced biofuel standard of
2.75 bill gal. Additional volumes of biomass-based diesel are also
possible based on our assessment of available feedstocks and production
capacity, potentially up to 500 mill gal ethanol-equivalent.
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\7\ 77 FR 59458, September 27, 2012.
\8\ Some quantity of renewable diesel is also likely to be used
towards satisfying the biomass based diesel standard
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As described in more detail in Section III, we have projected that
domestic advanced biofuels are expected to grow steadily through 2013,
and would include renewable diesel that does not qualify to be biomass-
based diesel,\9\ heating oil, biogas used as CNG, and ethanol. We are
projecting that up to about 250 mill gal of such domestic advanced
biofuels could be available in 2013, which will count towards the 2.75
bill gal advanced biofuel requirement.
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\9\ Biomass-based diesel is defined in the statute to exclude
renewable fuel that is co-processed with petroleum. Thus, fuel
derived from biogenic waste oils or fats that is made through co-
processing with petroleum does not qualify as biomass-based diesel
but could, assuming other definitional requirements are satisfied,
qualify as advanced biofuel.
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After taking into account cellulosic biofuel, biomass-based diesel,
and domestic advanced biofuel described above, the volume of imported
sugarcane ethanol that will be needed to meet the statutory advanced
biofuel volume of 2.75 bill gal could be significantly below the 670
mill gal that we projected would be needed in the NPRM. The U.S.
imported a total of 575 mill gal of ethanol in 2012, and most
projections indicate that Brazilian sugarcane crop yields will be
significantly better in the coming harvest (2013/2014, which began in
April 2013) in comparison to the previous harvest. Since there is a
high likelihood that the total volume of all advanced biofuels that can
be produced or imported in 2013 is above the 2.75 bill gal statutory
volume, we do not believe that the advanced biofuel requirement should
be reduced.
We believe there will be sufficient volumes of conventional
renewable fuel including corn ethanol, combined with advanced biofuel,
to satisfy the 16.55 bill gallon applicable volume of total renewable
fuel specified in the Act. For instance, current corn ethanol
production capacity is 14.5 bill gal, compared to the 13.8 bill gal
needed to meet the RFS requirements in 2013.\10\ There will also be a
significant number of carryover RINs available from 2012 that can be
used in lieu of actual volume in 2013 and which are sufficient in
number to address limitations in consumption of ethanol blends higher
than E10 or limitations in volumes brought about through the 2012
drought. Therefore, as discussed in more detail in Section III below,
we are not reducing the advanced biofuel volume requirement of 2.75
bill gal or the total renewable fuel volume requirement of 16.55 bill
gal.
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\10\ Based on facilities registered as corn ethanol producers
under the RFS program.
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[[Page 49798]]
However, we believe that delaying the compliance demonstration for
the 2013 compliance period would alleviate some of the concerns that
obligated parties have regarding the tardiness of the final rule and
its effect on their decisions regarding RIN acquisition. Therefore, we
are extending the RFS compliance deadline for the 2013 RFS standards
from February 28, 2014 to June 30, 2014.
As described in the NPRM, we recognize that ethanol will likely
continue to predominate in the renewable fuel pool in the near future,
and that for 2014 the ability of the market to consume ethanol as E15-
E85 is constrained in a number of ways. We believe that it will be
challenging for the market to consume sufficient quantities of ethanol
sold in blends greater than E10 and to produce sufficient volumes of
non-ethanol biofuels (biodiesel, renewable diesel, biogas, etc.) to
reach the mandated 18.15 bill gal for 2014. Given these challenges, EPA
anticipates that adjustments to the 2014 volume requirements are likely
to be necessary based on the projected circumstances for 2014, taking
into account the available supply of cellulosic biofuel, the
availability of advanced biofuel, the E10 blendwall, and current
infrastructure and market-based limitations to the consumption of
ethanol in gasoline-ethanol blends above E10. As discussed in Section
III.E below, EPA will discuss options and approaches for addressing
these issues, consistent with our statutory authorities, in the
forthcoming NPRM for the 2014 standards.
3. Applicable Volumes Used to Set the Annual Percentage Standards for
2013
The renewable fuel standards are expressed as a volume percentage
and are used by each refiner, blender or importer to determine its
renewable fuel volume obligations. The applicable percentages are set
so that if each regulated party meets the percentages, and if EIA
projections of gasoline and diesel use for the coming year are
accurate, then the amount of renewable fuel, cellulosic biofuel,
biomass-based diesel, and advanced biofuel actually used will meet the
volumes required on a nationwide basis.
To calculate the percentage standards for 2013, we have used the
projected volume of 6 million ethanol-equivalent gallons of cellulosic
biofuel and the volume of biomass-based diesel of 1.28 bill gal that we
established in a separate action. The applicable volumes used in this
final rule for advanced biofuel and total renewable fuel for 2013 are
those specified in the statute. These volumes are shown in Table I.B.3-
1.
Table I.B.3-1--Volumes Used To Determine the 2013 Percentage Standards
\a\
------------------------------------------------------------------------
------------------------------------------------------------------------
Cellulosic biofuel..................... 6 mill gal.
Biomass-based diesel................... 1.28 bill gal.
Advanced biofuel....................... 2.75 bill gal.
Renewable fuel......................... 16.55 bill gal.
------------------------------------------------------------------------
\a\ All volumes are ethanol-equivalent, except for biomass-based diesel
which is actual.
Four separate standards are required under the RFS program,
corresponding to the four separate volume requirements shown in Table
I.B.3-1. The specific formulas we use in calculating the renewable fuel
percentage standards are contained in the regulations at 40 CFR Sec.
80.1405 and repeated in Section IV.B.1. The percentage standards
represent the ratio of renewable fuel volume to projected non-renewable
gasoline and diesel volume. The projected volume of transportation
gasoline and diesel used to calculate the standards in today's rule was
derived from EIA projections.\11\ EPA has approved a single small
refinery/small refiner exemption for 2013, so an adjustment has been
made to the standards to account for this exemption. The final
standards for 2013 are shown in Table I.B.3-2. Detailed calculations
can be found in Section IV, including the projected 2013 gasoline and
diesel volumes used.
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\11\ Letter, A. Michael Schaal, Director, Office of Petroleum,
Natural Gas, and Biofuels Analysis, U.S. Energy Information
Administration, to Christopher Grundler, Director, Office of
Transportation and Air Quality, U.S. EPA, May 8, 2013.
Table I.B.3-2--Final Percentage Standards for 2013
------------------------------------------------------------------------
Percent
------------------------------------------------------------------------
Cellulosic biofuel............................................ 0.004
Biomass-based diesel.......................................... 1.13
Advanced biofuel.............................................. 1.62
Renewable fuel................................................ 9.74
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4. Applicable Percentage Standard for Cellulosic Biofuel in 2012
On January 25, 2013, the United States Court of Appeals for the
District of Columbia Circuit responded to a challenge to the 2012
cellulosic biofuel standard. The Court found that in establishing the
applicable volume of cellulosic biofuel for 2012, EPA had used a
methodology in which ``the risk of overestimation [was] set
deliberately to outweigh the risk of underestimation.'' The Court held
EPA's action to be inconsistent with the statute because EPA had failed
to apply a ``neutral methodology'' aimed at providing a prediction of
``what will actually happen,'' as required by the statute. As a result
of this ruling, the court vacated the 2012 cellulosic biofuel standard.
In today's final rule we have revised the regulations to eliminate the
applicable standard for cellulosic biofuel for 2012 in light of the
court's decision and the very small number or cellulosic biofuel RINs
produced in 2012. All of the money paid by obligated parties to
purchase cellulosic waiver credits to comply with the cellulosic
biofuel standard in 2012 has been refunded. This change does not impact
any other applicable 2012 standard.
5. Administrative Actions
By November 30 of each year we are required to make several
administrative announcements which facilitate program implementation in
the following calendar year. These announcements include the cellulosic
biofuel waiver credit price and the status of the aggregate compliance
approach to land-use restrictions under the definition of renewable
biomass for both the U.S. and Canada. Since we did not make these
announcements for 2013 by November 30 of 2012, we presented our
proposed assessments of these administrative actions in the February 7,
2013 NPRM. In today's action we are providing the final announcements
for these administrative actions.
When EPA reduces the applicable volume of cellulosic biofuel for
2013 below the volume specified in the statute, EPA is required to
offer biofuel waiver credits to obligated parties that can be purchased
in lieu of acquiring cellulosic biofuel RINs. These waiver credits are
not allowed to be traded or banked for future use, are only allowed to
be used to meet the 2013 cellulosic biofuel standard, and cannot be
applied to deficits carried over from 2012. Moreover, unlike cellulosic
biofuel RINs, waiver credits may not be used to meet either the
advanced biofuel standard or the total renewable fuel standard. For the
2013 compliance period, we have determined that cellulosic biofuel
waiver credits can be made available to obligated parties for end-of-
year compliance should they need them at a price of $0.42 per credit.
As part of the RFS regulations, EPA established an aggregate
compliance approach for renewable fuel producers who use planted crops
and crop residue from U.S. agricultural land. This compliance approach
relieved such producers (and importers of such fuel) of the individual
recordkeeping and reporting requirements otherwise required of
producers and importers to verify that such feedstocks used in the
[[Page 49799]]
production of renewable fuel meet the definition of renewable biomass.
EPA determined that 402 million acres of U.S. agricultural land was
available in 2007 (the year of EISA enactment) for production of crops
and crop residue that would meet the definition of renewable biomass,
and determined that as long as this total number of acres is not
exceeded, it is unlikely that new land has been devoted to crop
production based on historical trends and economic considerations. We
indicated that we would conduct an annual evaluation of total U.S.
acreage that is cropland, pastureland, or conservation reserve program
land, and that if the value exceed 402 million acres, producers using
domestically grown crops or crop residue to produce renewable fuel
would be subject to individual recordkeeping and reporting to verify
that their feedstocks meet the definition of renewable biomass. Based
on data provided by the USDA, we have estimated that U.S. agricultural
land reached 384 million acres in 2012, and thus did not exceed the
2007 baseline acreage.
On September 29, 2011, EPA approved the use of a similar aggregate
compliance approach for planted crops and crop residue grown in Canada.
The Government of Canada utilized several types of land use data to
demonstrate that the land included in their 124 million acre baseline
is cropland, pastureland or land equivalent to U.S. Conservation
Reserve Program land that was cleared or cultivated prior to December
19, 2007, and was actively managed or fallow and nonforested on that
date (and is therefore RFS2 qualifying land). The total agricultural
land in Canada in 2012 is estimated at 120.9 million acres. The total
acreage estimate of 120.9 million acres does not exceed the trigger
point for further investigation.
C. Effective Date
Under CAA 211(o)(3)(B)(i), EPA must determine and publish the
applicable percentage standards for the following year by November 30.
EPA did not meet this statutory deadline for the 2013 standards. The
NPRM was published on February 7, 2013 and the comment period closed on
April 7, 2013. Nevertheless, we believe that the applicable percentage
standards we are finalizing in today's rulemaking should apply, as
proposed, to all gasoline and diesel produced in 2013, including that
produced prior to the effective date of this final rule.
Some commenters asserted that this approach would provide
insufficient notice and lead time to obligated parties, and result in
prohibited retroactive rulemaking. However, as discussed below,
application of the standards to the entire year's production is
reasonable given the structure of the statute, advance notice to
obligated parties, compliance mechanisms under the program, and
sufficiency of lead time for obligated parties to achieve compliance.
Moreover, we have considered the alternative approaches suggested by
commenters, and have determined that they are inappropriate as they
would not satisfy the statutory requirements.
In response to the NPRM, several obligated parties commented that
the rulemaking process to establish the applicable 2013 standards
should be abandoned due to its tardiness, and instead EPA should focus
only on promulgating the applicable standards for 2014. Other
commenters requested that we make the applicable 2013 standards apply
only to gasoline and diesel produced or imported after the publication
of the final rule, thereby effectively reducing the volume of renewable
fuel to be used in 2013 by an amount proportional to the months in 2013
prior to the publication date. Alternatively, some commenters suggested
that we apply the 2012 standards to 2013. All of these suggested
approaches would result in 2013 standards requiring substantially less
renewable fuel use than specified in the statute.
Under the statute, the renewable fuel obligations apply on a
calendar year basis. The national volumes are established for each
calendar year, and EPA's regulations must ensure these national volumes
are met on an annual average basis. The renewable volume obligation is
based on a projection of gasoline and diesel production for the
calendar year, and the renewable fuel obligation for that calendar year
is to be expressed as a percentage of the transportation fuel a refiner
or importer sells or introduces into commerce for that calendar year.
EPA acknowledges that today's rule is being finalized later than
the statutory deadline of November 30, 2012. However, this delay does
not deprive EPA of authority to issue standards for calendar year 2013.
As the United States Court of Appeals for the District of Columbia
Circuit noted in its review of EPA's delayed 2010 RFS standards, the
statute does not specify a consequence for a situation where EPA misses
the deadline, NPRM v. EPA, 630 F.3d 145, 152-158 (2010), and courts
have declined to treat a statutory direction that an agency ``shall''
act within a specified time period as a jurisdictional limit that
precludes action later. Id. at 154 (citing Barnhart v. Peabody Coal,
537 U.S. 149, 158 (2003)). Moreover, the statute here requires that EPA
regulations ``ensure'' that transportation fuel sold or introduced into
commerce ``on an annual average basis, contains at least the applicable
volume of renewable fuel'' specified in the statute. Id. at 152-153.
Therefore EPA believes it has authority to issue RFS standards for
calendar year 2013 notwithstanding EPA's delay in issuing this final
rule, and that it must issue standards that ``ensure'' that the volumes
specified for 2013 are satisfied. EPA has not chosen any of the
alternative approaches suggested by commenters, because none of the
proffered solutions would ensure that the volumes Congress specified
for 2013 would be used.
EPA is mindful that the precise contours of obligated parties'
responsibilities for gasoline and diesel fuel produced in 2013 could
not be known before issuance of this final rule. However, EPA believes
that imposition in the final rule of an obligation related to
production of gasoline or diesel that occurred prior to the effective
date of this rule is reasonable. First, as noted above, EPA is required
under the statute to ensure that applicable volumes specified in the
statute for 2013 are satisfied, so it must take action notwithstanding
the late date. The statute also provides that the national volumes are
to be achieved on ``an annual average basis.'' The standards for
obligated parties are based on a projection from the Energy Information
Administration of gasoline and diesel use for each calendar year, and
the obligation for refiners and importers is to be expressed as an
applicable percentage obligation for a calendar year. Thus, applying
the standards to production in calendar year 2013 is most consistent
with the statute.
Second, obligated parties have been provided reasonable notice that
EPA would act in approximately the manner specified in the final rule.
EPA established the required volume of biomass-based diesel in a
separate rulemaking and, as proposed, has not lowered the applicable
volumes of total renewable fuel and advanced biofuel below the
applicable volumes specified in the statute. EPA has, as proposed,
substantially lowered the required volume of cellulosic fuel below the
level specified in the statute. Indeed, EPA's final rule requires use
of less cellulosic biofuel than it proposed, so any change between the
proposed and final rules in this regard operates to relieve burden on
obligated parties. Regulated parties also had the benefit of knowing
how EPA
[[Page 49800]]
has previously approached standards that are finalized after the
beginning of the calendar year. In the March 2010 final rule revising
the RFS program regulations, we set the standards for 2010 and made
them applicable to all gasoline and diesel produced in 2010 despite the
fact that the rulemaking was not published until March 26, 2010. This
approach was challenged and upheld in NPRM v. EPA, 630 F.3d 394 (DC
Cir. 2010). Thus, EPA believes that obligated parties had sufficient
notice.
Third, the parties have adequate lead time to comply with the 2013
RFS standards notwithstanding EPA's delay in issuing the rule. Because
compliance is achieved by obligated parties purchasing an appropriate
number of RINs from producers or blenders of the renewable fuel,
obligated parties do not need lead time for construction or investment
purposes. They are not changing the way they produce gasoline or
diesel, do not need to design or install new equipment, or take other
actions that require longer lead time. Obtaining the appropriate amount
of RINs involves contractual or other arrangements with renewable fuel
producers or other holders of RINs. Indeed renewable fuel producers
have been generating 2013 RINs since the beginning of the calendar
year. Obligated parties have been acquiring RINs since the beginning of
2013 in anticipation of the publication of the final applicable
standards in today's rule. There is also a significant quantity of 2012
RINs that can be used for compliance with the 2013 standards. To
facilitate compliance, and provide additional lead time, EPA is
extending the date by which compliance with the 2013 standards must be
demonstrated to June 30, 2014. EPA chose this date both to provide
additional time for a compliance demonstration, and because we
anticipate issuing a final rule establishing the 2014 RFS standards as
soon as possible before that date. Establishing a 2013 compliance
deadline on a date that occurs after promulgation of the final rule
setting the 2014 standards should allow obligated parties to take their
2014 obligations into consideration as they determine how to utilize
RINs for 2013 compliance.
In response to stakeholder concerns about the lateness of this
final rule, EPA considered, but rejected, the option of issuing
numerically higher percentage standards based on just the 2013
production of gasoline and diesel fuel that took place after issuance
of the final rule. Such an approach would not provide for standards
allowing compliance on an ``annual average basis,'' based on ``an
applicable percentage for a calendar year,'' as envisioned by the
statute. Also, EPA believes application of the standards in this manner
would be unfair because it could result in some producers or importers
having substantially greater or lesser obligations, based on variable
production or import volumes over the year, than would be the case if
the standards were based on a full year's production. In essence, such
an approach would provide a temporal window with no RFS obligation, and
some parties might receive either a windfall or a substantially greater
burden than they would have if EPA had issued its standards on time.
This would be exacerbated by the fact that EPA did not take comment on
this alternative, so obligated parties would not have been on notice of
this potential approach. EPA rejected this approach for these reasons.
D. Impacts of Final Actions
Analyses for the March 26, 2010 RFS final rule indicated the GHG
benefits from cellulosic biofuels compared to the petroleum-based fuels
they displace are well above the 60 percent reduction threshold.
Therefore, EPA expects that the increase in cellulosic biofuel use that
EPA has projected for 2013 over prior year production levels will have
directionally beneficial GHG emissions impacts.
For advanced biofuel and total renewable fuel, we are not reducing
the applicable volumes below the applicable volumes set forth in the
statute. All of the impacts of the biofuel volumes specified in the
statute were addressed in the RFS final rule published on March 26,
2010.\12\ Today's rulemaking simply sets the percentage standards for
obligated parties for 2013 advanced biofuel and total renewable fuel,
where the impacts of the national volumes of those fuels were
previously analyzed.
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\12\ 75 FR 14672.
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II. Projection of Cellulosic Biofuel Volume for 2013
In order to project the national production volume of cellulosic
biofuel in 2013, we considered the EIA projections and collected
information on individual facilities that have the potential to produce
qualifying volumes for use as transportation fuel, heating oil, or jet
fuel in the U.S. in 2013. In light of the delay in issuing the
standards for 2013 we also sought and received an updated estimate of
cellulosic biofuel production from EIA to inform our final standards.
We also considered the comments we received in response to the NPRM.
This section describes the volumes that we project will be produced or
imported in 2013 as well as some of the uncertainties associated with
those volumes.
Despite significant advances in cellulosic biofuel production
technology in recent years, RIN-generating production of biofuel from
cellulosic feedstocks in 2010 and 2011 was zero despite our projections
that the industry was positioned to produce about 6 mill gal in each of
those years.\13\ In 2010 the majority of the cellulosic biofuel
shortfall was met through the use of RINs generated under the initial
RFS regulations, and since there were excess cellulosic RINs many of
these RINs were carried over into the 2011 compliance year. The
remaining cellulosic biofuel requirements in 2011 were met through the
purchase of cellulosic biofuel waiver credits.\14\ A discussion of the
reasons for this disparity between our projections and subsequent
production is provided in Section II.B below.
---------------------------------------------------------------------------
\13\ In the first half of 2010 when the initial RFS program was
still effective, some cellulosic biomass ethanol was produced and
the RINs generated were valid for demonstrating compliance with the
2010 and 2011 RFS cellulosic biofuel standards. However, the
cellulosic biomass ethanol that was produced was not made from
cellulosic feedstocks, but rather was categorized as cellulosic
because it was produced in plants using waste materials to displace
90% or more of fossil fuel use under the then-effective definition
of cellulosic biomass ethanol in CAA Section 211(o)(1)(A). See also
40 CFR Sec. 80.1101(a)(2).
\14\ 4,248,338 cellulosic waiver credits were purchased for 2011
compliance according to the EPA Moderated Transaction System (EMTS)
Web site (information retrieved from the Web site on December 11,
2012) at a cost of $1.13 per credit. The ethanol-equivalent volume
of cellulosic biofuel projected for 2011 and used to calculate the
percentage standard for that year was 6.0 mill gal.
---------------------------------------------------------------------------
In 2012 the first cellulosic RINs were generated under the current
RFS regulations at two small pilot facilities. However, cellulosic
biofuel production once again fell short of our projections in 2012.
The 2012 cellulosic standard was challenged in court and based on the
decision in that case the 2012 cellulosic biofuel standard was
vacated.\15\ This decision is discussed further in the following
sections.
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\15\ See API v. EPA, 706 F.3d 474 (D.C. Cir. 2013).
---------------------------------------------------------------------------
A. Statutory Requirements
The national volumes of cellulosic biofuel to be used under the RFS
program each year through 2022 are specified in CAA 211(o)(2). For
2013, the statute specifies a cellulosic biofuel applicable volume of
1.0 bill gal. The statute requires that if EPA determines, based on
EIA's estimate, that the projected volume of cellulosic biofuel
production for the following year is less
[[Page 49801]]
than the applicable volume shown in Table II.A-1, then EPA is to reduce
the applicable volume of cellulosic biofuel to the projected volume
available during that calendar year.
In addition, if EPA reduces the required volume of cellulosic
biofuel below the level specified in the statute, the Act also
indicates that we may reduce the applicable volumes of advanced
biofuels and total renewable fuel by the same or a lesser volume. Our
consideration of the 2013 volume requirements for advanced biofuels and
total renewable fuel is presented in Section III.
The United States Court of Appeals for the District of Columbia
Circuit recently interpreted the statutory requirements for EPA's
cellulosic biofuel projections, in the context of considering a
challenge to the 2012 cellulosic biofuel standard. The Court found that
in establishing the applicable volume of cellulosic biofuel for 2012,
that EPA had used a methodology in which ``the risk of overestimation
[was] set deliberately to outweigh the risk of underestimation.'' The
Court held EPA's action to be inconsistent with the statute because
this provision required EPA to apply a ``neutral methodology'' aimed at
providing a prediction of ``what will actually happen''. In all other
respects the Court upheld EPA's methodology for making cellulosic
biofuel projections. For example, the Court agreed with EPA that the
statute requires that EPA treat the EIA estimate with ``great
respect,'' but ``allowing deviation consistent with that respect''. The
Court also upheld EPA's reasoned reliance on information provided by
prospective cellulosic biofuel producers in formulating its
projections. For a further discussion of the changes we have made to
our approach in evaluating the information that forms the basis for our
projection of cellulosic biofuel see Section C below.
B. Status of the Cellulosic Biofuel Industry
As in previous years, cellulosic biofuel production in the United
States in 2012 was limited to small-scale research and development,
pilot, and demonstration-scale facilities. Companies such as Abengoa,
Blue Sugars, DuPont, KiOR, Poet, and others successfully operated
small-scale facilities in 2012. Two of these companies, Blue Sugars and
KiOR, generated a small number of RINs for the fuel they produced.
Several of these facilities, including all that were part of our 2012
volume projections, are discussed in more detail in Section II.C below.
While there were numerous small-scale facilities producing cellulosic
biofuel in 2012, the total volume of fuel produced was very small. Two
commercial scale facilities that were expected to begin fuel production
in 2012 experienced unexpected delays in commissioning, while a third
was delayed due to difficulties raising required funds.\16\ Although
information is not available to EPA to quantify the total volume of
cellulosic biofuel produced in 2012 at these research and development,
pilot, and demonstration scale facilities if they do not generate RINs,
based on generally available information we believe that total
production in the United States was likely less than one mill gal
across the industry.
---------------------------------------------------------------------------
\16\ For more information see Section II.C below.
---------------------------------------------------------------------------
While cellulosic biofuel production in the United States remains
limited, the industry continues to make significant progress towards
producing cellulosic biofuel at prices competitive with petroleum
fuels. From 2007 through the second quarter of 2012 venture capitalists
invested over $3.4 billion in advanced biofuel companies in North
America.\17\ Recent advancements in enzyme and catalyst technologies
are allowing cellulosic biofuel producers to achieve greater yields of
biofuel per ton of feedstock. These advancements have led to lower
operational costs as they have driven down the cost for feedstock,
energy, and other important inputs on a per gallon basis. For example,
the estimated cost of producing cellulosic ethanol using an enzymatic
hydrolysis process in 2007 was $4-$8 per gallon.\18\ By 2012 the
estimated cost of cellulosic ethanol production using the same process
had fallen to $2-$3.50 per gallon.\19\ The U.S. Department of Energy
(DOE) similarly reports that advancements in cellulosic ethanol
technology have resulted in a decrease in modeled costs from
approximately $4 per gallon (minimum ethanol selling price) in 2007 to
approximately $2.50 per gallon in 2011.\20\ The same technological
advances have also lowered the capital costs of cellulosic biofuel
production facilities per gallon of annual fuel production, as more
gallons of biofuel can be produced at a facility without additional
equipment or increased feedstock requirements.
---------------------------------------------------------------------------
\17\ Solecki M, Dougherty A, Epstein B. Advanced Biofuel Market
Report 2012: Meeting U.S. Fuel Standards. Environmental
Entrepreneurs. September 6, 2012. Available Online http://www.e2.org/ext/doc/E2AdvancedBiofuelMarketReport2012.pdf.
\18\ Nielsen, Peder Holk. ``The Path to Commercialization of
Cellulosic Ethanol--A Brighter Future.'' PowerPoint Presentation.
Conference Call. February 22, 2012. Available Online http://www.novozymes.com/en/investor/events-presentations/Documents/Cellic3_conf_call_220212.pdf.
\19\ Nielsen, Peder Holk. ``The Path to Commercialization of
Cellulosic Ethanol--A Brighter Future.'' PowerPoint Presentation.
Conference Call. February 22, 2012.
\20\ Department of Energy. Biomass Multi-Year Program Plan.
April 2012. DOE/EE-0702. Available Online http://www1.eere.energy.gov/biomass/pdfs/mypp_april_2012.pdf.
---------------------------------------------------------------------------
Another area where significant progress has been made is feedstock
supply for commercial scale cellulosic biofuel production facilities.
This issue has often been raised as a factor that could hinder the
development of the cellulosic biofuel industry as many of the proposed
facilities rely on feedstocks, such as agricultural residues or energy
crops, for which supply chains have not previously existed. Over the
past several years both Abengoa and Poet have been working with farmers
in the regions surrounding their first commercial scale facilities to
ensure the availability of the necessary feedstock. Because corn cobs
and stover are only seasonally available, using them as a feedstock for
a cellulosic biofuel production facility would require significant
feedstock storage facilities. In the last two years Abengoa and Poet
completed construction of large scale feedstock storage facilities to
ensure adequate supply to their cellulosic biofuel production
facilities throughout the year. Both companies successfully completed
fall biomass harvests in 2011 and have contracted with local farmers to
provide feedstock for their cellulosic ethanol facilities. This supply
chain will not only provide feedstock for their first commercial scale
facilities, but also a model that can be re-created at future
production facilities.
Several cellulosic biofuel producers are planning to use pre-
commercial thinnings, tree residue from tree plantations or the
cellulosic portions of yard waste as feedstock.\21\ This material has
many qualities that make it desirable as a cellulosic biofuel
feedstock. It tends to be relatively inexpensive and is readily
available in some regions of the United States. It is also available
year round rather than seasonally, significantly reducing the need for
large scale feedstock storage facilities. Securing a sufficient
quantity of this feedstock for a commercial scale facility, however,
can be challenging. In the summer of 2011 KiOR announced it had signed
a feedstock agreement with Catchlight Energy to provide all the
necessary feedstock for their first commercial scale facility. While
KiOR plans to transition to planted trees for
[[Page 49802]]
future facilities, KiOR now has secured sufficient feedstock such that
they can produce cellulosic biofuel and cellulosic RINs using an
existing pathway at their first commercial scale facility. INEOS Bio
also has a long term agreement with Indian River County to provide
separated yard waste which will serve as the feedstock for their first
facility.
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\21\ Pre-commercial thinnings and tree residue from tree
plantations must come from non-federal lands and meet the definition
of a renewable biomass definition and be eligible to generate RINs.
---------------------------------------------------------------------------
Another feedstock for cellulosic biofuel production is separated
municipal solid waste (MSW). MSW is already being collected and
transported to a centralized facility, is consistently available
throughout the year, and can be obtained for a very low, or even
negative, cost. MSW often contains contaminants, however, that may make
it challenging to process for some cellulosic biofuel technologies. EPA
also requires that waste separation plans be submitted and approved
prior to any company generating RINs using separated MSW as a
feedstock. In June 2012 EPA approved the first waste separation plan
under the RFS program for Fiberight's facility in Blairstown, Iowa.
In the early years of the cellulosic biofuel industry several small
start-up companies announced plans to build large commercial scale
facilities that were scheduled to begin production in the past few
years. The construction of many of these facilities was dependent on
the companies raising additional funding, either from venture
capitalists, government grants, or loans backed by government
guarantees. So far, few of the companies that made these early
announcements have been able to successfully raise the necessary funds
and begin construction. Securing this funding proved difficult, and
when it did not materialize the projects were delayed or cancelled.
However, recently significant progress has also been made by some
companies towards funding the construction of their first commercial
scale facilities.
The funding profiles of the companies included in our projected
volume for 2013, as well as for many of the companies targeting
production in 2014, are markedly different than those of the companies
that were expected to produce the majority of cellulosic biofuel in
2010 and 2011. Many of these projects have already received, and in
several cases have closed on loan guarantees and grants offered by DOE
or USDA. Other companies have filed for and successfully executed IPOs.
Several cellulosic ethanol projects are being self-financed by large
companies such as Abengoa and Poet with significant experience in the
biofuel, petrochemical, and specialty chemical markets. This solid
financial backing has allowed these companies to proceed with
construction. Both of the facilities included in our final volume for
2013 have already completed the construction of their first commercial
production facilities. KiOR's facility has begun producing RINs and
INEOS Bio announced that it started commercial production on July 31,
2013. There is therefore far less uncertainty as to likely production
from these two facilities than has been present for EPA's earlier
projections. The next section provides additional details on the
funding and construction status of the projects included in our
projected cellulosic biofuel production volumes for 2013.
If these first commercial scale cellulosic biofuel production
facilities are successful, the potential exists for a rapid expansion
of the industry in subsequent years. Having successful commercial scale
facilities would not only provide useful information to help maximize
the efficiency of future facilities, but would also significantly
decrease the technology and scale-up risks associated with cellulosic
biofuel production facilities and could lead to increased access to
project funding. Fiberight and ZeaChem both plan to build larger-scale
facilities (~25 mill gal per year) as soon as they are able to raise
the necessary funds. INEOS Bio plans to expand production by building
additional units near sources of inexpensive feedstock ranging in size
from 8 to 50 mill gal of ethanol per year. They are currently exploring
expansion possibilities in the United States and internationally. KiOR
has plans for a second commercial scale facility to be built in
Natchez, MS, that will be approximately three times larger (~30 mill
gal per year) than their Columbus, MS, plant and plans to break ground
at their second facility after their first is fully operational.
Abengoa currently anticipates construction of additional cellulosic
ethanol facilities at multiple locations, likely including co-locating
with some of their existing starch facilities in the US. Poet has a
similar expansion strategy to build cellulosic ethanol plants at their
grain ethanol facilities, license their technology for use at other
grain ethanol facilities, and build cellulosic ethanol facilities that
use feedstocks such as agricultural residue or energy crops. Poet's
goal is to be involved in the production of 3.5 bill gal of cellulosic
ethanol per year by 2022. Several other companies are also targeting
2014 for the start-up of cellulosic biofuel production facilities and
would likely look to build additional facilities relatively quickly if
their first facilities operate successfully. While many of these
expansion plans are still in the early stages and are subject to
change, they do point to the potential for cellulosic biofuel
production to increase very significantly in future years once the
initial plants become operational.
C. Cellulosic Biofuel Volume Assessment for 2013
In 2012 the first cellulosic biofuel RINs under the current
regulations were generated. Small quantities of RINs, a total of
approximately 22,000, were generated by Blue Sugars and KiOR from their
respective demonstration facilities. The small volumes of fuel produced
from these two facilities are typical for R&D and pilot facilities
whose primarily purpose is to prove the technology is viable, provide
information for scale-up design, and provide fuel for testing purposes
rather than to generate income from commercial volumes of fuel.
However, national cellulosic biofuel production once again fell far
short of the cellulosic biofuel standards. Two of the companies
expected to begin producing fuel in 2012 experienced unexpected
difficulties in commissioning their commercial scale production
facilities following successful demonstration and pilot scale work,
resulting in biofuel production being delayed until 2013. A third
commercial facility was unable to secure the funds needed to convert an
existing corn ethanol production facility to a cellulosic biofuel
production facility, despite having secured a conditional loan
guarantee from the United States Department of Agriculture (USDA). The
remaining facilities that were included in our projected production
volume for 2012 were small demonstration facilities that similarly
experienced delays or significantly reduced production volumes for a
variety of reasons.
There are several factors indicating that larger volumes of
cellulosic biofuel will be produced in 2013. Commercial scale
cellulosic biofuel projects from INEOS Bio and KiOR are structurally
complete, KiOR's facility began producing cellulosic biofuel in the
Spring of 2013, and INEOS Bio announced it began production at the end
of July. Both facilities plan to achieve steady state production and
achieve production rates at or near their nameplate capacities by the
end of 2013. Another commercial scale facility backed by Abengoa, a
large company with significant experience in biofuel production, is
also scheduled to begin producing cellulosic biofuel in late 2013 or
early 2014. These facilities are
[[Page 49803]]
indicative of a shift across the cellulosic biofuel industry from
small-scale R&D and demonstration facilities often operated by small
start-up companies to large commercial scale facilities backed by large
companies, many of which have substantial experience in related
industries.
In order to project cellulosic biofuel production for 2013, we
tracked the progress of more than 100 biofuel production facilities.
From this list of facilities we used publicly available information, as
well as information provided by DOE, EIA, and USDA, to make a
preliminary determination of which facilities are the most likely
candidates to produce cellulosic biofuel and generate cellulosic
biofuel RINs in 2013. Each of these companies was investigated further
in order to determine the current status of their facilities and their
likely cellulosic biofuel production and RIN generation volumes for the
coming years. Information such as the funding status of these
facilities, current status of the production technologies, announced
construction and production ramp-up periods, and annual fuel production
targets were all considered when we met with senior level
representatives of each company to discuss cellulosic biofuel target
production levels for 2013. Throughout this process EPA is in regular
contact with EIA to discuss relevant information and assessment of
potential cellulosic biofuel producers. Our projection of the
cellulosic biofuel production in 2013 is based on the estimate we
received from EIA, information we received from EIA, DOE, and USDA, the
individual production projections that emerged from these discussions,
and comments we received on the NPRM. A brief description can be found
below for each of the companies we believe will produce cellulosic
biofuel and make it commercially available in 2013.
To project the available volume of cellulosic biofuel, we have
continued to obtain information from the potential producers of
cellulosic biofuels to help inform our annual projection. We have,
however, made several changes to the way that we used the information
we gather in projecting cellulosic biofuel production to ensure
consistency with the ruling of the DC Circuit Court and help ensure a
neutral projection that aims at accuracy. Several of the more
significant changes are:
Volumes from pilot and demonstration scale facilities are
not included in our projections. Very few of these facilities are
registered to generate RINs, and production volumes at those that are
historically have been so small that they have no significant impact on
our total volume projection for 2013.
Facilities with start-up dates near the end of the year
are not included in our projections. There is a realistic possibility
that minor delays could result in no production of cellulosic biofuel
from such facilities in 2013, and even if these facilities start up as
expected production volumes from the first month of production are
expected to be very small.
Benchmarks for how quickly new facilities ramp up to full
production, and for production volumes during this ramp-up period in a
best case scenario have been established and used to assess the
reasonableness of the production estimates received from producers.
Production projections from companies that exceed the volumes
calculated using this benchmark are not considered credible, even as
the high end of a possible range of production. While we have
considered ramp-up rates for cellulosic biofuel production facilities
in the past we have added best case scenario benchmarks to assess the
reasonableness of the ramp-up schedules we received from potential
biofuel producers.
In considering all factual information and projections we
have weighted uncertainty neutrally, with the aim of providing an
accurate projection rather than one intended to provide an incentive
for growth in the cellulosic biofuel industry.
In our proposed rule we projected 14 million ethanol-equivalent
gallons of cellulosic biofuel production in 2013. Since this time we
have considered comments received on the proposed rule, updated
information from EIA including a new projection of cellulosic biofuel
production for 2013,\22\ and updated information from the companies
expected to produce cellulosic biofuel. The sections that follow
discuss the comments we received, the updated information from EIA, and
the current status of the cellulosic production facilities that are
relevant in setting the cellulosic biofuel standard for 2013. Based on
this information we are setting the cellulosic biofuel standard at 6
million ethanol-equivalent gallons (4 million actual gallons) based on
our current projection of cellulosic biofuel production in 2013.\23\
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\22\ Letter from A. Michael Schaal, Director, Office of
Petroleum, Natural Gas, and Biofuels Analysis, EIA to Christopher
Grundler Director, Office of Transportation and Air Quality, EPA,
May 8, 2013.
\23\ The difference between actual volume and ethanol-equivalent
volume stems from the fact that cellulosic gasoline and diesel fuels
generate a greater number of RINs than the actual gallons produced
because of their higher energy content. The number of RINs generated
per gallon of fuel produced is based on the energy content of the
fuel relative to ethanol.
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1. Comments on the Proposed Rule
EPA received many comments on the projected available cellulosic
biofuel volumes in our proposed rule. Several commenters, including
biofuel trade organizations and cellulosic biofuel production companies
supported EPA's methodology for projecting available cellulosic biofuel
volumes. Some of these commenters further stated that EPA had
appropriately assessed the status of the cellulosic biofuel industry
and that the projected volume (14 million ethanol-equivalent gallons)
was likely to be achieved. Others, while affirming EPA's methodology
encouraged EPA to consider new information available since the
publication of our proposed rule, particularly delays in the start-up
of INEOS Bio and new production guidance from KiOR, and to adjust our
projected volume accordingly. EPA has considered this information and
believes the volume projected in today's final rule (6 million ethanol-
equivalent gallons) accurately represents the volume of cellulosic
biofuel likely to be produced in 2013 based on the best available
information.
Conversely, EPA also received several comments stating that the
projected available volume of cellulosic biofuel should be based on
historical production rather that projections of future production.
Using this methodology would result in a cellulosic biofuel standard
for 2013 near zero. In effect the commenters argued that past
production is the best and most sure indicator for future production.
Adopting this methodology would be inconsistent with EPA's charge to
set the applicable volume for cellulosic biofuel through a neutral
projection of the volume projected to be produced that aims at
accuracy. Basing this projection solely on past production would not
neutrally aim at accuracy, as it would require EPA to ignore
significant real world information that is relevant to project
production for 2013. It would also require EPA to ignore the production
estimates we receive from EIA, which we are required to consider with
great respect. Additionally, it would be unusual to base a future
projection solely on past performance, effectively assuming no growth
in the cellulosic biofuel industry.
Several commenters also stated that the methodology used by EPA in
setting the applicable volume for cellulosic biofuel is the same as
that used in
[[Page 49804]]
previous years and that this is inappropriate in light of the API v.
EPA decision vacating the 2012 cellulosic biofuel standard. The process
used by EPA to gather information on the relevant companies and their
likely production is indeed similar. We continue to consider
information received directly from potential cellulosic biofuel
producers and the cellulosic and advanced biofuel trade associations.
As noted above, we have made several changes to how we evaluate this
information. We work closely with EIA in developing our volume
projection and give their production estimate great weight. Indeed,
this year we are projecting the same volume of cellulosic biofuel as
the most recent estimate provided by EIA.\24\ Consistent with the
Court's directive, we are not weighing uncertainty in any element of
our projection in a manner that favors a higher or a lower volume
projection.
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\24\ In their letter to EPA on May 8, 2013, EIA did not specify
an ethanol-equivalent volume projection, nor did they specify
production volumes from individual companies that would allow EPA to
calculate an ethanol-equivalent volume from their projection of
physical gallons. However, the EPA and EIA projection of physical
gallons of cellulosic biofuel production for 2013 are identical.
---------------------------------------------------------------------------
EPA believes the information and methods used to project the
production of cellulosic biofuel for 2013 described in the preceding
sections appropriately takes neutral aim at accuracy. EPA has
established a benchmark for the expected production ramp-up timeframe
that has been used to assess the reasonableness of production estimates
received from companies. We did not receive any comments suggesting
that this benchmark was inappropriate. We have appropriately considered
the history of delays for the cellulosic industry as a whole and the
companies included in our projection in particular in projecting these
volumes. We have not included any volumes from pilot or demonstration
scale facilities, nor have we included any volume from companies
currently lacking a valid pathway to produce cellulosic biofuel--
despite their claims that they can and intend to generate cellulosic
biofuel RINs in 2013--due to the highly uncertain nature of this
production. Given the timing of this final rule this seems particularly
appropriate for 2013. Finally, we have not used best case scenarios for
the companies considered in determining our volume projection for 2013,
and have not attempted to use this process to either promote or impede
growth within the cellulosic biofuel industry. Of the seven companies
and potential fuel producing pathways listed in Table II.C.6-1 that
have the potential to produce cellulosic RINs in 2013 we have only
included two in our volume projection. For the two facilities
considered we have reduced their projected volume from the maximum
possible production calculated from the start-up date and nameplate
capacity taking into account expected ramp-up schedules and delays
experienced at the two facilities. After using this information to
establish projected ranges of production we selected a combined volume
that represents production at the mid-point of our established ranges,
as a shortfall in expected production from either company can be made
up for by the other companies in Table II.C.6-1 exceeding their
projected production. We believe our volume projection of 6 million
ethanol-equivalent gallons of cellulosic biofuel in 2013 and the
methodology utilized to arrive at this projection are our best
assessment of production that will actually happen in 2013.
2. Projections From the Energy Information Administration
Section 211(o)(3)(A) of the Clean Air Act requires EIA to ``. . .
provide to the Administrator of the Environmental Protection Agency an
estimate, with respect to the following calendar year, of the volumes
of transportation fuel, biomass-based diesel, and cellulosic biofuel
projected to be sold or introduced into commerce in the United
States.'' EIA provided these estimates to us on October 18, 2012.\25\
With regard to cellulosic biofuel, the EIA estimated that the available
volume in 2013 would be 9.6 million actual gallons (13.1 million
ethanol-equivalent gallons). A summary of the commercial scale plants
they considered and associated production volumes is shown below in
Table II.C.2.
---------------------------------------------------------------------------
\25\ Letter from Adam Sieminski, EIA Administrator to Lisa
Jackson, EPA Administrator October 18, 2012.
Table II.C.2--Cellulosic Biofuel Plants Expected To Generate Biofuel RINs for 2013
[From EIA]
--------------------------------------------------------------------------------------------------------------------------------------------------------
EIA Forecast
--------------------------------------
Design Ethanol-
Mechanical completion Company Location Product capacity Utilization Actual equivalent
(percent) production production
(mill gal) (mill gal)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012.............................. INEOS Bio........... Vero Beach, FL...... Ethanol............. 8 50 4.0 4.0
2012.............................. KiOR................ Columbus, MS........ Liquids............. 11 50 5.5 9.0
Various........................... Various Pilot Plants Various............. Ethanol............. 1 10 0.1 0.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Capacity and Production for 2013.......................................................... 20 48 9.6 13.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Several commenters noted a Today in Energy article that appeared on
EIA's Web site on February 26, 2013 that stated that cellulosic biofuel
production ``could grow to more than 5 mill gal in 2013, as operations
ramp up at several plants.'' \26\ The commenters stated that as this
article was more recent than the letter EPA received in October 2012 it
represented an updated volume projection from EIA and that EPA should
base our volume projection on this smaller volume (5 million actual
gallons). A significant amount of time has passed since we received
EIA's initial cellulosic biofuel volume projections and any changes in
projected volumes since this time should be considered as we determine
the appropriate cellulosic biofuel volume projection. To ensure that we
are using the most up to date information EPA requested and received
from EIA an updated projection of
[[Page 49805]]
cellulosic biofuel production in 2013 on May 8, 2013.\27\ In this
letter EIA projected that 4 million actual gallons of cellulosic
biofuel would be produced in 2013.
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\26\ ``Cellulosic biofuels begin to flow but in lower volumes
than foreseen by statutory targets.'' Today in Energy. EIA, February
26, 2013. http://www.eia.gov/todayinenergy/detail.cfm?id=10131
\27\ Letter from A. Michael Schaal, Director, Office of
Petroleum, Natural Gas, and Biofuels Analysis, EIA to Christopher
Grundler Director, Office of Transportation and Air Quality, EPA,
May 8, 2013.
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EIA's projection of cellulosic biofuel production in 2013 is very
similar to EPA's projection discussed above and summarized in Section
II.C.6 below. The lists of companies (KiOR and INEOS Bio) that EIA and
EPA expect to generate cellulosic biofuel RINs in 2013 are the same.
EIA's estimate also no longer includes volumes from pilot facilities
due to their highly uncertain production and the fact that these
facilities are unlikely to generate RINs in 2013 for any fuel they do
produce. While the total volume of cellulosic biofuel that EIA expects
will be produced in 2013 is identical to the volume projected by EPA (4
million actual gallons), EIA does not specify how much of this
production will be ethanol and how much will be renewable hydrocarbons.
Because of this EPA is unable to calculate the ethanol-equivalent
volume represented by EIA's projection. Since this volume includes
renewable gasoline and diesel produced by KiOR, however, EIA's
projection represents an implied ethanol-equivalent volume greater than
4 mill gal and is consistent with EPA's 6 million ethanol-equivalent
gallon projection.
The approach we have taken in setting the applicable volume for
cellulosic biofuel for 2013 is appropriate. Section CAA 211(o)(7)(D)
vests the authority for making the projection with EPA. As described in
past rulemakings, the statute provides that the projection is
``determined by the Administrator based on the estimate provided [by
EIA].'' Congress did not intend that EPA simply adopt EIA's projection
without an independent evaluation. EPA's consideration of EIA's
estimate in developing this final rule is consistent with EPA's
consideration of EIA's estimate in the past rulemakings involving a
reduction of the volume standard for cellulosic biofuel. EPA's
interpretation and implementation of the obligation to base its
projection on the EIA estimate recently was upheld in API v. EPA, 706
F.3d at 478 (DC Cir. 2013).
3. Current Status of Cellulosic Biofuel Production Facilities
In the January 9, 2012, final rule that established the applicable
volume of cellulosic biofuel for 2012, we identified six production
facilities that we projected would produce cellulosic biofuel and make
that fuel commercially available in 2012. Five of these production
facilities are currently structurally complete and one is planning to
retrofit an existing corn ethanol plant with construction beginning in
the summer of 2013. The current status of each of these facilities,
including target production levels for each facility in 2013, is
discussed below. Two additional facilities that are expected to begin
producing cellulosic biofuel near the end of 2013 or in early 2014 are
also discussed.
API
American Process Inc. (API) is developing a project in Alpena,
Michigan capable of producing up to 900,000 gallons of cellulosic
ethanol per year from pre-commercial thinnings and tree residue from
tree plantations. This facility will use a technology developed by API
called GreenPower+TM. This technology extracts the
hemicellulose portion of woody biomass using hot water and hydrolyzes
it into sugars. These sugars are then converted to ethanol or other
alcohols, while the remaining portion of the woody biomass, containing
mostly cellulose and lignin, is processed into wood paneling at a co-
located facility. At future, larger-scale facilities API anticipates
burning the residual biomass in a boiler to produce steam and
electricity as well as cellulosic biofuel.
In January 2010 API received a grant from DOE for up to $18 million
for the construction of their demonstration facility. Construction of
the Alpena, Michigan facility began in March 2011 and API began
commissioning operations at their facility in the summer of 2012. API
encountered several unexpected difficulties in commissioning their
facility resulting in production delays; however they anticipate
production of cellulosic biofuel from this facility in 2013. EPA has
not included production from API in our projections due to the
facility's history of delays, uncertain start-up date, and small
potential production volume.
Fiberight
Fiberight uses an enzymatic hydrolysis process to convert the
biogenic portion of separated MSW and other waste feedstocks into
ethanol. They have successfully completed five years of development
work on their technology at their small pilot plant in Lawrenceville,
Virginia. In 2009 Fiberight purchased an idled corn ethanol plant in
Blairstown, Iowa with the intention of making modifications to this
facility to allow for the production of 6 mill gal of cellulosic
ethanol per year from separated MSW and industrial waste streams. These
modifications were scheduled to be completed in 2011, but difficulties
in securing funding have resulted in construction at this facility
being delayed. In January 2012 Fiberight was offered a $25 million loan
guarantee from USDA. Closing on this loan would provide substantially
all of the remaining funds required for Fiberight to complete the
required modifications at their Blairstown facility. Fiberight plans to
begin construction in the second quarter 2013. Fiberight expects that
it will take approximately 6 months to complete construction and that
fuel production will begin in early 2014. Additionally, Fiberight's
waste separation plan for this facility was approved in June 2012
allowing Fiberight to generate RINs for the cellulosic ethanol they
produce using separated MSW as a feedstock. Fiberight is also currently
developing a second commercial scale project based on their MSW ``hub
and spoke'' concept. They anticipate that this facility will produce
approximately 25 mill gal of cellulosic ethanol per year when fully
built out. Since Fiberight currently does not expect cellulosic biofuel
production to begin until 2014 no volume from their facility has been
included in EPA's projections.
INEOS Bio
INEOS Bio has developed a process for producing cellulosic ethanol
by first gasifying cellulosic feedstocks into a syngas and then using
naturally occurring bacteria to ferment the syngas into ethanol. In
January 2011 USDA announced a $75 million loan guarantee for the
construction of INEOS Bio's first commercial facility to be built in
Vero Beach, Florida. This loan was closed in August 2011. This was in
addition to the grant of up to $50 million INEOS Bio received from DOE
in December 2009. At full capacity, this facility will be capable of
producing 8 mill gal of cellulosic biofuel as well as 6 megawatts
(gross) of renewable electricity from a variety of feedstocks including
yard, agricultural, and wood waste. The facility also plans to use a
limited quantity of separated MSW as a feedstock after initial start-
up.
On February 9, 2011, INEOS Bio broke ground on this facility. INEOS
Bio completed construction on this facility in June 2012 and began full
commissioning of the facility. In August 2012 INEOS Bio received
approval from EPA for their yard waste separation plan
[[Page 49806]]
and successfully registered their Vero Beach, FL facility under the RFS
program. In September 2012 the facility began producing renewable
electricity. In April 2013 comments to the proposed rule INEOS Bio
stated that their facility was in the final start-up phase and that
they expected to produce cellulosic ethanol at full production rates by
the end of the year. The company issued a press release on July 31,
2013, stating that they had begun commercial production. For this final
rule we project 0-1 mill gal of cellulosic ethanol from INEOS Bio in
2013. Applying the six month straight-line ramp-up period, which we
consider a best case scenario as discussed above, with a start-up date
in August results in a projection of approximately 1 mill gal in 2013.
EPA believes this is a reasonable benchmark to use as a best case
scenario when assessing the ramp-up of cellulosic biofuel facilities.
When compared to the expected ramp-up rates of grain ethanol
facilities, which are generally 1-2 months this is a conservative
benchmark, but one we believe is appropriate given the challenges of
scaling up new technologies. Given the uncertainty in the first
production from INEOS Bio's facility and the history of delays for this
facility, EPA believes a further discount to a projected volume of 0-1
mill gal is warranted. \28\ INEOS Bio is also exploring several
opportunities for additional cellulosic biofuel production facilities,
both in the United States and internationally. INEOS Bio is targeting
sources of inexpensive feedstock, primarily waste materials, and sees a
market for plants with production capacities ranging from 8 to 50 mill
gal per year per facility.
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\28\ Given the recent start-up of the INEOS Bio facility, we do
not expect that zero gallons would be produced in 2013. However, we
have decided to base our projections (including ranges) in million
gallon increments in 2013, since uncertainty does not allow a more
precise worst-case projection. Our projection for INEOS Bio,
therefore, remains between zero and 1 million gallons, recognizing
that zero could only occur in the unlikely event that they chose not
to generate RINs for volume already produced.
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KiOR
KiOR is using a technology that converts biomass to a biocrude
using a process they call Biomass Fluid Catalytic Cracking (BFCC). BFCC
uses a catalyst developed by KiOR in a process similar to Fluid
Catalytic Cracking currently used in the petroleum industry. The first
stage of this process produces a renewable crude oil which is then
upgraded to produce primarily gasoline, diesel, and jet fuel as well as
a small quantity of fuel oil, all of which are nearly identical to
those produced from petroleum.
KiOR's first commercial scale facility is located in Columbus,
Mississippi and is capable of producing approximately 11 mill gal of
gasoline, diesel, and jet fuel per year. Construction on this facility
began in May 2011 and was completed in September 2012. This facility is
funded, in large part, with funds acquired through private equity and
supplemented by KiOR's $150 million IPO in June 2011. KiOR announced
that the first renewable transportation fuel produced at this facility
was shipped to customers on March 18, 2013. KiOR had intended to begin
producing fuel at their Columbus facility in 2012. Unexpected
difficulties during the commissioning of this facility, due in large
part to an interruption in electricity supply to the facility during
commissioning resulted in delays in fuel production. KiOR's current
expectations at their Columbus facility are for a start-up period
lasting 9-12 months. During this period they estimate fuel production
will average 30%-50% of the facility capacity after which they plan to
approach full production rates at the facility. KiOR's expected
production from their Columbus facility in 2013, recently confirmed in
their quarterly update on May 9th, 2013, is between 3 and 5 million
actual gallons of cellulosic gasoline and diesel. KiOR has feedstock
supply agreements in place to supply all of the required feedstock for
their Columbus facility with slash and pre-commercial thinning. They
also have off-take agreements with several companies for all of the
fuel that will be produced. KiOR has also announced plans to begin work
on their second commercial scale biofuel production facility in
Natchez, Mississippi upon the successful start-up of their first
facility. It is unlikely this second facility will begin production of
biofuel in 2013. For 2013 our production projection is for 3-4 million
actual gallons (5-6 million ethanol-equivalent gallons) of cellulosic
biofuel from KiOR's Columbus facility. This volume is significantly
lower than the volume of fuel that would be produced assuming our best
case scenario benchmark of a 6 month straight-line ramp-up period
starting in mid March (~9 million ethanol-equivalent gallons). However,
EPA believes this lower projection is appropriate based on the guidance
received from KiOR and the progress achieved at their facility to date.
Blue Sugars
Blue Sugars, formerly KL Energy, has developed a process to convert
cellulose and hemicellulose into sugars and ethanol using a combined
chemical/thermal-mechanical pretreatment process followed by enzymatic
hydrolysis, co-fermentation of C5 and C6 sugars, and distillation to
fuel-grade ethanol. This production process is versatile enough to
allow for a wide variety of cellulosic feedstocks to be used, including
woody biomass and herbaceous biomass such as sugarcane bagasse. In
August 2010 Blue Sugars announced a joint development agreement with
Petrobras America Inc. As part of the agreement Petrobras has invested
$11 million to modify Blue Sugars' 1.5 mill gal per year demonstration
facility in Upton, Wyoming to allow it to process bagasse and other
biomass feedstocks. The modifications to Blue Sugars' facility were
completed in the spring of 2011. In April 2012 Blue Sugars generated
approximately 20,000 cellulosic biofuel RINs, the first RINs generated
under the RFS program for fuel made from cellulosic feedstock. Blue
Sugars has indicated, however, that the cellulosic ethanol they
produced was exported to Brazil for promotional efforts at the Rio +20
conference in Brazil. These RINs therefore had to be retired and were
not be available to obligated parties to meet their cellulosic biofuel
requirements in 2012. In October 2012 Western Biomass Energy LLC, a
subsidiary of Blue Sugars that owned the Upton, Wyoming demonstration
facility, filed for Chapter 11 bankruptcy. This was changed to Chapter
7 bankruptcy on May 2, 2013 and was followed by a Chapter 7 bankruptcy
filing for Blue Sugars on May 10th.
ZeaChem
ZeaChem successfully completed construction of their demonstration-
scale facility in Boardman, Oregon, in October 2012, allowing for the
production of ethanol from sugars derived from cellulose and hemi-
cellulose. On March 12, 2013 they announced that they had successfully
produced ethanol from cellulosic feedstocks at their biorefinery, which
has a nameplate capacity of 250,000 gallons of cellulosic ethanol per
year. ZeaChem's production process uses a combination of biochemical
and thermochemical technologies to produce ethanol and other renewable
chemicals from cellulosic materials. The feedstock is first
fractionated into two separate streams, one containing sugars derived
from cellulose and hemicellulose and the other containing lignin. The
sugars are fermented into an intermediate chemical, acetic acid, using
a naturally occurring acetogen.
[[Page 49807]]
The acetic acid is then converted into ethyl acetate, which can then be
hydrogenated into ethanol. The hydrogen necessary for this process is
produced by gasifying the lignin stream from the cellulosic biomass.
ZeaChem's process is flexible and is capable of producing a wide
range of renewable chemicals and fuels from many different feedstocks.
They plan to use both agricultural residues and pre-commercial
thinnings and tree residue from tree plantations at their demonstration
facility and have contracts in place for these feedstocks, as well as
planted trees from tree plantations, at their first commercial scale
facility.\29\ In January 2012 ZeaChem announced that they had received
a $232.5 million conditional loan guarantee offer from USDA for the
construction of their first commercial scale facility, which will have
a capacity of at least 25 mill gal per year. ZeaChem currently has
agreements in place to provide all of the necessary feedstock for this
facility. This facility, however, is not expected to begin producing
cellulosic biofuel until late 2014 at the earliest. We therefore have
not included any volume for this facility in our 2013 projection.
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\29\ EPA has not yet approved planted trees from tree
plantations as a RIN generating feedstock. Unless and until EPA
approves a pathway using planted trees from tree plantations as a
feedstock ZeaChem will be unable to generate RINs for any biofuel
produced using this feedstock.
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Abengoa
Abengoa has developed an enzymatic hydrolysis technology to convert
corn stover and other agricultural waste feedstocks into ethanol. After
successfully testing and refining their technology at a pilot scale
facility in York, Nebraska as well as in a demonstration-scale facility
in Salamanca, Spain, Abengoa is now working towards the completion of
their first commercial scale cellulosic ethanol facility in Hugoton,
Kansas. Abengoa has contracts in place to provide the majority of
feedstocks necessary for this facility for the next 10 years and
successfully completed their first biomass harvest in the fall of 2011.
Construction at this facility, which began in September 2011, is
expected to take approximately 24 months and be completed in the fourth
quarter of 2013. All of the major process equipment for this project
has been purchased and all of the required permits for construction
have been approved. Abengoa's Hugoton facility is being partially
funded by a $132 million Department of Energy (DOE) loan guarantee.
When completed, the Hugoton plant will be capable of processing 700
dry tons of corn stover per day, with an expected annual ethanol
production capacity of approximately 24 mill gal. Abengoa plans to
begin ramping up production at the facility shortly after completing
construction in late 2013 and to be producing fuel at rates near the
nameplate capacity in the summer of 2014. After successfully proving
their technology at commercial scale in Hugoton, Abengoa currently
plans to construct additional similar cellulosic ethanol production
facilities, either on greenfield sites or co-locating these new
facilities with their currently existing starch ethanol facilities
around the United States. While this facility could produce a small
volume of cellulosic ethanol in 2013, commissioning of the facility is
expected to last through the first quarter of 2014, during which only
small volumes of ethanol will be produced. Given the small volume
potential and high degree of uncertainty of production from this
facility in 2013, we have not included any of this volume in our
projected available volume for 2013.
Poet
Poet has also developed an enzymatic hydrolysis process to convert
cellulosic biomass into ethanol. Poet has been investing in the
development of cellulosic ethanol technology for more than a decade and
began producing small volumes of cellulosic ethanol at pilot scale at
their plant in Scotland, SD in late 2008. In January 2012, Poet formed
a joint venture with Royal DSM of the Netherlands called Poet-DSM
Advanced Biofuels to commercialize and license their cellulosic ethanol
technology.
The joint venture's first commercial scale facility, called Project
LIBERTY, will be located in Emmetsburg, Iowa. This facility is designed
to process 770 dry tons of corn cobs, leaves, husks, and some stalk per
day into cellulosic ethanol. The facility is projected to have an
annual production capacity beginning at approximately 20 mill gal per
year, increasing over time to 25 mill gal per year. In anticipation of
the start-up of this facility, Poet constructed a 22-acre biomass
storage facility and had its first commercial harvest in 2010,
collecting 56,000 tons of biomass.
Site prep work for Project LIBERTY began in the summer of 2011, and
vertical construction of the facility began in the spring of 2012. Poet
was awarded a $105 million loan guarantee offer for this project from
DOE in July 2011, but with the joint venture decided to proceed without
the loan guarantee. This project is expected to be completed in the
first half of 2014. After the completion of Project LIBERTY, Poet plans
to build additional cellulosic ethanol facilities at many of their
existing corn ethanol plants. They are also planning to license their
technology for use at other grain ethanol plants, as well as build
additional plants that will process wheat straw, rice hulls, woody
biomass or herbaceous energy crops. By 2022 Poet has a goal of
producing 3.5 bill gal of cellulosic ethanol per year. Given the
projected completion date of 2014 for the Emmetsburg, Iowa facility, we
have not included any of this volume ion our projected available volume
for 2013.
Other Companies
There are several more companies planning to begin producing
cellulosic biofuel from commercial scale facilities in 2014 including
Cool Planet Biofuels, DuPont, and Ensyn. Along with the companies
discussed above, these facilities represent approximately 100 mill gal
of additional cellulosic biofuel production capacity. Most of these
companies have already begun to develop plans for their successive
facilities to follow after the successful completion of their initial
projects.
4. Other Potential Sources of Domestic Cellulosic Biofuel
Each of the companies listed in the previous two sections is
planning to generate cellulosic biofuel RINs using one of the valid
RIN-generating pathways listed in Table 1 to 40 CFR Sec. 80.1426. To
generate RINs, each company must comply with all applicable
registration, recordkeeping, and reporting requirements in the RFS
regulations, including requirements to verify that the feedstocks used
are renewable biomass and are sourced from approved land. EPA is not
approving any additional feedstocks or processes in today's rule. We
are also aware of several companies that may be in a position to
produce cellulosic biofuel in 2013 but intend to use a production
pathway that is not currently approved for RIN generation. Pathways
that are currently under evaluation by EPA include transportation fuels
derived from landfill biogas such as CNG, cellulosic ethanol produced
from corn kernel fiber and cellulosic heating oil. If these or other
cellulosic biofuel pathways are approved by EPA, they may be used to
generate on the order of 3 million cellulosic biofuel RINs in 2013.
Because EPA has not yet made a final determination on these pathways no
volume of cellulosic fuel from these
[[Page 49808]]
pathways has been included in our 2013 cellulosic biofuel projection.
5. Imports of Cellulosic Biofuel
While domestically produced cellulosic biofuels are the most likely
source of cellulosic biofuel available in the United States in 2013,
imports of cellulosic biofuel produced in other countries may also
generate RINs and participate in the RFS program. While the demand
provided by the RFS program provides a financial incentive for
companies to import cellulosic biofuels into the United States, the
combination of local demand, financial incentives from other
governments, and transportation costs for the cellulosic biofuel has
resulted in no cellulosic biofuel being imported to the United States
thus far. We believe this situation is likely to continue in the near
future and have not included any cellulosic biofuel imports in our
projections of available volume in 2013.
As in the United States, the production of cellulosic biofuels
internationally is mostly limited to small-scale research and
development, pilot, and demonstration facilities at this time. This is
likely to continue to be the case throughout 2013. Two notable
exceptions are facilities built and operated by Beta Renewables and
Enerkem. Beta Renewables completed construction of their first
commercial scale facility located in Crescentino, Italy in the summer
of 2012. This facility is currently in a commissioning phase and is
designed to produce approximately 20 mill gal of cellulosic ethanol per
year. Beta Renewables uses an enzymatic hydrolysis process to produce
ethanol from local agricultural residues and herbaceous energy crops.
Enerkem is also in the process of building their first commercial
scale facility in Edmonton, Alberta and plans to begin operations in
2013. Enerkem's facility will use a thermochemical process to produce
syngas from MSW and then catalytically convert the syngas to methanol.
The methanol can then be sold directly or upgraded to ethanol or other
chemical products. At full capacity this facility will be capable of
producing 10 mill gal of cellulosic ethanol per year. At this point,
neither Beta Renewables nor Enerkem have registered their facilities
under the RFS program, a necessary step that must be completed before
these companies can generate RINs for any fuel they import into the
United States. Both are planning to locate additional plants in the
United States in the future and are likely to generate RINs for
production from domestic facilities in future years.
6. Summary of Volume Projections
The information we have gathered on cellulosic biofuel producers,
described above, allows us to project production volumes for each
facility in 2013. For the purposes of this final rulemaking we have
focused on commercial scale cellulosic biofuel production facilities.
We believe our focus on commercial scale facilities is appropriate as
the industry transitions from small-scale R&D and pilot facilities to
large scale commercial production. It is likely that several small-
scale facilities such as API, DuPont, ZeaChem, and others will also
produce some cellulosic biofuel in 2013. While RINs may be generated
for any cellulosic biofuel produced from these small R&D and pilot
facilities, historically many have chosen not to do so for a variety of
reasons. We are therefore not including a volume projection from these
facilities.
In 2013 as many as seven cellulosic biofuel companies have the
potential to produce fuel at commercial scale. Each of these facilities
is discussed above, and the facility production targets for each are
summarized in Table II.C.6-1 below. Of the two companies from which we
are basing our 2013 cellulosic biofuel projection one has already begun
producing cellulosic biofuel at their commercial scale facility and the
other is expected to begin production soon. This gives us increased
confidence in their production capabilities as they have already
achieved significant milestones. The other companies that have the
potential to produce cellulosic biofuel in 2013, Abengoa, EdeniQ,
Ensyn, Fiberight, and companies producing biogas from landfills for
transportation use, either do not yet have a valid RIN generating
pathway or are not planning on beginning fuel production until late
2013 or early 2014. Even a small delay in their expected production
timeline could result in their failure to produce any cellulosic
biofuel in 2013 and any volumes of fuel produced are likely to be very
small. For this final rule, therefore, we are not projecting production
from these facilities in 2013 consistent with EIA's projection. The
fact that our projection only includes volumes from facilities that
have already completed construction of commercial scale facilities is
in large part due to the delay in finalizing the RFS standards for 2013
and is not intended to set a precedent for future rulemakings. Volumes
from facilities that have not yet completed construction may be
considered in EPA's volume projections in future rulemakings if
appropriate under the circumstances, recognizing that EPA's goal is a
projection of what will actually happen in the year at issue, taking a
neutral aim at accuracy.
When considering together all the potential sources of cellulosic
biofuel, the total projected production volume from commercial scale
production facilities in the United States in 2013 is 4 million actual
gallons (6 million ethanol-equivalent gallons). This is the mid-point
of the range of values projected for the two facilities. This number
represents EPA's projection of expected cellulosic RIN production in
2013, taking into account the EIA estimates and the many factors
described in detail above.
Table II.C.6-1--Projected Available Cellulosic Biofuel for 2013
--------------------------------------------------------------------------------------------------------------------------------------------------------
2013
2013 Projected
Projected available
Design First production available volume
Company name Location Feedstock Fuel capacity (projected) actual (million
(MGY) volume ethanol-
(Mill gal) equivalent
gallons)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Abengoa............. Hugoton, KS........... Corn Stover.......... Ethanol.............. 24 1st Quarter 2014\b\.. 0 0
EdeniQ\a\........... Various............... Corn Kernel Fiber.... Ethanol.............. 10 4th Quarter 2013\b\.. 0 0
Ensyn\a\............ Rhinelander, WI; Woody Biomass........ Heating Oil.......... 4 Currently Producing.. 0 0
Ontario, CA.
Fiberight........... Blairstown, IA........ MSW.................. Ethanol.............. 6 1st Quarter 2014\b\.. 0 0
INEOS Bio........... Vero Beach, FL........ Vegetative Waste..... Ethanol.............. 8 Mid 2013\b\.......... 0-1 0-1
KiOR................ Columbus, MS.......... Wood Waste........... Gasoline and Diesel.. 11 March 18, 2013....... 3-4 5-6
[[Page 49809]]
Various\a\.......... N/A................... Landfill Biogas...... Biogas............... N/A Currently Producing.. 0 0
Various Pilot/Demo Various............... Various.............. Various.............. Various Various.............. 0 0
Plants.
-----------------------------------------------------------------------------------------------------------------------------------
Total........... ...................... ..................... ..................... 49 ..................... 4 6
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Companies do not currently have valid pathways for RIN generation.
\b\ Start-up dates for these facilities are projections.
D. Cellulosic Biofuel Volume for 2013
In today's final rule we are setting the applicable volume for
cellulosic biofuel for 2013 that is based on EIA's estimate, projected
production volumes developed in consultation with the companies
expected to produce cellulosic biofuel from commercial scale facilities
in 2013, comments we received in response to the NPRM, and EPA's
judgment. Many factors have been taken into consideration in developing
these projections, such as the EIA estimate, the current status of
project funding, the status of the production facility, anticipated
construction timelines, the anticipated start-up date and ramp-up
schedule, feedstock supply, intent to generate RINs, and many others.
Moreover, all of the companies included in our 2013 volume projections
have invested a significant amount of time and resources developing
their technologies at R&D and demonstration-scale facilities prior to
the design and construction of their first commercial scale facilities.
The projects have solid financial backing. We believe the sum of these
individual projected available volumes (6 million ethanol-equivalent
gallons) is a reasonable projection of expected actual production. This
projection reflects EPA's best estimate of what will actually happen in
2013.
III. Assessment of Advanced Biofuel and Total Renewable Fuel for 2013
As described in Section I, the volumes of renewable fuel required
for use under the RFS program each year (absent an adjustment or waiver
by EPA) are generally specified in CAA 211(o)(2) through 2022. For
2013, the applicable volume of advanced biofuel is 2.75 bill gal, and
the applicable volume of total renewable fuel is 16.55 bill gal.
In the NPRM, we proposed a reduction in the applicable volume of
cellulosic biofuel. Under section 211(o)(7)(D)(i), when EPA reduces the
volume of cellulosic biofuel EPA may reduce the applicable volume of
total and advanced biofuel by an amount up to the reduction in
cellulosic biofuel. We proposed no reduction in the volumes of advanced
biofuel and total renewable fuel for 2013. However, we requested
comment on whether the advanced biofuel and total renewable fuel
requirements should be reduced under section 211(o)(7)(D)(i) to account
for uncertainty in availability of advanced biofuel, specifically
asking whether a reduction of 200 mill gal would be appropriate. We
also requested comment on whether the blendwall \30\ would present any
difficulty in terms of compliance with the volume requirements in 2013.
---------------------------------------------------------------------------
\30\ In general, the term ``blendwall'' refers to the total
volume of ethanol that can be consumed as either E10 or higher
ethanol blends given various constraints.
---------------------------------------------------------------------------
No stakeholders supported the specific reduction of 200 mill gal in
the advanced biofuel and total renewable fuel volume requirements on
which we sought comment in our proposal. Instead, stakeholders were
generally in favor of either much larger reductions or no reduction at
all. Those requesting much larger reductions most commonly pointed to
the authority under the cellulosic waiver authority to reduce advanced
biofuel and total renewable fuel by up to the same amount as the
reduction in cellulosic biofuel, which was 986 mill gal in the NPRM.
Depending on the stakeholder, justifications for such large reductions
included cost, availability, and the E10 blendwall. Some went further,
suggesting that the required volume of total renewable fuel should be
reduced more than 986 mill gal since reductions in advanced biofuel
would likely be insufficient to address the E10 blendwall. Of those
that cited the E10 blendwall as a reason to reduce the required
volumes, most requested that the total volume of ethanol demand created
by the standards be no more than 10% of all gasoline, though some
conceded that accounting for reasonably achievable volumes of E15-E85
would be appropriate.
Those stakeholders requesting that the applicable standards be
based on the statutory volumes without any reductions typically cited
sufficiency of available biofuels and opportunities for growth in
consumption of E15-E85. Some also pointed to the need to promote growth
in the advanced biofuel and non-ethanol markets and expressed concern
that any reductions in the standards would jeopardize investments.
A. Statutory Authorities for Reducing Volumes
1. Cellulosic Waiver Authority
Under CAA section 211(o)(7)(D)(i), if EPA determines that the
projected volume of cellulosic biofuel production for the following
year is less than the applicable volume provided in the statute, then
EPA must reduce the applicable volume of cellulosic biofuel to the
projected volume available during that calendar year. Under such
circumstances, EPA also has the discretion to reduce the applicable
volumes of advanced biofuel and total renewable fuel by an amount not
to exceed the reduction in cellulosic biofuel.
Section 211(o)(7)(D)(i) provides that ``For any calendar year in
which the Administrator makes such a reduction, the Administrator may
also reduce the applicable volume of renewable fuel and advanced
biofuels requirement established under paragraph (2)(B) by the same or
a lesser volume.'' Thus Congress authorized EPA to reduce the
[[Page 49810]]
volume of total renewable fuel ``and'' advanced biofuels. As EPA has
discussed before, this indicates a clear Congressional intention that
EPA may reduce both the total renewable and advanced biofuel volume
together, not one or the other.
As described in the May 2009 NPRM for the RFS regulations, we do
not believe it would be appropriate to lower the advanced biofuel
standard but not the total renewable standard, as doing so would allow
conventional biofuels to effectively be used to meet the standards that
Congress specifically set for advanced biofuels. See 74 FR 24914-15. We
interpret this provision as authorizing EPA to reduce both total
renewable fuel and advanced biofuel, by the same amounts, if EPA
reduces the volume of cellulosic biofuel. Using this authority the
reductions in total renewable fuel and advanced biofuel can be up to
but no more than the amount of reduction in the cellulosic biofuel
volume.
The National Biodiesel Board (NBB) commented that the language of
CAA 211(o)(7)(D)(i) does not require advanced biofuel and total
renewable fuel volumes to be reduced together. NBB cited several other
legal decisions to support their assertion that advanced biofuel and
total renewable fuel could be reduced by different amounts under the
cellulosic waiver authority. While we agree that in some other contexts
wording similar to that in 211(o)(7)(D)(i) has taken on a different
meaning, in none of those other contexts was there a nested set of
requirements such as there are in the RFS program. In the RFS program,
cellulosic biofuel is also used to satisfy the advanced biofuel
standard and the total renewable fuel standard. Similarly, advanced
biofuel is used to satisfy the volume obligation for total renewable
fuel. Thus any reductions in the applicable volume of cellulosic
biofuel will also simultaneously affect the means through which
obligated parties comply with these two other standards, and any
reductions in advanced biofuel volume will affect the means through
which obligated parties comply with the total renewable fuel volume.
Congress structured the volumes such that total renewable fuel volume
requirements were increasing in coordination with the increase in
advanced biofuel. Congress established the volume requirements for
advanced biofuel and total renewable fuel as interrelated standards.
Therefore it is appropriate to consider a possible reduction in both
the advanced biofuel and total renewable fuel applicable volumes when
EPA reduces the cellulosic biofuel volume below the applicable volume
for cellulosic biofuel set forth in the statute. Thus to the extent
circumstances warrant a reduction in advanced biofuel and total
renewable fuel based on the reductions in cellulosic biofuel pursuant
to section 211(o)(7)(D)(i), we believe it will best reflect the goals
and objectives of the Act for the advanced biofuel and total renewable
fuel volumes to both be reduced by the same amount, maintaining the
volume relationship between the two renewable fuel categories. In this
way, if the circumstances in a specific year warrant not reducing the
advanced biofuel and total renewable fuel volumes by the amount that
the cellulosic biofuel volume is reduced, then to the extent that the
shortfall in cellulosic biofuel production is replaced it would be
through advanced biofuel, which comes significantly closer to the GHG
reductions achieved by cellulosic biofuel. It is important to note,
however, that this discussion does not address whether or under what
circumstances the advanced and total volume requirements should be
reduced under section 211(o)(7)(D)(i), but solely whether any such
reductions would be for both categories of fuel under section
211(o)(7)(D)(i).
NBB also argued that any consideration of a reduction in advanced
biofuel should be accompanied by an equivalent reduction in total
renewable fuel, but that the reverse was not true. We agree that a
reduction in the total renewable fuel requirement that is considered
under the general waiver authority at 211(o)(7)(A) need not necessarily
be accompanied by an equivalent reduction in the advanced biofuel
requirement. It is possible that there could be an inadequate supply of
total renewable fuels that would justify a waiver of the total
renewable fuel standard, for example, without there also being an
inadequate supply of advanced biofuels. However, we are currently
setting the annual RFS standard and are not responding to a petition
that we assert the general waiver authority.
In 2013, the applicable volume of cellulosic biofuel specified in
the statute represents more than a third of the advanced biofuel volume
(1.0 bill gal out of 2.75 bill gal), a higher fraction than in any
previous year. A substantial reduction in the applicable volume of
cellulosic biofuel could potentially also have a substantial impact on
the sufficiency of volumes to meet the advanced biofuel and total
renewable fuel standards. As described in Section II.D above, we are
establishing an available volume of cellulosic biofuel for 2013 of 6
mill ethanol-equivalent gallons, significantly below the statutory
applicable volume of 1.0 bill gal. As a result, we have the discretion
under CAA section 211(o)(7)(D)(i) to reduce the advanced biofuel and
total renewable fuel applicable volumes by up to 994 mill gallons
(ethanol-equivalent).
The statute does not provide any explicit criteria that must be met
or factors that must be considered when making a determination as to
whether and to what degree to reduce the advanced biofuel and total
renewable fuel applicable volumes based on a reduction in cellulosic
biofuel volumes under CAA section 211(o)(7)(D)(i). In comments on the
NPRM, stakeholders differed in their views about which factors EPA
should consider when making a determination about whether and to what
degree to reduce volumes of advanced biofuel and total renewable fuel
under the cellulosic waiver authority. Some indicated that the only
factor that should be considered is whether the volumes in question are
available. Others indicated that the criteria that apply under the
general waiver authority at section 211(o)(7)(A) should also apply to
the cellulosic waiver authority at section 211(o)(7)(D)(i). The Clean
Air Task Force and the Union of Concerned Scientists both suggested
that the criteria in section 211(o)(2)(B)(ii), which are required to be
used to determine applicable volumes for years not specified in the
statute, should also be considered in the context of the cellulosic
waiver authority. The criteria in section 211(o)(2)(B)(ii) are
described more fully in Section III.A.3 below.
We agree that nothing in the Act precludes EPA from considering the
criteria described in sections 211(o)(2)(B)(ii) and 211(o)(7)(A) in
determining appropriate reductions in advanced biofuel and total
renewable fuel under the cellulosic waiver authority at section
211(o)(7)(D)(ii). Moreover, it may be appropriate to do so in certain
circumstances, as described more fully below. However, we do not
believe that there is any legal requirement to apply the criteria of
those provisions as binding criteria for purposes of section
211(o)(7)(D)(ii). It is clear that these three statutory provisions are
separate and independent provisions, with no cross-references. Congress
did not include the criteria in those other waiver provisions in the
separate waiver provision for cellulosic biofuel. In the case of the
general waiver authority at section 211(o)(7)(A), we do not agree with
the comment that it
[[Page 49811]]
provides criteria that must be met in order to reduce cellulosic and
advanced volumes under 211(o)(7)(D)(i). If it did, the waiver language
in 211(o)(7)(D)(i) would be superfluous, since 211(o)(7)(A) would
already provide the discretionary authority to reduce advanced biofuel
and total renewable fuel in the circumstances where the criteria in
211(o)(7)(A) are satisfied. Moreover, if the criteria in 211(o)(7)(A)
apply to the cellulosic waiver authority in 211(o)(7)(D)(i), then it
would also logically apply to the biomass-based diesel waiver authority
in 211(o)(7)(E)(ii), also rendering that section superfluous. We do not
believe that the Act can or should be interpreted in this manner.
We believe that the applicable volumes for total and advanced
biofuel identified in the statute should be retained for 2013 as there
are reasonably available volumes of renewable fuel to achieve the
statutory volumes. EPA has also considered the comments concerning
factors other than availability, as discussed below. EPA has determined
that under the circumstances discussed below for 2013, it is
appropriate to retain the statutory volumes.
One stakeholder suggested that uncertainty in potential imports of
sugarcane ethanol from Brazil should not be a factor when projecting
the volumes expected to be available to meet the statutory volume
requirements for advanced biofuel. The stakeholder pointed to a recent
decision from the U.S. Court of Appeals indicating that EPA need not
present specific numerical projections of available volumes of advanced
biofuel if it did not intend to reduce the required volumes below the
volumes specific in the statute. In that case the court stated that:
Nothing in the text of Sec. 7545(o)(7)(D)(i), or any other
applicable provision of the Act, plainly requires EPA to support its
decision not to reduce the applicable volume of advanced biofuels
with specific numerical projections. This stands in contrast to the
Act's explicit instructions that EPA make a numerical projection for
cellulosic biofuel. Certainly EPA must provide a reasoned
explanation for its actions, but rationality does not always imply a
high degree of quantitative specificity.
API v. EPA, 706F.3d at 481 (D.C. Cir 2013)
In the 2012 RFS standards rule at issue in the referenced Court
decision, EPA did not present individual numeric projections of
available volumes of advanced biofuel, but instead described historical
data, production capacity, competing publicly-available projections and
qualitative information to conclude that sufficient volumes could be
produced without lowering the applicable volume set forth in the
statute. The Court upheld EPA's approach as reasonable. However, the
Court decision does not preclude EPA from deriving and seeking comment
on numeric projections where EPA believes it is appropriate to do so.
In this case EPA believed it would facilitate its decision-making to
derive and seek comment on a numeric projection of sugarcane ethanol
imports for 2013. This approach is consistent with the statute and the
API opinion.
2. General Waiver Authority
Under CAA 211(o)(7)(A), EPA can reduce the amount of any of the
four volume requirements specified in the statute if one of the
following determinations is made:
Implementation of the requirement would severely harm the
economy or the environment of a State, a region, or the United States;
There is an inadequate domestic supply.
In order to make such a reduction in the required volumes, EPA would
need to consult with the Secretary of Agriculture and the Secretary of
Energy, and would need to provide public notice and opportunity for
comment.
3. Modification of Applicable Volumes for 2016 and Beyond
Under certain specified conditions, CAA section 211(o)(7)(F)
requires EPA to modify the applicable volume provided in the statute
for calendar years 2016 and beyond if EPA has waived a volume
requirement using the waiver authorities provided in CAA section
211(o)(7)(A), (D), or (E). This requirement to modify the applicable
volumes is triggered when one of the following occurs:
EPA waives at least 20 percent of the applicable volume
requirement for two consecutive years
EPA waives at least 50 percent of the applicable volume
requirement for a single year
This requirement to modify the applicable volumes applies separately
for each of the four volume requirements in CAA section 211(o)(2)(B),
Volume modifications made pursuant to CAA 211(o)(7)(F) would differ
from waivers in several important ways. First, while waivers leave the
statutory volume mandates at CAA 211(o)(2)(B)(i) intact and merely
reduce them for the purposes of calculating the applicable annual
percentage standards for that year, the volume modifications under
211(o)(7)(F) would instead modify the applicable volumes that are
provided in the statute. Once modified, the new volumes would replace
those in the statute for the applicable years. Second, waivers are
generally determined and applied for one year at a time, while the
volume modifications could be done at one time for multiple years after
2015. Third, CAA 211(o)(7)(F) provides explicit direction concerning
those factors that EPA must consider in modifying the statutory volumes
for 2016 and beyond, incorporating by reference the requirements in CAA
section 211(o)(2)(B)(ii):
The impact of the production and use of renewable fuels on
the environment, including on air quality, climate change, conversion
of wetlands, ecosystems, wildlife habitat, water quality, and water
supply;
The impact of renewable fuels on the energy security of
the United States;
The expected annual rate of future commercial production
of renewable fuels, including advanced biofuels in each category
(cellulosic biofuel and biomass-based diesel);
The impact of renewable fuels on the infrastructure of the
United States, including deliverability of materials, goods, and
products other than renewable fuel, and the sufficiency of
infrastructure to deliver and use renewable fuel;
The impact of the use of renewable fuels on the cost to
consumers of transportation fuel and on the cost to transport goods;
and
The impact of the use of renewable fuels on other factors,
including job creation, the price and supply of agricultural
commodities, rural economic development, and food prices.
To modify the required volumes under 211(o)(7)(F), EPA is also required
to coordinate with the Secretary of Energy and the Secretary of
Agriculture and review the implementation of the program to date. Any
modification under this provision would be made through rulemaking.
In response to the NPRM, one stakeholder requested that EPA use the
authority under CAA 211(o)(7)(F) as soon as possible, or by 2014, to
modify the required future volumes for cellulosic biofuel as a way of
providing more long-term certainty to the market. However, we do not
believe that taking action sooner would provide such long-term
certainty since the authority under CAA 211(o)(7)(D) would continue to
apply and we would still be required to reduce the applicable volume of
cellulosic biofuel if the volume
[[Page 49812]]
projected to be available for any one calendar year was less than the
volumes for that calendar year as modified under CAA 211(o)(7)(F).
B. Available Volumes of Advanced Biofuel in 2013
In the NPRM we discussed the cellulosic waiver authority provided
in CAA 211(o)(7)(D)(i), which provides that EPA may reduce the
applicable volume of advanced biofuel and total renewable fuel up to
the amount of the reduction in required cellulosic biofuel volumes (986
mill gal in the NPRM). We clarified that, if we were to reduce the
required volume of advanced biofuel under this statutory authority, we
would also reduce the required volume of total renewable fuel by the
same amount, with the net effect being that the volume of non-advanced
biofuel needed to meet the statutory required volumes would be
unchanged. In the NPRM we did not discuss reductions in any of the
statutory volume requirements under the general waiver authority.
Our focus in the NPRM was on the availability of advanced biofuel
in comparison to the volume needed to meet the statutory volume of 2.75
bill gal in light of the substantial reduction in cellulosic biofuel.
Based on our assessment of availability of advanced biofuel, we
proposed no reduction in the advanced biofuel and total renewable fuel
volumes. We continue to believe that the availability of advanced
biofuel is a critical component in determining whether the statutory
volume requirement of 2.75 bill gal should be reduced. However, we
recognize that we can also consider other factors in this
determination. For instance, in response to our request for comment on
whether the E10 blendwall might present difficulty in meeting the
statutory volume requirements, a number of stakeholders indicated that
we should use one of the statutory waiver authorities to reduce the
required volumes of advanced biofuel and total renewable fuel to
account for limitations in the volume of ethanol that can be consumed.
Other stakeholders suggested that we reduce advanced and total volumes
because of environmental or cost concerns.
We have the discretion under 211(o)(7)(D)(i) to reduce the advanced
biofuel and total renewable fuel volumes by up to the amount we reduce
the applicable volume of cellulosic biofuel, and such a reduction would
contribute to reducing complications associated with the E10 blendwall.
The net effect of such a change would be that the volume of non-
advanced biofuel needed to meet the required volumes for total
renewable fuel would be unaffected. We discuss the E10 blendwall and
the treatment of total renewable fuel in Section III.C below, and we
discuss a longer-term strategy for combining considerations of biofuel
availability and the ethanol blendwall in Section III.E. In this
section we focus on the availability of advanced biofuels in our
determination of whether to reduce the advanced biofuel and total
renewable fuel volumes using the cellulosic waiver authority.\31\
---------------------------------------------------------------------------
\31\ Any exercise of the general waiver authority requires
notice and the opportunity for comment. The NPRM did not propose a
waiver under the general waiver authority, and only discussed volume
adjustments made under the cellulosic waiver authority. We are not
in a position to address in this final rule all of the issues that
would be relevant under a notice and comment proceeding under the
general waiver provisions. This final rule thus focuses on the
exercise of our authority under the cellulosic biofuel waiver
provision.
---------------------------------------------------------------------------
Renewable fuels that can be used to meet the standard for advanced
biofuel include those with Renewable Identification Number (RIN) codes
of 3, 4, 5, or 7. Table III.B-1 shows the number of each of these types
of RIN that was generated in 2012.
Table III.B-1--2012 RINs That Qualified To Meet the 2012 Advanced Biofuel Standard \32\
[Million ethanol-equivalent gallons]
----------------------------------------------------------------------------------------------------------------
Renewable Biogas and
D code Category Ethanol Biodiesel diesel heating oil
----------------------------------------------------------------------------------------------------------------
3............................. Cellulosic 0.02 0 0 0
biofuel.
4............................. Biomass-based 0 1,579 147 0
diesel.
5............................. Advanced biofuel 588 0 20 3
7............................. Cellulosic 0 0 0 0
diesel.
---------------------------------------------------------------------------------
Total..................... 2,337
----------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------
\32\ 2012 data from the EPA-Moderated Transaction System (EMTS).
---------------------------------------------------------------------------
The total of 2,337 mill ethanol-equivalent gallons is higher than the
2,000 mill gal of advanced biofuel required in 2012. This result
supports our projection in the rulemaking setting the 2012 standards
\33\ that there was no need to reduce the 2012 advanced biofuel
requirement despite the significant reduction in the applicable volume
of cellulosic biofuel.
\33\ 77 FR 1320, published on January 9, 2012.
---------------------------------------------------------------------------
The applicable volume in the statute for advanced biofuel in 2013
is 2,750 mill gal, an increase of 750 mill gal over the 2012
requirement of 2,000 mill gal, and 413 mill gal above the volume
actually produced or imported in 2012. In order to determine the
sufficiency of advanced biofuel volumes to meet a requirement for 2,750
mill gal in 2013, we first accounted for biomass-based diesel and
cellulosic biofuels that would be required under the standards we are
setting today. As shown in Table III.B-2, the result is that there
would need to be 824 mill ethanol-equivalent gallons of other advanced
biofuels in order to meet the total advanced biofuel requirement of
2,750 mill gal.
Table III.B-2--Necessary Volume of Advanced Biofuel
[Mill gal ethanol-equivalent]
------------------------------------------------------------------------
------------------------------------------------------------------------
2013 Advanced biofuel applicable volume....................... 2,750
Cellulosic biofuel requirement................................ 6
Biomass-based diesel requirement.............................. \a\
1,920
Necessary volume of additional advanced biofuel............... 824
------------------------------------------------------------------------
\a\ We have assumed that the 1.28 bill gal requirement is composed
entirely of biodiesel with an equivalence value of 1.5 based on
historical production. If significant quantities of renewable diesel,
with an equivalence value of 1.6 or 1.7 are used to satisfy the
biomass-based diesel requirement this number will be larger.
We have identified a variety of sources of advanced biofuel that could
meet the need for 824 mill gal of additional
[[Page 49813]]
advanced biofuel, including the following:
Biodiesel in excess of that required to meet the volume
requirement of 1.28 bill gal
Domestically produced advanced biofuels such as renewable
diesel that does not qualify as biomass-based diesel, biogas from
landfills, sewage waste treatment plants, and manure digesters, heating
oil, sorghum ethanol produced at dry mill facilities using specified
forms of biogas for both process energy and most electricity
production, and ethanol and other qualifying renewable fuels from
separated food wastes
Imports of advanced biofuels, including sugarcane ethanol and
renewable diesel
Taken together, and as discussed in more detail below, there is the
potential for well over 1.0 bill gal of these additional advanced
biofuels in 2013. Moreover, there are also a significant number of
carryover RINs from 2012 that could be used to fulfill part of the 2013
advanced biofuel requirement. These carryover RINs alone could meet
more than 500 mill gal of the 824 mill gal volume shown in Table III.B-
2.
Table III.B-3--Advanced Biofuel Carryover RINs From 2012 into 2013
(million)
------------------------------------------------------------------------
D Code RINs
------------------------------------------------------------------------
Biomass-Based Diesel................................ 4 353
Advanced Biofuel.................................... 5 196
------------------------------------------------------------------------
1. Biomass-Based Diesel
In a separate action, we have finalized a biomass-based diesel
volume of 1.28 bill gal for 2013.34 35 However, biomass-
based diesel volumes above 1.28 billion physical gallons are possible.
As of February 2013, the aggregate production capacity of registered
biodiesel plants in the U.S. was 2.8 bill gal per year across 171
facilities.\36\ Of this production capacity, 2.4 bill gallons is
represented by companies that actually produced some biodiesel in 2012.
For all facilities that produced biodiesel at 20% or more of their
capacity in 2012, the total production capacity is 1.6 bill gallons.
---------------------------------------------------------------------------
\34\ 77 FR 59458, September 27, 2012
\35\ Assuming most of this volume will be comprised of
biodiesel, the required volume of 1.28 bill gal equates to
approximately 1.92 bill ethanol-equivalent gallons.
\36\ The complete list of biodiesel production companies and
their associated production capacities is provided in the docket. It
is based on an aggregation of plant lists from the National
Biodiesel Board, EIA, and EPA's registration database, and includes
both operational facilities and those that are not. For comparison,
EIA's data derived from their EIA-22 survey yielded 116 operating
biodiesel facilities that are operational with a total capacity of
2.2 billion gallons.
---------------------------------------------------------------------------
The biodiesel industry has demonstrated that it can increase
production quickly under appropriate circumstances. Total domestic
production of biomass-based diesel in 2011 exceeded 1.0 bill gal,
compared to a 2010 production of about 380 mill gallons.\37\ In
response to the NPRM on the 2012 RFS standards that was published on
July 1, 2011, some stakeholders expressed doubts that the industry
could substantially increase production over historic levels in order
to permit compliance with the proposed 2012 advanced biofuel standard
of 1.0 bill gal.\38\ Nevertheless, the industry responded to RFS
mandates with substantial production increases. Based on the single-
year increase of more than 600 mill gal in 2011 and the total capacity
of existing plants described above, we believe it is possible that the
industry could, if the statutory applicable volume of advanced biofuel
is not reduced, achieve increases in production above the 280 mill
gallon increment that is reflected in the biomass-based diesel
requirement for 2013.
---------------------------------------------------------------------------
\37\ All values from EMTS. 2010 estimate consists of
approximately 209 mill gallons as recorded through EMTS for volume
produced under the RFS2 regulations in July through December of
2010, and approximately 171 mill gallons as recorded through RIN
generation reports submitted by producers for volume produced under
the RFS1 regulations in January through June of 2010.
\38\ See comments in docket EPA-HQ-OAR-2010-0133 from the
American Petroleum Institute, Marathon Petroleum Company, and the
National Petrochemical Refiners Association.
---------------------------------------------------------------------------
Recently, the tax credit for biodiesel was reinstated after having
expired at the end of 2011.\39\ This tax credit, applicable
retroactively to 2012 and through the end of 2013, may provide
additional incentive to produce and consume biodiesel volumes in excess
of the 1.28 bill gal requirement. While one party commented that the
biodiesel tax credit should not be a relevant factor, the existence of
a tax credit affects the likelihood that biodiesel volumes in excess of
1.28 bill gal will be produced. Therefore, it is a relevant
consideration in determining whether there are likely to be sufficient
volumes of advanced biofuel available to meet the statutory volume
requirement of 2.75 bill gal.
---------------------------------------------------------------------------
\39\ ``Congress Votes to Reinstate Biodiesel Tax Incentive,''
January 2, 2013. http://biodiesel.org/news/biodiesel-news/news-display/2013/01/02/congress-votes-to-reinstate-biodiesel-tax-incentive.
---------------------------------------------------------------------------
Because the 2013 volume requirement of 1.28 bill gal for biomass-
based diesel was established in a final rulemaking published on
September 27, 2012, we did not take comment on this volume in the NPRM.
Nevertheless, in their comments on the NPRM, several refiners and their
associations requested that the 2013 volume requirement for biomass-
based diesel be reduced from 1.28 bill gal to the statutory minimum of
1.0 bill gal. They cited concerns about the industry's ability to
produce this volume and pointed to a DOE study indicating that 2012
production was below the 1.0 bill gal requirement.\40\ However,
according to EMTS \41\ the total volume of RIN-generating biodiesel
produced in 2012 was 1.05 bill gal.
---------------------------------------------------------------------------
\40\ EIA's ``Monthly Biodiesel Production Report'' published on
March 28, 2013 indicates that total 2012 production of biodiesel was
969 mill gal. The same report indicates that 2011 production was 967
mill gal.
\41\ EMTS, or EPA's Moderated Transaction System is the system
established by EPA to track all RIN generation information and other
RIN transactions.
---------------------------------------------------------------------------
a. Feedstocks
i. Feedstock Availability
In response to the NPRM, some parties expressed concern that there
would not be sufficient feedstocks available for production of biomass-
based diesel in excess of 1.28 bill gal in 2013. Recognizing that there
was some uncertainty regarding production in excess of 1.28 bill gal,
we did not make a specific numerical projection in the NPRM.
Nevertheless, we continue to believe that the availability of
qualifying feedstocks is not likely to be a hindrance to excess
biodiesel production in 2013.
According to EMTS, in 2012 nearly 90% of biomass-based diesel was
produced from soybean oil and waste oils/fats/greases.\42\
---------------------------------------------------------------------------
\42\ EIA indicates that about 80% of biomass-based diesel was
produced from soybean oil and waste oils/fats/greases in 2012, with
the majority being from soybean oil. The difference between the EIA
and EMTS values is likely due to the categorization of some canola
and/or corn oil as waste oils/fats/greases. See EIA Monthly
Biodiesel Production Report released on June 27, 2013.
Table III.B.1.a.i-1--Feedstocks Used To Make Biodiesel and Renewable
Diesel in 2012
------------------------------------------------------------------------
Fraction of
2012
production
(percent)
------------------------------------------------------------------------
Soybean oil............................................. 47
Biogenic waste oils/fats/greases........................ 41
Canola oil.............................................. 8
Non-food grade corn oil................................. 2
Oil from annual covercrops.............................. 1
Non-cellulosic portions of separated food wastes........ 1
------------------------------------------------------------------------
Since the supply of waste oils/fats/greases is generally considered
to be
[[Page 49814]]
inelastic, it is reasonable to assume that any increases in biomass-
based diesel production after 2012 will come from soybean oil. Overall
production and use of soybean oil in 2012 is shown below.
Table III.B.1.a.i-2--Production and Use of Soybean Oil in 2012
[Mill gal]
------------------------------------------------------------------------
------------------------------------------------------------------------
Domestic production of soy oil................................ 2,471
Net exports of soy oil........................................ 254
Soy oil used to make biodiesel................................ 524
Soy oil used for non-biodiesel purposes....................... 1,693
------------------------------------------------------------------------
Source: USDA/ERS, Oil Crops Yearbook, Table 5. Assumes 7.68 lb/gal.
http://www.ers.usda.gov/data-products/oil-crops-yearbook.aspx.
According to USDA, domestic soybean production is expected to
increase by 13% in the 2013 soybean marketing year compared to the 2012
marketing year, or about 3% for calendar year 2013.\43\ If this occurs,
then domestic production of soy oil would increase by about 80 mill
gal. Combined with the soy oil that could be diverted from exports to
biodiesel production and the fact that biodiesel production in 2012 was
1.05 bill gal, we project that the requirement for 1.28 bill gal of
biodiesel in 2013 could be met and exceeded by about 100 mill gal while
having essentially no impact on the volume of soy oil used for non-
biodiesel purposes.
---------------------------------------------------------------------------
\43\ Pete Riley, ``Grains and Oilseeds Outlook; 2013
Agricultural Outlook Forum,'' USDA/Farm Service Agency, February 22,
2013. The increased production of soy oil in 2013 is projected on a
crop year with the 2013/14 marketing year being October 2013 through
September 30, 2014. Consequently, the 13% increase in production
would only begin to be available to the market beginning in October
2013.
---------------------------------------------------------------------------
In addition to soy oil, it is also possible that other qualifying
feedstocks could be available to produce biodiesel in excess of 1.28
bill gal in 2013. For instance, while production of non-food grade corn
oil has been relatively constant over the last several years, exports
have risen over this same time period. In 2012, more than one third of
the 320 mill gal of corn oil produced was exported instead of being
used domestically. These exports could be diverted to biodiesel
production depending on relative prices and other factors. Taken
together, the use of both soy oil and corn oil could potentially
provide about 300 mill ethanol-equivalent gal of biodiesel in excess of
the 1.28 bill gal requirement.
ii. Impacts From Feedstock Use
A number of stakeholders commented that the NPRM overly relies on
biofuel production availability as a criterion for setting the
standards and fails to consider other criteria and potential impacts.
With respect to biodiesel, for example, commenters argued that
maintaining the advanced standard at statutory levels could lead to
increased production and use of biodiesel for compliance purposes, and
that this increased biodiesel would likely be produced from soybean
oil. Commenters argued that EPA failed to consider the follow-on, or
indirect, effects, namely that world demand for other replacement food-
grade oils, particularly for palm oil, would increase.\44\ Commenters
asserted that the net impact of these indirect impacts would be an
increase in lifecycle GHG emissions associated with soy biodiesel
production. They further claimed that because EPA failed to assess or
properly model such impacts, soy biodiesel shouldn't qualify as an
advanced biofuel.
---------------------------------------------------------------------------
\44\ See comments from Union of Concerned Scientists,
International Council on Clean Transportation, Clean Air Task Force,
Grocery Manufacturers Association, Actionaid, NRDC and the National
Wildlife Federation.
---------------------------------------------------------------------------
In making this argument, commenters made a number of assertions
with respect to the modeling and lifecycle analysis EPA conducted as
part of the March 2010 final RFS rulemaking. For example, commenters
argued that EPA did not adequately account for substitutions in the
vegetable oil markets, and therefore did not fully account for the
potential GHG emissions associated with clearing of forests and
draining of peat lands in Malaysia or Indonesia. Commenters also
asserted that market data suggests the increase in biodiesel production
has had more of an impact on global palm oil production than increased
U.S. soybean production, as modeled in EPA's March 2010 lifecycle
analysis of soybean oil biodiesel.
Commenters further argued that EPA's modeling for the March 2010
final rule was based on volume projections that are inconsistent with
the potential growth in advanced biofuels, including biodiesel, should
EPA determine that the advanced and total required volumes should not
be reduced. As a result, commenters stated, EPA's assessments of the
lifecycle GHG emissions associated with various advanced biofuels are
flawed, and relying on them is inappropriate. If we were to reassess
soybean oil lifecycle impacts, as at least one commenter recommended,
commenters argued that such an analysis would show soybean oil
biodiesel not meeting the statutory 50 percent reduction threshold in
lifecycle GHGs needed to qualify as an advanced biofuel under the RFS
program.
With respect to commenters' arguments regarding the GHG impacts of
biodiesel, we note that the lifecycle GHG threshold determinations
conducted for various categories of biofuels (as required by statute)
were completed as part of the March 2010 final RFS rule. We made the
determination in that rulemaking that biomass-based diesel from soy oil
meets the greenhouse gas reduction threshold for advanced biofuel. We
are not revisiting that determination as part of this action. Instead
this rulemaking addresses the applicable volume requirements for the
various categories of renewable fuels, in the context of applying the
provision for a waiver of the cellulosic biofuel volumes. Thus we are
not reconsidering or reopening the GHG threshold determinations made in
the 2010 RFS final rule. Instead, we are considering this comment
solely in the context of exercising our discretion under CAA section
211(o)(7)(D)(i).
We disagree with commenters' assertion that the indirect effects of
using biodiesel have not been accurately accounted for in the 2010
lifecycle determination for biomass-based diesel. In response, we first
note that we here discuss the 2010 lifecycle GHG emissions analysis for
the purpose of assessing the 2013 volume standards; this discussion is
not intended for purposes of reexamining the lifecycle analysis that
led to the GHG determinations. When conducting our GHG emissions
lifecycle analysis in 2010, we used the FAPRI-Iowa State model to
examine the impacts that an increase in biomass-based diesel in the
U.S. would have on world demand for oils. That analysis specifically
allowed for the ability for palm oil production to respond to increased
soybean biodiesel demand. Our analysis showed that the increased demand
for soybean based biodiesel led primarily to an increase in soybean
production, though the results also showed some increase in palm oil
production. Taking all the GHG impacts of these effects together, the
analysis showed lifecycle GHG emissions associated with soy biodiesel
production and use met the 50 percent threshold required for qualifying
as an advanced biofuel under the RFS program. The data provided by
commenters does not isolate the impact that changes in biodiesel demand
have on vegetable oil markets, which are driven by multiple factors,
including population growth, changes in eating habits, and economic
growth. Commenters do not provide new
[[Page 49815]]
information that would change our lifecycle emissions analysis. The
March 2010 analysis captured the long-term market reaction to a
sustained higher demand over many years for biomass-based diesel in the
U.S., which primarily resulted in an increase in soybean oil biomass-
based diesel production. We continue to believe that over the long-
term, expansion of soybean production is a realistic reaction to
increased demand for biodiesel in the U.S., thus supporting our
analysis that soybean biodiesel reduces GHG emissions over the long
run.
Commenters also stated that the volumes of advanced biofuels that
would be needed to fill the cellulosic void are larger than the volumes
EPA modeled in the 2010 lifecycle analysis. EPA notes that we analyzed
1.7 billion gallons of biodiesel in our 2010 analysis, which is within
the range of volumes being considered in this annual rule. Commenters
also stated that the volumes of advanced biofuels that would be needed
to fill the cellulosic void are larger than the volumes EPA modeled in
the 2010 lifecycle analysis. EPA notes that we analyzed 1.7 billion
gallons of biodiesel in our 2010 analysis, which is within the range of
volumes being considered in this annual rule. In addition, commenters
suggested that EPA quantify the impacts for the criteria described in
section 211 (o)(2)(B)(ii) of the Clean Air Act. However, conducting
such a comprehensive quantification was not practical for this
rulemaking. We also note that the RFS program is a long-term program
aimed at replacing substantial volumes of fossil-based transportation
fuels with low-GHG renewable fuels over a multi-year period of time. In
that context, the analysis of various impacts conducted for the March
2010 final RFS rule considered the effects of the program over the long
term. Specifically, our analysis focused on quantifying the GHG impacts
of an increase in biomass-based diesel demand in 2022, when the full
volumes of the RFS program would be implemented.
In their comments on the NPRM, the American Cleaning Institute
(ACI) expressed concern that demand for biodiesel and/or renewable
diesel could adversely affect the oleochemical industry by diverting
animal fats away from the production of soaps, detergents, and general
cleaning supplies. ACI requested that the advanced biofuel volume
requirement be reduced to ensure that such diversion of animals fats
does not occur, or alternatively that animal fats be explicitly
prohibited as a valid feedstock option for the production of biofuels.
In our response to comments from ACI in the final rule setting the
required volume biomass-based diesel for 2013,\45\ we pointed out that
under the statutory definition of renewable biomass, valid feedstocks
include animal waste material and animal byproducts. We believe that
animal fats fall into these categories, and as a result we do not have
the authority to exclude or limit volumes of animal fats that are used
for production of biofuel. Moreover, ACI did not provide any
information indicating that a reduction in the required volume of
biomass-based diesel would result in a reduction in the use of animal
fats to produce biodiesel. Indeed, as discussed above, volumes of
biodiesel above the 1.0 bill gal minimum established in the statute may
be produced from soy oil and corn oil instead of animal fats.
---------------------------------------------------------------------------
\45\ 77 FR 59463, September 27, 2012.
---------------------------------------------------------------------------
Since the biomass-based diesel volume of 1.28 bill gal was
established previously, the NPRM only requested comment on volumes of
biomass-based diesel in excess of 1.28 bill gal. Although we believe it
is likely that such excess volumes would be produced from soybean oil
as described above, it is possible that they could be produced from
animal fats. The only way to influence whether or not animal fats would
be used to make excess biodiesel above the 1.28 bill gal biomass-based
diesel applicable volume would be to reduce the advanced biofuel
standard to 1.926 bill gal, which is the ethanol-equivalent sum of the
biomass-based diesel and cellulosic biofuel applicable volumes. Even
then, it would not prevent animal fats from being used to produce
biodiesel.
For the reasons discussed above, we conclude that the volumes of
excess biomass-based diesel available for use in 2013 as advanced
biofuel are reasonably projected as 300 mill gal or more. In addition,
the arguments for reducing the advanced biofuel standard to reduce the
reliance on excess biomass-based diesel are not of a nature to warrant
changing the conclusions we would draw.
b. Limitations in the Use of Biodiesel
While we are not projecting a specific volume of biodiesel in
excess of 1.28 bill gal for 2013, we do acknowledge that there may be
potential limitations on biodiesel consumption that could be imposed by
manufacturer warranties and cold-weather operation.
Most diesel engines are warranted by their manufacturer to B5. That
is, the use of biodiesel in concentrations above 5vol% may void these
commercial warranties. While not a legal limitation on the use of
biodiesel, it does present a practical limitation. Assuming a total
diesel consumption volume of about 50 bill gal for 2013, B5 for the
diesel pool as a whole would correspond to a biodiesel volume of 2.5
bill gal.
However, some diesel truck engines have been warranted by their
manufacturers to consume B20, starting in 2011. Model-specific sales
data for these vehicles was not available, so we could not directly
estimate the volume of B20 consumed by these trucks. Nor were we able
to assess the ability of the retail and distribution system to supply
higher biodiesel blends for a subset of the fleet. But in the extreme,
assuming all MY 2011 and newer trucks were designed for operation on
B20 and that these trucks could always fuel on B20, it would only
account for approximately 30% of the nationwide biodiesel volume in
2012.
At the same time, even B5 blends cannot be utilized year-round due
to cold weather constraints. If biodiesel was not used at all in the 20
most northern states from December through March, the nation as a whole
could still consume 1.9 bill gal annually.\46\ However, this is likely
to be a conservative estimate of the volume of biodiesel that can be
consumed since infrastructure does exist in many northern states to
permit the use of B5 in the winter. Moreover, another estimate of the
impact of cold temperatures on biodiesel use can be derived from the
cloud point. The cloud point for B5 soy methyl ester (SME) blended with
No. 2 diesel is estimated to be approximately 5[emsp14][deg]F. Thus,
any region wherein temperatures regularly drop below 5[emsp14][deg]F
would present a difficulty for the use of B5. Assuming that biodiesel
cannot be blended in such regions during any month where the
temperature falls below 5[emsp14][deg]F at least 10% of the time would
result in a reduction of the volume of biodiesel that can be consumed
annually by only about 3%. Thus, it appears that for 2013, the ability
to consume biodiesel in the vehicle fleet does not provide a
constraint.
---------------------------------------------------------------------------
\46\ Jung, Zoltan, ``Estimating Potential Biodiesel Consumption
Under Cold Weather Limitations,'' memorandum to docket EPA-HQ-OAR-
2012-0546.
---------------------------------------------------------------------------
2. Domestic Production of Advanced Biofuel Other Than Biomass-Based
Diesel and Cellulosic Biofuel
Generic pathways that have been approved for the generation of RINs
are specified in the regulations in Table 1
[[Page 49816]]
to Sec. 80.1426.\47\ There are currently six pathways through which
advanced biofuel RINs can be generated. These pathways are shown in
Table III.B.2-1.
---------------------------------------------------------------------------
\47\ Pathways may also be approved for RIN generation in
response to petitions submitted pursuant to 80.1416.
Table III.B.2-1--Pathways for Advanced Biofuel
----------------------------------------------------------------------------------------------------------------
Production process
Fuel type Feedstock requirements D-Code
----------------------------------------------------------------------------------------------------------------
H Biodiesel, renewable diesel, jet Soy bean oil;................. One of the following:........ 5
fuel and heating oil. Oil from annual covercrops;... Trans-Esterification.........
Trans-Esterification.......... Hydrotreating................
Algal oil;.................... Includes only processes that
Biogenic waste oils/fats/ co-process renewable biomass
greases;. and petroleum..
Non-food grade corn oil.......
Camelina sativa oil...........
I Naphtha, LPG........................ Camelina sativa oil........... Hydrotreating................ 5
J Ethanol............................. Sugarcane..................... Fermentation................. 5
P Ethanol, renewable diesel, jet fuel, The non-cellulosic portions of Any.......................... 5
heating oil, and naphtha. separated food waste.
Q Biogas.............................. Landfills, sewage waste Any.......................... 5
treatment plants, manure
digesters.
S Ethanol............................. Grain Sorghum................. Dry mill process, using only 5
biogas from landfills, waste
treatment plants, and/or
waste digesters for process
energy and for on-site
production of all
electricity used at the site
other than up to 0.15 kWh of
electricity from the grid
per gallon of ethanol
produced, calculated on a
per batch basis.
----------------------------------------------------------------------------------------------------------------
In the NPRM, we projected that the total volume of other advanced
biofuel could be 150 mill gal in 2013. Some stakeholders expressed
their belief that this was a reasonable volume to project for domestic
advanced biofuel producers for 2013, and Clean Energy Renewable Fuels
provided information supporting their view that we had significantly
underestimated the potential for biogas. Nevertheless, others expressed
concern that 150 mill gal was too aggressive, pointing to the fact that
the actual domestic production of other advanced biofuel in 2012 was
only 50 mill gal. Consistent with our approach to cellulosic biofuel
projections, we do not believe that future projections of advanced
biofuel should be based strictly on actual historical production
volumes. Nevertheless, we agree with stakeholders that expressed
concern that we based our projections in part on information from
registered producers that did not submit a Production Outlook Report as
required under Sec. 80.1449 for all registered producers. For this
final rule, we have not considered production volumes from a specific
producer if that producer did not provide a projection for 2013 in a
Production Outlook Report.
In order to estimate the volumes of other advanced biofuels that
could be produced in 2013, we reviewed the most recent set of
Production Outlook Reports. These reports were submitted in the summer
of 2012 and contain projections of renewable fuel production for each
of the next five years.\48\ Based on this review, we identified
approximately 30 domestic companies that expect to produce advanced
biofuel (with a D code of 5) in 2013. The total projected production
volume for these companies in 2013 is 245 million ethanol-equivalent
gallons, as shown in Table III.B.2-2.
---------------------------------------------------------------------------
\48\ While the individual reports have not been published since
they include company-specific information that could impact the
competitive nature of the industry, we are providing aggregate
results in this NPRM.
Table III.B.2-2--Projected Domestic Production of Advanced Biofuel\a\ in
2013
[Million ethanol-equivalent gallons]
------------------------------------------------------------------------
------------------------------------------------------------------------
Biogas........................................................ 44
Naphtha....................................................... 8
Renewable diesel.............................................. 57
Ethanol....................................................... 136
---------
Total..................................................... 245
------------------------------------------------------------------------
\a\ Includes only volumes that would be assigned a D code of 5.
We recognize that these volumes are higher than the 150 mill gal
that we projected in the NPRM. Nevertheless, we believe that they
provide a reasonable estimate of the volumes that can be achieved in
2013. Because Production Outlook Reports are provided directly to the
EPA and are not made public (except in the aggregate), producers have
less incentive to overstate volume projections. These projected volumes
also do not account for imports of renewable diesel from foreign
producers which have the capacity to produce hundreds of millions of
gallons per year. More importantly, the projected volumes in Table
III.D.2-2 were made in June 2012. Since that time, we have established
additional valid pathways for the generation of advanced biofuel RINs
using camelina oil and grain sorghum.\49\ Recent annual production of
ethanol from grain sorghum was about 350 mill gal, though only a
minority of these production facilities might be expected to install
the requisite equipment allowing the use of biogas for process energy
in 2013, thus allowing them to generate advanced biofuel RINs.
---------------------------------------------------------------------------
\49\ 78 FR 14190, March 5, 2013.
---------------------------------------------------------------------------
We also investigated a variety of other potential RIN-generating
pathways for advanced biofuel that could result in additional volumes
in 2013. In addition to potential new pathways for cellulosic biofuel
that would also count towards the advanced biofuel volume requirement
as discussed in Section II.D, new pathways are also under review that
may provide additional advanced biofuel volumes in 2013. These include
pathways for renewable diesel from jatropha oil, ethanol from barley
and biomass sorghum, and a number of others. We have not yet
determined, either through rulemaking or approval of an industry
petition, whether these pathways are valid for the
[[Page 49817]]
generation for advanced biofuel RINs. However, approval of such
advanced biofuel pathways could potentially result in the production of
more than 50 million ethanol-equivalent gallons in 2013. Insofar as any
of these pathways are approved in time to be used in 2013, it would
increase the volume of domestically-produced advanced biofuels
available for 2013 compliance above the volumes shown in Table III.B.2-
2.
3. Imported Sugarcane Ethanol
In the NPRM we projected that the volume of imported sugarcane
ethanol in 2013 would need to reach about 670 mill gal in order for the
statutory volume of 2.75 bill gal to be met. Given the availability of
carryover RINs from 2012, potential for excess biomass-based diesel,
and domestic production of other advanced biofuel, the amount of
imported sugarcane ethanol needed to reach the statutory volume of 2.75
bill gallons could be significantly below 670 mill gal. Here we
evaluate whether the actual 2012 import volume of 580 mill gal could
also be imported in 2013.
a. Brazilian Ethanol Export Capacity
Total exports of ethanol from Brazil depend on ethanol production
and demand within Brazil and have varied significantly over the last
decade. The historical maximum occurred in 2008 when 1.35 bill gal was
exported, and ongoing efforts to upgrade distribution infrastructure
mean that Brazil has the infrastructure in place to export at least
this volume annually.
In response to the NPRM, stakeholders provided widely diverging
views on the volumes of imported sugarcane ethanol that could be
expected in 2013. Some stakeholders suggested that the advanced biofuel
standards should be set based on an assumption that there would be no
more than a few hundred mill gal of imported sugarcane ethanol
available in 2013, and others indicated that imported sugarcane ethanol
should be excluded entirely from consideration. The Brazilian Ministry
of Mines and Energy (MME) provided a detailed assessment supporting
their view that Brazil can supply at least 670 mill gal to the U.S. in
2013, and the Brazilian sugarcane industry association UNICA likewise
indicated that at least 670 mill gal could be expected \50\ No
stakeholders supported our suggestion that a 200 mill gal reduction in
the advanced biofuel requirement might be warranted to account for
potential uncertainty in the availability of imported sugarcane
ethanol. To assess Brazil's potential export capacity for 2013, we
considered multiple factors, including sugarcane and ethanol production
capacity, Brazilian domestic ethanol demand, and historical data on
sugarcane ethanol exports.
---------------------------------------------------------------------------
\50\ Some portion of Brazilian ethanol exports to the U.S. is
non-fuel ethanol (i.e., for industrial use). U.S. Department of
Commerce data indicates that of 2012 Brazilian ethanol exports to
the U.S., 85% were fuel ethanol. http://dataweb.usitc.gov./
---------------------------------------------------------------------------
i. Brazilian Sugarcane and Ethanol Production Capacity
From the supply perspective, production of sugarcane in Brazil in
the years just preceding 2013 has been lower than normally expected due
to two factors. First, adverse weather conditions reduced
production.\51\ For example, adverse weather conditions are estimated
to have reduced cane production by about 4% in the 2011/2012 marketing
year.\52\ Thus, a return to normal weather conditions in the time frame
that this rulemaking considers by itself would restore approximately 4%
of production.
---------------------------------------------------------------------------
\51\ Gain Report BR110016, October 3, 2011, USDA Agricultural
Service. See http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Sugar%20Semi-annual_Sao%20Paulo%20ATO_Brazil_10-3-2011.pdf.
\52\ The sugar marketing year in Brazil's center-south sugar-
producing region, where the large majority of production occurs,
runs from May through April.
---------------------------------------------------------------------------
Second, the general global economic downturn in recent years made
obtaining credit more difficult in the Brazilian sugar cane industry,
resulting in delayed replanting of existing fields. Normally sugarcane
fields are replanted every five or six years to maximize yield.
However, the lack of available credit caused some growers to delay the
expense of this replanting, resulting in older fields losing
production.\53\ Perhaps in part due to easing credit conditions, as
noted below, more direct investment in sugar cane production and
milling in Brazil is occurring.
---------------------------------------------------------------------------
\53\ On the margin, the high sugar prices may have also
encouraged some growers to divert their crop from ethanol production
to sugar production. But most cane growers do not have this
flexibility with sugarcane mills designed for fixed amounts of
refined sugar or ethanol so high sugar prices was likely a
contributing factor but not a major cause of reduced sugarcane
ethanol production in Brazil.
---------------------------------------------------------------------------
In the proposal, EPA cited data from September and December 2012 in
estimating that the South Central region, the dominant region for
ethanol production in Brazil, would produce a total of 5.56 bill gal
for the 2012/13 year.\54\ Other regions contributed roughly another 565
mill gal in 2011/12. Based on this production data, we concluded that
6.1 bill gal would be a reasonable conservative estimate for total 2013
production, assuming no growth at all in production outside the South
Central region. Subsequent to issuance of the proposal, UNICA released
its final report on the 2012/2013 harvest season, which confirmed an
increase in the sugarcane harvest relative to 2011/12. That report
showed that the 2012/2013 harvest for the South Central region was
approximately 8% larger than the 2011/12 harvest.\55\
---------------------------------------------------------------------------
\54\ UNICA, ``Estimate for 2012/2013 Sugarcane Harvest of
Brazilian South-Central Region'', September 20, 2012, http://www.unicadata.com.br/listagem.php?idMn=39.
\55\ UNICA, ``Final Report of 2012/2013 Harvest Season, South-
Central Region,'' http://www.unicadata.com.br/listagem.php?idMn=83.
---------------------------------------------------------------------------
Some parties expected a more typical trend in sugarcane ethanol
production for both the 2012/2013 and 2013/2014 harvest years, with
replanted fields beginning to boost sugarcane production in existing
plantations and, in response to increased worldwide demand, a growth in
the acres planted with sugarcane. Increased production is supported by
the Brazilian government which announced in February 2012 support for a
plan to invest over $8 billion annually to boost cane and ethanol
production.\56\ Private investment in Brazil may also be increasing.
For example, Usina de Acucar Santa Terezinha, a Brazilian ethanol
producer, last year announced plans to invest almost $300 million in a
new mill and sugarcane plantation.\57\ As stated in the proposal, such
information suggested that sugarcane and ethanol production in the
2013/14 harvest year could be higher than production over the last two
years.
---------------------------------------------------------------------------
\56\ See http://www.platts.com/RSSFeedDetailedNews/RSSFeed/Oil/8987702.
\57\ See http://www.bloomberg.com/news/2012-03-08/santa-terezinha-invests-283-million-in-brazil-ethanol-projects.html.
---------------------------------------------------------------------------
The 2012/2013 harvest year in Brazil's South Central region has
ended, and EPA now has early estimates concerning the 2013/2014 harvest
year, which began in April 2013. UNICA now projects an increased 2013/
2014 harvest for the South Central region of 10.7% over the 2012/2013
harvest.\58\
---------------------------------------------------------------------------
\58\ UNICA, ``South-Central brazil cane crush projected at
589.60 million tons for 2013/2014,'' http://www.unicadata.com.br/listagem.php?idMn=80.
---------------------------------------------------------------------------
With respect to ethanol production, analyses supplied in comment to
the proposal by the Brazilian Ministry of Mines and Energy (MME)
indicate it is projecting 2013/14 ethanol production to range from 7.2
to 7.5 bill gal, reflecting improvements in yield, additional acres
planted and the expected market for sugar from sugarcane. MME's
projections are in line with other data sources referenced in MME's
comments that projected ethanol
[[Page 49818]]
production for 2013/14 ranging from 7.1 to 7.2 bill gal. These sources
include projections by UNICA which in separate comment defended its
analysis projecting 7.1 bill gal. This production rate would support
the conclusion that enough ethanol should be available to meet Brazil's
domestic demand (discussed following) as well as supply 580 mill gal or
more to the U.S. during calendar year 2013.
ii. Brazilian Domestic Demand for Ethanol
Brazil's sugarcane ethanol production serves both its domestic
market as well as the export market. The government of Brazil sets a
minimum ethanol concentration for its gasoline. In 2011, the Brazilian
government lowered this concentration to 20%, reflecting in part the
decrease in domestic ethanol production. However, given the more
optimistic production outlook, Brazil raised the minimum ethanol
concentration to 25% effective May 1, 2013.\59\ The ability of the
Brazilian government to reset the minimum ethanol content introduces
some uncertainty in projecting future Brazilian demand. However,
historically, adjustments have been infrequent, relatively small in
degree (a few percent), and largely been influenced by the price of
ethanol (high prices leading to a reduction in the minimum). Since
reinvestment in sugarcane stock is already underway, a considerable
resurgence in Brazilian ethanol export potential in the 2013 calendar
year seems likely. Assuming that the 25% blending rate remains in
effect through the 2013/14 sugarcane season, the analyses referenced
above by MME and UNICA suggest that more than enough ethanol should be
available assuming normal weather patterns to allow for at least 580
mill gallons of exports to the U.S. in 2013.
---------------------------------------------------------------------------
\59\ Platts, ``Brazil to raise ethanol mix in gasoline to 25%
from 20% May 1,'' http://www.platts.com/RSSFeedDetailedNews/RSSFeed/Oil/8194390.
---------------------------------------------------------------------------
iii. Additional Market Factors
Aside from production capability and domestic demand within Brazil,
market conditions generally determine the amount of sugarcane ethanol
imported into the U.S. from Brazil. Approved as an advanced biofuel
pathway, ethanol produced from sugarcane benefits from the RIN value
associated with advanced biofuel but also has to compete with other
sources of ethanol used for blending with gasoline in the U.S., most
notably ethanol made from corn starch (which does not qualify as an
advanced biofuel). The expiration of the tariff applicable to imported
ethanol has helped make imported sugarcane ethanol more cost
competitive in the U.S., and any volumes of Brazilian sugarcane ethanol
imported into California to meet the requirements of their Low Carbon
Fuel Standard (LCFS) would also count towards meeting the requirements
of the RFS program.
b. United States-Brazil Ethanol Trade
In both calendar years 2011 and 2012 there was some two-way trade
in ethanol between the United States and Brazil. A number of
stakeholders raised concerns about this two-way ethanol trade between
the U.S. and Brazil. Some suggested that we should adjust the advanced
biofuel standard to reduce or eliminate such outcomes.
According to currently available Energy Information Administration
(EIA) data, 2013 U.S. fuel ethanol imports from Brazil through May were
75.9 million gallons compared to 36.1 million gallons during the same
period in 2012, a 110% rise.\60\ The U.S. Department of Commerce also
collects data on U.S. imports of Brazilian fuel ethanol. They too
report a significant increase in 2013 imports--105 million gallons
through May 2013, up from 42.6 million gallons through the same period
in 2012, a 147% increase.\61\ This increase, combined with the fact
that the majority of Brazilian ethanol exports to the United States
have historically occurred in the second half of the calendar year,
suggests that Brazilian ethanol exports to the U.S. are on a trajectory
that would readily enable Brazil to supply 580 million gallons to the
U.S. in 2013.\62\
---------------------------------------------------------------------------
\60\ EIA, U.S. Imports from Brazil of Fuel Ethanol. http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mfeim_nus-nbr_1&f=m.
\61\ The data from EIA and the U.S. Department of Commerce are
generally consistent, but slight differences may arise due to
differences in the survey population, the reporting methodology, the
reporting schedules, and the timing of updates.
\62\ In 2012, 90% of the 403 million imported gallons occurred
in June through December.
---------------------------------------------------------------------------
2013 exports of fuel ethanol from the U.S. to Brazil have been
relatively small. EIA data indicates that 26 million gallons of fuel
ethanol have been exported from the U.S. to Brazil between January 1
and May 31, 2013.
Table III.B.3.b-1--U.S. Fuel Ethanol Trade With Brazil
[Mill gal]
----------------------------------------------------------------------------------------------------------------
2008 2009 2010 2011 2012
----------------------------------------------------------------------------------------------------------------
U.S. Fuel Ethanol Imports from Brazil \63\......................... 203 5 0 101 403
U.S. Fuel Ethanol Exports \64\
Total.......................................................... N/A N/A 398 1195 742
To Brazil...................................................... N/A N/A 23 396 86
----------------------------------------------------------------------------------------------------------------
Both the EIA and U.S. Department of Commerce data consider fuel ethanol
that is transported directly from Brazil to the United States. However,
significant volumes of fuel ethanol originating from Brazil and
imported by the United States pass through Caribbean Basin Initiative
(CBI) countries for dehydration before continuing on to the U.S. Such
volumes are not included in the Table III.B.3-1. EIA data indicates
that the U.S. imported 40 million gallons of fuel ethanol from CBI
countries in 2012; most of this originated in Brazil, though
determining the specific quantity is difficult.
---------------------------------------------------------------------------
\63\ EIA, U.S. Imports from Brazil of Fuel Ethanol.http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mfeim_nus-nbr_1&f=m.
\64\ EIA, Exports by Destination. http://www.eia.gov/dnav/pet/pet_move_expc_a_EPOOXE_EEX_mbbl_a.htm.
Comments on this two-way trade focused on associated GHG impacts,
both direct impacts from transportation-related emissions, and the
indirect GHG impacts resulting from the market dynamics that could
potentially result as a consequence of EPA's volume determinations.
i. Direct Transportation Emissions
With respect to direct emissions, commenters noted that GHG
emissions occur as a result of shipping sugarcane ethanol to the U.S.
and shipment of corn-based ethanol to Brazil. We recognize that there
are GHG emissions
[[Page 49819]]
associated with shipping sugarcane ethanol from Brazil to the U.S. as
well as the subsequent emissions associated with distributing this fuel
from the port of entry to likely blending locations. These
transportation emissions were taken into account as part of the
lifecycle assessment of sugarcane ethanol adopted as part of the 2010
final rule, and represent approximately (3%) of total lifecycle
emissions for sugarcane ethanol. Regarding the emissions associated
with potential shipments of corn ethanol from the U.S. to Brazil, these
would be small in magnitude compared to the overall emission reductions
from the use of sugarcane ethanol, as the transportation emissions are
a small part of the lifecycle emissions, whether the emissions are for
fuel imported from Brazil or exported to Brazil. Also, as noted below,
the commenter provides no basis for EPA to determine the magnitude of
the emissions they are concerned about, given the multiple factors that
lead to wide variability in import and export levels of ethanol between
the U.S. and Brazil.
ii. Indirect Emissions
Stakeholder's comments regarding sugarcane ethanol and U.S.-Brazil
trade concern the annual standard-setting process for 2013 and the
indirect GHG impacts associated with the use of imported sugarcane
ethanol as an advanced biofuel. Commenters raised two major issues
associated with the potential GHG impacts associated with sugarcane
ethanol demand in the U.S. (1) In the long-run (e.g., 2022), if EPA
were to maintain the full statutory advanced standard while reducing
the cellulosic standard to levels seen in recent years based on
availability, more than 10 bill gal of imported ethanol would be
required to meet the advanced standard. At those volumes, based on
studies by the OECD and FAPRI-Missouri, commenters state that it is
likely that a majority of the imported ethanol gallons would be
diverted from Brazilian consumption of ethanol, and that much of the
sugarcane ethanol would be backfilled by corn ethanol imports from the
U.S. As a result, commenters argue that imported sugarcane would not
meet the 50 percent GHG emissions reductions required for an advanced
biofuel. (2) In the short-run, commenters claim that there are limited
options for increasing the supply of sugarcane ethanol, many of which
would undermine the GHG emission reductions included in EPA's lifecycle
analysis. Commenters claim that in the 2013 time period, increased
sugarcane ethanol imports to the U.S. could only be supplied if Brazil
decreases gasoline consumption, Brazil replaces sugarcane ethanol with
fossil gasoline, Brazil replaces sugarcane ethanol with another ethanol
(presumably corn), sugar production in Brazil increases, or stocks of
sugar are reduced to meet increased demand. Commenters claim that if
replacement of sugarcane ethanol is with gasoline or corn ethanol,
sugarcane ethanol would not meet the GHG emission reductions required
for an advanced biofuel.
Regarding the first issue, it is premature and would be speculation
to consider at this time what emissions might result were EPA to
maintain the statutory advanced standard over the next several years.
That issue is also not relevant for this rulemaking action. For each
calendar year, EPA may reduce the required volumes of advanced biofuel
and total renewable fuel if it reduces the volume required for
cellulosic biofuel. This rulemaking addresses only calendar year 2013,
and does not establish or set a precedent for what actions EPA may or
may not take for future calendar years. Therefore, we believe the
analysis presented by commenters on future scenarios that rely on
imported volumes of sugarcane ethanol that exceed current Brazilian
production are not relevant to this 2013 rulemaking.\65\
---------------------------------------------------------------------------
\65\ In addition, as discussed below, in this action EPA is not
revisiting or reopening the determination made in the 2010 RFS final
rule that imported sugar cane ethanol meets the greenhouse gas
reductions threshold for advanced biofuel.
---------------------------------------------------------------------------
The second issue raised in this context pertains to the question of
how the national applicable volume for advanced biofuel influences
ethanol production and trade patterns (along with concomitant indirect
GHG emissions effects) in a given year. A comprehensive analysis of
those effects is challenging, as there are a variety of economic and
other factors at play. A thorough analysis of this issue would require
complex economic and emissions modeling for multiple market sectors,
which is impractical, particularly for a rule that establishes a yearly
volume requirement. Furthermore, we do not believe that the data
commenters submitted provides an adequate basis for drawing the
conclusion, as commenters do, that retaining the statutory 2013
advanced biofuel requirement would result in an overall increase in GHG
emissions due to ethanol trade. For example, in the comments submitted
by ICCT, no data is provided indicating whether it is more likely that
increased sugarcane exports will result in increased petroleum gasoline
consumption or increased corn ethanol imports in Brazil, or if the
market response will be an increase in sugar production or drawing down
sugar stocks.
Each of these different market implications would have
significantly different GHG emissions impacts. Multiple reasons exist
for the volume of trade between the US and Brazil beyond the RFS
program's requirements, including other US demand for sugarcane ethanol
(e.g., California's LCFS); seasonal production of sugarcane which
results in off-season demand for ethanol; and regional infrastructure
constraints in Brazil, which makes it easier for parts of Brazil to
import corn ethanol in some regions. As shown by Table III.B.3-1 above,
there is no clear correlation at all between corn ethanol exports to
Brazil and sugarcane ethanol imports from Brazil. There is no basis to
assume that each gallon of sugarcane ethanol imported into the U.S.
would be offset by a gallon of corn ethanol exported to Brazil.
Furthermore, fluctuations in the sugar markets could lead to increased
sugarcane ethanol supply without increasing sugarcane production. As
discussed in the UNICA comments, world sugar prices are currently down
36% since 2011, which creates an additional incentive for producers, to
the extent possible, to shift from sugar production to ethanol
production. In fact, UNICA expects ethanol production to increase by
18-20% in 2013/2014, even though sugarcane production will only
increase by 10%. To the extent that the increase in sugarcane ethanol
to the U.S. results in increased sugarcane production, decreased sugar
production, or a drawdown of sugar stocks, it is not likely that the
increase in U.S. imports of sugarcane ethanol would lead to increased
exports of corn ethanol to Brazil or a significant change in GHG
emissions.
We also note that Congress established the RFS as a long-term
program aimed at replacing substantial volumes of fossil-based
transportation fuels with low-GHG renewable fuels over time. The annual
standard-setting process however involves a decision for a single year,
which may not reflect the long-term effects of the program. For
example, our emissions analysis conducted for the March 2010 final RFS
rule focused not on yearly decisions on standards, but rather the
effects of the program over the long term. That analysis did not
attempt to answer the question of what the GHG emissions impacts would
be of increasing or lowering the volume mandates in any one year.
Instead, our analysis focused on quantifying the GHG impacts of an
[[Page 49820]]
increase in sugarcane ethanol demand in 2022, when the full volumes of
the RFS program were implemented. The March 2010 analysis captured the
long-term market reaction to a sustained higher demand over many years
for sugarcane ethanol in the U.S., which primarily resulted in an
increase in Brazilian sugarcane production. We continue to believe that
over the long-term, expansion of Brazilian sugarcane production is a
realistic reaction to increased demand for sugarcane ethanol in the
U.S., thus supporting our analysis that sugarcane ethanol reduces GHG
emissions over the long run.
In sum, we believe that the import of sugar cane ethanol as an
advanced biofuel in 2013 should produce reductions in GHGs compared to
the fossil-based gasoline it will replace, which would not occur if the
advanced biofuel standard were reduced. While the points raised by
commenters indicate there is some uncertainty about the magnitude of
these reductions on a year-by-year basis, the evidence and arguments
they present do not warrant a conclusion that there would be any
significant change in GHG benefits. In addition, as noted above, the
ongoing demand for advanced biofuels is part of a long-term approach to
achieving major GHG reductions from the RFS program.
Finally, with respect to commenters' arguments regarding the GHG
impacts of imported sugarcane ethanol, we note that the lifecycle
threshold determinations conducted for various biofuels pathways (as
required by statute) were completed as part of the March 2010 final RFS
rule. We made the determination in that rulemaking that imported sugar
cane ethanol meets the greenhouse gas reductions threshold for advanced
biofuel. We are not revisiting those determinations as part of this
action. Instead this rulemaking addresses the applicable volume
requirements for the various categories of renewable fuels, in applying
the provision for a waiver of the cellulosic biofuel volumes. Thus we
are not reconsidering or reopening the GHG threshold determinations
made in the 2010 RFS final rule. Instead, we are considering this
comment solely in the context of exercising its discretion under CAA
section 211(o)(7)(D)(i).
For the reasons discussed above, we conclude that the volumes of
sugarcane ethanol that are available for use in 2013 as advanced
biofuel are reasonably projected as at least as much as 580 mill
gallons. We continue to place primary weight on this factor in
determining whether to maintain the statutory levels for advanced
biofuel. In addition, the arguments and reasons for reducing the
advanced biofuel standard to reduce the reliance on imported sugar cane
ethanol are not of a nature to warrant changing the conclusions we
would draw based on the available supply of sugarcane ethanol as an
advanced biofuel.
C. Compliance With the Total Renewable Fuel Standard in 2013
As described in Section III.B above, the NPRM addressed potential
reductions in advanced biofuel and total renewable fuel under the
cellulosic waiver authority. In this context, any reduction in advanced
biofuel would be matched gallon-for-gallon (on an ethanol-equivalent
basis) by reductions in total renewable fuel, effectively having no
impact on volumes of non-advanced biofuel such as corn ethanol.
In response to the NPRM, many stakeholders expressed concern about
the E10 blendwall and the possibility that the applicable standards for
2013, absent a reduction in the advanced biofuel and total renewable
fuel volume requirements, could require the consumption of more volumes
of higher ethanol blends (E15-E85) than can reasonably be absorbed by
the market.\66\ In order to evaluate these concerns, we estimated the
volumes of ethanol that could be needed to meet the statutory volume
requirements in 2013 and whether or not that volume could reasonably be
used.
---------------------------------------------------------------------------
\66\ In the proposal, we requested comment on the degree to
which the E10 blendwall might present a difficulty in meeting the
applicable volume requirements in 2013.
---------------------------------------------------------------------------
In the NPRM we proposed a significant reduction in the required
volume of cellulosic biofuel. For today's final rule we are adjusting
this volume requirement downward to 6 mill gal as described in Section
II.D above. We also set a volume requirement for biomass-based diesel
of 1.28 bill gal in a separate rulemaking.\67\ Table III.C-1 shows what
the four volume requirements would be without any reductions in the
statutory volumes of advanced biofuel or total renewable fuel.
---------------------------------------------------------------------------
\67\ 77 FR 59458, September 27, 2012.
Table III.C-1--Volumes of Renewable Fuel for 2013 Absent Reductions in
Advanced Biofuel and Total Renewable Fuel
[Million ethanol-equivalent gallons]
------------------------------------------------------------------------
D codes that can
be used to meet Required volume
this standard
------------------------------------------------------------------------
Cellulosic biofuel.................. 3, 7 6
Biomass-based diesel................ 4, 7 1,920
Advanced biofuel.................... 3, 4, 5, 7 2,750
-----------------------------------
Total renewable fuel............ 3, 4, 5, 6, 7 16,550
------------------------------------------------------------------------
Based on these volume requirements, we estimated the volumes of both
ethanol and non-ethanol that could be used to satisfy these standards
if there were no biomass-based diesel produced in excess of the 1.28
bill gal requirement. As such, these estimates may overstate the volume
of ethanol that would have to be consumed because, as discussed above,
there is significant capacity for biodiesel production beyond the 1.28
bill gal requirement for 2013. This scenario also does not consider the
availability of substantial numbers of carryover RINs from 2012, which
is discussed in greater detail below.
Table III.C-2--Potential Volumes of Renewable Fuel for 2013
[Million ethanol-equivalent gallons]
------------------------------------------------------------------------
Non-
D code Ethanol ethanol
------------------------------------------------------------------------
Cellulosic biofuel........................... 3 1 5
Biomass-based diesel......................... 4 0 \a\
1,920
[[Page 49821]]
Other advanced biofuel
--Domestically produced.................... 5 \b\ 136 \b\ 109
--Imported................................. ....... \c\ 580 0
Conventional Biofuel......................... 6 13,800 0
--------------------------
Total.................................... ....... 14,517 2,034
------------------------------------------------------------------------
\a\ Based on the applicable volume requirement of 1.28 bill gal, and
assuming no excess.
\b\ From Production Outlook Reports as listed in Table III.B.2-2.
\c\ Balance of advanced biofuel standard of 2.75 bill gal that is
estimated to come from imported sugarcane ethanol.
In order to determine the volume of ethanol that would need to be
consumed in blends higher than E10 in order to meet this standard, we
assumed a total 2013 energy consumption for all gasoline-powered
vehicles and engines of 14.58 Quadrillion Btu.\68\ Based on a denatured
ethanol energy content of 77,000 Btu/gal and a gasoline energy content
of 115,000 Btu/gal, we determined that the 14.5 bill gal of ethanol
shown in Table III.C-2 would require 129.5 bill gal of E10 and 2.1 bill
gal of E85.\69\ This volume of E85 would contain about 1.6 bill gal of
ethanol. By contrast, if no E85 were consumed, the total volume of E10
would be 131.1 bill gal and the maximum volume of ethanol that could be
consumed would thus be 13.1 bill gal. As shown in Table III.C-2, the
conventional biofuel volume alone exceeds this level. In the absence of
carryover RINs from 2012, it would be extremely challenging to meet
this standard.
---------------------------------------------------------------------------
\68\ Calculated from EIA Annual Energy Outlook 2013,
Transportation Table 37 (converted to lower heating value (LHV)).
\69\ To simplify this analysis we have not assumed any other
ethanol blend levels and no E0.
---------------------------------------------------------------------------
In their comments on the NPRM, a number of refiners contended that
E85 is not a viable strategy for consuming volumes of ethanol in excess
of the E10 blendwall. Some called for reducing the required volumes of
renewable fuel so that ethanol would comprise no more than 10% of the
gasoline fuel pool. We agree that, historically, E85 consumption has
been very low. In 2012 EIA estimated that E85 consumption was about 40
mill gal, and in prior years it was less.\70\ In its Annual Energy
Outlook 2013, EIA projects that E85 consumption may increase to 176
mill gal in 2013 under the demand pressure created by the RFS program
and without consideration of carryover RINs from 2012, but even so this
is still significantly less than the 2.1 bill gal that we estimate
would need to be consumed under the limitations of the scenario
described above. We expect that consumption of E85, and perhaps blends
with other concentrations of ethanol, will grow over time.
---------------------------------------------------------------------------
\70\ EIA, ``U.S. Refinery and Blender Net Production,'' 3/15/13.
---------------------------------------------------------------------------
While recent consumption of E85 (approximately 40 mill gal in 2012)
has been considerably lower than the 2.1 bill gal that would be needed
in the scenario outlined above, we note that the price of E85 has
historically only been about 15% lower than the price of E10. Since the
average volumetric energy content of E85 \71\ is about 22% below that
of E10, the historical price of E85 has actually been higher than the
price of E10 on an energy equivalent basis. Moreover, the price gap
between E10 and E85 may be perceived as larger to consumers who might
assume that a gallon of E85 will contain 85% ethanol, having an energy
content 25% lower than E10. Those flex-fuel vehicle (FFV) owners that
have been purchasing E85 have thus been doing so for reasons other than
the economic benefit (e.g. personal values or government fleet
mandates) or because they are unaware of the extent that E85 contains
less energy than E10. If the price of E85 were to fall relative to the
price of E10, we would expect consumption of E85 to increase.
Significant reductions in the price of E85 could result in higher
volumes of E85 consumption, provided there is adequate availability of
infrastructure for distribution of E85, availability of FFVs, consumer
awareness of the availability of E85, its cost in comparison to E10,
and the energy difference between E85 and E10. Such a reduction in the
price of E85 could occur with a significant reduction in the price of
corn relative to the price of oil. Historically during periods of lower
corn prices the desire to maximize profit has resulted in an increase
in ethanol blending. With the E10 market saturated, lower corn prices
could result in lower E85 prices. At higher corn prices, as described
more fully in Section III.D below, a long-term increase in E85
consumption would still need to come through a reduction in the price
of E85 relative to E10, which would entail an increase in the price of
RINs. Based on this, some increase in volumes of higher ethanol blends
could be accomplished, with the extent of the required subsidy to E85
consumers through higher RINs prices depending on E85 infrastructure,
consumer acceptance, and the price of corn relative to the price of
oil.
---------------------------------------------------------------------------
\71\ E85 in this rulemaking is assumed to contain 74% ethanol on
an annual average basis, consistent with EIA. However, this value
can vary in-use from 51% to 83%, and greater ethanol content will
correspond to lower energy content of E85 in comparison to E10.
---------------------------------------------------------------------------
There are also mechanisms other than increased volumes of E85
through which obligated parties could comply with the applicable volume
requirements in the absence of reductions in the advanced biofuel and
total renewable fuel volume requirements. One of those options is
carryover RINs from 2012. EMTS was examined after the February 28, 2013
deadline for compliance with the 2012 standards to determine the total
number of 2012 RINs that had not been used for compliance in 2012 or
retired for any other reason. The totals are shown below.
Table III.C-3--Carryover RINs From 2012 Into 2013
[Million]
------------------------------------------------------------------------
D Code RINs
------------------------------------------------------------------------
Biomass-Based Diesel................................ 4 353
Advanced Biofuel.................................... 5 196
Conventional Biofuel................................ 6 2,117
-------------------
Total........................................... ........ 2,666
------------------------------------------------------------------------
Although the rollover provisions in Sec. 80.1427(a)(5) limit the
carryover of RINs to 20% of the next year's volume obligations for
individual obligated parties, the values in Table III.C-3 are less than
20% of the values shown in Table III.C-1 for the nation as a whole.
As discussed above, compliance with the statutory volume
requirements for advanced biofuel and total renewable fuel in 2013
could in theory be met by the consumption of 2.1 bill gal of E85
containing about 1.6 bill gal of ethanol. However, given that there are
over 2.6 bill carryover RINs available, there are more than enough in
the market to permit compliance with the 2013 advanced biofuel and
total renewable fuel volume requirements even if E85 consumption does
not increase in 2013. These carryover RINs are also available to
address any potential shortfalls in production of corn-based ethanol
that may result from the 2012 drought.\72\
---------------------------------------------------------------------------
\72\ Through April 2013 approximately 4.1 billion D6 RINs have
been produced. This production rate projected through 2013 would
indicate the production of approximately 12.3 billion D6 RINs. In
addition, the production rate at ethanol facilities has been
increasing. EIA's weekly fuel ethanol production data shows that
ethanol production had dropped to 770, 000 barrels per day in late
January but had recovered to 875,000 barrels per day by the third
week of May. This later number projects to an annual production rate
of approximately 13.4 bill gal of ethanol per year. When considered
together with the estimated 2.1 billion carry over RINs we project
there will be sufficient D6 RINs to satisfy the unadjusted total
renewable fuel standard.
---------------------------------------------------------------------------
[[Page 49822]]
We recognize that in some cases carryover RINs from 2012 may not be
available to an individual obligated party that needs them. There are
indications from some stakeholders that those who own carryover RINs
may opt to not sell them, instead carrying them over to help assure
compliance with their own obligations in a future year. There is no way
to determine what fraction of carryover RINs may fall into this
category. However, we note that the 14.5 bill gal of ethanol that might
need to be consumed in 2013 (Table III.C-2) is only 1.4 bill gal above
the E10 blendwall. This is significantly less than the number of
available carryover RINs available. Thus only about half of the
carryover RINs in existence would need to be made available in order
for the full statutory volume requirements for advanced biofuel and
total renewable fuel to be met in 2013.
In response to the NPRM, one stakeholder indicated that carryover
RINs should not be considered in the process of setting standards.
Instead, this stakeholder argued, carryover RINs were intended only to
provide flexibility to enable companies to remain in compliance in
years when circumstances such as drought or other biofuel supply
shortage limit the availability of RINs. However, the final rulemaking
for the RFS1 program did not describe the purpose of carryover RINs in
such narrow terms. Droughts were indeed provided as an example of a
market circumstance that could limit the production of renewable fuels,
but the RFS1 final rule also described the use of carryover RINs more
broadly as a means for protecting against any potential supply
shortfalls that could limit the availability of RINs. The rule also put
this flexibility in terms of availability of RINs and the potential for
waivers:
The availability of excess previous-year RINs would thus provide
compliance certainty in the event that the supply of current-year
RINs falls below the RFS program requirements and the Agency does
not waive any portion of the program requirements. (72 FR 23935, May
1, 2007)
In addition, carryover RINs are a valid compliance mechanism, and they
will either be used for compliance purposes or eventually retired. The
issue here is estimating the adequacy of the availability and use of
ethanol in 2013 for compliance purposes, and the availability of
carryover RINs is certainly relevant in analyzing that issue.
Therefore, we believe that it is appropriate to consider carryover RINs
in the context of evaluating the comments received on the need for
further compliance relief to address the E10 blendwall.
Carryover RINs and increased E85 are not the only available
mechanisms that obligated parties have for meeting the 2013 standards.
There are also additional sources for non-ethanol biofuels that could
potentially be used for compliance in 2013 instead of relying on
increased volumes of E85. As discussed in Section III.B.1 above, there
is unused biodiesel production capacity and sufficient feedstocks
available to permit biodiesel production in excess of 1.28 bill gal if
demand for it exists. In addition, various feedstocks not currently
identified in Table 1 to 80.1426 can be used in facilities that have
been grandfathered under Sec. 80.1403 to produce biodiesel that is
categorized as renewable fuel, but not advanced biofuel, providing
these feedstocks meet the definition of renewable biomass.
Several commenters indicated that the recent rise in D6 RIN prices,
from approximately 5 [cent]/RIN in early January 2013 to approximately
70 [cent]/RIN by March 2013 \73\, is evidence that the E10 blendwall
had been reached and that obligated parties would have significant
difficulty complying with the proposed renewable fuel volumes. We
recognize that the approaching E10 blendwall and the related
anticipation of future scarcity of RINs in the context of currently
high feedstock prices is the primary driver for these price increases,
though other factors and market mechanisms may also contribute to the
increase in the price of D6 RINs. As discussed previously in this
section, however, we project that there will be sufficient RINs
available to obligated parties to satisfy their advanced biofuel and
total renewable fuel obligations in 2013 despite the challenge
represented by the blendwall.
---------------------------------------------------------------------------
\73\ RIN prices continued to rise after the comment period for
the NPRM closed.
---------------------------------------------------------------------------
One commenter also suggested that this increase in RIN prices would
increase the cost of transportation fuel to U.S. consumers by about $17
billion. We do not believe this is a credible program cost increase
resulting from high RIN prices even if it does represent the market
value of RINs required for compliance with the RFS program. It is
incorrect to assume a direct correlation between the increase in RIN
prices and a rise in average transportation fuel costs. The cost of the
RFS program is driven by the cost of renewable fuels relative to the
petroleum fuels they displace. The effect of increasing RIN prices is
not to increase overall transportation fuel costs, but rather to reduce
the price of more renewable-fuel intensive fuels (e.g. E85) relative to
the price of fuels with a lower renewable content (e.g. E10). Since the
cost of renewable fuels did not increase over this time period, we do
not believe that recent higher RIN prices have caused a significant
increase in the total cost of transportation fuels in 2013.\74\
---------------------------------------------------------------------------
\74\ See also: Irwin, Scott and Good, Darrel. ``High Gasoline
and Ethanol RINs Prices: Is There a Connection?'' Farmdoc Daily.
Department of Agricultural and Consumer Economics, University of
Illinois-Champaign. 27 March 2013. Web. 15 June 2013.
---------------------------------------------------------------------------
We recognize, however, that high RIN prices may impact individual
fuel market participants differently. For example, high D6 RIN prices
are likely to have differing effects on how various levels of gasoline/
ethanol blends and diesel fuel are priced. The refining industry has
raised concerns that in response to high RIN prices, individual
refiners may choose to export fuel, and individual importers may reduce
imports in order to reduce their RIN obligations. These actions could
increase the cost of transportation fuels if increased exports and/or
decreased imports significantly reduce the available supply of
transportation fuel in the United States. We believe this is highly
unlikely as increased exports or decreased imports by one company would
provide the opportunity for another obligated party to increase sales
volumes and market share within the U.S. and offset any change in
transportation fuel supply. EPA will continue to monitor RIN prices and
potential impacts closely.
For all of the reasons discussed above, we conclude that for 2013
adequate volumes of renewable fuel and carryover RINs are available to
meet the requirements for total and advanced biofuel, and that the E10
blendwall is not a barrier to compliance with these volumes given the
various alternative methods to comply besides the blending of ethanol
as E10. This conclusion is specific to the circumstances present for
2013.
D. Final Applicable Volume Requirements for 2013
As shown in Table III.B-2, in order for an advanced biofuel
requirement of 2.75 bill gal to be met, there would need to be 824 mill
gal of advanced biofuels in addition to the volumes that would
[[Page 49823]]
need to be produced or imported to meet the biomass-based diesel and
cellulosic biofuel requirements. After reviewing the projected
availability of advanced biofuel volumes from various sources, we have
determined that it is likely that there will be sufficient volumes
available to produce or import this 824 mill gal. First, we have
determined that there are more than 500 million advanced biofuel
carryover RINs from 2012 that can be used for compliance in 2013. With
regard to excess biodiesel, we have determined that there could
potentially be up to 100 mill gal of excess soy oil and up to 100 mill
gal of excess corn oil available, which together could provide 300
million or more advanced biofuel RINs. With regard to other advanced
biofuels, we project that up to 245 mill gal could be produced, and
another 50 mill gal if pathways under consideration are approved in
enough time for them to be used by producers in 2013. Finally, we
project that the volume of imported sugarcane ethanol from Brazil can
reach the actual import volumes in 2012, which was 580 mill gal, and
potentially considerably more. It is clear that, in the aggregate,
these sources of advanced biofuel RINs are substantially more than what
is needed to meet the advanced biofuel requirement of 2.75 bill gal.
Therefore, we do not believe that there is a compelling reason to
reduce the required volume of 2.75 bill gal advanced biofuel for 2013.
Moreover, we do not believe that the blendwall will represent an
impediment to compliance in 2013 due to the availability of carryover
RINs from 2012, opportunities for some increase in consumption of E85,
and opportunities for non-ethanol biofuels.
E. Volume Requirements for 2014
As described in the NPRM, we recognize that ethanol will likely
continue to predominate the renewable fuel pool in the near future, and
that for 2014 the ability of the market to consume ethanol in higher
blends such as E85 is constrained as a result of infrastructure- and
market-related factors. Most stakeholders that submitted comments in
response to the NPRM made reference to the impending E10 blendwall,
though they differed on how EPA should address it. A number of
obligated parties and other stakeholders have communicated to EPA that
while the E10 blendwall may be manageable in 2013, in 2014 compliance
is expected to become significantly more difficult. We agree with that
assessment. In 2014 the applicable volume of total renewable fuel set
forth in the statute rises to 18.15 billion ethanol-equivalent gallons,
of which 14.4 bill gal would be non-advanced biofuel comprised
primarily of corn-ethanol, and 3.75 bill gal would be advanced biofuel.
A significant portion of the fuel available to meet the advanced
biofuel requirement would also likely be ethanol, including
domestically produced cellulosic and advanced ethanol, along with
advanced ethanol imported from Brazil. However, the maximum volume of
ethanol that could be consumed as E10 in 2014 is projected to be just
13.2 bill gal.\75\ Given the history of the market and relevant
constraints, EPA does not currently foresee a scenario in which the
market could consume enough ethanol sold in blends greater than E10,
and/or produce sufficient volumes of non-ethanol biofuels (biodiesel,
renewable diesel, biogas, etc.), to meet the volumes of total renewable
fuel and advanced biofuel stated in the statute.
---------------------------------------------------------------------------
\75\ This volume is calculated using EIA's 2013 Annual Energy
Outlook assuming ethanol represents 10% of total motor gasoline
consumption by volume.
---------------------------------------------------------------------------
Given these challenges, EPA anticipates that in the 2014 proposed
rule, we will propose adjustments to the 2014 volume requirements,
including to both the advanced biofuel and total renewable fuel
categories. We expect that in preparing the 2014 proposed rule, we will
estimate the available supply of cellulosic and advanced biofuel,
assess the E10 blendwall and current infrastructure and market-based
limitations to the consumption of ethanol in gasoline-ethanol blends
above E10, and then propose to establish volume requirements that are
reasonably attainable in light of these considerations and others as
appropriate. EPA believes that the statute provides EPA with the
authorities and tools needed to make appropriate adjustments in the
national volume requirements to address these challenges. We are
currently evaluating a variety of options and approaches consistent
with our statutory authorities for use in establishing RFS requirements
for 2014. We will discuss these options in detail in the forthcoming
NPRM for the 2014 standards and expect to utilize the notice and
comment process to fully engage the public in consideration of a
reasonable path forward that appropriately addresses the blendwall and
other constraints.
We received a number of comments suggesting that because EPA was
late in issuing these final RFS standards for 2013, and in light of
concerns over the blendwall and RIN prices, that the Agency should take
action to relieve or reduce burdens associated with RFS compliance in
2013. While we do not believe that it would be appropriate to remove or
further reduce the statutory volume obligations for 2013 as some
suggested, we do agree with the commenter who suggested that EPA
provide additional time for obligated parties to demonstrate compliance
with the 2013 standards. Knowledge of the volume requirements for 2014
is crucial to the strategies that obligated parties may implement when
purchasing RINs and wet gallons of fuel for compliance with their
individual 2013 RVOs. Given this, EPA's view is that delaying the
compliance demonstration for the 2013 compliance period would alleviate
some of the uncertainty and concerns that obligated parties have
regarding the tardiness of the final rule and its effect on their
decisions regarding RIN acquisition.
Therefore, we are extending the RFS compliance deadline for the
calendar year 2013 RFS standards to June 30, 2014. This change affects
Sec. 80.1451(a)(1) and adds a new paragraph (a)(1)(xiv). In addition
to providing obligated parties with more time to demonstrate
compliance, we believe that this extension will allow obligated parties
to implement various purchasing and allocation strategies that help
them comply on an individual basis given the tardiness of this final
rule. The compliance demonstration deadline extension is for the 2013
compliance year only, and does not extend the compliance demonstration
deadline in any subsequent year. Additionally, given the extension of
the compliance demonstration deadline for the 2013 compliance period,
we are extending the deadline for submitting reports for the attest
engagement requirement for the corresponding compliance year until
September 30, 2014. This change affects Sec. 80.1464(d) and adds a new
paragraph (g). The attest engagement deadline extension is likewise for
the 2013 compliance year only, and does not extend the deadline in any
subsequent year.
IV. Applicable Percentage Standards for 2013
A. Background
The renewable fuel standards are expressed as volume percentages
and are used by each refiner, blender, or importer to determine their
renewable volume obligations (RVO). Since there are four separate
standards under the RFS2 program, there are likewise four separate RVOs
applicable to each obligated party. Each standard applies to the sum of
all gasoline and diesel
[[Page 49824]]
produced or imported. The applicable percentage standards are set so
that if every obligated party meets the percentages, then the amount of
renewable fuel, cellulosic biofuel, biomass-based diesel, and advanced
biofuel used will meet the volumes required on a nationwide basis.
As discussed in Section II.D, we are projecting a volume of
cellulosic biofuel for 2013 of 4 million gallons (6 million ethanol-
equivalent gallons). This is the volume we have used as the basis for
setting the percentage standard for cellulosic biofuel for 2013. We are
maintaining the advanced biofuel and total renewable fuel volumes at
the applicable volumes specified in the statute. The biomass-based
diesel volume for 2013 has been established at 1.28 billion gallons
through a separate rulemaking. The volumes used to determine the four
final percentage standards are shown in Table IV.A-1.
Table IV.A-1-- Final Volumes for Use in Setting the Applicable
Percentage Standards for 2013 \a\
------------------------------------------------------------------------
------------------------------------------------------------------------
Cellulosic biofuel..................... 6 mill gal.
Biomass-based diesel................... 1.28 bill gal.
Advanced biofuel....................... 2.75 bill gal.
Renewable fuel......................... 16.55 bill gal.
------------------------------------------------------------------------
\a\ Due to the manner in which the percentage standards are calculated,
all volumes are given in terms of ethanol-equivalent except for
biomass-based diesel which is given in terms of physical volume
As with previous years' renewable fuels standards determinations,
the formulas used in deriving the annual standards are based in part on
estimates of the volumes of gasoline and diesel fuel, for both highway
and nonroad uses, that are projected to be used in the year in which
the standards will apply. Producers of other transportation fuels, such
as natural gas, propane, and electricity from fossil fuels, are not
subject to the standards, and volumes of such fuels are not used in
calculating the annual standards. Since the standards apply to
producers and importers of gasoline and diesel, these are the
transportation fuels used to set the standards, and then again to
determine the annual volume obligations of an individual gasoline or
diesel producer or importer.
B. Calculation of Standards
1. How are the standards calculated?
The following formulas are used to calculate the four percentage
standards applicable to producers and importers of gasoline and diesel
(see Sec. 80.1405):
[GRAPHIC] [TIFF OMITTED] TR15AU13.005
Where:
StdCB,i = The cellulosic biofuel standard for year i, in
percent.
StdBBD,i = The biomass-based diesel standard (ethanol-
equivalent basis) for year i, in percent.
StdAB,i = The advanced biofuel standard for year i, in
percent.
StdRF,i = The renewable fuel standard for year i, in
percent.
RFVCB,i = Annual volume of cellulosic biofuel required by
section 211(o) of the Clean Air Act for year i, in gallons.
RFVBBD,i = Annual volume of biomass-based diesel required
by section 211(o) of the Clean Air Act for year i, in gallons.
RFVAB,i = Annual volume of advanced biofuel required by
section 211(o) of the Clean Air Act for year i, in gallons.
RFVRF,i = Annual volume of renewable fuel required by
section 211(o) of the Clean Air Act for year i, in gallons.
Gi = Amount of gasoline projected to be used in the 48
contiguous states and Hawaii, in year i, in gallons.
Di = Amount of diesel projected to be used in the 48
contiguous states and Hawaii, in year i, in gallons. This value
excludes diesel used in ocean-going vessels.
RGi = Amount of renewable fuel blended into gasoline that
is projected to be consumed in the 48 contiguous states and Hawaii,
in year i, in gallons.
RDi = Amount of renewable fuel blended into diesel that
is projected to be consumed in the 48 contiguous states and Hawaii,
in year i, in gallons.
GSi = Amount of gasoline projected to be used in Alaska
or a U.S. territory in year i if the state or territory opts-in, in
gallons.
RGSi = Amount of renewable fuel blended into gasoline
that is projected to be consumed in Alaska or a U.S. territory in
year i if the state or territory opts-in, in gallons.
DSi = Amount of diesel projected to be used in Alaska or
a U.S. territory in year i if the state or territory opts-in, in
gallons.
RDSi = Amount of renewable fuel blended into diesel that
is projected to be consumed in Alaska or a U.S. territory in year i
if the state or territory opts-in, in gallons.
[[Page 49825]]
GEi = Amount of gasoline projected to be produced by
exempt small refineries and small refiners in year i, in gallons, in
any year they are exempt per Sec. Sec. 80.1441 and 80.1442,
respectively. For 2013, this value is non-zero. See further
discussion in Section IV.B.2 below.
DEi = Amount of diesel projected to be produced by exempt
small refineries and small refiners in year i, in gallons, in any
year they are exempt per Sec. Sec. 80.1441 and 80.1442,
respectively. For 2013, this value is non-zero. See further
discussion in Section IV.B.2 below.
The Act requires EPA to base the standards on an EIA estimate of
the amount of gasoline and diesel that will be sold or introduced into
commerce for that year. The four separate renewable fuel standards for
2013 are based on the gasoline, ethanol, diesel, and biodiesel
consumption volumes projected by EIA.\76\ We adjusted these nationwide
values to represent the 49 states that participate in the RFS program
(neither Alaska nor any U.S. territory participates).
---------------------------------------------------------------------------
\76\ Letter, A. Michael Schaal, Director, Office of Petroleum,
Natural Gas, and Biofuels Analysis, U.S. Energy Information
Administration, to Christopher Grundler, Director, Office of
Transportation and Air Quality, U.S. EPA, May 8, 2013.
---------------------------------------------------------------------------
2. Small Refineries and Small Refiners
In CAA section 211(o)(9), enacted as part of the Energy Policy Act
of 2005, Congress provided a temporary exemption to small refineries
(those refineries with a crude throughput of no more than 75,000
barrels of crude per day) through December 31, 2010. In our initial
rulemaking to implement the new RFS program,\77\ we exercised our
discretion under section 211(o)(3)(B) and extended this temporary
exemption to the few remaining small refiners that met the Small
Business Administration's (SBA) definition of a small business (1,500
employees or less company-wide) but did not meet the statutory small
refinery definition as noted above. 40 CFR 80.1141, 80.1142. Because
EISA did not alter the small refinery exemption in any way, the RFS2
program regulations maintained the exemptions for gasoline and diesel
produced by small refineries and small refiners through 2010 (unless
the exemption was waived). See 40 CFR 80.1441, 80.1442.
---------------------------------------------------------------------------
\77\ 72 FR 23900, May 1, 2007.
---------------------------------------------------------------------------
Congress provided two ways that small refineries can receive a
temporary extension of the exemption beyond 2010. One is based on the
results of a study conducted by the Department of Energy (DOE) to
determine whether small refineries would face a disproportionate
economic hardship under the RFS program. The other is based on EPA
determination of disproportionate economic hardship on a case-by-case
basis in response to refiner petitions.
In January 2009, DOE issued a study which did not find that small
refineries would face a disproportionate economic hardship under the
RFS program.\78\ The conclusions were based in part on the expected
robust availability of RINs and EPA's ability to grant relief on a
case-by-case basis. As a result, beginning in 2011 small refiners and
small refineries were required to participate in the RFS program as
obligated parties, and there was no small refiner/refinery volume
adjustment to the 2011 standards as there was for the 2010 standards.
---------------------------------------------------------------------------
\78\ DOE report ``EPACT 2005 Section 1501 Small Refineries
Exemption Study'', (January, 2009).
---------------------------------------------------------------------------
Following the release of DOE's 2009 small refinery study, Congress
directed DOE to complete a reassessment and issue a revised report. In
March of 2011, DOE re-evaluated the impacts of the RFS program on small
entities and concluded that some small refineries would suffer a
disproportionate hardship.\79\ As a result, EPA exempted these
refineries from being obligated parties for two additional years, 2011
and 2012.\80\ The 2012 standards established in the January 9, 2012,
final rulemaking reflected the exemption of these refineries.
---------------------------------------------------------------------------
\79\ ``Small Refinery Exemption Study: An Investigation into
Disproportionate Economic Hardship,'' U.S. Department of Energy,
March 2011.
\80\ Since the standards are applied on an annual basis, the
exemptions are likewise on an annual basis even though the
determination of which refineries would receive an extension to
their exemption did not occur until after January 1, 2011.
---------------------------------------------------------------------------
EPA may also extend the exemption for individual small refineries
or small refiners on a case-by-case basis if they demonstrate
disproportionate economic hardship. 40 CFR Sec. Sec. 80.1441(e)(2),
80.1442(h). EPA has granted some exemptions pursuant to this process
that apply in 2011 and 2012. EPA has granted one exemption for 2013.
However, any requests for exemption that are approved after the release
of today's final rulemaking will not affect the 2013 standards. As
stated in the final rule establishing the 2011 standards, ``EPA
believes the Act is best interpreted to require issuance of a single
annual standard in November that is applicable in the following
calendar year, thereby providing advance notice and certainty to
obligated parties regarding their regulatory requirements. Periodic
revisions to the standards to reflect waivers issued to small
refineries or refiners would be inconsistent with the statutory text,
and would introduce an undesirable level of uncertainty for obligated
parties.'' Thus, any additional exemptions for small refineries or
small refiners that are issued after today will not affect the 2013
standards.
EPA requested comment on two areas related to small refiner/
refinery exemptions. The first was whether it would be appropriate to
extend the two year exemption for small refineries. Two commenters
stated that EPA should not provide such an extension to small
refineries. Both referenced the number of years the program has been in
place, leading to the conclusion that small entities have had time to
prepare to meet the standards. One of the commenters also stated that
small refiners likely have been blending renewable fuel for years given
market incentives. One of these commenters stated that the relief
provided was meant to be temporary and not ``on-going.'' A third
commenter suggested that EPA not only continue to provide hardship
waivers, but extend the opportunity for waivers to mid-size refiners,
on the basis that these refiners, like small refiners, do not own
ethanol facilities and have little control of the RIN and ethanol
markets. In addition, the location of several small and mid-size
refineries prohibits the export of gasoline, thus reducing their
compliance options in the face of limited RIN availability. However, it
is the limited financial resources of such entities that provide
overarching hardship to such entities, according to the commenter. This
commenter also stated that EPA's granting of hardship relief is based
on whether the refinery cannot remain economically viable without said
relief. The commenter believes the decision point should be based on
whether the refiner suffers disproportionately to others in the
industry.
The Act specifically provides for a temporary RFS exemption for
small refineries, and for the possibility of extensions of those
temporary exemptions. EPA used its discretion in the RFS1 program
regulations, and again in the RFS2 regulations, to extend the temporary
exemption (and possibility of extensions) to a few small refiners
meeting criteria established in prior EPA fuels rules based on general
authority to provide appropriate lead time in establishing implementing
regulations and based on the language in section 211(o) directing EPA
to apply RFS requirements to refineries, blenders, distributors, and
importers ``as appropriate.'' Regarding EPA's use of ``economic
viability'' (in the commenter's words) as a decision point, the Agency
has interpreted this to be a
[[Page 49826]]
severe impact--large enough to create a hardship and threaten the
viability of the company. Thus, absent such hardship, the agency does
not believe it is appropriate to extend the exemption for small
refineries.
EPA also requested comment on whether it is appropriate for the
agency to change the standards if small refiner exemptions are granted
after the final rule is issued. As discussed above, EPA has heretofore
considered and rejected this option for the primary reason of wanting
to provide certainty to obligated parties regarding the levels of the
standards. One commenter stated that, though they were opposed to
further extending exemptions to small entities, that--lawfully, the
standards must be adjusted whenever a waiver is granted. In the rule
establishing the 2011 standards, we stated that ``EPA believes the Act
is best interpreted to require issuance of a single annual standard . .
. thereby providing advance notice and certainty to obligated parties .
. .'' The Agency continues to believe that this is the single best
approach; the commenter did not provide new information to cause us to
re-evaluate this position.
3. Final Standards
As specified in the March 26, 2010 RFS2 final rule,\81\ the
percentage standards are based on energy-equivalent gallons of
renewable fuel, with the cellulosic biofuel, advanced biofuel, and
total renewable fuel standards based on ethanol equivalence and the
biomass-based diesel standard based on biodiesel equivalence. However,
all RIN generation is based on ethanol-equivalence. More specifically,
the RFS2 regulations provide that production or import of a gallon of
qualifying biodiesel will lead to the generation of 1.5 RINs. In order
to ensure that demand for 1.28 billion physical gallons of biomass-
based diesel will be created in 2013, the calculation of the biomass-
based diesel standard provides that the required volume be multiplied
by 1.5. The net result is a biomass-based diesel gallon being worth 1.0
gallon toward the biomass-based diesel standard, but worth 1.5 gallons
toward the other standards.
---------------------------------------------------------------------------
\81\ 75 FR 14716, March 26, 2010.
---------------------------------------------------------------------------
The levels of the percentage standards would be reduced if Alaska
or a U.S. territory chooses to participate in the RFS2 program, as
gasoline and diesel produced in or imported into that state or
territory would then be subject to the standard. Neither Alaska nor any
U.S. territory has chosen to participate in the RFS2 program at this
time, and thus the value of the related terms in the calculation of the
standards is zero.
Note that because the gasoline and diesel volumes estimated by EIA
include renewable fuel use, we must subtract the total renewable fuel
volumes from the total gasoline and diesel volumes to get total non-
renewable gasoline and diesel volumes. The values of the variables
described above are shown in Table IV.B.3-1.\82\ Terms not included in
this table have a value of zero.
---------------------------------------------------------------------------
\82\ To determine the 49-state values for gasoline and diesel,
the amounts of these fuels used in Alaska is subtracted from the
totals provided by DOE. The Alaska fractions are determined from the
most recent (2011) EIA State Energy Data, Transportation Sector
Energy Consumption Estimates. The gasoline and transportation
distillate fuel oil fractions are approximately 0.2% and 0.7%,
respectively. Ethanol use in Alaska is estimated at 11.2% of its
gasoline consumption (based on the same State data), and biodiesel
use is assumed to be zero.
Table IV.B.3-1--Values for Terms in Calculation of the Standards
[Bill gal]
------------------------------------------------------------------------
Term Value
------------------------------------------------------------------------
RFVCB,2013............................. 0.006.
RFVBBD,2013............................ 1.28.
RFVAB,2013............................. 2.75.
RFVRF,2013............................. 16.55.
G2013.................................. 132.80.
D2013.................................. 51.76.
RG2013................................. 13.31.
RD2013................................. 1.23.
GEi.................................... Confidential.\a\
DEi.................................... Confidential.\a\
------------------------------------------------------------------------
\a\ This information is not published because it reflects an exemption
for a single entity and publishing such information would reveal
confidential business information.
Using the volumes shown in Table IV.B.3-1, we have calculated the
final percentage standards for 2013 as shown in Table IV.B.3-2.
Table IV.B.3-2--Final Percentage Standards for 2013
------------------------------------------------------------------------
Cellulosic
Percent biofuel 0.004.
-------------------------------------------------------- --------------------
Cellulosic biofuel............................ 0.004
Biomass-based diesel.......................... 1.13
Advanced biofuel.............................. 1.62
Renewable fuel................................ 9.74
------------------------------------------------------------------------
V. Annual Administrative Announcements
In the RFS2 final rule, we stated our intent to make two
announcements each year:
Set the price for cellulosic biofuel waiver credits that
will be made available to obligated parties in the event that we reduce
the volume of cellulosic biofuel below the applicable volume specified
in the Clean Air Act (CAA), and
Announce the results of our annual assessment of the
aggregate compliance approach for U.S. planted crops and crop residue.
The biofuel waiver credit price being announced today was
calculated in accordance with the specifications in Sec. 80.1456(d).
The manner in which EPA calculates the waiver credit price is precisely
set forth in EPA regulations, and EPA's assessment of the aggregate
compliance approach is based on data sources, methodology, and criteria
that were identified and explained in the preamble to the RFS2 final
rule. For these reasons we would not typically include these
administrative announcements in a Notice of Proposed Rulemaking.
However, given that the NPRM for the 2013 standards was not published
prior to 2013, we determined that regulated parties would benefit from
knowing the waiver credit price and our conclusions regarding the
aggregate compliance approach as soon as possible. Therefore, the
February 7, 2013 NPRM included both of these administrative
announcements. In today's rulemaking we are finalizing both
announcements, and responding to a number of comments we received on
the aggregate compliance approach.
A. 2013 Price for Cellulosic Biofuel Waiver Credits
Section 211(o)(7)(D) of the CAA requires that whenever EPA sets the
applicable volume of cellulosic biofuel at a level lower than that
specified in the Act, EPA is to provide a number of cellulosic credits
for sale that is no more than the EPA-determined applicable volume.
Congress also specified the formula for calculating the price for such
waiver credits: adjusted for inflation, the credits must be offered at
the price of the higher of 25 cents per gallon or the amount by which
$3.00 per gallon exceeds the average wholesale price of a gallon of
gasoline in the United States. The inflation adjustment is for years
after 2008. EPA regulations provide that the inflation adjustment is
calculated by comparing the most recent Consumer Price Index for All
Urban Consumers (CPI-U) for the ``All Items'' expenditure category as
provided by the Bureau of Labor Statistics that is available at the
time EPA sets the cellulosic biofuel standard to the comparable value
that was reported soonest after December 31, 2008.
In contrast to its directions to EPA for setting the price of a
cellulosic biofuel waiver credit, Congress afforded the Agency
considerable flexibility in designing regulations specifying the
[[Page 49827]]
permissible uses of the credits. The CAA states that EPA regulations
``shall include such provisions, including limiting the credits' uses
and useful life, as the Administrator deems appropriate to assist
market liquidity and transparency, to provide appropriate certainty for
regulated entities and renewable fuel producers, and to limit any
potential misuse of cellulosic biofuel credits to reduce the use of
other renewable fuels, and for such other purposes as the Administrator
determines will help achieve the goals of this subsection.'' The final
RFS2 regulations provide a detailed discussion of how we designed the
provisions for cellulosic biofuel waiver credits in keeping with the
statutory language. In short, 2013 cellulosic biofuel waiver credits
(or''waiver credits'') are only available for the 2013 compliance year.
Waiver credits will only be made available to obligated parties, and
they are nontransferable and nonrefundable. Further, obligated parties
may only purchase waiver credits up to the level of their cellulosic
biofuel RVO less the number of cellulosic biofuel RINs that they own. A
company owning cellulosic biofuel RINs and cellulosic waiver credits
may use both types of credits if desired to meet their RVOs, but unlike
RINs, waiver credits may not be carried over for use in the next
calendar year. Obligated parties may not use waiver credits to meet a
prior year deficit obligation. Finally, unlike cellulosic biofuel RINs
which may also be used to meet an obligated party's advanced and total
renewable fuel obligations, waiver credits may only be used to meet a
cellulosic biofuel RVO. An obligated party will still need to
additionally and separately acquire RINs to meet their advanced biofuel
and total renewable fuel obligations.
For the 2013 compliance period, since the applicable volume of
cellulosic biofuel used to set the annual cellulosic biofuel standard
is lower than the volume for 2013 specified in the CAA, we are making
cellulosic waiver credits available to obligated parties for end-of-
year compliance should they need them at a price of $0.42 per credit.
To calculate this price, EPA first determined the average wholesale
(refinery gate) price of gasoline using the most recent 12 months of
data available from the EIA Web site on September 30, 2012. Based on
this data, we calculated an average price of gasoline for the period
July 2011 to June 2012 of $2.85. In accordance with the Act, we then
calculated the difference of the inflation-adjusted value of $3.00, or
$3.27, and $2.85, which yielded $0.42. Next, we compared the value of
$0.42 to the inflation-adjusted value of $0.25, or $0.27. The Act
requires EPA to use the greater of these two values as the price for
cellulosic biofuel waiver credits.
The derivation of this value is more fully explained in a
memorandum submitted to the docket for this rulemaking, and a more
complete description of the statutory requirements and their
application can be found in the RFS2 final rule.
B. Assessment of the Domestic Aggregate Compliance Approach
The RFS2 regulations contain a provision for renewable fuel
producers who use planted crops and crop residue from U.S. agricultural
land that relieves them of the individual recordkeeping and reporting
requirements concerning the specific land from which their feedstocks
were harvested. To enable this approach, EPA established a baseline
number of acres for U.S. agricultural land in 2007 (the year of EISA
enactment) and determined that as long as this baseline number of acres
was not exceeded, it was unlikely that new land outside of the 2007
baseline would be devoted to crop production based on historical trends
and economic considerations. We therefore provided that renewable fuel
producers using planted crops or crop residue from the U.S. as
feedstock in renewable fuel production need not comply with the
individual recordkeeping and reporting requirements related to
documenting that their feedstocks are renewable biomass, unless EPA
determines through one of its annual evaluations that the 2007 baseline
acreage of agricultural land has been exceeded.
In the final RFS2 regulations, EPA committed to make an annual
finding concerning whether the 2007 baseline amount of U.S.
agricultural land has been exceeded in a given year. If the baseline is
found to have been exceeded, then producers using U.S. planted crops
and crop residue as feedstocks for renewable fuel production would be
required to comply with individual recordkeeping and reporting
requirements to verify that their feedstocks are renewable biomass.
In response to the NPRM, we received two comments criticizing the
aggregate compliance approach, including a comment questioning
transparency surrounding the data and methodology. EPA continues to
believe that USDA cropland and reserve program acreage data are the
most appropriate and applicable sources of data on which to base our
annual evaluation for whether the 2007 baseline has been exceeded for
aggregate compliance. The USDA data along with a description of our
evaluation has been provided in the rulemaking dockets for each annual
RFS standard.
Based on data provided by the USDA Farm Service Agency (FSA) and
Natural Resources Conservation Service (NRCS), we have estimated that
U.S. agricultural land reached approximately 384 million acres in 2012,
and thus did not exceed the 2007 baseline acreage. This acreage
estimate is based on the same methodology used to set the 2007 baseline
acreage for U.S. agricultural land in the RFS2 final rulemaking.
Specifically, we started with FSA crop history data for 2012, from
which we derived a total estimated acreage of 384 million acres. We
then subtracted the amount of land estimated to be participating in the
Grasslands Reserve Program (GRP) and Wetlands Reserve Program (WRP) by
the end of Fiscal Year 2012, 230,550 acres, to yield an estimate of
approximately 384 million acres of U.S. agricultural land in 2012. The
USDA data used to make this calculation can be found in the docket to
this rule.
C. Assessment of the Canadian Aggregate Compliance Approach
On March 15, 2011, EPA issued a notice of receipt of and solicited
public comment on a petition for EPA to authorize the use of an
aggregate approach for compliance with the Renewable Fuel Standard
renewable biomass requirements, submitted by the Government of Canada.
The petition requested that EPA determine that an aggregate compliance
approach will provide reasonable assurance that planted crops and crop
residue from Canada meet the definition of renewable biomass. After
thorough consideration of the petition, all supporting documentation
provided and the public comments received, EPA determined that the
criteria for approval of the petition were satisfied and approved the
use of an aggregate compliance approach to renewable biomass
verification for planted crops and crop residue grown in Canada.
The Government of Canada utilized several types of land use data to
demonstrate that the land included in their 124 million acre baseline
is cropland, pastureland or land equivalent to U.S. Conservation
Reserve Program land that was cleared or cultivated prior to December
19, 2007, and was actively managed or fallow and nonforested on that
date (and is therefore RFS2 qualifying land). The total agricultural
land in Canada in 2012
[[Page 49828]]
is estimated at 120.9 million acres. This total agricultural land area
includes 97.3 million acres of cropland and summer fallow, 13.8 million
acres of pastureland and 9.8 million acres of agricultural land under
conservation practices. This acreage estimate is based on the same
methodology used to set the 2007 baseline acreage for Canadian
agricultural land in the RFS2 response to petition. The data used to
make this calculation can be found in the docket to this rule.
D. Vacatur of 2012 Cellulosic Biofuel Standard
On January 25, 2013 a DC circuit court ruled that the EPA's
projection of cellulosic biofuel production was in excess of the
agency's statutory authority and vacated the cellulosic biofuel
standards.\83\ Very few cellulosic biofuel RINs were generated in 2012
and of those that were the majority of these RINs were required to be
retired when the cellulosic biofuel they represented was exported. EPA
is therefore eliminating the cellulosic biofuel requirement for 2012 in
accordance with the order from the DC circuit court. Cellulosic biofuel
RINs generated in 2012 may still be used to satisfy up to 20% of an
obligated party's cellulosic biofuel obligation in 2013.
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\83\ See API v. EPA, No. 12-1139, slip op. at 5-9 (D.C. Cir.
January 25, 2013)
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VI. Comments Outside the Scope of This Rulemaking
In their comments responding to the NPRM, a number of parties used
the opportunity to raise concerns that were not directly related to the
issues and provisions we were addressing in the NPRM, namely the
determination of the applicable volume requirements and associated
percentage standards for cellulosic biofuel, biomass-based diesel,
advanced biofuel, and total renewable fuel. Instead, they addressed
issues associated with the following:
EPA's petition process in Sec. 80.1416 for approving new fuel
pathways and requests that the review of certain pathways be expedited
Requests for clarification regarding whether certain
feedstocks qualify as renewable biomass
Requests for new EPA initiatives to promote FFVs and blender
pumps
Possible legislative changes to the RFS program
E15 waivers and EPA policy on E15
Requests for new or revised lifecycle GHG assessments
Impacts of ethanol on small engines
Impacts of ethanol on air quality and use of corn for food
Comments on specific regulatory provisions in 40 CFR Part 80,
Subpart M
Comments on the 1.28 bill gal volume requirement for biomass-
based diesel
We also received some comments addressing the impacts of ethanol on air
quality and the use of corn for food. These issues were addressed in
the RFS2 final rule released in 2010 and were not revisited in the
February 7, 2013 NPRM.
While we are taking these comments under consideration as we
continue to implement the RFS2 program, these comments are outside the
scope of today's action, and we are not providing substantive responses
to them at this time. With regard to comments on the 1.28 bill gal
requirement for biomass-based diesel, we will take them into
consideration in the context of our response to the petition for
reconsideration submitted by the American Fuels and Petrochemical
Manufacturers.
VII. Public Participation
Many interested parties participated in the rulemaking process that
culminates with this final rule. This process provided opportunity for
submitting written public comments following the proposal that we
published on February 7, 2013 (78 FR 9282), and we also held a public
hearing on March 8, 2013 at which a number of parties provided both
verbal and written testimony. All comments received, both verbal and
written, are available in EPA docket EPA-HQ-OAR-2012-0546 and we
considered these comments in developing the final rule. Public comments
and EPA responses are discussed throughout this preamble.
VIII. Statutory and Executive Order Reviews
A. Executive Order 12866: Regulatory Planning and Review and Executive
Order 13563: Improving Regulation and Regulatory Review
Under Executive Order 12866 (58 FR 51735, October 4, 1993), this
action is a ``significant regulatory action'' because it raises novel
legal or policy issues arising out of legal mandates, the President's
priorities, or the principles set forth in the Executive Order.
Accordingly, EPA submitted this action to the Office of Management and
Budget (OMB) for review under Executive Orders 12866 and 13563 (76 FR
3821, January 21, 2011) and any changes made in response to OMB
recommendations have been documented in the docket for this action.
The economic impacts of the RFS2 program on regulated parties,
including the impacts of the required volumes of renewable fuel, were
already addressed in the RFS2 final rule promulgated on March 26, 2010
(75 FR 14670). With the exception of cellulosic biofuel, this action
proposes the percentage standards applicable in 2013 based on the
volumes that were analyzed in the RFS2 final rule.
B. Paperwork Reduction Act
This action does not impose an information collection burden under
the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq.
Burden is defined at 5 CFR 1320.3(b). This final rule does not impose
any additional reporting requirements on regulated parties beyond those
already required under the RFS program; therefore, there will not be
any additional reporting burdens on entities impacted by this
regulation. This action merely establishes the RFS annual standards for
2013 as required by section 211(o) of the Clean Air Act.
C. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) generally requires an agency
to prepare a regulatory flexibility analysis of any rule subject to
notice and comment rulemaking requirements under the Administrative
Procedure Act or any other statute unless the agency certifies that the
rule will not have a significant economic impact on a substantial
number of small entities. Small entities include small businesses,
small organizations, and small governmental jurisdictions.
For purposes of assessing the impacts of today's rule on small
entities, small entity is defined as: (1) A small business as defined
by the Small Business Administration's (SBA) regulations at 13 CFR
121.201; (2) a small governmental jurisdiction that is a government of
a city, county, town, school district or special district with a
population of less than 50,000; and (3) a small organization that is
any not-for-profit enterprise which is independently owned and operated
and is not dominant in its field.
Today's rule is an annual rulemaking implementing a long-term
program that was finalized in 2010. Under that program small refiners
and small refineries were already granted two years of relief that
could be extended upon demonstration of ongoing hardship. EPA, with the
assistance of DOE, has continued to implement these provisions and
provide relief when warranted.
[[Page 49829]]
After considering the economic impacts of today's final rule on
small entities, we certify that this action will not have a significant
economic impact on a substantial number of small entities. This rule
sets the annual standard for cellulosic biofuel for 2013 at 6 mill gal.
Since small refiners and small refineries collectively comprise about
11.9% of gasoline and 15.2% of diesel production \84\, for an average
of 12.9% for the entire gasoline + diesel pool, small refiners and
small refineries would only be required to collectively meet a
cellulosic biofuel requirement of about 0.8 mill gal (6 x 12.9%). At
the cellulosic biofuel waiver credit price of $0.42, established in
this rule for 2013, the cost of complying with this requirement would
total about $0.33 million for the approximately 60 obligated parties
that would be affected, or about $5,500 per facility on average.
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\84\ Estimates from RFS2 final rule, 75 FR 14867.
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The impacts of the RFS2 program on small entities were already
addressed in the RFS2 final rule promulgated on March 26, 2010 (75 FR
14670), and this final rule will not impose any additional requirements
on small entities.
D. Unfunded Mandates Reform Act
This final action contains no Federal mandates under the provisions
of Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), 2
U.S.C. 1531-1538 for State, local, or tribal governments or the private
sector. This action implements mandate(s) specifically and explicitly
set forth by the Congress in Clean Air Act section 211(o) without the
exercise of any policy discretion by EPA. Therefore, this action is not
subject to the requirements of sections 202 or 205 of the UMRA.
This action is also not subject to the requirements of section 203
of UMRA because it contains no regulatory requirements that might
significantly or uniquely affect small governments. This final rule
only applies to gasoline, diesel, and renewable fuel producers,
importers, distributors and marketers and merely sets the 2013 annual
standards for the RFS program.
E. Executive Order 13132: Federalism
This action does not have federalism implications. It will not have
substantial direct effects on the States, on the relationship between
the national government and the States, or on the distribution of power
and responsibilities among the various levels of government, as
specified in Executive Order 13132. This action sets the 2013 annual
standards for the RFS program and only applies to gasoline, diesel, and
renewable fuel producers, importers, distributors and marketers. Thus,
Executive Order 13132 does not apply to this rule.
F. Executive Order 13175: Consultation and Coordination With Indian
Tribal Governments
This action does not have tribal implications, as specified in
Executive Order 13175 (65 FR 67249, November 9, 2000). This final rule
will be implemented at the federal level and affects transportation
fuel refiners, blenders, marketers, distributors, importers, exporters,
and renewable fuel producers and importers. Tribal governments would be
affected only to the extent they purchase and use regulated fuels.
Thus, Executive Order 13175 does not apply to this action.
G. Executive Order 13045: Protection of Children From Environmental
Health Risks and Safety Risks
EPA interprets EO 13045 (62 FR 19885, April 23, 1997) as applying
only to those regulatory actions that concern health or safety risks,
such that the analysis required under section 5-501 of the EO has the
potential to influence the regulation. This action is not subject to EO
13045 because it does not establish an environmental standard intended
to mitigate health or safety risks and because it implements specific
standards established by Congress in statutes (section 211(o) of the
Clean Air Act).
H. Executive Order 13211: Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use
This action is not a ``significant energy action'' as defined in
Executive Order 13211, ``Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use'' (66 FR 28355
(May 22, 2001)) because it is not likely to have a significant adverse
effect on the supply, distribution, or use of energy. This action
simply sets the annual standards for renewable fuel under the RFS
program for 2013.
I. National Technology Transfer and Advancement Act
Section 12(d) of the National Technology Transfer and Advancement
Act of 1995 (``NTTAA''), Public Law 104-113, 12(d) (15 U.S.C. 272 note)
directs EPA to use voluntary consensus standards in its regulatory
activities unless to do so would be inconsistent with applicable law or
otherwise impractical. Voluntary consensus standards are technical
standards (e.g., materials specifications, test methods, sampling
procedures, and business practices) that are developed or adopted by
voluntary consensus standards bodies. NTTAA directs EPA to provide
Congress, through OMB, explanations when the Agency decides not to use
available and applicable voluntary consensus standards.
This final rulemaking does not involve technical standards.
Therefore, EPA is not considering the use of any voluntary consensus
standards.
J. Executive Order 12898: Federal Actions To Address Environmental
Justice in Minority Populations and Low-Income Populations
Executive Order (EO) 12898 (59 FR 7629 (Feb. 16, 1994)) establishes
federal executive policy on environmental justice. Its main provision
directs federal agencies, to the greatest extent practicable and
permitted by law, to make environmental justice part of their mission
by identifying and addressing, as appropriate, disproportionately high
and adverse human health or environmental effects of their programs,
policies, and activities on minority populations and low-income
populations in the United States.
EPA has determined that this final rule will not have
disproportionately high and adverse human health or environmental
effects on minority or low-income populations because it does not
affect the level of protection provided to human health or the
environment. This action does not relax the control measures on sources
regulated by the RFS regulations and therefore will not cause emissions
increases from these source.
K. Congressional Review Act
The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the
Small Business Regulatory Enforcement Fairness Act of 1996, generally
provides that before a rule may take effect, the agency promulgating
the rule must submit a rule report, which includes a copy of the rule,
to each House of the Congress and to the Comptroller General of the
United States. EPA will submit a report containing this rule and other
required information to the U.S. Senate, the U.S. House of
Representatives, and the Comptroller General of the United States prior
to publication of the rule in the Federal Register. A major rule cannot
take effect until 60 days after it is published in the Federal
Register. This action is not a ``major rule'' as defined by 5 U.S.C.
804(2). Therefore, this rule will be effective on the date of
publication.
[[Page 49830]]
IX. Statutory Authority
Statutory authority for this action comes from section 211 of the
Clean Air Act, 42 U.S.C. 7545. Additional support for the procedural
and compliance related aspects of today's Final rule, come from
Sections 114, 208, and 301(a) of the Clean Air Act, 42 U.S.C. Sections
7414, 7542, and 7601(a).
List of Subjects in 40 CFR Part 80
Administrative practice and procedure, Air pollution control,
Diesel fuel, Environmental protection, Fuel additives, Gasoline,
Imports, Oil imports, Petroleum.
Dated: August 6, 2013.
Gina McCarthy,
Administrator.
For the reasons set forth in the preamble, 40 CFR part 80 is
amended as follows:
PART 80--REGULATION OF FUELS AND FUEL ADDITIVES
0
1. The authority citation for part 80 continues to read as follows:
Authority: 42 U.S.C. 7414, 7542, 7545, and 7601(a).
0
2. Section 80.1405 is amended by removing and reserving paragraph
(a)(3)(i) and by adding paragraphs (a)(4) and (d)(4) to read as
follows:
Sec. 80.1405 What are the Renewable Fuel Standards?
(a) * * *
(4) Renewable Fuel Standards for 2013.
(i) The value of the cellulosic biofuel standard for 2013 shall be
0.004 percent.
(ii) The value of the biomass-based diesel standard for 2013 shall
be 1.13 percent.
(iii) The value of the advanced biofuel standard for 2013 shall be
1.62 percent.
(iv) The value of the renewable fuel standard for 2013 shall be
9.74 percent.
* * * * *
(d) * * *
(4) The 2013 price for cellulosic biofuel waiver credits is $0.42
per waiver credit.
0
3. Section 80.1451 is amended by revising paragraph (a)(1) introductory
text and by adding paragraph (a)(1)(xiv) to read as follows:
Sec. 80.1451 What are the reporting requirements under the RFS
program?
(a) * * *
(1) Annual compliance reports for the previous compliance period
shall be submitted by February 28 of each year except as provided in
paragraph (xiv) below, and shall include all of the following
information:
* * * * *
(xiv) For the 2013 compliance year, annual compliance reports shall
be submitted by June 30, 2014.
* * * * *
0
4. Section 80.1464 is amended by revising paragraph (d) and by adding
paragraph (g) to read as follows:
Sec. 80.1464 What are the attest engagement requirements under the
RFS program?
(d) For each compliance year, each party subject to the attest
engagement requirements under this section shall cause the reports
required under this section to be submitted to EPA by May 31 of the
year following the compliance year, except as provided in paragraph (g)
below.
* * * * *
(g) For the 2013 compliance year, reports required under this
section shall be submitted to EPA by September 30, 2014.
[FR Doc. 2013-19557 Filed 8-14-13; 8:45 am]
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