[Federal Register Volume 78, Number 230 (Friday, November 29, 2013)]
[Proposed Rules]
[Pages 71732-71784]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-28155]
[[Page 71731]]
Vol. 78
Friday,
No. 230
November 29, 2013
Part II
Environmental Protection Agency
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40 CFR Part 80
2014 Standards for the Renewable Fuel Standard Program; Proposed Rule
Federal Register / Vol. 78 , No. 230 / Friday, November 29, 2013 /
Proposed Rules
[[Page 71732]]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 80
[EPA-HQ-OAR-2013-0479; FRL-9900-90-OAR]
RIN 2060-AR76
2014 Standards for the Renewable Fuel Standard Program
AGENCY: Environmental Protection Agency (EPA).
ACTION: Proposed 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 proposes
the annual percentage standards for cellulosic biofuel, biomass-based
diesel, advanced biofuel, and renewable fuels that would apply to all
motor vehicle gasoline and diesel produced or imported in the year
2014. For cellulosic biofuel, the statute specifies that EPA is to
project the volume of production and must base the cellulosic biofuel
standard on projected available volume if it is less than the
applicable volume set forth in the Act. Today EPA is proposing a
cellulosic biofuel volume for 2014 that is below the applicable volume
specified in the Act. The statute also provides EPA the discretion to
adjust the volumes of advanced biofuel and total renewable fuel under
certain conditions. Relying on its Clean Air Act waiver authorities,
EPA is proposing to adjust the applicable volumes of advanced biofuel
and total renewable fuel to address projected availability of
qualifying renewable fuels and limitations in the volume of ethanol
that can be consumed in gasoline given practical constraints on the
supply of higher ethanol blends to the vehicles that can use them and
other limits on ethanol blend levels in gasoline. These adjustments are
intended to put the program on a manageable trajectory while supporting
growth in renewable fuels over time. Finally, the statute requires EPA
to determine the applicable volume of biomass-based diesel to be used
in setting annual percentage standards under the renewable fuel
standard program for years after 2012. EPA is proposing the applicable
volume of biomass-based diesel that would apply in 2014 and 2015. EPA
is requesting comment on a variety of alternative approaches and on a
range of inputs and methodologies relevant for setting the applicable
standards.
DATES: Comments must be received on or before January 28, 2014.
Hearing: We intend to hold a hearing. Details of the location and
date will be provided in a separate notice.
ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-
OAR-2013-0479, by one of the following methods:
www.regulations.gov: Follow the on-line instructions for
submitting comments.
Email: [email protected].
Mail: Air and Radiation Docket and Information Center,
Environmental Protection Agency, Mailcode: 2822T, 1200 Pennsylvania
Ave. NW., Washington, DC 20460.
Hand Delivery: EPA Docket Center, EPA West Building, Room
3334, 1301 Constitution Ave. NW., Washington, DC 20460. Such deliveries
are only accepted during the Docket's normal hours of operation, and
special arrangements should be made for deliveries of boxed
information.
Instructions: Direct your comments to Docket ID No. EPA-HQ-OAR-
2013-0479. EPA's policy is that all comments received will be included
in the public docket without change and may be made available online at
www.regulations.gov, including any personal information provided,
unless the comment includes information claimed to be Confidential
Business Information (CBI) or other information whose disclosure is
restricted by statute. Do not submit information that you consider to
be CBI or otherwise protected through www.regulations.gov or email. The
www.regulations.gov Web site is an ``anonymous access'' system, which
means EPA will not know your identity or contact information unless you
provide it in the body of your comment. If you send an email comment
directly to EPA without going through www.regulations.gov your email
address will be automatically captured and included as part of the
comment that is placed in the public docket and made available on the
Internet. If you submit an electronic comment, EPA recommends that you
include your name and other contact information in the body of your
comment and with any disk or CD-ROM you submit. If EPA cannot read your
comment due to technical difficulties and cannot contact you for
clarification, EPA may not be able to consider your comment. Electronic
files should avoid the use of special characters, any form of
encryption, and be free of any defects or viruses. For additional
information about EPA's public docket visit the EPA Docket Center
homepage at http://www.epa.gov/epahome/dockets.htm. For additional
instructions on submitting comments, go to Section I.B of the
SUPPLEMENTARY INFORMATION section of this document.
Docket: 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:
I. General Information
A. Does this action apply to me?
Entities potentially affected by this proposed 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
NAICS \1\ SIC \2\ potentially
Category Codes Codes regulated
entities
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Industry..................... 324110 2911 Petroleum
Refineries.
Industry..................... 325193 2869 Ethyl alcohol
manufacturing.
[[Page 71733]]
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
proposed action. This table lists the types of entities that EPA is now
aware could potentially be regulated by this proposed action. Other
types of entities not listed in the table could also be regulated. To
determine whether your activities would be regulated by this proposed
action, you should carefully examine the applicability criteria in 40
CFR part 80. If you have any questions regarding the applicability of
this proposed action to a particular entity, consult the person listed
in the preceding section.
B. What should I consider as I prepare my comments for EPA?
1. Submitting CBI
Do not submit confidential business information (CBI) to EPA
through www.regulations.gov or email. Clearly mark the part or all of
the information that you claim to be CBI. For CBI information in a disk
or CD ROM that you mail to EPA, mark the outside of the disk or CD ROM
as CBI and then identify electronically within the disk or CD ROM the
specific information that is claimed as CBI. In addition to one
complete version of the comment that includes information claimed as
CBI, a copy of the comment that does not contain the information
claimed as CBI must be submitted for inclusion in the public docket.
Information so marked will not be disclosed except in accordance with
procedures set forth in 40 CFR part 2.
2. Tips for Preparing Your Comments
When submitting comments, remember to:
Identify the rulemaking by docket number and other
identifying information (subject heading, Federal Register date and
page number).
Follow directions--The agency may ask you to respond to
specific questions or organize comments by referencing a Code of
Federal Regulations (CFR) part or section number.
Explain why you agree or disagree, suggest alternatives,
and substitute language for your requested changes.
Describe any assumptions and provide any technical
information and/or data that you used.
If you estimate potential costs or burdens, explain how
you arrived at your estimate in sufficient detail to allow for it to be
reproduced.
Provide specific examples to illustrate your concerns, and
suggest alternatives.
Explain your views as clearly as possible, avoiding the
use of profanity or personal threats.
Make sure to submit your comments by the comment period
deadline identified.
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 2014
2. Biomass-Based Diesel Requirement in 2014 and 2015
3. Advanced Biofuel and Total Renewable Fuel in 2014
4. Proposed Annual Percentage Standards for 2014
C. Volume Requirements for 2015 and Beyond
II. Proposed Cellulosic Biofuel Volume for 2014
A. Statutory Requirements
B. Cellulosic Biofuel Volume Assessment for 2014
1. Potential Domestic Producers with Approved Pathways
2. Potential Domestic Producers without Existing Pathways
3. Potential Foreign Sources of Cellulosic Biofuel
4. Summary of Volume Projections for Individual Companies
C. Proposed Cellulosic Biofuel Volume for 2014
D. Rescission of the 2011 Cellulosic Biofuel Standards
III. Proposed National Volume Requirement for Biomass-Based Diesel
in 2014 and 2015
A. Statutory Requirements
B. Compliance with 2013 Volume Requirement of 1.28 Billion
Gallons
C. Determination of Applicable Volume for 2014 and 2015
IV. Proposed National Volume Requirements for Advanced Biofuel and
Total Renewable Fuel for 2014
A. Statutory Authorities for Reducing Volumes to Address Biofuel
Availability and the Ethanol Blendwall
1. Cellulosic Waiver Authority
2. General Waiver Authority
3. Combining Authorities for Reductions in Advanced Biofuel and
Total Renewable Fuel
B. Determination of Reductions in Total Renewable Fuel
1. Estimating Ethanol Volumes that Could Reasonably Be Consumed
a. Projected Composition of 2014 Gasoline Supply
b. Assessment of E85 Consumption
c. Proposed Projection of E85 Consumption in 2014
d. Estimating Total Ethanol Consumption in 2014
2. Estimating Availability of Non-Ethanol Renewable Fuel Volumes
a. Non-Ethanol Cellulosic Biofuel
b. Biomass-Based Diesel
c. Non-Ethanol Advanced Biofuel
d. Non-Ethanol Non-Advanced Renewable Fuel
3. Treatment of Carryover RINs in 2014
4. Proposed Range for the Volume Requirement for Total Renewable
Fuel
C. Determination of Reductions in Advanced Biofuel
1. Available Volumes of Advanced Biofuel in 2014
a. Cellulosic biofuel
b. Biomass-Based Diesel
c. Domestic Production of Other Advanced Biofuel
d. Imported Sugarcane Ethanol
e. Summary
2. Options for Determining Appropriate Reductions in Advanced
Biofuel
a. Option 1: Advanced Biofuel Availability
b. Option 2: Full Reduction in Cellulosic Biofuel
c. Option 3: Availability, Growth, and Limits on Ethanol
Consumption
D. Summary of Proposed Volume Requirements for 2014
E. Volume Requirements for 2015 and Beyond
V. Proposed Percentage Standards for 2014
A. Background
B. Calculation of Standards
1. How Are the Standards Calculated?
2. Small Refineries and Small Refiners
3. Proposed Standards
VI. Public Participation
A. How Do I Submit Comments?
B. How Should I Submit CBI to the Agency?
VII. 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
[[Page 71734]]
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
VIII. 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 was 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 2014 are shown in Table I-1.
Note that cellulosic biofuel and biomass-based diesel categories are
nested within advanced biofuel, which is itself nested within the
renewable fuel category.
Table I-1--Required Applicable Volumes in Billion Gallons (bill gal) in
the Clean Air Act for 2014
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Cellulosic biofuel....................... 1.75 \a\
Biomass-based diesel..................... >=1.0 \b\
Advanced biofuel......................... 3.75 \a\
Renewable fuel........................... 18.15 \a\
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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. 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. The percentage standards are used by obligated
parties (generally, producers and importers of transportation fuel) to
calculate their individual compliance obligations. The percentage
standards are applied to the volume of non-renewable transportation
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 jet fuel.
As required by statute, we are proposing to establish the volume
for cellulosic biofuel based on projected availability of such fuel--
which is below the statutory target for 2014. In addition, we have
evaluated the availability of qualifying renewable fuels and factors
that in some cases limit supplying those fuels to the vehicles and
equipment that can consume them, including the set of factors referred
to as the ethanol blendwall. Based on this evaluation we believe that
adjustments to the volumes of advanced biofuel and total renewable fuel
required under the statute are warranted for 2014 due to an inadequate
domestic supply of these fuels (see Section IV.A for further detail).
We are also proposing to maintain the same volume for biomass-based
diesel for 2014 and 2015 as was adopted for 2013. The volumes that we
are proposing for 2014, as well as the ranges on which we are seeking
comment, are shown below. With the exception of the volume requirement
for cellulosic biofuel, the proposed volumes correspond to the
preferred approach described in today's proposal, but we discuss and
are seeking comment on alternative approaches as well.
Table I-2--Proposed 2014 Volume Requirements \a\
------------------------------------------------------------------------
Proposed volume Projected range
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Cellulosic biofuel.............. 17 mill gal....... 8-30 mill gal.
Biomass-based diesel............ 1.28 bill gal..... 1.28 bill gal. \b\
Advanced biofuel................ 2.20 bill gal..... 2.00-2.51 bill
gal.
Renewable fuel.................. 15.21 bill gal.... 15.00-15.52 bill
gal.
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\a\ All volumes are ethanol-equivalent, except for biomass-based diesel
which is actual.
\b\ EPA is requesting comment on alternative approaches and higher
volumes.
Section II contains a detailed discussion of the basis for our
proposed volume of cellulosic biofuel for 2014, Section III contains a
detailed discussion of the basis for our proposed volume of biomass-
based diesel for 2014 and 2015, and Section IV contains a detailed
discussion of the basis for our proposed volumes, as well as
alternative potential approaches on which we are requesting comment,
for advanced biofuel and total renewable fuel for 2014.
In developing this proposal, we have been cognizant that Congress
anticipated and intended the RFS program to promote substantial,
sustained growth in biofuel production and consumption--beyond the
levels that have been achieved to date. Although current gasoline
demand and forecasts of future gasoline demand have decreased since
EISA's enactment in 2007, EPA continues to support the objective of
continued growth in renewable fuel production and consumption, as well
as the central policy goals underlying the RFS program: reductions in
greenhouse gas emissions, enhanced energy security, economic
development, and technological innovation. The approach reflected in
today's proposal is consistent with those objectives and is intended to
put the RFS program on a manageable trajectory while supporting
continued growth in renewable fuels over time. As emphasized throughout
the proposal, we are seeking comment and information on a variety of
alternative approaches as well as ranges of inputs and methodologies
relevant to setting these standards, and look forward to engagement
with stakeholders on all aspects of the proposal.
[[Page 71735]]
A. Purpose of this action
EPA is today proposing annual volume requirements for obligated
parties for cellulosic biofuel, biomass-based diesel, advanced biofuel,
and total renewable fuel for 2014. Table I.A-1 lists the statutory
provisions and associated criteria relevant to determining the national
applicable volumes used to set the applicable standards in today's
proposed rule.
Table I.A-1--Statutory Provisions for Determination of Applicable
Volumes
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Criteria provided in
Clean Air Act statute for
Applicable volumes reference determination of
applicable volume
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Cellulosic biofuel in 2014.... 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.
Biomass-based diesel in 2014 211(o)(2)(B)(ii) Required volume for
and 2015. and (v). years after 2012
must be at least 1.0
bil gal, and must be
based on a review of
implementation of
the program and an
analysis of several
factors.
Advanced biofuel in 2014...... 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 criteria
specified.
211(o)(7)(A)..... EPA may waive any
portion of the
statutory volume
requirements if
implementation of
those requirements
would severely harm
the economy or
environment of a
State, region, or
the United States,
or there is an
inadequate domestic
supply.
Total renewable fuel in 2014.. 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 criteria
specified.
211(o)(7)(A)..... EPA may waive any
portion of the
statutory volume
requirements if
implementation of
those requirements
would severely harm
the economy or
environment of a
State, region, or
the United States,
or there is an
inadequate domestic
supply.
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Under the statute, 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 proposed rule, we
present our analysis of cellulosic biofuel production and projected
volume for 2014. This analysis is based on our evaluation of individual
producers' production plans and progress to date following discussions
with cellulosic biofuel producers, the Energy Information
Administration (EIA), the Department of Agriculture (USDA), and the
Department of Energy (DOE), and includes an assessment of the
probabilities associated with production schedules from each of these
producers.
While CAA section 211(o)(2)(B) specifies the volumes of biomass-
based diesel to be used in the RFS program through year 2012, it
directs the EPA to establish the applicable volume of biomass-based
diesel for years after 2012. The statute also lists the factors that
must be considered in this determination. In today's action we are
proposing volume requirements for biomass-based diesel for both 2014
and 2015.
There are two different authorities in the statute that permit EPA
to reduce volumes of advanced biofuel and total renewable fuel below
the volumes specified in the statute. 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. We can also reduce the applicable volumes of
advanced biofuel or total renewable fuel under the general waiver
authority provided at CAA 211(o)(7)(A) under certain conditions.
Today's proposal uses a combination of these two authorities to reduce
volumes of both advanced biofuel and total renewable fuel to address
two important realities:
Limitations in the volume of ethanol that can be consumed
in gasoline given practical constraints on the supply of higher ethanol
blends to the vehicles that can use them and other limits on ethanol
blend levels in gasoline--a set of factors commonly referred to as the
ethanol ``blendwall''
Limitations in the ability of the industry to produce
sufficient volumes of qualifying renewable fuel.
As described in detail in Section IV, today's action lays out a
framework for determining the applicable volume requirements that
addresses these two realities. We are proposing to use this framework
to establish the volume requirements in 2014. As described in more
detail in Section IV.E, we believe that this framework would also be
appropriate for later years, subject to adjustments made in the course
of the rulemaking process and taking into account the specific facts
about the availability of renewable fuels at the time of the final
rulemaking.
In today's proposed rule we have also provided the annual
percentage standards (shown in Section I.B.4 below) that would apply to
all producers and importers of gasoline and diesel in 2014. The
percentage standards, which establish the legal requirement for the
obligated parties, are based on the 2014 applicable volumes that we
project for the four types of renewable fuel and a projection of
volumes of gasoline and diesel consumption in 2014 from the Energy
Information Administration (EIA).
B. Summary of Major Provisions in This Notice
1. Cellulosic Biofuel Volume for 2014
The cellulosic biofuel industry continues to transition from
research and development (R&D) and pilot scale to commercial scale
facilities, leading to
[[Page 71736]]
significant increases in production capacity. RIN generation from the
first commercial scale cellulosic biofuel facility began in March
2013.\2\ A second facility began producing fuel in July 2013 with
several others expected to follow in 2014. Based on information we have
collected from these companies and discussions with EIA, we have
identified five companies we expect to produce cellulosic biofuel in
2014. There are an additional three companies that may be in a position
to produce cellulosic biofuel if additional pathways are approved by
EPA. Each of the relevant facilities is listed in Table I.B.1-1 along
with our estimate of their projected 2014 volume. Based on the
information we have received from these companies, our conversations
with other government agencies, and EPA's own engineering judgment we
are projecting that 8-30 million ethanol-equivalent gallons of
cellulosic biofuel will be available in 2014. This range does not
account for the estimate that EIA is required to provide to EPA
containing estimates of the volume of cellulosic biofuel projected to
be sold or introduced into commerce in 2014. The projected range also
does not include any volume from facilities that could use pathways
which have not yet been approved. If production volumes from these
facilities were included, we would project a production range of 53-83
million ethanol-equivalent gallons.
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\2\ A RIN is unique number generated by the producer and
assigned to each gallon of a qualifying renewable fuel under the RFS
program, and is used by refiners and importers to demonstrate
compliance with the volume requirements under the program.
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As part of estimating the volume of cellulosic biofuel that would
be made available in the U.S. in 2014, 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 is expected to produce commercial volumes of qualifying
cellulosic biofuel for use in 2014. To arrive at a projected volume for
each facility, we developed company specific projections based on
discussions with cellulosic biofuel producers, EIA, USDA, and DOE, and
on 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 2014.
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 proposed 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 2014.
Table I.B.1-1--Projected Available Cellulosic Biofuel Plant Volumes in Million Gallons (mill gal) for 2014
----------------------------------------------------------------------------------------------------------------
Annual Projected 2014
Company Location Fuel type production First available
capacity a production volume b
----------------------------------------------------------------------------------------------------------------
Companies With Approved Pathways
----------------------------------------------------------------------------------------------------------------
Abengoa..................... Hugoton, KS.... Ethanol........ 24............. 1Q 2014 c...... 0-18
DuPont...................... Nevada, IA..... Ethanol........ 30............. 2H 2014 c...... 0-2
INEOS Bio................... Vero Beach, FL. Ethanol........ 8.............. 3Q 2013........ 2-5
KiOR........................ Columbus, MS... Gasoline and 11............. March 2013..... 0-9
Diesel.
Poet........................ Emmetsburg, IA. Ethanol........ 25............. 1H 2014 c...... 0-6
----------------------------------------------------------------------------------------------------------------
Total for companies with ............... ............... ............... ............... 8-30 d
approved pathways.
----------------------------------------------------------------------------------------------------------------
Other Potential Cellulosic Biofuel Producers
----------------------------------------------------------------------------------------------------------------
CNG/LNG Producers........... Various........ CNG/LNG........ Various........ Various........ 35-54
Edeniq...................... Various........ Ethanol........ Various........ 1H 2014 c...... 0-7
Ensyn....................... Stanley, WI.... Heating Oil.... 3.............. 2007........... 0-5
Total for both companies ............... ............... ............... ............... 53-83 d
with approved pathways
and those with proposed
pathways.
----------------------------------------------------------------------------------------------------------------
a Facilities are generally designed to process a given quantity of feedstock and volume capacities may vary
depending on yield assumptions.
b Volumes listed in million ethanol-equivalent gallons.
c Start-up dates for these facilities are projections.
d Total volumes are the result of Monte Carlo simulations rather than the sum of the low and high end of the
range of projected available volume for each company. See Section II.C for more detail.
In projecting the actual volume of cellulosic biofuel that will be
available for use in 2014, we have taken into account variation in
expected start-up times, along with the facility production capacities,
company production plans, the progress made in 2013, expected
production distribution and a variety of other factors. We used this
information
[[Page 71737]]
to determine the most likely production ranges for each of the
individual companies and a production probability distribution within
the range. We then used a Monte Carlo simulation to aggregate the
individual ranges into a production projection for the cellulosic
biofuel industry as a whole in 2014. We believe this method results in
a projected production range that better represents our expectations
for cellulosic biofuel production in 2014 than simply adding the low
and high end of the production ranges from each of the individual
companies. Section II discusses in greater detail our projections of
cellulosic biofuel in 2014 and the companies we expect to produce this
volume.
In response to a recent court decision, we are also proposing to
rescind the cellulosic biofuel standards for 2011. In January 2013, the
United States Court of Appeals for the District of Columbia Circuit
issued a decision interpreting 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,
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. See API v. EPA, 706 F.3d 474 (D.C. Cir.
2013). EPA later removed the 2012 cellulosic biofuel requirement from
the regulations.\3\ Since we used essentially the same methodology to
develop the 2011 cellulosic biofuel standard as we did to develop the
2012 standard, we believe it would be appropriate to rescind the 2011
cellulosic biofuel standard as well and accordingly are proposing to do
so in today's action. The money paid by obligated parties to purchase
cellulosic waiver credits to comply with the 2011 cellulosic biofuel
standard would be refunded if this action is finalized.\4\
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\3\ 78 FR 49794 (August 15, 2013).
\4\ In 2011 obligated parties purchased 4,248,388 cellulosic
biofuel waiver credits at a price of $1.13 per gallon-RIN for a
total cost of $4,800,678.
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2. Biomass-Based Diesel Requirement in 2014 and 2015
While section 211(o)(2)(B) specifies the volumes of biomass-based
diesel through year 2012, it directs the EPA to establish the
applicable volume of biomass-based diesel for years after 2012.
Moreover, the statute requires that we finalize these biomass-based
diesel volume requirements no later than 14 months before the first
year for which that volume requirement will apply. We did not propose a
volume requirement for biomass-based diesel in the February 7, 2013
Notice of Proposed Rulemaking because at that time we were still
evaluating the potential market impacts of current production levels.
In order to provide sufficient time for this evaluation, as well as the
other analyses we are required to conduct, we delayed our proposal for
the 2014 volume requirement for biomass-based diesel.
In today's action we are proposing to maintain the applicable
volume of 1.28 bill gallons for biomass-based diesel for both 2014 and
2015. As required by the statute when setting biomass-based diesel
volume requirements for years after 2012, our proposal is based on a
consideration of the factors specified in the statute, including
biodiesel production, consumption, infrastructure, climate change,
energy security, the agricultural sector, air quality, and others.
Section III provides additional discussion of our assessment of the
proposed volume of 1.28 bill gal of biomass-based diesel.
3. Advanced Biofuel and Total Renewable Fuel in 2014
Since the RFS2 program began in 2010, EPA has considered reductions
in advanced biofuel and total renewable fuel authorized under the
cellulosic waiver provisions of 211(o)(7)(D)(i). In the past we have
focused primarily on the availability of advanced biofuels in
determining whether reductions in the required volume of cellulosic
biofuel should be accompanied by reductions in the required volumes of
advanced biofuel and total renewable fuel. The total volume of
renewable fuel in the form of ethanol that could reasonably be
available and supplied to vehicles as either E10 or higher ethanol
blends given various constraints, was not a limiting factor for years
prior to 2014. However, for 2014 and later years, the total volume of
ethanol that can be consumed, and the total volume of non-ethanol
renewable fuels that could reasonably be available, are together
expected to be less than the volume requirements established in EISA
for advanced biofuel and total renewable fuel. Therefore, we are
proposing reductions in the volume requirements for these categories of
renewable fuel to address these concerns.
We evaluated three potential approaches for reducing the applicable
volume requirements for advanced biofuel and total renewable fuel. Each
of these approaches would require use of a combination of the
cellulosic and general waiver authorities at 211(o)(7)(D)(i) and
211(o)(7)(A), respectively, to address supply concerns associated with
the blendwall. The three approaches differ primarily with regard to how
the advanced biofuel requirement would be adjusted using these
authorities. The first approach would lower the statutory volumes for
advanced biofuels only to the extent that additional volumes are not
projected to be available; the general waiver authority would be used
to ensure that the total volume of renewable fuel would address supply
concerns associated with the blendwall. The second approach would make
reductions in advanced biofuel and total renewable fuel that are equal
to the proposed reductions in cellulosic biofuel and would use the
general waiver authority to make further reductions to the total
renewable fuel requirement necessary to address the blendwall.
The third approach that we evaluated, and the one that we are
proposing today, includes both a consideration of the capability of the
relevant industries to make qualifying renewable fuels available,
either through domestic production or importation, and also the
capability of the relevant industries to ensure that those renewable
fuels are used as transportation fuel, heating oil, or jet fuel.\5\ The
use of renewable fuels includes a consideration of the infrastructure
available for distributing, blending, and dispensing renewable fuels,
as well as appropriate vehicles in the fleet that can consume various
renewable fuels, such as flex-fuel vehicles (FFVs). Our proposed
framework for addressing both availability of qualifying renewable
fuels and constraints on their consumption would make use of a
combination of the cellulosic waiver authority at 211(o)(7)(D)(i) and
the general waiver authority at 211(o)(7)(A). As described in detail in
Section IV.A.2, we interpret the term ``inadequate domestic supply'' as
it is used under the general waiver authority to include consideration
of factors that affect consumption of renewable fuel. We believe the
framework being proposed today best approximates the multiple goals
that Congress intended in the RFS
[[Page 71738]]
program, and we would intend this framework to apply not just to 2014,
but to later years as well. However, we are soliciting comment on
alternative approaches as well. We discuss the proposed framework and
the alternative approaches in Section IV.
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\5\ While the fuels that are subject to the percentage standards
are currently only non-renewable gasoline and diesel, renewable
fuels that are valid for compliance with the standards include those
used as transportation fuel, heating oil, or jet fuel.
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We believe that our proposed framework for determining appropriate
volumes of total renewable fuel and advanced biofuel would
simultaneously address the ethanol blendwall and limitations in
availability of qualifying renewable fuels. For total renewable fuel,
we would project the volume of ethanol that could reasonably be
consumed as E10 and higher ethanol blends, and would add to that the
volume of all non-ethanol renewable fuels that could reasonably be
expected to be available. For advanced biofuel, we would sum the
ethanol-equivalent volumes of the cellulosic biofuel requirement, the
biomass-based diesel requirement, and the additional non-ethanol
advanced biofuels that could reasonably be expected to be available and
be consumed. In this process we have projected ranges that encompass
the most likely outcomes, and we propose several approaches to
determining the most likely value for the final rule.
4. Proposed Annual Percentage Standards for 2014
The renewable fuel standards are expressed as a volume percentage
and are used by each refiner, blender, or importer to determine their
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 prove to be
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.
Four separate percentage standards are required under the RFS
program, corresponding to the four separate volume requirements shown
in Table I-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 V.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 proposed
rule was derived from EIA projections. The proposed standards for 2014
are shown in Table I.B.4-2. Detailed calculations can be found in
Section V, including the projected 2014 gasoline and diesel volumes
used.
Table I.B.4-2--Proposed Percentage Standards for 2014
------------------------------------------------------------------------
------------------------------------------------------------------------
Cellulosic biofuel................................... 0.010%
Biomass-based diesel................................. 1.16%
Advanced biofuel..................................... 1.33%
Renewable fuel....................................... 9.20%
------------------------------------------------------------------------
C. Volume Requirements for 2015 and Beyond
As highlighted above, EPA continues to support the objective--
reflected in the statute--of continued growth in renewable fuel
production and consumption, as well as the central goals of the RFS
program: enhanced energy security and reductions in greenhouse gas
emissions. We also recognize that issues concerning the availability of
qualifying fuels and the consumption of ethanol will continue to be
relevant in 2015 and beyond, particularly in light of projections that
overall gasoline demand will continue to decline while the statutory
volumes for renewable fuel volumes continue to increase. Our objective
in this rulemaking is to develop a general approach for determining
appropriate volume requirements that can be applied not only in 2014,
but also for 2015 and beyond. As we consider comments received in
response to this NPRM, our intent is to develop an approach that puts
the RFS program on a manageable trajectory while supporting continued
growth in renewable fuels over time. The proposed approach described in
today's NPRM can and will account for new and improved data and changes
in circumstances over time, including the substantial efforts underway
to increase the volume of biofuel produced and consumed in the United
States. Many companies, often supported by various government programs,
are continuing to invest in efforts ranging from research and
development to the construction of commercial scale facilities
resulting in the ongoing growth of next generation biofuels. Similar
efforts on the part of both public and private sectors are growing the
infrastructure to enable expansion in the use of gasoline fuel blends
containing greater than 10 percent ethanol. Under the right
circumstances, there is substantial potential for continued growth in
the use of ethanol and next generation biofuels, both in the near term
and into the future. As both ethanol and non-ethanol renewable fuel
volumes grow, the proposed methodology set forth in today's proposed
rule will incorporate this growth into the development of the standards
for the following year, providing an ongoing incentive for growth of
biofuels. We recognize that a number of challenges must be overcome to
fully realize the potential that exists for increased production and
consumption of renewable fuels in the United States. We also recognize
that while the RFS program is a central element of our domestic
biofuels policy, a range of other tools, programs, and actions have the
potential to play an important complementary role. We request
information and ideas on what actions could be taken by the variety of
industry and other private stakeholders, as well by the government, to
help overcome these challenges, continue to foster innovation, and
minimize the need for adjustments in the statutory renewable fuel
volume requirements in the future.
II. Proposed Cellulosic Biofuel Volume for 2014
In order to project the volume of cellulosic biofuel production in
2014 for use in setting the applicable percentage standard, we
considered information we received from EIA and information we
collected from individual facilities that have the potential to produce
qualifying volumes for consumption as transportation fuel, heating oil,
or jet fuel in the U.S. in 2014. This section describes the volumes
that we project will be produced or imported in 2014 as well as some of
the uncertainties associated with those volumes.
In the past several years the cellulosic biofuel industry has
continued to progress. The first cellulosic biofuel RINs under the
current RFS regulations were produced in 2012 at two small
demonstration scale facilities. During 2013, the first commercial scale
cellulosic biofuel facilities have successfully completed commissioning
and began fuel production, and several more large scale commercial
production facilities are expected to begin fuel production in 2014.
Projected costs for the production of cellulosic biofuels continues to
fall as a result of ongoing technology development and operating
experience gained from many research and development and demonstration-
scale facilities across the country. These important advances include
higher biofuel yields per ton of feedstock as well as lower enzyme and
catalyst costs. As a result of these advances, the projected capital
costs and energy costs to produce a gallon of cellulosic biofuel have
decreased. New feedstock supply chains, which will be necessary to
provide the raw materials for
[[Page 71739]]
anticipated commercial facilities, have been established, and in
several cases companies have signed contracts to obtain significant
quantities of feedstocks for their first commercial facilities. EPA has
also approved new pathways to increase the variety of fuels for which
cellulosic RINs can be generated and the feedstocks from which these
fuels can be produced. These factors have combined to continue to
reduce the perceived technical, financial, and regulatory risks
associated with the cellulosic biofuel industry and place the
cellulosic biofuel industry on firm ground for future growth.
Although the cellulosic biofuel industry faces many challenges and
RIN-generating cellulosic biofuel production continues to be limited,
the industry is growing incrementally, both in the United States and
around the world.\6\ New facilities projected to be brought online in
the United States in 2014 would increase the production capacity of the
cellulosic industry by approximately 600 percent. The following section
discusses the companies the EPA reviewed in the process of projecting
cellulosic biofuel production for use as a transportation fuel in the
United States in 2014. Information on these companies forms the basis
for our projection that the volume of cellulosic biofuel produced in
2014 is likely to be in the range of 8-30 million gallons. EPA will
continue to monitor the progress of these facilities, as well as any
others of which we become aware that have the potential for cellulosic
biofuel production in 2014, in order to have the most up to date
information possible to set the cellulosic biofuel standard in the
final rule.
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\6\ As of July 31, 2013, 215,044 RINs that can be used to
fulfill the cellulosic biofuel standard (D3 and D7 RINS) have been
generated.
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A. Statutory Requirements
The volumes of renewable fuel to be used under the RFS program each
year (absent an adjustment or waiver by EPA) are specified in CAA
211(o)(2). For 2014, the statute specifies a cellulosic biofuel volume
requirement of 1.75 billion gallons. 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 than the
applicable volume 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 2014 volume requirements for advanced biofuels and
total renewable fuel is presented in Section IV.
B. Cellulosic Biofuel Volume Assessment for 2014
In order to project cellulosic biofuel production for 2014, we have
tracked the progress of several dozen potential cellulosic biofuel
production facilities. As for the 2013 annual volumes, we have focused
on facilities with the potential to produce commercial volumes of
cellulosic biofuel rather than small R&D or pilot scale facilities as
the larger commercial scale facilities are much more likely to generate
RINs for the fuel they produce and the volumes they produce will have a
far greater impact on the cellulosic biofuel standard for 2014. From
this list of facilities we used publically 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 2014. Each of these companies was investigated further
in order to determine the current status of its facilities and its
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 spoke with representatives of each
company to discuss cellulosic biofuel target production levels for
2014. Throughout this process EPA has been in contact with EIA to
discuss relevant information.
For each company included in our 2014 volume projections EPA has
established a range of potential production volume such that it is
possible, but highly unlikely, that the actual production will be above
or below the range.\7\ The low end of the range for each company is
designed to represent the volume of fuel EPA believes each company is
likely to produce if they are unable to begin fuel production on their
expected start-up date and/or experience challenges that result in
reduced production volumes or a longer than expected ramp-up period.
Experience to date with cellulosic biofuel production facilities is
that historically they have been unable to achieve announced start-up
dates and production volumes in their first few years of expected
production. To project a low end of the range of production volumes,
therefore, we must consider the likely minimum volume of fuel new
facilities are likely to produce if they experience similar delays and
setbacks. The low end of the range for any facilities that have not yet
begun producing cellulosic biofuel is set at zero in our assessment.
This reflects the uncertainties related to these facilities' start-up
dates, the possibility that any remaining construction and
commissioning timelines may be delayed, and the possibility that
initial fuel volumes are likely to be small.
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\7\ For the purposes of the Monte Carlo simulation, discussed in
more detail later, this range will be treated as representing the
90% confidence interval.
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If a facility has already begun production any uncertainty related
to its start-up date is no longer relevant and the remaining
uncertainty primarily relates to the facility's ability to achieve
steady state production and target yields as it progresses towards
production rates that reflect the facility's nameplate capacity. For
these facilities, production history is a significant factor in
establishing the low end of the projected production range. It is
important to note that the low end of the range does not represent a
worst-case scenario. The worst-case scenario for any of these
facilities is zero, as it is always possible that extreme circumstances
or natural disasters may result in extended delays, project
cancellation, or liquidation. While not denying this possibility for
any of the facilities included in our projections, several have made
sufficient progress that we believe a non-zero value for the low end of
the range is appropriate. For these facilities we believe it is highly
unlikely that the production volume will fail to exceed the low end of
their projected production range in 2014. Further discussion on the
basis for the low end of the projected production range for each
facility is included in the company descriptions in the following
sections.
To determine the high end of the range of expected production
volumes for each company we considered a variety of factors, including
company history, expected start-up date and ramp-up period, facility
capacity, and others mentioned above. As a starting point, EPA
calculated a production volume using the expected start-up date and
facility capacity assuming our best-case scenario benchmark of a six-
month straight-line ramp-up period. Any production volumes that
exceeded this
[[Page 71740]]
volume were not considered to be credible, even for the high end of the
range of expected production volumes. If the production estimate EPA
received from a company was lower than the volume calculated using the
methodology above, EPA used the company production targets instead. In
some cases these volumes were discounted further based on the history
of these companies or EPA's engineering judgment. More information on
the process used to project the high end of the range of expected
production volumes for each company can be found below. This process is
similar to the process used in the 2013 standards Notice of Proposed
Rulemaking (NPRM) to calculate the expected production for each
company.
We believe our range of projected production volumes for each
company represents the range of what is likely to actually happen for
each company. A brief description can be found below for each of the
companies we believe will produce cellulosic biofuel and make it
commercially available in 2014. We will continue to gather more
information to help inform our decision regarding the cellulosic
biofuel volume to be required for 2014 in the final rule. In the
sections that follow, we first discuss domestic cellulosic biofuel
production facilities with an approved RIN generating pathway, followed
by facilities with pathways that have been proposed or are currently
being evaluated by EPA, and finally foreign cellulosic biofuel
producers.
EPA has determined a range of potential production volumes for each
company rather than a single value as a range better reflects the
uncertainty associated with the production from each company.
Additionally, there are a large number of companies that EPA must
assess and aggregate to produce a single national volume covering the
entire cellulosic biofuel industry. We believe that our projected
production volume for the cellulosic biofuel industry as a whole is
more accurate if it is done in such a way as to reflect the uncertainty
associated with each of the companies that contribute to the
projection. As discussed in more detail in Section II.C below, EPA is
using a Monte Carlo simulation as a tool to combine our production
projections for each individual company to determine a reasonable range
of cellulosic biofuel production in 2014 for the entire industry in a
way that reflects the uncertainty across the full suite of facilities.
This projected range provides a basis for public comment and helps to
inform our ultimate decision on the single value for the final rule
that best represents the projected volume of cellulosic that will be
available in 2014. Alternative methods to combine our production
projections are discussed further in Section IV.
1. Potential Domestic Producers with Approved Pathways
The companies and facilities discussed in this section all have the
potential to produce cellulosic biofuel for use as transportation fuel,
heating oil, or jet fuel in the United States in 2014. Both INEOS Bio
and KiOR began producing cellulosic biofuel at commercial-scale in
2013. The remaining seven are in various stages of construction. All
seven of these facilities project the successful completion of
construction of commercial scale facilities and initial fuel production
in 2014. The strong financial incentive provided by the cellulosic
RINs, combined with the fact that all these facilities are located in
the United States and intend to use approved pathways, give us a high
degree of confidence that any fuel they produce will also generate
corresponding cellulosic biofuel RINs.\8\
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\8\ In 2012, approximately 20,000 gallons of cellulosic biofuel
produced in the US was exported to Brazil to be used for promotional
purposes. We believe the circumstances surrounding this export of
cellulosic biofuel were unique, including significant investment in
the company that produced the fuel by Petrobras, and are unlikely to
be repeated by the companies included in future years.
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In order to generate RINs, each of these companies must register
under the RFS program and comply with all applicable recordkeeping and
reporting requirements. This includes using an approved RIN-generating
pathway and verifying that their feedstocks meet the definition of
renewable biomass.
Abengoa
Abengoa, a large international biofuels company, 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. 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.
Abengoa has contracts in place to provide the majority of
feedstocks necessary for the Hugoton 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 two years 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 million gallons. Abengoa plans
to begin producing fuel at the facility in January 2014, shortly after
completing construction in late 2013, and to be producing fuel at rates
near the nameplate capacity by the end of the second quarter of 2014.
They are currently projecting 17-20 million gallons of cellulosic
ethanol production from this facility in 2014.\9\ This range of volumes
is consistent with the 18 million gallons EPA would project if we
assume production starts on January 1, 2014 and use the six-month ramp-
up period as a benchmark best case scenario for new cellulosic biofuel
production facilities. To date construction at the Abengoa facility has
proceeded as expected and EPA has no reason to believe this facility is
less likely to achieve their production targets than any other new
first-of-a-kind cellulosic biofuel facility. EPA is therefore using 18
million gallons of cellulosic ethanol as the high end of the projected
production range from Abengoa in todays proposed rule. For the low end
of the production range, EPA is projecting a volume of 0 gallons,
consistent with our projections for all facilities that have not yet
begun producing commercial volumes of cellulosic biofuel. This
significantly reduced volume reflects the fact that no commercial scale
cellulosic biofuel facility has yet been able to achieve its target
date for the first production of fuel. Any delay in the start-up date
of this facility would have a significant negative impact on production
in 2014 and may result in production being delayed until 2015.
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\9\ Email from Chris Standlee, Executive Vice President of
Institutional Affairs, Abengoa to Dallas Burkholder, US EPA.
Received June 26, 2013.
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[[Page 71741]]
Cool Planet Biofuels
Cool Planet Biofuels has developed a process to convert a variety
of forms of cellulosic biomass into a renewable gasoline product. Their
process uses pressure and heat to convert the cellulosic biomass to a
hydrocarbon stream in a biomass fractionator which is then upgraded
using proprietary catalysts into a renewable gasoline product. Cool
Planet Biofuels plans to deploy relatively small scale production units
capable of producing 10 million gallons of fuel per year that can be
located near readily available sources of cellulosic biomass. In
December 2012 Cool Planet Biofuels began producing fuel from their
400,000 gallon per year demonstration scale facility that is currently
being used for testing purposes.
Cool Planet Biofuels plans to begin producing fuel at their first
commercial scale unit, with a nameplate capacity of 10 million gallons
per year by the end of 2014. The location of this facility has not yet
been announced, and it is unclear whether Cool Planet Biofuels has
raised sufficient funds for the construction of this facility. Cool
Planet Biofuels claims that the very short construction time they
anticipate for their facility relative to cellulosic biofuel production
facilities of similar size, which generally take at least two years to
build, is made possible by their use of very little novel equipment.
The majority of the facility is composed of units already used in
commercial operation in other applications that will be purchased from
vendors and assembled by Cool Planet Biofuels. The facility will be
constructed on cargo container skids and then transported to the fuel
production site.
EPA believes that it may be possible for Cool Planet Biofuels to
produce cellulosic biofuel from their first commercial scale production
facility in 2014, but any production from this facility is highly
uncertain. Historically the construction of cellulosic biofuel
production facilities has taken multiple years, with delays to the
initial construction schedules common. Cool Planet's unique
construction plan may allow for a reduced construction timeframe;
however we do not believe it would be appropriate to rely on this in
projecting available volumes of cellulosic biofuel in 2014. We have
therefore not included any volume from Cool Planet Biofuels in our
projection of the potentially available volume of cellulosic biofuel in
2014 in today's proposal.
DuPont
DuPont has developed an enzymatic process to convert corn stover
into cellulosic ethanol. DuPont has invested hundreds of millions of
dollars to develop this technology and since 2009 has operated a small
demonstration scale facility in Vonore, Tennessee. In addition to
developing technology for converting cellulosic biomass to ethanol,
DuPont has been working with corn producers, equipment manufacturers,
and Iowa State University to develop expertise in the collection,
transportation, and storage of the biomass feedstock for their
cellulosic ethanol facilities. On March 29, 2013 DuPont signed an
agreement with USDA to promote the sustainable harvesting of feedstocks
for cellulosic biofuel facilities.
On November 30, 2012 DuPont began the construction of their first
commercial scale cellulosic ethanol facility in Nevada, Iowa. When
completed, this facility will have a nameplate production capacity of
30 million gallons of cellulosic ethanol per year. DuPont currently
plans to achieve mechanical completion at this facility in June 2014
and to begin production in the second half of 2014. They are currently
projecting the production of approximately 3 million gallons of
cellulosic ethanol from this facility in 2014; however they acknowledge
that even slight delays in their expected construction timeline could
have significant impacts on their fuel production in 2014. Using EPA's
best-case benchmark of a six month straight-line ramp-up period
assuming a production startup date of October 1, 2014 would result in
an expected production of approximately 2 million gallons in 2014. Due
to the start-up date that is late in the year, however, even a
relatively minor delay in the construction and commissioning timeline
or unforeseen challenges in start-up would result in no production from
this facility in 2014. We have projected a range or 0-2 million gallons
of cellulosic biofuel from DuPont's Nevada, Iowa facility in 2014.
Fiberight
Fiberight uses an enzymatic hydrolysis process to convert the
biogenic portion of separated municipal solid waste (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 million
gallons 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. Additional construction will be required at this
facility before the production of cellulosic biofuel can begin, and the
company expects that this construction will take approximately 6 months
to complete. 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. Because of the uncertainty surrounding Fiberight's funding
status, the lack of progress towards the completion of the
modifications at their Blairstown, Iowa facility, and their history of
production delays EPA is not including any volume from Fiberight in
today's proposal.
INEOS Bio
INEOS Bio has developed a process for producing cellulosic ethanol
by first gasifying cellulosic feedstocks into a synthesis gas (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 million gallons of cellulosic biofuel as well as
6 megawatts (gross) of renewable electricity from a variety of
feedstocks including food and yard waste, agricultural residues, slash
and pre-commercial thinnings, and tree residues from tree
plantations.\10\ The facility also plans to use a limited quantity of
separated MSW as a feedstock after initial start-up.
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\10\ Both slash and pre-commercial thinnings and tree residue
from tree plantations must come from non-federal forestland to
qualify as a feedstock in the RFS program. Additionally slash and
pre-commercial thinnings must come from land that is not
ecologically sensitive forest land.
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On February 9, 2011, INEOS Bio broke ground on this facility. INEOS
Bio
[[Page 71742]]
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 and successfully
registered their Vero Beach, FL facility under the RFS program. In
October 2012 the facility began producing renewable electricity. INEOS
Bio entered the start-up phase of cellulosic ethanol production in
November 2012. During this phase the facility was not run continually,
as facility modifications continued to be made; however, a small volume
of cellulosic ethanol was successfully produced. On July 31, 2013,
INEOS Bio announced they had begun producing cellulosic ethanol at
commercial scale from their Vero Beach facility. INEOS Bio currently
projects cellulosic ethanol production at this facility to be 4-5
million gallons in 2013. As this volume is less than what would be
projected using our best-case ramp-up benchmark we believe it is an
appropriate volume to represent the upper end of INEOS Bio's potential
production range for 2014.
There is, however, significant uncertainty in the ability of this
facility to achieve these production volumes in 2014. The facility has
not yet reached production rates consistent with its projected
production volume, and production ramp-up could take longer than
expected. INEOS Bio also experienced several setbacks to production
related to weather-caused power losses at the facility. While they are
working to protect against these issues in the future by enabling the
facility to operate in a self-sustaining mode, the possibility of
future interruption due to serious weather events will still exist. For
this proposed rule we are projecting a production range of 2-5 million
gallons of cellulosic ethanol from INEOS Bio's Vero Beach facility in
2014. The low end of the range accounts for the possibility of both an
extended ramp-up period and interruptions to production continuing into
2014.
KiOR
KiOR is working to commercialize a technology capable of converting
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 million
gallons 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 raises and supplemented by KiOR's $150 million IPO in
June 2011. On March 17, 2013 KiOR generated their first cellulosic
biofuel RINs from this facility. KiOR initially announced that they
expected the start-up period at their Columbus facility to last 9-12
months, during which time they estimate fuel production will average
30%-50% of the facility capacity and production rates at or near
nameplate capacity following. On August 8, 2013 KiOR reduced its
production targets for 2013 from 3-5 million gallons to 1-2 million
gallons. 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.
In today's proposal we are projecting a production range of 0-9
million ethanol-equivalent gallons in 2014 from KiOR's Columbus, MS
facility. The high end of our proposed production projection (5.5
million actual gallons or 9 million ethanol-equivalent gallons) has
been calculated assuming this facility produces at an average rate of
50% of nameplate capacity throughout 2014. We believe this reduced
volume is appropriate given the low production volumes KiOR has
achieved to date and KiOR's statements, in an August 8, 2013 conference
call discussing their second quarter performance, that they had not yet
begun focusing on increasing the efficiency and yields of the facility.
The low end of the range (0 million gallons) reflects uncertainty
surrounding KiOR's future production levels.
LanzaTech
LanzaTech has developed a process for the production of ethanol
from feedstock streams that contain carbon monoxide. The LanzaTech
process can utilize industrial waste gas streams or syngas produced
from the gasification of agricultural residues, woody biomass, or other
cellulosic feedstocks.\11\ These gas streams are dispersed into a
liquid medium where they are converted into ethanol or other chemicals
by LanzaTech's proprietary microbes. LanzaTech is currently using this
technology at two demonstration scale facilities in China, producing
ethanol from waste gasses at steel mills in partnership with Baosteel
and Capital Steel.
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\11\ RIN generation would be limited to fuels produced using
approved sources of biomass such as agricultural residue, tree
residue from a tree plantation, or slash and pre-commercial
thinnings. LanzaTech would be required to meet all recordkeeping and
reporting requirements to demonstrate the feedstock is renewable
biomass sourced from land that meets all of the land use
requirements of the RFS program.
---------------------------------------------------------------------------
On January 3, 2012 LanzaTech purchased the former Range Fuels
facility in Soperton, Georgia. LanzaTech is currently in the process of
assessing the equipment in place at this facility. After making any
necessary modifications to the existing gasifiers they plan to install
units to allow for the production of ethanol from syngas produced from
the gasification of local woody biomass. LanzaTech believes the current
production capacity of the gasifiers when used in combination with
their ethanol producing microbes is approximately 4-6 million gallons
per year, with the potential for further expansion to allow for the
production of 20-30 million gallons per year at this site. At this
point, however, LanzaTech is not projecting initial ethanol production
from this facility until late 2014 or early 2015. EPA has therefore not
included any volume from LanzaTech in our cellulosic biofuel
projections in this proposed rule.
Poet
Poet has 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, South Dakota 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 of approximately 25 million gallons per year. In
anticipation of the start-up of this facility, Poet constructed a 22-
acre biomass storage facility and had its first
[[Page 71743]]
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 it decided to proceed
without the loan guarantee. This project is expected to be completed in
the first half of 2014 and will be followed by a commissioning period
before the plant begins cellulosic ethanol production. Poet currently
projects that production from Project LIBERTY will be between 7 and 12
million gallons of cellulosic ethanol in 2014. Using the six month
best-case ramp-up period with production beginning on July 1, 2014
would result in a volume projection of 6 million gallons from this
facility. In today's proposed rule, EPA is therefore setting the high
end of Poet's projected production range at 6 million gallons of
cellulosic ethanol. The low end of the projected production range for
Poet's Project LIBERTY is 0 gallons in 2014. This number reflects the
fact that any significant delay in the start-up date or difficulties
encountered in the commissioning or start-up phases of production are
likely to result in little to no production from this facility in 2014.
While EPA has no reason to believe this facility will be any more prone
to these types of challenges than any other commercial scale cellulosic
biofuel production facility, our experience suggests that these types
of delays are common and should be considered when projecting the low
end of the range for production volume in 2014.
Sweetwater Energy
Sweetwater Energy has also developed a technology for converting
cellulosic biomass, primarily agricultural residues and woody biomass,
to cellulosic sugars. Sweetwater Energy uses a modular approach,
building relatively small facilities near the source of feedstock and
transporting the sugars they produce to a larger facility to be
converted into renewable fuels or chemicals. They currently have two
arrangements in place with corn ethanol facilities in the United States
to provide cellulosic sugars in sufficient quantity for the production
of 3.6 million gallons of cellulosic ethanol from each of these
facilities. Both of Sweetwater Energy's cellulosic sugar production
modules are scheduled to begin production in the summer of 2014. If
both these facilities begin producing sugars that are converted to
cellulosic biofuel on July 1, 2014, our best case scenario benchmark
six month straight-line ramp-up period would project a volume of 2
million ethanol-equivalent gallons. At this time, however, cellulosic
RINs would not be able to be generated for any fuel produced using
Sweetwater Energy's cellulosic sugars since the existing RFS
registration regulations were not designed to allow the subdivision of
processes between multiple facilities. Until this is resolved, fuel
production processes of this type will not be able to generate RINs. We
therefore have not included any volume from Sweetwater Energy in our
projections of cellulosic biofuel for 2014.
Ensyn
Ensyn has developed a technology called Rapid Thermal Processing
(RTP) that uses heat to thermally crack carbon based feedstocks into a
liquid bio-oil product they call renewable fuel oil (RFO). This
conversion takes place in less than two seconds and is similar to the
fluid catalytic cracking (FCC) process used in many refineries. Ensyn
is currently using this technology in two commercial facilities located
in Wisconsin and Ontario, Canada to produce renewable chemicals, food
additives, and heating oil. They estimate that they have up to 3
million gallons of additional capacity at these two facilities that
could be utilized if the fuel were eligible to generate RINs under the
RFS program as home heating oil. This facility has a history of
consistent production and we therefore believe this projection of 3
mill gal, or 5 million ethanol-equivalent gallons, is an appropriate
number to use as the high end of the projected range.
Until recently the RFS regulations required that to qualify as
``heating oil'' for which RINs may be generated the fuel must be
1 diesel fuel, 2 diesel fuel, or any non-petroleum
diesel blend that is sold for use in furnaces, boilers, and similar
applications and which is commonly or commercially known or sold as
heating oil, fuel oil, and similar trade names, and that is not jet
fuel, kerosene, or motor vehicle, nonroad, locomotive or marine diesel
fuel (MVNRLM). On October 22, 2013, EPA finalized a rule to amend this
definition to include:
A fuel oil that is used to heat interior spaces of homes or
buildings to control ambient climate for human comfort. The fuel oil
must be liquid at 60 degrees Fahrenheit and 1 atmosphere of
pressure, and contain no more than 2.5% mass solids.\12\
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\12\ 78 FR 62462.
This amendment allows the RFO produced by Ensyn to qualify for RINs
if it were used to heat buildings where people live, work, recreate, or
conduct other activities and it meets the other required components of
the proposed definition. However, even if the fuel produced using the
RTP process meets the new definition, Ensyn still faces several
challenges to generating cellulosic biofuel RINs. Ensyn must still
secure approved sources of renewable feedstock for their existing
production facilities, increase production at these facilities, and
find customers willing to make the modifications necessary to use
Ensyn's RFO as home heating oil. Any of these steps could result in
delays in the increased production or qualifying use of RFO until 2015.
For this proposal EPA is projecting a range of production of 0-3
million gallons (0-5 million ethanol-equivalent gallons) from Ensyn's
facilities in 2014. This volume has not been included in EPA's primary
projection of cellulosic biofuel projection for 2014 due to the
outstanding issues mentioned above, but has been considered in our
projection of all potentially available cellulosic biofuel, including
companies without existing pathways for generating cellulosic biofuel
RINs. In light of the recent amendments to the home heating oil
definition, EPA will review this projection and make adjustments as
necessary in the final rule.
2. Potential Domestic Producers without Existing Pathways
In addition to the facilities discussed above, there are a number
of companies with the potential to produce cellulosic biofuel from
domestic facilities in 2014 from pathways that have not been approved
for RIN generation by EPA. Some of these pathways were addressed in a
notice of proposed rulemaking published by EPA on June 14, 2013, while
others are currently being evaluated by EPA. As the companies discussed
in this section do not yet have approved RIN generating pathways for
the fuels they plan to produce, there is additional uncertainty
regarding RIN production from them in 2014.\13\ Nevertheless, if the
pathways are approved by EPA these facilities represent a significant
potential source of cellulosic biofuel. The ranges projected for each
company reflect only the uncertainty associated with
[[Page 71744]]
production volumes, assuming pathway approval occurs.\14\ EPA will
decide whether or not to include any volume from these pathways based
on the status of these pathways and the progress made by the companies
towards commercial cellulosic biofuel production at the time of the
final rule.
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\13\ At the time of this proposal, EPA has finalized changes to
the home heating oil definition but has not yet completed our
determination of whether or not the fuels discussed in this section
meet all of the requirements to generate cellulosic biofuel RINs.
\14\ In projecting potential production volumes EPA has assumed
that the pathways are all approved as of January 1, 2014. Approval
subsequent to that date would reduce potential volumes, depending on
the producer at issue.
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Compressed Natural Gas (CNG) and Liquified Natural Gas (LNG) Producers
One of the new pathways proposed by EPA for the production of
cellulosic biofuel is for the production of CNG or LNG from landfill
biogas if used as a transportation fuel. The production potential for
this type of cellulosic biofuel is very large with many landfills
currently capturing biogas. The use of CNG and LNG as a transportation
fuel in 2014 is expected to be approximately 700 million ethanol-
equivalent gallons.\15\ To generate RINs for landfill biogas, however,
companies must be able to demonstrate that any fuel for which they
generate RINs is used as transportation fuel. This can be done by
fueling vehicles with CNG/LNG onsite or through contractual mechanisms.
---------------------------------------------------------------------------
\15\ EIA Annual Energy Outlook 2013. Transportation Sector
Energy Use by Mode and Type, Reference case.
---------------------------------------------------------------------------
In this proposed rule, we are projecting a production range of 35-
54 million ethanol-equivalent gallons from landfill biogas in 2014. The
high end of the range represents the actual peak capacity of all of the
facilities that produced advanced RINs from landfill biogas while the
low end represents the current production rate of advanced biofuel from
landfill biogas. In the case of CNG and LNG from landfill biogas, we
believe a different methodology for projecting the high end of the
production range is appropriate as the uncertainties surrounding RIN
generation are significantly different. The only change at issue in the
proposal to approve this pathway for the generation of cellulosic
biofuel RINs is a change in the type of RIN that is generated, allowing
for the generation of cellulosic biofuel instead of advanced biofuel
RINs based on new information of the composition of the feedstock. In
this case production facilities already exist and are already capturing
landfill biogas at or near their registered capacities. Similarly, the
amount of CNG and LNG currently being used as transportation fuel far
exceeds the combined production capacity of all of the registered
facilities. RIN generation is therefore limited by the companies'
ability to demonstrate the use of the biogas as a transportation
fuel.\16\ As part of the registration process for the generation of
advanced biofuel RINs, each of these facilities submitted documentation
that included contracts with parties capable of using CNG/LNG as
transportation fuel who had access to the same common carrier pipeline
network as the biofuel producers.
---------------------------------------------------------------------------
\16\ See CFR 80.1426 for requirements for generating RINs from
biogas
---------------------------------------------------------------------------
We believe the sum of the actual peak capacities of all of the
facilities that produced advanced biofuel RINs from landfill biogas in
2013 is an appropriate volume to use for the high end of the projected
production range. It is also the case, however, that these facilities
would appear to have the capability to realize value from advanced RIN
production if they were to produce at their facility capacity and are
not currently doing so. There may be additional factors that EPA is
unaware of at this time that is limiting production. To account for
this, we are setting the low end of the range for the production of
cellulosic RINs from CNG/LNG produced from landfills equal to 35
million gallons, the current production rate when projected over a full
year.
Edeniq
Edeniq has developed a proprietary process that would allow corn
ethanol producers to generate cellulosic ethanol from corn kernel fiber
at the producers' existing production facilities. Their process
involves the addition of the Cellunator\TM\, a proprietary milling
technology designed to increase the uniformity of the feedstock
particles, along with a unique combination of enzymes to convert the
cellulosic material in the corn kernel into sugars and ultimately
cellulosic ethanol. Edeniq claims that their technology would not only
allow corn ethanol producers to produce cellulosic ethanol from low
value feedstock already present in their facility, but also would
increase the yields of ethanol produced from starch by 2-4%. Several
commercial plants are currently using the Cellunator technology to
increase their yields of ethanol from starch. Edeniq has been testing
their technology, including both the Cellunator and the additional
enzymes, at a demonstration scale facility in Visalia, California since
June 2012 and announced in May 2013 that they had successfully
completed a trial run at this facility with a continuous run time of
greater than 1000 hours.
Several plants are evaluating Edeniq's proprietary system to
produce cellulosic ethanol from corn kernel fiber. These evaluations
have included commercial scale trials. If the pathway for the
production of cellulosic ethanol from corn kernel fiber is approved,
these facilities would be in position to begin generating cellulosic
RINs shortly after approval. Other facilities currently using the
Cellunator would only have to make minor modifications to their
operations, including the addition of Edeniq's suite of enzymes to
produce cellulosic ethanol. Edeniq currently projects approximately 7
million gallons of cellulosic ethanol production using their technology
in 2014 and has provided EPA with detailed information on the expected
production volumes and dates of initial cellulosic ethanol production
for facilities expected to utilize their technology. In today's
proposed rule, we have included a projected production volume of 0-7
million gallons. The low end of this range reflects the fact that
Edeniq's technology has not yet been used to generate commercial scale
volumes of cellulosic biofuel. The high end of the range reflects
Edeniq's own projections, which EPA has reviewed and believes are
reasonable given the nature of Edeniq's technology, the deals they
currently have in place, and their experience with the installation and
operation of the various components of their technology. This volume is
also dependent on the finalization of EPA's proposed rule clarifying
that the definition of crop residue includes corn kernel fiber.
3. Potential Foreign Sources of Cellulosic Biofuel
In addition to the potential sources of cellulosic biofuel located
in the United States discussed above there are several foreign
cellulosic biofuel companies that may produce cellulosic biofuel in
2014. All of these facilities utilize fuel production pathways that
have been approved by EPA for cellulosic RIN generation provided
eligible sources of renewable feedstock are used. These companies would
therefore be eligible to register these facilities under the RFS
program and generate RINs for any fuel imported into the United States.
Currently, however, none of these facilities have successfully
completed the registration process for the RFS program. Further, demand
for the cellulosic biofuels they produce is expected to be high in
local markets. Production volumes from these foreign facilities have
therefore not been included in our projection of potentially available
volume for 2014. EPA plans to
[[Page 71745]]
continue to monitor the progress of these foreign facilities and may
include volumes from these facilities should their plans change in the
future.
Beta Renewables
Beta Renewables has developed a biochemical technology to convert
cellulosic biomass into cellulosic sugars, which can then be used in
the production of fuels or chemicals. Their first commercial scale
facility was built in Crescentino, Italy and began producing cellulosic
ethanol in commercial quantities in June 2013. This facility uses
Arundo donax and wheat straw as feedstocks and has an annual production
capacity of 20 million gallons of ethanol per year. Ethanol produced at
this facility would be eligible to generate cellulosic RINs if Beta
Renewables registers its facility and imports the cellulosic ethanol
into the United States for use as a transportation fuel. Beta
Renewables is also planning to build a cellulosic ethanol production
facility in North Carolina. This facility is not expected to begin
ethanol production in 2014, however, and has therefore not been
included in our projection of available volume for 2014.
Enerkem
Enerkem plans to use a thermochemical process to produce syngas
from MSW and other waste materials and then catalytically convert the
syngas to methanol. The methanol can then be sold directly or upgraded
to ethanol or other chemical products. Their first commercial scale
facility in Edmonton, Alberta, Canada is scheduled to complete
construction and begin producing methanol in 2013 with ethanol
production following in 2014. At full capacity this facility will be
capable of producing 10 million gallons of cellulosic ethanol per year.
Despite their relative close proximity to the United States, Enerkem
has indicated to EPA that they do not intend to export cellulosic
biofuel into the United States from their Edmonton facility.
GranBio
GranBio began construction on its first commercial cellulosic
ethanol production facility in S[atilde]o Miguel dos Campos, Brazil in
December 2012. It is largely funded by a 300.3 million Reais loan from
BNDES, Brazil's national social and economic development bank. This
facility, which will use technology licensed from Beta Renewables, will
have a nameplate capacity of 22 million gallons of ethanol per year and
is scheduled to be completed in the first half of 2014. The feedstock
for this facility will be excess bagasse not currently used to provide
process heat or electricity at sugarcane ethanol production facilities.
Raizen
Raizen, a joint venture between Royal Dutch Shell and Cosan SA, is
planning to build a 10.5 million gallon per year cellulosic ethanol
plant attached to their Costa Pinto sugarcane mill in Piracicaba,
Brazil. This facility will use a biochemical conversion technology
developed by Iogen and Codexis to convert sugarcane bagasse to ethanol.
The facility is currently scheduled to complete construction in the
second half of 2014 and if successful will be the first of up to 8
cellulosic ethanol production facilities built by Raizen in Brazil.
4. Summary of Volume Projections for Individual Companies
The information we have gathered on cellulosic biofuel producers,
described above, allows us to project a range of production volumes for
each facility in 2014. As in 2013, we have once again focused on
commercial scale cellulosic biofuel production facilities. This focus
is appropriate, as the volume of cellulosic biofuel produced from R&D
and pilot scale facilities is quite small in relation to that expected
from the commercial scale facilities for which we have projected
volumes in 2014 and historically R&D and demonstration scale facilities
have not generated RINs for any fuel they have produced.
In 2014 as many as twelve domestic cellulosic biofuel production
facilities have the potential to produce fuel at commercial scale. Each
of these facilities is discussed above, and the projected available
volumes for each are summarized in Table II.B.4-1 below. Two of the
companies that have the potential to produce cellulosic biofuel in
2014, INEOS Bio and KiOR, are currently producing cellulosic biofuel.
The production of RIN generating fuel from the remaining 10 facilities
is more uncertain as these facilities have either yet to complete
construction or do not currently have a valid pathway for generating
cellulosic RINs.
We have also identified four foreign facilities with the potential
to produce cellulosic ethanol in 2014. At this point we do not believe
any of these facilities are likely to export any of the fuel they
produce to the United States. We will continue to monitor the status of
these facilities and may include volume from them in our final rule if
appropriate. We ask for comment on this analysis and are especially
interested in data that would support cellulosic volume estimates.
Table II.B.4-1--Projected Available Cellulosic Biofuel for 2014
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014 Projected
Design capacity available volume
Company name Location Feedstock Fuel (MGY) \a\ First production (ethanol-
equivalent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Domestic Facilities; Approved Pathways
--------------------------------------------------------------------------------------------------------------------------------------------------------
Abengoa........................ Hugoton, KS....... Corn Stover....... Ethanol........... 24................ 1st Quarter 2014.. 0-18
CoolPlanet Biofuels............ TBD............... TBD............... Gasoline.......... 10................ 2nd Half 2014..... 0
DuPont......................... Nevada, IA........ Corn Stover....... Ethanol........... 30................ 2nd Half 2014..... 0-2
Fiberight...................... Blairstown, IA.... MSW............... Ethanol........... 6................. Unknown........... 0
INEOS Bio...................... Vero Beach, FL.... Vegetative Waste.. Ethanol........... 8................. 3rd Quarter 2013.. 2-5
KiOR........................... Columbus, MS...... Wood Waste........ Gasoline and 11................ 1st Quarter 2013.. 0-5.5
Diesel. (0-9)
LanzaTech...................... Soperton, GA...... Wood Waste........ Ethanol........... 5................. 1st Half 2015..... 0
Poet........................... Emmetsburg, IA.... Corn Stover....... Ethanol........... 25................ 1st Half 2014..... 0-6
Sweetwater Energy.............. Various........... Ag. Residue....... Ethanol........... 7................. 1st Half 2014..... 0
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[[Page 71746]]
Domestic Facilities; All Potential Producers
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ensyn.......................... Stanley, WI....... Wood Waste........ Heating Oil....... 3................. 2007.............. 0-3
(0-5)
CNG/LNG Producers.............. Various........... Biogas from CNG/LNG........... Various........... N/A............... 35-54
Landfills.
Edeniq......................... Various........... Corn Kernel Fiber. Ethanol........... Various........... 1st Half 2014..... 0-7
--------------------------------------------------------------------------------------------------------------------------------------------------------
Foreign Facilities
--------------------------------------------------------------------------------------------------------------------------------------------------------
Beta Renewables................ Crescentino, Italy Wheat straw, Ethanol........... 20................ 2Q 2013........... 0
Arundo Donax.
Enerkem........................ Edmonton, Alberta. Separated MSW..... Methanol, Ethanol. 10................ 1st Half 2014..... 0
GranBio........................ S[atilde]o Miguel Bagasse........... Ethanol........... 22................ 1st Half 2014..... 0
dos Campos,
Brazil.
Raizen......................... Piracicaba, Brazil Bagasse........... Ethanol........... 10.5.............. 2nd Half 2014..... 0
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Facilities are generally designed to process a given quantity of feedstock and volume capacities may vary depending on yield assumptions.
C. Proposed Cellulosic Biofuel Volume for 2014
As discussed in the preceding sections we have used information
from a variety of sources, including EIA, USDA, and the companies
themselves, to determine a projected range of production of cellulosic
biofuel for each company in 2014. These volumes are summarized in Table
II.B.4-1 above. These volumes form the basis for our projection of
cellulosic biofuel production in 2014. We do not believe, however, that
a simple summation of the low end and high end of the projected
production volumes for each company would result in an appropriate
projected range of production volumes across the cellulosic biofuel
industry. It is highly unlikely that every company will produce at or
near the low end, or conversely the high end, of its range of projected
production volumes. It is also the case that the production
expectations within the projected ranges differ for facilities in
different stages. The uncertainties associated with cellulosic biofuel
production vary in both type and degree among facilities that have
already begun production, those that are currently in or will soon be
approaching the commissioning of their facilities, and those that are
still undergoing significant construction operations.
EPA is using a Monte Carlo simulation to account for the need to
aggregate across several ranges, with different producers having
different production probability distributions across their expected
production range. As discussed above, the high and the low end of each
range represents values such that it is possible but highly unlikely
that volumes would be higher or lower than this range. EPA will
therefore treat these individual ranges as representing the 90%
confidence interval of a distribution of possible volumes. In other
words, the low end of the range for a producer would represent the 5th
percentile and the high end of the range would represent the 95th
percentile. This approach is consistent with EPA's judgment that, while
the ranges shown in Table II.B.4-1 are intended to encompass the vast
majority of possible volumes, there remains a small possibility that
volumes outside of those ranges are possible. We believe it is
reasonable to treat these values as a 90% confidence interval for
purposes of the Monte Carlo analysis, though we request comment on
treating them as a different confidence interval such as 80% or 95%.
For the purposes of the Monte Carlo analysis, EPA must also
identify an uncertainty distribution for production for each facility.
These distributions reflect our expectation for the most likely
distribution of production volumes within the projected range when
taking into account the many different uncertainties associated with
the production volume from each facility. While each facility faces its
own set of unique circumstances and challenges in producing cellulosic
biofuels at commercial scale, many can be grouped into one of several
general categories, the impact of which will vary with the progress
achieved at that facility to date. One source of uncertainty in the
projected production volume of a new cellulosic biofuel facility is
related to the completion of the construction and commissioning phases
of the facility. This includes uncertainty in the construction
schedules, modifications to the design during the construction or
commissioning phase, challenges encountered in scaling up the
technology to commercial scale, unexpected delays or repairs due to
weather events, or any of a number of other reasons. Delays of this
type will result in a later than expected start-up date which may
result in significantly decreased production volumes in 2014 or the
start of production being delayed until 2015. The uncertainty related
to delays in the completion of the construction of a facility decreases
the closer the project is to completion, and is entirely irrelevant to
facilities that have already begun production.
A second source of uncertainty is that associated with the ramp-up
phase of new facilities. Lower than expected product yields, feedstock
supply and handling challenges, contamination of chemical or biological
catalysts, and a number of other issues can cause reduced production
during the ramp-up phase and/or a longer than expected ramp-up period
before reaching production levels that correspond to the nameplate
capacity of the facility. Facilities that face these types of
challenges during the ramp-up phase of production are very likely to
still achieve some level of production, but that level may vary
depending on the severity and duration of the challenges they face. The
closer a facility is to achieving production rates that correspond to
the nameplate capacity of the facility, the less likely they are to see
[[Page 71747]]
reductions in their expected production due to challenges in the ramp-
up phase.
A third source of uncertainty is the ability of the facility to
maintain consistent production at or near nameplate capacity after the
ramp-up phase has been successfully completed. A number of factors
including, but not limited to feedstock supply interruption,
significant issues with feedstock quality, loss of power or other
essential utilities at the facility, and interruptions in production
due to accidents, operator error, or weather events could cause fuel
production at a facility to decrease or cease altogether. While the
uncertainty associated with these issues is never completely absent, it
does decrease over time if a facility is able to consistently achieve
production levels at or near nameplate capacity with few or no
interruptions to production.
The degree to which these three sources of uncertainty impact
expected production of cellulosic biofuel in 2014 varies greatly with
the progress achieved by the facility to date. To represent this
uncertainty for facilities expected to begin operations in different
timeframes, we used three different standardized uncertainty
distributions. The three standard curves that represent the expected
production distributions from cellulosic biofuel production facilities
are shown in Figure II.C-1 below. We request comment on how well these
three curves represent the expected production distributions of the
various cellulosic biofuel producers discussed above or if other curves
may be more appropriate.
[GRAPHIC] [TIFF OMITTED] TP29NO13.000
As described more fully in Section IV.B.4, we believe that these
three standardized distributions provide a mechanism for representing
the regions within each projected volume range where the greatest
likelihood of reasonably achievable volumes lie.
Facilities that have already begun producing cellulosic biofuel in
2012 or earlier and have at least a full year of production history do
not face uncertainty associated with delays in the construction and
commissioning of the facility. They may, however, face some uncertainty
in their ramp-up schedule relative to the progress they have achieved
to date, as well as the risk of unexpected shutdown or slowdown faced
by all facilities. For facilities facing these uncertainties we expect
that the most likely production volume is towards the middle of the
range, with decreasing production probabilities as the high and low
ends of the production ranges are approached. A normal curve is
appropriate for this expected production distribution. In 2014,
however, there are no commercial scale cellulosic biofuel production
facilities that meet these criteria.
Facilities that began producing cellulosic biofuel in 2013 no
longer face uncertainty due to potential delays in the completion of
construction and the commissioning of the facility. There is, however,
uncertainty regarding these facilities ramp-up schedules which can have
a significant impact on the production volumes from these facilities.
We believe that the expected production of these facilities would be
best represented by a right-skewed or Weibull curve, with the most
likely production volume near, but not at, the low end of the range and
the production probabilities gradually towards the high end of the
range.
Facilities not expected to begin producing cellulosic biofuel until
2014 face uncertainty associated with a delay in the completion in the
construction and commissioning of the facility. Given this uncertainty,
we believe that the most likely production volume is at the
[[Page 71748]]
low end of the range with decreasing probability as the high end of the
range is approached. To represent this asymmetrical uncertainty, we
believe a half-normal curve is a reasonable representation of the
expected production distribution from these facilities.
The type of uncertainty distribution used to represent the expected
production within the projected range for each company is shown in
Table II.C-1.
Table II.C-1--Standard Distributions Used To Project Cellulosic Biofuel Production in 2014
----------------------------------------------------------------------------------------------------------------
95th
5th Percentile Percentile
volume (mill volume (mill
Company Distribution curve ethanol- ethanol-
equivalent equivalent
gal) gal)
----------------------------------------------------------------------------------------------------------------
Abengoa....................................... Half-Normal..................... 0 18
DuPont........................................ Half-Normal..................... 0 2
INEOS Bio..................................... Right-Skewed.................... 2 5
KiOR.......................................... Right-Skewed.................... 0 9
Poet.......................................... Half-Normal..................... 0 6
CNG/LNG Producers............................. Normal.......................... 35 54
Edeniq........................................ Half-Normal..................... 0 7
Ensyn......................................... Normal.......................... 0 5
----------------------------------------------------------------------------------------------------------------
To aggregate the production distributions for each of the companies
into a single distribution representing cellulosic biofuel production
across the entire industry, we performed two Monte Carlo simulations in
which each of the distributions was randomly sampled in an iterative
fashion. Each of the distributions was sampled 3000 times and the
results of all the iterations were then summed to produce a
distribution for cellulosic biofuel. For the uncertainty distributions
where the low end of the projected range was zero it was possible for
the Monte Carlo simulation to select a negative volume for these
companies.\17\ Whenever negative volumes were selected in the Monte
Carlo simulations these negative volumes were reset to zero.
---------------------------------------------------------------------------
\17\ Because the low end of each range represents the 5th
percentile, negative volumes are selected approximately 5% of the
time when the low end of the range is zero.
---------------------------------------------------------------------------
We generated two separate aggregate distributions to represent
total cellulosic biofuel using the Monte Carlo process. Given the
uncertainty surrounding the timing and approval of the proposed RIN-
generating pathways that would be used by CNG/LNG producers, Edeniq,
and Ensyn, the first aggregate distribution only included volumes from
those facilities using RIN-generating pathways that have already been
approved. The result of this Monte Carlo simulation forms the basis for
the range of cellulosic biofuel production included in this proposal.
[[Page 71749]]
[GRAPHIC] [TIFF OMITTED] TP29NO13.001
The second Monte Carlo simulation included volumes from all eight
facilities for which we have projected a range of volumes in 2014. The
results of this simulation would be more representative of the volume
of cellulosic biofuel included in our final rule in the event that the
proposed RIN-generating pathways discussed above are approved for RIN
generation before the 2014 applicable volumes are finalized.
[[Page 71750]]
[GRAPHIC] [TIFF OMITTED] TP29NO13.002
In today's NPRM we are proposing a volume for the 2014 cellulosic
biofuel standard of 8--30 million ethanol-equivalent gallons. This
volume is expected to be comprised of 5--26 million gallons of ethanol
and 0--9 million ethanol-equivalent gallons of cellulosic
hydrocarbons.\18\ The proposed range is derived from the 90% confidence
interval of the Monte Carlo simulation that includes all the companies
we expect to produce commercial volumes of cellulosic biofuel in 2014
using pathways in the current RFS regulations. As discussed in Section
II.B, many factors have been taken into consideration in developing the
individual company projections, such as the information from EIA, 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, and many others. We have
also used distribution curves weighted towards the low end of the
expected production range for each company to account for the fact that
previous projections of cellulosic biofuel production have exceeded
actual production. We believe the range of volumes proposed (8--30
million ethanol-equivalent gallons) resulting from the Monte Carlo
simulation is a reasonable representation of expected production in
2014 across the industry.
---------------------------------------------------------------------------
\18\ These volumes are also the result of our Monte Carlo
simulation. Similar to the individual company production
projections, the low and high ends of the ranges cannot be simply
added together to calculate the high and low ends of our total
cellulosic biofuel production projection in 2014. Cellulosic
hydrocarbons include both cellulosic gasoline and cellulosic diesel.
---------------------------------------------------------------------------
Our proposed range reflects EPA's best estimate of the range of
cellulosic biofuel volumes that will actually be produced in 2014. In
the final rule EPA will determine a single volume that represents EPA's
best estimate of the volume that will actually be produced in 2014.\19\
EPA invites comment on the best approach to determine a single value
from a range developed using the approach described above. For example,
EPA could use the mean (average value), median (50th percentile), or
mode (the volume that occurs most frequently). It may also be
reasonable to use a value representing higher or lower values in the
distribution, such as the 25th or 75th percentile if there is reason to
believe these would provide a more accurate projection of actual
production in 2014.\20\ We have determined the volumes represented by
each of these methods and presented the values in Tables II.C-2 and
II.C-3 below.
---------------------------------------------------------------------------
\19\ See API v. EPA, 706 F.3d 474 (D.C. Cir. 2013).
\20\ This could be the case if there was reason to believe there
was a systematic bias such that the ranges tended to over or under
estimate the actual production volumes.
Table II.C-2--Potential Approaches to Determining the Final Cellulosic
Biofuel Requirement (Approved Pathways Only) \a\
[million ethanol-equivalent gallons]
------------------------------------------------------------------------
------------------------------------------------------------------------
Mean............................................................ 17
50th percentile................................................. 16
Mode............................................................ 16
25th percentile................................................. 12
75th percentile................................................. 21
------------------------------------------------------------------------
\a\ All volumes are ethanol-equivalent gallons
Table II.C-3--Potential Approaches to Determining the Final Cellulosic
Biofuel Requirement (All Potential Cellulosic Biofuel Producers) \a\
[million ethanol-equivalent gallons]
------------------------------------------------------------------------
------------------------------------------------------------------------
Mean............................................................ 67
50th percentile................................................. 67
[[Page 71751]]
Mode............................................................ 67
25th percentile................................................. 61
75th percentile................................................. 73
------------------------------------------------------------------------
\a\ All volumes are ethanol-equivalent gallons
In today's NPRM, we are proposing to use the mean value for the
final volume requirement for cellulosic because we believe it best
represents a neutral aim at the volumes that could reasonably be
supplied. However, we request comment on whether one of the alternative
values shown in Table II.C-2 would be more appropriate as the basis for
the required volume of cellulosic biofuel in the final rule.
It is important to note that the final cellulosic biofuel standard
for 2014 may be set at a volume outside the proposed range of 8-30
million ethanol-equivalent gallons. If EPA finalizes the pathways
discussed in the recent proposed rulemaking \21\ before the applicable
volume of cellulosic biofuel for 2014 is finalized, volumes of fuel
from companies intending to utilize these pathways may be included in
our projected available volume for 2014 as discussed above. Foreign
producers of cellulosic biofuel who inform EPA of their intent to
export the fuel they produce to the United States may also be included.
Finally, a variety of factors may affect our production projections for
the companies considered in this proposal, including unexpected project
modifications or cancellations or the inclusion of volumes of
cellulosic biofuel from sources other than those listed above.
---------------------------------------------------------------------------
\21\ 78 FR 36042 (June 14, 2013).
---------------------------------------------------------------------------
We will continue to monitor the progress of the cellulosic biofuel
industry, in particular the progress of the companies which form the
basis of our proposed 2014 volume projection. We expect that for the
final rule there will be greater certainty on the appropriate volume of
fuel that we can reasonably expect to be produced and made commercially
available in 2014. We request comment on our analysis and
estimates.\22\
---------------------------------------------------------------------------
\22\ Since EPA is proposing to reduce the applicable volume of
cellulosic biofuel under section 211(o)(7)(D), EPA will be required
to make available cellulosic biofuel credits. EPA will set the price
for the cellulosic biofuel credits in the final rule, using the same
approach to applying the criteria in section 211(o)(7)(D)(ii) that
was used in setting the price for cellulosic biofuel credits for
2013. See 78 FR 49794.
---------------------------------------------------------------------------
D. Rescission of the 2011 Cellulosic Biofuel Standards
On January 25, 2013, the United States Court of Appeals for the
District of Columbia Circuit issued its decision concerning 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,
and we removed the 2012 requirement from the regulations in a previous
action. Industry had also challenged the 2011 cellulosic biofuel
standard by, first, filing a petition for reconsideration of that
standard, and then seeking judicial review of our denial of the
petition for reconsideration. This matter was still pending at the time
of the DC Circuit's ruling on the 2012 cellulosic biofuel standard.
Since we used essentially the same methodology to develop the 2011
cellulosic biofuel standard as we did to develop the 2012 standard, we
requested, and the Court granted, a partial voluntary remand to enable
us to reconsider our denial of the petition for reconsideration of the
2011 cellulosic biofuel standard. Given the Court's ruling that the
methodology EPA used in developing the 2012 cellulosic biofuel standard
was flawed, we have decided to grant reconsideration of the 2011
cellulosic biofuel standard, and are today proposing to rescind the
2011 cellulosic biofuel standard. If this proposal is finalized, the
money paid by obligated parties to purchase cellulosic waiver credits
to comply with the 2011 cellulosic biofuel standard would be refunded.
III. Proposed National Volume Requirement for Biomass-Based Diesel in
2014 and 2015
EPA set the national volume requirement for biomass-based diesel
for 2013 at 1.28 bill gal of biomass-based diesel.\23\ This national
volume is then used to determine the applicable percentage standard
that determines the specific renewable volume obligations for refiners
and importers. Subsequently, EPA received two Petitions for
Reconsideration requesting that EPA reconsider the final rule setting
the 2013 biomass-based diesel volume requirement at 1.28 bill gal.\24\
After review and consideration of the issues raised by petitioners, EPA
denied both petitions.\25\
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\23\ 77 FR 59458 (September 27, 2012).
\24\ Letter dated November 20, 2012 to Honorable Lisa Jackson
from Richard Moskowitz, American Fuel & Petrochemical Manufacturers,
``Re: Petition for Reconsideration--Docket No. EPA-HQ-OAR-2010-0133.
Letter dated November 26, 2012 to Honorable Lisa Jackson from Robert
L. Greco, III, American Petroleum Institute, ``Re: Request for
Reconsideration of EPA's Final Rulemaking `2013 biomass-Based Diesel
Renewable Fuel Volume.' ''
\25\ 78 FR 49411, August 14, 2013.
---------------------------------------------------------------------------
In today's action we are proposing an applicable volume of 1.28
bill gal biomass-based diesel for 2014 and 2015. In proposing the 2015
applicable volume of biomass-based diesel, we are not at this time
proposing the percentage standards that would apply to obligated
parties in 2015. The percentage standards for 2015 will be proposed in
a subsequent rulemaking as required by the statute once the requisite
gasoline and diesel fuel volumes for 2015 are determined.
A. Statutory Requirements
Section 211(o)(2)(B)(i) of the Clean Air Act specifies the
applicable volumes of renewable fuel on which the annual percentage
standards must be based, unless the applicable volumes are waived or
adjusted by EPA in accordance with the Act.\26\ Applicable volumes are
provided in the statute for years through 2022 for cellulosic biofuel,
advanced biofuel, and total renewable fuel. For biomass-based diesel,
applicable volumes are provided through 2012. For years after those
specified in the statute (i.e. 2013+ for biomass-based diesel and 2023+
for all others), EPA is required under 211(o)(2)(B)(ii) to determine
the applicable volume, in coordination with the Secretary of Energy and
the Secretary of Agriculture, based on a review of the implementation
of the program during calendar years for which the statute specifies
the applicable volumes and on analysis of the following factors:
---------------------------------------------------------------------------
\26\ For example, EPA may waive a given standard in whole or in
part following the provisions at CAA 211(o)(7).
---------------------------------------------------------------------------
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
[[Page 71752]]
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.
The statute also specifies that the applicable volume of biomass-
based diesel cannot be less than the applicable volume for calendar
year 2012, which is 1.0 bill gallons. The statute does not, however,
establish any other numeric criteria or overarching goals for EPA to
achieve in setting the applicable volumes in years after those
specifically set forth in the provision.
Finally, the statute also specifies the timeframe within which
these volumes must be promulgated: the applicable volumes must be
established no later than 14 months before the first year for which
such applicable volume will apply. We did not propose a 2014 volume for
biomass-based diesel in the February 7, 2013 NPRM because at that time
we were still evaluating the potential market impacts of current
production levels. In order to provide sufficient time for this
evaluation, we delayed our proposal for the 2014 volume requirement for
biomass-based diesel. Consequently, today we are proposing volume
requirements for both 2014 and 2015.
B. Compliance With 2013 Volume Requirement of 1.28 Billion Gallons
In making a determination regarding the volume requirement for
biomass-based diesel to propose for 2014 and 2015, we first
investigated the recent historical and current circumstances in the
biodiesel market. According to data collected through the EPA-Moderated
Transaction System (EMTS) production of biodiesel in 2012 exceeded 1.14
bill gal.\27\ This demonstrates that the industry was able to meet the
applicable 2012 volume requirement of 1 bill gal. It also provides
evidence that the industry will meet the 1.28 bill gal requirement in
2013. Additional volumes above 1.28 bill gal are possible in 2013, and
may be used to help meet the advanced biofuel standard. Indeed current
production rates in the biodiesel industry for the first seven months
of 2013 were 25% above monthly production rates for the same time
period in 2012 and are consistent with a total production volume of at
least 1.6 bill gal for 2013.\28\
---------------------------------------------------------------------------
\27\ Fuels and Fuel Additives 2012 EMTS Data, http://www.epa.gov/otaq/fuels/rfsdata/2012emts.htm (last accessed September
16, 2013).
\28\ Fuels and Fuel Additives 2013 EMTS Data, http://www.epa.gov/otaq/fuels/rfsdata/2013emts.htm (last accessed September
16, 2013).
---------------------------------------------------------------------------
While annual production volume has been increasing, a review of
EIA's Monthly Biodiesel Production Reports \29\ since 2009 indicates
that there has been some variability both in monthly production volume
and in the number of facilities producing that volume. For example,
there were significant biodiesel facility closures during the 2009 and
2010 calendar years. Since that time the overall number of biodiesel
facilities in operation has stabilized and overall capacity in the
biodiesel industry has remained stable from 2009-2012 at more than 2
bill gal. It is also clear that overall industry-wide utilization rates
have increased during this time period from 25% in 2009 to
approximately 46% in both 2011 and 2012. Thus it is clear that total
production capacity at facilities already operating is above 1.28 bill
gal. There are also indications that new or idle facilities have begun
production in response to the 1.28 bill gal mandate for 2013.
Specifically, EIA's monthly reports indicate that nine additional
producers have become operational in the U.S. since the rule for 2013
biomass-based diesel was finalized.\30\ The latest EIA monthly
biodiesel report, available for July 2013, indicates that U.S.
production was 128 million gallons in July, and came from 111 biodiesel
plants in 38 states with total operating capacity of 2.1 bill gal per
year.\31\ As described in Section IV.B.2.b, total biodiesel production
by the end of 2013 could be as high as 1.7 bill gal, and the facilities
contributing to this production collectively have a capacity of well
over 2 bill gal.
---------------------------------------------------------------------------
\29\ The U.S. Energy Information Administration as part of it
responsibilities under section 1508 of the 2005 Energy Policy Act,
amended its ICR and has begun collecting and publishing biodiesel
production information on a monthly basis including production of
biodiesel in a given month, the number of plants operating and
contributing to the monthly total volume by state, and their total
operating capacity for the year. U.S. Energy Information
Administration/Monthly Biodiesel Production Report, Form EIA-22m
Monthly Biodiesel Production Survey. U.S. Energy Information
Administration, Monthly Biodiesel Production Report, For 2012 data
collected showed that 2012 production was 969 mil gallons, which was
up from production 967 million gallons during 2011.
\30\ EIA data indicates that in December 2011, after the close
of the comment period, 103 biodiesel plants existed with an
operating capacity of 2.1 bill gal per year. In March 2012, 104
biodiesel plants were operational and the report indicates that for
the first quarter of 2012 production was up 78% over the first
quarter of 2011. As EPA finalized the 2013 volume mandates in
September 2012 there were 105 biodiesel producers operating in the
U.S. By late November 2012 that number had increased to 112.
\31\ http://www.eia.gov/biofuels/biodiesel/production/ (last
accessed September 16, 2013).
---------------------------------------------------------------------------
Further discussion of the factors we must consider in the context
of the biomass-based diesel volume of 1.28 bill gallons for 2013 is
contained in both the final rule adopting this level for 2013 \32\ and
in EPA's denial of two petitions requesting the Agency reconsider the
2013 biomass-based diesel final rule.\33\ As discussed in that final
rule, the assessment of these factors supported a volume of 1.28 bill
gallons for 2013. As we would expect that the impacts of 1.28 bill gal
in 2014 and 2015 would not be materially different, we are not
repeating the discussion of those analyses here. However, we
specifically request data and analyses suggesting that the factors we
considered in 2013 have changed significantly for 2014 or 2015.
---------------------------------------------------------------------------
\32\ 77 FR 59458 (September 27, 2012).
\33\ 78 FR 49411, August 14, 2013.
---------------------------------------------------------------------------
C. Determination of Applicable Volume for 2014 and 2015
The biodiesel industry has clearly demonstrated that it can produce
the volumes of biomass-based diesel up to the minimum required by the
statute, and that 1.28 bill gal of biodiesel is readily attainable. We
have no real concerns that a level of 1.28 bill gal will be achieved
effectively in 2013, and that once it is met this level of production
and consumption can also be achieved in years after 2013. Production
costs associated with 1.28 bill gal of biodiesel could be affected by
various factors, including the expiration of the biodiesel tax credit
and projected lower soy oil prices.
EPA's evaluation of the applicable volume that we should set for
biomass-based diesel takes into account the context of the larger
advanced biofuel and total renewable fuel volume requirements. The
biomass-based diesel standard is a subset of both the advanced biofuel
and total renewable fuel standards, and biomass-based diesel volumes
can be used to meet all three standards. As discussed in Section IV
below, we are proposing to reduce the applicable volumes of advanced
biofuel and total renewable fuel. The reductions are designed to
address several factors that affect achievement of
[[Page 71753]]
the volume goals that Congress established in the statute for these
categories of renewable fuel. These factors include limitations in
production or importation of the necessary volumes, and factors that
limit supplying those volumes to the vehicles that can consume them.
These same factors impact our consideration of the biomass-based diesel
volume requirement for 2014. For example, EPA considers the
availability of feedstocks for production of biodiesel.
More importantly, the production and use of biomass-based diesel
can be supported by both the need to comply with the required volume
for biomass-based diesel as well as the need to comply with the
required volume for advanced biofuel or even the volume for total
renewable fuel. This provides EPA additional flexibility in considering
the appropriate national volume to set for the biomass-based diesel
volume requirement, as this requirement is not the only mechanism in
the RFS program that can support production and use of biomass-based
diesel. For example, while the applicable volume that EPA sets for
biomass-based diesel will ensure that at least that volume of biomass-
based diesel would be produced and used, the advanced biofuel standard
provides an alternative potential source of support for production and
use of additional volumes of biomass-based diesel. It does this because
obligated parties have discretion whether to choose biomass-based
diesel or another advanced biofuel to satisfy their advanced biofuel
obligation, and because the diesel pool can accommodate considerably
more than 1.28 bill gal of biodiesel. EPA believes there is value in
providing obligated parties increased flexibility in how they meet
their required volume obligations in 2014. As discussed in Section IV,
EPA is reducing the statutory volumes of advanced biofuel and total
renewable fuel based on concerns of inadequate domestic supply of these
renewable fuels. Providing obligated parties additional flexibility to
address future supply circumstances is of increased importance under
these circumstances.
In setting the applicable volume for biomass-based diesel for 2013,
EPA discussed various impacts of requiring volumes of biomass-based
diesel in light of the relevant factors to be considered under CAA
section 211(o)(2)(B)(ii).\34\ We believe this analysis continues to be
appropriate, and supports the proposed applicable volume of biomass-
based diesel for 2014. In considering all of these factors, we see no
need to reduce the minimum biomass-based diesel volume requirement from
2013 levels. We have a high degree of confidence that this volume of
1.28 bill gal could be achieved effectively without any real risk of
production or supply problems.
---------------------------------------------------------------------------
\34\ 77 FR 59458 (September 27, 2012), especially Sections IV
and V of the preamble.
---------------------------------------------------------------------------
At the same time, as discussed above, the volume requirement for
biomass-based diesel is nested within the advance biofuel standards
that we are proposing to reduce in 2014. We believe that volumes of
biomass-based diesel above 1.28 bill gal can, and likely will, be
produced in 2014 to meet the requirements of the advanced biofuel
standard, though the degree to which this occurs will also depend on
whether the biodiesel tax subsidy is extended beyond December 31, 2013.
We do not expect that there would be a significant difference between
additional volumes of biomass-based diesel above 1.28 bill gal and
other advanced biofuels, as far as the overall impact of those fuels in
terms of the factors we are required to consider under section
211(o)(2)(B)(ii). Any such differences would also be hard to quantify.
At the same time, providing obligated parties the discretion to choose
the method to comply with their advanced biofuel volume requirement
most appropriate for their circumstances is likely to reflect the most
effective or efficient way to achieve the advanced biofuel volume
requirements given the market circumstances present in 2014. In
addition, as noted above, providing obligated parties additional
flexibility to address the 2014 supply circumstances is of increased
importance under the circumstances surrounding supply and consumption
as discussed in Section IV. Therefore we are not proposing to increase
the volume of biomass-based diesel that will be required in 2014 and
2015.\35\
---------------------------------------------------------------------------
\35\ While the statute requires EPA to establish the applicable
volume of cellulosic biofuel at projected production levels, this is
not the case with respect to the applicable volume of biomass-based
diesel. For biomass based-diesel, EPA may set the applicable volume
at any level above 1 bill gal after consideration of the factors set
forth in the statute and consultation with the Departments of
Agriculture and Energy.
---------------------------------------------------------------------------
We invite comment on any different approaches that might be
appropriate for balancing the factors noted above, including requiring
an increase in the minimum volume of biomass-based diesel above 1.28
bill gal in both 2014 and 2015. As discussed above, volumes above 1.28
bill gal should be available, whether to meet a minimum biomass-based
diesel requirement or the advanced biofuel requirement. Requiring a
minimum volume of biomass-based diesel greater than 1.28 bill gal would
place less emphasis on the benefits of preserving flexibility in how
the required volume of advanced biofuel is achieved, and more emphasis
on production of biomass-based diesel, without specific regard to the
existence of a tax subsidy or to potential supplies of carryover
biomass-based diesel RINs generated in 2013. We invite comment on all
aspects of this issue, including information related to the statutory
factors that we must consider as described in Section III.A. We also
invite comment on the extent to which carryover biomass-based diesel
RINs from 2013 would affect production levels of biomass-based diesel
or other advanced biofuels in 2014, whether to meet the 1.28 bill gal
biomass-based diesel volume or to achieve higher levels as a part of
achieving the advanced biofuel requirement. We also seek comment on how
EPA should take such information on biomass-based diesel carryover RINs
into account when setting these volume requirements and the degree to
which those carryover RINs support the goal of maintaining flexibility
in how obligated parties meet the advanced biofuel mandate.
In the overall context of the RFS program, the level of the
biomass-based diesel applicable volume can be seen as the minimum
amount of biomass-based diesel that is required, recognizing that
additional volumes of biomass-based diesel may be used, along with
other advanced biofuels, to satisfy the volume requirements for
advanced biofuel and total renewable fuel. Having considered the
statutory factors, in the context of proposing the volume requirements
for advanced biofuel and total renewable fuel, we believe the minimum
required volume of biomass-based diesel should be set at the same level
as 2013. This approach would also recognize that volumes of biomass-
based diesel could be produced and consumed above the required volume
level, and that obligated parties could well choose to use more
biomass-based diesel than is required to satisfy their volume
obligations for advanced and total renewable fuel. A volume requirement
of 1.28 bill gal for biomass-based diesel in 2014 and 2015 would
provide an assured minimum volume level for biomass-based diesel while
also providing a clear opportunity for greater growth as part of the
advanced biofuel category. Greater use of biomass-based diesel would be
a recognized compliance path for the advanced and total renewable fuel
volume obligations being proposed today. The proposed levels of those
standards provide a
[[Page 71754]]
significant opportunity for greater volumes of biomass-based diesel to
be produced and used if the market chooses them. We request comment on
this proposed approach to the biomass-based diesel volume requirement
for 2014 and 2015.
IV. Proposed National Volume Requirements for Advanced Biofuel and
Total Renewable Fuel for 2014
As described in Section I, the national volumes of renewable fuel
to be used under the RFS program each year are specified in CAA
211(o)(2). For 2014, the applicable volume of advanced biofuel is 3.75
bill gal and the applicable volume of total renewable fuel is 18.15
bill gal. However, two statutory provisions authorize EPA to reduce
these volumes. EPA may reduce these volumes if it reduces the
applicable volume for cellulosic biofuel, or if the criteria are met
under the general waiver authority.\36\ We are proposing to exercise
our discretion under these provisions to reduce the applicable volumes
of advanced biofuel and total renewable fuel to address several factors
that affect achievement of the volume goals that Congress established
in the statute. These factors include limitations in production or
importation of the necessary volumes, and factors that limit supplying
those volumes to the vehicles that can consume them. Based on a
detailed analysis of these limitations, we are proposing reductions in
the statutory volumes of both advanced biofuel and total renewable fuel
as shown below.
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\36\ See CAA section 211(o)(7)(D) and (A).
Table IV-1--Proposed Volumes for 2014
[billion gallons]
----------------------------------------------------------------------------------------------------------------
Proposed volume
Statutory ---------------------------------
volume Range Mean
----------------------------------------------------------------------------------------------------------------
Advanced biofuel............................................. 3.75 2.00-2.51 2.20
Total renewable fuel......................................... 18.15 15.00-15.52 15.21
----------------------------------------------------------------------------------------------------------------
We are proposing to use a combination of the cellulosic biofuel
waiver authority and the general waiver authority to ensure that the
proposed volumes are reasonably achievable given limitations in the
volume of ethanol that can be practically consumed in motor vehicles
considering constraints on the supply of higher ethanol blends to the
vehicles that can use them and other limits on ethanol blend levels
approved for use in motor vehicles and the volume of non-ethanol
renewable fuels that we expect would be reasonably achievable. To
accomplish this, we are proposing an approach involving the following
three steps:
First, we would determine the total volume of ethanol that
can reasonably be supplied to and consumed in the transportation sector
as both E10 and higher ethanol blends such as E85. We would then add to
this the volume of all non-ethanol biofuels that we expect could be
reasonably available for meeting all four of the applicable volume
requirements (cellulosic biofuel, biomass-based diesel, advanced
biofuel, and total renewable fuel). This first step would determine the
volume of renewable fuel that can adequately be produced and supplied
to consumers in light of limitations on the consumption of ethanol
(commonly referred to as the ``ethanol blendwall'') and other relevant
constraints, and would form the basis for the required volume of total
renewable fuel as adjusted pursuant to EPA's waiver authorities.
Second, we would determine the volumes of all sources of
advanced biofuel that could be reasonably achieved to ensure that the
required volume of advanced biofuel be set no higher than the volume
that is projected to be reasonably available.
Third, we would determine an appropriate volume of
advanced biofuel at or below the projected available volume determined
in the second step. This volume would include the required volume of
cellulosic biofuels and biomass-based diesel, which are set separately,
as well as any additional volumes of non-ethanol advanced biofuels
projected to be reasonably achievable. This approach would account for
the contribution of ethanol volumes in the advanced biofuel category to
the supply concerns related to total renewable fuel, including
considerations of both production and consumption. While ensuring that
both advanced biofuel and non-advanced renewable fuels play a role in
addressing the ethanol blendwall, it would also support Congress's goal
in the RFS program of continued growth in the advanced biofuel category
as reflected in the volume requirements established in the statute. As
discussed in detail in Section IV.C.2, we have examined several
alternative approaches to this third step, but we believe this approach
best accommodates the objectives of the RFS program, while accounting
for the limitations in the ability to produce and consume renewable
fuels. We request comment, however, on alternative approaches and on
all aspects of the framework discussed in this section.
We anticipate that the framework described in this section would apply
not only to 2014, but to subsequent years as well. The specific
estimates of volumes for each potential source of renewable fuel would
be different in each future year, but the manner in which we aggregate
those estimates to determine appropriate volume requirements would
follow the overall approach described above. If circumstances differ
substantially from those described here, or if further analysis
suggests that our proposed approach is inadequate, we may consider the
need for additional measures.
A. Statutory Authorities for Reducing Volumes To Address Biofuel
Availability and the Ethanol Blendwall
In establishing the annual volume objectives in the statute,
Congress intended that volumes of renewable fuel, advanced biofuel, and
cellulosic biofuel increase every year through 2022, and that volumes
of biomass-based diesel be at least equal to the statutory volume for
2012, while granting EPA discretion to increase the biomass-based
diesel volume based on consideration of several specified factors.
However, Congress recognized that circumstances could arise that might
require a reduction in the volume objectives specified in the statute
as evidenced by the different waiver provisions in CAA 211(o)(7). As
described in more detail below, we
[[Page 71755]]
believe that limitations in production or importation of qualifying
renewable fuels, and factors that limit supplying those volumes to the
vehicles that can consume them, both constitute circumstances that
warrant a waiver under section 211(o)(7) as discussed below. With
regard to the ethanol blendwall, a decrease in total gasoline
consumption since EISA was enacted in 2007, coupled with limitations in
the number and geographic distribution of retail stations that offer
higher ethanol blends such as E85 and the number of FFVs that have
access to E85, as well as other market factors, combine to place
significant restrictions on the volume of ethanol that can be supplied
to and consumed in the transportation sector. Based on the types of
renewable fuel that we project are likely to be available in 2014 and
the volume that is likely to be non-ethanol, we believe that the
ethanol blendwall represents a circumstance that warrants a reduction
in the mandated volumes for 2014.
The statute provides two separate authorities that permit EPA to
reduce volumes of advanced biofuel or total renewable fuel under
certain conditions: The cellulosic waiver authority and the general
waiver authority. Applying a combination of these two authorities is
the most appropriate way to address limitations in production or
importation of the necessary volumes, and factors that limit supplying
those volumes to the vehicles that can consume them, including the
ethanol blendwall. This section discusses both of these statutory
authorities and the manner in which we believe they can be used
together to set standards for 2014.
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 ``[f]or 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 volume of
total renewable fuel and advanced biofuel. As EPA has discussed before,
this indicates a clear Congressional intention that under this
provision EPA may reduce both the total renewable and advanced biofuel
volume together, not one or the other.
As described in the May 26, 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.\37\ EPA interprets
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. Further
discussion of this provision can be found in the final rule
establishing the 2013 RFS standards.\38\
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\37\ See 74 FR 24914-15
\38\ 78 FR 49794, August 15, 2013.
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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). EPA can consider 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), or any other factors that may be relevant. However,
EPA must provide a reasoned explanation for any decision to reduce the
advanced biofuel and total renewable fuel volume requirements under the
cellulosic biofuel waiver authority.
2. General Waiver Authority
CAA 211(o)(7)(A) provides that EPA, in consultation with the
Secretary of Agriculture (USDA) and the Secretary of Energy (DOE), may
waive the applicable volume requirements of the Act in whole or in part
based on a petition by one or more States, by any person subject to the
requirements of the Act, or by the EPA Administrator on her own motion.
Such a waiver must be based on a determination by the Administrator,
after public notice and opportunity for comment, that:
Implementation of the requirement would severely harm the
economy or the environment of a State, a region, or the United States;
or
There is an inadequate domestic supply.
In today's NPRM, we are proposing to use the general waiver authority
to waive the applicable volume requirements based on the statute's
authorization for the Administrator to act on her own motion. We have
initiated discussions with both USDA and DOE on the proposed approach
to determining the applicable volume requirements that is described in
this section.
Because this provision provides EPA the discretion to waive the
volume requirements of the Act ``in whole or in part,'' we interpret
this section as granting authority to waive any or all of the four
applicable volume requirements in appropriate circumstances. Thus, for
example, unlike the cellulosic waiver authority, a reduction in total
renewable fuel pursuant to the general waiver authority would not
automatically result in the same reduction in advanced biofuel, and
would not be limited by the reduction in cellulosic biofuel.
EPA has not previously interpreted or applied the waiver provision
in CAA section 211(o)(7)(A)(ii) related to ``inadequate domestic
supply.'' \39\ As explained in greater detail below, we believe that
this ambiguous provision is reasonably and best interpreted to
encompass the full range of constraints that could result in an
inadequate supply of renewable fuel to the ultimate consumers,
including fuel infrastructure and other constraints. This would
include, for instance, factors affecting the ability to produce or
import qualifying renewable fuels as well as factors affecting the
ability to distribute, blend, dispense, and consume those renewable
fuels.
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\39\ EPA has applied the waiver provision in section
211(o)(7)(A)(i) related to severe harm to the economy. See 77 FR
70752 (November 27, 2012), 73 FR 47168 (August 13, 2008).
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The waiver provision at CAA 211(o)(7)(A)(ii) is ambiguous in
several respects. First, it does not specify what the general term
``supply'' refers to. The common understanding of this term is an
amount of a resource or product that is available for use by the person
or place at issue.\40\ Hence the evaluation of
[[Page 71756]]
the supply of renewable fuel, a product, is best understood in terms of
the person or place using the product. In the RFS program, various
parties interact across several industries to drive the ultimate use of
renewable fuel by consumers of transportation fuel. For example,
supplying renewable fuel to obligated parties and terminal blenders is
one part of this process, while supplying renewable fuel to the
ultimate consumer as part of transportation fuel is a different and
later aspect of this process. This is clearly the case with respect to
the renewable fuels ethanol and biodiesel, which are typically supplied
to the obligated parties and terminals as a neat fuel, but in almost
all cases are supplied to the consumer as a blend with conventional
fuel (ethanol and gasoline or biodiesel and diesel). The waiver
provision does not specify what product is at issue (for example, neat
renewable fuel or blended renewable fuel with transportation fuel) or
the person or place at issue (for example, obligated party or ultimate
consumer), in determining whether there is an ``inadequate domestic
supply.''
---------------------------------------------------------------------------
\40\ For example, see http://oxforddictionaries.com/us/definition/american_english/supply (a stock of a resource from
which a person or place can be provided with the necessary amount of
that resource: ``There were fears that the drought would limit the
exhibition's water supply.''); http://www.macmillandictionary.com/us/dictionary/american/supply (``A limited oil supply has made gas
prices rise.'' and ``Aquarium fish need a constant supply of
oxygen.'').
---------------------------------------------------------------------------
The waiver provision also does not specify what factors are
relevant in determining the adequacy of the supply. Adequacy of the
supply would logically be seen in terms of the parties who use the
supply of renewable fuel. Adequacy of supply could affect various
parties, including obligated parties, terminal operators, and
consumers. Adequacy of supply with respect to the consumer might well
involve consideration of factors different from those involved when
considering adequacy of supply to the obligated parties. We believe
that interpreting this waiver provision as authorizing EPA to consider
the adequacy of supply of renewable fuel to all of the relevant
parties, including the adequacy of supply to the ultimate consumer of
transportation fuel, is consistent with the common understanding of the
terms used in this waiver provision, especially in the context of a
fuel program that is aimed at increasing the use of renewable fuel by
consumers. In our view, this is the most reasonable and appropriate
construction of this ambiguous language in light of the overall policy
goals of the RFS program.
EPA has reviewed other fuel related provisions of the Clean Air Act
with somewhat similar waiver provisions, and they highlight both the
ambiguity of the RFS general waiver provision and the reasonableness of
applying it broadly to include adequacy of supply to the ultimate
consumer of transportation fuel. For example, CAA section
211(k)(6)(A)(ii) allows EPA to defer application of reformulated
gasoline (RFG) requirements in a state that opts in to the RFG program
if EPA determines that ``there is insufficient domestic capacity to
produce reformulated gasoline.'' A related RFG waiver provision
concerning the application of RFG requirements in the Ozone Transport
Region, section 211(k)(6)(B)(i) and (iii), provides for a waiver of RFG
requirements based on ``insufficient capacity to supply reformulated
gasoline.'' For these RFG waiver provisions, Congress more clearly and
explicitly indicated that the capacity to supply RFG could include
consideration of factors beyond those concerning the capacity to
produce RFG. In the language of the RFS general waiver provision, in
comparison, Congress used a single, broader and clearly ambiguous
phrase--``inadequate domestic supply''--without elaboration or
clarification as to whether it refers solely to production capacity or
also includes additional factors relevant to the ability to supply the
fuel to various persons such as the ultimate consumer. As in the RFG
provision, however, the adequacy of supply referred to in the RFS
general waiver provision can logically--and we believe should--be read
to include factors beyond capacity to produce that impact the ability
of consumers to use the fuel as a transportation fuel.
CAA section 211(c)(4)(C)(ii) provides EPA with waiver authority to
address ``extreme and unusual fuel or fuel additive supply
circumstances . . . which prevent the distribution of an adequate
supply of the fuel or fuel additive to consumers.'' The supply
circumstances must be the result of a natural disaster, an Act of God,
a pipeline or refinery equipment failure or another event that could
not reasonably have been foreseen, and granting the waiver must be ``in
the public interest.'' In this case, Congress clearly specified that
the adequacy of the supply is judged in terms of the availability of
the fuel for use by the ultimate consumer, and includes consideration
of the ability to distribute the required fuel or fuel additive to the
ultimate consumer. Although the RFS waiver provision does not contain
any such explicit clarification from Congress, its broad and ambiguous
wording provides EPA the discretion to reasonably interpret the scope
of the RFS waiver provision. EPA's interpretation of the RFS waiver
provision is consistent with the view, expressed more explicitly in the
section 211(c) waiver, that the adequacy of the supply of a fuel or
fuel additive can reasonably be judged in terms of availability for use
by the consumer, and can include consideration of the capacity to
distribute the product to the ultimate consumer.
CAA section 211(m)(3)(C) allows EPA to delay the effective date of
oxygenated gasoline requirements for certain carbon monoxide
nonattainment areas if EPA finds ``an inadequate domestic supply of, or
distribution capacity for, oxygenated gasoline . . . or fuel
additives'' needed to make oxygenated gasoline. Here, Congress chose to
expressly differentiate between ``domestic supply'' and ``distribution
capacity,'' indicating that each of these elements was to be considered
separately. This would indicate that the term inadequate supply,
although ambiguous for the reasons discussed above, could in
appropriate circumstances be read as more limited in scope. In contrast
to the RFS waiver provision, the section 211(m) waiver provision
includes additional text that makes clear that EPA's authority includes
consideration of distribution capacity--reducing the ambiguity inherent
in using just the general phrase ``inadequate domestic supply.''
Presumably this avoids a situation where ambiguity would result in an
overly narrow administrative interpretation. The oxygenated gasoline
waiver provision is also instructive in that it clarifies that it
applies separately to both finished oxygenated fuel and to oxygenated
fuel blending components. That is, there could be an adequate supply of
the oxygenate, such as ethanol, but not an adequate supply of the
blended fuel which is sold to the consumer. The RFS waiver provision
employs the phrase ``inadequate domestic supply'' without further
specification or clarification, thus providing EPA the discretion to
determine whether the adequacy of the supply of renewable fuel can
reasonably be judged in terms of availability for use by the ultimate
consumer, including consideration of the capacity to distribute the
product to the ultimate consumer. In contrast to the section 211(m)
waiver provision, Congress arguably did not mandate that the RFS waiver
provision be interpreted as providing authority to address problems
affecting the supply of renewable fuel to the ultimate consumer.
However, the RFS waiver provision does provide EPA the discretion to
adopt such an
[[Page 71757]]
interpretation, resulting in a policy approach consistent with that
required by the less ambiguous section 211(m) waiver provision.\41\
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\41\ In CAA section 211(h)(5)(C)(ii), Congress authorized EPA to
delay the effective date of certain changes to the federal
requirements for Reid vapor pressure in summertime gasoline, if the
changes would result in an ``insufficient supply of gasoline'' in
the affected area. As with the RFS general waiver provision,
Congress did not specify what considerations would warrant a
determination of insufficient supply. EPA has not been called upon
to apply this provision to date and has not interpreted it.
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As the above review of various waiver provisions in Title II of the
Clean Air Act makes clear, Congress has used the terms ``supply'' and
``inadequate supply'' in different waiver provisions. In the RFS
general waiver provision, Congress spoke in general terms and did not
address the scope of activities or persons or places that are the focus
in determining the adequacy of supply. In other cases, Congress
provided, to varying degrees, more explicit direction. Overall, the
various waiver provisions lend support to the view that it is
appropriate, where Congress has used just the ambiguous phrase
``inadequate domestic supply'' in the general waiver provision, to
consider supply in terms of distribution and use by the ultimate
consumer, and that the term ``inadequate supply'' of a fuel need not be
read as referring to just the capacity to produce renewable fuel or the
capacity to supply it to the obligated parties.
We are aware that prior to final adoption of the Energy
Independence and Security Act of 2007, Congress had before it bills
that would have provided for an EPA waiver in situations where there
was ``inadequate domestic supply or distribution capacity to meet the
requirement.'' \42\ EPA is not aware of any conference or committee
reports, or other legislative history, explaining why Congress
ultimately enacted the language in EISA in lieu of this alternative
formulation. There is no discussion, for example, of whether Congress
did or did not want EPA to consider distribution capacity, whether
Congress believed the phrase ``inadequate domestic supply'' was
sufficiently broad that a reference to distribution capacity would be
unnecessary or superfluous, or whether Congress considered the
alternative language as too limiting, since it might suggest that other
types of constraints on delivering renewable fuel to the ultimate
consumer should not be considered for purposes of granting a
waiver.\43\ Given the lack of interpretive value typically given to a
failure to adopt a legislative provision, and the lack of explanation
in this case, we find the legislative history to be uninformative with
regard to Congressional intent on this issue. It does not change the
fact that the text adopted by Congress, whether viewed by itself or in
the context of other fuel waiver provisions, is clearly ambiguous.
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\42\ H.R. 6 and S. 606 as reported by Senate Envt. & Public
Works in Senate Report 109-74.
\43\ There are, for example, legal constraints on the amount of
certain renewable fuels that may be blended into transportation
fuels.
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We believe the term ``inadequate domestic supply'' should be
interpreted to authorize EPA to consider the full range of constraints,
including fuel infrastructure and other constraints, that could result
in an inadequate supply of renewable fuels to consumers. Under this
interpretation, we would not limit ourselves to consideration of the
capacity to produce or import renewable fuels but would also consider
practical and other constraints related to the fuel delivery
infrastructure and their effect on the volume of qualifying renewable
fuel that would be supplied to the ultimate consumer.
This interpretation is consistent with the provisions of section
211(o) and promotes Congress's purposes in establishing the RFS
program, which are to ensure that certain volumes of renewable fuel are
used by the ultimate consumer as a replacement for the use of fossil
based transportation fuel.\44\ The RFS program does not achieve the
desired benefits unless renewable fuels are actually used to replace
fossil based transportation fuels. For example, the greenhouse gas
reductions and energy security benefits that Congress sought to promote
through this program are realized only through the use by consumers of
renewable fuels that reduce or replace fossil fuels present in
transportation fuel. Imposing RFS volume requirements on obligated
parties without consideration of the ability of the obligated parties
and other parties to deliver the renewable fuel to the ultimate
consumers, would achieve no such benefits and would fail to account for
the complexities of the fuel system that delivers transportation fuel
to consumers. We do not believe it would be appropriate to interpret
the RFS general waiver provision more narrowly and limit EPA's
consideration of factors related to the distribution and use of
renewable fuels by the ultimate consumers of these fuels.
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\44\ See CAA section 211(o)(1)(I) (renewable fuel defined as
``fuel . . . used to replace or reduce the quantity of fossil fuel
present in a transportation fuel''), section 211(o)(2)(A)(i) (EPA's
regulations must ``ensure that transportation fuel sold or
introduced into commerce in the United States . . . contains at
least the applicable volume of [renewable fuels]''). Also see CAA
section 211(o)(1)(A), definition of ``additional renewable fuel.''
As one example, in the RFS program fuels with multiple end uses such
as biogas or electricity are not considered a renewable fuel absent
a demonstration that they will be used by the ultimate consumers as
transportation fuel. As noted above, ethanol is almost always used
as a renewable fuel in the form of E10 or higher, not as neat
ethanol. The supply of neat ethanol, or biogas or electricity, does
not by itself determine the supply of the fuel ethanol used as a
transportation fuel.
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We invite comment on all aspects of our proposed interpretation of
the waiver provision based on ``inadequate domestic supply.'' Whether
or not circumstances projected for 2014 justify a waiver on this basis
is discussed in Sections IV.B and IV.C.
3. Combining Authorities for Reductions in Advanced Biofuel and Total
Renewable Fuel
The two primary drivers that we have considered in today's NPRM for
reductions in the required volumes are limitations in the availability
of qualifying renewable fuels and factors that constrain supplying
those volumes to the vehicles that can consume them. These two drivers
are both relevant forms of inadequate domestic supply, which authorize
reductions under the general waiver authority and can also justify
reductions under the cellulosic biofuel waiver authority. We believe
that reducing both total renewable and advanced biofuel are appropriate
responses to these circumstances, and we propose to use a combination
of the two waiver authorities discussed above to achieve this result as
neither authority independently is sufficient to justify the necessary
volume reductions. As discussed in Section II, EPA is proposing to
reduce the applicable volume of cellulosic biofuel based on a
projection of production for 2014. Given this reduction in the
cellulosic biofuel volumes, EPA is also proposing to reduce the
applicable volume of advanced biofuel using the cellulosic biofuel
waiver authority in Section 211(o)(7)(D)(i). We are proposing a larger
reduction in total renewable fuel volume than in the advanced biofuel
volume. In effect one part of the reduction in total renewable fuel
would be based on both the general waiver authority and the cellulosic
biofuel waiver authority, and the remainder of the reduction in total
renewable fuel would be based solely on the general waiver authority.
Below we discuss the basis for each of the proposed volume reductions.
[[Page 71758]]
B. Determination of Reductions in Total Renewable Fuel
As a first step in our proposed framework for setting the
applicable volumes for total renewable fuel and advanced biofuel, we
would estimate the volume of ethanol that can reasonably be expected to
be available and consumed and the volume of non-ethanol renewable fuel
that can reasonably be expected to be available and consumed. Taken
together, these two considerations provide the basis for the volume of
total renewable fuel that we are proposing to require. Our objective is
that the proposed requirement would reflect a realistic projected
estimate of renewable fuel supply, based to the greatest extent
possible on data and real world circumstances.
For ethanol, the primary issue is the use of the fuel in the
transportation sector, as the purpose of the RFS program is to ensure
that renewable fuels are used to replace or reduce the use of fossil
fuel based transportation fuel.\45\ For ethanol blends, there are legal
constraints on the amount of ethanol that can be blended into gasoline
and practical constraints on the volume of ethanol that can be consumed
as transportation fuel, notwithstanding the ability to produce higher
volumes. For non-ethanol renewable fuels, the primary issue is the
availability of volumes of the renewable fuel, and much less so the
ability to consume it in the transportation sector if it is available.
For purposes of this proposal, we generally refer to the consumption
concerns related to ethanol, and the availability concerns related to
non-ethanol forms of renewable fuel, recognizing the primary concern
that is raised for each of these types of renewable fuel.
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\45\ Renewable fuels in heating oil and jet fuel are also valid
under the RFS program, but ethanol is not used in these contexts.
See CAA section 211(o)(1)(J) (the definition of renewable fuel), and
CAA section 211(o)(2)(A) (the rulemaking authority related to
ensuring renewable fuels are sold or introduced into commerce).
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With regard to consumption concerns related to ethanol, it is
important to note that the overall pool of gasoline into which ethanol
must be blended to achieve EISA's statutory volume requirements is
significantly smaller now than it was projected to be prior to
enactment of EISA in 2007, which established both the revised RFS
program requirements and the mandated significant increases in vehicle
fuel economy standards. The total demand for gasoline has been
decreasing over the intervening years due to the recent GHG and CAFE
standards for vehicles, fuel prices, and broader factors affecting the
economy. In the summer of 2006, when the reference case for EIA's
Annual Energy Outlook 2007 (AEO2007) was developed, the projected 2014
gasoline energy demand was 18.68 Quad Btu and could have absorbed 15.43
bill gal of ethanol as E10. By comparison, in the summer of 2012 when
the AEO2013 reference case was developed, the projected 2014 gasoline
energy demand was 15.94 Quad Btu and could absorb 13.17 bill gal
ethanol as E10. The difference between these two projections thus
represents about 2.3 bill gal of ethanol. That is, the gasoline pool
will be able to absorb about 2.3 bill gal less ethanol as E10 in 2014
than it would have been possible to absorb if the gasoline use
projection in AEO2007 had been realized. If 15.43 bill gal of ethanol
were to be consumed in 2014, the gasoline energy demand projected in
AEO2013 would require about 3.4 bill gal of E85 if it is assumed that
intermediate blends such as E15 do not penetrate the market to any
significant extent.
Table IV.B-1--Reduced Gasoline Demand in 2014
----------------------------------------------------------------------------------------------------------------
Equivalent E10
Motor gasoline E85 (Quad Btu) a Total energy volume (bill gal)
(Quad Btu) a (Quad Btu) a c
----------------------------------------------------------------------------------------------------------------
AEO2007 b........................... 18.67 0.004 18.68 154.30
AEO2013 b........................... 15.84 0.097 15.94 131.67
Difference.......................... ................. ................. ................. 22.63
----------------------------------------------------------------------------------------------------------------
a Higher heating value.
b Table 2 of EIA's Annual Energy Outlook, total delivered energy consumption for all sectors.
c Assumes conversion factors of 3.561 mill Btu per barrel for ethanol and 5.253 mill Btu per barrel for
gasoline.
We recognize that EIA's most current projections for motor fuel use
are provided in the Short-term Energy Outlook (STEO), which is updated
monthly, rather than in the AEO2013 reference case that was prepared in
the summer of 2012. EPA understands that the estimate of 2014
transportation fuel use that EIA is required to provide to EPA for
purposes of determining the applicable percentage standards will be
based on the latest available STEO forecast rather than the Annual
Energy Outlook. The forecast for 2014 gasoline use in the October 2013
STEO is about 1.5 percent higher that the AEO2013 reference case
projection for 2014, while the implicit level of E85 use from the
combined gasoline and ethanol forecasts in STEO is less than half of
the AEO2013 E85 projection for 2014.
1. Estimating Ethanol Volumes That Could Reasonably Be Consumed
The total volume of ethanol that could reasonably be consumed is a
function of three factors:
The overall demand for gasoline.
The consumption of ethanol as E10, E15, and E85.
The presence of non-oxygenated gasoline (E0).
In this section, we provide our assessment of the likely distribution
of ethanol in gasoline, with a particular emphasis on potential volumes
of E85 that could reasonably be achievable. We discuss and request
comment on the assumption that the overall pool of gasoline is
comprised of E10 and E85 in 2014.
a. Projected Composition of 2014 Gasoline Supply
For the purposes of this proposed rule, we have assumed that all
gasoline-powered vehicles and FFVs would use either E10 or E85. EPA has
taken a series of regulatory steps to enable E15 to be sold in the U.S.
In 2010 and 2011, EPA issued partial waivers to enable use of E15 in
model year 2001 and newer vehicles, and in June of 2011, EPA finalized
regulations to prevent misfueling of vehicles, engines, and equipment
not covered by the partial waiver decisions. However, based on
information currently available to the Agency, the volume of E15 being
supplied in the market to date has been very limited. Therefore, to
simplify the calculations and the discussion, we have assumed that the
volume of E15
[[Page 71759]]
that is consumed in 2014 will be negligible, as there are currently
very few retail stations offering E15. Any volumes of other
intermediate blends, such as E30, are assumed to be sold through
blender pumps into FFVs and are thus assumed to be part of the E85
volume consumed by FFVs.
We have not assumed that any gasoline would be E0 in 2014, since
E10 is commonly used in nonroad engines just as it is used in cars and
trucks. However, it is possible that a limited amount of E0 will be
consumed if refiners are willing to provide it. If so, it would likely
appear in premium gasoline, gasoline sold at marinas, or possibly
unleaded motor gasoline used in light aircraft that do not require
leaded aviation gasoline. There are also several states that require
unblended gasoline to be provided to terminals, though the intention of
these requirements is to ensure that terminals have the option to blend
ethanol into that gasoline. We are not aware of any data that would
provide a direct estimate of the demand for E0, and given that any
ongoing demand for E0 is likely to be small, we have not included it in
our calculations of the total volume of ethanol that can be consumed in
2014. Nevertheless, we request information and data that would permit
us to determine the volume of E0 used in the gasoline pool and the
appropriateness of incorporating some estimate of E0 into the final
standards.
Aside from the volume of E85 that could reasonably be consumed in
2014, discussed in more detail in the next section, the gasoline pool
would be comprised of E10. We have assumed that gasoline contains 10.0%
denatured ethanol. This is consistent with survey data collected by the
Alliance of Automobile Manufacturers indicating that the average
ethanol content of all gasoline containing at least 5vol% ethanol is
about 9.74%. This estimate is based on the use of ASTM test method D-
5599, which measures only the alcohol portion of the gasoline, not any
denaturant that would have been included with the ethanol before it was
blended into gasoline. Since the denaturant portion of ethanol is at
least 2%, ethanol that is blended into gasoline contains less than 98%
ethanol. When blended into gasoline, therefore, the E98 would result in
a gasoline-ethanol blend containing no more than 9.8% pure ethanol, or
10.0% denatured ethanol. Since all RFS ethanol volumes and RINs are
also calculated on a denatured ethanol basis, it is thus appropriate to
assume 10.0 percent. We request comment, however, on the accuracy of
this assessment, including information with regard to whether and to
what extent there are real world constraints that limit the denatured
ethanol content of E10 to a level lower than 10.0 percent, and if so,
what the implications are with regard to the volume of ethanol that can
reasonably be consumed in 2014.
For E85 volumes, we recognize that the ethanol content could range
from 51% to 83% according to ASTM D-5798-13. In today's NPRM we have
assumed that the ethanol content of E85 is 74% consistent with the
average value used by EIA in its Annual Energy Outlook. As for E10, we
are treating the ethanol content of E85 as representing denatured
ethanol.
b. Assessment of E85 Consumption
For purposes of determining the total renewable fuel volume
requirement for 2014, consistent with the waiver authorities we are
proposing to exercise in this action, we have assessed the volume of
E85 that can reasonably be supplied to and consumed in the
transportation sector, based on a variety of factors that limit
supplying E85 in the transportation sector. Our assessment of the range
of E85 volumes that can be reasonably consumed in 2014 considers
factors such as infrastructure and consumer acceptance limitations as
well as the impact that the applicable standards could have on the
relative price of E85 and E10. In projecting the likely range of E85
consumption in 2014, we are not mandating that this amount of E85 be
produced and consumed. The industries involved will decide what
actually occurs in the marketplace. Obligated parties can take actions
to facilitate the sale of E85, to the extent they can and choose to do
so, or they can obtain RINs from non-ethanol sources of renewable fuel
such as excess biodiesel, renewable diesel, heating oil, and biogas. We
expect that the parties involved will resolve this through their
business decisions. Nevertheless, we acknowledge that the renewable
fuel volumes established in this rulemaking will have an impact on the
volume of E85 consumed in 2014.
There are a variety of sources we have considered in developing our
estimate of the volume of E85 that could reasonably be supplied in the
transportation sector in 2014. To begin with, we investigated available
sources of information on E85 production in 2012 and 2013. One report
from EIA reported an E85 production volume of about 37 mill gal in
2012.\46\ This volume is based on EIA survey data from forms EIA-810
(Monthly Refinery Report) and EIA-815 (Monthly Bulk Terminal and
Blender Report). It likely underestimates actual E85 consumption as
these surveys do not capture other sources of E85 production, such as
the following:
---------------------------------------------------------------------------
\46\ EIA, ``U.S. Refinery and Blender Net Production'', April
29, 2013.
---------------------------------------------------------------------------
E85 produced using reformulated gasoline (RFG) or
reformulated gasoline blendstock (RBOB) as the petroleum component of
the fuel.
E85 produced by refiners or blenders producing small
quantities of E85.
E85 produced by parties such as ethanol production
facilities.
For the last category, we were able to estimate the potential volume of
E85 produced in 2012 by ethanol facilities using data collected in the
EPA-Moderated Transaction System (EMTS). Ethanol production facilities
are in general prohibited from separating RINs from the ethanol that
they produce. However, if an ethanol producer blends its ethanol into
gasoline to make a transportation fuel, it can separate the RINs from
the ethanol used in this blending. If they do produce transportation
fuel, it is very likely to be E85 rather than E10. Therefore, we
assumed that all RINs separated by ethanol producers represent ethanol
blended as E85. Under this assumption, we determined that ethanol
production facilities separated about 22 million RINs in 2012, which
would correspond to about 30 mill gal of E85. When combined with the 37
mill gal estimate from EIA for E85 produced by refineries and blenders,
the total 2012 E85 production is estimated to be about 70 mill gal.
At this time, available information regarding the volume of E85
production in 2013 is limited to the first half of the year. Using the
same two sources of information described above--EIA survey data for
E85 production by refineries and blenders, and EMTS data to estimate
E85 production at ethanol facilities--we have estimated that total E85
production for the first half of 2013 was about 36 mill gal. However,
both of these data sources demonstrate a strongly increasing trend over
this timeframe. If this trend continues through the end of 2013, total
E85 production could reach 100 mill gal in 2013. Furthermore, if this
trend continued throughout 2014, total E85 production would reach 240
mill gal in 2014.\47\ If this trend were further augmented to account
for the rate of ongoing growth in both the number of
[[Page 71760]]
retail stations offering E85 and in the number of FFVs in the fleet
that would occur over the remainder of 2013 and 2014, the projection
for 2014 could be as high as 300 mill gal.\48\ We anticipate that
better and more detailed information will be available--including
through this notice and comment process--by the time we promulgate the
final rule. We solicit comment and information on 2013 consumption of
E85 and its relevance to projecting reasonable levels of consumption in
2014.
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\47\ Korotney, David, ``Extrapolation of E85 production in the
first half of 2013 to the remainder of 2013 and through 2014,''
memorandum to EPA docket EPA-HQ-OAR-2013-0479
\48\ Based on 25% annual growth in E85 consumption as described
in memo entitled, ``Application of one-in-four E85 access
methodology to 2014'', Memorandum from David Korotney to EPA docket
EPA-HQ-OAR-2013-0479.
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It should be noted that historical consumption of E85 represents a
small fraction of the consumption capacity of the FFVs currently in
use. Even counting only those FFVs which have reasonable access to
stations offering E85, their total consumption capacity is at least 1
bill gal. The low historical consumption was most likely due to a
combination of factors including limited access to retail stations
offering E85, the reduced range of vehicles operating on E85, and the
fact that E85 has historically been more expensive than E10 on an
energy-content adjusted basis. A survey conducted by the National
Association of Convenience Stores found that 71% of customers indicated
that price was the most important factor in determining where they buy
gasoline.\49\ We believe the volume of E85 that can and will be sold in
the future is likely highly dependent on the price relationship between
E10 and E85 and the availability of the fuel.
---------------------------------------------------------------------------
\49\ 2013 NACS Retail Fuels Report.
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While historically E85 has been more expensive than E10 on an
energy-content adjusted basis, recent data collected by EIA suggests
that at least in some parts of the country this price relationship
between E10 and E85 may be changing. In a Today in Energy article
published on September 19, 2013, EIA presented data showing that in a
collection of Midwestern states E85 retail prices were less than E10
retail prices on an energy-content adjusted basis in July 2013, the
most recent month for which information was available.\50\ This change
in price relationship between E10 and E85 coincides with reported
increases in sales volumes of E85 in Iowa and Minnesota, two states in
which E85 sales volumes are publically available.\51\ If the conditions
that have led to this price relationship continue in the future E85
sales volumes are likely to continue to increase.
---------------------------------------------------------------------------
\50\ ''E85 motor fuel is increasingly price-competitive with
gasoline in parts of the Midwest.'' Today in Energy. EIA, 19
September 2013. <http://www.eia.gov/todayinenergy/detail.cfm?id=13031>. Study compared daily average observed E85 and
regular gasoline prices at the same stations in the states of Iowa,
Illinois, Indiana, Kentucky, Michigan, Minnesota, and Ohio.
\51\ See Table IV.B.1-2.
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Moreover, as more gasoline stations sell E85 and more FFVs are sold
in the United States the potential market for E85 will continue to
increase. Through 2013 the number of stations selling E85 has been
increasing at a rate of over 300 stations per year.\52\ The size of the
FFV fleet also increased by approximately 1 million vehicles in
2013.\53\ If the recent pricing trends noted above persist and spread
to other parts of the country the potential growth in E85 sales could
be significant. Increasing E85 sales due to favorable pricing may also
incentivize increasing growth rates in the number of stations selling
E85 and the size of the FFV vehicle fleet. Such a scenario, however, is
dependent on E85 being widely available at a price that is sufficiently
lower than E10 to offset the lower energy content, increased refueling
frequency requirements, and other factors. If the price relationship
between E10 and E85 reverts to historic levels significant growth in
E85 sales volumes is unlikely.
---------------------------------------------------------------------------
\52\ Memorandum from David Korotney to EPA docket EPA-HQ-OAR-
2013-0479.
\53\ EIA Annual Energy Outlook 2013, Table 40. Increase in
Ethanol-Flex Fuel Cars and Light Trucks from 2013 to 2014.
---------------------------------------------------------------------------
The price relationship between E85 and E10 depends on many factors,
but three of the most significant are the prices of corn, crude oil,
and RINs.\54\ Corn and crude oil are the primary contributors to the
cost of production of the ethanol and gasoline, respectively, used in
the United States. The RIN price functions as a mechanism to subsidize
the price of ethanol sold as E85 until it is at or below price parity
with gasoline on an energy-equivalent basis even if the relative prices
of corn and oil would not otherwise support such a pricing structure.
The net effect of a reduction in the price of ethanol is that the price
of E85 should fall relative to the price of E10, since E85 contains
more ethanol than E10. The significant rise in the price of D6 (non-
advanced) RINs and the subsequent drop in the retail price of E85
relative to E10 over the course of 2013 \55\ occurred at a time when
corn and thus ethanol was relatively expensive, indicating that RINs
are already functioning in this manner. The recent shift in E85 prices
relative to E10 and the simultaneous increase in E85 sales suggest the
importance of paying careful attention to more recent data concerning
E85 prices and sales volumes when projecting E85 volumes in 2014. While
the more recent data is available from such a short period of time that
it limits the confidence in using it to make projections for 2014, it
nevertheless provides a basis for expecting that directionally, the
lower the price of E85 compared to the price of E10, the greater the
likelihood that FFV owners will opt to purchase E85. In addition to the
volumetric energy content of E85 compared to E10, the price difference
may also need to accommodate the inconvenience of a greater frequency
of refuelings for a vehicle operating on E85, the potentially the
greater driving distance to a station offering E85, the unfamiliarity
that FFV owners may have with E85 or their own vehicle's capabilities,
and differences in the mix of vehicle types among FFVs compared to
conventional (not flex fuel) vehicles. These factors may also vary from
region to region across the U.S. based on state and local policies,
making it challenging to develop correlations representing the nation
as a whole. While we currently have insufficient data to allow us to
correlate sales volumes of E85 with its price relative to gasoline on
an energy basis for the nation as a whole, information from Minnesota
indicates a moderately strong correlation between E85/E10 price
differential and E85 sales volumes. To further aid our projections for
the final rule, we request comment on the manner and extent to which
RIN prices are affecting gasoline and E85 prices for the nation as a
whole, and any associated changes in E85 consumption.
---------------------------------------------------------------------------
\54\ Other factors, including Federal and State taxes, subsidies
and distribution costs, and relative convenience costs may also
affect the price relationship. It is therefore very difficult to
accurately predict fuel prices.
\55\ ''E85 motor fuel is increasingly price-competitive with
gasoline in parts of the Midwest.'' Today in Energy. EIA, 19
September 2013. <http://www.eia.gov/todayinenergy/detail.cfm?id=13031>. E85 prices have fallen steadily since the
beginning of 2013 relative to E10 prices.
---------------------------------------------------------------------------
EPA is not in a position to estimate E85 consumption based on data
or modeling involving the price relationship between E10 and E85.
Therefore, in addition to information on E85 consumption in 2012 and
2013 discussed above, we have considered other sources in developing
our estimate of the volume of E85 that could reasonably be consumed.
The following discussion presents the various sources and approaches
used to inform our estimate.
To begin with, we considered that even without further reductions
in the price of E85 relative to the price of E10,
[[Page 71761]]
higher E85 consumption in 2014 could reasonably be expected compared to
2012 and 2013 based on business-as-usual growth in the number of FFVs
in-use and the number of retail stations offering E85. The combined
effect of these two factors could raise the total E85 consumption
volume from our 2013 estimate of about 100 mill gal to about 125 mill
gal in 2014 if the purchasing behavior of individual FFV owners remains
constant.\56\
---------------------------------------------------------------------------
\56\ This estimate is based on two years of growth in stations
offering E85 and two years of growth in in-use FFVs. Growth factors
are discussed further in a memo entitled, ``Application of one-in-
four E85 access methodology to 2014'', Memorandum from David
Korotney to EPA docket EPA-HQ-OAR-2013-0479.
---------------------------------------------------------------------------
In the March 2010 RFS final rule we presented a means for
estimating the E85 consumption capacity of FFVs based on historical
market practices with diesel fuel.\57\ We defined ``reasonable access''
to E85 as a situation in which one out of every four service stations
to which an FFV owner had access offered E85, such that an FFV owner
could be considered to have a reasonable option of refueling on E85.
All other FFVs would then be assumed not to have reasonable access to
E85, and would therefore always refuel on gasoline (here presumed to be
E10). Following this one-in-four access approach, we estimated that
approximately 8.6% of FFVs would have access to E85 in 2014 based on
projections of the number of retail stations likely to offer E85.
Similarly, the total amount of energy \58\ consumed by all FFVs in 2014
would be about 9% of all the energy consumed by all light-duty vehicles
and trucks. If the price of E85 reflected only the energy difference
between it and E10, the total volume of E85 consumed under this
approach could be about 160 mill gal. If the price of E85 was lower
than this level and as a result half of all FFV owners with access used
E85, the total volume of E85 consumed could reach 640 mill gal. Details
of these calculations can be found in a memorandum in the docket.\59\
---------------------------------------------------------------------------
\57\ See discussion at 75 FR 14761, March 26, 2010.
\58\ This estimate includes energy consumed from all fuel
sources, including both E10 and E85.
\59\ ``Application of one-in-four E85 access methodology to
2014,'' Memorandum from David Korotney to EPA docket EPA-HQ-OAR-
2013-0479.
---------------------------------------------------------------------------
We have also considered other projections of E85 usage, recognizing
the varying assumptions made in developing these projections as well as
the differing purposes of the projections. For example, in their
comments on the NPRM for the 2013 standards, the University of Illinois
included an article from the February 13, 2013 issue of Farmdoc Daily
in which E85 consumption in 2014 was assumed to be 300 mill gal if E85
prices were sufficiently low in comparison to E10 prices, though they
did not quantify the prices needed to reach this E85 consumption level.
Finally, in the context of EPA's response to requests for a waiver
of the 2012 renewable fuel volume requirements due to drought, the
Department of Energy provided its own analysis of the maximum volume of
E85 that could be consumed based on a technical analysis of retail
station throughput.\60\ Based on assumptions about E85 tank sizes at
retail stations and the associated refill frequencies, DOE estimated
that the maximum sales of E85 would be 600 mill gal.\61\ This DOE
analysis focused on the potential throughput at E85 stations given
certain underground tank refueling frequencies, and did not consider
such things as vehicle refueling frequencies. DOE's analysis also noted
that to achieve its potential, E85 may need to be priced at a greater
discount than it would be based on the energy content differential
between E85 and gasoline alone to account for the more frequent
refueling that E85 requires. We request comment on how DOE's analysis
could be refined to better estimate potential E85 consumption.
---------------------------------------------------------------------------
\60\ ``Department of Energy Analyses in Support of the EPA
Evaluation of Waivers of the Renewable Fuel Standard'', November
2012, EPA-HQ-OAR-2012-0632-2544.
\61\ In generating this estimate, DOE assumed that the number of
retail stations offering E85 would be about 2,300. We estimate that
the number of stations offering E85 will be closer to 3,300 in 2014,
which would correspond to a maximum E85 throughput of about 860 mill
gal.
---------------------------------------------------------------------------
c. Proposed Projection of E85 Consumption in 2014
Our goal for this proposal is to generate a realistic estimate of
the amount of E85 that could reasonably be supplied to and consumed in
the transportation sector in 2014 in light of the various circumstances
involved with distribution and sale of E85. As with other volumes of
renewable fuel, we believe that it is most appropriate to project a
range of E85 volumes that reflects the volume that could reasonably be
consumed in 2014. This projected range for E85 is used to determine a
range for the total volume of ethanol that can be consumed, which is
further combined with projected ranges for non-ethanol renewable fuels
to determine a range for the total renewable fuel standard. For the
final rule, we will determine a single value within the projected range
that is our best estimate of a realistic projection of total renewable
fuel in 2014 for purposes of exercising the waiver authority. Once the
applicable volume requirements are set, the parties in the market will
determine whether our estimated volume of E85 is in fact consumed, or
whether other renewable fuels are consumed instead of the volume of
ethanol that we estimate could be consumed as E85.
Based on our analysis of the available information described above,
we are estimating a range of 100-300 mill gal of E85 consumption for
2014. We believe that this estimated range of E85 encompasses the most
likely possibilities. Volumes below 100 mill gal are possible, but we
believe that they are unlikely given that we expect such volumes to be
reached in 2013 and the market conditions that resulted in these values
to continue. Likewise volumes above 300 mill gal are possible, but we
believe that they are unlikely. As described above, we believe that 300
mill gal of E85 could be consumed in 2014 if the monthly trends from
the first half of 2013 continue unabated through both 2013 and 2014,
and further increase due to growth in both retail stations offering E85
and FFVs in the fleet. E85 consumption above 300 mill gal in 2014 would
require that these trends increase even further, and in a sustained
fashion, through the end of 2014. Therefore 300 mill gal is the highest
value we would consider at this time as an upper end of the range of
possible volumes of E85 for 2014. However, we acknowledge that the
volume of E85 sold into the market is likely also a function of the
standard for total renewable fuel that we set. We request comment and
data from the public that would help estimate the impact of lowering
the volumetric requirements on the incentive to sell ethanol blends
higher than E10.
In light of current uncertainties and the limited information
available at this time, we are proposing that the specific volume of
E85 that we would use in determining total ethanol consumption for 2014
would be based on the mean value from the Monte Carlo analysis within
the range of potential E85 volumes. As explained in Section IV.B.4
below, the Monte Carlo analysis for E85 is based on a half-normal
distribution, consistent with our view that a reasonable level of E85
consumption is more likely to be towards the lower end of the proposed
range. Based on this analysis, the mean value for E85 consumption would
be about 180 mill gal. The mean provides a balance between the
projected higher and lower volumes of E85 that could be reasonably
achievable. While we believe that
[[Page 71762]]
volumes of E85 at the high end of our proposed range are achievable and
well within the capabilities of the existing vehicle and refueling
infrastructure, basing the total renewable fuel volume on E85 volumes
at the high end of what is achievable could present an increased risk
of non-compliance for obligated parties if more E85 is called for than
was projected in setting the percentage standards. This could occur,
for example, if uncertainties in projected gasoline and diesel
consumption for 2014 led to a requirement for more than 300 mill gal
E85. By using the mean, we would reduce the likelihood of potential
outcomes such as this.
The proposed mean volume of 180 mill gal for E85 is consistent with
the recent upward trend in E85 production described above, where E85 is
estimated to have been about 70 mill gal in 2012 and could reach and
potentially exceed 100 mill gal in 2013. With regard to 2013, the
increase is also consistent with available state-specific data on E85
production increases in the first two quarters.
Table IV.B.1.c-2--E85 Production in 2013
[Mill gal]
----------------------------------------------------------------------------------------------------------------
First quarter Second quarter % change
----------------------------------------------------------------------------------------------------------------
Minnesota....................................................... 1.9 3.0 +58%
Iowa............................................................ 1.8 2.6 +44%
----------------------------------------------------------------------------------------------------------------
We request comment more generally on the range of E85 consumption
that could reasonably be achieved under appropriate conditions in 2014,
including the methodologies and approaches that would provide a
projection of E85 that could reasonably be consumed in light of the
various factors affecting the distribution and sale of E85. We
reiterate our recognition that there is a short time period in which to
achieve infrastructural and market changes that would affect E85
consumption in 2014 and that the approach to estimating E85 consumption
described above, consistent with best available information, is
appropriate. We request comment in particular on methodologies and
approaches that would be appropriate in light of these considerations.
d. Estimating Total Ethanol Consumption in 2014
To estimate the total volume of ethanol that could reasonably be
consumed in 2014, we assumed that volumes of E0 and E15 would be
essentially zero, that E85 consumption would be in the range of 100-300
mill gal and contain 74% denatured ethanol, and that all remaining
gasoline would be E10 with a denatured ethanol content of 10%. We
assumed that the total energy consumption for all gasoline-powered
vehicles and engines would be 14.33 Quadrillion Btu,\62\ and that this
amount of total energy consumption is fixed regardless of the relative
amounts of E10 and E85. Based on a denatured ethanol energy content of
77,000 Btu/gal and a gasoline (E0) energy content of 115,000 Btu/gal,
we determined that an E85 consumption range of 100-300 mill gal would
correspond to a total ethanol consumption volume of 12.95-13.09 bill
gal. This ethanol volume would include non-advanced ethanol such as
that made from corn as well as advanced biofuels such as sugarcane
ethanol or other domestically-produced advanced ethanol.
---------------------------------------------------------------------------
\62\ EIA Annual Energy Outlook 2013, Table 37. Represents lower
heating value. For determining the total volume of ethanol that can
be consumed in 2014, AEO provides 2014 gasoline consumption
projections in the required energy units. However, EIA's Short-Term
Energy Outlook provides 2014 projections that are more recent, but
in units of volume. EPA understands that the estimate of 2014
transportation fuel use that EIA is required to provide to EPA for
purposes of determining the applicable percentage standards will be
based on the latest available STEO forecast rather than the Annual
Energy Outlook.
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2. Estimating Availability of Non-Ethanol Renewable Fuel Volumes
In addition to the volume of ethanol that could reasonably be
consumed in 2014, the total volume of renewable fuel depends on the
volume of non-ethanol renewable fuels that are projected to be
available in 2014. These include both advanced and non-advanced non-
ethanol renewable fuels of all types that could reasonably be supplied
to meet all four standards.
a. Non-Ethanol Cellulosic Biofuel
The production of non-ethanol cellulosic biofuel in 2014 is
projected to be between 0 and 9 million ethanol-equivalent gallons.
This volume could be significantly greater if additional pathways for
the generation of cellulosic biofuel RINs are approved and additional
volumes of heating oil generate cellulosic RINs. For more details on
the potential production of non-ethanol cellulosic biofuels in 2014,
and the companies expected to produce these fuels, see Section II.
b. Biomass-Based Diesel
Obligated parties are required to fulfill a Renewable Volume
Obligation (RVO) based on a national applicable volume for biomass-
based diesel of 1.28 bill gal of biodiesel (1.92 bill ethanol-
equivalent gallons) in 2013.\63\ As described in Section III, in
today's NPRM we are proposing that the national applicable volume for
biomass-based diesel remain the same for 2014. However, this proposed
requirement is not based exclusively on projected availability and we
recognize that greater volumes could be available for purposes of
satisfying the advanced biofuel and total renewable fuel volume
requirements.
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\63\ 77 FR 59458, September 27, 2012 (establishing the national
applicable volume for BBD).
---------------------------------------------------------------------------
There is a large amount of excess production capacity for biomass-
based diesel, including at facilities that were in operation in 2012.
While the total production capacity for all registered and unregistered
biodiesel facilities is about 3.6 bill gal, the production capacity for
only those facilities that produced some volume in 2012 is 2.4 bill
gal, and the production capacity for facilities that utilized at least
20% of their individual production capacities in 2012 was about 1.6
bill gal.\64\
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\64\ ``Biodiesel plant list 2-6-13'' in docket EPA-HQ-OAR-2013-
0479.
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[[Page 71763]]
[GRAPHIC] [TIFF OMITTED] TP29NO13.003
While there is a large amount of excess production capacity, the
degree to which it will be used to produce biodiesel in excess of 1.28
bill gal depends on a variety of factors. One of those factors is the
federal tax credit for biodiesel that was most recently extended
through the end of 2013 under the American Taxpayer Relief Act of 2012.
Under this Act, parties that produce a mixture of biodiesel and diesel
fuel can claim a $1.00-per-gallon credit against their tax
liability.\65\ This tax credit has enabled biodiesel to be more
competitive with other advanced biofuels. However, as of this writing
it is unclear if this tax credit will apply in 2014. Since many expect
the tax credit to have a direct impact on the economic attractiveness
of biodiesel, the fact that it does not yet apply in 2014 adds
uncertainty to the volume of biodiesel above 1.28 bill gal that may be
produced and consumed in the U.S. As discussed further in Section
IV.B.4-2 below, we have assumed that the tax subsidy for biodiesel will
not be extended past 2013. This is reflected in an upper end of the
range for biomass-based diesel no higher than the volume that may be
used in 2013, and through the use of a half-normal distribution in the
context of the Monte Carlo process. We request comment on the degree to
which the presence of the biodiesel tax credit in 2014 would affect our
projections of the volumes that could be reasonably available in 2014.
To the extent we have new information on the status of the tax credit
in 2014, EPA will consider that information in the development of the
final rule.
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\65\ See Section 405.
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According to production data available through EMTS, the total
volume of biomass-based diesel produced through August 2013 was 1,053
million gallons. Depending on how monthly production continues through
the remainder of 2013, we would expect total 2013 biodiesel production
to be between 1.6 and 1.8 bill gal. A projection of 1.8 bill gal
results from the assumption that the August production rate continues
through the rest of 2013. If the trend in production follows the
downward trend that occurred in 2012 in the September-December
timeframe (representing, for example, potential seasonality of
available feedstocks or demand), the total 2013 production would be 1.6
bill gal.
[[Page 71764]]
[GRAPHIC] [TIFF OMITTED] TP29NO13.004
These 2013 biodiesel production volumes are occurring in the
context of a $1/gal tax credit. While they provide a clear indication
of the production capabilities of the industry, they do not provide an
accurate indicator of the volumes that would be produced in the absence
of the tax credit.
In the past some stakeholders have expressed concern that there may
be limitations in biodiesel consumption that could be imposed by
manufacturer warranties and cold-weather operation, and that this could
impact use of biodiesel above 1.28 bill gal. However, we do not believe
that this is the case for 2014. For instance, most diesel engines are
warrantied by their manufacturer to B5. That is, the use of biodiesel
in concentrations above 5vol% will void these 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 56 bill
gal for 2014,\66\ B5 for the diesel pool as a whole would correspond to
a biodiesel volume of 2.8 bill gal. However, some diesel truck engines
have been warrantied by their manufacturers to consume B20, starting in
2011.\67\ This could potentially raise the limit on biodiesel
consumption even higher, assuming retailers would dedicate a pump
exclusively to B20 for this pool of diesel fuel consumers. Since 2.8
bill gal is significantly higher than the range of biodiesel volumes we
are considering in this proposal, manufacturer warranties do not
represent a limitation on biodiesel use in 2014.
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\66\ EIA Annual Energy Outlook 2013, Table 11.
\67\ Very few engine models are warrantied by manufacturers to
consume B20 have been sold in the U.S. As such, this volume of
biodiesel was assumed to be negligible for purposes of this
estimate.
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Production of biodiesel in 2014 is likely to be impacted
significantly by feedstock prices. Since their peak in August and
September of 2012 during the height of uncertainty about the effects of
the 2012 drought, prices of soybeans and soybean products have been
trending downward. The USDA World Agricultural Supply and Demand
Estimates (WASDE) Report's estimate \68\ of soybean prices for the
2012/2013 marketing year have declined from an August 2012 range of
$15-17 per bushel to a June 2013 estimate of $14.35 per bushel for the
2012/2013 marketing year. WASDE's June Outlook Report estimates that
for the 2013/2014 marketing year (which includes the months of October
through December 2013) soybean prices will range from $9.75-$11.75 per
bushel which is in line with the projections used by EPA in the 2013
biomass-based diesel volume final rule.\69\
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\68\ See http://www.usda.gov/oce/commodity/wasde/index.htm (last
accessed June 7, 2013); The WASDE report is a monthly report
published by the U.S. Department of Agriculture (USDA) providing
comprehensive forecast of supply and demand for major crops both for
the U.S. and globally. Throughout the growing season and afterwards,
estimates are compared with new information on production and
utilization, and historical revisions are made as necessary. It is
widely considered to be the benchmark to which all other private and
public agricultural forecasts are compared.
\69\ Compare Cf 77 FR 59458 at 59465 with the May 10, 2013 WASDE
Report released on May 10, 2013, Table 518-15. See http://www.usda.gov/oce/commodity/wasde/index.htm (last accessed June 7,
2013).
---------------------------------------------------------------------------
At the same time, even biodiesel blends as low as B5 cannot be
utilized year-round due to cold weather constraints. The cloud point
for B5 soy methyl ester (SME) blended with No. 2 diesel is estimated to
be approximately 5 [deg]F. Thus, the use of B5 is highly unlikely in
any region where temperatures regularly drop below 5 [deg]F. Assuming
that biodiesel cannot be blended in such regions during any month where
the 10% percentile temperature falls below 5 [deg]F would result in a
reduction of the 2014 biomass-based diesel volume by only about 3%.
This would still permit more than 2 bill gal of biodiesel to be
consumed in 2014. Thus, it appears that for 2014, the ability to
consume biodiesel in the vehicle fleet is not constrained by cold
weather.
There are a variety of other sources that provide benchmarks for
what volumes of biodiesel could be
[[Page 71765]]
reasonably available in 2014 in excess of 1.28 bill gal. For instance,
in the 2013 standards final rule,\70\ we assessed potential feedstocks
for biodiesel production, concluding that excess soy oil and corn-oil
could be used to produce an additional 200 mill gal of biodiesel in
2013 above the 1.28 bill gal requirement. For 2014 the additional
biodiesel from these sources could be higher. According to USDA,
domestic soybean production is expected to increase by 13% in the 2013
soybean marketing year which extends through September 2014, in
comparison to the 2012 marketing year.\71\ If this occurs, then
domestic production of soy oil could increase by about 240 mill gal.
Regarding corn-oil, more than one third of the 320 mill gal total
production was exported in 2012. These exports could be diverted to
biodiesel production depending on relative prices and other factors.
Taken together, the use of both additional soy oil production and the
diversion of corn oil exported could bring the total biodiesel
production volume to about 1.62 bill gal.
---------------------------------------------------------------------------
\70\ 78 FR 49794, August 15, 2013.
\71\ Pete Riley, ``Grains and Oilseeds Outlook; 2013
Agricultural Outlook Forum,'' USDA/Farm Service Agency, February 22,
2013. 13% is assumed to apply only during the first 9 months of
2014.
---------------------------------------------------------------------------
We continue to receive requests for approval of additional RIN-
generating pathways for new feedstocks to expand the availability of
feedstock types and for new production processes to produce
biodiesel.\72\ While the degree to which these new processes and
feedstocks may be viable for the 2014 production year is uncertain,
given their directional impacts on lowering cost and improving
feedstock availability, we would expect that approval of such new
pathways would add biodiesel production volume in 2014. For example,
since the adoption of the final rule in March 2010, we have added
canola and camelina oil as valid biodiesel feedstocks and analyzed the
potential to produce up to 600 million gallons of biodiesel from these
new feedstocks by 2022 through expanded crop production.\73\ These
feedstocks were added in response to industry requests based on their
intention to expand production of these feedstocks to support biodiesel
production. Since canola and camelina are established crops that can be
grown for biodiesel use today, some portion of these maximum volumes
could be produced in 2014, adding to the volume of feedstock otherwise
available for biodiesel production.
---------------------------------------------------------------------------
\72\ For example, as of June 2013, EPA had 5 petitions for new
biodiesel pathways under review and had approved 3 additional
petitions for new biodiesel pathways.
\73\ See for example the final rules adding giant reed and
napier grass feedstocks (74 FR 41703) and final rule adding camelina
and energy cane as feedstocks and renewable gasoline and renewable
gasoline pathways (74 FR 14190).
---------------------------------------------------------------------------
We are aware of three other sources that provide potential
benchmarks for biodiesel production volume in 2014. In 2011, IHS Global
Insight estimated the potential for biodiesel production over the
following decade.\74\ Under specified assumptions for crude oil price,
crop yields, technology, and tax policies, this report concluded that
it would be economically feasible to produce 1.54 bill gal biodiesel in
the U.S. in calendar year 2014. This estimate assumed that the
biodiesel tax credit would be extended beyond 2013, and did not examine
a case in which the tax credit is not extended.
---------------------------------------------------------------------------
\74\ John R. Kruse, ``Biodiesel Production Prospects for the
Next Decade'', March 11, 2011.
---------------------------------------------------------------------------
In their comments on the NPRM for the 2013 standards, the
University of Illinois provided the results of an analysis of both
production and consumption limitations for ethanol and biodiesel. They
concluded that 1.7 bill gal of biodiesel could be available without
overwhelming feedstock supplies, but provided little detail on the
limits of feedstock supply. It also assumed the extension of the
biodiesel tax credit. Darling International, Inc. also evaluated
available feedstocks and concluded that 1.9 bill gal of biodiesel could
be produced without diverting feedstocks from domestic food
requirements. Their analysis, however, was silent with respect to
whether it assumed the extension of the tax credit.
Finally, we note that there are also international sources of
biodiesel that could be imported into the U.S. and which could be
eligible to generate either D4 (biomass-based diesel) or D6 (renewable
fuel) RINs in 2014. While there is a significant volume of biodiesel
that is produced around the globe, it is unclear how much could
potentially be imported into the U.S. in 2014 and accordingly we have
not included these sources in our analysis of available supply.
Based on the discussion above, we have good reason to believe that
the volume of biodiesel that can be produced in 2014 will be higher
than the applicable volume requirement of 1.28 bill gal. A summary of
all of the sources we have considered is provided below.
Table IV.B.2.b-1--Projections of 2014 Biomass-Based Diesel Ordered From
Lowest to Highest
[Million gallons]
------------------------------------------------------------------------
------------------------------------------------------------------------
Biomass-based diesel volume requirement............. 1,280
IHS Global Insight report........................... 1,540
Extrapolated 2013 production........................ 1,570
All registered biodiesel facilities that operated at 1,600
least 20% of capacity in 2012......................
Additional soy oil production and diversion of 1,620
exported corn oil to biodiesel production..........
University of Illinois estimate in their comments... 1,700
Darling International, Inc. estimate in their 1,900
comments...........................................
Production capacity of all registered biodiesel 2,400
facilities that produced some biodiesel in 2012....
------------------------------------------------------------------------
As with E85, we believe that it would be most appropriate to
project a range of possible biodiesel production volumes for 2014,
using the values in Table IV.B.2.b-1 as a guide. As explained above,
the volumes in the table above represent potential technical
availability. We recognize that multiple factors would ultimately
influence actual production volumes. For the purposes of this NPRM, we
are estimating a range of 1.28-1.6 bill gal of biodiesel production for
2014. While it would not be below 1.28 bill gal, as that is the
required volume, it could be above the high end of 1.6 bill gal.
However we estimate that it would be unlikely to be above this value,
especially if the federal tax credit is not extended beyond 2013. For
instance, the 1.9 bill gal estimate from Darling international, Inc.
was based on extrapolating the historically high production rate from
December 2011 into the future. The circumstances in December 2011 were
unique: the tax credit for biodiesel was to expire at the
[[Page 71766]]
end of that month, prompting a jump in production. Thus while it is
possible that the production rate from December 2011 might be sustained
in the future, we believe it is unlikely if the biodiesel tax credit is
not extended past 2013. Likewise the analysis provided by the
University of Illinois which projected 1.7 bill gal biodiesel in 2014
assumed that the tax credit would be extended beyond 2013. A 2011
report prepared on behalf of the National Biodiesel Board indicated
that the expiration of the tax credit at the end of 2010 caused a
substantial reduction in biodiesel production in 2011 compared to
2010.\75\
---------------------------------------------------------------------------
\75\ Urbanchuk, John, ``Economic Impact of Removing the
Biodiesel Tax Credit for 2010 and Implementation of RFS2 Targets
Through 2015,'' Prepared by Cardno Entrix for the National Biodiesel
Board, June 8, 2011 (revised).
---------------------------------------------------------------------------
For the purposes of this NPRM, we have assumed that the biodiesel
tax credit will not be extended beyond 2013. As a result, we believe
that biodiesel production volumes in 2014 are more likely to be towards
the lower end of our proposed range of 1.28-1.6 bill gal. To reflect
this assumption, we have used a half-normal distribution to represent
biomass-based diesel in the context of the Monte Carlo process
described in Section IV.B.4 below. This distribution has a mean value
of 1,405 mill gal for biodiesel.
c. Non-Ethanol Advanced Biofuel
Non-ethanol advanced biofuel other than cellulosic biofuel and
biomass-based diesel has a D code of 5, and could include biodiesel and
renewable diesel that is co-processed with petroleum ,\76\ heating oil,
biogas, jet fuel, naphtha, and LPG. In 2012, RINs were generated for
only three of these fuel types, as summarized in the following table.
---------------------------------------------------------------------------
\76\ Biodiesel and renewable diesel that is co-processed with
petroleum does not meet the requirements for biomass based diesel
(D4 RIN), however it may qualify as an advanced biofuel (D5 RIN).
Table IV.B.2.c-1--Other Non-Ethanol Advanced Biofuel Produced in 2012
[Million ethanol-equivalent gallons]
------------------------------------------------------------------------
------------------------------------------------------------------------
Heating oil.................................................... 0.2
Biogas......................................................... 2.9
Renewable diesel............................................... 20.5
--------
Total........................................................ 23.6
------------------------------------------------------------------------
These volumes were produced domestically and there were no volumes
of non-ethanol advanced biofuel imported into the U.S. in 2012.
In order to estimate a range of possible volumes of other non-
ethanol advanced biofuel for 2014, we examined the Production Outlook
Reports that are required to be submitted by all registered renewable
fuel producers under Sec. 80.1449.
Table IV.B.2.c-2--Projections From Production Outlook Reports for Other
Non-Ethanol Advanced Biofuel Production in 2014
[Million ethanol-equivalent gallons]
------------------------------------------------------------------------
Biodiesel
------------------------------------------------------------ ----------------
Biogas............................................. 45.8
Naphtha............................................ 6.6
Renewable diesel................................... 79.1
--------------------
Total............................................ 131.7
------------------------------------------------------------------------
Because biogas cannot be used in conventional gasoline or diesel
vehicles, we investigated more closely whether the 45.8 mill gal shown
in the above table was realistic for 2014. According to EPA's Landfill
Methane Outreach Program, about 360 mill ethanol-equivalent gallons of
biogas is currently being purified and injected into existing natural
gas pipelines.\77\ Under Sec. 80.1426 this biogas can generate
advanced biofuel RINs if it is demonstrated to have been used to fuel
CNG vehicles and meets all other regulatory requirements. However, this
amount of biogas is on the same order of magnitude as the total volume
of CNG used in all CNG vehicles each year, which is about 420 mill
ethanol-equivalent gallons.\78\ While establishing contracts to ensure
that all CNG vehicles are fueled with landfill biogas rather than
fossil-based natural gas is highly unlikely to occur in the short term
given the rapid expansion underway of CNG vehicles in the marketplace,
we believe it is reasonable that some smaller portion of all CNG
vehicles could be fueled with landfill biogas in 2014. Since the 45.8
mill ethanol-equivalent gallons of biogas from the Production Outlook
Reports, shown in Table IV.B.2.c-2, represents about 11% of the annual
CNG vehicle consumption, it is reasonable to expect that this volume
could be used in 2014 to fuel CNG vehicles and thus generate advanced
biofuel RINs. We request comment, however, on whether this level of
consumption can reasonably be achieved within the relevant time frame.
---------------------------------------------------------------------------
\77\ Based on list of operational landfill gas (LFG) energy
projects provided at http://www.epa.gov/lmop/projects-candidates/operational.html.
\78\ EIA's Short-Term Energy Outlook, Table 5a, released in
September 2013. Projection of 0.093 bill cubic feet per day for
2014. Conversion factor is 0.96 thousand Btu per cubic foot.
---------------------------------------------------------------------------
Therefore, based on the actual production in 2012 and the projected
production for 2014, for this NPRM we have used a range of 24-132 mill
gal to represent non-ethanol advanced biofuel with a D code of 5. While
the actual volume could be above 132 mill gal, we believe this is
unlikely as this volume is based on the projections made by the
producers themselves in light of their assessment of their own
capabilities and plans. Likewise, while the actual volume could be
below 24 mill gal, we believe this is unlikely since the industry has
demonstrated that it can produce at this level. For the final rule we
will update this range based on more recent data on actual production
in 2013 and more recent versions of the Production Outlook Reports.
d. Non-Ethanol Non-Advanced Renewable Fuel
To determine a range for the non-ethanol non-advanced renewable
fuel volume, we used the same approach as for the non-ethanol advanced
biofuel volume. That is, we used actual 2012 production to represent
the low end of the range and 2014 projections from Production Outlook
Reports to represent the high end of the range. This approach resulted
in a range of 1-25 mill gal, mostly representing production of
biodiesel at facilities that have been grandfathered under Sec.
80.1403 and which may use feedstocks for which there is currently no
valid RIN-generating pathway, such as sunflower or cottonseed oil. For
the final rule we will update this range based on more recent data on
actual production in 2013 and more recent versions of the Production
Outlook Reports.
3. Treatment of Carryover RINs in 2014
In the final rule establishing the applicable standards for 2013,
we estimated the volume of ethanol that would need to be consumed to
meet the statutory volume requirements prior to consideration of RINs
carried over from 2012 in 2013.\79\ The total estimated volume of
ethanol was 14.5 bill gal. If no ethanol blends higher than E10 were
consumed in 2013, the total volume of E10 would be 131.1 bill gal
(ignoring small amounts of E0) and the maximum volume of ethanol that
could be consumed would thus be 13.1 bill gal. On the basis of these
estimates, the volume of ethanol that is estimated to exceed the amount
that could be consumed as E10 in 2013 was 1.4 bill gal.
---------------------------------------------------------------------------
\79\ 78 FR 49794, August 15, 2013.
---------------------------------------------------------------------------
In addition to the option of using E85 and/or more non-ethanol
renewable fuels, the 2013 standards final rule also pointed to the
substantial number of
[[Page 71767]]
RINs carried over from 2012 into 2013 that could be used in lieu of
physical volumes. We determined that there would be about 2.6 billion
such carryover RINs available in 2013. If the 1.4 bill gal of ethanol
that is in excess of that which can be consumed as E10 in 2013 is
covered entirely by carryover RINs, then there would still be at least
1.2 billion RINs that could be carried over from 2013 and available for
use in 2014.
As described in the 2007 rulemaking establishing the RFS
program,\80\ carryover RINs are intended to provide flexibility in the
face of a variety of circumstances that could limit the availability of
RINs. More specifically, carryover RINs provide a mechanism for
offsetting the negative effects of fluctuations in either supply of or
demand for renewable fuels. The flexibility afforded by these carryover
RINs was evidenced in the recent response of the market to the drought
in 2012. The flexibility of these carryover RINs is also what we
highlighted in the 2013 standards final rulemaking as providing the
opportunity for compliance despite potential constraints on physical
ethanol consumption.
---------------------------------------------------------------------------
\80\ 72 FR 23900, May 1, 2007.
---------------------------------------------------------------------------
In the context of determining the appropriate volume requirements
for 2014, as for 2013 it would be appropriate to consider carryover
RINs that may be available. However, we believe it is also important to
the viability of the market that some reasonable amount of carryover
RINs continue to be available. Carryover RINs act as a buffer, and
allow the regulated parties to address unforeseen circumstances that
could limit the availability of RINs, and to address renewable fuel
supply circumstances that differ from those assumed in the process of
generating the projected volume ranges discussed above. The provision
for carryover RINs recognizes that Congress structured the RFS program
to provide a degree of flexibility for the obligated parties. In 2013
preserving such a buffer was not a concern, since even if the 1.4 bill
gal of ethanol that is estimated to be in excess of that which can be
consumed as E10 in 2013 is covered entirely by carryover RINs, there
would remain at least 1.2 billion additional, unused carryover RINs.
For 2014, however, if we accounted for all 1.2 billion carryover RINs
in setting the applicable standards, obligated parties would be left
with no flexibility for addressing other unforeseen circumstances. We
believe that a standard-setting process that included an assumption
that the carryover RIN balance would be reduced to zero would be
contrary to the original intention of the provision for providing a
degree of flexibility through carryover RINs. For this reason, we have
not accounted for carryover RINs in our assessment of the reductions in
the statutory volume requirements that would be appropriate in setting
the RFS standards for 2014. For years after 2014, if circumstances
differ substantially from those described here, we may again consider
the existence of carryover RINs in the standard-setting process
depending on the number of carryover RINs expected to be available and
projections of supply and consumption of renewable fuels. We request
comment on whether and how to account for carryover RINs in setting the
standards.
4. Proposed Range for the Volume Requirement for Total Renewable Fuel
As discussed in the preceding sections, we have estimated volume
ranges for five different categories of renewable fuel as a step
towards estimating the volume requirement for total renewable fuel for
2014. These ranges are summarized below.
Table IV.B.4-1--Volume Ranges for Estimating Total Renewable Fuel Volume
for 2014
[Million ethanol-equivalent gallons]
------------------------------------------------------------------------
------------------------------------------------------------------------
Ethanol that can be consumed........................ 12,954-13,087
Available volumes of non-ethanol cellulosic biofuel. 0-9
Available volumes of biomass-based diesel........... \a\ 1,920-2,400
Available volumes of non-ethanol advanced biofuel... 24-132
Available volumes of non-ethanol non-advanced 1-25
renewable fuel.....................................
------------------------------------------------------------------------
\a\ Represents a physical volume range of 1.28-1.6 bill gal.
By aggregating these five categories, we can estimate the total
volume of renewable fuel that represents both the volume of ethanol
that could reasonably be consumed as E10 and higher ethanol blends, and
the volume of all non-ethanol renewable fuels that could reasonably be
available to meet the four applicable standards. We note that in
practice these five categories are not independent from one another,
since different types of renewable fuel will differ in terms of their
cost and higher volumes of one type of renewable fuel will reduce the
need for volumes from another category in the context of meeting the
applicable volume requirements. However, since the ranges shown above
are intended to encompass reasonably achievable volumes for each type
of renewable fuel, we believe that they can be treated as independent
for the purposes of the aggregation described below.
In order to aggregate the ranges in Table IV.B.4-1 into a single
range for total renewable fuel, we used a Monte Carlo analysis to
account for the need to aggregate multiple ranges, each having
different likely distributions of likelihood across their range. As
discussed in the preceding sections, the high and the low end of each
range represents values such that it is possible but unlikely that
volumes would be outside of those ranges. We have therefore treated
these individual ranges as representing the 90% confidence interval of
a distribution of possible volumes. In other words, the low end of the
range would represent the 5th percentile and the high end of the range
would represent the 95th percentile. This approach is consistent with
our judgment that, while the ranges shown in Table IV.B.4-1 are
intended to encompass the vast majority of possible volumes, there
remains a small possibility that volumes outside of those ranges are
possible. We believe it is reasonable to treat these ranges as
representing 90% confidence intervals for purposes of the Monte Carlo
analysis, though we request comment on treating them as a different
confidence interval such as 80% or 95%.
As an alternative to a Monte Carlo process for aggregating the
volumes in Table IV.B.4-1, we could use a simple summation of the
ranges (i.e. basing the low end of the range of total renewable fuel on
the sum of the low ends of the ranges for each of the five different
categories, and likewise for the high end
[[Page 71768]]
of the range). However, we do not believe that such an approach would
be appropriate. Doing so would tend to exaggerate the width of the
range for the required volume of total renewable fuel as it is highly
unlikely that 2014 volumes for each of these categories will
simultaneously be at the extreme low or high end of the proposed
ranges, and would also mischaracterize biofuel categories wherein one
end of the range is expected to be more likely than the other.
Nevertheless, we request comment on this or alternative methods to the
Monte Carlo approach for aggregating the volumes shown in Table IV.B.4-
1.
For the purposes of the Monte Carlo analysis, we are also proposing
an appropriate shape to represent the applicable distribution of
volumes within each range. The shape of the distribution of volumes is
based on factors unique to each source of renewable fuel. We identified
three standardized distributions that we can use to reasonably
represent uncertainty in the distribution of volumes for each of the
sources of renewable fuel under consideration.
[GRAPHIC] [TIFF OMITTED] TP29NO13.005
These three standardized distributions provide a mechanism for
representing the regions within each projected volume range where the
greatest likelihood of reasonably achievable volumes may lie, based on
considerations of the various sources of uncertainty unique to each
source of renewable fuel. We recognize that the half-normal
distribution would by definition include a mode of zero, and that this
would imply that the greatest likelihood of occurrence is at the low
end of the range. For sources of renewable fuel wherein the low end of
the range is estimated to be zero, for instance for some cellulosic
biofuel facilities as discussed in Section II.C, the use of the half-
normal would appear to suggest that zero is the most likely result.
However, in the context of the Monte Carlo process for combining volume
ranges from different sources, we are proposing to use the mean rather
than the mode as described more fully below. Nevertheless, other
distributions might be reasonable to address concerns about the mode in
the half-normal distribution. For instance, a gamma distribution could
be used, or a Weibull distribution with greater skewness than that
shown in the figure above. We request comment on the use of these
alternative distributions.
In the case of biomass-based diesel, we are proposing that the
applicable volume requirement for 2014 would be 1.28 bill gal. Since
this volume would be required, there is no realistic likelihood that
the actual volume will be below 1.28 bill gal. While production volumes
of biomass-based diesel in 2013 are expected to substantially exceed
the required volume of 1.28 bill gal, this is likely driven in large
part by the tax credit for biodiesel, currently scheduled to expire at
the end of the year, on the price of D6 RINs which have increased since
the beginning of 2013, and potentially other factors as well. Without
the tax credit in place, demand for biodiesel substantially beyond the
required volume is uncertain. Under the assumption that the biodiesel
tax credit will not be extended beyond 2013, we believe that any
additional incremental volumes above 1.28 bill gal would be
progressively less likely than the required volume. This suggests that
a half-normal distribution would be the most appropriate way to
represent volumes of biomass-based diesel. With regard to non-ethanol
cellulosic biofuel, we developed a distribution that was based on an
aggregation of projected volume ranges for each cellulosic biofuel
facility. See Section II.C for more discussion. For the total volume of
[[Page 71769]]
ethanol that could reasonably be consumed, we chose a half-normal
distribution representing ethanol in E10 and E85 because there is
little historical information on how market prices for E85 might
respond to higher RIN prices, nor on how FFV owners might respond to
changes in the relative price of E85 and E10. In the future it may be
more appropriate to use a skewed or normal distribution for the total
volume of ethanol to reflect a growing understanding of the impact that
RIN prices have on the retail price of E85 and the impact that E85
prices have on consumer choice. For volumes of non-ethanol advanced
biofuel and non-ethanol non-advanced renewable fuel, we chose normal
distributions because we believe there is an equal likelihood that the
volumes that could be made available would be on either the low end of
the respective ranges or the high end of the respective ranges. We do
not believe that actual historical volumes, which form the basis for
the low end of the range in both cases, should also be used as
justification for using skewed distributions. The distributions that we
used for each of the five categories of renewable fuel are shown below.
Table IV.B.4-2--Standard Distribution Assumptions Used in Estimating
Total Renewable Fuel Volume for 2014
------------------------------------------------------------------------
------------------------------------------------------------------------
Ethanol that could reasonably be consumed.... Half-normal.
Available volumes of non-ethanol cellulosic Combined.\a\
biofuel.
Available volumes of biomass-based diesel.... Half-normal.
Available volumes of non-ethanol advanced Normal.
biofuel.
Available volumes of non-ethanol non-advanced Normal.
renewable fuel.
------------------------------------------------------------------------
\a\ As described in Section II.C, this distribution is a combination of
the distributions for all facilities projected to produce non-ethanol
cellulosic biofuel using the same Monte Carlo process.
Based on the estimated ranges and distributions, we used a Monte
Carlo process to aggregate the five distributions into a single
distribution representing total renewable fuel. The Monte Carlo process
randomly samples each of the five distributions in an iterative
fashion. The results of all the iterations were then summed to produce
a distribution for total renewable fuel. The figure below shows the
resulting distribution after 3000 iterations. Details of the Monte
Carlo process are provided in a memo to the docket.\81\
---------------------------------------------------------------------------
\81\ David Korotney, ``Application of Monte Carlo process to the
determination of proposed volume requirements for 2014 standards
NPRM,'' memorandum to EPA Air Docket EPA-HQ-OAR-2013-0479.
[GRAPHIC] [TIFF OMITTED] TP29NO13.006
We recognize that the Monte Carlo process is an approximation to
the mathematical formula that would result if the probability density
functions for each of the distributions shown in Figure IV.B.4-1 were
combined mathematically using convolution. However, we believe that the
additional complexity of such a process is not warranted given the
uncertainty inherent in the volumes ranges and the assigned
distributions. The Monte Carlo process for combining distributions
provides a reasonably accurate result with a considerably simpler
process.
[[Page 71770]]
Based on this approach to aggregating the five ranges shown in
Table IV.B.4-1, the volume of total renewable fuel that we are
proposing for 2014 would fall within the range of 15.00-15.52 bill
gal.\82\ Given that the applicable volume in the statute is 18.15 bill
gal, this range represents a reduction of 2.63-3.15 bill gal. Within
the uncertainties discussed above for each of the components, a range
of 15.00-15.52 bill gal represents a volume of renewable fuel that
reasonably accounts for both limitations in the volume of ethanol that
can be supplied and consumed as well as limitations in the availability
of non-ethanol renewable fuels.
---------------------------------------------------------------------------
\82\ The numbers are expressed as two significant digits to
reflect that the applicable volumes in the statute are expressed
this way.
---------------------------------------------------------------------------
The distribution generated by the Monte Carlo process also provides
a basis for determining a specific value within the range. We do not
believe that using either the low end or high end of the proposed range
would be appropriate as the basis for the applicable standard. While we
believe that the upper end of the projected range is achievable, basing
the total renewable fuel volume on this higher value could present an
increased risk to obligated parties if, for example, uncertainties in
projected gasoline and diesel consumption for 2014 lead to a
requirement for more renewable fuel than is available or can be
consumed. A value between the low and high ends, in contrast, would
better account for cases in which the actual values for some of the
input volumes fall at the high end of their respective ranges while the
actual value of other input volumes fall at the low end of their
ranges. Options for a value falling between the low and high ends of
the range include the mean, the mode (highest frequency value) and the
median (50th percentile). It may also be reasonable to use a value
representing higher or lower values in the distribution, such as the
25th or 75th percentile. The table below shows the values for each of
these approaches that correspond to the distribution in Figure IV.B.4-
2.
Table IV.B.4-3--Potential Approaches To Determining the Total Renewable
Fuel Volume Requirement
[Million ethanol-equivalent gallons]
------------------------------------------------------------------------
------------------------------------------------------------------------
Mean........................................................... 15,207
Mode........................................................... 15,059
25th percentile................................................ 15,084
50th percentile................................................ 15,183
75th percentile................................................ 15,297
------------------------------------------------------------------------
In today's NPRM, we are proposing to use the mean value for the
volume requirement for total renewable fuel, which represents our best
estimate of the average amount of renewable fuel volumes that could
reasonably be supplied. However, we request comment on whether it would
be more appropriate to utilize either the mode or median (50th
percentile), or some other value in the appropriate range shown in
Table IV.B.4-3 that best reflects renewable fuel volumes that could
reasonably be supplied under this program.
As discussed throughout this section, there is considerable
uncertainty in the estimates of some of the various components from
which the required volume for total renewable fuel has been derived.
There are many factors affecting supply, and they could lead to greater
or lesser supply of renewable fuels than projected, such as higher or
lower volumes of non-ethanol renewable fuel or advanced biofuels,
higher or lower volumes of E85, the degree to which E0 is used, if any,
and so on. Obligated parties also have significant flexibility to
address compliance through a number of various approaches, such as the
ability to use carryover RINs generated in 2013, or to carry a
compliance deficit into 2015. Our proposed approach for dealing with
this uncertainty has been to develop ranges for the various components
and utilize the Monte Carlo process for aggregating the components into
a single range and mean value. These estimates will be refined for the
final rule based on more up-to-date information and any new information
received through the public comment process. We have used this approach
to develop the best available volume projections using current
information.
We understand that values lower or higher than the mean also could
be used. For example, some parties may believe that a value lower than
the mean should be used to provide greater confidence in the adequacy
of supply, and avoid the risks associated with a volume reduction that
is not sufficient to address the supply problems. From the perspective
of production and use of renewable biofuels, in contrast, a higher
value than the mean would avoid the risks associated with a volume
reduction that is more than what is necessary to address the supply
problems. As noted, our current view is that the best approach for
resolving this uncertainty is to neither underestimate nor overestimate
the market's capacity to supply and consume renewable fuels. We request
comment on our proposed approach and alternate approaches described
here.
C. Determination of Reductions in Advanced Biofuel
The second step in our proposed framework for setting the
applicable volume standards would be to determine an appropriate
reduction in advanced biofuel that accounts for the availability of
advanced biofuels in light of the significant shortfall in cellulosic
biofuel compared to the statutory volume, as well as the contribution
of ethanol in this category to the supply concerns related to total
renewable fuel. The proposed volume of advanced biofuel should also
support the goals of the RFS program for continued growth in the
advanced biofuel category as reflected in the increasing gap between
the cellulosic biofuel and advanced biofuel volumes set by EISA.
1. Available Volumes of Advanced Biofuel in 2014
Using a process similar to that for total renewable fuel in Section
IV.B above, we determined the maximum volume of advanced biofuel that
can reasonably be available in 2014. This volume defines the upper
limit for any potential volume requirement we would set for advanced
biofuels under the overall approach we are proposing. As described more
fully in Section IV.A above, availability is one important factor to
consider it determining the appropriate volume of advanced biofuel to
require. However, as discussed in Section IV.C.2 below, for 2014
additional considerations lead us to propose to set the advanced
biofuel volume requirement at a level below the total available volume.
In this section we describe the estimation of reasonable ranges for
four separate categories of advanced biofuel, including:
Cellulosic biofuel.
Biomass-based diesel.
Domestic Production of Other Advanced Biofuel.
Imported Sugarcane Ethanol.
a. Cellulosic Biofuel.
As discussed in Section II above, the production of cellulosic
biofuel in 2014 is projected to be between 8 and 30 million ethanol-
equivalent gallons. This range can be separated into ethanol and
[[Page 71771]]
non-ethanol components as shown below.
Table IV.C.1.a-1--Projected Volumes of Cellulosic Biofuel for 2014
[Million ethanol-equivalent gallons]
------------------------------------------------------------------------
------------------------------------------------------------------------
Ethanol........................................................ 5-25
Non-ethanol.................................................... 0-9
--------
Total........................................................ 8-30
------------------------------------------------------------------------
The projected volume could be significantly greater if pathways for
the generation of cellulosic biofuel RINs from landfill biogas and corn
kernel fiber are approved and additional volumes of cellulosic heating
oil are produced. For more details on the potential production of non-
ethanol cellulosic biofuels in 2014, and the companies expected to
produce these fuels, see Section II.
b. Biomass-Based Diesel
The range of biomass-based diesel that we used in estimating the
availability of advanced biofuel is the same as the range that we used
in determining the proposed volume of total renewable fuel. Table
IV.B.2.b-1 lists the sources that we used to conclude that there could
be 1.28-1.6 bill gal of biodiesel production in 2014.
c. Domestic Production of Other Advanced Biofuel
In Section IV.B.2.c above we used 2012 production data and
Production Outlook Reports to develop a range of 24-132 mill gal
representing non-ethanol advanced biofuel with a D code of 5. These
same sources were used to develop a range of ethanol advanced biofuel
with a D code of 5.
In 2012, 28 mill gal of ethanol advanced biofuel (other than
cellulosic ethanol) was produced in the U.S. Based on Production
Outlook Reports, we project that domestic production of such biofuel
using some combination of sugarcane, grain sorghum, and separated food
wastes could be as high as 142 mill gal. Based on these sources, for
this NPRM we have used a range of 28-142 mill gal to represent domestic
production of ethanol advanced biofuel with a D code of 5.
d. Imported Sugarcane Ethanol
Sugarcane ethanol qualifies as advanced biofuel, and historically
the U.S. has imported substantial volumes of it. Imports from the last
ten years are shown below. While ethanol imported into the U.S. is not
produced exclusively from sugarcane, it has historically been the
primary feedstock for ethanol imported into the U.S. and is expected to
continue to be the primary feedstock of ethanol imported into the U.S.
in future years. While the generation of advanced biofuel RINs from
sugarcane ethanol is not limited to ethanol imported from Brazil,
historically Brazil has been the source of the majority of ethanol
imported into the United States. As such, this section focuses on the
availability of sugarcane ethanol imported from Brazil.
[GRAPHIC] [TIFF OMITTED] TP29NO13.007
As some stakeholders have noted before, imported volumes of ethanol
have been highly variable. As a commodity traded on the world market,
the market clearing price and quantity of Brazilian ethanol sold into
the U.S. market fluctuates over time. Significant factors that can
affect the price and quantity of ethanol imported into the U.S.
include:
Sugarcane harvest (both acres planted and yield).
Worldwide market for sugar.
Worldwide demand for sugarcane ethanol.
Brazilian demand for ethanol, including the minimum
ethanol content of gasoline as specified by the Brazilian government.
Potential for exporting corn-ethanol from the U.S. to
Brazil.
Opportunities for sale of sugarcane ethanol in the U.S.
which is a function
[[Page 71772]]
of the RIN price for advanced biofuel, legal and practical constraints
on the volume of ethanol that can be consumed, state Low Carbon Fuel
Standards (LCFS) program demand, and the availability and price of
competing advanced biofuels such as biodiesel.
Import and export tariffs.
Production of sugarcane in Brazil in recent years has been lower
than normally expected due to two factors. First, adverse weather
conditions reduced production.\83\ For example, adverse weather
conditions are estimated to have reduced cane production by about 4% in
the 2011/2012 marketing year.\84\ Thus, a return to more typical
weather conditions, such as occurred in the 2012/2013 agricultural
marketing year, in the timeframe that this rulemaking considers would
by itself restore approximately 4% of production. 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.\85\ It appears
that credit conditions have eased and that more direct investment in
sugar cane production and milling in Brazil is occurring.
---------------------------------------------------------------------------
\83\ 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.
\84\ The sugar marketing year in Brazil's center-south sugar-
producing region, where the large majority of production occurs,
runs from May through April.
\85\ 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.
---------------------------------------------------------------------------
Some parties expected a more typical trend in sugarcane ethanol
production for the 2012/2013 through the 2014/2015 harvest years, with
replanted fields boosting 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.\86\ 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.\87\ Such information suggests that
sugarcane and ethanol production in the 2013/14 and 2014/15 harvest
years could be higher than production in 2011 and 2012.
---------------------------------------------------------------------------
\86\ See http://www.platts.com/RSSFeedDetailedNews/RSSFeed/Oil/8987702.
\87\ See http://www.bloomberg.com/news/2012-03-08/santa-terezinha-invests-283-million-in-brazil-ethanol-projects.html.
---------------------------------------------------------------------------
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.\88\ The 25% concentration
rate is the highest allowed by law in Brazil. 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 influenced by the price of ethanol
(high prices leading to a reduction in the minimum). Indeed, as
evidenced by the reduction to a 20% blending rate in 2011, the
Brazilian government considers the likely supply of sugarcane ethanol
to support its domestic needs in setting the minimum ethanol content of
its blended fuel.
---------------------------------------------------------------------------
\88\ Platts, ``Brazil to raise ethanol mix in gasoline to 25%
from 20% May 1,'' http://www.platts.com/RSSFeedDetailedNews/RSSFeed/Oil/8194390.
---------------------------------------------------------------------------
The Iowa State/CARD model projects that Brazil will produce roughly
8.7 bill gal of ethanol in 2014. Non-fuel use and Brazilian ethanol
exports to countries other than the U.S. is estimated to be around 500
million gallons, which leaves roughly 8.2 bill gal for Brazilian
consumption and for exports to the U.S. If the minimum blending rate
for ethanol in motor vehicles in Brazil is set at 25% (the current
rate), Iowa State estimates that Brazil will consume roughly 5.9 bill
gal of ethanol. At a 20% minimum blend rate, ethanol demand in Brazil
would be roughly 5.2 bill gal. Therefore, even with the 25% minimum
blending requirement for ethanol in vehicles, Brazil should have up to
2.8 bill gal available for a wide variety of domestic uses as well as
the potential to export ethanol to the U.S.\89\ Thus, assuming that the
25% blending rate remains in effect through 2014 (including both the
2013/14 sugarcane season which ends in May 2014 and the subsequent
2014/15 sugarcane season), the analyses referenced below suggest that
more than enough ethanol should be available assuming normal weather
patterns to support both the Brazilian domestic demand as well as
export to the U.S. in 2014.
---------------------------------------------------------------------------
\89\ Personal Communication with Dr. Bruce Babcock, Iowa State,
June 27, 2013.
---------------------------------------------------------------------------
The historical volumes of sugarcane ethanol imports into the U.S.
from Brazil are indicative of Brazilian production and export capacity,
and thus provide several benchmarks for the volume that could
potentially be imported into the U.S. in 2014. For instance, the
average import volume over the last ten years is 223 mill gal, while
the maximum volume was 560 mill gal in 2006. In 2010 Brazil had its
largest ethanol production volume in recent history, and in that same
year it exported 490 mill gal to the U.S. Finally, the largest total
export volume from Brazil to all other countries was 1.35 bill gal in
2008.
There are several other sources providing estimates of what import
volumes of Brazilian sugarcane ethanol may be possible in 2014. In an
addendum to its Annual Energy Outlook 2013, EIA included an estimate of
sugarcane ethanol imports of 719 mill gal for 2014.\90\ In their
comments on the 2013 standards NPRM, the Brazilian Ministry of Mines
and Energy indicated that Brazil could achieve exports of 800 mill gal
to the U.S. in 2014. A recent report from Iowa State University
indicated that total ethanol imports could be 310-820 mill gal in 2014,
depending on whether the biodiesel tax credit remains in effect.\91\
---------------------------------------------------------------------------
\90\ ``AEO2013--Addendum on Ethanol Trade Balance.pdf'' document
submitted to docket EPA-HQ-OAR-2013-0479.
\91\ Bruce A. Babcock et al, ``Biofuel Taxes, Subsidies, and
Mandates: Impacts on US and Brazilian Markets,'' Staff Report 13-SR
108, May 22, 2013.
---------------------------------------------------------------------------
The Food and Agricultural Policy Research Institute (FAPRI)
publishes several different documents that also provide some
benchmarks. The 2012 World Agricultural Outlook projected that total
net exports of ethanol from Brazil could be 1,259 mill gal in 2014,\92\
while their Biofuel Baseline projects that total ethanol imports into
the U.S. could reach 496 mill gal in 2014.\93\
---------------------------------------------------------------------------
\92\ FAPRI-ISU 2012 World Agricultural Outlook, ``Ethanol
Trade''.
\93\ FAPRI-MU Biofuel Baseline, March 2013. FAPRI-MU Report
02-13. Values for the 2013/2014 agricultural year were
averaged with those from the 2014/2015 agricultural year assuming
that the year begins in September and ends in August.
---------------------------------------------------------------------------
[[Page 71773]]
Based on the discussion above, we have compiled a list of
benchmarks that we believe can be used to estimate a range of import
volumes for Brazilian sugarcane ethanol.
Table IV.C.1.d-1--Projections of 2014 Imported Sugarcane Ethanol Ordered
From Lowest to Highest
[Million gallons]
------------------------------------------------------------------------
------------------------------------------------------------------------
Average import volumes from 2003-2012............... 223
ISU Staff Report--biodiesel tax credit in place..... 310
Ethanol exported from Brazil to the U.S. when 490
ethanol production was at its historical maximum
(2010).............................................
FAPRI Biofuel Baseline.............................. 496
Production Outlook Reports.......................... 510
Historical maximum ethanol imported into the U.S. 560
from Brazil (2006).................................
AEO2013............................................. 719
Projection from Brazilian Ministry of Mines and 800
Energy.............................................
ISU Staff Report--biodiesel tax credit not in place. 820
FAPRI 2012 World Agricultural Outlook--total 1,259
Brazilian exports in 2014..........................
Historical maximum ethanol exported from Brazil 1,350
(2008).............................................
------------------------------------------------------------------------
For the purposes of this NPRM, we estimate, based on a review of
the benchmarks shown in the table above, that a range of 300-800 mill
gal of Brazilian sugarcane ethanol could be available for import to the
U.S. in 2014. We do not believe that it would be appropriate to use
either the highest or lowest values in the table since they are
unlikely to reasonably represent the market circumstances in 2014.
While the volumes of sugarcane ethanol imported into the U.S. in
2012 were about 500 mill gal, and in 2013 could reach a similar level,
we believe it is reasonable to use 300 mill gal as the low end of the
range for 2014. There has been significant variability in sugarcane
ethanol imports in the past, so volumes below 500 mill gal are possible
depending on market factors and relevant public policies in both
countries. While volumes above 800 mill gal are possible, we believe
that they are unlikely given that the Brazilian agency responsible for
projections of exports indicated that 800 mill gal would be achievable
in 2014, and 800 mill gal would be a substantially higher import volume
of Brazilian sugarcane ethanol than in any previous year.
We have used a projected range of 300-800 mill gal for imported
sugarcane ethanol in our estimate of the total volume of advanced
biofuel that could be available in 2014. However, as described in
Section IV.C.2 below, we are not proposing to use only availability in
the determination of the applicable volume requirement for advanced
biofuel. Thus the proposed volume requirement for advanced biofuel
would not require the use of 300-800 mill gal of sugarcane ethanol, and
the actual volume of sugarcane ethanol that is imported will be highly
dependent upon competition in the U.S. market with other advanced
biofuels that could be available.
e. Summary
As discussed in the preceding sections, we have estimated volume
ranges for six different categories of advanced biofuel as a step
towards estimating the availability of advanced biofuel for 2014. We
also identified which of the three standardized curves shown in Figure
IV.B.4-1 would be most appropriate for each category. A discussion of
the standardized distributions for cellulosic biofuel, biomass-based
diesel, and domestic non-ethanol advanced biofuel are provided in
Section IV.B.4 above. For volumes of ethanol advanced biofuel, we chose
a normal distribution because we believe there is an equal likelihood
that the volumes that could be made available would be on either the
low end of the range or the high end of the range. A normal
distribution for ethanol advanced biofuel is also consistent with our
approach to non-ethanol advanced biofuel, as both ranges were developed
from the same sources. For volumes of imported sugarcane ethanol, the
most recent historical data on actual imports suggests that the middle
of the range 300-800 mill gal is likely, and this suggests that a
normal distribution is more reasonable than a skewed distribution. The
advanced biofuel ranges and the assumed standardized distributions are
summarized below.
Table IV.C.1.e-1--Volume Ranges for Estimating Advanced Biofuel
Availability for 2014
[Million ethanol-equivalent gallons]
------------------------------------------------------------------------
------------------------------------------------------------------------
Available volumes of non- 0-9 Skewed.
ethanol cellulosic biofuel.
Available volumes of ethanol 5-25 Combination.\a\
cellulosic biofuel.
Available volumes of biomass- \b\ 1,920-2,400 Half-normal.
based diesel.
Available volumes of domestic 24-132 Normal.
non-ethanol advanced biofuel.
Available volumes of domestic 28-142 Normal.
ethanol advanced biofuel.
Available volumes of imported 300-800 Normal.
sugarcane ethanol.
------------------------------------------------------------------------
\a\ As described in Section II.C, this distribution is a combination of
the distributions for all facilities projected to produce non-ethanol
cellulosic biofuel.
\b\ Represents a physical volume range of 1.28-1.6 bill gal.
As for the total renewable fuel volume, the high and the low end of
each range represents values such that it is possible but unlikely that
volumes would be higher or lower than this range. EPA therefore treated
each individual range in Table IV.C.1.e-1 as representing the 90%
confidence interval of the applicable standardized distribution. We
then used a Monte Carlo process in which each of the six distributions
were randomly sampled in an iterative fashion. The results of all the
iterations were then summed to produce a distribution for advanced. The
figure below shows the resulting distribution after 3000 iterations.
[[Page 71774]]
[GRAPHIC] [TIFF OMITTED] TP29NO13.008
Based on this approach to aggregating the six ranges shown in Table
IV.C.1.e-1, we believe that available volumes of advanced biofuel are
likely to fall within the range of 2.49-3.23 bill gal. Given that the
volume requirement in the statute is 3.75 bill gal, this range of
availability represents a reduction of 0.52-1.26 bill gal.
2. Options for Determining Appropriate Reductions in Advanced Biofuel
While projected availability defines the upper limit of the volume
requirement we would set for advanced biofuel, we have also considered
two other factors: the contribution of ethanol in the advanced category
to the supply concerns discussed above with respect to total renewable
fuel, and the RFS program's goal of growth in the advanced biofuel
category. Below we discuss three approaches that could be taken to
determine an appropriate volume of advanced biofuel for 2014. We
believe that Option 3 best addresses the dual concerns of constraints
on ethanol supply and consumption and limited availability of advanced
biofuels while also effectuating Congress's intention that the volume
requirement for advanced biofuel continues to grow.
a. Option 1: Advanced Biofuel Availability
The RFS volume requirements that Congress established in CAA
211(o)(2)(B) increase steadily between 2009 and 2022. Over this period,
the amount of total renewable fuel which is not advanced biofuel
(largely corn starch based ethanol) was intended by Congress to grow
slowly up to 15.0 bill gal in 2015, and then stay at that level for
subsequent years. Cellulosic biofuel was intended to grow very
dramatically, from 0.5 bill gal in 2012 to 16.0 bill gal in 2022. Non-
cellulosic advanced biofuel was expected to grow steadily every year,
increasing from 1.5 bill gal in 2012 to 5.0 bill gal in 2022. This
anticipated growth of the advanced biofuel category is also evident
from its increasing role as a component of the applicable volume of
total renewable fuel, growing from 5.4% in 2009, to 20.7% in 2014, and
61.1% in 2022. Advanced biofuel must meet a GHG reduction threshold of
50%, compared to a 20% threshold for non-advanced renewable fuel.\94\
Thus, increased substitution of advanced biofuels for fossil fuels
would result in lower lifecycle GHG emissions from transportation
fuels.
---------------------------------------------------------------------------
\94\ Renewable fuels grandfathered under the provisions of Sec.
80.1403 are not required to meet any GHG threshold.
---------------------------------------------------------------------------
In previous rulemakings where we considered reductions in the
applicable annual volume of advanced biofuel following a reduction in
the statutory volume for cellulosic biofuel, we focused on the
availability of advanced biofuel (and in some cases available carryover
RINs) when making determinations as to whether a reduction in advanced
biofuel volumes was warranted. Using availability to set the applicable
volume of advanced biofuel for 2014 and beyond would be consistent with
past practice, and would reflect placing sole emphasis on its
availability and the growth in advanced biofuels that results. However,
the approach we used in previous annual rulemakings was based on the
circumstances in previous years. In particular, supply concerns related
to the legal constraints on the amount of ethanol that can be blended
into gasoline and practical constraints on the volume of ethanol that
can be consumed were not a limiting factor in previous years and so
were not discussed as a potential basis for determining volumes. As
discussed in Section IV.B.1 above, constraints on ethanol consumption
are a limiting factor in 2014.
Moreover, using availability as the sole basis for determining
advanced biofuel volumes would ignore the impact that ethanol within
the advanced biofuel category have on the supply concerns related to
constraints on ethanol consumption in blends higher than E10. While the
available volume of advanced biofuel would be predominantly non-
ethanol, a substantial volume would be ethanol.\95\ For an advanced
biofuel availability of 2.49-3.23 bill gal (see Figure IV.C.1.e-
[[Page 71775]]
1), the fraction that is ethanol ranges from an average of about 18% at
the low end of the range to an average of about 25% at the high end of
the range. Since any advanced biofuel that is ethanol contributes to
the concerns related to total ethanol consumption, it is appropriate to
consider reductions in the required volume of advanced biofuel beyond
the 0.52-1.26 bill gal reduction needed to ensure that the volume
required is available.
---------------------------------------------------------------------------
\95\ While production volumes of ethanol that can qualify as an
advanced biofuel, both domestically and internationally are
significant, consumption of this fuel will be constrained
---------------------------------------------------------------------------
For these reasons, we invite comment on the Option 1 approach but
are not proposing it.
b. Option 2: Full Reduction in Cellulosic Biofuel
Under the cellulosic waiver authority we have the discretion to
reduce advanced biofuel by up to the same amount that we reduce
cellulosic biofuel. Thus, a second option would be to reduce the
advanced biofuel volume by the same amount that we reduce the
cellulosic biofuel volume. Our proposed cellulosic biofuel volume
requirement of 8-30 mill gal for 2014 corresponds to a reduction of
1,720-1,742 mill gal in comparison to the statutory volume of 1,750
mill gal. This is approximately twice the size of the reduction in
advanced biofuel that would result from accounting for availability
alone, as in Option 1, and would result in an advanced biofuel volume
requirement of 2,008-2,030 mill gal.
A reduction of 1,720-1,742 mill gal in the advanced biofuel
requirement would allow for overall growth in non-cellulosic advanced
biofuel, consistent with overall levels of non-cellulosic advanced
biofuels that Congress specified for 2014 in 211(o)(2)(B). The table
below shows that this approach would ensure that the required volume of
non-cellulosic advanced biofuel--comprised of biomass-based diesel and
other advanced biofuel--that would be needed to meet the requirements
would remain at 2.0 bill gal, the same volume that would have been
needed to meet the statutory level of 3.75 bill gal of advanced biofuel
if 1.75 bill gal of cellulosic biofuel were available.\96\
---------------------------------------------------------------------------
\96\ The 2.0 bill gal is composed of the proposed volume of
biomass-based diesel, 1.92 bill gallons ethanol equivalent, and the
remaining volume of non-cellulosic advanced biofuel, 0.08 bill
gallons.
Table IV.C.2.b--Impact on Other Advanced Biofuel of Reducing the
Advanced Biofuel Requirement by an Amount Equal to the Reduction in
Cellulosic Biofuel
[Million ethanol-equivalent gallons]
------------------------------------------------------------------------
Required volumes Required volumes
without a with a reduction
reduction in in advanced
cellulosic biofuel biofuel equal to
or advanced reduction in
biofuel cellulosic
------------------------------------------------------------------------
Cellulosic biofuel.............. 1,750 17
Biomass-based diesel \a\........ 1,920 1,920
Other advanced biofuel \b\...... 80 80
Total advanced biofuel.......... 3,750 2,017
------------------------------------------------------------------------
\a\ Represents a physical volume of 1.28 bill gal biodiesel.
\b\ Can include biomass-based diesel with a D code of 4 that is in
excess of that required to meet the biomass-based diesel requirement
of 1.28 bill gal, as well as any other forms of advanced biofuel with
a D code of 5 such as renewable diesel, heating oil, biogas, and
imported sugarcane ethanol.
This approach to setting the advanced biofuel volume requirement
would minimize the impact of the advanced biofuel category on the
supply problems associated with constraints on ethanol consumption.
However this approach would ignore the availability of non-cellulosic
advanced biofuel to fill the shortfall in cellulosic biofuel. It would
reduce the market opportunities for other advanced biofuels (as
compared to the other options), and thereby hinder the development of
advanced biofuels that might otherwise help to meet the broader energy
security and GHG reduction goals of Congress for the RFS program.
Finally, as discussed below, this approach would result in greater
reductions in advanced biofuel than are needed to account for the
contribution of ethanol advanced biofuels to the blendwall. For these
reasons, we invite comment on this approach but are not proposing it.
c. Option 3: Availability, Growth, and Limits on Ethanol Consumption
Neither Option 1 nor Option 2 address all the factors we believe
are important in the determination of the applicable advanced biofuel
volume requirement. For instance, under Option 1 (using just
availability to determine the appropriate volume of advanced biofuel),
the significant impacts of constraints on ethanol consumption and the
factors leading to a reduction in the total volume of renewable fuel
would not be reflected at all in our determination of the advanced
biofuel requirement. On the other hand, under Option 2 (reducing the
advanced biofuel requirement by the same amount that we reduce
cellulosic biofuel), would impose unnecessary constraints on non-
ethanol advanced biofuels even though they do not contribute to the
constraints on the volume of ethanol that can reasonably be consumed.
For these reasons we are proposing a third option that would
address these issues by first summing the applicable volume
requirements for cellulosic biofuel and biomass-based diesel, and then
adding available volumes of non-ethanol advanced biofuel, including any
biodiesel in excess of the 1.28 bill gal requirement as well as other
available non-ethanol advanced biofuels such as renewable diesel,
heating oil, and biogas. Under this approach, we consider only non-
ethanol sources of advanced biofuel as these fuels are not limited by
their ability to be consumed as are ethanol blends. This approach would
help to ensure that the advanced biofuel requirement would include all
available volumes of advanced biofuel which do not contribute to the
supply concerns related to constraints on ethanol consumption. It would
also provide for additional growth in volumes of advanced biofuel that
would otherwise be lost due to the shortfall in cellulosic biofuel.
Once the advanced biofuel volume requirement was set, the market would
determine which
[[Page 71776]]
advanced biofuels would be produced and sold to meet the advanced
biofuel requirement, including whether they would be ethanol or non-
ethanol. Thus under this approach we would not be mandating or
determining what renewable fuels would in fact be produced and sold.
We once again used a Monte Carlo approach to aggregate the ranges
for cellulosic biofuel, biomass-based diesel, and non-ethanol advanced
biofuel. The ranges and standardized distributions we used in this
process are shown in Table IV.C.2.c-1, and the resulting distribution
for advanced biofuel is shown in Figure IV.C.2.c-1.
Table IV.C.2.c-1--Proposed Volume Ranges for Estimating Advanced Biofuel
Requirement for 2014
[Million ethanol-equivalent gallons]
------------------------------------------------------------------------
------------------------------------------------------------------------
Proposed requirement for 8-30 Combined.\a\
cellulosic biofuel.
Proposed requirement for \b\ 1,920 n/a.
biomass-based diesel.
Available volumes of excess \c\ 0-480 Half-normal.
biomass-based diesel.
Available volumes of domestic 24-132 Normal.
non-ethanol advanced biofuel.
------------------------------------------------------------------------
\a\ As described in Section II.C, this distribution is a combination of
the distributions for all facilities projected to produce cellulosic
biofuel.
\b\ Represents a physical volume of 1.28 bill gal.
\c\ Represents a physical volume range of 0-320 mill gal.
[GRAPHIC] [TIFF OMITTED] TP29NO13.009
For the reasons discussed above, we propose that the advanced
biofuel volume requirement would be set based on the Option 3 approach,
within the range of 2.00-2.51 bill gal. Given that the volume
requirement in the statute is 3.75 bill gal, this proposed range of
advanced biofuel would represent a reduction of 1.24-1.75 bill gal. In
comparison, the reduction in cellulosic biofuel that we are proposing
in today's NPRM is 1.72-1.74 bill gal, and the reduction in total
renewable fuel that we are proposing is 2.63-3.15 bill gal. The Option
3 approach to setting the advanced biofuel volume requirement would
generate a volume that falls approximately midway between Options 1 and
2 for 2014.
The approach we are proposing in today's NPRM is based upon and
fully consistent with the authorities provided in the statute for
waiving volumes. The proposed reductions in the volumes of advanced
biofuel and total renewable fuel derive from our determination that the
industry and market will be unable to supply sufficient volumes in 2014
to meet the statutory mandates, either because of projected limitations
in production and importation of qualifying renewable fuels, or
projected limitations in the available infrastructure to ensure that
those fuels are supplied to and consumed in the transportation sector.
All of these limitations represent forms of inadequate supply and are
permissible bases for exercising both the general waiver authority and
the cellulosic waiver authority.
As for the required volume of total renewable fuel, there are a
variety of ways in which a specific value within the proposed range can
be chosen for the volume of advanced biofuel that we require in the
final rule. The table below shows the values that correspond to the
distribution in Figure IV.C.2.c-1 using several possible approaches.
Table IV.C.2.c-2--Potential Approaches to Determining the Final Advanced
Biofuel Volume Requirement
[Million ethanol-equivalent gallons]
------------------------------------------------------------------------
------------------------------------------------------------------------
Mean........................................................... 2,202
Mode........................................................... 2,099
25th percentile................................................ 2,086
50th percentile................................................ 2,178
75th percentile................................................ 2,289
------------------------------------------------------------------------
[[Page 71777]]
In today's NPRM we are proposing to use the mean value of 2,202
mill gal for the volume requirement for advanced biofuel because we
believe it best represents a neutral aim at advanced biofuel volumes
that could reasonably be supplied. However, we request comment on
whether one of the alternative values shown in Table IV.C.2.c-2, or
some other approach, would be more appropriate as the basis for the
required volume of advanced biofuel in the final rule.
D. Summary of Proposed Volume Requirements for 2014
For the reasons discussed above, we are proposing the volumes of
total renewable fuel and advanced biofuel as shown below.
Table IV.D-1--Proposed Volumes for 2014
[Billion gallons]
----------------------------------------------------------------------------------------------------------------
Proposed volume
Statutory -------------------------------
volume Range Mean
----------------------------------------------------------------------------------------------------------------
Advanced biofuel................................................ 3.75 2.00-2.51 2.20
Total renewable fuel............................................ 18.15 15.00-15.52 15.21
----------------------------------------------------------------------------------------------------------------
For the final rule, we may revise the ranges based on additional
information that becomes available after publication of this NPRM. This
information could include more recent Production Outlook Report
required under Sec. 80.1449, production and consumption data for 2013,
and information from stakeholders.
With regard to the mean, we request comment on whether it is the
most appropriate way to determine the volume within each of the ranges
that we would require in the final rule, or whether instead one of the
alternatives shown in Tables IV.B.4-3 or IV.C.2.c-2, or some other
approach, would be more appropriate. Nevertheless, as described above,
we do not believe that using either the low end or high end of the
proposed ranges would be appropriate as the basis for the applicable
standards. A value between the low and high ends would better account
for cases in which the actual values for some of the input volumes fall
at the high end of their respective ranges while the actual value of
other input volumes fall at the low end of their ranges.
We note that the two ranges shown in Table IV.D-1 were not
independently derived and thus cannot be treated independently from one
another in the determination of the appropriate volumes to finalize.
Many of the same ranges of biofuel availability that were used in
estimating the range of total renewable fuel were also used in
estimating the range of advanced biofuel. This fact can be seen in the
distribution of results from the Monte Carlo process, which shows a
distinct correlation between total renewable fuel and advanced biofuel.
[GRAPHIC] [TIFF OMITTED] TP29NO13.010
[[Page 71778]]
Because of this correlation, decisions for both total renewable
fuel and advanced biofuel need to take this relationship into account.
For example, it would not be appropriate to finalize a volume for total
renewable fuel that is at the high end of its proposed range, while
also finalizing a volume for advanced biofuel that is at the low end of
its proposed range. Doing so would result in a demand for renewable
fuels that either could not be filled with available volumes or could
not reasonably be consumed.
The ranges that we are proposing for advanced biofuel and total
renewable fuel determine the range of non-advanced renewable fuel that
would be needed. The majority of non-advanced renewable fuel is ethanol
made from corn starch, though as discussed in Section IV.B.2.d we would
also expect some non-ethanol renewable fuel as well, in the range of 1-
25 mill gal. Taking this non-ethanol renewable fuel into account, we
used the results of the Monte Carlo process that generated the ranges
shown in Table IV.D-1 to determine that the volume of corn-ethanol that
would be needed would be 12.94-13.07 bill gal. This range represents an
increase in comparison to 2012 corn-ethanol consumption, which was
about 12.5 bill gal.\97\ While this range represents a reduction in
comparison to the statutory volumes for 2014, it nonetheless represents
an increase relative to projected 2013 corn-ethanol consumption of
about 12.3 bill gal.\98\ For comparison, this reduction in corn-ethanol
volume for 2014 is about 90% of the size of the proposed reduction in
advanced biofuel. Thus under our proposed approach, both non-advanced
renewable fuels and advanced biofuels are contributing to the necessary
reductions needed to attain renewable fuel volumes that can reasonably
be supplied and consumed. We request comment on our proposed approach
and on alternative approaches that may be applied to determine how best
to allocate adjustments needed to address the constraints of both the
ethanol blendwall and limitations in the availability of non-ethanol
biofuels.
---------------------------------------------------------------------------
\97\ EIA Monthly Energy Review for June 2013, Table 10.3. Corn-
ethanol exports were about 740 mill gal in 2012 based on EIA Exports
By Destination.
\98\ EIA AEO2013, Table17. Assumes corn-ethanol exports of 885
mill gal per EIA.
---------------------------------------------------------------------------
E. Volume Requirements for 2015 and Beyond
In enacting the RFS program, Congress anticipated and intended to
promote substantial, sustained growth in biofuel production and
consumption--beyond the levels that have been achieved to date--though
it did so in the context of forecasts of continually growing
transportation fuel consumption. As explained in Section IV.B, gasoline
demand has declined in the years since EISA was enacted in 2007 and is
projected to continue to do so. As a result, the gasoline pool will be
able to absorb about 2.3 bill gal less ethanol as E10 in 2014 than it
would have been possible to absorb if the gasoline use projection in
AEO2007 had been realized. While we recognize this change in
circumstances, we continue to support the objective of continued growth
in renewable fuel production and consumption, as well as the central
policy goals underlying the RFS program: reductions in greenhouse gas
emissions, enhanced energy security, economic development, and
technological innovation. We recognize that the issues concerning
availability of qualifying renewable fuels and the consumption of
ethanol that are discussed above with respect to the 2014 RFS standards
will continue to be relevant in 2015 and beyond. Our objective in this
rulemaking is to develop a general approach for determining appropriate
volume requirements that can be applied not only to 2014, but also for
2015 and beyond. Any such approach would, of course, fully consider
comments received in response to this NPRM and would account for new
and improved data and changes in relevant circumstances over time. As
we have underscored throughout this proposal, we look forward to
engagement with stakeholders on all relevant aspects of the proposed
approach.
We believe that the general approach reflected in today's proposal
is consistent with the goals of the underlying statute and will put the
RFS program on a manageable trajectory while supporting continued
growth in renewable fuels over time. In future years, we would expect
to use the most recently available information to update the analyses
used to project volumes in each of these areas:
Volume of ethanol that could be consumed, including
reasonably achievable growth in capacity to consume higher ethanol
blends such as E15 and E85.
Available volumes of cellulosic biofuel.
Available volumes of biomass-based diesel.
Available volumes of advanced biofuel.
Available volumes of non-advanced renewable fuel.
Amount of carryover RINs.
In addition to these factors, the approach we are proposing today would
also account for changes in circumstances over time, including the
substantial efforts underway to increase the volume of biofuel produced
and consumed in the United States. Many companies are continuing to
invest in efforts ranging from research and development to the
construction of commercial scale facilities to increase the production
potential of next generation biofuels. Many of these projects have
received financial support from government agencies:
DOE's ARPA-E program, which aims to advance high-
potential, high-impact energy technologies that are too early for
private sector investment, and DOE's Integrated Biorefinery Program,
which provides grants and works in partnership with industry to
develop, build, operate, and validate integrated biorefineries at
various scales at locations across the country.\99\ DOE invests more
than $200 million annually on technology development aimed at enabling
cost-competitive advanced biofuels, including cellulosic ethanol,
renewable gasoline, diesel, and aviation fuel. DOE has also awarded
over $1 billion since 2007 for 27 integrated biorefinery projects
intended to de-risk first-of-a-kind technologies at pilot,
demonstration, and commercial scale.
---------------------------------------------------------------------------
\99\ For more information on these programs visit their Web
sites at: http://arpa-e.energy.gov/ and http://www1.eere.energy.gov/bioenergy/integrated_biorefineries.html.
---------------------------------------------------------------------------
USDA's Biorefinery Assistance Program, which provides loan
guarantees for the development and construction of commercial scale
biorefineries, is another example.\100\ Many of these new projects are
focused on producing non-ethanol fuels, including bio-based
hydrocarbons (gasoline, diesel, and jet fuel), gaseous fuels (CNG and
LNG), or more energy-dense alcohols such as butanol.
---------------------------------------------------------------------------
\100\ On October 21st USDA announced that an additional $181
million would be available through the Biorefinery Assistance
Program. For more information visit the program's Web site at: and
http://www.rurdev.usda.gov/BCP_Biorefinery.html.
---------------------------------------------------------------------------
President Obama's directive to USDA, DOE, and the Navy to
collaborate with the private sector to spur a ``drop-in'' biofuels
industry to meet the transportation needs of the Department of Defense
(DOD) and the private sector. This multi-agency effort potentially
establishes the federal government as an early market adopter of these
biofuels, demonstrating their potential bankability for commercial
markets. DOD made four $5M, 18-month phase 1 awards in June 2013.
Successful projects will be selected to go on to
[[Page 71779]]
Phase II construction to be jointly supported by the three agencies in
---------------------------------------------------------------------------
the beginning of fiscal year 2015.
In addition to these efforts at other agencies, EPA is currently
evaluating a number of new pathways to allow these fuels to generate
RINs under the RFS program if the applicable feedstock, fuel type, and
greenhouse gas reduction requirements are met. As these new fuels and
fuel volumes come online, the proposed methodology will automatically
incorporate them into the development of the standards for the
following year.
Simultaneously, efforts are underway to increase the availability,
awareness, and acceptance of gasoline fuel blends containing greater
than 10 percent ethanol as expanded consumption of this fuel could play
a role in the future. For instance, EPA has taken a series of
regulatory steps to enable E15 to be sold in the U.S. In 2010 and 2011,
EPA issued partial waivers to enable use of E15 in model year 2001 and
newer vehicles, and in June of 2011, EPA finalized regulations to
prevent misfueling of vehicles, engines, and equipment not covered by
the partial waiver decisions. Other federal and state agencies have
also taken steps to help foster the inclusion of E15 in the
marketplace. We recognize that there remain a number of obstacles to
increased E15 consumption. We request comment on what actions, on the
part of government as well as industry and other stakeholders, could be
taken to overcome these obstacles and to enable E15 consumption to
increase.
With regard to E85, the portion of the estimated 11.5 million FFV
fleet (in 2013) \101\ having reasonable access to the existing E85
retail infrastructure (approximately 3,000 stations nationwide)
represents a potential market of over 1 bill gal of E85
consumption.\102\ While there are many factors that may contribute to a
customer's choice of which fuel to purchase, a recent study by the
National Association of Convenience Stores found that for 71% of
customers, price was the most important factor in their decision on
where to purchase their fuel.\103\ Historically, E85 has been more
expensive than E10 on an energy-content adjusted basis which has likely
been a key factor in the low sales volumes. Recent data collected by
EIA suggests that at least in some parts of the country the price
relationship between E10 and E85 may be changing. In a Today in Energy
article published on September 19, 2013, EIA presented data showing
that in a collection of Midwestern states E85 retail prices were less
than E10 retail prices on an energy-content adjusted basis in July
2013, the most recent month for which information was available.\104\
This change in price relationship between E10 and E85 coincides with
reported increases in sales volumes of E85 in Iowa and Minnesota, two
states in which E85 sales volumes are publically available.\105\ If the
conditions that have led to this price relationship continue in the
future, E85 sales volumes are likely to continue to increase.
---------------------------------------------------------------------------
\101\ EIA Annual Energy Outlook 2013, Table 40. Sum of Ethanol-
Flex Fuel ICE Cars and Light Trucks.
\102\ Memorandum from David Korotney to EPA docket EPA-HQ-OAR-
2013-0479.
\103\ 2013 NACS Retail Fuels Report.
\104\ ``E85 motor fuel is increasingly price-competitive with
gasoline in parts of the Midwest.'' Today in Energy. EIA, 19
September 2013. <http://www.eia.gov/todayinenergy/detail.cfm?id=13031. Study compared daily average
observed E85 and regular gasoline prices at the same stations in the
states of Iowa, Illinois, Indiana, Kentucky, Michigan, Minnesota,
and Ohio.
\105\ See Table IV.B.1-2
---------------------------------------------------------------------------
In addition to the potential for increased consumption of E85 when
considering the existing infrastructure and vehicle fleet, there is
also substantial opportunity to increase ethanol consumption in higher
level ethanol blends through growth in the FFV fleet and E85
infrastructure. The number of stations offering E85 is currently
increasing at a rate of approximately 300 new stations per year.\106\
In 2012 USDA announced a goal to help retail station owners install as
many as 10,000 ethanol blender pumps by 2017.\107\ Growth Energy has a
``Blend Your Own Ethanol'' program to encourage the installation of
ethanol blender pumps. These efforts, combined with the potential for
these higher level ethanol blends to decrease consumer fuel costs in
the future under appropriate market circumstances, could lead to a
significant increase in the amount of ethanol than can be consumed as a
transportation fuel in the United States in future years. As a
benchmark, if every FFV currently in the fleet had access to E85 and
chose to use it exclusively, the total consumption of these vehicles
would be approximately 8 bill gal per year. The size of the FFV vehicle
fleet also continues to increase, and is expected to grow by
approximately 1 million vehicles from 2013 to 2014, with sales recently
in excess of 2 million vehicles per year.\108\ \109\ EPA's recently
proposed credit for vehicle manufacturers under the light-duty
greenhouse gas standards could help encourage the continuation such
sales into the future.\110\ Ongoing growth in the size of the FFV fleet
and the number of E85 pumps could be accelerated by increases in demand
from customers for E85 fuel, which has the potential to support a rapid
growth in E85 infrastructure. Under the proposed framework for the 2014
standards, any such growth in capacity for ethanol consumption would
continuously be reflected in the standards set for the following year.
---------------------------------------------------------------------------
\106\ Memorandum from David Korotney to EPA docket EPA-HQ-OAR-
2013-0479.
\107\ http://www.usda.gov/wps/portal/usda/usdamediafb?contentid=2012/05/0141.xml.
\108\ EIA Alternative Fuel Vehicle Data Report. Released May 4,
2012.
\109\ EIA Annual Energy Outlook 2013, Table 40. Increase in
Ethanol-Flex Fuel Cars and Light Trucks from 2013 to 2014.
\110\ Draft Guidance Letter, CD-13-XX (LD), ``E85 Flexible Fuel
Vehicle Weighting Factor for Model Year 2016-2019 Vehicles,'' http://epa.gov/otaq/regs/ld-hwy/greenhouse/ld-ghg.htm#action.
---------------------------------------------------------------------------
At the same time, we recognize that a number of challenges must be
overcome in order to fully realize the potential for higher levels of
production and consumption of higher-level ethanol blends and of
renewable fuels generally in the United States. We also recognize that,
while the RFS program is a central element of our domestic biofuels
policy, a range of other tools, programs, and actions have the
potential to play an important complementary role. We request comment
on what actions could be taken by various industry and other private
stakeholders, as well by the government, to help overcome these
challenges and to minimize the need for adjustments in the statutory
renewable fuel volume requirements in the future.
V. Proposed Percentage Standards for 2014
A. Background
The renewable fuel standards are expressed as volume percentages
and are used by each refiner or importer to determine their 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 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.C, we are proposing a required volume of
cellulosic biofuel for 2014 of 17 million
[[Page 71780]]
ethanol-equivalent gallons. The volume we select for the final rule
will be used as the basis for setting the percentage standard for
cellulosic biofuel for 2014. We are also proposing to reduce the
advanced biofuel and total renewable fuel volumes. The biomass-based
diesel volume for 2014 has been proposed to be maintained at 1.28
billion gallons. The volumes to be used to determine the four proposed
percentage standards are shown in Table V.A-1.
Table V.A-1--Proposed Volumes for Use in Setting the Applicable
Percentage Standards for 2014 \a\
------------------------------------------------------------------------
------------------------------------------------------------------------
Cellulosic biofuel..................... 17 mill gal.
Biomass-based diesel................... 1.28 bill gal.
Advanced biofuel....................... 2.20 bill gal.
Renewable fuel......................... 15.21 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 determination,
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] TP29NO13.011
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.
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 2014, this value is zero. See further discussion
in Section V.B.2 below.
DEi = Amount of diesel projected to be produced by exempt
small refineries and
[[Page 71781]]
small refiners in year i, in gallons, in any year they are exempt
per Sec. Sec. 80.1441 and 80.1442, respectively. For 2014, this
value is zero. See further discussion in Section V.B.2 below.
The four separate renewable fuel standards for 2014 are based on
the gasoline and diesel consumption volumes projected by EIA. 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 projected volumes of gasoline and diesel that will be
used to calculate the final 2014 percentage standards will be provided
to EPA by EIA. To estimate the gasoline and diesel projected volumes
for the purposes of this proposal, we have used EIA's Short-Term Energy
Outlook (STEO) \111\ for the gasoline projection and EIA's Annual
Energy Outlook 2013 Early Release \112\ for the diesel projection.
Gasoline and diesel volumes are adjusted to account for renewable fuel
contained in the EIA projections. The projected volumes of ethanol and
biodiesel used to calculate the final percentage standards will be
provided to EPA by EIA. To estimate the ethanol and biodiesel projected
volumes for the purposes of this proposal, we have used the values
\113\ for ethanol and biodiesel provided in the STEO. Using the most
recent available EIA data for purposes of this proposal allows us to
provide the affected industries with a reasonable estimate of the
standards for planning purposes.
---------------------------------------------------------------------------
\111\ Energy Information Administration/Short-Term Energy
Outlook--September 2013, Table 4a, ``U.S. Crude Oil and Liquid Fuels
Supply, Consumption, and Inventories.''
\112\ Energy Information Administration/Annual Energy Outlook
2013, April 2013, ``Energy Consumption by Sector and Source, United
States, Reference case; Transportation Distillate Fuel Oil.''
\113\ Energy Information Administration/Short-Term Energy
Outlook--September 2013, Table 8, ``U.S. Renewable Energy
Consumption (Quadrillion Btu).''
---------------------------------------------------------------------------
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,\114\ 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.\115\ 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).\116\
---------------------------------------------------------------------------
\114\ 72 FR 23900, May 1, 2007.
\115\ 40 CFR Sec. Sec. 80.1141, 80.1142.
\116\ See 40 CFR Sec. Sec. 80.1441, 80.1442.
---------------------------------------------------------------------------
Congress provided two ways that small refineries could receive a
temporary extension of the exemption beyond 2010. One was 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. In March of 2011, DOE
evaluated the impacts of the RFS program on small entities and
concluded that some small refineries would suffer a disproportionate
hardship.\117\ The other way that small refineries could receive a
temporary extension is based on EPA determination of disproportionate
economic hardship on a case-by-case basis in response to refiner
petitions.\118\ EPA has granted some exemptions pursuant to this
process, as recently as 2013. However, at this time, no exemptions have
been approved for 2014. Therefore, for this proposal we have calculated
the 2014 standards without a small refinery/small refiner adjustment.
---------------------------------------------------------------------------
\117\ ``Small Refinery Exemption Study: An Investigation into
Disproportionate Economic Hardship,'' U.S. Department of Energy,
March 2011.
\118\ 40 CFR Sec. Sec. 80.1441(e)(2), 80.1442(h).
---------------------------------------------------------------------------
However, if an individual small refinery or small refiner requests
an exemption and is approved prior to issuance of the final rule, the
final standards will be adjusted to account for the exempted volumes of
gasoline and diesel. Any requests for exemptions that are approved
after the release of the final 2014 RFS standards will not affect the
2014 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, after the 2014 standards are finalized, any additional
exemptions for small refineries or small refiners that are issued will
not affect those 2014 standards.
3. Proposed Standards
As specified in the March 26, 2010 RFS2 final rule,\119\ 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. For example, 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 2014, 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.
---------------------------------------------------------------------------
\119\ 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 V.B.3-1.\120\ Terms not included in
this table have a value of zero.
---------------------------------------------------------------------------
\120\ 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 EIA State Energy Data System (SEDS), Energy Consumption
Estimates.
Table V.B.3-1--Values for Terms in Calculation of the Standards \121\
[bill gal]
------------------------------------------------------------------------
Term Value
------------------------------------------------------------------------
RFVCB,2014..................................................... 0.017
RFVBBD,2014.................................................... 1.28
RFVAB,2014..................................................... 2.20
[[Page 71782]]
RFVRF,2014..................................................... 15.21
G2014.......................................................... 132.65
D2014.......................................................... 47.12
RG2014......................................................... 13.12
RD2014......................................................... 1.38
------------------------------------------------------------------------
Using the volumes shown in Table V.B.3-1, we have calculated the
proposed percentage standards for 2014 as shown in Table V.B.3-2.
---------------------------------------------------------------------------
\121\ U.S. Gasoline (October 2013 STEO) = 8.67 MMbbl/day; U.S.
Ethanol (October 2013 STEO) = 0.858 MMBD calculated as 1.115 QBtu;
U.S. Transportation Distillate (AEO2013) = 6.55 QBtu; U.S. Biodiesel
(October 2013 STEO) = 0.09 MMBD calculated as 0.176 QBtu; U.S.
Diesel Ocean-going vessels (AEO2013) = 52.429 TBtu; Alaska (SEDS
2011): AK Gasoline = 6.321 MMbbl, AK Ethanol = 0.733 MMbbl; AK
Diesel = 7.621 MMbbl, AK Biodiesel = 0, AK Ocean-going vessels
estimated at 4.5% of U.S. vessel bunkering and applied to the U.S.
ocean-going vessel volume.
Table V.B.3-2--Proposed Percentage Standards for 2014
------------------------------------------------------------------------
------------------------------------------------------------------------
Cellulosic biofuel............................................ 0.010%
Biomass-based diesel.......................................... 1.16%
Advanced biofuel.............................................. 1.33%
Renewable fuel................................................ 9.20%
------------------------------------------------------------------------
VI. Public Participation
We request comment on all aspects of this proposal. This section
describes how you can participate in this process.
A. How do I submit comments?
We are opening a formal comment period by publishing this document.
We will accept comments during the period indicated under the DATES
section above. If you have an interest in the proposed standards, we
encourage you to comment on any aspect of this rulemaking. We also
request comment on specific topics identified throughout this proposal.
Your comments will be most useful if you include appropriate and
detailed supporting rationale, data, and analysis. Commenters are
especially encouraged to provide specific suggestions for any changes
that they believe need to be made. You should send all comments, except
those containing proprietary information, to our Air Docket (see
ADDRESSES section above) by the end of the comment period.
You may submit comments electronically, by mail, or through hand
delivery/courier. To ensure proper receipt by EPA, identify the
appropriate docket identification number in the subject line on the
first page of your comment. Please ensure that your comments are
submitted within the specified comment period. Comments received after
the close of the comment period will be marked ``late.'' EPA is not
required to consider these late comments. If you wish to submit
Confidential Business Information (CBI) or information that is
otherwise protected by statute, please follow the instructions in
Section VI.B below.
B. How should I submit CBI to the Agency?
Do not submit information that you consider to be CBI
electronically through the electronic public docket,
www.regulations.gov, or by email. Send or deliver information
identified as CBI only to the following address: U.S. Environmental
Protection Agency, Assessment and Standards Division, 2000 Traverwood
Drive, Ann Arbor, MI 48105, Attention Docket ID EPA-HQ-OAR-2013-0479.
You may claim information that you submit to EPA as CBI by marking any
part or all of that information as CBI (if you submit CBI on disk or CD
ROM, mark the outside of the disk or CD ROM as CBI and then identify
electronically within the disk or CD ROM the specific information that
is CBI). Information so marked will not be disclosed except in
accordance with procedures set forth in 40 CFR part 2.
In addition to one complete version of the comments that include
any information claimed as CBI, a copy of the comments that does not
contain the information claimed as CBI must be submitted for inclusion
in the public docket. If you submit the copy that does not contain CBI
on disk or CD ROM, mark the outside of the disk or CD ROM clearly that
it does not contain CBI. Information not marked as CBI will be included
in the public docket without prior notice. If you have any questions
about CBI or the procedures for claiming CBI, please consult the person
identified in the FOR FURTHER INFORMATION CONTACT section.
VII. Statutory and Executive Order Reviews
A. Executive Order 12866: Regulatory Planning and Review and Executive
Order 13563: Improving Regulation and Regulatory Review
This action is a ``significant regulatory action'' as set forth
under Executive Order 12866 (58 FR 51735, October 4, 1993).
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. A
determination has not been reached, however, with regard to whether
this action is ``economically significant'' under Executive Order
12866. Such a determination will be made for the final rule.
The economic impacts of the RFS2 program on regulated parties,
including the impacts of the volumes of renewable fuel specified in the
statute, were analyzed in the RFS2 final rule promulgated on March 26,
2010 (75 FR 14670). With the exception of biomass-based diesel, this
action proposes standards applicable in 2013 that would be reduced from
those analyzed in the RFS2 final rule. The impacts of the proposed 2014
and 2015 volumes of biomass-based diesel were addressed in the final
rule establishing the 2013 volume requirement of 1.28 bill gal (77 FR
59458).
B. Paperwork Reduction Act
There are no new information collection requirements associated
with the standards in this notice of proposed rulemaking. The standards
being proposed today would not impose new or different reporting
requirements on regulated parties. The existing information collection
requests (ICR) that apply to the RFS program are sufficient to address
the reporting requirements in the regulations.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a
currently valid OMB control number. The OMB control numbers for EPA's
regulations in 40 CFR are listed in 40 CFR part 9.
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
Procedures Act or any other statute unless the agency certifies that
the rulemaking 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 proposed 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
[[Page 71783]]
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.
After considering the economic impacts of today's proposed rule on
small entities, we certify that this proposed action will not have a
significant economic impact on a substantial number of small entities.
This rulemaking proposes that the annual volume requirement for
cellulosic biofuel for 2014 would be reduced from the statutory volume
of 1.75 bill gal. We are also proposing to reduce the annual volume
requirements for advanced biofuel and total renewable fuel. 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
proposed rule will not impose any additional requirements on small
entities beyond those already analyzed. However, we continue to be
interested in the potential impacts of the proposed rule on small
entities and welcome comments on issues related to such impacts.
D. Unfunded Mandates Reform Act
This proposed 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 proposed rule
only applies to gasoline, diesel, and renewable fuel producers,
importers, distributors and marketers and merely proposes the 2014
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 proposes the 2014
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
rulemaking.
In the spirit of Executive Order 13132, and consistent with EPA
policy to promote communications between EPA and State and local
governments, EPA specifically solicits comment on this proposed rule
from State and local officials.
F. Executive Order 13175: Consultation and Coordination With Indian
Tribal Governments
This proposed action does not have tribal implications, as
specified in Executive Order 13175 (65 FR 67249, November 9, 2000).
This proposed 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.
EPA specifically solicits additional comment on this proposed
action from tribal officials.
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 proposed 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 proposes the annual standards for renewable fuel under the RFS
program for 2014.
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 proposed 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 proposed 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 sources.
VIII. 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 proposal, come from sections
114, 208, and 301(a) of the Clean Air Act, 42 U.S.C. sections 7414,
7542, and 7601(a).
[[Page 71784]]
List of Subjects in 40 CFR Part 80
Environmental protection, Administrative practice and procedure,
Air pollution control, Diesel fuel, Fuel additives, Gasoline, Imports,
Oil imports, Petroleum, Renewable Fuel.
Dated: November 18, 2013.
Gina McCarthy,
Administrator.
For the reasons set forth in the preamble, 40 CFR part 80 is
proposed to be 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 adding paragraph (a)(5) to read as
follows:
Sec. 80.1405 What are the Renewable Fuel Standards?
(a) * * *
(5) Renewable Fuel Standards for 2014.
(i) The value of the cellulosic biofuel standard for 2014 shall be
0.010 percent.
(ii) The value of the biomass-based diesel standard for 2014 shall
be 1.16 percent.
(iii) The value of the advanced biofuel standard for 2014 shall be
1.33 percent.
(iv) The value of the renewable fuel standard for 2014 shall be
9.20 percent.
[FR Doc. 2013-28155 Filed 11-27-13; 8:45 am]
BILLING CODE 6560-50-P