[Federal Register Volume 80, Number 111 (Wednesday, June 10, 2015)]
[Proposed Rules]
[Pages 33100-33153]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-13956]
[[Page 33099]]
Vol. 80
Wednesday,
No. 111
June 10, 2015
Part III
Environmental Protection Agency
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Animal and Plant Health Inspection Service
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40 CFR Part 80
Renewable Fuel Standard Program: Standards for 2014, 2015, and 2016 and
Biomass-Based Diesel Volume for 2017; Proposed Rule
Federal Register / Vol. 80 , No. 111 / Wednesday, June 10, 2015 /
Proposed Rules
[[Page 33100]]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 80
[EPA-HQ-OAR-2015-0111; FRL-9927-28-OAR]
RIN 2060-AS22
Renewable Fuel Standard Program: Standards for 2014, 2015, and
2016 and Biomass-Based Diesel Volume for 2017
AGENCY: Environmental Protection Agency (EPA).
ACTION: Proposed rule.
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SUMMARY: Under section 211 of the Clean Air Act, the Environmental
Protection Agency (EPA) is required to set renewable fuel percentage
standards every year. This action proposes annual percentage standards
for cellulosic biofuel, biomass-based diesel, advanced biofuel, and
total renewable fuel that apply to all motor vehicle gasoline and
diesel produced or imported in the years 2014, 2015, and 2016. The EPA
is establishing a cellulosic biofuel volume for all three years that is
below the applicable volume specified in the Act, and is also proposing
to rescind the cellulosic biofuel standard for 2011. Relying on
statutory waiver authorities, the EPA is proposing to adjust the
applicable volumes of advanced biofuel and total renewable fuel for all
three years. The 2015 and 2016 proposed standards are expected to spur
further progress in overcoming current constraints in renewable fuel
distribution infrastructure, which in turn is expected to lead to
substantial growth over time in the production and use of higher-level
ethanol blends and other qualifying renewable fuels. In this action, we
are also proposing the applicable volume of biomass-based diesel for
2014, 2015, 2016, and 2017. Finally, we are proposing compliance and
attest reporting deadlines for the years 2013, 2014, and 2015, as well
as proposing regulatory amendments to clarify the scope of the existing
algal biofuel pathway.
DATES: Comments must be received on or before July 27, 2015.
ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-
OAR-2015-0111, to the Federal eRulemaking Portal: http://www.regulations.gov. Follow the online instructions for submitting
comments. Once submitted, comments cannot be edited or withdrawn. The
EPA may publish any comment received to its public docket. Do not
submit electronically any information you consider to be Confidential
Business Information (CBI) or other information whose disclosure is
restricted by statute. If you need to include CBI as part of your
comment, please visit http://www.epa.gov/dockets/comments.html for
instructions. Multimedia submissions (audio, video, etc.) must be
accompanied by a written comment. The written comment is considered the
official comment and should include discussion of all points you wish
to make.
For additional submission methods, the full EPA public comment
policy, and general guidance on making effective comments, please visit
http://www.epa.gov/dockets/comments.html.
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; 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, biodiesel, renewable diesel, and biogas. Potentially regulated
categories include:
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NAICS \1\
Category Codes SIC \2\ Codes Examples of potentially regulated entities
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Industry............................. 324110 2911 Petroleum Refineries.
Industry............................. 325193 2869 Ethyl alcohol manufacturing.
Industry............................. 325199 2869 Other basic organic chemical manufacturing.
Industry............................. 424690 5169 Chemical and allied products merchant wholesalers.
Industry............................. 424710 5171 Petroleum bulk stations and terminals.
Industry............................. 424720 5172 Petroleum and petroleum products merchant wholesalers.
Industry............................. 221210 4925 Manufactured gas production and distribution.
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
action. This table lists the types of entities that EPA is now aware
could potentially be regulated by this action. Other types of entities
not listed in the table could also be regulated. To determine whether
your activities would be regulated by this action, you should carefully
examine the applicability criteria in 40 CFR part 80. If you have any
questions regarding the applicability of this action to a particular
entity, consult the person listed in the FOR FURTHER INFORMATION
CONTACT section.
Outline of This Preamble
I. Executive Summary
A. Purpose of This Action
B. Summary of Major Provisions in This Action
1. Proposed Approach to Setting Standards for 2014, 2015, and
2016
2. Advanced Biofuel and Total Renewable Fuel
3. Biomass-Based Diesel
4. Cellulosic Biofuel
5. Annual Percentage Standards
6. Response to Requests for a Waiver of the 2014 Standards
7. Proposed Changes to Regulations
C. Authority for Late Action and Applicability of the Standards
D. Outlook for 2017 and Beyond
II. Proposed Advanced Biofuel and Total Renewable Fuel Volumes for
2014-2016
A. Statutory Authorities for Reducing Volumes To Address
Renewable Fuel Availability and the E10 Blendwall
1. Cellulosic Waiver Authority
2. General Waiver Authority
3. Assessment of Past Versus Future Supply
4. Combining Authorities for Reductions in Total Renewable Fuel
5. Inability of the Market To Reach Statutory Volumes
B. Overview of Approach To Determining Volume Requirements
1. Fulfilling Congressional Intent To Increase Use of Renewable
Fuels
[[Page 33101]]
2. RFS Program Mechanisms and Their Role in Supporting Growth in
Renewable Fuel Use
3. Current and Future Shortfalls in Supply
C. Proposed Volume Requirements
1. 2014
2. 2015
3. 2016
D. Market Response To Proposed Volume Requirements for 2016
1. E10 Blendwall
2. Volume Scenarios
E. Treatment of Carryover RINs
F. Impacts of Proposed Standards on Costs
III. Proposed Biomass-Based Diesel Volumes for 2014-2017
A. Statutory Requirements.
B. BBD Production and Compliance in Previous Years
C. Applicable Volume of Biomass-Based Diesel for 2014
D. Determination of Applicable Volume of Biomass-Based Diesel
for 2015-2017
1. Implication of Nested Standards
2. Biomass-Based Diesel as a Fraction of Advanced Biofuel
3. Ensuring Growth in Biomass-Based Diesel and Other Advanced
Biofuel
4. Proposed Volumes for 2015-2017
E. Consideration of Statutory Factors for 2014-2017
1. Primary and Supplementary Statutory Factors Assessment for
2015-2017 Biomass-Based Diesel Applicable Volumes
2. Assessment for 2014 Biomass-Based Diesel Applicable Volume
IV. Proposed Cellulosic Biofuel Volume for 2014-2016
A. Statutory Requirements
B. Cellulosic Biofuel Industry Assessment
1. Potential Domestic Producers
2. Potential Foreign Sources of Cellulosic Biofuel
3. Summary of Volume Projections for Individual Companies
C. Cellulosic Biofuel Volume for 2014
D. Cellulosic Biofuel Volume for 2015
E. Cellulosic Biofuel Volume for 2016
F. Rescission of the 2011 Cellulosic Biofuel Standards
V. Percentage Standards
A. Background
B. Calculation of Standards
1. How are the standards calculated?
2. Small Refineries and Small Refiners
3. Proposed Standards
VI. Proposed Amendments to Regulations
A. Proposed Changes to the Algal Biofuel Pathways
B. Annual Compliance Reporting and Attest Engagement Deadlines
Under the RFS Program
VII. Public Participation
A. How do I submit comments?
B. How should I submit CBI to the Agency?
VIII. Statutory and Executive Order Reviews
A. Executive Order 12866: Regulatory Planning and Review and
Executive Order 13563: Improving Regulation and Regulatory Review
B. Paperwork Reduction Act (PRA)
C. Regulatory Flexibility Act (RFA)
D. Unfunded Mandates Reform Act (UMRA)
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 (NTTAA)
J. Executive Order 12898: Federal Actions To Address
Environmental Justice in Minority Populations, and Low-Income
Populations
IX. Statutory Authority
I. Executive Summary
The Renewable Fuel Standard (RFS) program began in 2006 pursuant to
the requirements in Clean Air Act (CAA) section 211(o) that were added
through the Energy Policy Act of 2005 (EPAct). The statutory
requirements for the RFS program were subsequently modified through the
Energy Independence and Security Act of 2007 (EISA), resulting in the
publication of major revisions to the regulatory requirements on March
26, 2010.1 2 Since the initial promulgation of the RFS
program regulations in 2007, domestic production and use of renewable
fuel volumes in the U.S. has increased substantially. According to the
Energy Information Administration (EIA), fuel ethanol production in the
U.S. doubled in volume from approximately 6.5 billion gallons in 2007
to about 14.3 billion gallons in 2014.\3\ Growth in biodiesel and
renewable diesel production in the U.S. has increased more than two and
a half times, from approximately 0.5 billion gallons in 2007 to 1.46
billion gallons in 2014.\4\ Today, nearly all of the approximately 138
billion gallons of gasoline used for transportation purposes contains
10 percent ethanol (E10).
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\1\ 75 FR 14670, March 26, 2010.
\2\ A full description of the statutory basis of the RFS program
and EPA's actions to develop and implement the regulatory program
are provided in a memorandum to the docket. See, ``Statutory basis
of the RFS program and development of the regulatory program,''
memorandum from Madison Le to EPA docket EPA-HQ-OAR-2015-0111.
\3\ EIA's Monthly Energy Review, April 21015, Table 10.3.
\4\ 2007 volume represents biodiesel only, from EIA's Monthly
Energy Review, April 2015, Table 10.4. 2014 volume represents
biodiesel and renewable diesel production from EMTS.
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The fundamental objective of the RFS provisions under the Clean Air
Act is clear: To increase the use of renewable fuels in the U.S.
transportation system every year through at least 2022. These fuels
include corn starch ethanol, the predominant biofuel in use to date,
but Congress envisioned the majority of growth over time to come from
advanced biofuels as the non-advanced (conventional) volumes remain
constant starting in 2015 while the advanced volumes continue to grow.
Advanced biofuels are required to have lower greenhouse gas (GHG)
emissions on a lifecycle basis than conventional biofuels. Increased
use of renewable fuels means less use of fossil fuels, which results in
lower GHG emissions over time as advanced biofuel production and use
becomes more commonplace. By aiming to diversify the country's fuel
supply, Congress also intended to increase the nation's energy
security. Renewable fuels represent an opportunity for the U.S. to move
away from fossil fuels towards a set of lower GHG transportation fuels,
and a chance for a still-developing low GHG technology sector to grow.
The law establishes annual volume targets,\5\ and requires EPA to
translate those volume targets (or alternative volume requirements
established by EPA in accordance with statutory waiver authorities)
into compliance obligations that refiners and importers must meet every
year. Over the past few years, we have seen analysis concluding that
the ambitious statutory targets in the Clean Air Act exceed real world
conditions.\6\ Despite significant efforts by the U.S. Departments of
Agriculture (USDA) and Energy (DOE) to promote the use of renewable
fuels, real-world limitations, such as the slower than expected
development of the cellulosic biofuel industry, less growth in gasoline
use than was expected when Congress enacted these provisions in 2007,
and constraints in supplying certain biofuels to consumers, have made
the timeline laid out by Congress extremely difficult to achieve. These
challenges remain, even as we recognize the success of the program over
the past decade in boosting renewable fuel use, and the recent
significant signs of progress towards development of increasing volumes
of advanced, low-emitting GHG fuels, including cellulosic biofuels and
``drop-in'' biofuels (those that are made from renewable sources but
are otherwise essentially indistinguishable from the fossil-based fuels
they displace).
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\5\ CAA 211(o)(2)(B).
\6\ See, for example, ``Renewable Fuel Standard Potential
Economic and Environmental Effects of U.S. Biofuel Policy (2011),''
National Research Council.
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And so the challenge EPA faces in developing this proposal is
increasing renewable fuels over time to address climate change and
increase energy security while also accounting for the
[[Page 33102]]
real-world limitations that have slowed progress towards such goals,
and that have made the volume targets established by Congress for 2014,
2015, and 2016 effectively beyond reach. This proposal attempts to find
an approach that achieves these objectives.
We believe that the RFS program can drive renewable fuel use, and
that it is appropriate to consider the ability of the market to respond
to the standards we set when we assess the amount of renewable fuel
consumption that can be achieved. While we are proposing to use the
tools Congress provided to make adjustments to the law's volume targets
in recognition of the constraints that exist today, we are proposing
standards for 2015 and 2016 that will drive growth in renewable fuels,
particularly those fuels that are required to achieve the lowest
lifecycle GHG emissions. We believe that over time use of both higher
ethanol blends and non-ethanol biofuels can and will increase,
consistent with Congress' intent in enacting EPAct and EISA. In our
view, while Congress recognized that supply challenges may exist as
evidenced by the various waiver provisions, it did not intend growth in
the renewable fuels market to be ultimately prevented by those
challenges, including such constraints as the ``E10 blendwall'' \7\ or
demand for gasoline or diesel. The fact that Congress chose to mandate
increasing and substantial amounts of renewable fuel clearly signals
that it intended the RFS program to create incentives to increase
renewable fuel supplies and overcome limitations in the market. The
standards we are proposing are forward-leaning and reflect those
incentives.
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\7\ The ``E10 blendwall'' represents the volume of ethanol that
can be consumed domestically if all gasoline contains 10% ethanol
and there are no higher-level ethanol blends consumed such as E15 or
E85.
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The proposed volume requirements would push the fuels sector to
produce and blend more renewable fuels in 2015 and 2016 in a manner
that is consistent with the goals Congress envisioned. The proposed
volumes are less than the statutory targets for 2015 and 2016 but
higher than what the market would produce and use in the absence of
such market-driving standards. The 2015 and 2016 standards are expected
to spur further progress in overcoming current constraints and lead to
continued growth in the production and use of higher ethanol blends and
other qualifying renewable fuels. In this regard the proposed standards
are intended to fulfill the spirit and intent of Congress and provide
guidance to market participants. Once finalized, this rule would put
renewable fuel production and use on a path of steady, ambitious
growth.
This proposal comes during a period of transition for the RFS
program. In the program's early years, compliance with the advanced
biofuel and total renewable volume requirements could be readily
achieved in large part by blending increasing amounts of ethanol into
gasoline and biodiesel into diesel fuel. As the program progresses,
however, significantly increasing renewable fuel volumes will require
pushing beyond current constraints on blending more ethanol into
gasoline and will require sustained growth in the development and use
of advanced, non-ethanol renewable fuels, including drop-in renewable
fuels. This proposed rule acknowledges this transition by proposing
volume requirements based not only on the volumes of renewable fuels
that have already been achieved in 2014 and the first part of 2015, but
also on the additional volumes that can be supplied later in 2015 and
in 2016 as the market addresses infrastructure and other constraints.
Our proposal includes volumes of renewable fuel that will require
either ethanol use at levels significantly beyond the level of the E10
blendwall, or significantly greater use of non-ethanol renewable fuels
than has occurred to date, depending on how the market responds to the
standards we set. The standards we are proposing for 2015 and 2016 in
particular would drive growth in renewable fuels by providing
appropriate incentives to overcome current constraints and challenges
to further the goals of Congress in establishing the RFS program. The
approach we propose taking for 2015 and 2016 is forward-looking and
consistent with the purpose of the statute to significantly increase
the amount of renewable fuel used as transportation fuel over time,
particularly renewable fuels with the lowest lifecycle GHG emissions,
in the transportation fuel supply.
Since the amount of renewable fuel that can be produced and
imported is larger than the volume that can be consumed due to overall
demand for transportation fuel and constraints on supply to vehicles
and engines, there is necessarily competition among biofuels for retail
consumption in the United States. In this proposed rule we have worked
to achieve an appropriate and reasonable balance between setting volume
requirements that would provide support for biofuels that are more
established, while also providing opportunities under those volume
requirements for emerging biofuels. The approach we have used to
determine the proposed volumes is consistent with Congressional intent
in establishing the RFS program in that it provides an opportunity for
a diverse array of renewable fuel types to be used for compliance.
Competition is good for obligated parties and consumers, as it permits
the market to determine the most efficient, lowest cost, best
performing fuels for meeting the increasingly higher volume
requirements anticipated year to year under the program. However, it is
also important to provide support to existing successful biofuels and
to provide incentives for those fuels, especially advanced biofuels
that produce the greatest reductions in greenhouse gases. As discussed
in Section III, we are proposing that the specific volume requirement
for biomass-based diesel (BBD) should be increased over 2013 levels
through 2017 to provide additional support for that industry in a way
that furthers the statutory goal of increasing the use of renewable
fuel and reducing lifecycle GHGs. At the same time, the increase in the
required BBD volume that we are proposing still leaves a substantial
volume under the advanced biofuel standard open for competition among
all qualifying advanced biofuels.
We recognize that our delay in issuing standards for 2014 and 2015
has created additional uncertainty in the marketplace. We are committed
to returning our standard-setting process to the statutory schedule, to
provide the certainty that will allow the biofuels sector and the RFS
program to succeed. The first step in providing this certainty is
finalizing the volume requirements for 2014, 2015, and 2016 by November
30, 2015. For 2014, the compliance year is now over, and any standard
EPA sets for 2014 can no longer influence renewable fuel production or
use in that year. This is a significant change in circumstances from
those at the time of the November 2013 proposal for volume requirements
that would have applied in 2014. Therefore, we are issuing this new
proposal for 2014 that reflects late issuance of the rule and those
volumes of renewable fuel that were actually used in 2014. Details
regarding how we calculated such ``actual'' volumes used in 2014 for
purposes of this proposal are discussed in Section II.C.1 below. For
2015, our proposed approach combines a consideration of those volumes
of renewable fuel that were actually used in the past with a forward-
leaning approach for the future that is intended to promote renewable
fuel use. For 2016, our approach to determining the volumes to propose
is, as discussed, forward-leaning and consistent with the
[[Page 33103]]
statute's intent to promote growth in renewable fuel use over time.
This proposal represents EPA's commitment to continued support for
steady growth in renewable fuel use. However, we recognize that the RFS
standards are only one element among many that factor into the success
of renewable fuel development and use over time. The standards that EPA
sets each year are an important part of the overall picture, but this
program is complemented and supported by programs managed by the U.S.
Departments of Agriculture (USDA) and Energy (DOE), as well as myriad
efforts and initiatives at the regional and local level and within the
private sector. DOE has invested considerable resources to help deploy
the advanced technologies needed to achieve the statutory aims of lower
carbon fuels, and DOE has leveraged several billion dollars more in
private support for development of advanced renewable fuels. USDA's
Biorefinery Assistance Program has provided loan guarantees for the
development and construction of commercial scale biorefineries with a
number of the new projects focused on producing fuels other than
ethanol. Greater GHG benefits are expected to be realized as the
production and use of advanced biofuels accelerates, and the volume
requirements that we are proposing support this goal.
A. Purpose of This Action
The national volume targets of renewable fuel that are intended to
be achieved under the RFS program each year (absent an adjustment or
waiver by EPA) are specified in CAA section 211(o)(2). The statutory
volumes for 2014, 2015, and 2016 are shown in Table I.A-1. The
cellulosic biofuel and BBD categories are nested within the advanced
biofuel category, which is itself nested within the total renewable
fuel category. This means, for example, that each gallon of cellulosic
biofuel or BBD that is used to satisfy the individual volume
requirements for those fuel types can also be used to satisfy the
requirements for advanced biofuel and renewable fuel.
Table I.A-1--Applicable Volumes Specified in the Clean Air Act
[Billion ethanol-equivalent gallons] \a\
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2014 2015 2016
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Cellulosic biofuel.............................. 1.75 3.0 4.25
Biomass-based diesel............................ >=1.0 >=1.0 >=1.0
Advanced biofuel................................ 3.75 5.5 7.25
Renewable fuel.................................. 18.15 20.5 22.25
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\a\ All values are ethanol-equivalent on an energy content basis, except
values for BBD which are given in actual gallons.
Under the RFS program, EPA is required to determine and publish
annual percentage standards for each compliance year. The percentage
standards are calculated so as to ensure use in transportation fuel of
the national ``applicable volumes'' of the four types of biofuel
(cellulosic biofuel, BBD, 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
gasoline and diesel fuel) to calculate their individual compliance
obligations. Each of the four percentage standards is applied to the
volume of non-renewable gasoline and diesel that each obligated party
produces or imports during the specified calendar year to determine
their individual volume obligations with respect to the four renewable
fuel types.
EPA is proposing annual applicable volume requirements for
cellulosic biofuel, advanced biofuel, and total renewable fuel for
2014, 2015, and 2016, and for BBD for 2014, 2015, 2016, and 2017. Table
I.A-2 lists the statutory provisions and associated criteria relevant
to determining the national applicable volumes used to set the
percentage standards in this proposed rule.
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\8\ Section 211(o)(7)(E) also authorizes EPA to issue a
temporary waiver of applicable volumes of BBD where EPA determines
that there is a significant feedstock disruption or other market
circumstance that would make the price of BBD fuel increase
significantly.
Table I.A-2--Statutory Provisions for Determination of Applicable Volumes
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Criteria provided in statute for
Applicable volumes Clean Air Act reference determination of applicable volume
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Cellulosic biofuel................... 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 in coordination with
other federal agencies.
211(o)(7)(A).................... EPA may waive the statutory volume in
whole or in part if implementation
would severely harm the economy or
environment of a State, region, or the
United States, or if there is an
inadequate domestic supply.
Biomass-based diesel \8\............. 211(o)(2)(B)(ii) and (v)........ Required volume for years after 2012
must be at least 1.0 billion gallons,
and must be based on a review of
implementation of the program,
coordination with other federal
agencies, and an analysis of specified
factors.
211(o)(7)(A).................... EPA may waive the statutory volume in
whole or in part if implementation
would severely harm the economy or
environment of a State, region, or the
United States, or if there is an
inadequate domestic supply.
Advanced biofuel..................... 211(o)(7)(D)(i)................. If applicable volume of cellulosic
biofuel is reduced below the statutory
volume to the projected volume, EPA
may reduce the advanced biofuel and
total renewable fuel volumes in CAA
211(o)(2)(B)(i)(I) and (II) by the
same or lesser volume. No criteria
specified.
211(o)(7)(A).................... EPA may waive the statutory volume in
whole or in part if implementation
would severely harm the economy or
environment of a State, region, or the
United States, or if there is an
inadequate domestic supply.
Total renewable fuel................. 211(o)(7)(D)(i)................. If applicable volume of cellulosic
biofuel is reduced below the statutory
volume to the projected volume, EPA
may reduce the advanced biofuel and
total renewable fuel volumes in CAA
211(o)(2)(B)(i)(I) and (II) by the
same or lesser volume. No criteria
specified.
211(o)(7)(A).................... EPA may waive the statutory volume in
whole or in part if implementation
would severely harm the economy or
environment of a State, region, or the
United States, or if there is an
inadequate domestic supply.
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[[Page 33104]]
In November 2013, we proposed standards for cellulosic biofuel,
BBD, advanced biofuel, and total renewable fuel for calendar year
2014.\9\ We received over 340,000 comments representing widely
diverging views on such topics as opportunities and constraints
associated with the E10 blendwall, the ability of the market to respond
to forward-leaning standards, the permissible interpretation of
statutory waiver authorities, and the intent of Congress. In December
2014, we published a Federal Register notice in which we noted the
substantial number of comments and the concerns of commenters, and
stating that EPA had been evaluating the issues raised in light of the
purposes of the statute and the Administration's commitment to the
goals of the statute to increase the use of renewable fuels.\10\ We
further indicated in that notice that finalization of the 2014
standards rule had been significantly delayed and that, due to this
delay and given ongoing consideration of the issues presented by the
commenters, EPA would not be in a position to finalize the 2014 RFS
standards before the end of 2014. We concluded that the approach in the
November 2013 proposal, projecting volume growth into the-then future,
was not an appropriate way to set standards in late 2014, for a year
that was largely over. Since the approach we proposed in November 2013
would need to be substantially modified to reflect the delay in issuing
the rule and actual renewable fuel use during the earlier part of 2014,
the action indicated that we intended to finalize the 2014 standards in
2015.
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\9\ 78 FR 71732, November 29, 2013.
\10\ 79 FR 73007, December 9, 2014.
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Not only is 2014 over, but this proposal is being released well
into 2015. We believe that the standards we set should take these facts
into account as we make an effort to return to the annual standard-
setting schedule in the statute. Therefore, we plan on finalizing the
applicable standards for 2014, 2015, and 2016 by November of this year.
Moreover, the terms of a proposed consent decree to resolve pending
litigation concerning EPA's failure to establish standards for 2014 and
2015 by the statutory deadline include a requirement for EPA to
promulgate final standards for 2014 and 2015 by November 30, 2015.\11\
By re-proposing the 2014 standards along with a proposal for the 2015
and 2016 standards, we are not only able to formulate a proposal for
public comment that takes into account the fact that 2014 is over and
the specific approach described in the November 2013 Notice of Proposed
Rulemaking (NPRM) is no longer applicable, but we can also coordinate
the proposed treatment of 2014 with the proposed treatment of 2015
wherein part of the year has likewise already passed. We are therefore
withdrawing the November 2013 NPRM; this proposal replaces and
supersedes that earlier proposal. While the many comments we received
on the November 2013 NPRM informed the development of this proposal, we
do not intend to specifically respond to comments on the prior
proposal, and we encourage members of the public to submit new comments
that are tailored to this new proposal. Given the substantial task
before the Agency to issue a final rule applicable to three calendar
years by November 30, 2015, we encourage commenters to submit concise
comments, and not to re-submit comments submitted on the withdrawn
proposal except to the extent that they have determined them to be
relevant under this proposal.
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\11\ See American Fuel and Petrochemical Manuf. et al v. EPA
(No. 15-cv-394, D.D.C.).
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As shown in Table I.A-2, the statutory authorities that provide
direction to EPA for how to modify or set the applicable standards
differ for the four categories of renewable fuel. 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 during the
year. In Section IV of this proposed rule, we present our analysis of
cellulosic biofuel production and proposed volumes for 2014, 2015, and
2016. This analysis is based on our evaluation of producers' production
plans and progress to date following discussions with cellulosic
biofuel producers.
With regard to BBD, CAA section 211(o)(2)(B) specifies the
applicable volumes of BBD to be used in the RFS program only through
year 2012. For subsequent years the statute sets a minimum volume of 1
billion gallons, and directs EPA to set the required volume after
consideration of a number of factors. In Section III of this preamble
we discuss our proposed volume requirements for BBD for 2014, 2015,
2016, and 2017.
Regarding advanced biofuel and total renewable fuel, Congress
provided several mechanisms through which those volumes could be
reduced if necessary. If 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 may also
reduce the applicable volumes of any of the four renewable fuel types
under the general waiver authority provided at CAA 211(o)(7)(A) if EPA
finds that implementation of the statutory volumes would severely harm
the economy or environment of a State, region, or the United States, or
if there is inadequate domestic supply. Section II of this proposed
rule describes our intended use of both the cellulosic waiver authority
and the general waiver authority to reduce volumes of advanced biofuel
and total renewable fuel to address three important realities:
Substantial limitations in the supply of cellulosic
biofuel,
Insufficient supply of other advanced biofuel to offset
the shortfall in cellulosic biofuel, and
Practical and legal constraints on the supply of ethanol
blends to the vehicles that can use them (in the form of E10, E15, and
higher level ethanol blends), driven in part by lower gasoline
consumption than was expected in 2007 when the target statutory volumes
were established.
We believe these realities justify the exercise of the authority
Congress provided us to waive the statutory volumes. At the same time,
we believe our exercise of the waiver authorities should be consistent
with the objectives of the statute to grow renewable fuel use over
time. We are proposing to use the waiver authorities to derive
applicable volumes that reflect the maximum volumes that can reasonably
be expected to be produced and consumed. Thus, while the standards that
we set must be achievable, we believe that they must also reflect the
power of the market to respond to the standards we set to drive
positive change in renewable fuel production and use.
We are proposing to exercise our authority to reduce volumes of
advanced biofuel and total renewable fuel only to the extent necessary
to remove the inadequacy in supply. That is, our objective in
exercising the general waiver authority is to set the volume
requirements at the boundary between an adequate domestic supply and an
inadequate domestic supply.\12\ One way of expressing this
[[Page 33105]]
objective is to say we are seeking to determine the maximum volumes of
renewable fuel that can be expected to be achieved in light of supply
constraints. This is a very challenging task not only in light of the
myriad complexities of the fuels market and how individual aspects of
the industry might change in the future, but also because we cannot
precisely predict how the market will respond to the volume-driving
provisions of the RFS program. Thus the determination of the maximum
achievable volumes is one that we believe necessarily involves
considerable exercise of judgment. To this end, we are proposing
``maximum achievable'' volumes of advanced biofuel and total renewable
fuel in this package that reflect our judgment as to where the boundary
between adequate domestic supply and inadequate domestic supply might
fall, particularly for 2015 and 2016.
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\12\ As discussed in Section II.A, EPA has considerable
discretion in exercising the cellulosic waiver authority, and is not
constrained to consider any particular factor or list of factors in
doing so. Nevertheless, EPA is proposing to base its exercise of the
cellulosic waiver authority on the same general considerations
justifying its use of the general waiver authority--availability of
renewable fuel and the legal and practical constraints on their
supply to vehicles and other qualifying uses. We invite comment on
this approach.
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On the basis of the authorities provided in the statute, we have
evaluated the supply of qualifying advanced biofuel and total renewable
fuels in light of the three limitations described above and other
relevant factors. Based on this evaluation, and after consultation with
the Departments of Agriculture and Energy, we believe that adjustments
to the statutory volumes of advanced biofuel and total renewable fuel
are warranted for 2014, 2015, and 2016. The proposed volumes for
advanced biofuel and total renewable fuel for 2015 and 2016 would lead
to growth in supply beyond 2014 based on the expectation that the
market can and will respond to the standards we set. Similarly, we are
proposing growth in the required volume of BBD in such a way that both
the biodiesel market and other advanced biofuels would grow.\13\ The
volumes that we are proposing for 2014, 2015, and 2016 are shown below.
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\13\ In addition to the volume requirements shown in Table I.A-3
for 2014, 2015, and 2016 for all four categories of renewable fuel,
this action also proposes a volume requirement of 1.9 billion
gallons for BBD in 2017.
Table I.A-3--Proposed Volume Requirements \a\
------------------------------------------------------------------------
2014 2015 2016
------------------------------------------------------------------------
Cellulosic biofuel (million gallons)........... 33 106 206
Biomass-based diesel (billion gallons)......... 1.63 1.70 1.80
Advanced biofuel (billion gallons)............. 2.68 2.90 3.40
Renewable fuel (billion gallons)............... 15.93 16.30 17.40
------------------------------------------------------------------------
\a\ All values are ethanol-equivalent on an energy content basis, except
for BBD which is biodiesel-equivalent.
B. Summary of Major Provisions in This Action
This section briefly summarizes the major provisions of this
proposal. We are proposing applicable volume requirements for
cellulosic biofuel, BBD, advanced biofuel, and total renewable fuel for
2014, 2015, and 2016, as well as the applicable volume requirement for
BBD for 2017. The following sub-section summarizes our approach to
determining the proposed requirements. This action also includes a
proposed response to several requests we received in 2013 for a waiver
of the 2014 standards. We are also proposing an amendment to the
regulations designed to clarify the scope of the algal biofuel pathway.
Finally, we are proposing new deadlines for annual compliance reporting
and attest reporting for the 2013, 2014 and 2015 compliance years.
1. Proposed Approach To Setting Standards for 2014, 2015, and 2016
Because 2014 has passed, the final rule cannot alter the volumes of
renewable fuel produced and consumed during 2014. We believe it is
appropriate, therefore, that the standards we establish for 2014
reflect the actual supply in 2014. Similarly, this rulemaking can only
have a partial impact on the volumes of renewable fuel produced and
consumed in 2015. Although we believe that the standards we set for
advanced biofuel and total renewable fuel must be ambitious to be
consistent with the intent of Congress in establishing the RFS program,
we also recognize that the standards we set cannot affect the past.
Therefore, in this action we are proposing to base the applicable
volume requirements for 2014 on actual renewable fuel use, as
determined by data on the number of Renewable Identification Numbers
(RINs) generated from the EPA-Moderated Transaction System (EMTS),
minus the number of RINs retired to account for renewable fuel export
as reported by the Energy Information Administration (EIA) or retired
for other purposes unrelated to demonstrating compliance with the
annual standards as reported through EMTS.\14\ While this approach
would result in exactly the number of 2014 RINs available for
compliance that would be needed for compliance with the 2014 standards,
we recognize that it does not guarantee that every individual obligated
party will have the exact number of 2014 RINs needed for compliance
with its individual RVOs. Thus there may be some costs associated with
the reallocation of 2014 RINs to those obligated parties that need
them. However, such disproportionate RIN holdings can occur in any
year. We do not believe it would be appropriate to exercise our waiver
authority to reduce the 2014 standards below the number of 2014 RINs
available for compliance. Rather, we believe that we should rely on the
market to sort out the distribution of RINs among obligated parties.
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\14\ A RIN is a 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. RINs may
be retired for a number of reasons, including to account for
renewable fuel spills or to correct for RIN generation errors.
---------------------------------------------------------------------------
Similarly for 2015, we are proposing to account for the fact that
the final standards will be limited in their ability to affect supply
prior to the final rule. For 2016, our proposed volume requirements are
based on the expectation that the entire calendar year will be
available for obligated parties and the fuels markets to plan for and
come into compliance.
We are proposing the same approach to assessing past supply in the
standard-setting process for all four renewable fuel categories.
However, we are proposing that projections of supply for months after
issuance of the NPRM would be determined differently for the four
renewable fuel categories. For advanced biofuel and total renewable
fuel, assessment of future supply would simultaneously reflect the
statute's purpose to drive growth in renewable fuels, while also
accounting for constraints in the market that make the volumes
specified in the statute beyond reach, as described more fully in
Section II. For the BBD standard, growth would be based on an analysis
of a set of factors stipulated in CAA 211(o)(2)(B)(ii), as described in
more detail in Section III. Finally, as described in Section IV, the
applicable volume of cellulosic biofuel would be based on a projection
of production that reflects a neutral aim at accuracy as
[[Page 33106]]
required by the United States Court of Appeals for the District of
Columbia Circuit in API v. EPA, 706 F.3d 474 (January 25, 2013).
2. Advanced Biofuel and Total Renewable Fuel
Since the EISA-amended RFS program began in 2010, we have reduced
the applicable volume of cellulosic biofuel each year in the context of
our annual RFS standards rulemakings to the projected production
levels, and we have considered whether to also reduce the advanced
biofuel and total renewable fuel statutory volumes pursuant to the
waiver authority in section 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 realistically be
supplied to vehicles as either E10 or higher ethanol blends given
various constraints was not a limiting factor in the standard-setting
process in prior years. Furthermore, the availability of non-cellulosic
advanced biofuels was determined to be sufficient to overcome the
shortfall in cellulosic biofuel. However, for 2014 and later years,
neither of these two factors remains true, and as a result we are
proposing reductions for these categories of renewable fuel for 2014,
2015, and 2016 using the waiver authorities provided in CAA 211(o)(7).
Our determination in this proposal that the required volumes of
advanced biofuel and total renewable fuel should be reduced from the
statutory targets is based on a consideration of the ability of the
market to supply such fuels through domestic production or import and
the ability of available renewable fuels to be used as transportation
fuel, heating oil, or jet fuel.\15\ For example, the potential use of
renewable fuels as transportation fuel, heating oil, or jet fuel
depends in part on the infrastructure available for distributing,
blending, and dispensing renewable fuels, as well as the vehicles in
the fleet capable of consuming various renewable fuels. As described in
more detail in Section II.A, we believe that the availability of
qualifying renewable fuels and constraints on their supply to vehicles
that can use them are valid considerations under both the cellulosic
waiver authority under section 211(o)(7)(D)(i) and the general waiver
authority under section 211(o)(7)(A). We are proposing to use the
waiver authorities in a limited way that reflects our understanding of
how to reconcile real marketplace constraints with Congress' intent to
promote growth in renewable fuel use over time.
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\15\ 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.
---------------------------------------------------------------------------
We have projected applicable volumes for advanced biofuel and total
renewable fuel for 2015 and 2016 that would result in significant
volume growth over the levels supplied in previous years, and which in
our judgment are as ambitious as can reasonably be justified. The
proposed volume requirements for 2015 and 2016 reflect the growth rates
in both categories of renewable fuel that can be attained under a
program explicitly designed to be ``market-driving,'' and that would
not be expected to occur in the absence of those volume requirements.
3. Biomass-Based Diesel
A key issue before the Agency in considering the appropriate
biomass-based diesel (BBD) applicable volume is the extent to which a
portion of the advanced biofuel volume requirement should be set aside
exclusively for BBD. In EISA, Congress chose to set aside a portion of
the advanced biofuel standard for BBD, but only through 2012. Beyond
2012 Congress stipulated that EPA, in coordination with other agencies,
was to establish the BBD volume taking into consideration the history
of the program and various specified factors, providing that the
required volume could not be less than 1.0 billion gallons. For 2013,
EPA established an applicable volume of 1.28 billion gallons. The BBD
standards in practice only establish the minimum volume required;
substantially higher volumes have been used in past years to help
satisfy the advanced biofuel standard. If BBD outcompetes other
advanced biofuels in the marketplace as occurred in 2013, then the BBD
standard serves as a floor and not a ceiling. Indeed, only 1.28 billion
gallons of BBD were required in 2013, yet 1.55 billion gallons were
supplied by the market.\16\ Furthermore, the total renewable standard
can provide an incentive for even more BBD and other advanced biofuels
to be supplied than is actually required, as also occurred in 2013:
While the applicable advanced biofuel volume requirement was 2.75
billion ethanol-equivalent gallons, the market actually supplied 3.02
billion ethanol-equivalent gallons, and most of this was BBD.
---------------------------------------------------------------------------
\16\ In 2013 1.55 billion gallons of BBD were supplied to the
U.S. market. This reflects the sum of domestically produced BBD plus
imported BBD minus domestically produced BBD that was exported. This
number was developed using the EPA Moderated Transaction System
(EMTS) data available at http://www.epa.gov/otaq/fuels/rfsdata/2013emts.htm (last accessed May 20, 2015)
---------------------------------------------------------------------------
To preserve the important role that BBD plays in the RFS program,
as well as to ensure that higher volume requirements for advanced
biofuel can be reached, we believe that it would be appropriate to
increase the BBD volume requirement for each year in the 2015 to 2017
time period. However, we also believe that it is of ongoing importance
that opportunities for other types of advanced biofuel be expanded,
such as renewable diesel co-processed with petroleum, renewable
gasoline blendstocks, and heating oil, as well as others that are under
development. Thus, based on a review of the implementation of the
program to date and all the factors required under the statute, we are
not only proposing to set the 2014 BBD volume requirement at the actual
volume of 1.63 billion gallons, but we are also proposing increases in
the applicable volume of BBD to 1.7, 1.8, and 1.9 billion gallons for
the years 2015, 2016, and 2017, respectively. We believe that these
increases would support the overall goals of the program while also
maintaining the incentive for development and growth in production of
other advanced biofuels. We believe establishing the volumes at these
levels will encourage BBD producers to manufacture higher volumes of
fuel that will contribute to the advanced biofuel and total renewable
fuel requirements, while also leaving considerable opportunity within
the advanced biofuel mandate for investment in and production of other
types of advanced biofuel with comparable or potentially superior
environmental or other benefits.
4. Cellulosic Biofuel
The cellulosic biofuel industry continues to transition from
research and development (R&D) and pilot scale operations to commercial
scale facilities, leading to significant increases in production
capacity. RIN generation from the first commercial scale cellulosic
biofuel facility began in March 2013. Cellulosic biofuel production
increased substantially in 2014, with over 33 million gallons in that
year. Last year also saw the grand openings of multiple new large
commercial scale cellulosic ethanol facilities, and a significant
number of
[[Page 33107]]
cellulosic biofuel RINs generated using cellulosic biogas through a new
pathway approved by EPA in 2014. For 2014 we are proposing a cellulosic
biofuel standard of 33 million gallons, consistent with the total
number for RINs generated in 2014 that may be used toward satisfying an
obligated party's cellulosic biofuel obligation (both cellulosic
biofuel (D3) and cellulosic diesel (D7) RINs.) We are also proposing a
cellulosic biofuel standard of 106 million ethanol-equivalent gallons
for 2015 and 206 million ethanol-equivalent gallons in 2016 based on
the information we have received regarding individual facilities'
capacities, production start dates and biofuel production plans, as
well as input from other government agencies, and EPA's own engineering
judgment.
As part of estimating the volume of cellulosic biofuel that would
be made available in the U.S. in 2015 and 2016, we researched all
potential production sources by company and facility. This included
sources that were still in the planning stages, facilities that are
under construction, facilities that are in the commissioning or start-
up phases, and facilities that are already producing some volume 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 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 as
transportation fuel, heating oil, or jet fuel by the end of 2016. To
arrive at projected volumes, we collected relevant information on each
facility. We then developed projected production ranges based on
factors such as the current and expected state of funding, the status
of the technology being used, progress towards construction and
production goals, facility registration status, production volumes
achieved, and other significant factors that could potentially impact
fuel production or the ability of the produced fuel to qualify for
cellulosic biofuel RINs. We also used this information to group these
companies based on production history and to select a value within the
aggregated projected production ranges that we believe best represents
the most likely production volumes from each group for each year.
Further discussion of these factors and the way they were used to
determine our proposed cellulosic biofuel projections for 2014, 2015,
and 2016 can be found in Section IV.
5. Annual Percentage Standards
The renewable fuel standards are expressed as a volume percentage
and are used by each refiner and importer of fossil-based gasoline or
diesel to determine their renewable fuel volume obligations. The
percentage standards are set so that if each obligated party meets the
standards, 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, BBD, 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 renewable fuel categories
shown in Table I.A-1. The specific formulas we use in calculating the
renewable fuel percentage standards are contained in the regulations at
40 CFR 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 volume of transportation gasoline and
diesel used to calculate the proposed percentage standards was derived
from EIA projections. The proposed standards for 2014, 2015, and 2016
are shown in Table I.B.5-1. Detailed calculations can be found in
Section V, including the projected gasoline and diesel volumes used.
Table I.B.5-1--Proposed Percentage Standards
------------------------------------------------------------------------
2014 2015 2016
(%) (%) (%)
------------------------------------------------------------------------
Cellulosic biofuel................................. 0.019 0.059 0.114
Biomass-based diesel............................... 1.42 1.41 1.49
Advanced biofuel................................... 1.52 1.61 1.88
Renewable fuel..................................... 9.02 9.04 9.63
------------------------------------------------------------------------
6. Response To Requests for a Waiver of the 2014 Standards
Concurrently with the November 29, 2013 proposal for 2014 RFS
standards, we also published a separate Federal Register Notice \17\
indicating that the American Petroleum Institute (API) and the American
Fuel & Petrochemical Manufacturers (AFPM) had submitted a joint
petition requesting a partial waiver of the 2014 applicable RFS
volumes, and that several individual refining companies had also
submitted similar petitions. We noted that any additional similar
requests would also be docketed and considered together with requests
already received. EPA has subsequently received additional waiver
petitions, including those submitted by nine Governors.\18\
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\17\ 78 FR 71732 (November 29, 2013) and 78 FR 71607 (November
19, 2013), respectively.
\18\ EPA has received, to date, waiver petitions from Governors
Deal (GA), Fallin (OK), Perry (TX), Otter (ID), LePage (ME),
Martinez (NM), McCrory (NC), Herbert (UT), and Haley (SC). In
addition to the waiver petition from API/AFPM, EPA has also received
waiver petitions from the following companies: Delek, ExxonMobil,
Holly Frontier, Lion Oil Petroleum, Marathon Oil, NCRA, PBF Holding
Company, Phillips 66, and Tesoro.
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The petitions generally asserted that for 2014 there is an
inadequate domestic supply of renewable fuel and therefore RINs, due
both to E10 blendwall constraints, and limitations on the supply of
higher level ethanol blends, and of non-ethanol renewable fuels.
Certain of the petitioners argued that this inadequate supply of
renewable fuel (and RINs) will lead to an inadequate supply of gasoline
and diesel, because refiners and importers, faced with a shortage of
RINs, will reduce their production of gasoline and diesel for the
domestic market. They argued that this will in turn severely harm the
economy.
As calendar year 2014 has passed, we believe it is appropriate to
set the applicable volume requirements at the volumes that were
actually supplied in 2014. We do not believe that use of 2014 renewable
fuel volumes severely harmed the economy, and we believe that it is
straightforward to conclude that there was an adequate supply of the
volumes of renewable fuel that were actually used in 2014. Therefore,
we do not believe that adequate justification exists for setting the
2014 volume requirements at levels below those actually supplied. We
propose that our final action in this rulemaking will resolve the
extent to which waivers are appropriate for 2014 and, therefore, will
identify the scope of relief that should be accorded petitioners.
7. Proposed Changes to Regulations
In addition to proposing the aforementioned volume requirements and
associated percentage standards, we are also proposing amendments to
the RFS requirements to address two issues. First, we are proposing
changes with respect to the existing algal oil pathway to clarify that
only biofuels produced from oil from algae grown photosynthetically
qualify for the RFS program under this pathway. We are aware of several
companies that plan to produce biofuels from algae that use non-
photosynthetic types of
[[Page 33108]]
metabolism. Companies wishing to produce biofuels from algae grown with
a non-photosynthetic stage of growth must apply to EPA for approval of
their pathway pursuant to 40 CFR 80.1416. Since EPA assumed that algae
would be grown photosynthetically when it evaluated the lifecycle
greenhouse gas emissions associated with the existing algal oil
pathway, we are clarifying the regulatory description of the pathway to
align with EPA's technical assessment and interpretation of the scope
of this pathway.
We are also proposing to revise the annual compliance reporting
deadlines for obligated parties and renewable fuel exporters, and the
attest engagement reporting deadlines for obligated parties, RIN-
generating renewable fuel producers and importers, other parties
holding RINs, renewable fuel exporters, and independent third-party
auditors for the 2013, 2014 and 2015 compliance years. The proposed
deadlines would vary for each of these parties depending on the
applicable compliance period, and some parties would be required to
submit partial annual reports representing a portion of the 2014
compliance year. A detailed description of our proposed changes to
reporting deadlines can be found in Section VI.B.
C. Authority for Late Action and Applicability of the Standards
Under CAA 211(o)(3)(B)(i), EPA must determine and publish the
annual percentage standards by November 30 of the preceding year, and
it must establish applicable volumes for biomass-based diesel 14 months
in advance of the compliance year. EPA did not meet the statutory
deadline for the 2014 or the 2015 percentage standards, nor the 2014,
2015, and 2016 biomass-based diesel applicable volumes. Nevertheless,
we are proposing that the percentage standards established through this
rulemaking would apply to all gasoline and diesel produced or imported
in calendar years 2014, 2015, or 2016 as applicable.
We acknowledge that this rule is being proposed later than the
statutory deadlines noted above. However, this delay does not deprive
EPA of authority to issue applicable volumes and standards for these
calendar years. The United States Court of Appeals for the District of
Columbia Circuit recently upheld the 2013 RFS standards even though
they were issued more than eight months after statutory deadline.
Monroe Energy v. EPA, 750 F.3.d 909 (D.C. Cir. 2014). The court noted
that it had resolved the question of EPA's authority to issue RFS
standards after the statutory deadline for issuing the annual RFS
standards in NPRM v. EPA, 630 F.3d 145 (D.C. Cir. 2010). In that case,
the court explained that courts have declined to treat a statutory
direction that an agency ``shall'' act within a specified time period
as a jurisdictional limit that precludes action later. Id. at 154
(citing Barnhart v. Peabody Coal, 537 U.S. 149, 158 (2003)). Moreover,
the court noted that the statute here requires that EPA regulations
``ensure'' that transportation fuel sold or introduced into commerce
``on an annual average basis, contains at least the volumes of
renewable fuel'' that are required pursuant to the statute. Id. at 152-
153. This statutory directive requires EPA action, even if late.
Therefore EPA believes it has authority to issue RFS standards for
calendar years 2014 and 2015, and biomass-based diesel applicable
volumes for 2014-2016, notwithstanding EPA's delay.
EPA proposes to exercise its authority to issue standards
applicable to past time periods in a reasonable way. Thus, for 2014,
EPA is proposing to establish renewable fuel obligations that reflect
actual renewable fuel used as transportation fuel, heating oil, or jet
fuel during that time period, and the proposed compliance deadline for
2014 allows time for obligated parties to complete necessary
transactions. For 2015 we are similarly proposing to take into account
actual renewable fuel use during the time that has already passed in
2015. Renewable fuel producers generated RINs throughout 2014, and have
also been generating 2015 RINs since the beginning of the calendar
year. To varying degrees, obligated parties have been acquiring RINs
since the beginning of 2014 in anticipation of the publication of final
volume requirements and standards. While we acknowledge the uncertainty
that the market has experienced due to the delay, our proposal to
determine the applicable requirements to account for past production
for both 2014 and 2015 means that there will be an adequate quantity of
RINs available to satisfy those portions of the proposed
requirements.\19\ In addition, there are a number of program
flexibilities that will facilitate compliance. There is a considerable
bank of carryover RINs that can be used to comply with up to 20% of the
2014 RVOs, and to the extent it is not used, that bank of carryover
RINs can be rolled forward to assist in compliance with 2015 and 2016
requirements. We acknowledge that there is a theoretical possibility
that parties that accumulate RINs through their own blending activities
could decide to bank the maximum quantity of RINs for their own future
use or for future sale, and that if this practice were widespread that
there could be a shortfall in available RINs for parties who do not
engage in renewable fuel blending activities themselves and have not
entered into sufficient contracts with blenders or other parties to
acquire sufficient RINs. Such practices are possibilities in any
competitive marketplace, and we believe that obligated parties have had
sufficient experience with the RFS program to have taken precautionary
measures to avoid such results and to be prepared to comply with
applicable standards potentially as high as the statute requires. Even
where they have not done so, and find compliance with a given year's
standards infeasible, they may avail themselves of the option of
carrying a compliance deficit forward for that compliance year to the
next. In sum, we believe that EPA's proposed approach is authorized and
reasonable, though late.
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\19\ Furthermore, although EPA is late in establishing
applicable volumes for biomass-based diesel for 2015 and 2016, we
are proposing to set the applicable volumes of BBD for these years
at levels below what we anticipate can actually be produced and used
for compliance with the advanced biofuel requirements. Therefore,
there should be a more than adequate supply of BBD RINs for
compliance with the standards proposed.
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D. Outlook for 2017 and Beyond
We recognize that a number of challenges must be overcome in order
to fully realize the potential for greater use of renewable fuels in
the United States. We also recognize that the RFS program plays a
central role in creating the incentives for realizing that potential.
The standards being proposed would require that significant progress is
made in overcoming those challenges. We expect future standards to both
reflect and anticipate progress of the industry and market in providing
for continued expansion in the supply of renewable fuels.
We believe that the supply of renewable fuels can continue to
increase in the coming years despite the constraints associated with
shortfalls in cellulosic biofuel production and other advanced
biofuels, and constraints associated with supplying renewable fuels to
the vehicles and engines that can use them. As described in Section
II.B, we believe that the market is capable of responding to ambitious
standards by expanding infrastructure and modifying fuel pricing to
provide incentives for the production and use of renewable fuels. While
we do not believe that the statutory volumes can be reached within the
next several years, the market is capable of attaining
[[Page 33109]]
volumes significantly higher than in the past.
In future years, we would expect to use the most up-to-date
information available to project the growth that can realistically be
achieved considering the ability of the RFS program to spur growth in
the volume of ethanol, biodiesel, and other renewable fuels that can be
supplied and consumed by vehicles. In particular we will focus on the
emergence of advanced biofuels including cellulosic biofuel. 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. We will
continue to evaluate new pathways especially for advanced biofuels and
respond to petitions, expanding the availability of feedstocks,
production technologies, and fuel types eligible under the RFS program.
In addition to ongoing efforts to evaluate new pathways for
advanced biofuel production, we are aware that other actions can also
play a role in improving incentives provided by the RFS program to
overcome challenges that limit the potential for increased volumes of
renewable fuels. Such actions could potentially include amendments to
program regulations that would help enable and potentially accelerate
growth in renewable fuel volumes over time. We are currently
considering ideas and various options for such actions. The details of
such actions are beyond the scope of this current rulemaking, but we
will continue to engage interested stakeholders as we move forward.
There are also other approaches to determining volume requirements
for future years that have been suggested as potentially helping to
ensure growth in supply of renewable fuel. For instance, our proposed
approach to determining the volume requirements for advanced biofuel
and total renewable fuel in 2015 and 2016 is one of determining the
maximum achievable supply by acknowledging constraints on supply to
consumers resulting from the E10 blendwall, limitations in production
and import capabilities, and the ability of the market to respond to
the standards we set. As described in Section II.D.2, there are a
variety of ways that the market could respond to our proposed
standards.
However, we recognize that since the majority of renewable fuel
today is currently consumed as 10 percent ethanol blends, changes in
demand for gasoline can have a significant impact on the ability of the
marketplace to blend fixed volumes of renewable fuels. As such, an
alternative approach to characterizing expected growth in renewable
fuels would be to project the share of the fuel pool that can
reasonably be expected to be comprised of renewable fuel over time. In
this way, increases or decreases in gasoline demand would be reflected
in corresponding increases or decreases in mandated renewable fuel
volumes. The distinction between volumes and renewable share (share of
the market, expressed as a percentage) is not important once the annual
standards are established because the volumes are converted to shares
(percentage standards) and changes in gasoline and diesel fuel volume
then automatically lead to corresponding changes in renewable fuel
volumes. However, future gasoline consumption depends on many factors
and is highly uncertain; there may be unanticipated changes in fuel
consumption compared to current EIA projections, as there have been in
the past. For example, if EPA were to adopt an outlook for future years
based on a growth rate for the renewable share of the fuel pool, it
would be easier to maintain such a growth rate--rather than maintaining
an outlook for specific volumes--if gasoline consumption becomes
unexpectedly low. We recognize that projections of expected future
growth in renewable fuels can be expressed in terms of either absolute
volumes or as a share of the transportation fuel pool, that
stakeholders may see advantages in the latter, and we expect there may
be additional conversation on this issue in the future.
II. Proposed Advanced Biofuel and Total Renewable Fuel Volumes for
2014-2016
The national volume targets of advanced biofuel and total renewable
fuel to be used under the RFS program each year are specified in CAA
section 211(o)(2). However, two statutory provisions authorize EPA to
reduce these volumes under certain circumstances. EPA may reduce these
volumes to the extent that we reduce the applicable volume for
cellulosic biofuel, or if the criteria are met under the general waiver
authority.\20\ We have evaluated the capabilities of the market and
have determined that the volumes for advanced biofuel and total
renewable fuel specified in the statute cannot be achieved in 2014--
2016. As a result we are proposing to exercise our discretion under
these statutory provisions to reduce the applicable volumes of advanced
biofuel and total renewable fuel to address limitations in production
or importation of these fuels, and factors that limit supplying them to
vehicles that can consume them.
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\20\ See CAA section 211(o)(7)(D) and (A).
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While we are proposing to use our waiver authorities under the law
to reduce applicable volumes from the statutory levels, the proposed
volume requirements are nevertheless intended to drive significant
growth in renewable fuel use beyond what would occur in the absence of
such requirements. The proposed volume requirements are intended to be
market-driving while staying within the limits of feasibility. The net
impact of these proposed volume requirements is that the necessary
volumes of both advanced biofuel and conventional (non-advanced)
renewable fuel would increase over levels used in the past. The volumes
that we are proposing are shown below.
Table II-1--Proposed Volume Requirements
[Billion gallons]
------------------------------------------------------------------------
2014 2015 2016
------------------------------------------------------------------------
Advanced biofuel................................ 2.68 2.90 3.40
Total renewable fuel............................ 15.93 16.30 17.40
------------------------------------------------------------------------
A. Statutory Authorities for Reducing Volumes To Address Renewable Fuel
Availability and the E10 Blendwall
Congress specified increasing annual volume objectives in the
statute for total renewable fuel, advanced biofuel, and cellulosic
biofuel for every year through 2022, and for biomass-based diesel (BBD)
through 2012, and authorized EPA to set volume objectives for
subsequent years after 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 waiver provisions in CAA 211(o)(7). As described
below, we believe that limitations in production or importation of
qualifying renewable fuels, and factors that limit supplying those
fuels to the vehicles that can consume them, both constitute
circumstances that warrant a waiver under section 211(o)(7). The
decrease in total gasoline consumption in recent years which resulted
in a corresponding and proportional decrease in the maximum amount of
ethanol that can be consumed if all gasoline was E10, the limited
number and geographic distribution of retail stations that offer higher
ethanol blends such as E15 and E85, the number of FFVs that have access
to E85, as well
[[Page 33110]]
as other market factors, combine to place significant restrictions on
the volume of ethanol that can be supplied to vehicles at the present
time. Based on our assessment of the maximum amount of renewable fuel
that can be supplied in 2014, 2015 and 2016 in light of these
constraints, we believe that circumstances exist that warrant a
reduction in the statutory applicable volumes of advanced biofuel and
total renewable fuel for 2014, 2015 and 2016.
EPA is proposing to use two separate and complementary legal
authorities to set required volumes of advanced biofuel and total
renewable fuel to levels below the volume objectives described in the
statute: The cellulosic waiver authority under CAA section
211(o)(7)(D)(i), and the general waiver authority under CAA section
211(o)(7)(A). This section discusses both of these statutory
authorities and briefly describes our proposed use of the authorities
to determine appropriate reductions in advanced biofuel and total
renewable fuel in comparison to the statutory volumes.
As described in Section I, EPA has withdrawn its November 29, 2013
proposed rule to establish 2014 RFS standards, and is re-proposing
standards for 2014 that reflect consideration of actual renewable fuel
use during 2014. Since the current proposal is substantially different
than the previous one, we are generally not providing at this time, and
do not intend to provide at the time of our final action on this
proposal, a response to comments that were submitted in response to our
earlier proposal. However, since this proposal envisions interpretation
and use of RFS waiver authorities in essentially the same manner as
proposed in the withdrawn NPRM, and since we received a substantial
number of comments on that NPRM related to how the waiver authorities
should be interpreted and used, we are providing a general response to
the major comments we have received from stakeholders on these issues--
either in direct response to our November 29, 2013 NPRM or in
subsequent dialogue. We have not attempted to respond to all comments
on these issues, but instead hope to advance stakeholders' ability to
meaningfully comment on this proposal by discussing our consideration
to date of the most common comments we have received on these issues.
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.
Section 211(o)(7)(D)(i) also 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.'' Using this authority, the reductions in
total renewable fuel and advanced biofuel can be less than or equal to,
but no more than, the amount of reduction in the cellulosic biofuel
volume. In prior actions EPA has interpreted this provision as
authorizing EPA to reduce both total renewable fuel and advanced
biofuel, by the same amount, if EPA reduces the volume of cellulosic
biofuel.\21\
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\21\ See 74 FR 24914-15, and 78 FR 49794, August 15, 2013.
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The cellulosic waiver provision was recently discussed by the
United States Court of Appeals for the District of Columbia Circuit, in
the context of its review of EPA's 2013 annual RFS rule. As the Court
explained,
[T]he Clean Air Act provides that if EPA reduces the cellulosic
biofuel requirement, as it did here, then it ``may also reduce'' the
advanced biofuel and total renewable fuel quotas ``by the same or a
lesser volume.'' 42 U.S.C. 7545(o)(7)(D)(i). There is no requirement
to reduce these latter quotas, nor does the statute prescribe any
factors that EPA must consider in making its decision. See id. In
the absence of any express or implied statutory directive to
consider particular factors, EPA reasonably concluded that it enjoys
broad discretion regarding whether and in what circumstances to
reduce the advanced biofuel and total renewable fuel volumes under
the cellulosic biofuel waiver provision. Monroe v. EPA, 750 F.3d
909, 915 (D.C. Cir. 2014).
For the 2013 RFS rule, the Court determined that EPA had reasonably
declined to use the cellulosic waiver authority to reduce the advanced
and total renewable fuel statutory applicable volumes by analyzing
``the availability of renewable fuels that would qualify as advanced
biofuel and renewable fuel, the ability of those fuels to be consumed,
and carryover RINs from 2012.'' Id. at 916.
Some stakeholders have suggested that EPA may only exercise the
cellulosic waiver authority in circumstances described in Section
211(o)(7)(A) (that is, where there is inadequate domestic supply or
severe harm to the environment or economy), or that it must in
considering use of the cellulosic waiver authority consider the factors
specified in Section 211(o)(2)(B)(ii) that are required considerations
when EPA sets applicable volumes for years in which the statute does
not do so. Contrary to these comments, the DC Circuit found in Monroe
that the statute does not prescribe any factors that EPA must consider
in making its decision; EPA has broad discretion under Section
211(o)(7)(D)(i) to determine when and under what circumstances to
reduce the advanced and total renewable fuel volumes when it reduces
the statutory applicable volume of cellulosic biofuel.
In general, we do not believe that it would be consistent with the
energy security and greenhouse gas reduction goals of the statute to
reduce the applicable volumes of renewable fuel set forth in the
statute absent a substantial justification for doing so. When using the
cellulosic waiver authority, we believe that there would be a
substantial justification in circumstances where qualifying renewable
fuels either are not available, or legal and practical constraints
limit their supply to vehicles and other qualifying uses. In addition
we may on a case-by-case basis consider additional factors on our own
initiative, if we determine that such factors may present substantial
justification for reducing the statutory volumes, or additional
justification for not reducing them, and we will also consider all
comments on the matter. Factors considered by EPA in exercising the
cellulosic waiver authority may include those specified in Section
211(o)(2)(B)(ii), or other factors that EPA deems relevant in the
context of the statutory objectives and program structure. We will
identify and evaluate any such factors on a case-by-case basis. For
this proposed rulemaking, we have identified the availability of
renewable fuels and the legal and practical constraints on their supply
to vehicles and other qualifying uses as the factors that justify the
proposed exercise of our cellulosic waiver authority. We solicit
comment on other relevant factors, and whether the relevant factors
would justify reducing advanced and renewable fuel volumes by different
amounts.
As discussed in Section IV, we are proposing to reduce the
applicable volume of cellulosic biofuel for 2014, 2015 and 2016. We are
also proposing to use our cellulosic waiver authority under section
211(o)(7)(D)(i) to reduce the applicable volumes of advanced biofuel
and total renewable fuel for these years as a first step in determining
the volume requirements to propose. Our proposed justification for
doing so is a limitation in the availability of
[[Page 33111]]
qualifying advanced biofuel and constraints on the ability to supply
qualifying renewable fuels to the vehicles that use them. We have
considered the possible role of carryover RINs in avoiding the need to
reduce the statutory applicable volumes, as we did in setting the 2013
RFS standards, but have decided that the availability of carryover RINs
should not preclude reducing the applicable volumes for the reasons
described in Section II.F. We are proposing to use the cellulosic
waiver authority to reduce the advanced biofuel volume to the level of
available supply, and are also proposing to use this authority to
reduce total renewable volumes by the same amount. However, doing so
is, we believe, insufficient to address all the supply limitations
applicable to total renewable fuel. Therefore, we are proposing to use
the general waiver authority as supplemental authority for the
reductions in advanced biofuel and as the sole authority for further
reductions in total renewable fuel volumes.\22\
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\22\ Assuming EPA finalizes a volume reduction for the advanced
biofuels that is no larger than the final reduction in the
applicable volume of cellulosic biofuel, EPA could rely on only the
cellulosic waiver authority for its final action with respect to
advanced biofuel.
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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.
We are proposing to use the general waiver authority based on the
statute's authorization for the Administrator to act on her own motion
on a finding of inadequate domestic supply.\23\ We propose to use this
authority in a supplemental fashion with respect to the volumes we
propose waiving using the cellulosic waiver authority, and as the sole
authority for an additional increment of volume reduction for total
renewable fuel.
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\23\ We note that there are also pending requests pursuant to
CAA 211(o)(7(A) from a number of parties for EPA to exercise its
waiver authorities to reduce applicable volumes for 2014. While the
Administrator is acting on her own motion, she also proposes that to
resolve those petitions through and/or consistent with the final
rule establishing 2014 volume requirements.
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Because the general waiver provision provides EPA the discretion to
waive the volume requirements of the Act ``in whole or in part,'' we
interpret this section as granting EPA 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 is not
limited by the reduction in cellulosic biofuel.
EPA has had only limited opportunity to date to interpret and apply
the waiver provision in CAA section 211(o)(7)(A)(ii) related to
``inadequate domestic supply,'' and has never before done so in the
context of deriving an appropriate annual RFS standard. 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 in vehicles.
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.\24\ Hence the evaluation of 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 make renewable fuel available for use by the
ultimate consumers as transportation fuel. 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
their transportation fuel is a different and later aspect of this
process. For example, the renewable fuels ethanol and biodiesel are
typically supplied to obligated parties or blenders as a neat fuel, but
in almost all cases are supplied to the consumer as a blend with
conventional fuel (ethanol blended in gasoline or biodiesel blended in
diesel). The waiver provision does not specify what product is at issue
(for example, neat renewable fuel or renewable fuel that is blended
with transportation fuel) or the person or place at issue (for example,
obligated party, blender or ultimate consumer), in determining whether
there is an ``inadequate domestic supply.''
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\24\ 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 understood in terms of the parties who use
the supply of renewable fuel. Adequacy of supply could affect various
parties, including obligated parties, blenders, 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 renewable fuel blended
into 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)
contains provisions allowing EPA to defer the application of
reformulated gasoline (RFG) in states seeking to opt-in to the program.
There are two categories of states that may opt-in: Those with
nonattainment classifications indicating a more serious and/or
longstanding air quality problem (leading to classification as a
Marginal, Moderate, Serious or Severe nonattainment area) and those
that do not have such serious concerns, but which are nevertheless
within the ``ozone transport region'' established by CAA section
184(a). For the states with
[[Page 33112]]
more serious problems that seek to opt-in to the RFS program, section
211(k)(6)(A)(ii) allows EPA to defer application of RFG requirements if
EPA determines that ``there is insufficient domestic capacity to
produce reformulated gasoline.'' (Emphasis added.) However, for states
with less serious ozone nonattainment concerns that are part of the
ozone transport region, EPA may defer application of RFG requirements
if EPA finds that there is ``insufficient capacity to supply
reformulated gasoline.'' (Emphasis added.) We believe Congress likely
intended the ``capacity to supply'' RFG as being broader in scope than
the ``capacity to produce'' RFG. This is consistent with the common
understanding of the word ``supply' noted above as the amount of a
resource or product that is available for use by the person or place at
issue. Thus, while a source can have a ``capacity to produce,''
regardless of whether it has a market for its product, the concept of
``supply'' does not occur in isolation, but in reference to the person
intending to make use of the product. The term ``capacity to supply''
would therefore be expected to include consideration of the
infrastructure needed to deliver RFG to vehicles in the state within
the ozone transport region that is seeking to opt in to the program.
This distinction in the context of CAA section 211(k)(6) is logical,
since Congress can be expected to have put a higher premium on use of
RFG in states with the more serious ozone nonattainment issues, thereby
constraining EPA discretion to defer RFG requirements to the limited
situation where there is ``insufficient capacity to produce'' RFG. For
states with less serious problems, it would be logical for Congress to
have provided EPA with somewhat more latitude to defer application of
RFG, and Congress referred to this broader set of circumstances as
situations where there is an ``insufficient capacity to supply'' RFG.
The language of the RFS general waiver provision, in comparison,
involves use of a single 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.\25\ This would be consistent with
Congress's apparent intent in using the term ``supply'' in the context
of the RFG provision.
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\25\ The reasons why we believe the statute should be
interpreted in this way can be illustrated by examining the
differences between the RFG opt-in situation and the RFS program.
Limiting EPA's consideration to ``capacity to produce'' in the
context of deferring RFG implementation in a state with serious air
quality concerns is not likely to cause implementation problems
because:
1. Infrastructure upgrades necessary to shift from use of
conventional gasoline to RFG are relatively modest,;
2. The statute provides for up to one year between EPA's receipt
of an opt-in request and the effective date of a rule requiring use
of RFG, allowing time for the needed infrastructure upgrades; and
3. Opt-ins typically occur one state at a time, allowing
available infrastructure expansion resources to be focused in a
relatively small geographic area.
In contrast, allowing RFS waivers only where there is
insufficient ``capacity to produce'' renewable fuel would be
extremely problematic because:
1. The ethanol industry has the ability to produce far more
ethanol than can currently be consumed in the U.S.;
2. Ethanol is already being supplied at E10 levels, and any
further growth in ethanol use requires the time consuming
installation of costly new E15 or E85 pumps and tanks;
3. The number of vehicles that can use higher ethanol bends is
limited;
4. The statute envisions only one month between establishment of
annual standards and the start of a compliance year, allowing
limited time for infrastructure enhancements; and
5. The RFS is a nationwide program, and infrastructure
improvements would be needed throughout the country at the same time
to increase the nation's ability to consume renewable fuels at
levels corresponding with production capacity.
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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 or fuel additive to 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 as relating to supply
of renewable fuel (in neat or blended form) 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, given the ambiguity of the RFS provision, we believe that it
does provide EPA the discretion to adopt such an interpretation,
resulting in a policy approach consistent with that required by the
less ambiguous section 211(m) waiver provision.\26\
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\26\ 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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[[Page 33113]]
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
permissible, 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 obligated parties and blenders.
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.'' \27\ 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
constraints other than ``distribution capacity'' on delivering
renewable fuel to the ultimate consumer should not be considered for
purposes of granting a waiver.\28\ 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
ambiguous.
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\27\ H.R. 6 and S. 606 as reported by Senate Envt. & Public
Works in Senate Report 109-74.
\28\ There are, for example, legal constraints on the amount of
certain renewable fuels that may be blended into transportation
fuels. These are discussed in Section II.D.1 for ethanol.
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We believe that it is permissible under the statute to interpret
the term ``inadequate domestic supply'' to authorize EPA to consider
the full range of constraints, including legal, 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 legal constraints
affecting the volume of qualifying renewable fuel supplied to the
ultimate consumer.
We believe that our proposed interpretation is consistent with the
language of section 211(o), and Congressional intent in enacting the
program. It is evident from section 211(o) that Congress's intent was
not simply to increase production of renewable fuel, but rather to
provide that certain volumes of renewable fuel be used by the ultimate
consumer as a replacement for the use of fossil based transportation
fuel. The very definition of ``renewable fuel'' requires that the fuel
be ``used to replace or reduce the quantity of fossil fuel present in a
transportation fuel.'' CAA section 211(o)(1)(I); see also CAA
211(o)(1)(A) (definition of ``additional renewable fuel''). The RFS
program does not achieve the desired benefits of the program unless
renewable fuels are actually used to replace fossil based
transportation fuels in the United States.\29\ 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 in such a narrow way and limit EPA's
consideration of the distribution and use of renewable fuels by the
ultimate consumers of these fuels.
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\29\ For this reason, EPA's implementing regulations require
that fuels with multiple possible end uses, such as biogas or
electricity, are not considered to be renewable fuels absent a
demonstration that they will be used by the ultimate consumers as
transportation fuel. For instance, see 40 CFR 80.1426(f)(10)(i)(C)
and (f)(10)(ii)(C). Similarly, our regulations require the
retirement of RINs representing renewable fuel that is exported as
they are not supplied as transportation fuel in the U.S.
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As described in more detail in Section II.A.5 below, although at
least for 2014 and possibly 2015 and 2016, there is no shortage of
ethanol and other types of renewable fuel that could be used to satisfy
the statutory applicable volume of total renewable fuel, there are
practical and legal constraints on the ability of ethanol to be
delivered to and used as transportation fuel by vehicles. Legal
requirements limit ethanol content of most gasoline to 10% (which is
delivered as E10), but for subsets of vehicles allow up to either 15%
ethanol (for 2001 and newer light-duty vehicles) or up to 85% ethanol
(for flex fuel vehicles).\30\ In addition there are marketplace and
infrastructure constraints that limit the use of higher level (>10%)
ethanol blends. These considerations prevent the fuel market from
supplying vehicles the volumes of ethanol needed to meet the statutory
level of total renewable fuel, and as such they create an inadequate
domestic supply of renewable fuel that can actually be delivered to
consumers and used as transportation fuel. EPA has evaluated this
situation, and in this proposed rule is using the general waiver
authority, together with our cellulosic waiver authority, to address
this inadequate domestic supply situation.
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\30\ See, e.g., EPA partial waiver decisions at 75 FR 68094
(Nov. 4, 2010) and 76 FR 4662 (Jan. 26, 2011).
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We proposed the same interpretation of our general waiver authority
in the November, 2013 NPRM for the 2014 RFS standards (which we are
withdrawing in light of this re-proposal of 2014 standards) and we
received many comments addressing our proposed interpretation. Although
we are not generally responding to comments on the withdrawn 2014 RFS
proposal, to aid the public in their evaluation of this proposal we
discuss below the most common themes of comments received and our
current assessment of them.
A number of stakeholders disagreed that a review of other CAA
waiver authorities supports the conclusion that the term ``inadequate
domestic supply'' is ambiguous, and that it can be interpreted to
include consideration of infrastructure and other constraints related
to the delivery and use of renewable fuel by vehicles. Most such
stakeholders focused on section
[[Page 33114]]
211(m)(3)(C)(i), which provides for a waiver of the requirement to use
oxygenated gasoline in certain carbon monoxide nonattainment areas
where there is ``an inadequate domestic supply of, or distribution
capacity for, oxygenated gasoline.'' They argued that this provision
demonstrates that infrastructure considerations are distinct from
supply, and that Congress would have used similar language in section
211(o)(7)(A) if it intended EPA to consider infrastructure and other
constraints as a basis for an RFS waiver. These stakeholders asserted
that there can be no inadequate domestic supply if there is sufficient
qualifying renewable fuel produced and available for purchase by
obligated parties and, consequently, that any difficulty that obligated
parties may experience in delivering renewable fuels to consumers is
irrelevant under CAA section 211(o)(7)(A). However, EPA believes that
these stakeholders' analysis has merit only when sections
211(m)(3)(C)(i) and 211(o)(7)(A) are viewed in isolation, and that
their argument is not persuasive when all of the CAA provisions
containing similar waiver provisions are considered. For example, as
discussed above, in section 211(k)(6) Congress used the term ``capacity
to produce'' in one RFG waiver context for opt-in states and ``capacity
to supply'' in another context. This suggests that the term ``supply'
does not unambiguously mean the same thing as ``produce,'' as these
commenters argue. The term ``supply'' can mean something different, and
logically does in the context of section 211(k)(6) where the two waiver
provisions at issue use these different terms and apply in different
contexts, to states with considerably different levels of air quality
concern. The different ways that the term ``supply'' is used in the
various CAA provisions indicates that in section 211(o)(7)(A), where
the term is used in isolation, the word ``supply'' is ambiguous and may
reasonably be interpreted consistent with the Act's objectives.
Some stakeholders have asserted that interpreting the general
waiver authority to allow consideration of all constraints on the use
of ethanol by the ultimate consumer would amount to focusing on
``demand'' rather than ``supply'' and would, therefore, be
impermissible under the Act. EPA does not agree that a broad
consideration of such factors as physical limitations in infrastructure
(e.g., availability of E15 and E85 pumps), legal barriers to use of
renewable fuel, or ability of vehicles to use renewable fuel at varying
concentrations, represent consideration of `demand' rather than
``supply.' These factors operate as practical and legal limits to how
much renewable fuel can be distributed to and used by consumers, and
therefore clearly relate to how much renewable fuel can be ``supplied''
to them. Although there may be some element of consumer preference
reflected in the historic growth patterns of renewable fuel
infrastructure and the current status of the infrastructure, it is
nevertheless the case as of today that there are a limited number of
fueling stations selling high-ethanol blends, and as a result, the
number of stations operates as a constraint on how much ethanol can be
delivered. Similarly, only flex fuel vehicles (FFVs) can legally use
fuel with ethanol concentrations greater than 15 percent. The
population of FFVs has grown considerably in recent years, but is still
only a small fraction of the passenger vehicle fleet and there is an
even smaller number of FFVs that have ready access to an E85 retail
outlet. As a result, the number of FFVs with access to E85 also
operates as a constraint on how much ethanol can be delivered. These
constraints limit the supply of ethanol to vehicles in the 2014-2016
time period and, we believe, are appropriately considered in evaluating
the need for an RFS waiver under section 211(o)(7)(A).
Some stakeholders have stated that even if the term ``inadequate
domestic supply,'' were ambiguous, EPA's proposed interpretation is not
reasonable because it would either reward obligated parties for their
intransigence in planning to supply the volumes set forth in the
statute, or because EPA's interpretation would effectively enshrine the
status quo, and would prevent the growth in renewable fuel use that
Congress sought to achieve in establishing the program. We agree that
obligated parties have had years to plan for the E10 blendwall and that
there clearly are steps that obligated parties could take to increase
investments needed to increase renewable fuel use above current levels,
as we have noted in prior actions.\31\ We also note, however, that
biofuel producers could also have taken appropriate measures, and that
nothing precludes biofuel producers from independently marketing E85 or
increasing the production of non-ethanol renewable fuels. EPA agrees
that its approach to interpreting the term `inadequate domestic supply'
should be consistent with the objectives of the statute to grow
renewable fuel use over time by placing appropriate pressure on all
stakeholders to act within their powers to increase renewable fuel
production and use, while also providing the relief to obligated
parties that was intended through the statutory waiver authorities to
address supply difficulties that cannot be remedied in the time period
over which a waiver would apply. We believe that the approach we have
proposed today provides an appropriate balance, and that the proposed
applicable volumes are ambitious yet achievable, as described in
Section II.D.
---------------------------------------------------------------------------
\31\ See, for instance, 77 FR 70773 (November 27, 2012), column
1.
---------------------------------------------------------------------------
3. Assessment of Past Versus Future Supply
In the context of a forward-looking annual RFS standards rulemaking
issued consistent with the statutory schedule, we propose that the
evaluation of ``supply'' for purposes of determining whether
``inadequate domestic supply'' exists pursuant to section
211(o)(7)A)(ii), should involve an assessment of the maximum renewable
fuel volumes that can reasonably be expected to be produced and
consumed, and a comparison of those volumes to statutory volumes. This
is the approach to the assessment of ``supply'' that we are proposing
today for purposes of the 2016 RFS standards. However, the factual
situation is different for 2014, since neither this proposed rule nor
the final rule we expect to issue later in 2015 can influence the
volumes of renewable fuel produced and consumed in the past.
Accordingly, our assessment of the ``supply'' available for RFS
compliance during 2014 must necessarily focus on the number of RINs
generated in 2014 that are available for compliance with the applicable
standards. To set the volume requirements at a higher level would
require either noncompliance, which EPA deems an unreasonable approach,
or the drawdown of the bank of carryover RINs. Although the
availability of carryover RINs is a relevant consideration in
determining the extent to which a waiver is justified, see Monroe 750
F.3d at 917, we believe that carryover RINs serve an important function
under the program, including providing a means of compliance when
natural disasters cause unexpected supply limitations, and that in the
current circumstances EPA should not set the annual standards for 2014-
2016 at levels that would clearly necessitate a reduction in the
current bank of carryover RINs. See Section II.F for further discussion
of our consideration of carryover RINs in this proposal.
For 2015, the situation is essentially a hybrid of the fact
patterns for 2014
[[Page 33115]]
and 2016. A number of months have passed prior to issuance of this
NPRM, and during those months this rulemaking could not influence
renewable fuel use. Accordingly, this proposal accounts for actual
renewable fuel use in the earlier part of 2015, and projects renewable
fuel use only for future months. We are therefore proposing to use the
same approach towards projecting renewable fuel growth in the latter
part of 2015 as we are using for 2016.
4. Combining Authorities for Reductions in Total Renewable Fuel
EPA is today proposing reductions in the applicable volumes of
advanced biofuel and total renewable fuel based on limitations in the
availability of qualifying renewable fuels and factors that constrain
supplying available volumes to the vehicles that can consume them.
These two factors are both relevant forms of inadequate domestic
supply, which authorize reductions under the general waiver authority
and also justify reductions under the cellulosic waiver authority. We
believe that reducing both total renewable and advanced biofuel are
appropriate responses to these circumstances. We are proposing to use
both the cellulosic biofuel waiver authority and the general waiver
authority to reduce the statutory volumes for both advanced biofuel and
total renewable fuel by 2.6 billion gallons in 2015 and 3.85 billion
gallons in 2016. These two authorities are exercised individually, in a
complementary fashion, and each justify our action. In addition, as the
volume reduction required for total renewable fuel is greater than that
needed for advanced biofuel, we are proposing to use the general waiver
authority exclusively as the basis for further reducing the applicable
volume of total renewable fuel by 1.6 billion gallons in 2015 and 1.0
billion gallons in 2016.
5. Inability of the Market To Reach Statutory Volumes
In order to use the general waiver authority in CAA 211(o)(7)(A) to
reduce the applicable volumes of advanced biofuel and total renewable
fuel, we must make a determination that there is either ``inadequate
domestic supply'' or that implementation of the statutory volumes would
severely harm the economy or environment of a State, a region or the
United States. This section summarizes our proposed determination that
there is an inadequate domestic supply of advanced biofuel and total
renewable fuel in the time period 2014-2016, and thus that the
statutory volume targets are not achievable.
As described in Section II.C.1 below, actual supply of renewable
fuel in 2014 was 2.22 billion gallons below the applicable volume
target in the statute (15.93 versus 18.15 billion gallons). Since the
requirements we establish for 2014 cannot change what occurred in the
past, our assessment of the ``supply'' available for RFS compliance
during 2014 must necessarily focus on actual renewable fuel use, which
we propose to be based on the volume of RINs actually generated in 2014
and available for use in complying with the applicable standards.\32\
While we could also consider the availability of carryover RINs in
assessing supply (as we did in the context of establishing the 2013 RFS
annual standards), we have determined that in the current circumstances
it would be imprudent and contrary to the long term objectives of the
program to assess supply, and then set corresponding renewable fuel
volume requirements, at levels that would necessitate a significant
reduction in the current bank of carryover RINs. Further discussion of
our evaluation of carryover RINs is presented in Section II.F.\33\
Since we have determined that actual 2014 advanced biofuel and total
renewable fuel use was less than the statutory applicable volume
targets, we believe we are authorized to use the general waiver
authority to address the ``inadequate domestic supply'' in 2014.
---------------------------------------------------------------------------
\32\ RINs available for use in complying with the standards
represent ethanol-equivalent gallons actually used. Some RINs
generated in 2014 may not be available for compliance purposes if
they are retired for exports, spills, invalidity, or similar
circumstances.
\33\ Although we do not believe that carryover RINs should be
relied on to set a higher volume requirement for 2014 than is
reflected by actual 2014 renewable fuel use, we note that even if
the entire estimated bank of 1.8 billion carryover RINs were used
for 2014 compliance, a waiver from statutory applicable volumes
would still be required for 2014.
\34\ Non-ethanol supply other than BBD was 238 mill gal in 2013
and 175 mill gal in 2014. Details of actual supply in 2013 and 2014
can be found in the docket.
---------------------------------------------------------------------------
The statute sets targets of 20.5 billion gallons of renewable fuel
in 2015 and 22.25 billion gallons of renewable fuel in 2016. We have
determined that these volumes cannot be achieved under even the most
optimistic assumptions given current circumstances. To make this
determination, we first assumed that every gallon of gasoline would
contain 10% ethanol, and also assumed production and use of BBD volumes
at the highest historical level, which occurred in 2014. When these
supplies of renewable fuel are taken into account, a significant
additional volume of renewable fuel would still be needed for the
statutory volume targets to be met.
Table II.A.5-1--Additional Volumes Needed To Meet Statutory Targets for
Total Renewable Fuel
[Million ethanol-equivalent gallons]
------------------------------------------------------------------------
2015 2016
------------------------------------------------------------------------
Statutory target for total renewable fuel..... 20,500 22,250
Maximum ethanol consumption as E10 \a\........ -13,780 -13,690
Historical maximum biomass-based diesel supply -2,500 -2,500
\b\..........................................
Additional volumes needed..................... 4,220 6,060
------------------------------------------------------------------------
\a\ Derived from projected gasoline energy demand from EIA's Short-Term
Energy Outlook (STEO) from May 2015.
\b\ Represents the 1.63 billion gallons of biodiesel and renewable
diesel supplied in 2014.
Based on the current and near-future capabilities of the industry,
we expect that only a relatively small portion of the additional
volumes needed would come from non-ethanol cellulosic biofuel, non-
ethanol advanced biofuels other than BBD, and non-ethanol conventional
renewable fuels. In total these sources could account for several
hundred million gallons, as demonstrated by supply of these sources in
2013 and 2014.\34\ The more likely sources of additional renewable fuel
that could fulfill the need for 4.22 billion gallons in 2015 or 6.06
billion gallons in 2016 are BBD in addition to the 1.63 billion gallons
supplied in 2014, or ethanol consumed as higher ethanol blends such as
E15 and E85. In either case, more than 70% of those additional ethanol-
equivalent volumes
[[Page 33116]]
would need to be advanced biofuel in order to meet the statutory volume
requirement for advanced biofuel.\35\
---------------------------------------------------------------------------
\35\ Assumes that all ethanol consumed as E10 in Table II.A.5-1
is conventional (non-advanced).
---------------------------------------------------------------------------
If all of the additional volumes needed were biodiesel, the
industry would need to supply a total of about 4.5 billion gallons in
2015 and 5.7 billion physical gallons in 2016. There currently exists
only about 2.8 billion gallons of registered biodiesel production
capacity in the U.S., though total production capacity considering
unregistered facilities may be as high as 3.6 billion gallons. In
addition to expanding the registered production capacity, the industry
would need to restart all idled facilities, secure sufficient
feedstocks including diverting them from current uses, implement
significantly expanded distribution, blending, and retail sales
infrastructure, and establish new contracts for distribution and sales.
Based on current market circumstances, including the biodiesel sector's
current production capacity and broader infrastructure limitations, we
do not believe that an expansion in production and use of this
magnitude is possible in 2015 or 2016. Just as importantly, volumes on
the order of 4.5 billion gallons in 2015 and 5.7 billion physical
gallons in 2016 are far in excess of what could actually be consumed in
this short timeframe. This volume of BBD would constitute about 8% of
the diesel pool in 2015 and 10% in 2016.\36\ Although most medium and
heavy-duty engine manufacturers warrant the use of blends up to B20 in
their more recent models, some light-duty engine manufacturers do not,
and the majority of highway and nonroad diesel engines in use today are
warranted for no more than 5% biodiesel. Also, biodiesel concentrations
in the winter months are sometimes kept to lower levels by engine
owners due to cold weather operability and storage concerns. The
National Biodiesel Board has extensive efforts underway working with
the vehicle and engine manufacturers to continue to expand product
offerings capable of operating on B20, working with their membership to
improve fuel quality, expanding infrastructure to address cold
temperature issues, and working with dealers and technicians to clear
away obstacles standing in the way of expanding biodiesel acceptance in
the marketplace.\37\ There are also efforts to increase the use of
biodiesel in heating oil. These will continue to bear fruit, allowing
the biodiesel volume to continue to rise over time, but not to the
levels that would be needed in 2015 and 2016 if the additional volumes
shown in Table II.A.5-1 were met with biodiesel.
---------------------------------------------------------------------------
\36\ Based on EIA's May 2015 Short-Term Energy Outlook (online
interactive table), nationwide diesel consumption is projected to be
57.5 bill gal in 2015 and 58.9 bill gal in 2016.
\37\ ``NBB Technical Update for EPA, April 30, 2015'' in docket
EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------
Alternatively, if all of the additional volumes were ethanol, the
U.S. would need to consume volumes of E85 far higher, in our
estimation, than the market is capable of supplying: in 2015 the
required volume of E85 would need to be about 6.4 billion gallons,
while in 2016 it would need to be about 9.2 billion
gallons.38 39 These volumes are 30-50 times higher than
actual E85 consumption in 2014, and would require many of those FFVs
that do not have an E85 retail outlet anywhere close by to use it.\40\
Moreover, a majority of this additional ethanol would need to be
advanced, and currently the only substantial source of advanced ethanol
is imported sugarcane ethanol from Brazil which has recently increased
its own ethanol use requirements. In order to meet the statutory volume
requirement for advanced biofuel, the U.S. would need to import at
least 3.0 billion gallons in 2015 and 4.7 billion gallons in 2016.\41\
Such volumes would be on the order of ten times higher than actual
annual imports in the past. The highest volume of Brazilian sugarcane
ethanol that has ever been imported was 680 million gallons in 2006,
and in recent years ethanol imports have been considerably lower.\42\
In 2014, imports were only 64 million gallons.\43\ While production of
sugarcane ethanol in Brazil has increased, demand for ethanol in Brazil
has also increased. For instance, Brazil recently increased the
required ethanol content of gasoline from 25% to 27.5%.\44\ As a
result, we believe that exports of 3.0--4.7 billion gallons from Brazil
to the U.S. in the 2015--2016 timeframe are infeasible.
---------------------------------------------------------------------------
\38\ In general when discussing efforts to increase the use of
ethanol beyond the blendwall we focus on the volume of E85 that is
consumed, since volumes of E15 are likely to be small in 2016. See
additional discussion of this issue in Section II.D.1 below.
\39\ Due to relative ethanol content and the fact that E85
displaces some E10, each gallon of ethanol above the E10 blendwall
requires the use of 1.51 gallons of E85.
\40\ Further discussion of the E10 blendwall can be found in
Section II.D.1.
\41\ The balance of the additional volumes needed, as shown in
Table II.A.5-1, would most likely be corn-ethanol.
\42\ 42 Ethanol import data from EIA, representing imports
directly from Brazil and indirectly through the Caribbean Basin
Initiative (CBI) and the Central America Free Trade Agreement
(CAFTA). http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_epooxe_im0_mbbl_m.htm.
\43\ Based on import data from EMTS.
\44\ ``Brazil Hikes Ethanol Blend in Gasoline to 27%,''
DownstreamBusiness.com, March 12, 2015.
---------------------------------------------------------------------------
The additional volume of 4.22 billion gallons in 2015 or 6.06
billion gallons in 2016 could also be satisfied through production and
use of a combination of BBD and E85. However, even in this case the
volumes are untenable. Figure II.A.5-1 shows the range of possibilities
for both 2015 and 2016.
[[Page 33117]]
[GRAPHIC] [TIFF OMITTED] TP10JN15.002
We recognize that the market could potentially reach higher total
volumes than those reached in 2014 by using a combination of biodiesel
and E85. Even so, we believe that the market could not reach the
volumes specified in the statute. For instance, one possible
combination for 2016 would be 4.5 billion gallons of E85 and 3.7
billion gallons of biodiesel. While both of these volumes are
considerably less than the maximums that would be required if the
market supplied only one or the other, nevertheless both levels appear
to be beyond the reach of the market under current circumstances. Based
on this assessment, we do not believe that the statutory volumes for
advanced biofuel and total renewable fuel can be met in 2015 or 2016.
B. Overview of Approach to Determining Volume Requirements
Although the statute does not require that EPA issue a waiver of
the statutory applicable volumes when EPA determines that there is an
inadequate domestic supply of renewable fuel, we are in fact proposing
to do so.\45\ However, we are proposing to exercise that authority only
to the extent necessary to remove the inadequacy in supply. That is,
our objective in exercising the general waiver authority is to set the
volume requirements at the boundary between an adequate domestic supply
and an ``inadequate domestic supply.'' \46\ One way of expressing this
objective is to say we are seeking to determine the maximum volumes of
renewable fuel that are achievable in light of supply constraints. This
is a very challenging task not only in light of the myriad complexities
of the fuels market and how individual aspects of the industry might
change in the future, but also the fact that we cannot precisely
predict how the market will respond to the volume-driving provisions of
the RFS program. Thus the determination of the maximum achievable
volumes is one that we believe necessarily involves considerable
exercise of judgment. To this end, we are proposing ``maximum
achievable'' volumes of advanced biofuel and total renewable fuel in
this package that reflect our judgment as to where the intersection
between adequate domestic supply and inadequate domestic supply might
fall. There are a number of indications, described below, that the
volumes we are proposing today represent a reasonable estimate of the
maximum volumes achievable.
---------------------------------------------------------------------------
\45\ 211(o)(7)(A) says, ``The Administrator . . . may waive the
requirements . . .'' [emphasis added]
\46\ As discussed in Section II.A, EPA has considerable
discretion in exercising the cellulosic waiver authority, and is not
constrained to consider any particular factor or list of factors in
doing so. Nevertheless, EPA is proposing to base its exercise of the
cellulosic waiver authority on the same general considerations
justifying its use of the general waiver authority--availability of
renewable fuel and the legal and practical constraints on their
supply to vehicles and other qualifying uses. We invite comment on
this approach.
---------------------------------------------------------------------------
In the November 2013 NPRM we projected achievable volumes by
following an approach wherein we first projected future volumes for
each of the various components of the renewable fuel pool and then
combined them using a statistical approach to arrive at overall totals.
By considering each possible source of renewable fuel in isolation, we
had intended to reduce the generation of the proposed standards to a
collection of more easily estimated components. We acknowledged that
each source of renewable fuel was not independent from other sources
under the influence of the RFS program, but we nevertheless treated
them as such. However, because the projected volume of each individual
source was uncertain, there needed to be flexibility in the proposed
volume requirements so that excesses of one source could compensate for
potential shortfalls in another source. To account for this fact, and
also for the fact that the uncertainty associated with each individual
source was compounded when those sources were added together, we
targeted the mean of the projected range of potentially achievable
volumes rather than some higher value as the basis for the proposed
volume requirements.
After further consideration, we believe that the approach we took
in the November 2013 NPRM underestimated achievable volumes and did not
fully account for the potential of the market to respond to the
standards that we set. We have determined that considering each
potential source of renewable fuel in isolation, adding those sources
together, and then using the mean of the resulting range was more
suited to taking a neutral aim at accuracy of supply, rather than
estimating the maximum volumes that can be achieved from a responsive
market as implicitly required by the statute. The applicable
[[Page 33118]]
volumes established by Congress in the statute were very ambitious, and
even in cases where we have determined that the statutory volumes
cannot be met we are under an obligation to set volume requirements
that are achievable but still ambitious. Therefore, for this proposal
we have found it more straightforward and more in keeping with the
statute's goals to estimate the total maximum achievable volumes for
both advanced biofuel and total renewable fuel based on the market
potential for overcoming the various constraints at play. In this
process was have considered the contributions from individual sources
of renewable fuel, including E15 and E85, in the aggregate rather than
individually, and in the context of a market that is responsive to the
standards that we set.
Section II.A above lays out the rationale and justification for
exercising our waiver authority under the Clean Air Act's relevant
provisions. In determining the specific volumes to propose, we have
considered not only the current circumstances and limitations in the
ability to supply renewable fuels to the consumer, but also historic
renewable fuel growth patterns and maximum supplies, the intent of
Congress to use the RFS program to drive growth in renewable fuel use,
and our assessment (based on years of regulating the fuel production
and distribution industry) of the ability of the RFS program to effect
changes that will result in growth. As a result, our proposed approach
envisions growth in supply beyond historical levels as envisioned by
the statute. This section provides an overview of our approach to
determining the proposed volume requirements.
1. Fulfilling Congressional Intent To Increase Use of Renewable Fuels
Although there is scant legislative history for the Energy
Independence and Security Act (EISA) to confirm the facts that were
considered by Congress at the time of enactment, we believe that when
Congress specified the renewable fuel volume targets that the RFS
program was to attain, that it likely was with the understanding that
the growth reflected in the statutory tables of applicable volumes
would be beyond any previously demonstrated ability of the industry to
produce, distribute, and consume renewable fuels. For example, the
annual average growth reflected in the statutory volumes for the time
period between 2009 and 2022 is 1.6 billion gallons per year for
advanced biofuel and 1.9 billion gallons per year for total renewable
fuel. However, in the period 2001 to 2007 leading up to enactment of
EISA, annual average growth rates were lower: 0.8 billion gallons per
year for ethanol, which was not advanced biofuel, and 0.07 billion
gallons per year for biodiesel. The supply of other renewable fuels
during this timeframe was essentially zero. In other words, Congress
set targets that envisioned growth at a pace that far exceeded
historical growth and prioritized that growth as occurring principally
in advanced biofuels (contrary to historical growth patterns). It is
apparent, therefore, that Congress intended to require changes that
would be unlikely to occur absent the new program.
Moreover, it is highly unlikely that Congress expected the very
high volumes that it specified in the statute to be reached only
through the consumption of E10; indeed the statute does not explicitly
require the use of ethanol at all. At the time EISA was passed in 2007,
EIA's Annual Energy Outlook for 2007 projected that 17.3 billion
gallons of ethanol is the maximum that could be consumed in 2022 if all
gasoline contained E10 and there was no E0, E15, or E85.\47\ However,
17.3 billion gallons is far less than the 35 billion gallons of
renewable fuel other than BBD that Congress targeted for use in 2022.
Thus, if the statutory targets were to be achieved, 17.7 billion
gallons of renewable fuel would need to be consumed in 2022 either as
higher level ethanol blends (E11--E85), or as non-ethanol fuels. Such
levels were far beyond the industry's abilities at the time of EISA's
enactment, strongly suggesting that Congress expected the RFS program
to compel the industry to make dramatic changes in a relatively short
period of time.
---------------------------------------------------------------------------
\47\ Assumes that AEO2007's 2022 demand for gasoline energy was
fulfilled entirely by E10. AEO2007 however, projected that
considerably less gasoline used in 2022 would be E10. We have
converted the projected 2022 gasoline energy demand into an
equivalent volume of E10 to determine the maximum volume of ethanol
that could have been consumed in 2022, based on the AEO2007, if all
gasoline was E10.
---------------------------------------------------------------------------
Congress did not explicitly indicate, in EISA or in any other
document associated with it, the sort of changes that may have been
expected to occur to reach 36 billion gallons by 2022. Instead, there
was an implicit assumption that the market would respond appropriately
to overcome those obstacles to significant growth that might exist.
Today we know that the changes needed to significantly expand renewable
fuel use fall into a select number of areas, including:
Increased production and/or importation of ethanol, primarily
advanced ethanol
Increased use of E15 in model year 2001 and later vehicles
Increased use of E85 or other higher level ethanol blends in
flex-fuel vehicles (FFVs)
Increased production and/or importation of non-ethanol
biofuels (e.g., biodiesel, renewable diesel, renewable gasoline, and
butanol) for use in conventional vehicles and engines
Increased use of biogas in CNG vehicles
Increased use of renewable jet fuel and heating oil
Increased use of non-food based feedstocks
Co-development of new technology vehicles and engines
optimized for new fuels
In the near term we expect that increases in E85 and biodiesel will
dominate efforts to increase the use of renewable fuel, with smaller
roles played by other avenues (e.g., increased E15 use). In the longer
term, sustained ambitious volume requirements are necessary to provide
the certainty of a guaranteed future market that is needed by
investors; the development of new technology won't occur unless there
is clear profit potential, and it requires multiple years to build new
production, distribution, and consumption capacity. We believe that the
approach we take to setting the standards must be consistent with
Congress' clear goal of compelling the industry to make dramatic
changes to increase renewable fuel use. To this end, the approach
presented in this action makes use of the statutory waiver authorities
only to the degree necessary to ensure that the resulting volumes of
advanced biofuel and total renewable fuel are within reach of the
market.
We believe that over time use of both higher level ethanol blends
and non-ethanol biofuels can and will increase, consistent with
Congress' intent in enacting EPAct and EISA. As stated above, while
Congress provided waiver authority to account for supply challenges, we
do not believe that Congress intended the renewable fuels market to be
ultimately constrained by the E10 blendwall or any other particular
limitation that may exist in supplying renewable fuels. The fact that
Congress set volume targets reflecting increasing and substantial
amounts of renewable fuel use clearly signals that it intended the RFS
program to create incentives to increase renewable fuel supplies and
overcome supply limitations. Notwithstanding these facts,
[[Page 33119]]
Congress also authorized EPA to adjust statutory volumes as necessary
to reflect situations where only partial progress had been made towards
eliminating supply limitations, as well as to address situations
involving unexpected severe economic or environmental harm resulting
from program implementation.
2. RFS Program Mechanisms and Their Role in Supporting Growth in
Renewable Fuel Use
Congress charged EPA with implementing a program whose explicit
goal is increased renewable fuel use over time, and EPA, in developing
an implementation framework, sought to achieve this goal in a fashion
that maximizes flexibility and the power of the marketplace, while at
the same time recognizing the complex and disaggregated structure of
the fuel production and distribution systems. EPA created a system
whereby renewable fuel producers generate RINs for each gallon of
renewable fuel produced. These RINs, under certain conditions, can be
separated from the renewable fuel and bought and sold by registered
parties. They are ultimately used by obligated parties as a means of
demonstrating compliance with their renewable volume obligations. In
establishing a compliance approach based on RINs, EPA sought to
encourage efficient, market-based solutions to the challenges
associated with increasing the production, distribution, and
consumption of renewable fuels.
The RIN system is the mechanism established by EPA for obligated
parties to demonstrate compliance with the standards, and is designed
to provide obligated parties flexibility in the means they use to
demonstrate compliance. The RFS program, acting through the mechanism
of the RIN system, operates to provide an incentive for renewable fuel
producers to increase the production of renewable fuels by, in effect,
increasing the price blenders and obligated parties are willing to pay
for renewable fuels. Under the RFS program, renewable fuel producers
sell not only the fuels they produce, such as ethanol or biodiesel, but
also the RINs that are ``assigned'' to the renewable fuel. As the
demand for RINs increases, the willingness of the market to pay for
renewable fuels and the RINs assigned to them also increases. When
working efficiently, this system allows renewable fuel producers to
continue to profitably market renewable fuel at times that would
otherwise result in negative margins, such as when the price of
feedstock or other inputs are unusually high, the price of the
petroleum fuels that renewable fuels replace is unusually low, or when
market demand for renewable fuel is low. In this way the RFS program,
through the RIN system, also assists renewable fuel producers seeking
to finance the construction of new facilities, especially facilities
capable of producing cellulosic or advanced biofuels, by providing
certainty that there will be a market for increasing volumes of
renewable fuels.
The RIN system should also incentivize the development of the
renewable fuel distribution infrastructure by helping to decrease the
net cost of renewable fuels. As mentioned, when fuel blenders or
obligated parties purchase renewable fuel directly from renewable fuel
producers this fuel generally comes with an assigned RIN. When a fuel
blender blends the renewable fuel with petroleum-based fuel to create
finished transportation fuel, the blender is able to separate and sell
the RIN that was previously assigned to the renewable fuel. Whatever
price the fuel blender or obligated party receives for the RIN can be
thought of as reducing the net purchase price of the renewable fuel.
For example, if a fuel blender purchases a gallon of ethanol with an
attached RIN for $1.50 and, after blending the ethanol to create
transportation fuel, sells the RIN for $0.50, the blender has
effectively paid $1.00 for the gallon of ethanol without the RIN. The
higher the price received for the RIN, the lower the effective cost of
the renewable fuel. Higher RIN prices therefore enable fuel blenders to
market finished fuels that contain renewable fuel components at lower
prices by allowing them to purchase renewable fuels for a lower
effective price. A fuel blender can choose not to reduce the price of
the blended fuel and keep the value associated with the RIN as profit,
or they can attempt to increase their market share by passing along the
lower effective purchase price of the renewable fuel to the customers
in the price of their fuel blends.\48\ By increasing the potential
profitability of blending renewable fuels, higher RIN prices can
incentivize the build out of the infrastructure necessary to blend and
distribute renewable fuel blends as parties seek to enter or expand
their position within this market.\49\
---------------------------------------------------------------------------
\48\ In competitive markets, such as the market for E10, fuel
blenders must reflect the lower effective prices of renewable fuel
(ethanol) in the price of the E10. For emerging markets, such as
E85, there may be greater opportunities for fuel blenders to
withhold profit due to a lack of market competition until such a
time as other parties enter the E85 market.
\49\ Although not directly relevant to the establishment of the
proposed standards, for further background information on EPA's
understanding of the RIN and renewable fuel market dynamics see ``A
Preliminary Assessment of RIN Market Dynamics, RIN Prices, and Their
Effects,'' Dallas Burkholder, Office of Transportation and Air
Quality, US EPA. May 14, 2015, EPA Air Docket EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------
Finally, the RFS program, operating through the RIN system should
increase the consumption of renewable fuels by ultimately decreasing
the cost of renewable fuel blends to consumers relative to the cost of
fuel blends that do not contain renewable fuels. RIN prices can be used
by blenders to decrease the effective cost of renewable fuel used to
create transportation fuel. As more market participants enter the
renewable fuel blending and distribution marketplace, and consumers
learn to accurately compare the cost of E10 and other higher-level
ethanol blends, over some period of time the competition among
renewable fuel blenders and distributors should result in a greater
portion of the reduced effective cost of renewable fuel blends enabled
by the sale of the RIN to be passed on to fuel consumers.
Transportation fuel that contains renewable fuels should then reflect
these cost reductions relative to transportation fuel containing lower
volumes of renewable fuel (or no renewable fuel) in proportion to their
renewable fuel content; transportation fuel containing a greater
percentage of renewable fuels should be priced lower than
transportation fuel containing a lesser percentage of renewable fuel.
Motivated by the lower fuel prices for transportation fuel containing
greater renewable fuel content (such as E85) relative to fuels
containing less renewable fuel (such as E10), consumers will then
choose to purchase increasing volumes of renewable fuel. If the price
discount for renewable fuels is great enough for a long enough period
of time, they may also be motivated to purchase vehicles capable of
utilizing fuels containing higher percentages of renewable fuels, such
as flexible fuel vehicles.
While economic theory and the illustration in the preceding
paragraphs support the idea that RINs can serve as a mechanism to
increase the production, distribution, and consumption of renewable
fuels, it is important to note that this is dependent on the
marketplace working efficiently. In reality, there is a timing
component associated with each of the steps outlined above. Renewable
fuel producers and investors must see a sustained, profitable market
for renewable fuels before they will be willing to invest in the
construction of additional fuel production capacity,
[[Page 33120]]
which may take years to construct and bring online. Fuel blenders and
distributors must see sustained profit opportunities before they are
willing to invest in new infrastructure to increase their capacity to
blend and distribute renewable fuels. Market competition must increase
before fuel blenders and distributors are willing to pass along the
reduced effective price of renewable fuel to consumers. New fueling
infrastructure may need to be built to facilitate the sales of fuels
containing an increasing percentage of renewable fuel. Consumers will
need to learn to be able to identify value in fuel blends containing
higher proportions of renewable fuels, as well as their vehicle's
ability to handle these fuel blends and where they are available for
purchase.
This suggests that while the RFS program established by EPA can be
effective at increasing the renewable content of transportation fuels
over time, it likely cannot substantially increase the available supply
of renewable fuels to consumers to the volumes envisioned by Congress
in the short term. The program, as Congress clearly indicated, is
intended to grow over a period of years. EPA remains committed to
promoting renewable fuel production and use in the United States, and
we believe the RFS program will be effective in achieving this end. Due
to the current state of the renewable fuel production, distribution,
and consumption marketplace, we believe the required volumes of
renewable fuel must be reduced below the statutory levels in the
immediate near term. An approach that provides volume targets that
balances aggressive growth with marketplace realities is necessary, is
consistent with the statute and Congressional intent, and is the
intended outcome of this proposed action.
3. Current and Future Shortfalls in Supply
In 2013 and 2014, the market supplied less renewable fuel to the
domestic transportation sector than the statutory targets for those
years. While the standards for 2013 were not finalized until August 15,
2013 and the standards for 2014 have not yet been finalized, we do not
believe that these delays are the only reasons that actual supply fell
short of the statutory volumes. Shortfalls in production and import
capability of non-ethanol renewable fuels and constraints on the supply
of ethanol to vehicles were also significant factors in not meeting the
statutory volume targets, and we expect these factors to continue in
2015 and beyond.
Supplies of BBD and advanced biofuel in 2013 exceeded the statutory
requirements for these two categories of renewable fuel by a wide
margin. In addition, there was a record high of about 250 million
ethanol-equivalent gallons of non-advanced biodiesel and renewable
diesel imported in 2013. However, supply of total renewable fuel fell
far short of the statutory target of 16.55 billion gallons, reaching
only 15.54 billion gallons. The most likely source of additional
renewable fuel that could have made it possible to reach a total of
16.55 billion gallons was corn-ethanol. Consuming an additional 1
billion gallons of ethanol would have required consumption of E85 to
increase to more than 1.5 billion gallons.\50\ The fact that the market
only achieved about 130 million gallons of E85 in 2013 despite
substantial increases in the production and import of non-ethanol
blends and the substantial draw-down in the bank of carryover RINs
indicates that E85 consumption was constrained.\51\ We believe these
constraints included those related to infrastructure (e.g.,
availability of E85 at retail and the number of FFVs in the fleet) and
poor pricing of E85 relative to E10 that fails to overcome the lower
energy content of E85 and any inclinations that FFV owners may have to
opt to use gasoline.\52\
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\50\ E85 is assumed to contain 74% ethanol, consistent with the
concentration assumed by EIA. Each gallon of E85 displaces some E10.
The net result of these two factors is that every gallon of ethanol
that must be consumed above the E10 blendwall requires 1.51 gallons
of E85.
\51\ Because the applicable volume requirement for total
renewable fuel in 2013 was 16.55 bill gal, but actual supply was
only 15.54 bill gal, there was a shortfall of about 1 bill RINs
needed for compliance.
\52\ For a further discussion of the ability of the RFS program,
acting through the RIN system, to impact E85 infrastructure and
pricing as well as the limitations of the RFS program see Section
II.B.2.
---------------------------------------------------------------------------
A similar situation existed in 2014, except that both the advanced
biofuel and total renewable fuel volumes supplied fell short of the
statutory volume targets. We recognize that the market may have been
influenced by the proposed volume requirements for 2014 specified in
the November 2013 Notice of Proposed Rulemaking (NPRM) which included
proposed reductions from the statutory levels.\53\ However, there are
reasons to believe that the November 2013 NPRM was not the only factor
resulting in actual supply falling short of the statutory volumes. Not
only did we request comment on volume requirements higher than those we
proposed, but there was an inherent possibility that we might finalize
the statutory volumes for 2014. Indeed, we received over 340,000
comments on the November 2013 NPRM, many of which requested that we set
the 2014 volume requirements at the statutory levels. We believe that
obligated parties would likely act prudently to minimize the risk that
they would be out of compliance regardless of the outcome in the final
rule. The fact that total demand for gasoline was about the same in
2014 as it was in 2013 suggests that the E10 blendwall also played a
role in limiting the supply of renewable fuel. Thus the facts suggest
that factors other than the NPRM were principally responsible for
renewable fuel use being considerably below the statutory volume
levels. In particular, we believe these factors include insufficient
production and import of non-ethanol renewable fuels, and constraints
on the supply of ethanol to vehicles that can consume it.
---------------------------------------------------------------------------
\53\ 78 FR 71732, November 29, 2013.
---------------------------------------------------------------------------
Our view that factors other than the November 2013 NPRM were
responsible for renewable fuel use being considerably below the
statutory volume levels in 2014 is also supported by the fact that the
supply of advanced biofuel was insufficient to fill the gap created by
the shortfall in cellulosic biofuel. Under the statute, cellulosic
biofuel was intended to fill 1.75 billion gallons out of the 3.75
billion gallons advanced biofuel applicable volume target. In reality,
cellulosic biofuel was only 0.03 billion gallons. The market did
increase the supply of other advanced biofuel, but those increases were
insufficient to reach the statutory volume target. Specifically, the
market supplied 1.63 billion gallons (2.5 billion ethanol-equivalent
gallons) of BBD but only 143 million gallons of other advanced biofuel.
We expect the gap created by the shortfall in cellulosic biofuel to
widen further in 2015 and 2016 as the statutory volume targets quickly
increase but the supply potential of the market increases at a slower
rate.
Supply of ethanol in higher level ethanol blends, primarily E15 and
E85, also fell far short of what would have been needed to reach the
statutory volumes of total renewable fuel in 2014. While the total
volume of ethanol that could in theory have been consumed in 2014 in
the form of E15 and E85 was about 26 billion gallons \54\ based on the
[[Page 33121]]
consumption capacity of vehicles that are legally permitted to use
these fuels, constraints such as those imposed by blending and
dispensing infrastructure and poor pricing relative to E10 resulted in
only about 100--200 million gallons of ethanol actually being consumed
as E15 and E85 in 2014.\55\ Use of E15 in 2014 was limited by the very
small number of stations choosing to market it, which numbered less
than 100 by the end of 2014 out of a total of more than 150,000
stations nationwide. Similarly, the number of retail stations offering
E85 was about 3,000 by the end of 2014, representing only about 2% of
stations nationwide.\56\ There were about 14 million FFVs in the fleet
in 2014, representing about 6% of all light-duty cars and trucks.
However, with only about 2% of retail stations offering E85, only a
minority of those FFVs had an E85 refueling station nearby. The
relative pricing of E15 and E85 compared to E10 at the retail level
also likely played a role in sales of these higher level ethanol blends
falling far below the available consumption capacity; while some
retailers passed savings associated with high ethanol RIN value along
to consumers, increasing demand for higher level ethanol blends, this
was not typical across the nationwide market.\57\
---------------------------------------------------------------------------
\54\ 26 bill gal estimate assumes that FFVs in the fleet in 2014
had a cumulative consumption capacity of about 13 billion gallons of
E85, that E85 would average 74% ethanol, and that model year 2001
and later conventional vehicles had a cumulative consumption
capacity of about 110 billion gallons of E15 which would contain 15%
ethanol.
\55\ Low actual consumption compared to consumption capacity may
also be a function of vehicle warranties which do not explicitly
permit the use of E15.
\56\ Source: DOE's Alternative Fuels Data Center.
\57\ The largest nationwide average discount for E85 relative to
gasoline reported in the Department of Energy's quarterly Clean
Cities Alternative Fuel Price Report in 2014 was 13.8% (October
2014; the average gasoline price was $3.34 per gallon and the
average E85 price was $2.88 per gallon). The Energy Information
Administration estimates that E85 contains 74% ethanol on average,
requiring a discount of approximately 22% per gallon for E85
relative to gasoline for E85 to priced equal to gasoline on a dollar
per BTU basis. Price discounts for E85 relative to gasoline were
higher or lower for individual regions, states, and stations.
---------------------------------------------------------------------------
Since 2013, the number of FFVs in the fleet and the number of
retail stations offering E15 and E85 have grown, and we believe that
this growth has been influenced in part by the RFS program. However,
this growth has been very modest. Similarly, growth in the ability of
the market to supply advanced biofuel other than cellulosic biofuel and
BBD has also been modest. Current indications are that growth in all of
these areas will continue, and the capability exists for growth to
accelerate. However, growth is very unlikely to reach a level that
would enable the statutory volume targets to be met in the near term.
As a result, we believe that there will continue to be constraints on
the total volume of renewable fuel that can be consumed in 2015 and
2016.
C. Proposed Volume Requirements
The purpose of the RFS program is to ensure that renewable fuels
are increasingly used to replace or reduce the use of fossil-fuel based
transportation fuel. Ethanol is currently the most widely used
renewable fuel for this purpose, with biodiesel being the second most
common renewable fuel and other fuels making up a significantly smaller
portion of the pool. For non-ethanol renewable fuels, the primary
supply constraint at present is the projected shortfall in domestic
production or importation of qualifying volumes. For ethanol blends,
there are both legal and practical constraints on the amount of ethanol
that can be supplied to the vehicles that can use it, notwithstanding
the considerable volumes that can be produced and/or imported.
Gasoline-powered vehicles and engines have for many years been designed
and warranted to use gasoline with ethanol up to 10%, and only blends
up to 10% ethanol have historically been legal for use. There are,
however, two other avenues through which gasoline with higher
concentrations of ethanol can be used. In 2010 and 2011, EPA granted
partial waivers that together allow 2001 and later model year light-
duty motor vehicles to use gasoline containing up to 15% ethanol.\58\
While such fuels are legal, retail service stations have been slow to
offer them. In addition, manufacturers have been increasingly
warranting their new vehicles to operate on E15 and have for some time
also been designing and marketing FFVs capable of operating on
denatured ethanol concentrations as high as 85%. These vehicles
represent about 7% of the in-use fleet in 2015. However, like the use
of E15 in 2001 and later model year vehicles, use of E85 in FFVs has
been limited in part by the relatively small number of retail stations
offering it.
---------------------------------------------------------------------------
\58\ 75 FR 68,094 (Nov. 4, 2010) (First E15 Partial Waiver
Decision); 76 FR 4662 (Jan. 26, 2011) (Second E15 Partial Waiver
Decision).
---------------------------------------------------------------------------
While there are constraints on expansion of renewable fuel use,
markets have a demonstrated ability to overcome constraints with the
appropriate policy drivers in place, as discussed in Section II.B.2
above. We believe that the RFS program can drive renewable fuel use,
and that it is appropriate to consider the potential of the market to
respond to the standards we set when we assess the amount of renewable
fuel consumption that can be achieved. Thus, we are proposing volume
requirements for advanced biofuel and total renewable fuel that take
into account both the constraints on supply and the ability of the RFS
program to drive consumption.
1. 2014
Since 2014 has passed, we are proposing to base the applicable
volume requirements for that year on the number of RINs supplied in
2014 that are expected to be available for use in complying with the
standards. These RINs would include those that were generated for
renewable fuel produced or imported in 2014 as recorded in the EPA-
Moderated Transaction System (EMTS), minus any RINs that have already
been retired for non-compliance reasons or would be expected to be
retired to cover exports of renewable fuels.\59\ RINs that have already
been retired for non-compliance purposes include those retired to
correct for invalidly generated RINs, volumes for renewable fuel that
was spilled after RIN generation, etc. These RINs are recorded in EMTS
on an ongoing basis. However, the total number of RINs that would be
expected to be retired to cover exports of renewable fuel in 2014 will
only be recorded in EMTS after the compliance demonstration deadline
for 2014 has passed. Since the compliance deadline for all 2014 RIN
exports has not yet passed, we are proposing to estimate likely RIN
retirements for renewable exports using renewable fuel export
information from EIA.\60\ If RINs retired for exports are recorded in
EMTS prior to issuance of the final rule, we will use EMTS data instead
of EIA data in determining supply for 2014 in the final rule.
---------------------------------------------------------------------------
\59\ Although we estimate that there are approximately 1.8
billion carryover RINs available, we are proposing not to count
those RINs as part of the ``supply'' for 2014 or later years, for
the reasons described in Section II.F.
\60\ http://www.eia.gov/dnav/pet/pet_move_expc_a_EPOORDB_EEX_mbbl_m.htm.
---------------------------------------------------------------------------
Actual supply in 2014 is shown in Table II.C.1-1 below. Further
details are provided in a memorandum to the docket.\61\ Since EIA does
not distinguish exports by D code, we assumed based on past practice
that all ethanol exports represent D6 ethanol, and all biodiesel
exports represent D4 BBD. We expect
[[Page 33122]]
that any errors introduced by this assumption will be very small.
---------------------------------------------------------------------------
\61\ ``Summary of data on 2014 RIN Generation and Consumption,''
memorandum from David Korotney to EPA docket EPA-HQ-OAR-2015-0111.
Table II.C.1-1--2014 Actual Supply
[Million RINs]
----------------------------------------------------------------------------------------------------------------
Domestic
D code production Imports Exports Net supply \a\
----------------------------------------------------------------------------------------------------------------
3 & 7........................................... 33 0 0 33
4............................................... 2,131 496 124 2,502
5............................................... 79 64 0 143
6............................................... 13,759 336 846 13,250
All advanced biofuel (D3+D4+D5+D7).............. 2,243 560 124 2,679
All Renewable fuel (D3+D4+D5+D6+D7)............. 16,002 896 970 15,929
----------------------------------------------------------------------------------------------------------------
\a\ Totals may not add up due to rounding.
Based on these volumes, we are proposing the applicable volume
requirements for advanced biofuel and total renewable fuel for 2014, as
shown in Table II.C.1-2 below. Discussion of the proposed cellulosic
biofuel and BBD volume requirements for 2014 can be found in Sections
IV.C and III.C, respectively.
Table II.C.1-2--Proposed Volume Requirements for 2014
[Billion gallons]
------------------------------------------------------------------------
------------------------------------------------------------------------
Advanced biofuel............................................... 2.68
Renewable fuel................................................. 15.93
------------------------------------------------------------------------
2. 2015
Despite the fact that this proposal is being released well into
2015, we believe that the market can achieve growth this year in
comparison to the volumes that were supplied in 2014 (though the rate
of growth will not be as high as compared to a scenario under which the
market is given the full lead time envisioned by the statute). To this
end, we are proposing that the volume requirement for advanced biofuel
in 2015 be 2.90 billion gallons. The market has already demonstrated
that this level is achievable, having reached 2.92 billion gallons in
2013. Nevertheless, it would be a significant increase from actual
supply in 2014 of 2.68 billion gallons and would recognize the lower
volumes already supplied to date in 2015. The primary reason that 2014
advanced biofuel volumes were below 2013 volumes is that imports of
sugarcane ethanol were 435 million gallons in 2013 but only 64 million
gallons in 2014.\62\ If this reduction had not occurred in 2014, total
advanced biofuel volumes could have been above 3.00 billion gallons.
Therefore, we believe that 2.90 billion gallons of advanced biofuel is
within reach of the market in 2015, despite late issuance of this
proposal. While it would require the market to supply more advanced
biofuel in 2015 than was actually supplied in 2014, supplies that
increase annually is exactly what Congress expected the RFS program to
compel. Indeed, an examination of the volumes of advanced biofuel set
forth in the Clean Air Act shows that Congress intended that the rate
of growth accelerate every single year between 2009 and 2015, though
cellulosic biofuel represents the majority of this growth.
---------------------------------------------------------------------------
\62\ Based on import data from EMTS.
---------------------------------------------------------------------------
A 2015 volume requirement of 2.90 billion gallons for advanced
biofuel would be a substantial reduction from the statutory volume
target of 5.50 billion gallons. As discussed in Section II.A.4, we
believe that a reduction from the statutory volumes is necessary given
the limitations on production and import capabilities and constraints
imposed by the ability of vehicles and engines to use renewable fuels,
particularly ethanol. Growth in advanced biofuel supply from 2014 to
2015 would be about 220 million gallons, substantially less than the
growth in the statutory volume target of 1,750 million gallons.
However, growth of 220 million gallons from 2014 to 2015 would require
the market to respond to the standard we set by supplying more advanced
biofuel than would be expected absent the RFS program, and to do so in
substantially less than a full calendar year. Indeed without the RFS
program, actual supply in 2015 may be no different than it was in 2014.
Nevertheless, we believe that 2.90 billion gallons of advanced biofuel
is possible given the potential for higher volumes of domestic and
imported advanced biofuels, including biodiesel and sugarcane ethanol,
among others, and would achieve both the intent of Congress to drive
the market forward and also acknowledge the clear limitations on supply
that exist. We believe that 2.90 billion gallons represents the maximum
amount of advanced biofuel that can be supplied in 2015.
Similarly, for total renewable fuel, we are proposing a reduction
in the 2015 statutory volume target of 20.50 billion gallons to 16.30
billion gallons. While the statutory volume target for total renewable
fuel cannot be achieved in 2015 as discussed in Section II.A.4, we
believe that some growth can be expected in 2015 as the annual volume
requirement we set in the RFS program drives expansion in production
and import capabilities and infrastructure, and incentivizes more
favorable pricing of renewable fuels in the marketplace. Much of the
increase from 2014 of about 370 million gallons would result from the
increase in the advanced biofuel standard of 2.90 billion gallons
discussed above, with the remainder resulting from growth in the use of
conventional renewable fuel such as corn ethanol. We believe that the
market has already demonstrated that this increment of growth is
possible. For instance, growth in total renewable fuel in 2014 was 390
million gallons, and in 2013 it was even higher, despite the fact that
in both years the gasoline pool was essentially saturated with
ethanol.\63\ Thus, growth of 370 million gallons is within reach of a
responsive market even though 2015 is partially over.
---------------------------------------------------------------------------
\63\ According to EIA's Short-Term Energy Outlook (May 2015),
pool-wide ethanol content was about 9.75% in 2013 and 9.85% in 2014.
---------------------------------------------------------------------------
We request comment on our proposal for 2.90 billion gallons of
advanced biofuel and 16.30 billion gallons of total renewable fuel for
2015. Specifically, we request comment on whether these proposed
volumes appropriately reflect constraints on supply resulting from the
E10 blendwall and limitations in production and import capabilities, as
well as the ability of the market to respond to the standards we set in
the time available. Since we recognize that these proposed volumes
represent our
[[Page 33123]]
proposed judgment as to the maximum amount of renewable fuel that can
be supplied in 2015, and commenters may have information that supports
a different assessment, we request comment on whether higher or lower
volume requirements for advanced biofuel and total renewable fuel for
2015 would be more appropriate. For example, some commenters may view
the market as unable to overcome barriers such as significant
availability of E85 to consumers in the 2015 timeframe or significantly
higher volumes of BBD than were supplied in 2014, and would therefore
suggest applicable volumes for 2015 closer to what we are proposing for
2014. Other commenters may be more optimistic about the ability of the
market to respond to this NPRM and the final rule in the time period
remaining in 2015, and may suggest that once we have exercised our
authority to waive volumes of advanced biofuel and total renewable fuel
under the cellulosic waiver authority, additional volume waivers under
the general waiver authority for total renewable fuel for 2015 are
unnecessary. Finally, while we believe that growth in advanced biofuel
should be a priority in light of the lifecycle greenhouse gas emissions
reductions goals of the statute, and have reflected this view in our
proposed volume requirements, we also request comment on whether a
different relative growth in advanced biofuel and conventional
renewable fuel would be appropriate.
3. 2016
We intend to finalize the volume requirements for 2016 by November
30 of this year, in accordance with the schedule set forth in the
statute. As a result, obligated parties and other stakeholders in the
marketplace will have the full compliance year to respond to the
standards that we set for 2016, unlike for 2015 when they will only
have part of the year to respond to the standards. We believe,
therefore, that the supply of renewable fuels to vehicles can grow more
dramatically in 2016 than in 2015. Moreover, as for the 2015 proposal,
we believe that this growth should emphasize advanced biofuels, as
Congress envisioned that all renewable fuel growth after 2014 would
arise from growth in advanced biofuel as opposed to conventional fuels.
Advanced biofuels are required to have substantially greater GHG
benefits than conventional renewable fuel. As a program designed not
only to increase the nation's energy security position but also
contribute to efforts to reduce impacts of climate change, we believe
that a focus on growth in advanced biofuel is appropriate. However, we
also acknowledge that the volume of non-advanced biofuel production and
use that has been achieved to date falls short of the volumes that
Congress envisioned. Therefore we believe it is appropriate to provide
for the continued growth of conventional renewable fuels at this time
as well.
We are proposing that the advanced biofuel volume requirement would
grow by 500 million gallons in 2016, as compared to 2015, while the
remainder (the non-advanced portion) of the total renewable fuel
requirement would grow by 600 million gallons in the same timeframe. As
a result, the 2016 advanced biofuel and total renewable fuel
requirements would be 3.40 billion gallons and 17.40 billion gallons,
respectively. The corresponding amount of conventional renewable fuel
that would be needed would be 14.0 billion gallons. These proposed
volumes for both advanced biofuel and total renewable fuel represent
substantial reductions from the volumes specified in the statute for
2016. While we do expect the market to respond to the standards we set
to drive changes in production and consumption infrastructure as well
as more favorable relative pricing, we do not have confidence that
those changes could occur fast enough to attain volumes larger than we
are proposing for 2016.
While the reductions in the statutory volumes that we are proposing
are substantial, the volume requirements that we are proposing for 2016
would nevertheless be significantly larger than any previous volume
requirements. The market would need to respond by increasing domestic
production and/or imports of renewable fuel, by significantly expanding
the infrastructure for distributing and consuming that renewable fuel,
and by improving the relative pricing of renewable fuels and
conventional transportation fuels at the retail level to ensure that
they are attractive to consumers. As described more fully in the next
section, we believe that the market has the capability of doing this in
2016 and thus reaching the volumes that we are proposing.
We request comment on our proposal for 3.40 billion gallons of
advanced biofuel and 17.40 billion gallons of total renewable fuel for
2016; in particular we request comment on whether these proposed 2016
volumes appropriately reflect constraints on supply resulting from the
E10 blendwall and limitations in production and import capabilities, as
well as the ability of the market to respond to the standards we set in
the time available. Our intent is to set volumes at the maximum level
that in our judgment can be supplied to consumers, and we request
comment on whether higher or lower volume requirements for advanced
biofuel and total renewable fuel for 2016 would be more appropriate. As
for 2015, we request comment on whether volumes closer to those we are
proposing for 2014 would be more appropriate for 2016, or alternatively
whether it would be appropriate to only waive volumes of advanced
biofuel and total renewable fuel under the cellulosic waiver authority
for 2016 without waiving volumes of advanced biofuel or total renewable
fuel under the general waiver authority. Finally, while we believe that
growth in advanced biofuel should be a priority and have reflected this
view in our proposed volume requirements, we also request comment on
whether a different relative growth in advanced biofuel and
conventional renewable fuel would be appropriate.
D. Market Response to Proposed Volume Requirements for 2016
In recognition of the fact that the various constraints on supply
that exist today were not as significant in years past, the volumes of
advanced biofuel and total renewable fuel that we are proposing for
2016 would require increases from 2014 levels that, while substantial,
are less than the increases that actually occurred in 2013. Moreover,
as shown in Figures II.D-1, II.D-2, and II.D-3, the volume requirements
in 2015 and 2016 would follow an upward trend consistent with that from
2012-2014, extending the market activities that produced increases in
past years to the near future.
[[Page 33124]]
[GRAPHIC] [TIFF OMITTED] TP10JN15.003
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\64\ As described in Section II.C.2, 2014 advanded biofuel
bolumes were below 2013 volumes primarily because imports of
sugarcane ethanol were 435 million gallons in 2013 but only 64
million gallons in 2014. BBD volumes were slightly higher in 2014
than they were in 2013.
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[[Page 33125]]
[GRAPHIC] [TIFF OMITTED] TP10JN15.004
We believe the required volumes being proposed for advanced biofuel
and total renewable fuel for 2015 and 2016 reflect the maximum volumes
that can reasonably be expected to be produced and consumed for those
years. While we acknowledge that there is considerable judgment
involved in identifying the appropriate volumes, we note that each
increment is increasingly difficult for the market to accommodate. For
instance, the use of ethanol in gasoline increased dramatically between
2000 and 2009, but by 2010 nearly all gasoline contained ethanol.
Additional volumes of ethanol use in 2010 and thereafter increased much
more slowly as the market approached the E10 blendwall.
[GRAPHIC] [TIFF OMITTED] TP10JN15.005
[[Page 33126]]
This trend suggests that increases in renewable fuel use after 2014
will require more dramatic efforts than in the past. Implementation of
the RFS program to date has led to ethanol use that is essentially at
the E10 blendwall today. Any further growth in ethanol volumes must
entail the use of higher-ethanol blends such as E15 and E85. As the
volume requirements we are proposing for 2016 represent significant
increases from 2014, we believe it would be unreasonable to expect the
market to supply more than the proposed volumes.
In order to demonstrate that the volume requirements that we are
proposing are achievable, we investigated a number of scenarios
involving different types and sources of renewable fuel. Each of these
scenarios differs in terms of the volumes of higher ethanol blends that
would be supplied and the relative volumes of such fuels as BBD,
imported sugarcane ethanol, corn-ethanol, renewable diesel, and other
non-ethanol renewable fuel. While we cannot predict precisely how the
market would respond to the standards we are proposing, the fact that
at least some of the scenarios fall within the reasonably expected
capabilities of the market demonstrates that the volume requirements we
are proposing are achievable.
Section II.D.1 below describes the E10 blendwall, while Section
II.D.2 uses estimates of ethanol volumes associated with the E10
blendwall as the basis for a number of volume scenarios that include
possible volumes of E85 use and the associated need for other renewable
fuels to meet the proposed volume requirements. While we have focused
this discussion on our proposal for volumes for 2016, a similar pattern
would exist with respect to our proposal for 2015 volumes.
1. E10 Blendwall
In 2007 when Congress enacted the Energy Independence and Security
Act with provisions for the current RFS program, the gasoline pool was
composed of about half E10 and half E0. Today it is almost entirely
E10. While the E0 pool has been shrinking, the pools of E10, E15, and
higher level ethanol blends up to E85 have been increasing. In the
context of determining the total volume of ethanol that can be supplied
to vehicles in 2016, all of these gasoline-ethanol blends could
potentially play a role.
For 2016, the portion of the statutory applicable volume for total
renewable fuel that may be satisfied with non-advanced biofuel (e.g.,
conventional renewable fuel, which is primarily ethanol) is 15.0
billion, and this amount is 67% of the total renewable fuel volume
target of 22.25 billion gallons specified by the statute for 2016.\65\
However, the ability of the market to use ethanol in 2016 is
constrained by the E10 blendwall, the volume of ethanol that could be
used if all gasoline contained 10% ethanol and there were no higher
level ethanol blends. The amount of ethanol associated with the E10
blendwall is driven by the total demand for gasoline, and thus ethanol
consumption will tend to increase if gasoline consumption increases and
ethanol consumption will tend to decrease if gasoline consumption
decreases. However, gasoline consumption is in fact declining. Prior to
EISA's passage, EIA in its AEO 2007 projected that U.S. gasoline
consumption would rise to about 159 billion gallons in 2016.\66\
Instead, gasoline consumption has declined considerably, and EIA now
predicts that approximately 137 billion gallons of gasoline will be
consumed in 2016.\67\ If all of the gasoline currently projected to be
consumed contained 10% ethanol, a total of 13.7 billion gallons of
ethanol would be used. For the RFS program, the decline in gasoline
consumption has meant that the E10 blendwall has become constraining
sooner and at a lower overall volume of ethanol than was expected in
2007. The trend of declining gasoline consumption is projected to
continue for a number of reasons, including the increasingly stringent
GHG and fuel economy standards set by EPA and NHTSA for on-road
vehicles.
---------------------------------------------------------------------------
\65\ Notably, by 2015 no more than 15 billion gallons of non-
advanced biofuel may be used for compliance with RFS standards. The
statute requires that advanced biofuel account for all the growth in
renewable fuels used to comply with RFS standards beyond 2015.
\66\ EIA's Annual Energy Outlook 2007: http://www.eia.gov/forecasts/archive/aeo07/pdf/0383(2007).pdf.
\67\ EIA's May 2015 Short-Term Energy Outlook (STEO).
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In the face of declining gasoline consumption, using greater
volumes of ethanol beyond the E10 blendwall is a function of several
factors, some legal, and some market-driven. The ability to go beyond
the E10 blendwall is a function of actions taken by various fuel market
participants, including obligated parties, renewable fuel producers,
distributors and marketers, gasoline and diesel retailers, and
consumers. In this regard, the market has significant potential
flexibility and opportunities, and we believe that it can respond to
the standards we set to drive the use of higher ethanol blends, the E10
blendwall notwithstanding.
Another constraint on the volume of ethanol that can be consumed is
the demand for E0. While there will undoubtedly be some volumes of E0
in 2016, we expect such volumes to be lower than they were in the past
as the market strives to expand consumption of ethanol under the
influence of the RFS program. The primary context in which E0 might
continue to be used is in recreational marine engines or other small
nonroad engines. As described in a memorandum to the docket, we expect
that the use of E0 rather than E10 would only reduce the total volume
of ethanol that can be consumed by about 13 million gallons out of the
13.69 billion gallons we estimated above.\68\ We have recently been
made aware of E0 being marketed in some locations, such as Florida
where recreational marine is a significant market, and in parts of the
Midwest such as Iowa where concerns over ethanol's impact on other
small engines may be at play. Nevertheless, we anticipate such E0
marketing to remain fairly limited given the widening use of ethanol
overall. As a result, we do not anticipate the volume of E0 having a
significant impact on ethanol consumption in 2016, particularly in
light of the offsetting effect of E15 volumes as described below.
Therefore, we have omitted from the scenarios described below the small
expected impact of E0 use on total ethanol consumption.
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\68\ ``Estimating E0 Volume Sold in the U.S. at marinas'',
memorandum from Lester Wyborny to EPA docket EPA-HQ-OAR-2015-0111
---------------------------------------------------------------------------
Efforts to increase the use of ethanol beyond the blendwall is
primarily a function of the volume of E85 that is consumed, since
volumes of E15 are likely to continue to be small in 2016. Over the
last several years, 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 motor
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, growth in the number of retail
stations offering E15 has been slow--currently there are only about 100
stations offering it. Even if this number grows more quickly in 2015
and 2016 than it did previously, such increases would probably not
increase total ethanol consumption by more than 5-10 million gallons in
comparison to the use of ethanol in E10.\69\ In the context of the
[[Page 33127]]
offsetting effect of E0 volumes on ethanol use that is described above,
therefore, we have omitted this small impact on total ethanol
consumption from the scenarios described below. However, in discussing
the volume of E85 that might need to be consumed to meet the volume
requirements we are proposing today, we acknowledge that there may also
be some E15.
---------------------------------------------------------------------------
\69\ ``Projection of potential E15 consumption and its impacts
on total ethanol consumption'', memorandum from David Korotney to
EPA Air Docket EPA-HQ-OAR-2015-0111.
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We have assumed that E10 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 5% ethanol is about 9.74%. This estimate
is based on the use of ASTM International (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 no more 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 denatured ethanol. Similarly, all
references to ``ethanol'' in this NPRM mean denatured ethanol.
2. Volume Scenarios
The transportation fuel market is dynamic and complex, and the RFS
program is only one of many factors that determine the relative types
and amounts of renewable fuel that will be used. Thus, while we set the
applicable volume requirements for advanced biofuel and total renewable
fuel, we cannot precisely predict how the market will choose to meet
those requirements. We can, however, delineate a range of
possibilities, and doing so provides a means for judging whether the
proposed volume requirements are attainable.
For our proposed 2016 total renewable fuel volume requirement of
17.40 billion gallons, there would be about 0.84 billion ethanol-
equivalent gallons needed beyond that supplied by E10, the proposed BBD
volume requirement of 1.8 billion actual gallons (equivalent to 2.7
billion D4 RINs as described in Section III.D.4), and that portion of
the cellulosic biofuel volume which we would expect to be derived from
non-ethanol biofuel (see Section IV.E).
Table II.D.2-1--Breakdown of Renewable Fuel Use in 2016 Based on
Proposed Volumes
[Billion ethanol-equivalent gallons]
------------------------------------------------------------------------
------------------------------------------------------------------------
Total renewable fuel.......................................... 17.40
Ethanol consumed as E10 \a\................................... -13.69
Non-ethanol cellulosic biofuel................................ -0.17
Biomass-based diesel \b\...................................... -2.70
Additional renewable fuel that must be used................... 0.84
------------------------------------------------------------------------
\a\ Includes all sources of ethanol (cellulosic, advanced, and
conventional)
\b\ Represents 1.80 billion physical gallons.
The E10 blendwall and limitations in production capabilities for non-
ethanol biofuels are the primary factors that constrain renewable fuel
supply. Other factors include the relative pricing of renewable fuels
and conventional (fossil-based) fuels, engine warranty limitations on
the use of biodiesel for the current in-use fleet, and the need for
distribution system improvements. All of these factors could play a
role in determining how the market chooses to supply the additional
0.84 billion gallons needed as shown in Table II.D.2-1. The options
available to the market to fulfill the need for 0.84 billion gallons of
renewable fuel include the following:
Increase the production and use of BBD above the proposed
standard of 1.80 billion gallons
Increase import and use of sugarcane ethanol and/or
domestic production of corn-ethanol, which would result in a
corresponding increase in E85
Increase production and/or imports of conventional (D6)
biodiesel and renewable diesel
Increase the production of other non-ethanol advanced
biofuels, such as heating oil, jet fuel, naphtha, butanol, and
renewable fuels coprocessed with petroleum
In determining the amounts of each type of renewable fuel, the market
would also need to satisfy the proposed advanced biofuel standard of
3.40 billion gallons.
To illustrate the possible outcomes, we evaluated a number of
scenarios with varying levels of E85, imported sugarcane ethanol,
advanced biodiesel and other non-ethanol advanced biofuels, and
imported conventional biodiesel (likely to be made from palm oil). In
doing so we sought to capture the range of possibilities for each
individual source. For imported conventional biodiesel we examined
volumes up to and slightly higher than the level that was actually
imported in 2014--225 million gallons.\70 \The range of other non-
ethanol advanced biofuels is based on the range of volumes achieved
over the last several years. Each of the rows in Table II.D.2-2
represent a scenario in which the proposed total renewable fuel and
advanced biofuel volume requirements would be satisfied.
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\70\ Actual imports of conventional non-ethanol renewable fuels
in 2014 were 53 million gallons of biodiesel and 151 million gallons
of renewable diesel. They have been represented here in biodiesel-
equivalents for simplicity.
Table II.D.2-2--Volume Scenarios Illustrating Possible Compliance With 3.40 Bill Gal Advanced Biofuel and 17.40 Bill Gal Total Renewable Fuel
[Million gallons] \a b\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Biomass-based Sugarcane ethanol Other non-ethanol Conventional
E85 Total ethanol \c\ diesel (D4) \d\ (D5) advanced (D5) biodiesel (D6)
--------------------------------------------------------------------------------------------------------------------------------------------------------
100................................................. 13,760 1,997 102 100 250
100................................................. 13,760 2,030 102 50 250
100................................................. 13,760 2,063 102 0 250
100................................................. 13,760 2,131 0 0 182
200................................................. 13,826 1,952 168 100 250
200................................................. 13,826 1,986 168 50 250
[[Page 33128]]
200................................................. 13,826 2,019 168 0 250
200................................................. 13,826 2,065 0 100 138
400................................................. 13,959 1,898 301 50 250
400................................................. 13,959 1,989 113 100 125
400................................................. 13,959 2,056 113 0 125
400................................................. 13,959 2,098 0 50 50
600................................................. 14,091 1,800 433 64 250
600................................................. 14,091 1,901 245 100 125
600................................................. 14,091 2,026 58 100 0
600................................................. 14,091 2,093 58 0 0
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Assumes that the cellulosic biofuel proposed standard for 2016 is 206 mill gal, of which 33 mill gal is assumed to be ethanol for the purposes of
these scenarios and the remainder is primarily biogas.
\b\ Biomass-based diesel and conventional biodiesel are given as biodiesel-equivalent volumes. Others are given as ethanol-equivalent volumes. Biodiesel-
equivalent volumes can be converted to ethanol-equivalent volumes by multiplying by 1.5.
\c\ For the range of total ethanol shown in this table, the nationwide poolwide average ethanol content would range from 10.05% to 10.28%. The majority
of gasoline will contain 10% ethanol, and some gasoline will contain higher levels of ethanol such as E15 or E85.
\d\ Includes supply from both domestic producers as well as imports.
The scenarios in the table above are clearly not the only ways that
the market could choose to meet the total renewable fuel and advanced
biofuel volume requirements that we are proposing today, but they are
illustrative of many ways that it could play out. While we are not in a
position to predict how the market would respond to the volume
requirements we are proposing today, we believe that the range of
possibilities for E85, BBD, and other sources is a clear indication
that the standards we are proposing are achievable.
With regard to E85, according to EIA there will be about 16 million
FFVs in the in-use fleet in 2016 with a total consumption capacity of
about 14 billion gallons of E85.\71\ While only about 2% of retail
stations nationwide currently offer E85, the fraction of FFVs with
access to E85 is higher than 2% since the vast majority of vehicles are
within reasonable range of more than one retail station on typical
trips. If only 5% of all FFVs had a retail station nearby that offered
E85, they could consume 800 million gallons of E85 in 2016 under
favorable consumer pricing conditions. We recognize that the market
would need to compel E85 prices to be increasingly favorable relative
to E10 in order to provide the incentive for FFV owners to purchase
E85, but this is exactly how a fully functional market will react to
standards designed to drive growth in renewable fuel as Congress
intended. Thus we believe it is possible for the market to reach
volumes perhaps as high as 600 million gallons under favorable pricing
conditions (i.e., where consumers believe they are obtaining an
economic advantage through purchase of E85).
\71\ According to AEO2015, Table 42, total vehicle miles
travelled by FFVs in 2016 will be about 7.95% of all light-duty
gasoline-powered vehicles, equivalent to about 10.9 bill gal of E10
or 13.9 bill gal of E85.
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We also believe that it is possible for the market to exceed 1.8
billion gallons of BBD in 2016. As of 2013, the total production
capacity for all registered and unregistered biodiesel facilities was
about 3.6 billion gallons,\72\ substantially more than the actual
domestic production in 2014 of 1.46 billion gallons.\73\ More than 2.7
billion gallons of this production capacity has already been registered
under the RFS program. Moreover, the U.S. imported several hundred
million gallons of biodiesel and renewable diesel in 2014. The combined
volumes of soybean oil, corn oil, and waste oils produced annually is
far more than would be needed to produce 2.1 billion gallons of
biodiesel. It is possible that the market could divert additional
feedstocks from food and other domestic uses or exports to the
production of biodiesel. For instance, in 2014 exports of soy oil were
250 million gallons and exports of rendered fats and greases was 440
million gallons.74 75
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\72\ A complete list of biodiesel plants and their capacities as
of 2-6-13 has been placed in the docket. We are not aware of
significant changes to the industry profile since this list was
compiled.
\73\ 1.46 bill gal represents total domestic production of both
D4 biodiesel and renewable diesel.
\74\ USDA Economic Research Service, Oil Crops Yearbook, Table
5, ``Soybean oil: Supply, disappearance, and price'', updated 3/30/
2015. Assumes 7.68 lb/gal.
\75\ Render Magazine, April 2015. Table 2. Assumes 7.68 lb/gal.
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As Table II.D.2-2 illustrates, the proposed standards could result
in the consumption of as much as 2.3 billion gallons of D4 and D6
biodiesel and renewable diesel, representing an increase of about 600
million gallons over the historical high. While this would be a
substantial increase, we believe that it is possible. A portion of this
increase is likely to be renewable diesel which is indistinguishable
from conventional diesel fuel and thus would experience no impediments
related to cold temperatures or manufacturer warranties; in both 2013
and 2014, the market supplied about 300 million gallons of renewable
diesel. Even if there were no renewable diesel, 2.3 billion gallons of
biodiesel would represent less than 4% of the nationwide pool of diesel
fuel in 2016. Because essentially all engine manufacturer warranties
permit up to 5% biodiesel to be used in their engines, and most medium
and heavy-duty engine manufacturers warrant the use of blends up to B20
in their more recent models,\76\ the use of biodiesel in 4% of the
overall diesel pool should be possible from a consumption viewpoint.
For instance, most diesel fuel could contain 5% biodiesel while still
allowing some diesel fuel to contain no biodiesel to accommodate that
used in northern states during the coldest months of the year. Also,
B20 could be used in a number of centrally-fuelled fleets composed of
newer engines without violating manufacturer warranties, and additional
volumes of biodiesel could be used in heating oil. It is reasonable to
expect that the
[[Page 33129]]
infrastructure that already exists to distribute and blend such fuels
could be expanded to accommodate this additional volume in the time
available.
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\76\ ``OEM Support,'' fact sheet from National Biodiesel Board,
August 2014.
---------------------------------------------------------------------------
While the scenarios in Table II.D.2-2 are intended to demonstrate
the flexibility that the market has to respond to the volumes we are
proposing, and indeed many additional scenarios could be generated, we
do not believe that all scenarios are equally likely. Certainly some
are more likely than others. However, we are not in a position to
identify those that are most likely and we are not in a position to
predict what will actually occur. In particular, those scenarios that
represent reliance on one source without taking advantage of supply
from other sources are, we believe, least likely to occur.
The market can be expected to choose the lowest cost path to
compliance, but regulated parties may also respond to the standards we
set with investments in production, distribution, and consumption
infrastructure that is focused on longer term growth. Such investments
could result in the selection of higher cost options in the near term,
but would enable lower costs in the longer term. Other activities that
result in more favorable pricing between renewable fuels and fossil-
based fuels will also play a role in determining the actual mix of
types and amounts of biofuels used to meet the final standards, and
such activities cannot be predicted. Because of these complexities in
market dynamics, we do not believe it would be appropriate to identify
a specific scenario from Table II.D.2-2 as being most representative of
how the market will respond to the proposed volume requirements.
Further, it would be inappropriate to construct new scenarios based
on the highest volumes in each category that are shown in Table II.D.2-
2 in order to argue for higher volume requirements than we have
proposed. Doing so would presume that the specific volumes for each
type of renewable fuel, and thus the underlying scenarios, are all
equally likely or equally achievable. We have more confidence in the
ability of the market to achieve 3.40 billion gallons of advanced
biofuel through some combination of different types of renewable fuel
than we have in the ability of the market to achieve a specific level
of, say, BBD. Thus, for instance, while the highest BBD volume shown in
Table II.D.2-2 is 2,131 million gallons, we are not able to say whether
this specific level of BBD is one that the market could be expected to
achieve in 2016, notwithstanding our belief that such volumes are
theoretically possible as described earlier. The same is true for the
highest level of E85 shown in Table II.D.2-2 of 600 million gallons, or
the highest level of sugarcane ethanol of 433 million gallons. In
addition, the consumption of each fuel in Table II.D.2-2 is not
independent of the consumption of the other fuels in the table. For
example, greater BBD production reduces the likelihood of large imports
of palm biodiesel because these two fuels compete against one another.
The probability that the upper limits of all sources shown in Table
II.D.2-2 could be achieved simultaneously is extremely unlikely.
The range of options available to the market to attain compliance
with the proposed volume requirements provide us with confidence that
they are achievable. Nevertheless, we recognize that to the extent that
the proposed waivers rely on a finding of ``inadequate domestic
supply'', our objective is to set the volume requirements as precisely
as possible at the intersection between an ``inadequate supply'' and
supply that is adequate. Given the complexities of the fuels market,
this is a very challenging task, and one that necessarily involves
considerable judgment. Based on our assessment of both the current
capabilities of the industry and the power of the market to respond to
ambitious volume requirements, we believe that our proposed volumes are
the best possible estimate of the intersection between ``inadequate
supply'' and supply that is adequate.
Because the standards that we are proposing would compel the market
to supply higher volumes than would occur in the absence of an RFS
program and indeed higher volumes than are currently being supplied,
RIN prices are likely to be higher than historical levels. RIN price
increases are an expected market response to an increased renewable
fuel mandate that is pushing volumes beyond levels that the market
would otherwise use. Furthermore, high RIN prices help to promote
growth in renewable fuel supply. For instance, higher RIN prices would
likely increase the incentive to import renewable fuels. Both ethanol
and biodiesel/renewable diesel worldwide could be diverted from their
current markets given a sufficiently high RIN price. High RIN prices
can also provide the potential for reductions in the retail selling
prices of E85 and E15 if distributors, blenders, and retailers pass the
value of those RINs to end users. Finally, sustained high RIN prices
create the incentives needed to spur investment in new technologies and
production capacity, a critical need if the market is going to continue
expanding in future years according to Congress' intentions.
Given the variability in potential compliance scenarios that
exists, we believe that regulated parties have the ability to meet the
proposed standards for 2016. Stakeholders have the ability to overcome
market barriers to expanded use of renewable fuels, making the
standards we are proposing today attainable. Potential actions that
stakeholders can take include:
Working with vehicle manufacturers to increase the number of
FFVs in the fleet
Increasing the number of retail stations offering E15 and E85
through direct installation of new equipment or providing grants to
retail owners, and locating those stations offering E15/E85 closest to
higher populations of vehicles than can use those fuels
Developing contractual mechanisms to ensure favorable pricing
of E15 and E85 at retail compared to E10 to boost sales volumes
Increased production and/or imports of non-ethanol renewable
fuels (e.g., greater production of drop-in biofuels)
Expanded co-production of non-ethanol renewable fuels with
petroleum at new and existing facilities
Finally, the RFS program contains two other provisions that provide
additional flexibility to obligated parties in the event that they
choose not to invest in increasing the supply of renewable fuels. The
first is the option to carry a deficit into 2017. This option would
provide the industry additional time to increase supply. The second
available flexibility is carryover RINs, discussed in more detail in
Section II.F.
E. Treatment of Carryover RINs
Neither the statute nor EPA regulations specify how or whether EPA
should consider the availability of carryover RINs in exercising its
waiver authorities either in the standard-setting context or in
response to petitions for a waiver during a compliance year. As
described in the 2007 rulemaking establishing the RFS regulatory
program,\77\ carryover RINs are intended to provide flexibility in the
face of a variety of circumstances that could limit the availability of
RINs, including weather-related damage to renewable fuel feedstocks and
other circumstances affecting the supply of renewable fuel that is
needed to meet the standards. In the 2010-2012 time period, obligated
parties collectively surpassed the RFS renewable fuel blending
requirements,
[[Page 33130]]
and were able to accumulate 2.6 billion carryover RINs.
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\77\ 72 FR 23900, May 1, 2007.
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The potential role of carryover RINs in minimizing waivers of the
statutory applicable volume targets was first addressed in the context
of the rule establishing RFS standards for 2013. In the context of that
rulemaking, we estimated that 14.5 billion gallons of ethanol would be
needed to meet the total statutory total renewable fuel volume target
of 16.55 billion gallons, assuming that no BBD was produced above the
1.28 billion gallons required by the BBD standard. We also determined
that the total amount of ethanol the market could absorb as E10 in 2013
was 13.1 billion gallons, leaving a potential gap of 1.4 billion
gallons. We then described how BBD production in excess of the BBD
standard, increased production of other non-ethanol renewable fuels,
and use of E85 could contribute to the needed gallons. We also pointed
out that about 2.6 billion carryover RINs would be available in 2013,
which was more than enough to cover the potential gap of 1.4 billion
gallons if other approaches to compliance were not realized. We
decided, therefore, that a waiver of the statutory applicable volume of
total renewable fuel was not needed in 2013.\78\ Our approach was
challenged in court, and upheld in Monroe Energy v. EPA.\79\
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\78\ 78 FR 49794, August 15, 2013.
\79\ Monroe Energy v. EPA, 750 F.3d 909 (D.C. Cir. 2014).
---------------------------------------------------------------------------
We are not now in a position to confidently assess the volume of
carryover RINs currently available, since obligated parties and
exporters have not yet submitted their compliance demonstrations for
2013. However, based on the number of RINs generated in 2013 and
available data on renewable fuel exports and RIN retirements in 2013,
we estimate that 800 million carryover RINs will need to be used for
compliance with the 2013 RFS standards. This will reduce the bank of
carryover RINs to approximately 1.8 billion RINs. For purposes of our
proposed volume requirements for 2014, 2015, and 2016, we considered
whether some specific number of carryover RINs below the current level
of 1.8 billion would be sufficient for the critical compliance
flexibility, market liquidity, and program buffer functions served by
carryover RINs, such that we could effectively require some use of
carryover RINs by setting applicable volume requirements at levels
higher than could be achieved through actual renewable fuel blending
and use in these years.
We believe, however, that it would be prudent, and would advance
the long-term objectives of the Act, not to set standards for 2014,
2015, and 2016 so as to intentionally draw down the current bank of
carryover RINs. We believe that the availability of this full volume of
carryover RINs will be important for both obligated parties and the RFS
program itself in addressing significant future uncertainties and
challenges, particularly since compliance with the proposed advanced
and total renewable fuel standards is expected to require significant
progress in growing and sustaining production of advanced biofuels and
using ethanol in quantities that exceed the E10 blendwall.\80\
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\80\ As previously explained in this action, the ``E10
blendwall'' is the volume of ethanol that can be consumed
domestically as E10. We expect that compliance with the total
renewable fuel volume requirements will require more ethanol use
than is possible through widespread use of E10.
---------------------------------------------------------------------------
Although the issue in this proposed rulemaking is whether to waive
statutory applicable volumes in the context of establishing new
standards, we note that the availability of carryover RINs is an
important factor in deciding whether to waive standards already in
effect. Each year, obligated parties make significant efforts to comply
with RFS requirements, and participants in the renewable fuels market
make significant efforts to supply the renewable fuels needed for
compliance. Changing those requirements during the compliance year to
address unforeseen supply disruptions or for other reasons would be
disruptive to businesses and therefore to the long-term objectives of
the RFS program to provide incentives to industry to increase the
production and use of renewable fuels. Preserving the current bank of
carryover RINs at this time will reduce the risk that waivers may be
needed after the 2014, 2015 and 2016 standards are in place to address
unforeseen circumstances.\81\
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\81\ The statute and EPA's regulations provide another means of
compliance flexibility--obligated parties may carry forward a
compliance deficit for one year. But the statute and regulations
also require that any deficit be paid back in the following year and
that the standards applicable in the following year be met. Given
that our proposed standards increase year to year, it may be
increasingly difficult for an obligated party to both repay a
deficit and meet higher standards in the same year. Thus, this
provision does not replace carryover RINs as an important compliance
tool to address increasingly challenging requirements and unforeseen
circumstances.
---------------------------------------------------------------------------
In addition, the RIN system was developed in part to implement the
statutory requirement for obligated parties to earn ``credits'' for
overcompliance that could be used in another year or sold to others.
The RFS standards are a mandate with serious ramifications to obligated
parties that fail to comply. As intended by Congress, carryover RINs
help provide compliance flexibility. We appreciate that obligated
parties make individual decisions about whether and how many RINs to
acquire for their compliance management purposes, and that a decision
by EPA to effectively ``draw down'' their bank of carryover RINs in
calculating future volume requirements may decrease their compliance
flexibility, increase their risk of noncompliance, and affect their
incentives to build-up carryover RIN balances. We understand that
obligated parties in many instances acquire RINs for carryover to
provide just that kind of flexibility, and that assuming use of
carryover RINs in setting the RFS standards may in the future
discourage that kind of responsible behavior.
Finally, we appreciate that with the increasing renewable fuel
volume targets established in the Act for the future, combined with the
projected decreasing use of gasoline and diesel fuel resulting from
more stringent vehicle emission and mileage requirements, the ability
of obligated parties to increase the bank of carryover RINs through
additional overcompliance in the future will be much more difficult.
Therefore, any draw-down in the bank of carryover RINs required through
setting volume requirements at levels higher than can be achieved
through actual renewable fuel use could not likely be reversed in the
future. Given the importance of carryover RINs noted above, this
consideration suggests that a deliberate draw-down of the RIN bank
would not be prudent.
For all of the reasons noted above, EPA is not proposing to set
renewable fuel volume requirements at levels that would envision the
draw-down in the bank of carryover RINs. We welcome comments on this
analysis and thoughts on how EPA should consider carryover RINs in
establishing renewable fuel volume requirements for 2014, 2015, and
2016.
F. Impacts of Proposed Standards on Costs
In the following sections we provide cost estimates for three
illustrative scenarios--one, if the entire change in the advanced
standards is met with soybean oil BBD; two, if the entire change in the
advanced standards is met with sugarcane ethanol from Brazil; and
three, if the entire change in the conventional standards (i.e., non-
advanced) is met with corn ethanol. While a variety of biofuels could
help fulfill the advanced standard beyond soybean oil BBD and sugarcane
ethanol
[[Page 33131]]
from Brazil, these two biofuels have been most widely used in the past.
We believe these scenarios provide illustrative costs of meeting the
proposed standards. For this analysis, we estimate the per gallon costs
of producing biodiesel, sugarcane ethanol and corn ethanol relative to
the petroleum fuel they replace at the wholesale level, then multiply
these per gallon costs by the applicable volumes established in this
rule for the advanced and total renewable fuel categories. More
background information on this section, including details of the data
sources used and assumptions made for each of the scenarios, can be
found in a memorandum submitted to the docket.\82\
---------------------------------------------------------------------------
\82\ ``Illustrative Costs Impact of the Proposed Annual RFS2
Standards, 2014-2017,'' Memorandum from Michael Shelby to EPA Air
Docket EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------
A number of different scenarios could be considered the
``baseline'' for the assessment of the costs of this rule. For the
purposes of showing illustrative overall costs of this rulemaking, we
are proposing to use the preceding year's standard as the baseline
(e.g., the baseline for the 2016 advanced standard is the proposed
applicable 2015 advanced standard, etc.), an approach consistent with
past practices.
The 2014 standards were not finalized in 2014 so it is difficult to
estimate what their costs may have been. Market participants may have
anticipated a final 2014 standard would require higher levels of
biofuels than the market would provide in the absence of the standard,
which would contribute to the positive RIN prices witnessed in 2014. In
contrast, the 2014 standards being proposed in this rulemaking
represent reductions in both the advanced and conventional volumes
compared to the 2013 standards, suggesting a reduction in costs for
this proposed 2014 rule compared to the 2013 standards. Finally, the
2014 standards being proposed in this rulemaking are based on actual
production levels in 2014, suggesting that the 2014 standards we are
proposing are what would have happened in the marketplace absent a
rulemaking. Given the complexity of this issue, we have not attempted
to estimate the costs of the 2014 standards. Therefore, we only provide
illustrative costs for the 2015 and 2016 advanced biofuel standards and
total renewable fuel standards.
Because we are focusing on the wholesale level in each of the three
scenarios, these comparisons do not consider taxes, retail margins, and
any other costs or transfers that occur at or after the point of
blending (i.e., transfers are payments within society and not
additional costs). Further, we do not attempt to estimate potential
costs related to infrastructure expansion with increased biofuel
volumes. In addition, because more ethanol gallons must be consumed to
go the same distance as gasoline and more biomass-based diesel must be
consumed to go the same distance as petroleum diesel due to each of the
biofuels' lesser energy content, we consider the costs of ethanol and
biomass-based diesel on an energy equivalent basis to their petroleum
replacements (i.e., per energy equivalent gallon (EEG)).
For our first scenario, we consider the costs of soybean-based
biodiesel to meet the entire change in the advanced standards. The
proposed 2014 standard is being set at the actual level of advanced
biofuels produced in 2014, 2.68 billion gallons. The total advanced
biofuel volumes are being proposed for 2015 at 2.90 billion gallons and
3.40 billion gallons in 2016. Comparing the difference in costs between
biomass-based diesel and petroleum-based diesel, we estimate a cost
difference that ranges from $1.48 to $1.56/EEG in 2015 and from $1.45
to $2.09/EEG in 2016. Multiplying the per gallon cost estimates by the
volume of fuel displaced by the advanced standard, on an energy
equivalent basis, results in an overall annual cost of $218 to $229
million in 2015 and $483 to $697 million in 2016.
For our second scenario, we provide illustrative estimates of what
the potential costs might be if all additional volumes used to meet the
2015 and 2016 advanced biofuel standards above the previous year's
advanced biofuel standard are met with imported Brazilian sugarcane
ethanol. Comparing the difference in costs between sugarcane ethanol
and the wholesale gasoline price on a per gallon basis, we estimate
cost differences that range from $1.04 to $2.80/EEG in 2015 and from
$0.85 to $2.61/EEG in 2016. Taking the difference in per gallon costs
for sugarcane ethanol and the wholesale gasoline price and multiplying
that by the volume of petroleum displaced on an energy equivalent basis
from the advanced standard results in an overall estimated annual cost
of $228 to $615 million for 2015 and $424 to $1,303 million for 2016.
For the third scenario, we assess the difference in cost associated
with a change in the implied volumes available for conventional (i.e.,
non-advanced) biofuels for 2015 and 2016. We provide illustrative
estimates of what the potential costs might be if corn ethanol is used
to meet the entire conventional renewable fuel volumes. The implied
2014 volume allowance for conventional renewable fuel is 13.25 billion
gallons, 13.40 billion gallons in 2015, and 14.00 billion gallons in
2016. If corn ethanol is used to meet the difference between the
implied 2014 to 2015 and 2015 to 2016 conventional renewable fuel
volume increases, an increase of 150 million gallons of corn ethanol
would be required in 2015 and 600 million gallons in 2016. Comparing
the difference in costs between corn ethanol and the wholesale gasoline
price, we estimate cost differences that range from $0.81 to $0.92/EEG
in 2015 and from $0.58 to $0.90/EEG in 2016. Taking the difference in
per gallon costs between the corn ethanol and the wholesale gasoline
price estimates and multiplying that by the volume of petroleum
displaced on an energy equivalent basis by the conventional standard
results in an overall estimated annual cost of $122 to $138 million for
2015 and $348 to $541 million for 2016.
An alternative way of looking at the illustrative costs in 2016,
given the fact that this is a three year rule and the 2015 standards
may change, is to consider a volume change relative to the 2014
proposed standard. The cost estimate for meeting the 2016 standard
would range from $695 to $1,003 million if the entire advanced standard
were to be met with soybean-based diesel. The cost estimates would
range from $610 to $1,877 million if the entire advanced standard were
met with sugarcane ethanol. The cost estimate for meeting the entire
conventional standard in 2016 with corn ethanol would range from $435
to $676 million.
The short time frame provided for the annual renewable fuel rule
process does not allow sufficient time for EPA to conduct a
comprehensive analysis of the benefits of the 2015 and 2016 standards
and the statute does not require it. Moreover, as discussed in the
proposed rule establishing the 1.28 billion gallon requirement for BBD
in 2013, the costs and benefits of the RFS program as a whole are best
assessed when the program is fully mature in 2022.\83\ We continue to
believe that this is the case, as the annual standard-setting process
encourages consideration of the program on a piecemeal (i.e., year to
year) basis, which may not reflect the long-term economic effects of
the program. Therefore, for the purpose of this annual rulemaking, we
have not quantified benefits for the 2015 and 2016 proposed standards.
We do not have a quantified estimate of the GHG impacts for the
[[Page 33132]]
single year (e.g., 2015, 2016). When the RFS program is fully phased
in, the program will result in considerable volumes of renewable fuels
that will reduce GHG emissions in comparison to the fossil fuels which
they replace. EPA estimated greenhouse gas, energy security and air
quality impacts and benefits for the 2010 Proposed RFS Rule for 2022.
---------------------------------------------------------------------------
\83\ 77 FR 59477, September 27, 2012.
---------------------------------------------------------------------------
III. Proposed Biomass-Based Diesel Volumes for 2014-2017
In this section we discuss the proposed biomass-based diesel (BBD)
applicable volumes for 2014 through 2017. It is important to note that
the BBD volume requirement is nested within both the advanced biofuel
and the total renewable fuel volume requirements; so that any
``excess'' BBD produced beyond the mandated BBD volume can be used to
satisfy both these other applicable volume requirements. Therefore, in
assessing what is the appropriate applicable BBD volume for 2014-2017,
it is important to consider not only the volume for BBD, which
effectively guarantees a minimum amount that will be produced, but also
the advanced biofuel and total renewable fuel volume requirements,
which historically have played a significant role in determining demand
for BBD as well.
In proposing an applicable volume for 2017 we are addressing the
volume requirement but not the percent standards, in order to satisfy a
statutory requirement that when EPA sets the applicable volumes in the
absence of a statutory volume target, that we do so no later than 14
months before the first year for which such applicable volume will
apply.\84\ Since the statute does not specify a BBD volume target for
2017, we plan to finalize the applicable volume by this November. Since
the statute includes applicable volume targets for advanced biofuel,
total renewable fuel and cellulosic biofuel for 2017, we are not
required to establish 2017 applicable volumes for them at this time. We
believe it is prudent to delay establishing such volume targets until
the statutory deadline of November 30, 2016, to enable EPA to use the
most up-to-date information prior to the start of the calendar year.
---------------------------------------------------------------------------
\84\ CAA 211(o)(2)(B)(ii).
---------------------------------------------------------------------------
A. Statutory Requirements
The statute establishes applicable volume targets for years through
2022 for cellulosic biofuel, advanced biofuel, and total renewable
fuel. For BBD, applicable volume targets are specified in the statute
only through 2012. For years after those for which applicable volumes
are specified in the statute, EPA is required under CAA section
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 an analysis of
the following factors:
1. 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;
2. The impact of renewable fuels on the energy security of the
United States;
3. The expected annual rate of future commercial production of
renewable fuels, including advanced biofuels in each category
(cellulosic biofuel and BBD);
4. 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;
5. The impact of the use of renewable fuels on the cost to
consumers of transportation fuel and on the cost to transport goods;
and
6. 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 for BBD cannot be
less than the applicable volume for calendar year 2012, which is 1.0
billion gallons. The statute does not, however, establish any other
numeric criteria, or provide any guidance on how the EPA should weigh
the importance of the often competing factors, and the overarching
goals of the statute when the EPA sets the applicable volumes in years
after those for which the statute specifies applicable volumes. In the
period 2013-2022, the statute specifies increasing applicable volumes
of cellulosic biofuel, advanced biofuel, and total renewable fuel, but
provides no guidance on the extent to which BBD volumes should grow.
B. BBD Production and Compliance in Previous Years
Due to the delayed issuance of the major regulatory revisions
necessary to implement changes enacted through the Energy Independence
and Security Act of 2007, EPA established a 2010 BBD standard that
reflected volume requirements for both 2009 and 2010, and allowed RINs
generated as early as 2008 to be used for compliance with that
standard. Given the complexity associated with the 2010 BBD standard,
we begin our review of implementation of the program with the 2011
compliance year. Reviewing the implementation of the BBD standards in
previous years is required by the CAA, and also provides insight into
the capabilities of the BBD industry to produce and import fuel. It
also helps us to understand what factors, beyond the BBD standard, may
incentivize the production and import of BBD. The number of BBD RINs
generated, along with the number of RINs retired for reasons other than
compliance with the annual BBD standards, are shown in Table III.B-1
below.
---------------------------------------------------------------------------
\85\ Net BBD RINs Generated and BBD RINs Retired for Non-
Compliance Reasons information from EMTS. Biodiesel Export
information from EIA (http://www.eia.gov/dnav/pet/pet_move_expc_a_EPOORDB_EEX_mbbl_a.htm).
\86\ Each gallon of biodiesel generates 1.5 RINs due to its
higher energy content per gallon than ethanol. Renewable diesel
generates between 1.5 and 1.7 RINs per gallon.
Table III.B-1--Biomass-Based RIN Generation and Standards in 2011-2013
[Million gallons] \85\
--------------------------------------------------------------------------------------------------------------------------------------------------------
BBD RINs
BBD RINs Exported BBD retired, non- Available BBD BBD standard BBD standard
generated (RINs) compliance RINs (Gallons) (RINs) \86\
reasons
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011........................................ 1,692 110 97 1,484 800 1,200
2012........................................ 1,737 193 80 1,465 1,000 1,500
2013........................................ 2,739 295 94 2,350 1,280 1,920
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 33133]]
In reviewing historical BBD RIN generation and use we see that the
number of RINs available for compliance purposes exceeded the BBD
standard by a significant margin in 2011 and 2013. Additional demand
for biodiesel may have been driven by a number of factors, including
demand to satisfy the advanced biofuel and total renewable fuels
standards, the biodiesel tax credit, and favorable blending economics.
In 2012 the available BBD RINs were slightly less than the BBD
standard. There are many reasons this may have been the case, including
the lapse of the biodiesel tax credit at the end of 2011.\87\
---------------------------------------------------------------------------
\87\ The biodiesel tax credit was reauthorized in January 2013.
It applied retroactively for 2012 and for the remainder of 2013. It
was once again extended in December 2014 through the end of 2014.
---------------------------------------------------------------------------
While total BBD volume produced and imported in 2013 was 1.79
billion gallons (2.74 billion BBD RINs), it is also instructive to
review the data on volumes that were produced domestically, imported,
exported, and retired for reasons other than compliance. Total domestic
production of BBD was 1.45 billion gallons (2.19 billion RINs), while
imports resulted in an additional 0.34 billion gallons (0.55 billion
RINs).\88\ This volume was not entirely available for compliance
purposes, however, since some of the BBD produced domestically was
exported and some RINs had to be retired for purposes other than
compliance. Based on EIA export data, we estimate that 0.196 billion
gallons (0.295 billion RINs) of BBD was exported in 2013.\89\ A
corresponding number of BBD RINs will eventually be retired by
exporters, as required by the RFS regulations, and therefore are not
available for use by refiners and importers in satisfying their 2013
obligations.\90\ Additionally, 0.094 billion BBD RINs were retired for
reasons other than compliance, such as volume error corrections,
contaminated or spoiled fuel, or fuel used for purposes other than
transportation fuel, heating oil, or jet fuel. Based on this
information, the actual amount of BBD available for compliance in 2013
totaled 2.36 billion RINs, representing approximately 1.55 billion
gallons of BBD. This is 430 million more BBD RINs than were required
for compliance with the BBD standard in 2013.
---------------------------------------------------------------------------
\88\ ``Summary of data on 2013 RIN generation and consumption'',
memorandum from David Korotney to EPA Air Docket EPA-HQ-OAR-2015-
0111.
According to the U.S. Energy Information Administration (EIA),
Annual import data for BBD (Biodiesel and Renewable diesel countries
contributing to BBD imports (million gallons) were Argentina = 132,
Aruba = 6, Australia = 1, Belgium = 5, Canada = 45, Finland = 36,
Germany = 61, Indonesia = 52, Netherlands = 8, Norway = 9, South
Korea = 20, Panama = 3, Singapore = 164, Spain = 4, Taiwan = 1. (See
http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_EPOORDB_im0_mbbl_a.htm and http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_EPOORDO_im0_mbbl_a.htm
(last accessed April 6, 2015).
Note that not all of the imported volumes generated BBD (D4)
RINs. Some of this volume may have generated Renewable Fuel (D6)
RINs or no RINs at all.
\89\ U.S. Energy Information Administration (EIA). Annual export
data for Biodiesel (2013). See http://www.eia.gov/dnav/pet/pet_move_expc_a_EPOORDB_EEX_mbbl_a.htm (last accessed April 6,
2015).
\90\ EMTS includes data on RINs retired for export, but the
values are incomplete as of this writing since the 2013 compliance
deadline has not yet passed.
---------------------------------------------------------------------------
C. Applicable Volume of Biomass-Based Diesel for 2014
For 2014 we are proposing to base the applicable volume
requirements on the number of RINs supplied in 2014. We propose to
define supply for 2014 as the number of BBD RINs that were available
for compliance in 2014. Supply would thus include RINs that were
generated for renewable fuel produced or imported in 2014 as recorded
in the EMTS, minus any RINs that have already been retired or would be
expected to be retired to cover exports of renewable fuels or for any
purpose other than compliance. RINs that have already been retired for
such circumstances as RINs being invalid, spills, corrected and
replaced RINs, etc. are recorded in EMTS on an ongoing basis. However,
complete information on RINs that are retired to cover exports of
renewable fuel is not available through EMTS until after the compliance
demonstration deadline for a given calendar year has passed. Since
compliance cannot occur until the standards are set, we propose to use
biodiesel export information from EIA in 2014 to estimate the number of
2014 BBD RINs that will be retired to satisfy obligations associated
with exported BBD.
Actual supply of BBD in 2014 is shown in Table III.C-1 below.
Further details are provided in a memorandum to the docket.\91\ Since
EIA does not distinguish exports by D code, we assumed that all
biodiesel exports represent D4 BBD. We expect that any errors
introduced by this assumption will be very small.
---------------------------------------------------------------------------
\91\ ``Summary of data on 2014 RIN Generation and Consumption,''
memorandum from David Korotney to EPA docket EPA-HQ-OAR-2015-0111.
Table III.C-1--2014 Actual Supply of Biomass-Based Diesel
----------------------------------------------------------------------------------------------------------------
BBD RINs
Domestic retired, non-
production and Exports compliance Net supply
imports reasons
----------------------------------------------------------------------------------------------------------------
Million RINs.................................... 2,709 124 82 2,502
Million gallons................................. 1,763 83 48 1,631
----------------------------------------------------------------------------------------------------------------
While the actual physical volume of D4 BBD supplied in 2014 was 1.63
billion gallons, we have used a physical volume of 1.67 billion gallons
as the 2014 volume requirement because the formula for calculating the
BBD percentage standard in 40 CFR 80.1405(c) includes a factor of 1.5,
presuming that all BBD is biodiesel. In reality, a significant portion
of BBD in 2014 was renewable diesel (328 million gallons), which
generally has an equivalence value of 1.7 rather than 1.5. The use of a
physical volume of 1.67 billion gallons ensures that the applicable
percentage standard for BBD accounts for the higher equivalence value
of the volume of renewable diesel produced and imported in 2014 and
results in a requirement for 2.50 billion RINs, consistent with supply.
D. Determination of Applicable Volume of Biomass-Based Diesel for 2015-
2017
The statute requires that, in determining the applicable volume of
BBD, we review the implementation of the program in previous years.
Based on the fact that the industry made more BBD available in 2011 and
2013 than volume requirements for those years, we conclude that the BBD
standard is not the sole driver for the amount of BBD produced or
imported into the United
[[Page 33134]]
States.\92\ We believe that the advanced biofuel and total renewable
fuel standards are significant factors in the amount of biodiesel
produced and imported into the United States. We also believe that the
advanced and/or total renewable fuel standards can continue to drive
BBD supply in 2015-2017. As described in more detail in Section II.C,
we are proposing volumes of advanced biofuel and total renewable fuel
for 2015-2016 that require substantial growth beyond the volumes
supplied in 2014. We expect that the advanced biofuel and total
renewable fuel standards will continue to provide incentives for BBD
supply that exceeds the BBD standard.
---------------------------------------------------------------------------
\92\ The blenders tax credit for biodiesel likely also
incentivized additional biodiesel blending in these years.
---------------------------------------------------------------------------
However, we recognize that in addition to being a component of
advanced biofuel and total renewable fuel, Congress also intended that
BBD have its own specific standard. Given that the statute requires
annual increases in advanced biofuel through 2022, it may be
appropriate for BBD to play an increasing role in supplying advanced
biofuels to the market, especially in light of the fact that BBD does
not contribute to the E10 blendwall. This proposal seeks to balance the
goals of supporting the BBD industry and incentivizing the production
of non-BBD advanced biofuels by providing a guaranteed, increasing
market for BBD and allowing all advanced biofuels to compete for market
share within the advanced biofuel category. In doing so we have
considered the ability of the advanced biofuel and total renewable fuel
standards to incentivize an increasing supply of BBD, the
implementation of the RFS program to date, and the statutory factors
listed in CAA 211(o)(2)(B) (discussed in further detail in Section
III.E below).
1. Implication of Nested Standards
The BBD standard is nested within the advanced biofuel and total
renewable fuel standards. This means that when an obligated party
retires a BBD RIN (D4) to satisfy their obligation, this RIN also
counts towards meeting their advanced biofuel and total renewable fuel
obligations. It also means that obligated parties may use BBD RINs in
excess of their BBD obligations to satisfy their advanced biofuel and
total renewable fuel obligations. Higher advanced biofuel and total
renewable fuel standards, therefore, can create demand for BBD if there
is an insufficient supply of other advanced or conventional renewable
fuels to satisfy the standards, or if BBD RINs can be acquired at or
below the price of other advanced or conventional biofuel RINs.
In reviewing the implementation of the RFS program to date, it is
apparent that the advanced and/or total renewable fuel requirements
were in fact helping to provide a market for volumes of biodiesel above
the BBD standard. Table III.D.1-1 below shows the number of BBD RINs
generated and available for use towards demonstrating compliance \93\
in each year from 2011-2013. As can be seen from the table, in 2011 and
2013 the number of BBD RINs available for use exceeds the BBD standard.
In 2013 the number of advanced RINs generated from fuels other than BBD
is not large enough to satisfy the implied standard for ``other
advanced'' biofuel (advanced biofuel that is not BBD or cellulosic
biofuel). In fact, the amount by which the available BBD RINs exceed
the BBD standard (421 million RINs) is slightly larger than the amount
by which the non-BBD RINs fall short of the ``other advanced'' biofuel
implied standard (285 million RINs). This supports the theory that the
advanced biofuel standard provided an incentive to support BBD
production and import into the United States in excess of the BBD
standard.
---------------------------------------------------------------------------
\93\ RINs available for use is number of RINs generated minus
the number of RINs retired (or that we anticipate will be retired)
for any reason other than a demonstration of annual compliance, such
as RINs retired for exported biofuel, volume error corrections,
enforcement actions, fuel used in applications other than
transportation fuel, heating oil, or jet fuel, etc.
Table III.D.1-1--Biomass-Based Diesel and Advanced Biofuel RIN Generation and Standards
[Million gallons]
----------------------------------------------------------------------------------------------------------------
Available non- ``Other'' Advanced
Available BBD RINs BBD standard biodiesel biofuel
(RINs) advanced biofuel requirement
----------------------------------------------------------------------------------------------------------------
2011............................ 1,484 1,200 225 150
2012............................ 1,465 1,500 597 500
2013............................ 2,360 1,920 552 830
----------------------------------------------------------------------------------------------------------------
The prices paid for advanced biofuel and BBD RINs also support the
theory that advanced biofuel and/or total renewable fuel standards
provided sufficient incentive for additional biodiesel production and
import. Because the BBD standard is nested within the advanced biofuel
and total renewable fuel standards, we would expect the price of BBD
RINs to exceed that of advanced and renewable RINs. If, however, BBD
RINs are being used by obligated parties to satisfy their advanced
biofuel and/or total renewable fuel obligations, above and beyond the
BBD standard, we would expect the price of renewable fuel, advanced
biofuel, and BBD RINs to converge. When examining RIN prices data from
2011 through 2014, shown in Figure III.D.1-1 below, we see that until
January 2013 there is a consistent price differential between the price
of BBD and the relatively cheaper advanced biofuel and renewable fuel
RINs. Beginning in 2013 the price of BBD RINs and advanced biofuel RINs
converge, and remain at a similar price throughout 2014. This is more
evidence that suggests that the advanced biofuel standard and/or total
renewable fuel standard is capable of incentivizing increased
production and importation of BBD beyond the BBD standard, and that it
in fact operated in this manner in 2013 and 2014.
[[Page 33135]]
[GRAPHIC] [TIFF OMITTED] TP10JN15.006
2. Biomass-Based Diesel as a Fraction of Advanced Biofuel
Another implication of the fact that the BBD standard is nested
within the advanced biofuel standard is that, for any given advanced
biofuel standard, the higher the BBD standard is, the lower the
opportunity for other non-BBD fuels to compete for market share within
the context of the advanced biofuel standard. The statutory volumes of
renewable fuel established by Congress in CAA section 211(o)(2)(B)
allow for an opportunity for other advanced biofuels (advanced biofuels
that do not qualify as cellulosic biofuel or BBD) to be used to satisfy
the advanced biofuel standard after the cellulosic biofuel and BBD
standards have been met. This unspecified advanced biofuel volume
starts at 0.25 billion gallons in 2013 and grows to 3.5 billion gallons
in 2022. It is, however, heavily dependent on EPA actions. Increasing
the BBD standard above 1 billion gallons, as we did in 2013, reduces
the potential market for other advanced biofuels to contribute towards
meeting the advanced biofuel standard. Conversely, reducing the
cellulosic biofuel standard while simultaneously maintaining the
advanced biofuel standard (or reducing it by a lesser amount), as we
have done each year since 2010, increases the potential market for
other advanced biofuels.
Both BBD and other advanced biofuels achieve estimated greenhouse
gas reductions of at least 50% relative to the petroleum fuels they
replace. Increasing the guaranteed market for BBD, rather than allowing
excess BBD to compete for market share with other advanced biofuels
within the advanced biofuel standard, would likely reduce competition
and thus result in increased costs associated with the RFS program with
no additional GHG reductions. It will also have a negative impact on
investment in the development and deployment of other advanced
biofuels, as these fuels will have a lower potential market if the BBD
standard is increased. The long term success of the RFS program will
depend on the growth in a variety of advanced biofuels. The standards
we set today must therefore provide an incentive for the ongoing
research, development, and commercialization of a variety of types of
advanced biofuels beyond just BBD. We note again, however, that
allowing for a greater use of other advanced biofuels by setting a
lower BBD standard does not limit the amount of BBD that may be used
towards satisfying the advanced biofuel standard. If BBD can be
supplied at a lower cost than other advanced biofuels it can--and we
expect would--be used to satisfy the majority or even all of the
unspecified volume of advanced biofuels. Allowing for a larger portion
of the advanced biofuel standard to be unspecified, by setting a lower
BBD standard, maintains an incentive for the development and deployment
of other advanced biofuels, while at the same time allowing a level of
competition that can reduce compliance costs while also allowing growth
in the supply of BBD and maintaining the greenhouse gas emissions
reductions achieved by the use of advanced biofuels in the RFS program.
We believe these are important considerations in determining the
required BBD volumes in the 2015-2017 time period, as well as in future
years.
3. Ensuring Growth in Biomass-Based Diesel and Other Advanced Biofuel
While the ability of the advanced and total renewable fuel
standards to incentivize increasing production of BBD and the desire to
allow other advanced biofuels to compete with BBD for market share
under the advanced standard suggest that a flat or even decreasing BBD
volume requirement may be the optimal solution, these are not the only
considerations. Despite many of these same issues being present
[[Page 33136]]
in 2013, EPA decided to increase the BBD standard in 2013 to 1.28
billion gallons. EPA's decision to establish the higher 1.28 billion
gallon BBD volume for 2013 was made against the backdrop of the BBD
industry having increased production from about 400 million gallons in
2010 to over 1 billion gallons in 2011.\94\ At that time, we were not
confident in the ability of other advanced biofuels to be able to
supply all the necessary volume of advanced biofuel needed to offset
the shortfall in cellulosic biofuel and to meet the statutory volume
target of 2.75 billion gallons for advanced biofuel. EPA was also not
completely confident in the ability of the BBD industry to further
increase production without an increased BBD standard. While BBD
production had performed well in 2011 and the early part of 2012, the
biodiesel industry had gone through a period of instability in 2009 and
2010.\95\
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\94\ 77 FR 59461 col. 1, September 27, 2012.
\95\ Regulations of Fuels and Fuel Additives: 2013 BBD Renewable
Fuel Volume; Proposed Rule. 77 FR 59458, 59460-59461. http://www.epa.gov/otaq/fuels/renewablefuels/regulations.htm (last accessed
May 20, 2014).
---------------------------------------------------------------------------
During the development of the 2013 standards rulemaking, we were
also concerned that the cellulosic biofuel standard, also nested within
the advanced biofuel requirement, was lagging significantly behind the
1 billion gallon statutory volume target. The shortfall in cellulosic
biofuel volume meant that either other sources of advanced biofuel
would be necessary to fulfill the specified volumes in the statute for
the advanced biofuel standard, or EPA would need to waive a portion of
the advanced biofuel standard. It is in this context that EPA
determined that raising the BBD requirement to 1.28 billion gallons was
appropriate. Most importantly, an applicable volume requirement of 1.28
billion gallons was expected to encourage continued investment and
innovation in the BBD industry, providing necessary assurances to the
industry to increase production for 2013 while also serving the long
term goal of the RFS statute to increase volumes of advanced biofuels
over time.\96\
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\96\ 77 FR 59458, 59462 and 59483.
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There are also advantages to increasing the BBD standard in order
to help provide stability to the BBD industry. This industry is
currently the single largest contributor to the advanced biofuel pool,
one that to date has been largely responsible for providing the growth
in advanced biofuels envisioned by Congress. Nevertheless, there has
been variability in the number of biodiesel facilities in production
over the last few years, as well as the percent utilization of
individual facilities, both of which contribute uncertainty in the rate
of production in the near future, and which can be mitigated to some
degree with an increase in the BBD applicable volume. Increasing the
BBD standard should help to provide market conditions that allow these
BBD production facilities to operate with greater certainty. This
result would be consistent with the goals of the Act to increase the
production and use of renewable fuels.
4. Proposed Volumes for 2015-2017
With these considerations in mind, as well as our analysis of the
factors specified in the statute and described below, and in
coordination with the Departments of Agriculture and Energy, we are
proposing to increase the applicable volume of BBD to 1.70 billion
gallons for 2015, and to further increase the BBD volume requirement by
0.1 billion gallons in 2016 and 2017, respectively. We believe this
proposal strikes the appropriate balance between providing a market
environment where other advanced biofuels can compete, and achieving
the benefits associated with increasing the required volume of BBD.
Given our proposed volumes for advanced biofuel in these years, setting
the BBD standard in this manner continues to allow a considerable
portion of the advanced biofuel volume to be satisfied by either
additional gallons of BBD or by other unspecified types of qualifying
advanced biofuels (see Table III.D.4-1 below). While we have not yet
determined the applicable volume of advanced biofuel for 2017, we
anticipate the continued growth in the advanced biofuel standard such
that the advanced biofuel standard will provide an incentive for both
increasing volumes of BBD and other advanced biofuels. We believe
maintaining this unspecified or other advanced biofuel volume will
provide the incentive for development and growth in other types of
advanced biofuels. At the same time, allowing the portion of the
advanced biofuel volume requirement that is dedicated to BBD to
increase concurrently with the increase in the overall advanced biofuel
volume requirement will contribute to market certainty for both the BBD
industry and the renewable fuels program in general.
Table III.D.4-1--Proposed Biomass-Based Diesel, Cellulosic Biofuel, and Advanced Biofuel Standards: 2015-2017
[Billion gallons]
----------------------------------------------------------------------------------------------------------------
Cellulosic Advanced Unspecified
BBD (gallons) BBD (RINs) biofuel biofuel advanced
----------------------------------------------------------------------------------------------------------------
2015............................ 1.70 2.55 0.11 2.90 0.24
2016............................ 1.80 2.70 0.20 3.40 0.50
2017............................ 1.90 2.85 TBD TBD TBD
----------------------------------------------------------------------------------------------------------------
In proposing these standards for BBD for 2015-2017 EPA has taken
into account the statutory requirements found in CAA section
211(o)(2)(B)(ii), including coordination with the Departments of Energy
and Agriculture, review of the implementation of the renewable fuels
program to date, and analysis of the statutory factors specified in CAA
section 211(o)(2)(B)(ii)(I)-(VI). Of particular relevance in our review
of the implementation of the renewable fuels program to date were the
circumstances and context that led us to increase the BBD standard from
1.0 billion gallons in 2012 to 1.28 billion gallons for 2013, and the
biofuel industry's successful performance in 2013. We have also
reviewed the statutory factors in the context that the BBD volume
requirement is nested within the advanced biofuels and total renewable
fuels volume requirements. This discussion of the statutory factors is
found in Section III.E., below.
In deciding to propose an applicable volume of 1.70 billion gallons
of BBD for 2015, with annual increases of 0.10 billion gallons for 2016
and 2017, we
[[Page 33137]]
considered not only the short-term impacts, but also the potential
long-term impacts of our action on the RFS program. We took into
account the competitive impact such an increase in the BBD set-aside
would likely have on other advanced biofuel producers already in the
marketplace as well as on potential new market entrants. This increase
in the BBD set-aside through 2017 should result in a requirement for
unspecified advanced biofuel sufficient to provide opportunity for
continued investment in and growth of advanced biofuels other than BBD.
Raising the guaranteed BBD volume beyond the proposed volumes to a
volume that approaches the maximum possible supply of BBD could result
in a less competitive advanced biofuels market, increasing RIN prices,
and a less efficient market-driven renewable fuels program. Our
decision today to propose increasing the BBD volume in 2015-2017 by 100
million gallons per year would not be expected to lead to such adverse
result. We believe that the proposed increases for 2015-2017 will both
contribute to market stability for the renewable fuels program and
continue to promote a growing and competitive advanced biofuels
marketplace, one which encourages the growth and development of diverse
biofuels along with additional volumes of BBD beyond the volumes
required by the BBD standard. We request comment on our proposal for
increasing the BBD applicable volumes in 2015-2017 and whether higher
or lower volume requirements for BBD for 2015-2017 would be more
appropriate.
E. Consideration of Statutory Factors for 2014-2017
In this section we discuss our considerations of the statutory
factors set forth in CAA section 211(o)(2)(B)(ii)(I)-(VI). As discussed
earlier in Section III.D.1, the BBD volume requirement is nested within
both the advanced biofuel and the total renewable fuel volume
requirements; so that any BBD produced beyond the mandated BBD volume
can be used to satisfy both these other applicable volume requirements.
The result is that in considering the statutory factors when setting
the biomass-based standard we must consider the potential impacts of
increasing BBD in comparison to other advanced biofuels,\97\ not to
diesel fuel. Greater or lesser applicable volumes of BBD do not change
the amount of advanced biofuel used to displace petroleum fuels;
rather, increasing the BBD applicable volume may result in the
displacement of other types of advanced biofuels that could have been
used to meet the advanced biofuels volume requirement.
---------------------------------------------------------------------------
\97\ While BBD can be used to satisfy the total renewable fuel
requirement we anticipate that it will be used to satisfy the
advanced biofuel volume requirement in 2015-2017. See Table II.D.2-
2, ``Volume Scenarios Illustrating Possible Compliance with 3.40
Bill Gal Advanced Biofuel\a\ and 17.40 Bill Gal Bill Gal Total
Renewable Fuel''.
---------------------------------------------------------------------------
1. Primary and Supplementary Statutory Factors Assessment for 2015-2017
Biomass-Based Diesel Applicable Volumes
EPA's primary assessment of the statutory factors for years 2015
through 2016 is that because the proposed advanced biofuel volume
requirements for 2015-2016 reflect the maximum volumes of all advanced
biofuels (including BBD) that can reasonably be expected to be produced
and consumed, and because the BBD requirement is nested within the
advanced biofuel volume requirement, we expect that the advanced
biofuel volume requirement will determine the level of BBD production
and import; the same volume of BBD will be produced and imported
regardless of the BBD applicable volumes that we require for 2015-2016.
This assessment is based in part on our review of implementation of the
RFS program to date, as discussed in Sections III. B and D. Since our
decision on the BBD applicable volumes for 2015-2016 is not expected to
impact the volume of BBD produced and imported during this time period,
we do not expect our decision to result in a difference in any of the
factors we are required to evaluate pursuant to CAA section
211(o)(2)(B)(ii)(I)-(VI), with the exception, that in considering
statutory factor 211(o)(2)(B)(ii)(III), we believe that our decision on
the level of the nested BBD volume requirement can have an impact on
the future development and marketing of non-BBD advanced biofuels and
can also be seen as sending a supportive or non-supportive signal to
potential investors in BBD.
Similarly for 2017, even though we are proposing only the 2017 BBD
requirement at this time and not the 2017 advanced biofuel requirement,
we believe this same primary assessment is appropriate since, as in
previous years, the 2017 advanced biofuel requirement will be set to
reflect the maximum volumes of all advanced biofuels (including BBD)
that can reasonably be expected to be produced and consumed for 2017,
and it is the advanced standard that can be expected to drive BBD
production and use.
As an additional supplementary assessment, we have considered the
potential impacts of modifying the applicable volume of BBD from the
proposed levels of 1.70 billion gallons in 2015, 1.80 billion gallons
in 2016, and 1.90 billion gallons in 2017, based on the assumption that
in guaranteeing BBD volumes at any given level there could be greater
use of BBD and a corresponding decrease in the use of other types of
advanced biofuels for years 2015-2017. However, setting a higher or
lower BBD volume requirement than the levels proposed would only be
expected to impact BBD volumes on the margin, protecting to varying
degrees this advanced biofuel from being outcompeted by other advanced
biofuels. This assessment analyzes all of the statutory factors, and is
described in a memorandum to the docket.\98\ Overall, the supplemental
assessment does not appear, based on available information, to provide
a good reason for setting a higher or lower nested standard for BBD
than 1.70 billion gallons in 2015, 1.80 billion gallons in 2016, and
1.90 billion gallons in 2017.
---------------------------------------------------------------------------
\98\ ``Memorandum to docket: Statutory Factors Assessment for
2015-2017 BBD Applicable Volumes'' EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------
2. Assessment for 2014 Biomass-Based Diesel Applicable Volume
Given the fact that the 2014 compliance year has passed, we believe
that our action in setting the 2014 BBD volume requirement will result
in no real-world impacts, including no impacts with respect to the
factors listed under CAA section 211(o)(2)(B)(ii)(I)-(VI). For example,
there is no longer any ability for other advanced biofuels to compete
with BBD for a greater share of the advanced biofuel pool in 2014, so
there would be no marginal benefit in terms of incentivizing production
of such fuels in setting a lower volume requirement than the volume of
BBD that was actually produced and imported and available for
compliance in 2014. Setting the applicable volume at a higher level
would require a draw-down in the bank of carryover RINs, which EPA does
not consider prudent for the reasons discussed in Section II.E. of this
preamble. In light of these considerations, we propose to establish the
2014 applicable volume as equal to the volume actually produced and
imported, which is available for compliance.
[[Page 33138]]
IV. Proposed Cellulosic Biofuel Volume for 2014-2016
In the past several years the cellulosic biofuel industry has made
significant progress towards commercial scale production. Quad County
Corn Processors produced the first cellulosic biofuel RINs from corn
kernel fiber at a corn ethanol plant in 2014. In addition, in 2014 two
large scale cellulosic ethanol facilities owned and operated by the
experienced biofuel production companies Abengoa and Poet completed
construction. EPA also determined that compressed natural gas (CNG) and
liquefied natural gas (LNG) produced from biogas from landfills,
municipal waste-water treatment facility digesters, agricultural
digesters, and separated municipal solid waste (MSW) digesters is
eligible to generate cellulosic RINs. This determination lead to a
significant increase in cellulosic RIN generation, as fuel that
previously had been qualified to generate advanced biofuel RINs began
to be used to generate cellulosic RINs. Efforts continue to be made at
facilities across the country to reduce both capital costs and
production costs associated with cellulosic biofuel production through
technology advances and the development of best practices gained
through operating experience. EPA also continues to support the ongoing
development of cellulosic biofuels through actions such as the
evaluation of new pathways with the potential to generate cellulosic
biofuel RINs.\99\ This section describes the available supply of
cellulosic biofuel RINs in 2014, the volumes that we project will be
produced or imported in 2015 and 2016, and some of the uncertainties
associated with those volumes.
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\99\ Additionally, on April 3rd, 2015 EPA published a direct
final rule modifying the process by which the cellulosic waiver
credit prices are established, and indicating the prices for these
credits in 2014 and 2015 using the regulations modified by this rule
(80 FR 18136, April 3, 2015).
---------------------------------------------------------------------------
In order to project the volume of cellulosic biofuel production in
2015 and 2016 we considered data reported to EPA through the EPA
Moderated Transaction System (EMTS) and information we collected
regarding individual facilities that have produced or have the
potential to produce qualifying volumes for consumption as
transportation fuel, heating oil, or jet fuel in the U.S. in 2014,
2015, or 2016. New cellulosic biofuel production facilities projected
to be brought online in the United States over the next few years would
significantly increase the production capacity of the cellulosic
industry. Operational experience gained at the first few commercial
scale cellulosic biofuel production facilities should also lead to
increasing production of cellulosic biofuel from existing production
facilities. The following section discusses the companies the EPA
reviewed in the process of projecting qualifying cellulosic biofuel
production in the United States in 2015 and 2016. Information on these
companies forms the basis for our production projections of cellulosic
biofuel that will be produced for use as transportation fuel, heating
oil, or jet fuel in the United States in these years (see Table IV-1
below). We request comment on the projected volumes of cellulosic
biofuel production for each of these years, as well as the methodology
used to project these volumes.
Table IV-1--Proposed Cellulosic Biofuel Standards
------------------------------------------------------------------------
Volume (million
Year gallons)
------------------------------------------------------------------------
2014.............................................. 33
2015.............................................. 106
2016.............................................. 206
------------------------------------------------------------------------
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
section 211(o)(2). The volumes of cellulosic biofuel specified in the
statute for 2014, 2015, and 2016 are shown in Table IV.A-1 below. The
statute provides that if EPA determines, based on EIA's estimate, that
the projected volume of cellulosic biofuel production in a given year
is less than the statutory volume, then EPA is to reduce the applicable
volume of cellulosic biofuel to the projected volume available during
that calendar year.\100\
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\100\ 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. In this
decision the Court stated that in projecting potentially available
volumes of cellulosic biofuel EPA must apply a ``neutral
methodology'' aimed at providing a prediction of ``what will
actually happen,'' as required by the statute.
Table IV.A-1--Statutory Volumes of Cellulosic Biofuel
------------------------------------------------------------------------
Volume (million
Year gallons)
------------------------------------------------------------------------
2014.............................................. 1,750
2015.............................................. 3,000
2016.............................................. 4,250
------------------------------------------------------------------------
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, and
we are required to make cellulosic waiver credits available. Our
consideration of the 2014, 2015, and 2016 volume requirements for
advanced biofuels and total renewable fuel is presented in Section II.
B. Cellulosic Biofuel Industry Assessment
In order to project cellulosic biofuel production for 2015 and 2016
we have tracked the progress of several dozen potential cellulosic
biofuel production facilities. As we did in establishing 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. We did so because 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 standards for 2015--2016. From this
list of facilities we used information from EMTS and publically
available information, and information provided by representatives of
potential cellulosic biofuel producers, to make a determination of
which facilities are the most likely candidates to produce cellulosic
biofuel and generate cellulosic biofuel RINs in 2015 and 2016. 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 2015 and 2016. Both in our
discussions with representatives of each company \101\ and as part of
our internal evaluation process we gathered and analyzed information
including, but not limited to, the funding status of these facilities,
current status of the production technologies, anticipated construction
and production ramp-up periods, facility registration status, and
annual fuel production and RIN generation targets.
---------------------------------------------------------------------------
\101\ In determining appropriate volumes for CNG/LNG producers
we did not contact individual producers but rather relied primarily
on discussions with industry associations, and information on likely
production facilities that are already registered under the RFS
program. In some cases where further information was needed we did
speak with individual companies.
---------------------------------------------------------------------------
EPA is proposing to use a slightly different methodology for
projecting the available volume of cellulosic biofuel for each of the
three years. Our approach to each of these years can
[[Page 33139]]
broadly be described as one that seeks to use actual production volumes
where they are available (such as for all of 2014 and several months of
2015) and to project production volumes from likely production
facilities for future months in which actual production volumes are not
available. In previous projections of cellulosic biofuel production
EPA, as directed by the CAA, has considered information provided by EIA
in making our projections. EPA received a letter from EIA on February
19, 2014 containing cellulosic biofuel projections for 2014,\102\ but
to date have not received any projections of cellulosic biofuel
production for 2015 or 2016. As discussed in more detail below EPA now
has data, through EMTS, on the actual number of cellulosic RINs
generated in 2014 and we are proposing to establish the 2014 cellulosic
biofuel standard using this data rather than EIA's projection from
early 2014. We anticipate that for the final rule EIA will provide EPA
with projected production volumes of cellulosic biofuel in 2015 and
2016 and we intend to consider these projections in our final rule.
---------------------------------------------------------------------------
\102\ Letter from Adam Sieminski, EIA Administrator to Gina
McCarthy, EPA Administrator February 19, 2014.
---------------------------------------------------------------------------
Our approach for each of the three years is discussed in more
detail in Sections IV.D-IV.F below. The remainder of this Section
discusses the current status of the companies and facilities EPA
expects may be in a position to produce commercial scale volumes of
cellulosic biofuel by the end of 2016. This information forms the basis
for our proposed standards for cellulosic biofuel for 2014, 2015, and
2016.
1. Potential Domestic Producers
There are a number of companies and facilities \103\ located in the
United States that have either already begun producing cellulosic
biofuel for use as transportation fuel, heating oil, or jet fuel at a
commercial scale, or are anticipated to be in a position to do so by
the end of 2016. The financial incentive provided by cellulosic biofuel
RINs, combined with the fact that all these facilities intend to
produce fuel for domestic consumption using approved pathways, gives us
a high degree of confidence that cellulosic biofuel RINs will be
generated for any fuel produced. In order to generate RINs, each of
these facilities must be registered under the RFS program and comply
with all the regulatory requirements. This includes using an approved
RIN-generating pathway and verifying that their feedstocks meet the
definition of renewable biomass. Many of the companies and facilities
have already successfully completed facility registration, and several
have successfully generated RINs. A brief description of each of the
companies that EPA believes may produce commercial scale volumes of RIN
generating cellulosic biofuel by the end of 2016 can be found in a
memorandum to the docket for this proposed rule.\104\ These
descriptions are based on a review of the publicly available
information and information provided to EPA in conversations with
company representatives. The key data for each of these companies used
in our projection of the potentially available volume of cellulosic
biofuel in 2015 and 2016 is summarized in Table IV.B.3-1 below.
---------------------------------------------------------------------------
\103\ The volume projection from CNG/LNG producers does not
represent production from a single company or facility, but rather a
group of facilities utilizing the same production technology.
\104\ ``Cellulosic Biofuel Producer Company Descriptions'',
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2015-
0111.
---------------------------------------------------------------------------
2. Potential Foreign Sources of Cellulosic Biofuel
In addition to the potential sources of cellulosic biofuel located
in the United States, there are several foreign cellulosic biofuel
companies that may produce cellulosic biofuel in 2015 or 2016. These
include facilities owned and operated by Beta Renewables, Enerkem,
GranBio, and Raizen. All of these facilities use 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 qualifying fuel
imported into the United States. While these facilities may be able to
generate RINs for any volumes of cellulosic biofuel they import into
the United States, demand for the cellulosic biofuels they produce is
expected to be high in local markets. EPA is charged with projecting
the volume of cellulosic biofuel that will be produced or imported into
the United States. Based on information available to EPA at the time of
this proposed rulemaking, including the lack of cellulosic biofuel
imports to date, we do not believe cellulosic biofuel will be imported
into the United States from foreign cellulosic biofuel production
facilities other than the Ensyn facility in Ontario, Canada. As such,
production volumes from foreign facilities (with the exception of
Ensyn) have not been included in our projection of potentially
available volume for 2014-2016. EPA plans to continue to monitor the
progress of foreign cellulosic biofuel facilities and may include
volumes from foreign facilities in future rulemakings if appropriate
and supported by new information.
3. Summary of Volume Projections for Individual Companies
The information we have gathered on cellulosic biofuel producers,
described above, along with the data collected through EMTS forms the
basis for our projected volumes of cellulosic biofuel production for
each facility in 2015 and 2016. As in 2013, we have 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. R&D and demonstration scale
facilities have also generally not generated RINs for any fuel they
have produced.
By 2016 there are a number of cellulosic biofuel production
facilities that have the potential to produce fuel at commercial scale.
Each of these facilities is discussed in a memorandum to the
docket,\105\ and the relevant information used to project a likely
production range for each company is summarized in Table IV.B.3-1
below.\106\ We will continue to monitor the status of these facilities
and will update this information for the final rule.\107\ If we receive
information that suggests facilities not currently included in this
table, either foreign or domestic, may produce commercial-scale volumes
of cellulosic biofuel for use as transportation fuel, heating oil, or
jet fuel in the United States by 2016 we will include them in our
projections for our final rule as appropriate. We will also remove
facilities from our projections if new information suggests
[[Page 33140]]
they will not produce cellulosic by 2016.
---------------------------------------------------------------------------
\105\ ``Cellulosic Biofuel Producer Company Descriptions'',
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2015-
0111.
\106\ For the purpose of the preamble discussion we have grouped
together all facilities expected to produce cellulosic CNG/LNG. The
individual facilities included in our assessment are listed in
``Assessment of Cellulosic Biofuel Production from Biogas (2015-
2016)'', memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-
OAR-2015-0111.
\107\ Given timing constraints for issuing a final rule, EPA
does not anticipate providing an opportunity for comment on any
updated data. Commenters may therefore wish to focus their comments
both on the types of data we are proposing be used, as well as EPA's
proposed approach for using the data.
Table IV.B.3-1--Projected Producers of Cellulosic Biofuel by 2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
Facility
Company name Location Feedstock Fuel capacity (MGY) Construction First production \109\
\108\ start date
--------------------------------------------------------------------------------------------------------------------------------------------------------
Abengoa....................... Hugoton, KS...... Corn Stover...... Ethanol......... 25.............. September 2011.. April 2015.
Cool Planet................... Alexandria, LA... Wood Waste....... Gasoline........ 1............... 2Q 2015......... Late 2016.
CNG/LNG Producers \110\....... Various.......... Biogas........... CNG/LNG......... Various......... N/A............. August 2014.
DuPont........................ Nevada, IA....... Corn Stover...... Ethanol......... 30.............. November 2012... 3Q 2015.
Edeniq........................ Various.......... Corn Kernel Fiber Ethanol......... Various......... Various......... 2nd Half 2015.
Ensyn......................... Renfrew, ON...... Wood Waste....... Heating Oil..... 3............... N/A............. 2014.
INEOS Bio..................... Vero Beach, FL... Vegetative Waste. Ethanol......... 8............... February 2011... 2Q 2015.
Poet.......................... Emmetsburg, IA... Corn Stover...... Ethanol......... 24.............. March 2012...... 3Q 2015.
QCCP.......................... Galva, IA........ Cork Kernel Fiber Ethanol......... 2............... Late 2013....... October 2014.
--------------------------------------------------------------------------------------------------------------------------------------------------------
C. Cellulosic Biofuel Volume for 2014
---------------------------------------------------------------------------
\108\ The Facility Capacity is generally equal to the nameplate
capacity provided to EPA by company representatives or found in
publicly available information. If the facility has completed
registration and the total permitted capacity is lower than the
nameplate capacity then this lower volume is used as the facility
capacity. For companies generating RINs for CNG/LNG derived from
biogas the Facility Capacity is equal to the lower of the annualized
rate of production of CNG/LNG from the facility or the sum of the
volume of contracts in place for the sale of CNG/LNG for use as
transportation fuel (reported as the actual peak capacity for these
producers).
\109\ Where a quarter is listed for the first production date
EPA has assumed production begins in the middle month of the quarter
(i.e. August for the 3rd quarter) for the purposes of projecting
volumes
\110\ For more information on these facilities see ``Assessment
of Cellulosic Biofuel Production from Biogas (2015-2016)'',
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2015-
0111.
---------------------------------------------------------------------------
EPA is charged with projecting the available volume of cellulosic
biofuel for each year, and to reduce the applicable volume of
cellulosic biofuel to the level projected to be available for years in
which the projected available volume falls below the cellulosic biofuel
applicable volume target specified in the CAA 211(o)(2). EPA believes
that for any historical time period, the required projection is best
calculated as the sum of the cellulosic biofuel RINs (D3) and the
cellulosic diesel RINs (D7) generated, adjusted for RINs that are
retired for purposes other than compliance with the annual standards.
EPA publishes the number of cellulosic biofuel and cellulosic diesel
RINs generated on a month by month basis on our Web site.\111\ The
number of cellulosic biofuel and cellulosic diesel RINs generated for
each month of 2014 can be found in Table IV.C-1 below. From this total,
we subtract the number of cellulosic biofuel and cellulosic diesel RINs
retired for reasons other than compliance with the annual standards, as
these RINs are not available to obligated parties.\112\ In calculating
the number of cellulosic biofuel RINs available for compliance with the
annual standards for 2014 we have assumed that there were no exports of
cellulosic biofuel.\113\ EPA proposes to establish the cellulosic
biofuel requirement for 2014 at 33 million gallons. We believe this
number, calculated by subtracting the total number of cellulosic
biofuel RINs (D3 and D7) retired for reasons other than compliance with
the annual standards from the total number of cellulosic biofuel RINs
generated in 2014 (D3 and D7), represents the total available supply of
cellulosic biofuel RINs for 2014.
---------------------------------------------------------------------------
\111\ http://www.epa.gov/otaq/fuels/rfsdata/index.htm.
\112\ In 2014 Cellulosic Biofuel and Cellulosic Diesel RINs were
retired for Remedial Actions and Invalid RINs.
\113\ The vast majority of cellulosic biofuel RINs generated in
2014 (approximately 32 or the 33 million RINs) were for CNG or LNG.
These fuels require verification that the CNG/LNG was used as
transportation fuel in the United States in order for RINs to be
generated.
Table IV.C-1--Cellulosic Biofuel RIN Generation in 2014 \114\
------------------------------------------------------------------------
Cellulosic Cellulosic
biofuel (D3) diesel (D7)
------------------------------------------------------------------------
January 2014........................ 58,415 0
February 2014....................... 7,072 0
March 2014.......................... 6,624 472
April 2014.......................... 643 10,950
May 2014............................ 0 0
June 2014........................... 0 0
July 2014........................... 4,156 1,248
August 2014......................... 3,492,106 5,532
September 2014...................... 7,555,432 17,073
October 2014........................ 7,047,762 24,030
November 2014....................... 6,325,080 0
December 2014....................... 8,863,270 0
-----------------------------------
Total........................... 33,360,560 59,305
RINs retired for reasons other than 346,318 4,997
compliance with the annual
standards..........................
RINs Available...................... 33,014,242 54,308
-----------------------------------
Available Cellulosic RINs (D3 and
D7)................................ 33,068,550
------------------------------------------------------------------------
[[Page 33141]]
D. Cellulosic Biofuel Volume for 2015
---------------------------------------------------------------------------
\114\ All numbers from EPA Web site: http://www.epa.gov/otaq/fuels/rfsdata/index.htm. Accessed February 9, 2015.
---------------------------------------------------------------------------
To project the volume of cellulosic biofuel in 2015, EPA has relied
on a combination of production information reported to EPA through EMTS
for months in which we have data available and facility or company
specific estimates of likely production for months for which EMTS data
is not available. For months in which information on the production of
cellulosic biofuel is available we have used the methodology discussed
in Section IV.C, subtracting the number of RINs retired for reasons
other than compliance in 2015 from the total number of RINs produced in
2015 that are eligible to be used towards satisfying the cellulosic
biofuel standard (D3 and D7 RINs). We have again assumed that no
cellulosic biofuel was exported in the first three months of 2015. This
data is shown in Table IV.D-1 below.
Table IV.D-1--Cellulosic Biofuel RIN Generation in Early 2015
------------------------------------------------------------------------
Cellulosic Cellulosic
biofuel (D3) diesel (D7)
------------------------------------------------------------------------
January 2015........................ 4,076,744 0
February 2015....................... 7,935,446 0
March 2015.......................... 7,799,749 0
-----------------------------------
Total........................... 19,811,939 0
RINs retired for reasons other than 76,942 0
compliance.........................
RINs Available...................... 19,734,997 0
-----------------------------------
Total Available Cellulosic
RINs (D3 and D7)........... 19,734,997
------------------------------------------------------------------------
For months in which information is unavailable EPA has updated our
projection methodology from the methodology used in previous
rulemakings and our proposed rule for 2014. Our projection methodology
starts with estimating a range of potential production volumes for each
company for the portion of 2015 where production data is not
available.\115\ EPA has established a range of potential production
volumes for each company such that it is possible, but unlikely, that
the actual production will be above or below the range. We believe that
it is more appropriate to project a range of potential production
volumes rather than a single point estimate due to the highly uncertain
and variable nature of biofuel production at cellulosic biofuel
facilities, especially those in the early stages of production. The
projected production ranges for each facility are used to generate a
single point estimate for the total production of cellulosic biofuel
from all companies in 2015 for the months in which actual production
volumes through EMTS are not available.
---------------------------------------------------------------------------
\115\ For the purposes of projecting RIN generation from CNG/LNG
projections were made for parent companies, generally representing
multiple companies. For more detail see ``Assessment of Cellulosic
Biofuel Production from Biogas (2015-2016)'', memorandum from Dallas
Burkholder to EPA Air Docket EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------
In establishing a range for each company, we began by determining
an appropriate low end of the range. The low end of the range for each
company is designed to represent the volume of fuel EPA believes each
company would produce if they are unable to begin fuel production on
their expected start-up date and/or if they experience challenges that
result in reduced production volumes or a longer than expected ramp-up
period. In this proposal EPA has set the low end of the production
range for each company based on the volume of RIN-generating cellulosic
biofuel the company has produced in the most recent 12 months for which
data is available.\116\ Because we are not attempting to determine a
low end of a likely production range for a full year, but rather only
the months in 2015 for which data is not available, this number is then
multiplied by a scaling factor \117\ to appropriately scale this annual
production volume for use as the low end of the range over the number
of months of 2015 for which actual production data is unavailable.
---------------------------------------------------------------------------
\116\ For the final rule we intend to update this information
and use the data available for the most recent 12 months at the time
of the final rule.
\117\ The scaling factor is 0.75; equal to the 9 months for
which production data is being projected divided by 12.
---------------------------------------------------------------------------
This approach provides us with an objective methodology for
calculating the low end of the potential production range for each
company that we believe is appropriate in light of the history of
start-up delays and missed production targets in the cellulosic biofuel
industry. If a company has not yet begun producing RIN-generating
volumes of cellulosic biofuel, our experience suggests that they may
experience challenges in progressing toward commercial-scale production
that would result in the delay of the production of cellulosic biofuel.
We acknowledge that in the majority of cases cellulosic companies that
have begun producing fuel and are currently in the start-up and ramp-up
phases of production will increase their production of cellulosic
biofuel from one year to the next as they work towards production rates
at or near the facility capacity. Fuel production by these companies
may, however, be interrupted, either intentionally or unexpectedly, and
these interruptions may hinder the ability of these companies to
increase biofuel production year over year. We will account for the
likelihood of increasing production in developing the high end of each
company's production range. Finally, there may be cases in which
information is available that suggests a company is unlikely to meet
the production volumes achieved in the previous 12 months for which
data is available, due to technical, financial, or legal difficulties.
We do not believe this is the case with any of the companies projected
to produce cellulosic biofuel in 2015.
It is important to note that the low end of the range does not
necessarily represent a worst-case scenario. The worst-case scenario
for any of these facilities for the months in which we are projecting
production is no production, as it is always possible that extreme
circumstances or natural disasters may result in extended delays,
facility damages, or liquidation. While not denying such a possibility,
we nevertheless believe it is generally appropriate to use the
production over the previous 12 months as the low end of the range,
with exceptions made where available information indicates that such
production may be unlikely. In situations where a company has not
[[Page 33142]]
produced any cellulosic biofuel in the previous 12 months, we believe
it is appropriate to use zero as the low end of the projected
production range given the many uncertainties and challenges associated
with the commissioning and start-up of a new cellulosic biofuel
production facility we have observed to date.
To determine the high end of the range of expected production
volumes for each company we considered a variety of factors, including
the expected start-up date and ramp-up period, facility capacity, and
fuel off-take agreements. As a starting point, EPA calculated a
production volume using the expected start-up date, facility capacity,
and a benchmark of a six-month straight-line ramp-up period
representing an optimistic ramp-up scenario.\118\ We then compared the
volume calculated using this methodology to the company's own
expectations for the period in which we are projecting production where
they were available. We are proposing that any company projection that
exceeds our benchmark volume not be used for developing 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 projected start-up date, facility capacity, and six month straight-
line ramp-up period, EPA used the company production targets instead.
While we understand that many of these company projections represent
the company's actual expectations for production, rather than a goal or
high end of an expected production range, we do not believe it would be
appropriate to ignore the history of the cellulosic biofuel industry.
In previous years EPA has gathered information, including volume
production projections, from companies with the potential to produce
cellulosic biofuel. Each of these companies supported these projections
with successful pilot- and demonstration-scale facilities as well as
other supporting documentation. In each of these cases the companies
were unable to meet their own volume projections, and in many cases
were unable to produce any RIN-generating cellulosic biofuel.
---------------------------------------------------------------------------
\118\ We did not assume a six-month straight-line ramp-up period
in determining the high end of the projected production range for
CNG/LNG producers. This is because these facilities generally have a
history of CNG/LNG production prior to producing RINs, and therefore
do not face many of the start-up and scale-up challenges that impact
new facilities. For further information on the methodology used to
project cellulosic RIN generation from CNG/LNG producers see
``Assessment of Cellulosic Biofuel Production from Biogas (2015-
2016)'', memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-
OAR-2015-0111.
---------------------------------------------------------------------------
The inability of cellulosic biofuel producers in previous years to
achieve their projection production targets does not provide a
sufficient basis for completely discounting production of cellulosic
biofuel in future years, either for these same facilities that were
previously unable to achieve their target projections or from new
facilities expected to start-up in 2015 or 2016. Each of these
companies is an individual case, with their own production
technologies, construction and operations staffs, and financial
situations, and we do not believe it is appropriate to dismiss all
future potential cellulosic biofuel production because of the failure
of several facilities to successfully operate at commercial scale. We
do believe it strongly suggests that we should view the individual
company projections as something other than the most likely outcomes.
In order to take a ``neutral aim at accuracy'' in projecting cellulosic
biofuel production volumes, as directed by the United States Court of
Appeals for the DC Circuit, we have decided to treat these company
projections as the high end of a potential production range unless this
volume exceeds the volume calculated using our six-month straight-line
ramp-up period methodology, suggesting that these company projections
are unreasonably high. We will continue to monitor the progress and
experience of the cellulosic biofuel industry and may adjust our
approach as appropriate in light of additional experience.
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 overview of each of the companies we believe will
produce cellulosic biofuel and make it commercially available in 2015
can be found in a memorandum to the docket.\119\ In the case of
cellulosic biofuel produced from CNG/LNG we have discussed the
production potential from these facilities as a group rather than
individually. EPA believes it is appropriate to discuss these
facilities as a group since they are utilizing a proven production
technology and face many of the same challenges related to
demonstrating that the fuel they produce is used as transportation fuel
and therefore eligible to generate RINs under the RFS program.\120\
---------------------------------------------------------------------------
\119\ ``Cellulosic Biofuel Producer Company Descriptions'',
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2015-
0111.
\120\ For individual company information see ``Cellulosic
Biofuel Individual Company Projections for 2014-2016 (CBI)'',
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2015-
0111.
---------------------------------------------------------------------------
After establishing a projected production range for each facility
(or group of facilities for CNG/LNG producers), we must then determine
a method for using these projected production ranges to project the
volume of cellulosic biofuel most likely to be produced by the
cellulosic biofuel industry as a whole in 2015. As discussed above, the
high and the low end of the range for each company represents values
such that it is possible but unlikely that actual volumes would fall
outside of those ranges. At present, data does not exist to allow EPA
to develop a unique production probability distribution for each
company based on the available information. Even if EPA were able to
undertake such a task there is no evidence that the distributions we
developed would necessarily be more accurate than a standardized
distribution curve as the cellulosic biofuel industry is still in its
infancy and there is a high degree of uncertainty associated with many
of the factors that will impact production at each individual facility.
This is supported by the poor accuracy of the individual company
estimates in previous years, which were made by individuals with
significant technical expertise and knowledge of each individual
company and technology.
Rather than attempting to develop a unique probability distribution
curve that represents likely cellulosic biofuel production for each
company, EPA has instead separated the list of potential cellulosic
biofuel producers into two groups; those who have already achieved
consistent commercial-scale production and those who have not. We
believe grouping the potential cellulosic biofuel producers using the
criteria of whether or not they have achieved consistent commercial-
scale production is appropriate for the purposes of projecting a likely
production volume. While each of these groupings contains a diverse set
of companies with their own production technologies and challenges, we
believe there is sufficient commonality in the challenges related to
the funding, construction, commissioning, and start-up of commercial-
scale cellulosic biofuel facilities to justify aggregating these
company projections into a single group for the purposes of projecting
the most likely production volume of cellulosic biofuel. The challenges
new production facilities face are also significantly different than
those of facilities ramping up production volumes to the facility
[[Page 33143]]
capacity and maintaining consistent production. After separating the
companies into these two groups we then summed the low and high ends of
each of the ranges for each individual company (or group of companies
for CNG/LNG producers) within the group to calculate an aggregate
projected production range for each group of companies. The ranges for
each group of companies are shown in Tables IV.D-2 and IV.D-3 below.
Table IV.D-2--2015 Production Ranges for Companies Without Consistent
Commercial Scale Production
[Million gallons]
------------------------------------------------------------------------
Low end of the High end of the
range a range a
------------------------------------------------------------------------
Abengoa............................. 0 12
CNG/LNG Producers (New Facilities).. 0 37
CoolPlanet.......................... 0 0
DuPont.............................. 0 5
Edeniq.............................. 0 1
Ineos BIO........................... 0 4
Poet................................ 0 4
-----------------------------------
Total........................... 0 63
------------------------------------------------------------------------
a Rounded to the nearest million gallons.
Table IV.D-3--2015 Production Ranges for Companies With Consistent
Commercial Scale Production
[Million gallons]
------------------------------------------------------------------------
Low end of the High end of the
range a range a
------------------------------------------------------------------------
CNG/LNG Producers (Currently b X 88
generating RINs)..................
Ensyn.............................. b X 1
Quad County Corn Processors........ b X 2
------------------------------------
Total.......................... c 49 91
------------------------------------------------------------------------
a Rounded to the nearest million gallons.
b The low end of the range for each individual company is based on
actual production volumes and is therefore withheld to protect
information claimed to be confidential business information.
c This number includes all cellulosic biofuel and cellulosic diesel RINs
generated in the previous 12 months, as well as all advanced biofuel
RINs generated for CNG/LNG derived from biogas prior to August 18,
2014 and within the last 12 months.
Because the cellulosic biofuel industry is still in its infancy and
it is therefore not possible to predict with any degree of certainty
the precise production volume each individual company will achieve, we
believe that it would not be appropriate to choose a specific value
within the projected range for each individual company/source. We
believe it is more appropriate to identify a specific value within the
aggregated ranges from Tables IV.D-2 and IV.D-3 that best reflects the
likely production volume for each group of companies. For companies
that have not yet achieved consistent commercial-scale production
(Table IV.D-2) we are proposing to use the 25th percentile of the
projected production range. We believe this volume is appropriate as,
in addition to the uncertainties listed above, there is also
significant technology risk as these facilities attempt to operate
their technologies at commercial scale. In the early years of the
cellulosic biofuel industry several companies, including Cello Energy,
Range Fuels, and KiOR experienced significant technical difficulties in
scaling up their technologies and were able to produce little, if any,
volumes of cellulosic biofuels. It is necessary to consider this
history when projecting production volumes from companies who have not
yet achieved consistent production at commercial scale.\121\
---------------------------------------------------------------------------
\121\ While ``new'' CNG/LNG facilities may not face the same
challenges related to start-up and scale-up there is still a
significant amount of uncertainty related to RIN generation from
facilities that have not yet begun generating RINs. RIN generation
from these facilities may be delayed or reduced if they are unable
to verify that all or a portion of the CNG/LNG they produce is used
as transportation fuel, or if they decide to sell the CNG/LNG they
produce into non-transportation markets. These uncertainties can
significantly impact the number of RINs generated by a CNG/LNG
producer, and we therefore believe that projecting projection from
these ``new'' facilities at the 25th percentile of the range is
appropriate.
---------------------------------------------------------------------------
For the group of companies that have achieved consistent
commercial-scale production (Table IV.D-3) we are proposing to use the
mid-point (50th percentile) of the projected range. We believe that
this point accounts for the uncertainty related to the scale-up of
production from the volume produced in the previous 12 months (through
March 2015) as well as other uncertainties related to the generation of
RINs such as documenting that the fuel is used as transportation fuel,
heating oil, or jet fuel. This is not to say that we anticipate that
each of these facilities within each group will produce at the 25th or
50th percentile, but rather that as a group the 25th and 50th
percentile, respectively, are realistic projections for each group of
companies. We believe this methodology accounts for the fact that some
individual company may be able to deliver the volume of cellulosic
biofuel they expect and produce at or near the high end of the range,
while others may experience difficulty transitioning to commercial
production and produce closer to the low end of the range. The result
of applying this methodology is shown in Table IV.D-4 below.
[[Page 33144]]
Table IV.D-4--Projected Volume of Cellulosic Biofuel in 2015 for Months Without Production Data
[Million gallons] a
----------------------------------------------------------------------------------------------------------------
Low end of the High end of Projected
range b the range b Percentile volume b
----------------------------------------------------------------------------------------------------------------
Companies without consistent commercial-scale 0 63 25th 16
production.....................................
Companies with consistent commercial-scale 49 91 50th 70
production.....................................
---------------------------------------------------------------
Total....................................... N/A N/A N/A 86
----------------------------------------------------------------------------------------------------------------
a The projections in this table are for April 2015--December 2015. The low end of the range is equal to the
number of RINs produced by the companies over the most recent 12 months for which data is available multiplied
by a factor of 0.75 (since it is only a projection for 9 months of the year). The high end of the range is
based on projected production for the final 9 months of 2015.
b Rounded to the nearest million gallons.
EPA anticipates that if the same methodology is used in future
years that as cellulosic biofuel companies successfully achieve
commercial scale production, application of this methodology will
appropriately generate increasing volume projections, both for the
individual companies and for the industry as a whole. This will happen
in two ways. First, as companies successfully produce cellulosic
biofuel the low end of the range (which is based on the most recent 12
months of production for which data is available) will increase.
Second, we would use the 50th percentile value, rather than the 25th
percentile, for all companies who have achieved consistent commercial-
scale production. If merited by the available data, we will also
consider using a higher (or lower) percentile for both new facilities
and facilities that have already achieved consistent commercial-scale
production. We will consider comments on this matter, and after
establishing percentile values for use in this rulemaking we expect we
will annually review the percentile values and adjust them as
appropriate, taking into account the success of past projections, to
ensure that our methodology produces a production projection that takes
a neutral aim at accuracy. As new pathways for the production of
cellulosic biofuel are approved, we will also consider volumes produced
using these pathways in our projections.
The final step in projecting the potentially available volume of
cellulosic biofuel in 2015 is to combine the volumes of cellulosic
biofuel actually produced in months for which data is available with
the projected production volumes for the remaining months of 2015. This
is shown in Table IV.D-5 below. For 2015 we are proposing a cellulosic
biofuel standard of 106 million gallons. We request comment on the
methodology used to project cellulosic biofuel volumes in 2015, as well
as the general methodology used to project future cellulosic biofuel
production.
Table IV.D-5--Projected Available Cellulosic Biofuel in 2015
------------------------------------------------------------------------
Million
gallons
------------------------------------------------------------------------
Cellulosic Biofuel Production (Jan. 2015-March 2015).... 20
Projected Cellulosic Biofuel Production (April 2015- 86
December 2015).........................................
Projected Available Volume of Cellulosic Biofuel in 2015 106
------------------------------------------------------------------------
E. Cellulosic Biofuel Volume for 2016
To project the volume of potentially available cellulosic biofuel
in 2016 we are proposing to use a methodology very similar to the one
proposed for projecting cellulosic biofuel production in 2015 for
months in which actual production data was not available. For 2016 we
separated the list of potential producers of cellulosic biofuel into
two groups according to whether or not the facilities have already
begun producing commercial-scale volumes of cellulosic biofuel or who
are expected to do so by July 1, 2015 (See Table IV.E-1 and Table IV.E-
2).\122\ We next defined a range of likely production volumes for each
group of potential cellulosic biofuel producers. The low end of the
range for each group of producers is intended to reflect actual
production data. Rather than simply use the most recent 12 months for
which information is currently available for each company, however, we
are proposing to project what that data will be at the time of our
final rule. We used zero as the low end of the aggregated projected
production range for 2016 for facilities expected to begin producing
fuel after July 1, 2015 (Table IV.E-1). We used our projected
production volume for 2015 (106 million gallons) as the low end of the
aggregated range for facilities expected to be producing commercial-
scale volumes of cellulosic biofuel on or before July 1, 2015 (Table
IV.E-2). This is consistent with the approach we used to project
volumes for 2015 where we set the low end of the range for each group
of companies at the volume produced over the preceding 12 months, as we
believe very little of the volume produced in 2015 will come from
facilities starting up after July 1, 2015 and the vast majority of
cellulosic biofuel production in 2016 will come from facilities that
begin before this date. We also believe this will align our proposed
rule more closely with the final rule than would be the case if we
based our proposal only on the data from the most recent 12 months of
data available to EPA at this time. For our final rule, we intend to
update the low end of the projected production range for each company
using data from the most recent 12 months for which data is available.
---------------------------------------------------------------------------
\122\ We are projecting that facilities that begin producing
commercial-scale volumes by July 2015 will achieve consistent
production by the end of 2015. This is consistent with the approach
used to project volumes for 2015 where we separated companies into
two groups based on whether or not they have achieved consistent
commercial-scale production. For the final rule we intend to assess
whether or not the facilities in our projected volumes have achieved
consistent commercial-scale production and will re-categorize them
as necessary.
---------------------------------------------------------------------------
To calculate the high end of the projected production range for
each group of companies we considered each company individually (with
the exception of the CNG/LNG producers) and used the same methodology
in 2016
[[Page 33145]]
as for the months in 2015 for which actual past production data was not
available (this methodology is covered in further detail in Section
IV.D above). The high end of the range for each company within each
group was added together to calculate the high end of the projected
production range for that group.
After defining likely production ranges for each group of companies
we projected a likely production volume from each group of companies
for 2016. We projected a total production volume from the companies
that we do not anticipate will begin commercial-scale production by
July 1, 2015 using the 25th percentile of the projected production
range (Table IV.E-1). For the companies that have already achieved
consistent commercial-scale production or anticipate starting
commercial-scale production by July 1, 2015, we used the 50th
percentile of the aggregate projected production range (Table IV.E-2).
This is consistent with the approach we used for projecting volumes in
2015, which is discussed in more detail in the preceding section. We
intend to re-evaluate our categorization of the companies for the final
rule using the most up to date information available.
Table IV.E-1--2016 Production Ranges for Companies With Start-Up Dates
After July 1, 2015
[Million gallons]
------------------------------------------------------------------------
Low end of the High end of the
range a range a
------------------------------------------------------------------------
CNG/LNG Producers (New Facilities).. 0 120
CoolPlanet.......................... 0 0
DuPont.............................. 0 29
Edeniq.............................. 0 14
Poet................................ 0 20
Aggregate Range..................... 0 183
-----------------------------------
Projected Production (25th
Percentile of Range)............... 46
------------------------------------------------------------------------
a Rounded to the nearest million gallons.
Table IV.E-2--2016 Production Ranges for Companies With Consistent
Commercial Scale Production or Start-Up Dates Before July 1, 2015
[Million gallons]
------------------------------------------------------------------------
Low end of the High end of the
range a range a
------------------------------------------------------------------------
Abengoa............................. N/A 19
CNG/LNG Producers (Existing N/A 185
Facilities)........................
Ensyn............................... N/A 3
Ineos BIO........................... N/A 6
Quad County Corn Processors......... N/A 2
Aggregate Range..................... 106 215
-----------------------------------
Projected Production (50th
Percentile of Range)............... 161
------------------------------------------------------------------------
a Rounded to the nearest million gallons
The final step in projecting the potentially available volume of
cellulosic biofuel in 2016 is to combine the volumes of cellulosic
biofuel projected to be produced from each of the two groups discussed
above (shown in Table IV.E-3 below). For 2016 we are proposing a
cellulosic biofuel volume requirement of 204 million gallons. For our
final rule we will use the most recent production data and company
information available to update our projections. We request comment on
the methodology and data used to project cellulosic biofuel volumes in
2016.
Table IV.E-3--Projected Volume of Cellulosic Biofuel in 2016
[Million gallons]
----------------------------------------------------------------------------------------------------------------
Low end of the High end of Projected
range a the range a Percentile volume a
----------------------------------------------------------------------------------------------------------------
Companies beginning production after July 1, 0 183 25th 46
2015...........................................
Companies beginning production before July 1, 106 215 50th 161
2015...........................................
---------------------------------------------------------------
Total....................................... N/A N/A N/A 206
----------------------------------------------------------------------------------------------------------------
a Volumes rounded to the nearest million gallons.
F. 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.\123\ 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
[[Page 33146]]
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 are proposing to rescind the 2011 cellulosic biofuel
applicable standard and refund the money paid by obligated parties to
purchase cellulosic waiver credits to comply with the standard.
---------------------------------------------------------------------------
\123\ API v. EPA, 706 F 3d 474 (D.C. Cir. January 25, 2013).
---------------------------------------------------------------------------
V. Percentage Standards
A. Background
The renewable fuel standards are expressed as volume percentages
and are used by each obligated party to determine their Renewable
Volume Obligations (RVO). Since there are four separate standards under
the RFS 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 percentage standards are set so
that if every obligated party meets the percentages, then the amount of
renewable fuel, cellulosic biofuel, biomass-based diesel (BBD), and
advanced biofuel used will meet the applicable volumes established in
this rule on a nationwide basis.
Sections II, III, and IV provide our rationale and basis for the
proposed volumes for advanced biofuel and total renewable fuel, BBD,
and cellulosic biofuel, respectively. 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
----------------------------------------------------------------------------------------------------------------
2014 2015 2016
----------------------------------------------------------------------------------------------------------------
Cellulosic biofuel (million gallons)............................ 33 106 206
Biomass-based diesel (billion gallons) a........................ 1.63 1.70 1.80
Advanced biofuel (billion gallons).............................. 2.68 2.90 3.40
Renewable fuel (billion gallons)................................ 15.93 16.30 17.40
----------------------------------------------------------------------------------------------------------------
a Represents physical volume.
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 40 CFR 80.1405):
[GRAPHIC] [TIFF OMITTED] TP10JN15.007
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.
[[Page 33147]]
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.
DEi = Amount of diesel projected to be produced by exempt
small refineries and small refiners in year i, in gallons, in any
year they are exempt per Sec. Sec. 80.1441 and 80.1442,
respectively.
The formulas used in deriving the annual percentage standards rely
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.\124\ The projected gasoline and diesel
volumes obtained from EIA include ethanol and biodiesel used in
transportation fuel, which are subtracted out as indicated in the
equations above. Production of other transportation fuels, such as
natural gas, propane, and electricity from fossil fuels, is not
currently subject to the standards, and volumes of such fuels are not
used in calculating the annual standards. Since under the regulations
the standards apply only to producers and importers of gasoline and
diesel, these are the transportation fuels used to set the standards,
as well as to determine the annual volume obligations of an individual
gasoline or diesel producer or importer.
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\124\ Monthly values from EIA's May 2015 Short-Term Energy
Outlook (STEO) were used to project gasoline and diesel volumes for
this proposal.
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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
\125\ through December 31, 2010. Congress provided that small
refineries could receive a temporary extension of the exemption beyond
2010 based on an EPA determination of disproportionate economic
hardship on a case-by-case basis in response to refiner petitions. EPA
has granted some exemptions pursuant to this process in the past, and
has granted exemptions for three small refineries for 2014. The
proposed applicable percentage standards for 2014 reflect the fact that
the gasoline and diesel volumes associated with these three small
refineries has been exempted. However, at this time, no exemptions have
been approved for 2015 or 2016, and we have calculated the percentage
standards for these years without a small refinery/small refiner
adjustment. Any requests for exemptions for 2014, 2015 or 2016 that are
approved prior to the final rule will be reflected in the relevant
standards in the final rule, as provided in the formulas described in
the preceding section. Any requests for exemption that are approved
after the release of the final 2014, 2015, and 2016 standards will not
affect those standards.
3. Proposed Standards
As specified in the RFS2 proposed rule,\126\ 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 BBD standard based on
biodiesel equivalence. However, all RIN generation is based on ethanol-
equivalence. For example, the RFS 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 the required
physical volume of BBD will be created in each year, the calculation of
the BBD standard provides that the applicable physical volume be
multiplied by 1.5. The net result is a BBD gallon being worth 1.0
gallon toward the BBD standard, but worth 1.5 gallons toward the other
standards.
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\126\ 75 FR 14716, March 26, 2010.
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The levels of the percentage standards would be reduced if Alaska
or a U.S. territory chooses to participate in the RFS 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 RFS 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.\127\
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\127\ 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
June 27, 2014 EIA State Energy Data System (SEDS), Energy
Consumption Estimates.
Table V.B.3-1--Values for Terms in Calculation of the Proposed Standards
128
[Billion gallons]
------------------------------------------------------------------------
Term 2014 2015 2016
------------------------------------------------------------------------
RFVCB..................................... 0.033 0.106 0.206
RFVBBD.................................... a 1.67 1.70 1.80
RFVAB..................................... 2.68 2.90 3.40
RFVRF..................................... 15.93 16.30 17.40
G......................................... 136.49 138.37 137.58
D......................................... 55.21 56.77 58.13
[[Page 33148]]
RG........................................ 13.43 13.36 13.46
RD........................................ 1.54 1.44 1.53
GS........................................ 0 0 0
RGS....................................... 0 0 0
DS........................................ 0 0 0
RDS....................................... 0 0 0
GE........................................ 0.01 0.00 0.00
DE........................................ 0.04 0.00 0.00
------------------------------------------------------------------------
a Represents the biodiesel-equivalent volume of actual 2014 supply,
which was 2.50 bill D4 RINs. Actual physical volume was 1.63 billion
physical gallons, composed of 1.35 bill gal of biodiesel and 0.28 bill
gal renewable diesel.
Although the Act specifies that EIA provide EPA with gasoline and
diesel demand for the following year ``no later than October 31'', we
believe it is appropriate to use EIA demand projections that are more
recent than October 31 for a given year when such projections are
available.\129\ For this proposed rule, we have used gasoline, diesel,
and renewable fuel consumption estimates available in the most recent
version of EIA's Short-Term Energy Outlook. For the final rule we will
use projections provided by EIA as required by the statute.
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\128\ Details of volumes and calculations are available in the
docket.
\129\ The use of post-October 31 data for previous years was
addressed in our 2013 Cellulosic Biofuel Standard rulemaking.\129\
As stated in that rulemaking, ``. . . we believe it is appropriate
to rely on EIA's most recent reports of actual gasoline and diesel
consumption . . . Doing so allows a more accurate assessment of a
percentage standard that will help to ensure that the volume of
cellulosic biofuel we have determined should be used for compliance
. . . will in fact be required.''
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Using the volumes shown in Table V.B.3-1, we have calculated the
proposed percentage standards for 2014, 2015, and 2016 as shown in
Table V.B.3-2.
Table V.B.3-2--Proposed Percentage Standards
------------------------------------------------------------------------
2014 2015 2016
(%) (%) (%)
----------------------------------------------------------------
Cellulosic biofuel................ 0.019 0.059 0.114
Biomass-based diesel.............. 1.42 a 1.41 1.49
Advanced biofuel.................. 1.52 1.61 1.88
Renewable fuel.................... 9.02 9.04 9.63
------------------------------------------------------------------------
a Although the proposed BBD volume requirement for 2015 is higher than
it is for 2014, projected volumes of gasoline and diesel are also
higher in 2015 than they were for 2014. The result is that the
percentage standard, rounded to two decimal places, is the same for
both years.
VI. Proposed Amendments to Regulations
We are proposing several revisions to the RFS regulations, which
are described below. The first proposed revision relates to the
definition of terms in Table 1 to 40 CFR 80.1426, which describes
approved biofuel production pathways. The second set of revisions would
address annual compliance reporting and associated attest reporting
deadlines. We request comment on all aspects of these proposed
amendments.
A. Proposed Changes to the Algal Biofuel Pathways
In the March 2010 RFS rule (75 FR 14670), EPA established two
pathways for biofuels derived from algae to generate D-Code 4 (Biomass-
Based Diesel) or 5 (Advanced) RINs. The pathways approved in the March
2010 RFS rule assumed that algae would be grown photosynthetically
(i.e., using predominantly sunlight and CO2 as inputs) and harvested
for their oil.\130\ Biofuel produced with algae grown through other
means is likely to have different lifecycle GHG emissions impacts. The
EPA has recently received an inquiry regarding production of biofuel
from algae grown non-photosynthetically, and we believe it would be
appropriate to clarify that the algal oil pathways adopted as part of
the March 2010 RFS rule do not apply to such algae. Therefore, we are
proposing to replace ``algal oil'' as a feedstock in Table 1 to 40 CFR
80.1426 with ``oil from algae grown photosynthetically.'' We are also
proposing to add a new definition for ``algae grown
photosynthetically'' to 40 CFR 80.1401. We do not anticipate this
definition will impact current renewable fuel production under the
existing pathway. Companies wishing to produce biofuels from algae
grown with a non-photosynthetic stage of growth must apply to EPA for
approval of their pathway pursuant to 40 CFR 80.1416. We invite comment
on these proposed changes.\131\
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\130\ See 75 FR 14696 (March 26, 2010).
\131\ EPA is not proposing a regulartory definition of
``algae.'' Any comments related to the definition of ``algae'' will
be considered beyond the scope of this rulemaking.
---------------------------------------------------------------------------
We also note that any companies wishing to produce fuel using
genetically modified algae must conform to all other appropriate EPA
regulations. For example, EPA's Office of Pollution Prevention and
Toxics (OPPT) Biotechnology Program regulates the use of new
genetically-engineered microorganisms (including bacteria, fungi,
algae, viruses, protozoa, etc.) that are used in the production of
biofuels under Section 5 of the Toxic Substances Control Act
(TSCA).\132\
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\132\ Microbial Products of Biotechnology; Final Regulation
Under the Toxic Substance Control Act; Final Rule. 62 FR 17910
(April 11, 1997).
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B. Annual Compliance Reporting and Attest Engagement Deadlines Under
the RFS Program
The RFS regulations establish deadlines for parties with renewable
volume obligations (obligated parties and renewable fuel exporters) to
submit
[[Page 33149]]
annual compliance demonstration reports to the EPA, and later deadlines
for the same parties to submit associated attest engagement reports. A
number of other regulated parties, including RIN-generating renewable
fuel producers, RIN-generating renewable fuel importers, other parties
owning RINs and 3rd party auditors, are also required to submit annual
attest engagement reports according to a schedule specified in the
regulations. As a result of the delay in issuing the RFS annual rules
for 2014 and 2015, the EPA is proposing to amend certain reporting
deadlines applicable to the 2013, 2014 and 2015 compliance years.
1. Obligated Parties and Renewable Fuel Exporters
a. Background.
Under existing RFS regulations (40 CFR 80.1451(a) and 80.1464(d)),
obligated parties and renewable fuel exporters must submit compliance
demonstration reports for each calendar year by March 31 of the
following year, and associated attest engagements by June 1 of the
following year. The EPA has recognized that it is important for
obligated parties preparing a compliance demonstration report for a
given calendar year to have an understanding of their RFS obligations
for the next compliance year.\133\ Therefore, in light of the delay in
issuing the 2014 RFS annual standards, the EPA previously amended the
regulations to provide that the annual compliance demonstration reports
for obligated parties and exporters for the 2013 compliance year would
not be due until 30 days after publication in the Federal Register of
the 2014 RFS percentage standards. 40 CFR 80.1451(a)(1)(xiv).
Similarly, the EPA extended the deadline for attest engagement reports
for 2013 compliance demonstrations to 90 days after publication in the
Federal Register of the 2014 RFS percentage standards. 40 CFR
80.1464(g). Because the EPA has not yet issued the 2014 RFS standards,
2013 compliance demonstration reports and associated attest engagement
reports from obligated parties and renewable fuel exporters are not yet
due.
---------------------------------------------------------------------------
\133\ 78 FR 49823, August 15, 2013.
---------------------------------------------------------------------------
Although the EPA has not yet issued a final 2014 RFS annual rule,
and the generally-applicable March 31 deadline for compliance
demonstration reports for the 2014 compliance year has now passed, the
EPA has not adopted amendments to the regulations applicable to 2014
compliance demonstration and attest engagement reporting as it did with
respect to the 2013 compliance year. Instead the EPA issued an
Enviroflash on March 17, 2015 to clarify that obligated parties are not
required to submit compliance demonstration reports or associated
attest engagements for the 2014 compliance year until the EPA issues a
final rule establishing the final 2014 RFS standards and sets (in that
action) deadlines for 2014 compliance demonstrations and associated
attest engagements for obligated parties. We noted in the Enviroflash
our interpretation of the current regulatory deadlines as being
inoperative for obligated parties for the 2014 compliance year because
final 2014 RFS standards have not been established and it is therefore
impossible for obligated parties to assess and demonstrate their
compliance with the applicable standards. However, in that same
Enviroflash we clarified that the situation is different for exporters
of renewable fuel. Exporter renewable volume obligations are based on
renewable fuel export volume, not on the RFS percentage standards.
Therefore we stated in the Enviroflash that renewable fuel exporters
must comply with the operative deadlines in the regulations for 2014
reporting, although precise obligations may differ depending on the
portion of the year during which exports occurred, in light of
regulatory amendments related to the deadline for exporter RIN
retirements that were adopted in the July 18, 2014 RFS Quality
Assurance Plan rule.\134\ The details are explained in the March 17
Enviroflash.
---------------------------------------------------------------------------
\134\ 79 FR 42078.
---------------------------------------------------------------------------
b. Proposal.
The Agency now believes that setting a firm calendar date for 2013
compliance and attest engagement reports is preferable to the current
approach of tying the deadlines for 2013 reporting to the date of
publication of the 2014 annual rule in the Federal Register. The EPA
seeks to establish reporting deadlines for three calendar years, and
establishing firm deadlines for 2013 reporting will allow the EPA to
sequence and time reports for subsequent years in a reasonable manner
that reduces uncertainty.
i. Obligated Parties
We are proposing that compliance demonstration reports for
obligated parties be submitted no later than January 31, 2016 for the
2013 compliance year, June 1, 2016 for the 2014 compliance year, and
December 1, 2016 for the 2015 compliance year. Associated attest
engagement reports would be due no later than June 1, 2016 for the 2013
compliance year, December 1, 2016 for the 2014 compliance year, and
June 1, 2017 for the 2015 compliance year. We believe that this
sequencing of reports, and the time allowed between them will allow
obligated parties to proceed in a logical and orderly fashion to submit
required reports, with sufficient intervening time so as not to pose an
unreasonable burden.
ii. Exporters
For exporters of renewable fuel, we are proposing the same
amendments to 2013 compliance year reporting deadlines as for obligated
parties--annual compliance demonstration reports would be due no later
than January 31, 2016, and associated attest engagement reports would
be due no later than June 1, 2016. For 2014, the issue is more complex.
For the 2014 compliance period from January 1, 2014 through September
16, 2014, partial annual compliance reports containing an exporter's
name, registration number, and renewable volume obligation (ERVO) for
that period were required to be submitted no later than March 31, 2015
as currently proscribed in the regulations under Sec.
80.1451(a)(1).\135\ For the 2014 compliance period from January 1, 2014
through September 16, 2014, we are proposing that full annual
compliance reports containing an exporter's name, registration number,
ERVO, as well as RINs retired to satisfy the ERVO and any cellulosic
waiver credits used for that period be submitted no later than January
31, 2016, and that associated attest engagements be due no later than
June 1, 2016. For the 2015 compliance year, full compliance reports
will be due on March 31, 2016, as required by existing Sec.
80.1451(a)(1), and associated attest engagements will be due by June 1,
2016 as required by Sec. 80.1464(d).
---------------------------------------------------------------------------
\135\ We are not amending the regulations as they pertain to
exporters of renewable fuel for the 2014 compliance period from
September 17, 2014 through December 31, 2014. We reiterate that
under current regulations at Sec. 80.145l(a)(1), reports containing
an exporter's name, registration number, ERVO, as well as RINs
retired to satisfy the ERVO and any cellulosic waiver credits used
for that period were due March 31, 2015.
---------------------------------------------------------------------------
2. Other Parties
a. Background
Following issuance of the March 17, 2015 Enviroflash to address
reporting deadlines for obligated parties and renewable fuel exporters
for the 2014 compliance year, the Agency received comments from attest
engagement
[[Page 33150]]
auditors concerning the June 1, 2015 attest engagement deadline for
RIN-generating renewable fuel producers, RIN-generating renewable fuel
importers, other parties holding RINs, and independent third-party
auditors. The auditors stated that it is impractical for them to
perform the 2014 compliance year attestations before completing the
2013 compliance year attestations. The auditors explained that they
generally rely on the beginning balance of RINs based on attest
procedures performed in the previous year. They asserted that if they
have not attested to the ending balance of RINs for the 2013 compliance
year, they cannot effectively attest to the beginning balance of RINs
for the 2014 compliance year.
The auditors also cited other reasons for why the 2013 and 2014
compliance year attestations should be revised. The auditors stated
that there is confusion and uncertainty in industry about whether the
June 1, 2015 deadline still applies to RIN-generating renewable fuel
producers, RIN-generating renewable fuel importers, other parties
holding RINs, and independent third-party auditors because they were
not explicitly mentioned in the March 17, 2015 Enviroflash and because
the Agency previously issued a broader attest extension related to
reporting deadlines for the 2013 compliance year and thus, any
subsequent communication by the Agency would be expected to address all
regulated parties. Since many parties have not yet completed their 2013
compliance year attestations because they are not required to do so,
they do not have any expectation that the attestations for the 2014
compliance year are due June 1, 2015.
In 2014, the EPA changed the annual reporting deadline for all 40
CFR part 80 fuel programs from February 28 to March 31 and the attest
deadline from May 31 to June 1. This is the first year that these new
deadlines are in effect. The effects of the shorter time period between
the annual reporting deadline and the deadline for attest engagement
reports are exacerbated this year by the confusion surrounding the June
1, 2015 attest reporting deadline for RIN-generating renewable fuel
producers, RIN-generating renewable fuel importers, other parties
holding RINs, and independent third-party auditors. Auditors need a
reasonable amount of time to plan and execute any type of assurance
engagement. The planning phase involves the evaluation of independence,
execution of engagement letters, and scheduling of resources.
In light of the confusion surrounding the reporting deadlines for
the 2014 compliance year for RIN-generating renewable fuel producers,
RIN-generating renewable fuel importers, other parties holding RINs,
and independent third-party auditors, the EPA's Assistant Administrator
for Air and Radiation sought a no action assurance from the Assistant
Administrator for the Office of Enforcement and Compliance Assurance
regarding enforcement of the 2014 reporting deadlines for these
parties. In response, the Office of Enforcement and Compliance
Assurance issued a conditional no action assurance on May 21, 2015 that
provides, in part, as follows:
the EPA will exercise its enforcement discretion not to pursue
enforcement actions against a RIN-generating renewable fuel producer
(domestic and foreign), a RIN-generating importer, any other party
owning RINs, and an independent third-party auditor solely for
violations of the 2014 attest engagement reporting deadline at 40
CFR Sec. Sec. 80.1464(d). This No Action Assurance does not apply
to the June 1, 2015 deadline for exporters of fuel to submit their
reports for the 2014 compliance year, nor does it extend to any
other RFS-related requirement.\136\ Furthermore, as applied to an
individual regulated party, this No Action Assurance is conditioned
upon the regulated party complying with all other RFS requirements
applicable to it. This No Action Assurance will remain in effect
until either (1) 11:59 p.m. EST, January 30, 2016, or (2) the
effective date of a final rule addressing the 2014 attest engagement
deadlines, whichever occurs earlier.
---------------------------------------------------------------------------
\136\ The EPA provided guidance regarding the 2014 attest
engagement reporting deadlines for renewable fuel exporters in its
March 17, 2015 Enviroflash.
---------------------------------------------------------------------------
b. Proposal
In this action, we are proposing a new attest engagement reporting
deadline for the 2013 compliance period for RIN-generating renewable
fuel producers, RIN-generating renewable fuel importers, and other
parties owning RINs of no later than January 31, 2016. Additionally, we
are proposing the same attest engagement reporting deadline of January
31, 2016 for these parties and for independent third-party auditors for
the 2014 compliance year.\137\ With respect to the 2015 compliance
year, the EPA is not proposing to amend the current regulations; attest
engagement reports for these parties for the 2015 compliance year are
due on June 1, 2016.
---------------------------------------------------------------------------
\137\ Regarding independent third-party auditors, we permitted
some independent third-party auditors to begin compliance with the
final RFS Quality Assurance Program requirements before the January
1, 2015 effective date for the Q-RIN program. These independent
third-party auditors were allowed to participate in the Q-RIN
program beginning September 16, 2014 and would have been required to
report RIN verification activities to the EPA by March 31, 2015.
Since the information collection request was not approved prior to
the March 31, 2015 deadline, the EPA has allowed independent third-
party auditors that adopted the Q-RIN program early to report RIN
verification activities to the EPA with the first quarter 2015
reports due June 1, 2015. Therefore, since independent third-party
auditor annual attest requirements are dependent upon the submission
of the RIN verification reports to the EPA, the EPA is proposing
that for independent third-party auditors, for the 2014 compliance
year, the attest engagement reporting deadline be no later than
January 31, 2016.
---------------------------------------------------------------------------
Given the many different reporting schedules across the 2013, 2014,
and 2015 compliance years that the Agency is proposing for obligated
parties, exporters, RIN generating renewable fuel producers and
importers, independent third-party auditors, and other parties owning
RINs, and the multiple considerations the Agency is trying to balance
across regulated parties, we seek comment on whether the proposed
deadlines are appropriate and for whether there are other specific
considerations that the Agency should evaluate when establishing the
2013, 2014, and 2015 annual compliance and attest engagement reporting
deadlines.
VII. 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. 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) 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
[[Page 33151]]
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 VII.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. This non-CBI version of your comments may be
submitted electronically, by mail, or through hand delivery/courier. 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.
VIII. 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 an economically significant regulatory action that
was submitted to the Office of Management and Budget (OMB) for review.
Any changes made in response to OMB recommendations have been
documented in the docket. The EPA prepared an analysis of the potential
costs and benefits associated with this action. This analysis is
presented in Sections II.G and III.E of this preamble.
B. Paperwork Reduction Act (PRA)
This action does not impose any new information collection burden
under the PRA. OMB has previously approved the information collection
activities contained in the existing regulations and has assigned OMB
control numbers 2060-0637 and 2060-0640. The proposed standards would
not impose new or different reporting requirements on regulated parties
than already exist for the RFS program.
C. Regulatory Flexibility Act (RFA)
I certify that this action will not have a significant economic
impact on a substantial number of small entities under the RFA. In
making this determination, the impact of concern is any significant
adverse economic impact on small entities. An agency may certify that a
rule will not have a significant economic impact on a substantial
number of small entities if the rule relieves regulatory burden, has no
net burden, or otherwise has a positive economic effect on the small
entities subject to the rule. The small entities directly regulated by
the RFS program are small refiners, which are defined at 13 CFR 121.201
as refiners with 1,500 employees or less company-wide.
EPA has conducted a screening analysis to assess whether it should
make a finding that there would be no significant economic impact on a
substantial number of small entities. We discuss this analysis below.
The impacts of the RFS program on small entities were already addressed
in the March 26, 2010 RFS2 rulemaking (75 FR 14670), which was a rule
that implemented the entire program required by the Energy Independence
and Security Act of 2007 (EISA 2007). As such, the Small Business
Regulatory Enforcement Fairness Act (SBREFA) panel process that took
place prior to the 2010 rule was also for the entire RFS program and
looked at impacts on small refiners through 2022.
For the SBREFA process for the March 26, 2010 RFS2 rulemaking, EPA
conducted outreach, fact-finding, and analysis of the potential impacts
of the program on small refiners which are all described in the Final
Regulatory Flexibility Analysis, located in the rulemaking docket (EPA-
HQ-OAR-2005-0161). This analysis looked at impacts to all refiners,
including small refiners, through the year 2022 and found that the
program would not have a significant economic impact on a substantial
number of small entities, and that this impact was expected to decrease
over time, even as the standards increased. The analysis included a
cost-to-sales ratio test, a ratio of the estimated annualized
compliance costs to the value of sales per company, for gasoline and/or
diesel small refiners subject to the standards. From this test, it was
estimated that all small entities would have compliance costs that are
less than one percent of their sales over the life of the program (75
FR 14862).
This proposed rule would not impose any additional requirements on
small entities beyond those already analyzed, since the impacts of this
proposed rule are not greater or fundamentally different than those
already considered in the analysis for the March 26, 2010 rule assuming
full implementation of the RFS program. As shown above in Tables I.A-1
and I.A-3 (and discussed further in Sections II and IV), this rule
proposes to establish the 2014, 2015, and 2016 volume requirements for
cellulosic biofuel, advanced biofuel, and total renewable fuel at
levels significantly below the statutory volume targets. This exercise
of EPA's waiver authorities reduces burdens on small entities, as
compared to the burdens that would be imposed under the volumes
specified in the Clean Air Act in the absence of waivers. Regarding the
biomass-based diesel standard, we are proposing to increase the volume
requirements for 2014-2016 over the statutory minimum value of 1
billion gallons. However, this is a nested standard within the advanced
biofuel category, for which we are proposing significant reductions
from the statutory volume targets. As discussed in Section III, we are
setting the biomass-based diesel volume requirement at a level below
what is anticipated will be produced and used to satisfy the reduced
advanced biofuel requirement. The net result of our proposed actions
are a reduction in burden as compared to implementation of the
statutory volume targets, as was assumed in the March 26, 2010
analysis. Furthermore, available information shows that the impact on
small entities from implementation of this rule will not be
significant. Using the maximum values of the illustrative costs
discussed in Section II.F., the gasoline and diesel fuel volume
projections in Table V.B.3-1, and current wholesale fuel prices, a
simple cost-to-sales ratio test shows that the costs to small entities
of the RFS standards remain less than 1% of the value of their sales.
The program also includes compliance flexibilities that can reduce
impacts on small entities. These flexibilities include RIN trading, 20%
[[Page 33152]]
RIN rollover allowance (up to 20% of an obligated party's RVO can be
met using previous-year RINs), and deficit carryforward (the ability to
carry over a deficit from a given year into the following year,
providing that the deficit is satisfied together with the next year's
RVO). In the March 26, 2010 final rule, we discussed other potential
small entity flexibilities that had been suggested by the SBREFA panel
or through comments, but we did not adopt them since they are
inconsistent with EPA's authority under the CAA (see 75 FR 14737). Our
statutory authority to issue relief to small entities has not changed
since that time. Additionally, as specified by the statute, the RFS
regulations (at 40 CFR 80.1441(e)(2)) allow for a small refinery \138\
to petition for case-by-case hardship relief.
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\138\ A small refinery, as defined by the statute, is a refinery
with an average daily crude throughput of 75,000 barrels or less. As
this is a facility-based definition, not company-based as SBA's
small refiner definition is, it follows that not all small refiners'
facilities meet the definition of a small refinery.
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Given that this proposed rule would not impose additional
requirements on small entities, would decrease burden via a reduction
in required volumes as compared to statutory volume targets, and would
not change the compliance flexibilities currently offered to small
entities under the RFS program, we have therefore concluded that this
action would not have a significant impact on a substantial number of
directly regulated small entities.
D. Unfunded Mandates Reform Act (UMRA)
This action does not contain any unfunded mandate as described in
UMRA, 2 U.S.C. 1531-1538, and does not significantly or uniquely affect
small governments. The action implements mandates specifically and
explicitly set forth in CAA section 211(o) without the exercise of any
policy discretion by the EPA.
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.
F. Executive Order 13175: Consultation and Coordination With Indian
Tribal Governments
This action does not have tribal implications as specified in
Executive Order 13175. 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 produce, purchase, and use regulated fuels. Thus,
Executive Order 13175 does not apply to this action.
G. Executive Order 13045: Protection of Children From Environmental
Health Risks and Safety Risks
The EPA interprets Executive Order 13045 as applying only to those
regulatory actions that concern environmental health or safety risks
that the EPA has reason to believe may disproportionately affect
children, per the definition of ``covered regulatory action'' in
section 2-202 of the Executive Order. This action is not subject to
Executive Order 13045 because it implements specific standards
established by Congress in statutes (CAA section 211(o)).
H. Executive Order 13211: Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use
This action is not a ``significant energy action'' 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, 2015, and
2016.
I. National Technology Transfer and Advancement Act (NTTAA)
This rulemaking does not involve technical standards.
J. Executive Order 12898: Federal Actions To Address Environmental
Justice in Minority Populations, and Low-Income Populations
The EPA believes that this action will not have potential
disproportionately high and adverse human health or environmental
effects on minority, low-income, or indigenous populations. This
proposed rule does not affect the level of protection provided to human
health or the environment by applicable air quality standards. 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.
IX. Statutory Authority
Statutory authority for this action comes from section 211 of the
Clean Air Act, 42 U.S.C. 7545. Additional support for the procedural
and compliance related aspects of this proposed rule come from sections
114, 208, and 301(a) of the Clean Air Act, 42 U.S.C. 7414, 7542, and
7601(a).
List of Subjects in 40 CFR Part 80
Environmental protection, Environmental protection, Administrative
practice and procedure, Air pollution control, Diesel fuel, Fuel
additives, Gasoline, Imports, Oil imports, Petroleum, Renewable fuel.
Dated: May 29, 2015.
Gina McCarthy,
Administrator.
For the reasons set forth in the preamble, EPA proposed to amend 40
CFR part 80 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, 7521, 7542, 7545, and 7601(a).
Subpart M--Renewable Fuel Standard
0
2. Section 80.1401 is amended by adding in alphabetical order the
definition for ``Algae grown photosynthetically'' to read as follows:
Sec. 80.1401 Definitions.
* * * * *
Algae grown photosynthetically are algae that are grown such that
their energy and carbon are predominantly derived from photosynthesis.
* * * * *
0
3. Section 80.1405 is amended by:
0
a. Removing and reserving paragraph (a)(2)(i); and
0
b. Adding paragraphs (a)(5), (6), and (7).
The additions 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
0.019 percent.
(ii) The value of the biomass-based diesel standard for 2014 shall
be 1.42 percent.
(iii) The value of the advanced biofuel standard for 2014 shall be
1.52 percent.
(iv) The value of the renewable fuel standard for 2014 shall be
9.02 percent.
(6) Renewable Fuel Standards for 2015.
(i) The value of the cellulosic biofuel standard for 2015 shall be
0.059 percent.
(ii) The value of the biomass-based diesel standard for 2015 shall
be 1.41 percent.
[[Page 33153]]
(iii) The value of the advanced biofuel standard for 2015 shall be
1.61 percent.
(iv) The value of the renewable fuel standard for 2015 shall be
9.04 percent.
(7) Renewable Fuel Standards for 2016.
(i) The value of the cellulosic biofuel standard for 2016 shall be
0.114 percent.
(ii) The value of the biomass-based diesel standard for 2016 shall
be 1.49 percent.
(iii) The value of the advanced biofuel standard for 2016 shall be
1.88 percent.
(iv) The value of the renewable fuel standard for 2016 shall be
9.63 percent.
* * * * *
0
4. Section 80.1426, paragraph (f)(1) is amended by revising ``Table 1
to Sec. 80.1426'', entries F and H to read as follows:
Sec. 80.1426 How are RINs generated and assigned to batches of
renewable fuel by renewable fuel producers or importers?
* * * * *
(f) * * *
(1) * * *
Table 1 to Sec. 80.1426--Applicable D Codes for Each Fuel Pathway for Use in Generating RINs
----------------------------------------------------------------------------------------------------------------
Production process
Fuel type Feedstock requirements D-code
----------------------------------------------------------------------------------------------------------------
* * * * * * *
F................... Biodiesel, renewable Soy bean oil;.............. One of the following:...... 4
diesel, jet fuel and Oil from annual covercrops; Trans-Esterification.......
heating oil. Oil from algae grown Hydrotreating..............
photosynthetically;. Excluding processes that co-
Biogenic waste oils/fats/ process renewable biomass
greases;. and petroleum..
Non-food grade corn oil;...
Camelina sativa oil;.......
* * * * * * *
H................... Biodiesel, renewable Soy bean oil;.............. One of the following:..... 5
diesel, jet fuel and Oil from annual covercrops; Trans-Esterification.......
heating oil. Oil from algae grown Hydrotreating..............
photosynthetically;. Includes only processes
Biogenic waste oils/fats/ that co-process renewable
greases;. biomass and petroleum..
Non-food grade corn oil;...
Camelina sativa oil;.......
* * * * * * *
----------------------------------------------------------------------------------------------------------------
* * * * *
0
5. Section 80.1451 is amended by revising paragraph (a)(1)(xiv) to read
as follows:
Sec. 80.1451 What are the reporting requirements under the RFS
program?
(a) * * *
(1) * * *
(xiv)(A) For the 2013 compliance year, annual compliance reports
shall be submitted no later than January 31, 2016.
(B) For obligated parties, for the 2014 compliance year, annual
compliance reports shall be submitted no later June 1, 2016.
(C) For exporters of renewable fuel, for the 2014 compliance period
from January 1, 2014, through September 16, 2014, full annual
compliance reports (containing the information specified in paragraphs
(a)(1)(i), (ii), (vi), (viii), and (x) of this section) for that period
shall be submitted no later than January 31, 2016.
(D) For obligated parties, for the 2015 compliance year, annual
compliance reports shall be submitted no later than December 1, 2016.
* * * * *
0
6. Section 80.1464 is amended by revising paragraph (g) and adding
paragraph (i)(3) to read as follows.
Sec. 80.1464 What are the attest engagement requirements under the
RFS program?
* * * * *
(g)(1) For obligated parties and exporters of renewable fuel, for
the 2013 compliance year, reports required under this section shall be
submitted to the EPA no later than June 1, 2016.
(2) For RIN-generating renewable fuel producers, RIN-generating
importers of renewable fuel, and other parties owning RINs, for the
2013 compliance year, reports required under this section shall be
submitted to the EPA no later than January 31, 2016.
(3) For obligated parties, for the 2014 compliance year, reports
required under this section shall be submitted to the EPA no later than
December 1, 2016.
(4) For exporters of renewable fuel, for the 2014 compliance period
from January 1, 2014, through September 16, 2014, full reports for that
period required under this section shall be submitted no later than
June 1, 2016.
(5) For RIN-generating renewable fuel producers, RIN-generating
importers of renewable fuel, and other parties owning RINs, for the
2014 compliance year, reports required under this section shall be
submitted to the EPA no later than January 31, 2016.
(6) For obligated parties, for the 2015 compliance year, reports
required under this section shall be submitted to the EPA no later than
June 1, 2017.
* * * * *
(i) * * *
(3) Reporting requirements. For the 2014 compliance year, reports
required under paragraph (i) of this section shall be submitted to the
EPA no later than January 31, 2016. For the 2015 compliance year and
each subsequent year, reports required under paragraph (i) of this
section shall be submitted pursuant to paragraph (d) of this section.
[FR Doc. 2015-13956 Filed 6-9-15; 8:45 am]
BILLING CODE 6560-50-P