[Federal Register Volume 83, Number 132 (Tuesday, July 10, 2018)]
[Proposed Rules]
[Pages 32024-32060]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-14448]
[[Page 32023]]
Vol. 83
Tuesday,
No. 132
July 10, 2018
Part III
Environmental Protection Agency
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40 CFR Part 80
Renewable Fuel Standard Program: Standards for 2019 and Biomass-Based
Diesel Volume for 2020; Proposed Rule
Federal Register / Vol. 83 , No. 132 / Tuesday, July 10, 2018 /
Proposed Rules
[[Page 32024]]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 80
[EPA-HQ-OAR-2018-0167; FRL-9980-37-OAR]
RIN 2060-AT93
Renewable Fuel Standard Program: Standards for 2019 and Biomass-
Based Diesel Volume for 2020
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 the annual percentage
standards for cellulosic biofuel, biomass-based diesel, advanced
biofuel, and total renewable fuel that apply to gasoline and diesel
transportation fuel produced or imported in the year 2019. Relying on
statutory waiver authority that is available when the projected
cellulosic biofuel production volume is less than the applicable volume
specified in the statute, EPA is proposing volume requirements for
cellulosic biofuel, advanced biofuel, and total renewable fuel that are
below the statutory volume targets. We are also proposing the
applicable volume of biomass-based diesel for 2020.
DATES:
Comments. Comments must be received on or before August 17, 2018.
Public Hearing. EPA will announce the public hearing date and
location for this proposal in a supplemental Federal Register document.
ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-
OAR-2018-0167, at http://www.regulations.gov. Follow the online
instructions for submitting comments. Once submitted, comments cannot
be edited or removed from Regulations.gov. 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.
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. The EPA
will generally not consider comments or comment contents located
outside of the primary submission (i.e., on the web, cloud, or other
file sharing system). For additional submission methods, the full EPA
public comment policy, information about CBI or multimedia submissions,
and general guidance on making effective comments, please visit https://www.epa.gov/dockets/commenting-epa-dockets.
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: 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 affected categories include:
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NAICS \1\ Examples of potentially affected
Category codes SIC \2\ codes entities
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Industry.............................. 324110 2911 Petroleum refineries.
Industry.............................. 325193 2869 Ethyl alcohol manufacturing.
Industry.............................. 325199 2869 Other basic organic chemical
manufacturing.
Industry.............................. 424690 5169 Chemical and allied products merchant
wholesalers.
Industry.............................. 424710 5171 Petroleum bulk stations and terminals.
Industry.............................. 424720 5172 Petroleum and petroleum products
merchant wholesalers.
Industry.............................. 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).
This table is not intended to be exhaustive, but rather provides a
guide for readers regarding entities likely to be affected by this
proposed action. This table lists the types of entities that EPA is now
aware could potentially be affected by this proposed action. Other
types of entities not listed in the table could also be affected. To
determine whether your entity would be affected by this proposed
action, you should carefully examine the applicability criteria in 40
CFR part 80. If you have any questions regarding the applicability of
this proposed action to a particular entity, consult the person listed
in the FOR FURTHER INFORMATION CONTACT section.
Outline of This Preamble
I. Executive Summary
A. Summary of Major Provisions in This Action
1. Approach to Setting Volume Requirements
2. Cellulosic Biofuel
3. Advanced Biofuel
4. Total Renewable Fuel
5. 2020 Biomass-Based Diesel
6. Annual Percentage Standards
B. RIN Market Operations
C. EPA Response to Court Decision in Americans for Clean Energy
v. EPA
II. Authority and Need for Waiver of Statutory Applicable Volumes
A. Statutory Authorities for Reducing Volume Targets
1. Cellulosic Waiver Authority
2. General Waiver Authority
B. Treatment of Carryover RINs
1. Carryover RIN Bank Size
2. EPA's Proposed Decision Regarding the Treatment of Carryover
RINs
III. Cellulosic Biofuel Volume for 2019
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 2019
1. Liquid Cellulosic Biofuel
2. CNG/LNG Derived From Biogas
3. Total Cellulosic Biofuel in 2019
IV. Advanced Biofuel and Total Renewable Fuel Volumes for 2019
A. Volumetric Limitation on Use of the Cellulosic Waiver
Authority
B. Attainable Volumes of Advanced Biofuel
1. Imported Sugarcane Ethanol
2. Other Advanced Biofuel
3. Biodiesel and Renewable Diesel
C. Proposed Volume Requirement for Advanced Biofuel
D. Proposed Volume Requirement for Total Renewable Fuel
V. Impacts of 2019 Volumes on Costs
A. Illustrative Costs Analysis of Exercising the Cellulosic
Waiver Authority
[[Page 32025]]
Compared to the 2019 Statutory Volumes Baseline
B. Illustrative Costs Analysis of Exercising the Cellulosic
Waiver Authority Compared to the 2018 RFS Volumes Baseline
VI. Biomass-Based Diesel Volume for 2020
A. Statutory Requirements
B. Determination of the 2020 Applicable Volume of Biomass-Based
Diesel
C. Consideration of Statutory Factors Set Forth in CAA Section
211(o)(2)(B)(ii)(I)-(VI) for 2020
VII. Percentage Standards for 2019
A. Calculation of Percentage Standards
B. Small Refineries and Small Refiners
C. Proposed Standards
VIII. Public Participation
A. How do I submit comments?
B. How should I submit CBI to the Agency?
IX. Statutory and Executive Order Reviews
A. Executive Order 12866: Regulatory Planning and Review and
Executive Order 13563: Improving Regulation and Regulatory Review
B. Executive Order 13771: Reducing Regulations and Controlling
Regulatory Costs
C. Paperwork Reduction Act (PRA)
D. Regulatory Flexibility Act (RFA)
E. Unfunded Mandates Reform Act (UMRA)
F. Executive Order 13132: Federalism
G. Executive Order 13175: Consultation and Coordination With
Indian Tribal Governments
H. Executive Order 13045: Protection of Children From
Environmental Health Risks and Safety Risks
I. Executive Order 13211: Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use
J. National Technology Transfer and Advancement Act (NTTAA)
K. Executive Order 12898: Federal Actions To Address
Environmental Justice in Minority Populations and Low-Income
Populations
X. 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), leading to the
publication of major revisions to the regulatory requirements on March
26, 2010.\1\ EISA's stated goals include moving the United States (U.S)
toward ``greater energy independence and security [and] increase[ing]
the production of clean renewable fuels.'' \2\
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\1\ 75 FR 14670, March 26, 2010.
\2\ Public Law 110-140, 121 Stat. 1492 (2007). Hereinafter,
``EISA.''
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The statute includes annual volume targets, 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 obligated parties must meet every
year. In this action we are proposing the applicable volumes for
cellulosic biofuel, advanced biofuel, and total renewable fuel for
2019, and biomass-based diesel (BBD) for 2020.\3\ We are also proposing
the annual percentage standards (also known as ``percent standards'')
for cellulosic biofuel, BBD, advanced biofuel, and total renewable fuel
that would apply to all gasoline and diesel produced or imported in
2019.\4\
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\3\ The 2019 BBD volume requirement was established in the 2018
final rule.
\4\ For a list of the statutory provisions for the determination
of applicable volumes, see the 2018 final rule (82 FR 58486; Table
I.A-2).
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Today, nearly all gasoline used for transportation purposes
contains 10 percent ethanol (E10), and on average diesel fuel contains
nearly 5 percent biodiesel and/or renewable diesel.\5\ However, the
market has fallen well short of the statutory volumes for cellulosic
biofuel, resulting in shortfalls in the advanced biofuel and total
renewable fuel volumes. In this action, we are proposing a volume
requirement for cellulosic biofuel at the level we project to be
available for 2019, along with an associated applicable percentage
standard. For advanced biofuel and total renewable fuel, we are
proposing reductions under the ``cellulosic waiver authority'' that
would result in advanced biofuel and total renewable fuel volume
requirements that are lower than the statutory targets by the same
magnitude as the reduction in the cellulosic biofuel reduction. This
would effectively maintain the implied statutory volumes for non-
cellulosic advanced biofuel and conventional biofuel.\6\
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\5\ Average biodiesel and/or renewable diesel blend percentages
based on EIA's April 2018 Short Term Energy Outlook (STEO).
\6\ The statutory total renewable fuel, advanced biofuel and
cellulosic biofuel requirements for 2019 are 28.0, 13.0 and 8.5
billion gallons respectively. This implies a conventional renewable
fuel applicable volume (the difference between the total renewable
fuel and advanced biofuel volumes, which can be satisfied by with
conventional (D6) RINs) of 15.0 billion gallons, and a non-
cellulosic advanced biofuel applicable volume (the difference
between the advanced biofuel and cellulosic biofuel volumes, which
can be satisfied with advanced (D5) RINs) of 4.5 billion gallons.
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The resulting proposed volume requirements for 2019 are shown in
Table I-1 below. Relative to the levels finalized for 2018, the 2019
volume requirements for advanced biofuel and total renewable fuel would
be higher by 590 million gallons. Approximately 90 million gallons of
this increase would be due to the increase in the projected production
of cellulosic biofuel in 2019 relative to 2018. We are also proposing
to establish the volume requirement for BBD for 2020 at 2.43 billion
gallons. This volume is 330 million gallons higher than the volume for
2019.
Table I-1--Proposed Volume Requirements \a\
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2019
2018 \b\ Statutory 2019 Proposed 2020 Proposed
volumes volumes volumes
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Cellulosic biofuel (million gallons)............ 288 8,500 381 n/a
Biomass-based diesel (billion gallons).......... 2.1 >=1.0 \c\ 2.1 2.43
Advanced biofuel (billion gallons).............. 4.29 13.00 4.88 n/a
Renewable fuel (billion gallons)................ 19.29 28.00 19.88 n/a
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\a\ All values are ethanol-equivalent on an energy content basis, except for BBD which is biodiesel-equivalent.
\b\ The 2018 volume requirements for cellulosic biofuel, advanced biofuel, and renewable fuel were established
in the 2018 final rule (82 FR 58486, December 12, 2017). The 2018 BBD volume requirement was established in
the 2017 final rule (81 FR 89746, December 12, 2016).
\c\ The 2019 BBD volume requirement was established in the 2018 final rule (82 FR 58486, December 12, 2017).
[[Page 32026]]
A. Summary of Major Provisions in This Action
This section briefly summarizes the major provisions of this final
rule. We are proposing applicable volume requirements and associated
percentage standards for cellulosic biofuel, advanced biofuel, and
total renewable fuel for 2019; for BBD we are proposing the percentage
standard for 2019 and the applicable volume requirement for 2020.
1. Approach to Setting Volume Requirements
For advanced biofuel and total renewable fuel, we are proposing
reductions based on the ``cellulosic waiver authority'' that would
result in advanced biofuel and total renewable fuel volume requirements
that are lower than the statutory targets by the same magnitude as the
reduction in the cellulosic biofuel applicable volume. This follows the
same general approach as in the 2018 final rule. The proposed volumes
for cellulosic biofuel, advanced biofuel, and total renewable fuel
exceed the required volumes for these fuel types in 2018.
Section II provides a general description of our approach to
setting volume requirements in today's rule, including a review of the
statutory waiver authorities and our consideration of carryover RINs.
Section III provides our assessment of the 2019 cellulosic biofuel
volume, based on a projection of production that reflects a neutral aim
at accuracy. Section IV describes our assessment of advanced biofuel
and total renewable fuel. Finally, Section VI provides our proposal
regarding the 2020 BBD volume requirement, reflecting a proposed
analysis of a set of factors stipulated in CAA section
211(o)(2)(B)(ii).
2. Cellulosic Biofuel
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 production volume. In this rule we
are proposing a cellulosic biofuel volume requirement of 381 million
ethanol-equivalent gallons for 2019 based on our production projection.
Our projection reflects consideration of RIN generation data for past
years and 2018 to date that is available to EPA through EMTS; the
information we have received regarding individual facilities'
capacities, production start dates, and biofuel production plans; a
review of cellulosic biofuel production relative to EPA's projections
in previous annual rules; and EPA's own engineering judgment. To
project cellulosic biofuel production for 2019 we used the same basic
methodology described in the 2018 final rule. However, we have used
updated data to derive percentile values used in our production
projection for liquid cellulosic biofuels and to derive the year-over-
year change in the rate of production of CNG/LNG derived from biogas
that is used in the projection for CNG/LNG. EPA anticipates that our
final projection of cellulosic biofuel will be based on additional data
we will obtain prior to issuing the final rule, including an estimate
of cellulosic biofuel production for 2019 to be provided by the Energy
Information Administration (EIA).
3. Advanced Biofuel
If we reduce the applicable volume of cellulosic biofuel below the
volume specified in CAA section 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 refer to this
as the ``cellulosic waiver authority.'' The conditions that caused us
to reduce the 2018 volume requirement for advanced biofuel below the
statutory target remain relevant in 2019. As for 2018, we investigated
the projected availability of non-cellulosic advanced biofuels in 2019.
We took into account the various constraints on the ability of the
market to make advanced biofuels available, the ability of the
standards we set to bring about market changes in the time available,
the potential impacts associated with diverting biofuels and/or biofuel
feedstocks from current uses to the production of advanced biofuel used
in the U.S., the fact that the biodiesel tax credit is currently not
available for 2019, the tariffs on imports of biodiesel from Argentina
and Indonesia, as well as the cost of advanced biofuels. Based on these
considerations we are proposing to reduce the statutory volume target
for advanced biofuel by the same amount as we are reducing the
statutory volume target for cellulosic biofuel. This would result in an
advanced biofuel volume for 2019 of 4.88 billion gallons, which would
be 590 million gallons higher than the advanced biofuel volume for
2018.
4. Total Renewable Fuel
As for advanced biofuel, we are proposing the maximum reduction
permissible under the cellulosic waiver authority. We are proposing
that the reduction in total renewable fuel would be the same as the
reduction in advanced biofuel, such that the resulting implied volume
requirement for conventional renewable fuel would be 15 billion
gallons.
5. 2020 Biomass-Based Diesel
In EISA, Congress specified increasing applicable volumes of BBD
through 2012. Beyond 2012 Congress stipulated that EPA, in coordination
with DOE and USDA, was to establish the BBD volume taking into
consideration implementation of the program to date and various
specified factors, provided that the required volume for BBD could not
be less than 1.0 billion gallons. For 2013, EPA established an
applicable volume of 1.28 billion gallons. For 2014 and 2015 we
established the BBD volume requirement to reflect the actual volume for
each of these years of 1.63 and 1.73 billion gallons.\7\ For 2016 and
2017, we set the BBD volume requirements at 1.9 and 2.0 billion gallons
respectively. Finally, for 2018 and 2019 the BBD volume requirement was
set a 2.1 billion gallons. We are proposing to increase the BBD volume
for 2020 to 2.43 billion gallons.
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\7\ The 2015 BBD standard was based on actual data for the first
9 months of 2015 and on projections for the latter part of the year
for which data on actual use was not available at the time.
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Given current and recent market conditions, the advanced biofuel
volume requirement is driving the production and use of biodiesel and
renewable diesel volumes over and above volumes required through the
separate BBD standard, and we expect this to continue. While EPA
continues to believe it is appropriate to maintain the opportunity for
other advanced biofuels to compete for market share, the vast majority
of the advanced biofuel obligations in recent years have been satisfied
with BBD. Thus, after a review of the implementation of the program to
date and considering the statutory factors, and in light of the 500
million gallon increase we are proposing for non-cellulosic advanced
biofuels, we are proposing, in coordination with USDA and DOE, an
applicable volume of BBD for 2020 of 2.43 billion gallons.\8\
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\8\ The proposed 330 million gallon increase for BBD would
generate approximately 500 million RINs, due to the higher
equivalence value of biodiesel (1.5 RINs/gallon) and renewable
diesel (generally 1.7 RINs/gallon).
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[[Page 32027]]
6. 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.
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. The percentage standards represent the ratio of the
national applicable volume of renewable fuel volume to the national
projected non-renewable gasoline and diesel volume less any gasoline
and diesel attributable to small refineries granted an exemption prior
to the date that the standards are set. The volume of transportation
gasoline and diesel used to calculate the proposed percentage standards
was based on the April 2018 version of EIA's Short-Term Energy
Outlook.\9\ The proposed percentage standards for 2019 are shown in
Table I.B.6-1. Detailed calculations can be found in Section VII,
including the projected gasoline and diesel volumes used.
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\9\ The final percentage standards will be based on the most
recent gasoline and diesel projected volumes provided by EIA.
Table I.B.6-1--Proposed 2019 Percentage Standards
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Proposed
percentage
standards
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Cellulosic biofuel...................................... 0.209
Biomass-based diesel.................................... 1.72
Advanced biofuel........................................ 2.67
Renewable fuel.......................................... 10.88
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B. RIN Market Operations
In the rulemaking notice proposing the 2018 RFS volume
requirements, EPA noted that various stakeholders had raised concerns
regarding lack of transparency and potential manipulation in the RIN
market. We asked for comment from the public on those issues, and
received multiple suggestions from stakeholders in response. Commenters
suggested a number of potential steps EPA could take, including
increasing the public availability of data related to the RIN market;
establishing new regulations relating to the purchase, ownership, and
retirement of RINs; and increasing coordination with sister federal
agencies. Since receiving those comments, we have held additional
meetings with stakeholders on these topics, through which we have
continued to hear various perspectives on RIN market operations and
potential changes.
A number of the comments received in response to the 2018 NPRM
suggested increasing the amount of data related to the RIN market that
EPA makes publicly available. For example, commenters urged EPA to
consider increasing the frequency at which currently available
information is posted. EPA is currently exploring the possibility of
posting regular updates to the number of RINs we anticipate will be
required for compliance. These updates could take into account several
factors, such as updated information on gasoline and diesel consumption
throughout the year, the impact of small refinery exemptions, and the
volume of renewable fuel exported from the United States for which RINs
were generated, and would thus need to be retired. EPA is also
considering publicly posting average RIN prices based on the price
information submitted to EPA through EMTS. Other information that may
be of interest to the public could be aggregated information related to
the number of RINs held by different categories of entities, such as
renewable fuel producers, obligated parties, and parties that neither
produce renewable fuel nor have an RVO under the RFS program. Finally,
we are considering whether there may be value in increasing the
frequency of the release of data that is already posted publicly, such
as information related to RIN generation by D-code and fuel type.
Stakeholders have also suggested ways EPA could amend the RFS
regulations to change rules related to who may purchase RINs, the
duration for which RINs could be held, and other rules related to the
buying, selling, or holding of RINs. The goal of such changes would be
to minimize or eliminate potential manipulation in the market. EPA is
currently considering a handful of ideas, including: Prohibiting
parties other than obligated parties from purchasing separated RINS;
requiring public disclosure if a party holds a certain percentage of
the RIN market; and/or requiring obligated parties to retire RINs for
compliance purposes on a more frequent basis (e.g., requiring monthly
compliance). EPA requests comment on the expected impact that these
specific potential regulatory changes could have on the RIN market,
positively or negatively, as well as on any other potential regulatory
changes commenters may recommend to address perceived vulnerabilities
in the RIN market. Today's action is not proposing to make any such
regulatory changes. Should EPA decide to move forward on any of these
ideas, we would do so through a separate proposed rulemaking. That
rulemaking would be informed by comments received in response to
today's notice.
Finally, we note that multiple stakeholders have encouraged
cooperation and coordination between EPA and other federal agencies
that may play an oversight role in the RFS or broader fuels market,
including the Commodity Futures Trading Commission and the Federal
Trade Commission. EPA has engaged with both agencies on an ongoing
basis and will continue to do so.
C. EPA Response to Court Decision in Americans for Clean Energy v. EPA
In the annual rule establishing the 2014-2016 renewable fuel
standards, we determined that there would be an ``inadequate domestic
supply'' of renewable fuel to consumers in 2016, and so exercised the
general waiver authority to reduce the applicable volume of total
renewable fuel to a level we believed could be supplied.\10\ In
response to a petition for review of the 2014-2016 rule, the United
States Court of Appeals for the District of Columbia Circuit ruled that
EPA improperly focused on assessing the supply of renewable fuel to
consumers, and that the statute instead requires a ``supply-side''
assessment of the volumes of renewable fuel that can be supplied to
refiners, importers and blenders. The court vacated EPA's decision to
reduce the total renewable fuel volume requirements for 2016 using
general waiver authority, and remanded the rule to EPA for further
consideration in light of the decision. Americans for Clean Energy
(``ACE'') v. EPA, 864 F.3d 691 (2017).
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\10\ See 80 FR 77420 (December 14, 2015).
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EPA is currently considering a number of issues raised by the need
to respond to the court's remand in a separate process from this annual
rulemaking. EPA is not requesting comment on this rulemaking process at
this time and any comments on this issue will be treated as outside of
the scope of this rulemaking. EPA understands that there is a
compelling need to respond to the remand and intends to expeditiously
move ahead with a separate rule to resolve this matter.
[[Page 32028]]
II. Authority and Need for Waiver of Statutory Applicable Volumes
The CAA provides EPA with the authority to enact volume
requirements below the applicable volume targets specified in the
statute under specific circumstances. This section discusses those
authorities. As described in the executive summary, we are proposing a
single volume requirement for cellulosic biofuel at the level we
project to be available for 2019, and an associated applicable
percentage standard. For advanced biofuel and total renewable fuel, we
are proposing volume requirements and associated applicable percent
standards, based on use of the ``cellulosic waiver authority'' that
would result in advanced biofuel and total renewable fuel volume
requirements that are lower than the statutory targets by the same
magnitude as the reduction in the cellulosic biofuel reduction. This
would effectively maintain the implied statutory volumes for non-
cellulosic advanced biofuel and conventional biofuel.\11\
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\11\ The statutory total renewable fuel, advanced biofuel and
cellulosic biofuel requirements for 2019 are 28.0, 13.0, and 8.5
billion gallons, respectively. This implies a conventional renewable
fuel applicable volume (the difference between the total renewable
fuel and advanced biofuel volumes, which can be satisfied by with
conventional (D6) RINs) and a non-cellulosic advanced biofuel
applicable volume (the difference between the advanced biofuel and
cellulosic biofuel volumes, which can be satisfied with advanced
(D5) RINs) of 15.0 and 4.5 billion gallons, respectively.
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A. Statutory Authorities for Reducing Volume Targets
In CAA section 211(o)(2), Congress specified increasing annual
volume targets for total renewable fuel, advanced biofuel, and
cellulosic biofuel for each year through 2022, and for BBD through
2012, and authorized EPA to set volume requirements for subsequent
years in coordination with USDA and DOE, and after consideration of
specified factors. However, Congress also recognized that under certain
circumstances it would be appropriate for EPA to set volume
requirements at a lower level than reflected in the statutory volume
targets, and thus provided waiver provisions in CAA section 211(o)(7).
1. Cellulosic Waiver Authority
Section 211(o)(7)(D)(i) of the CAA provides that if EPA determines
that the projected volume of cellulosic biofuel production for a given
year is less than the applicable volume specified in the statute, then
EPA must reduce the applicable volume of cellulosic biofuel required to
the projected production volume for that calendar year. In making this
projection, EPA may not ``adopt a methodology in which the risk of
overestimation is set deliberately to outweigh the risk of
underestimation'' but must make a projection that ``takes neutral aim
at accuracy.'' API v. EPA, 706 F.3d 474, 479, 476 (D.C. Cir. 2013).
Pursuant to this provision, EPA has set the cellulosic biofuel
requirement lower than the statutory volume for each year since 2010.
As described in Section III.D, the projected volume of cellulosic
biofuel production for 2019 is less than the 8.5 billion gallon volume
target in the statute. Therefore, for 2019, we are proposing to set the
cellulosic biofuel volume requirement at a level lower than the
statutory applicable volume, in accordance with this provision.
CAA section 211(o)(7)(D)(i) also provides EPA with the authority to
reduce the applicable volume of total renewable fuel and advanced
biofuel in years when it reduces the applicable volume of cellulosic
biofuel under that provision. The reduction must be less than or equal
to the reduction in cellulosic biofuel. For 2019, we are also proposing
to reduce the applicable volumes of advanced biofuel and total
renewable fuel under this authority.
EPA has used the cellulosic waiver authority to lower the
cellulosic biofuel, advanced biofuel and total renewable fuel volumes
every year since 2014. Further discussion of the cellulosic waiver
authority, and EPA's interpretation of it, can be found in the preamble
to the 2017 final rule.\12\ See also API v. EPA, 706 F.3d 474 (D.C.
Cir. 2013) (requiring that EPA's cellulosic biofuel projections reflect
a neutral aim at accuracy); Monroe Energy v. EPA, 750 F.3d 909 (D.C.
Cir. 2014) (affirming EPA's broad discretion under the cellulosic
waiver authority to reduce volumes of advanced biofuel and total
renewable fuel); Americans for Clean Energy v. EPA (``ACE''), 864 F.3d
691 (D.C. Cir. 2017) (discussed below).
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\12\ See 81 FR 89752-89753 (December 12, 2016).
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In ACE, the court evaluated EPA's use of the cellulosic waiver
authority in the 2014-2016 annual rulemaking to reduce the advanced
biofuel and total renewable fuel volumes for 2014, 2015, and 2016.
There, EPA used the cellulosic waiver authority to reduce the advanced
biofuel volume to a level that was reasonably attainable, and then
provided a comparable reduction under this authority for total
renewable fuel.\13\ The Court of Appeals for the District of Columbia,
relying on the analysis in Monroe Energy, reaffirmed that EPA enjoys
``broad discretion'' under the cellulosic waiver authority ``to
consider a variety of factors--including demand-side constraints in the
advanced biofuels market.'' \14\ The Court noted that the only textual
limitation on the use of the cellulosic waiver authority is that it
cannot exceed the amount of the reduction in cellulosic biofuel.\15\
The Court contrasted the general waiver authority under CAA section
211(o)(7)(A) and the biomass based diesel waiver authority under CAA
section 211(o)(7)(E), which ``detail the considerations and procedural
steps that EPA must take before waiving fuel requirements,'' with the
cellulosic waiver authority, which identifies no factors regarding
reductions in advanced and total renewable fuel other than the
limitation that any such reductions may not exceed the reduction in
cellulosic biofuel volumes.\16\ The Court also concluded that the scope
of EPA's discretionary authority to reduce advanced and total volumes
is the same under the cellulosic waiver provision whether EPA is
declining to exercise its authority to waive volumes, or choosing to do
so.\17\
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\13\ See 80 FR 77433-34 (December 14, 2015).
\14\ ACE, 864 F.3d at 730.
\15\ Id. at 733.
\16\ Id.
\17\ Id. at 734.
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In this action we are proposing to use the cellulosic waiver
authority to reduce the statutory volume targets for advanced biofuels
and total renewable fuel by equal amounts, consistent with our long-
held interpretation of this provision and our approach in setting the
2014-2018 standards. This approach considers the Congressional
objectives reflected in the volume tables in the statute, and the
environmental objectives that generally favor the use of advanced
biofuels over non-advanced biofuels. See 81 FR 89752-89753 (December
12, 2016). See also 78 FR 49809-49810 (August 15, 2013); 80 FR 77434
(December 14, 2015). We are proposing, as described in Section IV, that
the applicable volume for advanced biofuels specified in the statute
for 2019 is not attainable, and thus to exercise our cellulosic waiver
authority to lower the applicable volume of advanced biofuel by the
same quantity as the reduction in cellulosic biofuel, and to provide an
equal reduction under the cellulosic waiver authority in the applicable
volume of total renewable fuel. The volumes of advanced and total
renewable fuel resulting from this exercise of the cellulosic waiver
authority provide for an implied volume allowance for conventional
biofuel of fifteen billion gallons, equal to the implied statutory
volume for 2019.
[[Page 32029]]
2. General Waiver Authority
Section 211(o)(7)(A) of the CAA provides that EPA, in consultation
with the Secretary of Agriculture and the Secretary of Energy, may
waive the applicable volumes specified in 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 his own motion.
Such a waiver must be based on a determination by the Administrator,
after public notice and opportunity for comment that: (1)
Implementation of the requirement would severely harm the economy or
the environment of a State, a region, or the United States; or (2)
there is an inadequate domestic supply. At this time, we do not believe
that the circumstances exist that would justify a waiver of volumes
under the general waiver authority.
As discussed further in Section IV.C below, EPA is soliciting
comment on whether further reductions under the general waiver
authority could be justified.
B. Treatment of Carryover RINs
Consistent with our approach in the final rules establishing the
RFS standards for 2013 through 2018, we have also considered the
availability and role of carryover RINs in evaluating whether we should
exercise our discretion to use our waiver authorities in setting the
cellulosic, advanced, and total volume requirements for 2019. Neither
the statute nor EPA regulations specify how or whether EPA should
consider the availability of carryover RINs in exercising the
cellulosic waiver authority.\18\ As noted in the context of the rules
establishing the RFS standards for 2014 through 2018, we believe that a
bank of carryover RINs is extremely important in providing obligated
parties compliance flexibility in the face of substantial uncertainties
in the transportation fuel marketplace, and in providing a liquid and
well-functioning RIN market upon which success of the entire program
depends.\19\ Carryover RINs 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 potentially affecting the production and distribution of
renewable fuel.\20\ On the other hand, carryover RINs can be used for
compliance purposes, and in the context of the 2013 RFS rulemaking we
noted that an abundance of carryover RINs available in that year,
together with possible increases in renewable fuel production and
import, justified maintaining the advanced and total renewable fuel
volume requirements for that year at the levels specified in the
statute.\21\ EPA's approach to the consideration of carryover RINs in
exercising our cellulosic waiver authority was affirmed in Monroe
Energy and ACE.\22\
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\18\ CAA section 211(o)(5) requires that EPA establish a credit
program as part of its RFS regulations, and that the credits be
valid to show compliance for 12 months as of the date of generation.
EPA implemented this requirement though the use of RINs, which can
be used to demonstrate compliance for the year in which they are
generated or the subsequent compliance year. Obligated parties can
obtain more RINs than they need in a given compliance year, allowing
them to ``carry over'' these excess RINs for use in the subsequent
compliance year, although use of these carryover RINs is limited to
20 percent of the obligated party's RVO. For the bank of carryover
RINs to be preserved from one year to the next, individual carryover
RINs are used for compliance before they expire and are essentially
replaced with newer vintage RINs that are then held for use in the
next year. For example, if the volume of the collective carryover
RIN bank is to remain unchanged from 2017 to 2018, then all of the
vintage 2017 carryover RINs must be used for compliance in 2018, or
they will expire. However, the same volume of 2018 RINs can then be
``banked'' for use in 2019.
\19\ See 80 FR 77482-87 (December 14, 2015), 81 FR 89754-55
(December 12, 2016), and 82 FR 58493-95 (December 12, 2017).
\20\ See 72 FR 23900 (May 1, 2007), 80 FR 77482-87 (December 14,
2015), 81 FR 89754-55 (December 12, 2016), and 82 FR 58493-95
(December 12, 2017).
\21\ See 79 FR 49793-95 (August 15, 2013).
\22\ Monroe Energy v. EPA, 750 F.3d 909 (D.C. Cir. 2014), ACE at
713.
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An adequate RIN bank serves to make the RIN market liquid. Just as
the economy as a whole functions best when individuals and businesses
prudently plan for unforeseen events by maintaining inventories and
reserve money accounts, we believe that the RFS program functions best
when sufficient carryover RINs are held in reserve for potential use by
the RIN holders themselves, or for possible sale to others that may not
have established their own carryover RIN reserves. Were there to be no
RINs in reserve, then even minor disruptions causing shortfalls in
renewable fuel production or distribution, or higher than expected
transportation fuel demand (requiring greater volumes of renewable fuel
to comply with the percentage standards that apply to all volumes of
transportation fuel, including the unexpected volumes) could lead to
the need for a new waiver of the standards, undermining the market
certainty so critical to the RFS program. Moreover, a significant
drawdown of the carryover RIN bank leading to a scarcity of RINs may
stop the market from functioning in an efficient manner (i.e., one in
which there are a sufficient number of reasonably available RINs for
obligated parties seeking to purchase them), even where the market
overall could satisfy the standards. For all of these reasons, the
collective carryover RIN bank provides a needed programmatic buffer
that both facilitates individual compliance and provides for smooth
overall functioning of the program.\23\
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\23\ Here we use the term ``buffer'' as shorthand reference to
all of the benefits that are provided by a sufficient bank of
carryover RINs.
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1. Carryover RIN Bank Size
At the time of the 2018 standards final rule, we estimated that
there were approximately 2.22 billion total carryover RINs available
and decided that carryover RINs should not be counted on to avoid or
minimize the need to reduce the 2018 statutory volume targets.\24\ We
also stated that we may or may not take a similar approach in future
years, and that we would evaluate the issue on a case-by-case basis
considering the facts in future years. Since that time, obligated
parties have submitted their compliance demonstrations for the 2017
compliance year and we now estimate that there are currently
approximately 3.06 billion total carryover RINs available, an increase
of 840 million RINs from the previous estimate of 2.22 billion total
carryover RINs in the 2018 final rule.\25\ This increase in the total
carryover RIN bank compared to that projected in the 2018 final rule
results from various factors, including market factors, regulatory and
enforcement actions, and judicial proceedings. They include the
approximately 1,460 million RINs that were not required to be retired
by small refineries that were granted hardship exemptions for 2017 and
approximately 790 million RINs that were not required to be retired by
small refineries that were granted hardship exemptions for 2016, along
with the RINs that Philadelphia Energy Solutions Refining and
Marketing, LLC (``PESRM'') was not required to retire as part of its
bankruptcy settlement agreement.\26\
[[Page 32030]]
While EPA cannot predict how obligated parties will comply in 2018 or
the amount of additional small refinery hardship exemptions that may be
granted in the future, the 2016 and 2017 exemptions have directly
increased the number of carryover RINs that will likely be available
for compliance with the 2019 standards. This total volume of carryover
RINs is approximately 15 percent of the total renewable fuel volume
requirement that EPA is proposing for 2019, which is less than the 20
percent maximum limit permitted by the regulations to be carried over
for use in complying with the 2019 standards.\27\
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\24\ See 82 FR 58494 (December 12, 2017).
\25\ The calculations performed to estimate the number of
carryover RINs currently available can be found in the memorandum,
``Carryover RIN Bank Calculations for 2019 NPRM,'' available in the
docket.
\26\ Per PESRM's bankruptcy filings, PESRM had an RVO of 467
million RINs for 2017 (including its deficit carryforward from
2016). Pursuant to the settlement agreement, which was based on the
unique facts and circumstances present in this case, including the
insolvency and risk of liquidation, PESRM agreed to retire 138
million RINs to meet its 2017 RVO and the portion of its 2018 RVO
during the bankruptcy proceedings (approximately 97 million RINs).
See docket for PES Holdings, LLC, 1:18bk10122, ECF Document Nos. 244
(proposed settlement agreement), 347 (United States' motion to
approve proposed settlement agreement), and 376 (order approving
proposed settlement agreement), (Bankr. D. Del.).
\27\ See 40 CFR 80.1427(a)(5).
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The above discussion applies to total carryover RINs; we have also
considered the available volume of advanced biofuel carryover RINs. At
the time of the 2018 final rule, we estimated that there were
approximately 810 million advanced carryover RINs available.\28\ Since
that time, obligated parties have submitted their compliance
demonstrations for the 2017 compliance year and we now estimate that
there are currently approximately 640 million advanced carryover RINs
available, a decrease of 170 million RINs from the previous estimate in
the 2018 final rule.\29\ This volume of advanced carryover RINs is
approximately 14 percent of the advanced renewable fuel volume
requirement that EPA is proposing for 2019, which is less than the 20
percent maximum limit permitted by the regulations to be carried over
for use in complying with the 2019 standards.\30\
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\28\ See ``Carryover RIN Bank Calculations for 2018 Final
Rule,'' Docket Item No. EPA-HQ-OAR-2017-0091-4989.
\29\ The calculations performed to estimate the number of
carryover RINs currently available can be found in the memorandum,
``Carryover RIN Bank Calculations for 2019 NPRM,'' available in the
docket.
\30\ See 40 CFR 80.1427(a)(5).
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However, there remains considerable uncertainty surrounding these
estimates for a number of reasons, including the potential impact of
any future action to address the remand in ACE, the possibility of
additional small refinery exemptions, and the impact of 2018 RFS
compliance on the bank of carryover RINs. In addition, we note that
there have been enforcement actions in past years that have resulted in
the retirement of carryover RINs to make up for the generation and use
of invalid RINs and/or the failure to retire RINs for exported
renewable fuel. Future enforcement actions could have similar results,
and require that obligated parties and/or renewable fuel exporters
settle past enforcement-related obligations in addition to the annual
standards, thereby potentially creating demand for RINs greater than
can be accommodated through actual renewable fuel blending in 2019. In
light of these uncertainties, the net result could be a bank of total
carryover RINs larger or smaller than 15 percent of the proposed 2019
total renewable fuel volume requirement, and a bank of advanced
carryover RINs larger or smaller than 14 percent of the proposed 2019
advanced biofuel volume requirement.
2. EPA's Proposed Decision Regarding the Treatment of Carryover RINs
We have evaluated the volume of carryover RINs currently available
and considered whether it would justify a reduced use of our cellulosic
waiver authority in setting the 2019 volume requirements in order to
intentionally draw down the carryover RIN bank. For the reasons
described above and in Section IV, we do not believe this to be the
case. The current bank of carryover RINs provides an important and
necessary programmatic buffer that will both facilitate individual
compliance and provide for smooth overall functioning of the program.
We believe that a balanced consideration of the possible role of
carryover RINs in achieving the statutory volume objectives for
advanced and total renewable fuels, versus maintaining an adequate bank
of carryover RINs for important programmatic functions, is appropriate
when EPA exercises its discretion under the cellulosic waiver
authority, and that the statute does not specify the extent to which
EPA should require a drawdown in the bank of carryover RINs when it
exercises this authority. Therefore, for the reasons noted above and
consistent with the approach we took in the final rules establishing
the RFS standards for 2014 through 2018, we are not proposing to set
the 2019 volume requirements at levels that would envision an
intentional drawdown in the bank of carryover RINs.
III. Cellulosic Biofuel Volume for 2019
In the past several years, production of cellulosic biofuel has
continued to increase. Cellulosic biofuel production reached record
levels in 2017, driven largely by CNG and LNG derived from biogas.
Production volumes have continued to increase in 2018.\31\ Production
of liquid cellulosic biofuel has also increased in recent years, even
as the total production of liquid cellulosic biofuels remains much
smaller than the production volumes of CNG and LNG derived from biogas.
This section describes our assessment of the volume of cellulosic
biofuel that we project will be produced or imported into the U.S. in
2018, and some of the uncertainties associated with those volumes.
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\31\ The majority of the cellulosic RINs generated for CNG/LNG
are sourced from biogas from landfills; however, the biogas may come
from a variety of sources including municipal wastewater treatment
facility digesters, agricultural digesters, separated MSW digesters,
and the cellulosic components of biomass processed in other waste
digesters.
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[[Page 32031]]
[GRAPHIC] [TIFF OMITTED] TP10JY18.002
In order to project the volume of cellulosic biofuel production in
2019, we considered the accuracy of the methodologies used to project
cellulosic biofuel production in previous years, data reported to EPA
through EMTS, and information we collected through meetings with
representatives of facilities that have produced or have the potential
to produce qualifying volumes of cellulosic biofuel for consumption as
transportation fuel, heating oil, or jet fuel in the U.S. in 2019. Our
projection of cellulosic biofuel in the final rule will also reflect
Energy Information Administration's (EIA) projection of cellulosic
biofuel production, comments received on the 2019 NPRM, and updated
data on cellulosic biofuel production in 2018 and projections for 2019.
There are two main elements to the cellulosic biofuel production
projection. To project the range of potential production volumes of
liquid cellulosic biofuel we used the same methodology as the
methodology used in the 2018 final rule. However, we have adjusted the
percentile values used to select a point estimate within a projected
production range for each group of companies based on updated
information (through the end of 2017) with the objective of improving
the accuracy of the projections. To project the production of
cellulosic biofuel RINs for CNG/LNG derived from biogas we use the same
year-over-year growth rate methodology as in the 2018 final rule. This
methodology reflects the mature status of this industry, the large
number of facilities registered to generate cellulosic biofuel RINs
from these fuels, and EPA's continued attempts to refine its
methodology to yield estimates that are as accurate as possible. This
methodology is an improvement on the methodology that EPA used to
project cellulosic biofuel production for CNG/LNG derived from biogas
in the 2017 and previous years. The methodologies used to project the
production of liquid cellulosic biofuels and cellulosic CNG/LNG derived
from biogas are described in more detail in Sections III.C-1 and III.C-
2 below.
After a brief description of the statutory requirements in Section
III.A, we discuss the companies the EPA reviewed in the process of
projecting qualifying cellulosic biofuel production in the U.S. in 2018
in Section III.B. Section III.C discusses the methodologies used by EPA
to project cellulosic biofuel production in 2019 and the resulting
projection of 381 million ethanol-equivalent gallons.
A. Statutory Requirements
CAA section 211(o)(2)(B)(i)(III) states the statutory volume
targets for cellulosic biofuel. The volume of cellulosic biofuel
specified in the statute for 2019 is 8.5 billion gallons. The statute
provides that if EPA determines, based on a letter provided to the EPA
by EIA, that the projected volume of cellulosic biofuel production in a
given year is less than the statutory volume, then EPA shall reduce the
applicable volume of cellulosic biofuel to the projected volume
available during that calendar year.\32\
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\32\ CAA section 211(o)(7)(D)(i). The U.S. Court of Appeals for
the District of Columbia Circuit evaluated this requirement in API
v. EPA, 706 F.3d 474, 479-480 (D.C. Cir. 2013), in the context of a
challenge to the 2012 cellulosic biofuel standard. The Court stated
that in projecting potentially available volumes of cellulosic
biofuel EPA must apply an ``outcome-neutral methodology'' aimed at
providing a prediction of ``what will actually happen.'' Id. at 480,
479.
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In addition, if EPA reduces the required volume of cellulosic
biofuel below the level specified in the statute, we may reduce the
applicable volumes of advanced biofuels and total renewable fuel by the
same or a lesser volume,\33\ and we are also required to make
cellulosic waiver credits available.\34\ Our consideration of the 2019
volume requirements for advanced biofuel and total renewable fuel is
presented in Section IV.
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\33\ CAA section 211(o)(7)(D)(i).
\34\ See CAA section 211(o)(7)(D)(ii); 40 CFR 80.1456.
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B. Cellulosic Biofuel Industry Assessment
In order to project liquid cellulosic biofuel production for 2019
we have tracked the progress of a number of potential cellulosic
biofuel production facilities, located both in the U.S. and in foreign
countries. As we have done in previous years, we have focused on
facilities with the potential to produce commercial-scale volumes of
cellulosic biofuel rather than small research and development (R&D) or
pilot-scale facilities. Larger commercial-scale facilities are much
more likely to
[[Page 32032]]
generate RINs for the fuel they produce and the volumes they produce
will have a far greater impact on the cellulosic biofuel standard for
2019. The volume of cellulosic biofuel produced from R&D and pilot-
scale facilities is small in relation to that expected from the
commercial-scale facilities. R&D and demonstration-scale facilities
have also generally not generated RINs for the fuel they have produced
in the past. Their focus is on developing and demonstrating the
technology, not producing commercial volumes. RIN generation from R&D
and pilot-scale facilities in previous years has not contributed
significantly to the overall number of cellulosic RINs generated.\35\
We have therefore not considered production from R&D and pilot-scale
facilities in our projection of cellulosic biofuel production for 2019.
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\35\ While a few small R&D and pilot scale facilities have
registered as cellulosic RIN generators, total production from each
of these facilities from 2011 through March 2018 has been less than
150,000 RINs. This is approximately 0.6 percent of all liquid
cellulosic biofuel production through March 2018. See ``D3 RIN
generation by Company Through March 2018--CBI.''
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From this list of commercial-scale facilities capable of producing
liquid cellulosic biofuel, we used information from EMTS, the
registration status of potential biofuel production facilities as
cellulosic biofuel producers in the RFS program, publicly available
information (including press releases and news reports), and
information provided by representatives of potential cellulosic biofuel
producers, to make a determination of which facilities are most likely
to produce liquid cellulosic biofuel and generate cellulosic biofuel
RINs in 2019. 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 2019. Both
in our discussions with representatives of individual companies 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.
As an initial matter, it is useful to review the accuracy of EPA's
past cellulosic biofuel projections. EPA used a consistent methodology
to project cellulosic biofuel production in the final three months of
2015 and all of 2016 and 2017.\36\ The record of actual production
indicates that EPA's projection was lower than the actual number of
cellulosic RINs made available in 2015,\37\ and higher than the actual
number of RINs made available in 2016 and 2017.\38\ The fact that the
projections made using this methodology have been somewhat inaccurate,
under-estimating the actual number of RINs made available in 2015 and
over-estimating in 2016 and 2017, reflects the inherent difficulty with
projecting cellulosic biofuel production. It also emphasizes the
importance of continuing to make refinements to our projection
methodology in order to make our projections more accurate.
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\36\ This methodology is most recently described in the 2017
final rule. See 81 FR 89746, 89755 (December 12, 2016).
\37\ EPA only projected cellulosic biofuel production for the
final three months of 2015, since data on the availability of
cellulosic biofuel RINs (D3+D7) for the first nine months of the
year were available at the time the analyses were completed for the
final rule.
\38\ EPA projected that 123 million, 230 million cellulosic, and
311 million RINs would be generated in 2015, 2016, and 2017
respectively. The number of available cellulosic RINs in these years
(RINs generated minus RINs retired for non-compliance reasons) was
140 million, 190 million, and 250 million RINs. All numbers are
derived from EMTS data.
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EPA's projections of liquid cellulosic biofuel were higher than the
actual volume of liquid cellulosic biofuel produced in 2015-2017. As a
result of these over-projections, and in an effort to take into account
the most recent data available and make the liquid cellulosic biofuel
projections more accurate, EPA adjusted our methodology in the 2018
final rule.\39\ In this 2019 proposed rule we are once again using
adjusted percentile values to project liquid cellulosic biofuel
production based on actual liquid cellulosic biofuel production in 2016
and 2017. Use of this updated data also results in different percentile
values than we used to project production of liquid cellulosic biofuel
for 2018. We believe that the use of the methodology (described in
Section III.C.1 below), with the adjusted percentile values used to
project production volumes for liquid cellulosic biofuels, results in a
projection that reflects a neutral aim at accuracy since it accounts
for expected growth in the near future by using historical data that is
free of any subjective bias. At this time, we do not have sufficient
data to assess the accuracy of this methodology to project cellulosic
biofuel production for 2018, however we anticipate that for the final
rule we will assess the accuracy of this methodology in projecting
liquid cellulosic biofuel in 2018 and will make adjustments where
appropriate.
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\39\ 82 FR 58486 (December 12, 2017).
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We next turn to the projection of CNG/LNG derived from biogas. For
2018, EPA used for the first time an industry-wide approach, rather
than an approach that projects volumes for individual companies or
facilities, to project the production of CNG/LNG derived from biogas.
This updated approach reflects the fact that this industry is far more
mature than the liquid cellulosic biofuel industry, and that there are
a large number of facilities registered to generate cellulosic biofuel
RINs from biogas, rendering a facility-by-facility analysis difficult
and unnecessary for purposes of accuracy. As described in Section
III.C.2 below, EPA is again proposing to project production of CNG/LNG
derived from biogas by calculating a year-over-year rate of growth in
the renewable CNG/LNG industry by comparing RIN generation for CNG/LNG
derived from biogas from April 2016-March 2017 to the RIN generation
for these same fuels from April 2017-March 2018 (the most recent month
for which data are available). We then apply this year-over-year growth
rate to the total number of cellulosic RINs available for compliance
from CNG/LNG in 2017 (the most recent year for which complete data are
available), to estimate the production of CNG/LNG derived from biogas
in 2019.
The remainder of this section describes in more detail the
methodology EPA is using to project cellulosic biofuel production in
2019 (including a review of cellulosic biofuel production and the
accuracy of the projection methodology in previous years).
1. Potential Domestic Producers
There are several companies and facilities \40\ located in the U.S.
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 at some time during 2019.
The financial incentive provided by cellulosic biofuel RINs,\41\
combined with the fact that to date nearly all cellulosic biofuel
[[Page 32033]]
produced in the U.S. has been used domestically \42\ and all the
domestic facilities we have contacted in deriving our projections
intend to produce fuel on a commercial scale for domestic consumption
and plan to use approved pathways, gives us a high degree of confidence
that cellulosic biofuel RINs will be generated for any fuel produced by
domestic commercial scale facilities. In order to generate RINs, each
of these facilities must be registered with EPA 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. Most of the domestic
companies and facilities considered in our assessment of potential
cellulosic biofuel producers in 2018 have already successfully
completed facility registration, and have successfully generated
RINs.\43\ A brief description of each of the domestic companies (or
group of companies for cellulosic CNG/LNG producers) that EPA believes
may produce commercial-scale volumes of RIN generating cellulosic
biofuel by the end of 2019 can be found in a memorandum to the docket
for this final rule.\44\ General information on each of these companies
or group of companies considered in our projection of the potentially
available volume of cellulosic biofuel in 2019 is summarized in Table
III.B.3-1 below.
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\40\ 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.
\41\ According to data from Argus Media, the price for 2017
cellulosic biofuel RINs averaged $2.78 in 2017. Alternatively,
obligated parties can obtain a RIN value equivalent to a cellulosic
biofuel RIN by purchasing an advanced (or biomass-based diesel) RIN
and a cellulosic waiver credit. The price for 2017 advanced biofuel
RINs averaged $0.99 in 2017 while the price for a 2017 cellulosic
waiver credit is $2.00 (EPA-420-B-17-036).
\42\ The only known exception was a small volume of fuel
produced at a demonstration scale facility exported to be used for
promotional purposes.
\43\ Most of the facilities listed in Table III.B.3-1 are
registered to produce cellulosic (D3 or D7) RINs with the exception
of several of the producers of CNG/LNG derived from biogas and
Ensyn's Port-Cartier, Quebec facility.
\44\ ``Cellulosic Biofuel Producer Company Descriptions (May
2018),'' memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-
2018-0167.
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2. Potential Foreign Sources of Cellulosic Biofuel
In addition to the potential sources of cellulosic biofuel located
in the U.S., there are several foreign cellulosic biofuel companies
that may produce cellulosic biofuel in 2019. These include facilities
owned and operated by Beta Renewables, Enerkem, Ensyn, 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 and other regulatory
requirements are satisfied. These companies would therefore be eligible
to register their facilities under the RFS program and generate RINs
for any qualifying fuel imported into the U.S. While these facilities
may be able to generate RINs for any volumes of cellulosic biofuel they
import into the U.S., demand for the cellulosic biofuels they produce
is expected to be high in their own local markets.
In addition to projecting the domestic production of cellulosic
biofuel, EPA also projects the volume of cellulosic biofuel that will
be imported into the U.S.\45\ For the purposes of this final rule we
have considered all the registered foreign facilities under the RFS
program to be potential sources of cellulosic biofuel in 2019. We
believe that due to the strong demand for cellulosic biofuel in local
markets, the significant technical challenges associated with the
operation of cellulosic biofuel facilities, and the time necessary for
potential foreign cellulosic biofuel producers to register under the
RFS program and arrange for the importation of cellulosic biofuel to
the U.S., cellulosic biofuel imports from foreign facilities not
currently registered to generate cellulosic biofuel RINs are generally
highly unlikely in 2019. For purposes of our 2019 cellulosic biofuel
projection we have, with one exception (described below), excluded
potential volumes from foreign cellulosic biofuel production facilities
that are not currently registered under the RFS program.
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\45\ EPA has consistently interpreted the term ``projected
volume of cellulosic biofuel production'' in CAA section
211(o)(7)(D)(i) to include volumes of cellulosic biofuel likely to
be made available in the U.S., including from both domestic
production and imports (see 80 FR 77420 (December 14, 2015) and 81
FR 89746 (December 12, 2016)). We do not believe it would be
reasonable to include in the projection all cellulosic biofuel
produced throughout the world, regardless of likelihood of import to
the U.S., since volumes that are not imported would not be available
to obligated parties for compliance and including them in the
projection would render the resulting volume requirement and
percentage standards unachievable.
---------------------------------------------------------------------------
Cellulosic biofuel produced at three foreign facilities (Ensyn's
Renfrew facility, GranBio's Brazilian facility, and Raizen's Brazilian
facility) generated cellulosic biofuel RINs for fuel exported to the
U.S. in 2017; projected volumes from each of these facilities are
included in our projection of available volumes for 2019. EPA has also
included projected volume from two additional foreign facilities. One
of these facilities has completed the registration process as a
cellulosic biofuel producer (Enerkem's Canadian facility). The other
facility (Ensyn's Port-Cartier, Quebec facility), while not yet
registered as a cellulosic biofuel producer, is owned by a Ensyn, a
company that has previously generated cellulosic biofuel RINs using the
same technology at a different facility. We believe that it is
appropriate to include volume from these facilities in light of their
proximity to the U.S., the proven technology used by these facilities,
the volumes of cellulosic biofuel exported to the U.S. by the company
in previous years (in the case of Ensyn), and the company's stated
intentions to market fuel produced at these facilities to qualifying
markets in the U.S. All of the facilities included in EPA's cellulosic
biofuel projection for 2019 are listed in Table III.B.3-1 below.
3. Summary of Volume Projections for Individual Companies
General information on each of the cellulosic biofuel producers (or
group of producers in the case of producers of CNG/LNG derived from
biogas and liquid cellulosic biofuel facilities using Edeniq's
technology) that factored into our projection of cellulosic biofuel
production for 2019 is shown in Table III.B.3-1. This table includes
both facilities that have already generated cellulosic RINs, as well as
those that have not yet generated cellulosic RINs, but are projected to
do so by the end of 2019. As discussed above, we have focused on
commercial-scale cellulosic biofuel production facilities. Each of
these facilities (or group of facilities) is discussed further in a
memorandum to the docket.\46\
---------------------------------------------------------------------------
\46\ ``Cellulosic Biofuel Producer Company Descriptions (May
2018),'' memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-
2018-0167.
[[Page 32034]]
Table III.B.3-1--Projected Producers of Cellulosic Biofuel in 2019
--------------------------------------------------------------------------------------------------------------------------------------------------------
Facility
capacity (million Construction
Company name Location Feedstock Fuel gallons per start date First production \48\
year) \47\
--------------------------------------------------------------------------------------------------------------------------------------------------------
CNG/LNG Producers \49\......... Various........... Biogas............ CNG/LNG.......... Various.......... Various.......... August 2014.
Edeniq......................... Various........... Corn Kernel Fiber. Ethanol.......... Various.......... Various.......... October 2016.
Enerkem........................ Edmonton, AL, Separated MSW..... Ethanol.......... 10 \50\.......... 2012............. September 2017.\51\
Canada.
Ensyn.......................... Renfrew, ON, Wood Waste........ Heating Oil...... 3................ 2005............. 2014.
Canada.
Ensyn.......................... Port-Cartier, QC, Wood Waste........ Heating Oil...... 10.5............. June 2016........ January 2018.
Canada.
Envia Energy................... Oklahoma City, OK. Biogas............ Diesel........... 2................ May 2015......... February 2017.
GranBio........................ S[atilde]o Miguel Sugarcane bagasse. Ethanol.......... 21............... Mid 2012......... September 2014.
dos Campos,
Brazil.
Poet-DSM....................... Emmetsburg, IA.... Corn Stover....... Ethanol.......... 20............... March 2012....... 4Q 2015.
QCCP........................... Galva, IA......... Corn Kernel Fiber. Ethanol.......... 4................ Late 2013........ October 2014.
Raizen......................... Piracicaba City, Sugarcane bagasse. Ethanol.......... 11............... January 2014..... July 2015.
Brazil.
--------------------------------------------------------------------------------------------------------------------------------------------------------
C. Cellulosic Biofuel Volume for 2019
---------------------------------------------------------------------------
\47\ The Facility Capacity is generally equal to the nameplate
capacity provided to EPA by company representatives or found in
publicly available information. Capacities are listed in physical
gallons (rather than ethanol-equivalent gallons). 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 at the
time of facility registration 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).
\48\ 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.
\49\ For more information on these facilities see ``May 2018
Assessment of Cellulosic Biofuel Production from Biogas (2019),''
memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-2018-
0167.
\50\ The nameplate capacity of Enerkem's facility is 10 million
gallons per year. However, we anticipate that a portion of their
feedstock will be non-biogenic MSW. RINs cannot be generated for the
portion of the fuel produced from non-biogenic feedstocks. We have
taken this into account in our production projection for this
facility (See ``May 2018 Liquid Cellulosic Biofuel Projections for
2018 CBI'').
\51\ This date reflects the first production of ethanol from
this facility. The facility began production of methanol in 2015.
---------------------------------------------------------------------------
1. Liquid Cellulosic Biofuel
For our 2019 liquid cellulosic biofuel projection, we use the same
general approach as we have in projecting these volumes in previous
years. We begin by first categorizing potential liquid cellulosic
biofuel producers in 2019 according to whether or not they have
achieved consistent commercial scale production of cellulosic biofuel
to date. Next we define a range of likely production volumes for 2019
for each group of companies. Finally, we use a percentile value to
project from the established range a single projected production volume
for each group of companies in 2019. As in 2018, we are proposing to
calculate percentile values for each group of companies based on the
past performance of each group relative to our projected production
ranges. This methodology is briefly described here, and is described in
detail in memoranda to the docket.\52\
---------------------------------------------------------------------------
\52\ ``May 2018 Liquid Cellulosic Biofuel Projections for 2018
CBI'' and ``Calculating the Percentile Values Used to Project Liquid
Cellulosic Biofuel Production for the 2019 NPRM,'' memorandums from
Dallas Burkholder to EPA Docket EPA-HQ-OAR-2018-0167.
---------------------------------------------------------------------------
Consistent with our approach in previous years, we separated the
list of potential producers of cellulosic biofuel (listed in Table
III.B.3-1) into two groups according to whether the facilities have
achieved consistent commercial-scale production and cellulosic biofuel
RIN generation. 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 reflects actual RIN generation
data over the last 12 months for which data are available at the time
our technical assessment was completed (April 2017-March 2018).\53\ For
potential producers that have not yet generated any cellulosic RINs,
the low end of the range is zero. For the high end of the range of
production volumes for companies expected to produce liquid cellulosic
biofuel we considered a variety of factors, including the expected
start-up date and ramp-up period, facility capacity, and the number of
RINs the producer expects to generate in 2019.\54\ The projected range
for the groups of companies considered in our 2019 cellulosic biofuel
projection are shown in Tables III.C.1-1 and III.C.1-2 below.\55\
---------------------------------------------------------------------------
\53\ Consistent with previous years, we have considered whether
there is reason to believe any of the facilities considered as
potential cellulosic biofuel producers for 2019 is likely to produce
a smaller volume of cellulosic biofuel in 2019 than in the previous
12 months for which data are available. At this time, EPA is not
aware of any information that would indicate lower production in
2019 from any facility considered than in the previous 12 months for
which data are available.
\54\ As in our 2015-2018 projections, EPA calculated a high end
of the range for each facility (or group of facilities) based on the
expected start-up date and a six-month straight line ramp-up period.
The high end of the range for each facility (or group of facilities)
is equal to the value calculated by EPA using this methodology, or
the number of RINs the producer expects to generate in 2019,
whichever is lower.
\55\ More information on the data and methods EPA used to
calculate each of the ranges in these tables in contained in ``May
2018 Liquid Cellulosic Biofuel Projections for 2018 CBI'' memorandum
from Dallas Burkholder to EPA Docket EPA-HQ-OAR-2018-0167. We have
not shown the projected ranges for each individual company. This is
because the high end of the range for some of these companies are
based on the company's production projections, which they consider
confidential business information (CBI). Additionally, the low end
of the range for facilities that have achieved consistent commercial
scale production is based on actual RIN generation data in the most
recent 12 months, with is also claimed as CBI. EPA has included
additional information on the calculations used to define the
production ranges, including the production ranges for each
individual company or facility, in a memo to the docket, ``May 2018
Liquid Cellulosic Biofuel Projections for 2018 CBI''.
[[Page 32035]]
Table III.C.1-1--2019 Production Ranges for Liquid Cellulosic Biofuel
Producers Without Consistent Commercial Scale Production
[Million ethanol-equivalent gallons]
------------------------------------------------------------------------
Low end of the High end of the
Companies included range range \a\
------------------------------------------------------------------------
Enerkem, Ensyn (Port Cartier 0 18
facility), Envia Energy..............
------------------------------------------------------------------------
\a\ Rounded to the nearest million gallons.
Table III.C.1-2--2019 Production Ranges for Liquid Cellulosic Biofuel
Producers With Consistent Commercial Scale Production
[Million ethanol-equivalent gallons]
------------------------------------------------------------------------
Low end of the High end of the
Companies included range \a\ range \b\
------------------------------------------------------------------------
Facilities using Edeniq's technology 15 56
(registered facilities), Ensyn
(Renfrew facility), Poet-DSM,
GranBio, Quad County Corn Processors,
Raizen...............................
------------------------------------------------------------------------
\a\ Rounded to the nearest million gallons.
After defining likely production ranges for each group of companies
we next considered the percentile values to use in projecting a
production volume for each group of companies. In this proposed rule we
have calculated the percentile values used to project liquid cellulosic
biofuel production from within the range of projected production
values, using data on actual liquid cellulosic biofuel production from
both 2016 and 2017. This is consistent with the approach taken in the
2018 final rule, however we now have complete data from 2017, rather
than only data through September 2017. For the final rule we anticipate
using available production data from 2018 to make further adjustments
to the percentile values used to project liquid cellulosic biofuel
production for 2019.
The projected ranges for liquid cellulosic biofuel production in
2016 and 2017, along with the actual number of cellulosic RINs
generated in each year that are/were available for compliance, and the
percentile values that would have resulted in a projection equal to the
actual production volume are shown in Table III.C.1-3 below.
Table III.C.1-3--Projected and Actual Liquid Cellulosic Biofuel Production in 2016 and 2017
[Million gallons]
----------------------------------------------------------------------------------------------------------------
Actual
_ Low end of the High end of production Actual
range the range \56\ percentile
----------------------------------------------------------------------------------------------------------------
New Facilities: \57\
2016........................................ 0 76 1.06 1st
2017........................................ 0 33 8.79 27th
Average \a\................................. N/A N/A N/A 14th
Consistent Producers \58\
2016........................................ 2 5 3.28 43rd
2017........................................ 3.5 7 3.02 -14th
Average \a\..................................... N/A N/A N/A 15th
----------------------------------------------------------------------------------------------------------------
\a\ We have not averaged the low and high ends of the ranges, or actual production, as we believe it is more
appropriate to average the actual percentiles from 2016 and 2017 rather than calculating a percentile value
for 2016 and 2017 in aggregate. This approach gives equal weight to the accuracy of our projections from 2016
and 2017, rather than allowing the average percentiles calculated to be dominated by years with greater
projected volumes.
For this proposed rule EPA has projected cellulosic biofuel
production from facilities that have not yet achieved consistent
commercial scale production at the 14th percentile of the calculated
range and projected cellulosic biofuel production from facilities that
have achieved commercial scale production at the 15th percentile.\59\
These percentiles are calculated by averaging the percentiles that
would have produced cellulosic biofuel projections equal to the volumes
produced by each group of companies in 2016 and 2017. We have not
considered data from years prior to 2016, as prior to 2016 a different
methodology was used to project available volumes of cellulosic
biofuel. In determining the percentile values to use for 2019 we have
decided to weight the observed actual percentile values from 2016 and
2017 equally. While the
[[Page 32036]]
percentile value from 2017 represents the most recent data available,
it is also dependent on the performance of a relatively small number of
companies in a single year. Using data from multiple years is likely
more representative of the future performance of these groups of
companies than data from any single year. For the final rule we
anticipate using available production data from 2018 (likely January-
September), along with updated production projections for months in
which data is not available (likely October-December) to make further
adjustments to the percentile values used to project liquid cellulosic
biofuel production for 2019. We propose using production volumes for
months for which data is not available (likely October-December 2018)
in a similar manner to the way we projected production volumes for
months in which data were not available in the 2018 final rule (based
on available historical data along with seasonal production trends; see
``Calculating the Percentile Values Used to Project Liquid Cellulosic
Biofuel Production for 2018, EPA-HQ-OAR-2017-0091). We request comment
on this projection methodology, as well as the appropriateness of using
data from 2018 to adjust the percentile values used to projection
liquid cellulosic biofuel production for 2019. We believe that
adjusting the percentile values used in this final rule will improve
the accuracy of the production projection and will further EPA's
objective to project volumes with a ``neutral aim at accuracy.'' We
request comment on the data that should be used to calculate the
percentile values used to project liquid cellulosic biofuel production
in 2019 (e.g. whether we should use data from 2016-2018, or just a sub-
set of this data) and how to weight data from each of these years.\60\
---------------------------------------------------------------------------
\56\ Actual production is calculated by subtracting RINs retired
for any reason other than compliance with the RFS standards from the
total number of cellulosic RINs generated.
\57\ Companies characterized as new producers in the 2014-2016
and 2017 final rules were as follows: Abengoa (2016), CoolPlanet
(2016), DuPont (2016, 2017), Edeniq (2016, 2017), GranBio (2016,
2017), IneosBio (2016), and Poet (2016, 2017).
\58\ Companies characterized as consistent producers in the
2014-2016 and 2017 final rules were as follows: Ensyn (2016 and
2017) and Quad County Corn Processors (2016 and 2017).
\59\ In the 2018 final rule EPA used the 10th and 12th
percentile for new facilities and consistent producers respectively.
The slightly higher percentile values used to project liquid
cellulosic biofuel production in 2019 reflect additional production
data from the fourth quarter of 2017 that was not available at the
time the analyses were completed for the 2018 final rule. For more
detail on the calculation of the percentile values used in this
proposed rule see ``Calculating the Percentile Values Used to
Project Liquid Cellulosic Biofuel Production for the 2019 NPRM,''
available in EPA docket EPA-HQ-OAR-2018-0167.
\60\ For example, rather than weighting the percentiles that
would have resulted in the actual production volumes in 2016 and
2017 equally, EPA could first aggregate the projected ranges for
companies with and without consistent commercial scale production
for 2016 and 2017 (5.5 million-12 million and 0-109 million
respectively) and then use the combined production volumes for 2016
and 2017 for each group (6.3 million and 9.8 million respectively)
to calculate percentile values for each group of companies for 2019.
This would result in slightly different percentile values (12th
percentile for companies with consistent production and the 9th
percentile for companies without consistent production).
---------------------------------------------------------------------------
Finally, we used these percentile values, together with the ranges
determined for each group of companies discussed above, to project a
volume for each group of companies in 2019. These calculations are
summarized in Table III.C.1-4 below.
Table III.C.1-4--Projected Volume of Liquid Cellulosic Biofuel in 2019
[Million ethanol-equivalent gallons]
----------------------------------------------------------------------------------------------------------------
Low end of the High end of Projected
range \a\ the range \a\ Percentile volume \a\
----------------------------------------------------------------------------------------------------------------
Liquid Cellulosic Biofuel Producers; Producers 0 18 14th 3
without Consistent Commercial Scale Production.
Liquid Cellulosic Biofuel Producers; Producers 15 56 15th 21
with Consistent Commercial Scale Production....
---------------------------------------------------------------
Total....................................... N/A N/A N/A 24
----------------------------------------------------------------------------------------------------------------
\a\ Volumes rounded to the nearest million gallons.
EPA also considered whether it would be appropriate to modify other
individual components of the past methodology for projecting liquid
cellulosic biofuel (such as the factors used to calculate the high or
low end of the projected range for each company), but we do not believe
that such changes are warranted at this time. Making the adjustment to
the percentile values used in the methodology while keeping other
components of the methodology constant should, we believe, provide an
appropriate refinement of the methodology that reflects recent
experience. We acknowledge, however, that using the calculated
percentile values from previous years to project liquid cellulosic
biofuel production in future years does not eliminate the possibility
that actual production will differ from our projections. This is
especially true for the liquid cellulosic biofuel industry, which is
currently in the early stages of commercialization. Nevertheless, based
on the record before us, we believe the ranges of projected production
volumes for each company (or group of companies for those using the
Edeniq technology) are reasonable, and that projecting overall
production in 2019 in the manner described above results in a neutral
estimate (neither biased to produce a projection that is too high or
too low) of likely liquid cellulosic biofuel production in 2019 (24
million gallons).
2. CNG/LNG Derived From Biogas
For 2019, EPA is using the same methodology as in the 2018 final
rule, an industry wide projected based on a year-over-year growth rate,
to project production of CNG/LNG derived from biogas used as
transportation fuel.\61\ For this proposed rule, EPA has calculated the
year-over-year growth rate in CNG/LNG derived from biogas by comparing
RIN generation from April 2017-March 2018 (the most recent 12 months
for which data are available) to RIN generation in the 12 months that
immediately precede this time period (April 2016-March 2017). These RIN
generation volumes are shown in Table III.C.2-1 below.
---------------------------------------------------------------------------
\61\ Historically RIN generation for CNG/LNG derived from biogas
has increased each year. It is possible, however, that RIN
generation for these fuels in the most recent 12 months for which
data are available could be lower than the preceding 12 months. We
believe our methodology accounts for this possibility. In such a
case, the calculated rate of growth would be negative.
Table III.C.2-1--Generation of Cellulosic Biofuel RINs for CNG/LNG Derived From Biogas
[Million gallons] \62\
----------------------------------------------------------------------------------------------------------------
RIN Generation (April 2016-March RIN Generation (April 2017-March
2017) 2018) Year-Over-Year Increase
----------------------------------------------------------------------------------------------------------------
189 247 30.5%
----------------------------------------------------------------------------------------------------------------
[[Page 32037]]
EPA then applied this 30.5 percent year-over-year growth rate to
the total number of 2018 cellulosic RINs projected to be generated for
CNG/LNG in the 2018 final rule. This methodology results in a
projection of 358 million gallons of CNG/LNG derived from biogas in
2019.\63\ We believe that projecting the production of CNG/LNG derived
from biogas in this manner appropriately takes into consideration the
actual recent rate of growth of this industry, and that this growth
rate accounts for both the potential for future growth and the
challenges associated with increasing RIN generation from these fuels
in future years. This methodology may not be appropriate to use as the
projected volume of CNG/LNG derived from biogas approaches the total
volume of CNG/LNG that is used as transportation fuel, as RINs can be
generated only for CNG/LNG used as transportation fuel. We do not
believe that this is yet a constraint, however, as our projection for
2019 is well below the total volume of CNG/LNG that is currently used
as transportation fuel.\64\ We request comment on estimates of the
volume of CNG/LNG likely to be used as transportation fuel in 2019, as
well as the ability of the CNG/LNG market to provide the documentation
necessary to verify the use of this fuel as transportation fuel.
---------------------------------------------------------------------------
\62\ Further detail on the data used to calculate each of these
numbers in this table, as well as the projected volume of CNG/LNG
derived from biogas used as transportation fuel in 2019 can be found
in ``May 2018 Assessment of Cellulosic Biofuel Production from
Biogas (2019)'' memorandum from Dallas Burkholder to EPA Docket EPA-
HQ-OAR-2018-0167.
\63\ To calculate this value, EPA multiplied the number of 2018
RINs projected to be generated for CNG/LNG derived from biogas in
the 2018 final rule (274 million), see 82 FR 58502-03, by 1.305
(representing a 30.5 percent year-over-year increase).
\64\ EPA projects that 580 million ethanol-equivalent gallons of
CNG/LNG will be used as transportation fuel in 2019 based on EIA's
March 2018 Short Term Energy Outlook (STEO). To calculate this
estimate, EPA used the Natural Gas Vehicle Use from the STEO Custom
Table Builder (0.13 billion cubic feet/day in 2019). This projection
includes all CNG/LNG used as transportation fuel from both renewable
and non-renewable sources. EIA does not project the amount of CNG/
LNG from biogas used as transportation fuel. To convert billion
cubic feet/day to ethanol-equivalent gallons EPA used conversion
factors of 946.5 BTU per cubic foot of natural gas (lower heating
value, per calculations using ASTM D1945 and D3588) and 77,000 BTU
of natural gas per ethanol-equivalent gallon per Sec.
80.1415(b)(5).
---------------------------------------------------------------------------
EPA has also reviewed data submitted by potential producers of CNG/
LNG derived from biogas that is used as transportation fuel. The total
volume of CNG/LNG derived from biogas projected to be produced in 2019
by the potential producers of these fuels exceeds the volume that EPA
is projecting for 2019. Since producers of CNG/LNG derived from biogas
have historically over-estimated their production of these fuels, it
would not be appropriate to simply adopt this projection for 2019. The
fact that the industry projections exceed EPA's projected volume,
however, indicates that the volume of these fuels projected for 2019
can be satisfied by a combination of projects currently producing CNG/
LNG derived from biogas for these purposes and projects expected to
product biogas by the end of 2019.
We believe that while our projection methodology uses a growth rate
based on historical data it adequately anticipates higher production
volumes in future years, including both increased production from
existing facilities as well as production from new facilities. In this
way it satisfies our charge to project future cellulosic biofuel
production in a reasonable manner, and with neutrality, despite the
fact that it does not consider all potential producers of these fuels
on a facility-by-facility basis. For the final rule we anticipate using
all available data from 2018 to update both the year-over-year increase
as well as the projected production volume of cellulosic biofuel for
2018 to which we apply the year-over-year increase to project the
production of CNG/LNG derived from biogas in 2019.
3. Total Cellulosic Biofuel in 2019
After projecting production of cellulosic biofuel from liquid
cellulosic biofuel production facilities and producers of CNG/LNG
derived from biogas, EPA combined these projections to project total
cellulosic biofuel production for 2019. These projections are shown in
Table III.C.3-1. Using the methodologies described in this section, we
project that 381 million ethanol-equivalent gallons of cellulosic
biofuel will be produced in 2019. We believe that projecting overall
production in 2019 in the manner described above results in a neutral
estimate (neither biased to produce a projection that is too high nor
too low) of likely cellulosic biofuel production in 2019.
Table III.C.3-1--Projected Volume of Cellulosic Biofuel in 2019
[Million gallons]
------------------------------------------------------------------------
Projected
volume \a\
------------------------------------------------------------------------
Liquid Cellulosic Biofuel Producers; Producers without 3
Consistent Commercial Scale Production.................
Liquid Cellulosic Biofuel Producers; Producers with 21
Consistent Commercial Scale Production.................
CNG/LNG Derived from Biogas............................. 358
---------------
Total............................................... \b\ 381
------------------------------------------------------------------------
\a\ Volumes rounded to the nearest million gallons.
\b\ Total projection of cellulosic biofuel appears less than the sum of
the projected volume for each group of companies due to rounding
Further discussion of the individual companies we believe will
produce cellulosic biofuel and make it commercially available in 2019
can be found in a memorandum to the docket.\65\ We request comment on
this projection of cellulosic biofuel production for 2019, including
the various aspects of the methodology used to project production of
both liquid cellulosic biofuels and CNG/LNG derived from biogas.
---------------------------------------------------------------------------
\65\ ``Cellulosic Biofuel Producer Company Descriptions (May
2018),'' memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-
2018-0167. In the case of cellulosic biofuel produced from CNG/LNG
and facilities using Edeniq's technology, we have discussed the
production potential from these facilities as a group rather than
individually.
---------------------------------------------------------------------------
IV. Advanced Biofuel and Total Renewable Fuel Volumes for 2019
The national volume targets for advanced biofuel and total
renewable fuel to be used under the RFS program each year through 2022
are specified in CAA section 211(o)(2)(B)(i)(I) and (II).
[[Page 32038]]
Congress set annual renewable fuel volume targets that envisioned
growth at a pace that far exceeded historical growth and, for years
after 2011, prioritized that growth as occurring principally in
advanced biofuels (contrary to previous growth patterns where most
growth was in conventional renewable fuel). Congressional intent is
evident in the fact that the implied statutory volume for conventional
renewable fuel is 15 billion gallons for all years after 2014, while
the advanced volumes, driven largely by growth in cellulosic volumes,
continue to grow each year through 2022 to a total of 21 billion
gallons.
Due to a shortfall in reasonably attainable volumes of cellulosic
and advanced biofuel, and consistent with our long-held interpretation
of the cellulosic waiver authority as best interpreted and applied by
providing equal reductions in advanced biofuel and total renewable
fuel, we are proposing a reduction from the statutory volumes for both
advanced biofuel and total renewable fuel for 2019 using the full
extent of the cellulosic waiver authority.
In this Section we discuss our proposed use of the discretion
afforded by the cellulosic waiver authority at CAA 211(o)(7)(D)(i) to
reduce volumes of advanced biofuel and total renewable fuel. We first
discuss our assessment of advanced biofuel and the considerations which
have led us to conclude that the advanced biofuel volume target in the
statute should be reduced by the full amount permitted under the
cellulosic waiver authority. We then address total renewable fuel in
the context of our interpretation, articulated in previous annual
rulemakings, that advanced biofuel and total renewable fuel should be
reduced by the same amount under the cellulosic waiver authority.
To begin, we have evaluated the capabilities of the market and are
proposing to find that the 13.0 billion gallons specified in the
statute for advanced biofuel cannot be reached in 2019. This is
primarily due to the expected continued shortfall in cellulosic
biofuel; production of this fuel type has consistently fallen short of
the statutory targets by 95 percent or more, and as described in
Section III, we project that it will fall far short of the statutory
target of 8.5 billion gallons in 2019. For this and other reasons
described in this section we are proposing to reduce the advanced
biofuel statutory target by the full amount of the shortfall in
cellulosic biofuel for 2019.
In previous years when we have used the cellulosic waiver
authority, we have determined the appropriate amount of the permissible
waiver to apply to advanced biofuel by taking into account the
availability of advanced biofuels, their energy security and GHG
impacts, the availability of carryover RINs, the apparent intent of
Congress as reflected in the statutory volumes tables to substantially
increase the use of advanced biofuels over time, as well as factors
such as increased costs associated with the use of advanced biofuels
and the reduced benefits likely associated with use of advanced volumes
achieved through diversion of foreign fuels or substitution of advanced
feedstocks from other uses to biofuel production. Until the 2018
standards rule, the consideration of these factors led us to conclude
that it was appropriate to set the advanced biofuel standard in a
manner that would allow the partial backfilling of missing cellulosic
volumes with non-cellulosic advanced biofuels.\66\ For the 2018
standards, we placed a greater emphasis on cost considerations in the
context of balancing the various considerations, ultimately concluding
that partial backfilling with non-cellulosic advanced biofuels was not
warranted and the applicable volume requirement for advanced biofuel
should be based on the maximum reduction permitted under the cellulosic
waiver authority.
---------------------------------------------------------------------------
\66\ For instance, see 81 FR 89750 (December 12, 2016).
---------------------------------------------------------------------------
Although we continue to believe that the factors earlier considered
in exercising the cellulosic waiver authority are relevant and
appropriate, we project that there will be insufficient reasonably
attainable volumes of non-cellulosic biofuels in 2019 to allow any
backfilling for missing volumes of cellulosic biofuel. As a result of
this projection and our proposed consideration of carryover RINs, we
are proposing to reduce the statutory volume target for advanced
biofuel by the same amount as the reduction in cellulosic biofuel. This
would result in the non-cellulosic component of the advanced biofuel
volume requirement being equal to the implied statutory volume of 4.5
billion gallons in 2019.
We note that the predominant non-cellulosic advanced biofuels
available in the near term are advanced biodiesel and renewable
diesel.\67\ We expect a decreasing rate of growth in the availability
of feedstocks used to produce these fuel types, absent the diversion of
these feedstocks from other uses. In addition, we expect diminishing
GHG benefits and higher per gallon costs as the required volumes of
advanced biodiesel and renewable diesel increase. These outcomes are a
result of the fact that the lowest cost and most easily available
feedstocks are typically used first, and each additional increment of
advanced biodiesel and renewable diesel requires the use of feedstocks
that are incrementally more costly and/or more difficult to obtain.
Moreover, to the extent that higher advanced biofuel requirements
cannot be satisfied through growth in the production of advanced
biofuel feedstocks, they would instead be satisfied through a re-
direction of such feedstocks from competing uses. Products that were
formerly produced using these feedstocks are likely to be replaced by
products produced using the lowest cost alternatives, likely derived
from palm or petroleum sources. This in turn could increase the
lifecycle GHG emissions associated with these incremental volumes of
non-cellulosic advanced biofuel. There would also likely be market
disruptions and increased burden associated with shifting feedstocks
among the wide range of companies that are relying on them today and
which have optimized their processes to use them. Higher advanced
biofuel standards could also be satisfied by diversion of foreign
advanced biofuel from foreign markets, and there would also likely be
diminished benefits associated with such diversions. Taking these
considerations into account, we believe, as discussed in more detail
below, that we should exercise our discretion under the cellulosic
waiver authority to set the advanced biofuel volume requirement at a
level that would minimize such diversions.
---------------------------------------------------------------------------
\67\ While sugarcane ethanol, as well as a number of other fuel
types, can also contribute to the supply of advanced biofuel, in
recent years supply of these other advanced biofuels has been
considerably lower than supply of advanced biodiesel or renewable
diesel. See Table IV.B.3-1.
---------------------------------------------------------------------------
Furthermore, two other factors have added uncertainty regarding the
volume of advanced biofuels that we project to be attainable in 2019.
The first is the fact that the tax credit for biodiesel has not been
renewed for 2019. The second is the final determination by the
Department of Commerce that tariffs should be imposed on biodiesel
imports from Argentina and Indonesia, and the potential for those
tariffs to increase.68 69 Each of these factors is discussed
in more detail in Section IV.B.2 below.
---------------------------------------------------------------------------
\68\ ``Affirmative Final Antidumping Duty Determinations on
Biodiesel From Argentina and Indonesia,'' available in docket EPA-
HQ-OAR-2018-0167.
\69\ ``US adds more duties on biodiesel from Argentina &
Indonesia,'' Reuters article available in docket EPA-HQ-OAR-2018-
0167.
---------------------------------------------------------------------------
[[Page 32039]]
We believe that the factors and considerations noted above are all
appropriate to consider under the broad discretion provided under the
cellulosic waiver authority, and that consideration of these factors
supports our proposed use of this authority. Many of the considerations
discussed in this proposed rule are related to the availability of non-
cellulosic advanced biofuels (e.g., historic data on domestic supply,
expiration of the biodiesel blenders' tax credit, potential imports of
biodiesel in light of the Commerce Department's determination on
tariffs on biodiesel imports from Argentina and Indonesia, potential
imports of sugarcane ethanol, and anticipated decreasing growth in
production of feedstocks for advanced biodiesel and renewable diesel),
while others focus on the potential benefits and costs of requiring use
of available volumes (e.g., relative cost of advanced biofuels to the
petroleum fuels they displace, GHG reduction benefits, and energy
security benefits). As discussed in further detail in the following
sections, EPA's preliminary projection of the available volume of
advanced biofuel in 2019 suggests that while achieving the implied
statutory volume for non-cellulosic advanced biofuel in 2019 (4.5
billion gallons) may be attainable, doing so would likely require a
higher rate of growth in the domestic advanced biofuel industry than we
have seen in recent years. This is especially true if the tariffs on
biodiesel imported from Argentina and Indonesia result in decreased
volumes of imported advanced biofuel in 2019. While it may also be
possible that a volume of non-cellulosic advanced biofuel greater than
4.5 billion gallons may be attainable, this higher volume would very
likely result in the diversion of advanced feedstocks from other uses
or diversion of advanced biofuels from foreign sources. In that case,
our preliminary assessment of other factors, such as cost and GHG
impacts, indicate that it would not be appropriate to set the advanced
biofuel volume requirement so as to require use of such volumes to
partially backfill for missing cellulosic volumes.
The impact of our exercise of the cellulosic waiver authority is
that after waiving the cellulosic biofuel volume down to the projected
available level, and applying the same volume reduction to the
statutory volume target for advanced biofuel, the resulting volume
requirement for advanced biofuel for 2019 would be 590 million gallons
more than the applicable volume used to derive the 2018 percentage
standard. Furthermore, after applying the same reduction to the
statutory volume target for total renewable fuel, the volume
requirement for total renewable fuel would also be 590 million gallons
more than the applicable volume used to derive the 2018 percentage
standard.
A. Volumetric Limitation on Use of the Cellulosic Waiver Authority
As described in Section II.A, when making reductions in advanced
biofuel and total renewable fuel under the cellulosic waiver authority,
the statute limits those reductions to no more than the reduction in
cellulosic biofuel. As described in Section III.D, we are proposing to
establish a 2019 applicable volume for cellulosic biofuel of 381
million gallons, representing a reduction of 8,119 million gallons from
the statutory target of 8,500 million gallons. As a result, 8,119
million gallons is the maximum volume reduction for advanced biofuel
and total renewable fuel that is permissible using the cellulosic
waiver authority. Use of the cellulosic waiver authority to this
maximum extent would result in volumes of 4.88 and 19.88 billion
gallons for advanced biofuel and total renewable fuel,
respectively.\70\
---------------------------------------------------------------------------
\70\ When expressing volumes in billion gallons, we use standard
rounding methods to two decimal places, as done in previous annual
standard-setting rulemakings. Volumes are sometimes shown in million
gallons for clarity, but with the exception of cellulosic biofuel it
is volumes in billion gallons that are used to calculate the
applicable percentage standards. For cellulosic biofuel, it is
million gallons that are used to calculate the percentage standards.
Table IV.A-1--Lowest Permissible Volumes Using Only the Cellulosic
Waiver Authority
[Million gallons] \a\
------------------------------------------------------------------------
Advanced Total
biofuel renewable fuel
------------------------------------------------------------------------
Statutory target........................ 13,000 28,000
Maximum reduction permitted under the 8,119 8,119
cellulosic waiver authority............
Lowest 2019 volume requirement permitted 4,881 19,881
using only the cellulosic waiver
authority..............................
------------------------------------------------------------------------
\a\ Calculations are typically shown in million gallons for all four
standards for clarity. However, when using volumes to calculate
percentage standards, we specify the volume requirements as billion
gallons with two decimal places to be consistent with the volume
targets as given in the statute. The only exception is for cellulosic
biofuel which we specify in million gallons due to the substantial
reduction from the statutory target.
We are authorized under the cellulosic waiver authority to reduce
the advanced biofuel and total renewable fuel volumes ``by the same or
a lesser'' amount as the reduction in the cellulosic biofuel
volume.\71\ As discussed in Section II.A, EPA has broad discretion in
using the cellulosic waiver authority in instances where its use is
authorized under the statute, since Congress did not specify factors
that EPA must consider in determining whether to use the authority or
what the appropriate volume reductions (within the range permitted by
statute) should be. This broad discretion was affirmed in both Monroe
and ACE.\72\ Thus, EPA could potentially set the 2019 advanced biofuel
standard at a level that is designed to partially backfill for the
shortfall in cellulosic biofuel. However, based on our consideration of
a number of relevant factors, we are proposing to use the full extent
of the cellulosic waiver authority in deriving volume requirements for
2019.
---------------------------------------------------------------------------
\71\ CAA section 211(o)(7)(D)(i).
\72\ See ACE, 864 F.3d at 730-35 (citing Monroe, 750 F.3d 909,
915-16).
---------------------------------------------------------------------------
B. Attainable Volumes of Advanced Biofuel
We have considered both reasonably attainable and attainable
volumes of advanced biofuel to inform our exercise of the cellulosic
waiver authority. Volumes described as ``reasonably attainable'' are
those that can be reached without market disruptions and/or higher
costs, such as those that could result from diverting advanced biofuels
or advanced biofuel feedstocks from existing uses. We use this phrase
in today's action in the same way that we
[[Page 32040]]
used it in previous actions. Volumes described as ``attainable,'' in
contrast, are those we believe can be reached, but would likely result
in market disruption and/or higher costs. Neither ``reasonably
attainable'' nor ``attainable'' are meant to convey the ``maximum
achievable'' level, which as described in the 2017 final rule we do not
consider, in our discretion, to be an appropriate target under the
cellulosic waiver authority.\73\
---------------------------------------------------------------------------
\73\ 81 FR 89762 (December 12, 2016).
---------------------------------------------------------------------------
As in prior rulemakings, EPA has considered what volumes of
advanced biofuels are reasonably attainable. As the Court noted in ACE,
EPA may consider demand-side considerations in addition to supply-side
considerations when it assesses ``reasonably attainable'' volumes for
purposes of its cellulosic waiver assessment.\74\ Our proposed
assessment of reasonably attainable volumes of advanced biofuel is
described below.
---------------------------------------------------------------------------
\74\ See ACE, 864 F.3d at 730-35. However, EPA may not consider
demand-side factors in assessing whether there is an ``inadequate
domestic supply'' that would justify use of the general waiver
authority. See id. at 704-13.
---------------------------------------------------------------------------
In ACE, the Court noted that in assessing what volumes are
``reasonably attainable,'' EPA had considered the availability of
feedstocks, domestic production capacity, imports, and market capacity
to produce, distribute, and consume renewable fuel.\75\ We are taking a
similar approach for 2019, with the added consideration of the
possibility that higher volume requirements would lead to ``feedstock
switching'' or diversion of advanced biofuels from use in other
countries, which we took into account in setting the 2017 and 2018
volume requirements and, we believe, are appropriate considerations
under the broad discretion provided by the cellulosic waiver authority.
---------------------------------------------------------------------------
\75\ See ACE, 864 F.3d at 735-36.
---------------------------------------------------------------------------
As noted above, a higher advanced biofuel volume requirement has a
greater potential to increase the incentive for switching advanced
biofuel feedstocks from existing uses to biofuel production. We are
proposing to set the advanced biofuel volume requirement at a level
that would seek to minimize such feedstock/fuel diversions. Our
individual assessments of reasonably attainable volumes of each type of
advanced biofuel reflects this approach. That is, while we refer to
them as ``reasonably attainable'' volumes for convenience, they
represent those volumes that are not likely to lead to feedstock/fuel
diversions. Greater volumes could likely be made available if such
diversions were not of concern.
EPA proposes to find that 100 million gallons of advanced ethanol,
60 million gallons of other advanced biofuels, and 2.65 billion gallons
of advanced biodiesel and renewable diesel are reasonably attainable.
Together with our projected volume of 381 million gallons of cellulosic
biofuel, the sum of these volumes falls short of 4.88 billion gallons,
which is the lowest advanced biofuel requirement that EPA can determine
under the cellulosic waiver authority.
Therefore, we also have considered whether the market can
nonetheless make available 4.88 billion gallons of advanced biofuel,
notwithstanding likely feedstock/fuel diversions. In particular, we
assess whether additional volumes of advanced biodiesel and renewable
diesel are attainable. We conclude that 2.8 billion gallons of advanced
biodiesel and renewable diesel is likely attainable notwithstanding
likely feedstock/fuel diversions. This quantity of advanced biodiesel
and renewable diesel, together with the cellulosic biofuel, sugarcane
ethanol, and other advanced biofuels described above, would enable the
market to make available 4.88 billion gallons of advanced biofuels.
1. Imported Sugarcane Ethanol
The predominant available source of advanced biofuel other than
cellulosic biofuel and BBD is imported sugarcane ethanol. In setting
the 2018 standards, we estimated that 100 million gallons of imported
sugarcane ethanol would be reasonably attainable.\76\ This was a
reduction from the 200 million gallons we had assumed for 2016 and
2017, and was based on a combination of data from 2016 and part of 2017
as well as an attempt to balance the lower-than-expected imports from
recent data with indications that higher volumes were possible based on
older data. We also noted the high variability in ethanol import
volumes in the past (including of Brazilian sugarcane ethanol, the
predominant form of imported ethanol, and the only significant source
of imported advanced ethanol), increasing gasoline consumption in
Brazil, and variability in Brazilian production of sugar as reasons
that it would be inappropriate to assume that sugarcane ethanol imports
would reach the much higher levels suggested by some stakeholders.
---------------------------------------------------------------------------
\76\ 82 FR 58507 (December 12, 2017).
---------------------------------------------------------------------------
During 2017 when we were developing the 2018 standards rulemaking,
we used available data from a portion of 2017 to estimate that import
volumes of sugarcane ethanol were likely to fall significantly below
the 200 million gallons we had assumed when we set the 2017 standards.
Import data for most of 2017 is now available, and indicates that
imports of sugarcane ethanol reached just 77 million gallons.
[[Page 32041]]
[GRAPHIC] [TIFF OMITTED] TP10JY18.003
While it is difficult to predict imports for 2019, we believe it
would be reasonable not to increase the assumed volume above 100
million gallons for purposes of determining whether an advanced biofuel
volume requirement of 4.88 billion gallons is reasonably attainable for
2019. Although imports of advanced ethanol have been below 100 million
gallons for 2014-2017, our proposed advanced biofuel volume requirement
for 2019 would be higher than that for 2018, creating some incentive
for increases in imports. However, the E10 blendwall and the fact that
imported sugarcane ethanol typically costs more than corn ethanol
create disincentives for increasing imports above the levels in recent
years. Taking all of these considerations into account, we propose
using 100 million gallons of imported sugarcane ethanol for the
purposes of projecting reasonably attainable volumes of advanced
biofuel for 2019. This level reflects a balancing of the information
available to EPA at this time; both the lower import volumes that have
occurred more recently with the higher volumes that are possible based
on earlier years and under the influence of the higher standards in
2019.
We note that the future projection of imports of sugarcane ethanol
is inherently imprecise, and that actual imports in 2019 could be lower
or higher than 100 million gallons. Factors that could result in import
volumes below 100 million gallons include weather and harvests in
Brazil, world ethanol demand and prices, constraints associated with
the E10 blendwall in the U.S., and the cost relative to that of corn
ethanol. Also, global sugar consumption has continued to increase
steadily, while global production has decreased.\77\ If this trend
continues, Brazilian production of sugar could increase, with a
concurrent reduction in Brazilian production of ethanol. On the other
hand, the world average price of sugar has been projected to remain
relatively flat between 2016 and 2018, suggesting little change in
sugar production and implying that ethanol production in Brazil might
likewise remain unchanged.\78\ After considering these factors, and in
light of the high degree of variability in historical imports of
sugarcane ethanol, we believe that 100 million gallons is reasonably
attainable for 2019. As we have done in past years, we plan to take
into consideration available data on imports in 2018, as well as
information provided in comments, in making a final estimate of
reasonably attainable volumes of sugarcane ethanol for the final rule.
---------------------------------------------------------------------------
\77\ ``Sugar--World Markets and Trade,'' USDA, November 2016.
Available in docket EPA-HQ-OAR-2018-0167.
\78\ ``Commodity Markets Outlook,'' World Bank Group, January
2017. Available in docket EPA-HQ-OAR-2018-0167.
---------------------------------------------------------------------------
2. Other Advanced Biofuel
In addition to cellulosic biofuel, imported sugarcane ethanol, and
advanced biodiesel and renewable diesel, there are other D5 advanced
biofuels that can be counted in the determination of reasonably
attainable volumes of advanced biofuel for 2019. These other D5
advanced biofuels include non-cellulosic CNG, naphtha, heating oil, and
domestically-produced advanced ethanol. However, the supply of these
fuels has been relatively low in the last several years.
[[Page 32042]]
Table IV.B.2-1--Historical Supply of Other Advanced Biofuels
[Million ethanol-equivalent gallons]
----------------------------------------------------------------------------------------------------------------
Domestic
CNG/LNG Heating oil Naphtha ethanol Total \a\
----------------------------------------------------------------------------------------------------------------
2013............................ 26 0 3 23 52
2014............................ 20 0 18 26 64
2015............................ 0 1 24 25 50
2016............................ 0 2 26 27 55
2017............................ 2 2 32 26 62
----------------------------------------------------------------------------------------------------------------
\a\ Excludes consideration of D5 renewable diesel, as this category of renewable fuel is considered separately
as part of advanced biodiesel and renewable diesel in Section IV.B.3 below.
The downward trend over time in CNG/LNG from biogas as advanced
biofuel with a D code of 5 is due to the re-categorization in 2014 of
landfill biogas from advanced (D code 5) to cellulosic (D code 3).\79\
Total supply of these other advanced biofuels has exhibited no
consistent trend during 2013-2017. Based on this historical record, we
propose that 60 million gallons would be reasonably attainable in 2019.
---------------------------------------------------------------------------
\79\ 79 FR 42128 (July 18, 2014).
---------------------------------------------------------------------------
We recognize that the potential exists for additional volumes of
advanced biofuel from sources such as jet fuel, liquefied petroleum gas
(LPG), butanol, and liquefied natural gas (as distinct from compressed
natural gas), as well as non-cellulosic CNG from biogas produced in
digesters. However, since they have been produced, if at all, in only
de minimis and sporadic amounts in the past, we do not have a basis for
projecting substantial volumes from these sources in 2019.\80\
---------------------------------------------------------------------------
\80\ No RIN-generating volumes of these other advanced biofuels
were produced in 2017, and less than 1 million gallons total in
prior years.
---------------------------------------------------------------------------
3. Biodiesel and Renewable Diesel
Having projected the production volume of cellulosic biofuel, and
the reasonably attainable volumes of imported sugarcane ethanol and
``other'' advanced biofuels, we next calculated the volume of advanced
biodiesel and renewable diesel that would need to be supplied to meet
the volume of advanced biofuel for 2019 after reducing the advanced
biofuel volume by the same amount as the cellulosic biofuel volume.
Based on our projections of other advanced biofuels presented in the
preceding sections, the market would need to supply 2.8 billion gallons
of biodiesel and renewable diesel, generating 4.34 billion RINs, to
meet a total advanced biofuel volume of 4.88 billion gallons. This
calculation is shown in Table IV.B.3-1 below.
Calculating the volume of advanced biodiesel and renewable diesel
that would be needed to meet the volume of advanced biofuel for 2019 is
an important benchmark to help inform EPA's consideration of our waiver
authorities. In situations where the reasonably attainable volume of
biodiesel and renewable diesel exceeds the volume of these fuels that
would be needed to meet the volume of advanced biofuel after reducing
the advanced biofuel volume by the same amount as the cellulosic
biofuel volume, as was the case in 2017 and 2018, EPA may consider
whether or not to allow additional volumes of these fuels to backfill
for missing cellulosic biofuel volumes. In situations where the
reasonably attainable volume of biodiesel and renewable diesel is less
than the volume of these fuels that would be needed to meet the volume
of advanced biofuel after reducing the advanced biofuel volume by the
same amount as the cellulosic biofuel volume, EPA may consider whether
or not to use additional waiver authorities, to the extent available,
to make further reductions to the advanced biofuel volume.
---------------------------------------------------------------------------
\81\ To calculate the volume of advanced biodiesel and renewable
diesel that would generate the 4.34 billion RINs needed to meet the
proposed advanced biofuel volume EPA divided the 4.34 billion RINs
by 1.55. 1.55 is the approximate average (weighted by the volume of
these fuels expected to be produced in 2019) of the equivalence
values for biodiesel (generally 1.5) and renewable diesel (generally
1.7).
Table IV.B.3-1--Determination of Volume of Biodiesel and Renewable
Diesel Needed in 2019 To Achieve 4.88 Billion Gallons of Advanced
Biofuel
[Million ethanol-equivalent gallons except as noted]
------------------------------------------------------------------------
------------------------------------------------------------------------
Lowest 2019 advanced biofuel volume requirement 4,881
permitted using under the cellulosic waiver authority..
Cellulosic biofuel...................................... 381
Imported sugarcane ethanol.............................. 100
Other advanced.......................................... 60
Calculated advanced biodiesel and renewable diesel 4,340/2,800
needed (ethanol-equivalent gallons/physical gallons)
\81\...................................................
------------------------------------------------------------------------
Having calculated the volume of advanced biodiesel and renewable
diesel that would need to be supplied to meet the volume of advanced
biofuel for 2019 after reducing the advanced biofuel volume by the same
amount as the cellulosic biofuel volume, EPA next projected the
reasonably attainable volume of these fuels for 2019. With regard to
advanced biodiesel and renewable diesel, there are many different
factors that could potentially influence the reasonably attainable
volume of these fuels used as transportation fuel or heating oil in the
U.S. These factors could include the availability of qualifying
biodiesel and renewable diesel feedstocks, the production capacity of
biodiesel and renewable diesel facilities (both in the U.S. and
internationally), and the availability of imported volumes of these
fuels.\82\ A review of the volumes
[[Page 32043]]
of advanced biodiesel and renewable diesel used in previous years is
especially useful in projecting the potential for growth in the
production and use of such fuels, since for these fuels there are a
number of complex and inter-related factors beyond simply the total
production capacity for biodiesel and renewable diesel (including the
availability of advanced feedstocks, the expiration of the biodiesel
tax credit, recent tariffs on biodiesel from Argentina and Indonesia,
and other market-based factors) that are likely to affect the supply of
advanced biodiesel and renewable diesel.
---------------------------------------------------------------------------
\82\ Throughout this section we refer to advanced biodiesel and
renewable diesel as well as advanced biodiesel and renewable diesel
feedstocks. In this context, advanced biodiesel and renewable diesel
refer to any biodiesel or renewable diesel for which RINs can be
generated that satisfy an obligated party's advanced biofuel
obligation (i.e., D4 or D5 RINs). An advanced biodiesel or renewable
feedstock refers to any of the biodiesel, renewable diesel, jet
fuel, and heating oil feedstocks listed in Table 1 to Sec. 80.1426
or in petition approvals issued pursuant to Sec. 80.1416, that can
be used to produce fuel that qualifies for D4 or D5 RINs. These
feedstocks include, for example, soy bean oil; oil from annual cover
crops; oil from algae grown photosynthetically; biogenic waste oils/
fats/greases; non-food grade corn oil; camelina sativa oil; and
canola/rapeseed oil (See pathways F, G, and H of Table 1 to Sec.
80.1426).
---------------------------------------------------------------------------
In addition to a review of the volumes of advanced biodiesel and
renewable diesel used in previous years, we believe the likely growth
in production of feedstocks used to produce these fuels, as well as the
total projected available volumes of these feedstocks, are important
factors to consider. This is because while there are many factors that
could potentially limit the production and availability of these fuels,
the impacts of increasing production of advanced biodiesel and
renewable diesel on factors such as costs, energy security, and GHG
emissions are expected to vary depending on whether the feedstocks used
to produce these fuels are sourced from increased production of
advanced feedstocks or alternatively from diverting these feedstocks
from existing uses. The energy security and GHG reduction value
associated with the growth in the use of advanced biofuels is greater
when that growth is associated with an increase in advanced feedstock
production, rather than a switching of existing advanced feedstocks
from other uses to renewable fuel production or the diversion of
advanced biodiesel and renewable diesel from foreign markets. This is
especially true if the parties that previously used the advanced
biofuel or feedstocks replace these oils with low cost palm or
petroleum derived products, as we believe would likely be the case in
2019.\83\ In this case the global supply of advanced biodiesel and
renewable diesel would not increase, and the potential benefits
associated with increasing the diversity of the supply of
transportation fuel (energy security) and the production of additional
volumes of advanced biodiesel and renewable diesel (low GHG sources of
transportation fuel) would not be realized. Such feedstock switching or
fuel diversion could also result in unintended negative consequences,
such as market disruption in other markets where such oils are used,
which could offset some or all of the anticipated GHG benefits of the
production and use of advanced biofuels.
---------------------------------------------------------------------------
\83\ We believe palm or petroleum derived products would likely
be used replace advanced biodiesel and renewable diesel diverted to
the U.S. as these products are currently the lowest cost sources.
---------------------------------------------------------------------------
Before considering the projected growth in the production of
qualifying feedstocks that could be used to produce advanced biodiesel
and renewable diesel, as well as the total volume of feedstocks that
could be used to produce these fuels, it is helpful to review the
volumes of biodiesel and renewable diesel that have been used in the
U.S. in recent years. While historic data and trends alone are
insufficient to project the volumes of biodiesel and renewable diesel
that could be provided in future years, historic data can serve as a
useful reference in considering future volumes. Past experience
suggests that a high percentage of the biodiesel and renewable diesel
used in the U.S. (from both domestic production and imports) qualifies
as advanced biofuel.\84\ In previous years, biodiesel and renewable
diesel produced in the U.S. have been almost exclusively advanced
biofuel.\85\ Imports of advanced biodiesel have also increased in
recent years, as seen in Table IV.B.2-1. Volumes of imported advanced
biodiesel and renewable diesel have varied significantly from year to
year, as they are impacted both by domestic and foreign policies, as
well as many economic factors.
---------------------------------------------------------------------------
\84\ From 2011 through 2017 approximately 95% of all biodiesel
and renewable diesel supplied to the U.S. (including domestically-
produced and imported biodiesel and renewable diesel) qualified as
advanced biodiesel and renewable diesel (11,701 million gallons of
the 12,323 million gallons) according to EMTS data.
\85\ From 2011 through 2017 over 99.9% of all the domestically
produced biodiesel and renewable diesel supplied to the U.S.
qualified as advanced biodiesel and renewable diesel (10,089 million
gallons of the 10,096 million gallons) according to EMTS data.
Table IV.B.2-1--Advanced (D4 and D5) Biodiesel and Renewable Diesel From 2011 to 2017
[Million gallons] \a\
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011 2012 2013 2014 \b\ 2015 \b\ 2016 2017
--------------------------------------------------------------------------------------------------------------------------------------------------------
Domestic Biodiesel (Annual Change)...... 967 (N/A) 1,014 (+47) 1,376 (+362) 1,303 (-73) 1,253 (-50) 1,633 (+380) 1,573 (-60)
Domestic Renewable Diesel (Annual 58 (N/A) 11 (-47) 92 (+81) 155 (+63) 175 (+20) 221 (+46) 258 (+37)
Change)................................
Imported Biodiesel (Annual Change)...... 44 (N/A) 40 (-4) 156 (+116) 130 (-26) 261 (+131) 561 (+300) 462 (-99)
Imported Renewable Diesel (Annual 0 (N/A) 28 (+28) 145 (+117) 129 (-16) 121 (-8) 170 (+49) 193 (+23)
Change)................................
Exported Biodiesel and Renewable Diesel 48 (N/A) 102 (+54) 125 (+23) 134 (+9) 133 (-1) 129 (-4) 157 (+28)
(Annual Change)........................
Total (Annual Change)............... 1,021 (N/A) 991 (-30) 1,644 (+653) 1,583 (-61) 1,677 (+94) 2,456 (+779) 2,329 (-127)
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ All data from EMTS. EPA reviewed all advanced biodiesel and renewable diesel RINs retired for reasons other than demonstrating compliance with the
RFS standards and subtracted these RINs from the RIN generation totals for each category in the table above to calculate the volume in each year.
\b\ RFS required volumes for these years were not established until December 2015.
[[Page 32044]]
Table IV.B.2-2--Conventional (D6) Biodiesel and Renewable Diesel From 2011 to 2016
[Million gallons] \a\
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011 2012 2013 2014 \b\ 2015 \b\ 2016 2017
--------------------------------------------------------------------------------------------------------------------------------------------------------
Domestic Biodiesel (Annual Change)...... 0 (N/A) 0 (+0) 6 (+6) 1 (-5) 0 (+0) 0 (+0) 0 (+0)
Domestic Renewable Diesel (Annual 0 (N/A) 0 (+0) 0 (+0) 0 (+0) 0 (+0) 0 (+0) 0 (+0)
Change)................................
Imported Biodiesel (Annual Change)...... 0 (N/A) 0 (+0) 31 (+31) 52 (+21) 74 (+22) 113 (+39) 0 (-113)
Imported Renewable Diesel (Annual 0 (N/A) 0 (+0) 53 (+53) 0 (-53) 106 (+106) 43 (-63) 144 (+101)
Change)................................
Exported Biodiesel and Renewable Diesel 0 (N/A) 0 (+0) 0 (+0) 0 (+0) 0 (+0) 1 (+1) 0 (-1)
(Annual Change)........................
Total (Annual Change)............... 0 (N/A) 0 (+0) 90 (+90) 53 (-37) 180 (+127) 155 (-25) 144 (-11)
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ All data from EMTS. EPA reviewed all conventional biodiesel and renewable diesel RINs retired for reasons other than demonstrating compliance with
the RFS standards and subtracted these RINs from the RIN generation totals for each category in the table above to calculate the volume in each year.
\b\ RFS required volumes for these years were not established until December 2015.
Since 2011 the year-over-year changes in the volume of advanced
biodiesel and renewable diesel used in the U.S. have varied greatly,
from a low of negative 127 million gallons from 2016 to 2017 to a high
of 779 million gallons from 2015 to 2016. These changes were likely
influenced by multiple factors such as the cost of biodiesel feedstocks
and petroleum diesel, the status of the biodiesel blenders tax credit,
growth in marketing of biodiesel at high volume truck stops and
centrally fueled fleet locations, demand for biodiesel and renewable
diesel in other countries, biofuel policies in both the U.S. and
foreign countries, and the volumes of renewable fuels (particularly
advanced biofuels) required by the RFS. This historical information
does not indicate that the maximum previously observed increase of 779
million gallons of advanced biodiesel and renewable diesel would be
reasonable to expect from 2018 to 2019, nor does it indicate that the
low (or negative) growth rates observed in other years would recur in
2019. Rather, these data illustrate both the magnitude of the increases
in advanced biodiesel and renewable diesel in previous years and the
significant variability in these increases.
The historic data indicates that the biodiesel tax policy in the
U.S. can have a significant impact on the volume of biodiesel and
renewable diesel used in the U.S. in any given year. While the
biodiesel blenders tax credit has applied in each year from 2010--2017,
it has only been prospectively in effect during the calendar year in
2011, 2013 and 2016, while other years it has been applied
retroactively. The biodiesel blenders tax credit expired at the end of
2009 and was re-instated in December 2010 to apply retroactively in
2010 and extend through the end of 2011. Similarly, after expiring at
the end of 2011, 2013, and 2014 the tax credit was re-instated in
January 2013 (for 2012 and 2013), December 2014 (for 2014), December
2015 (for 2015 and 2016), and February 2018 (for 2017). Each of the
years in which the biodiesel blenders tax credit was in effect during
the calendar year (2013 and 2016) resulted in significant increases in
the volume of advanced biodiesel and renewable diesel used in the U.S.
over the previous year (653 million gallons and 779 million gallons
respectively). However, following these large increases in 2013 and
2016, there was little to no growth in the use of advanced biodiesel
and renewable diesel in the following years, only 33 million gallons
from 2013 to 2015 and negative 127 million gallons from 2016 to 2017.
This decrease from 2016 to 2017 happened despite the fact that the
required volume of advanced biofuel increased from 3.61 in 2016 to 4.28
billion gallons in 2017. This pattern is likely the result of both
accelerated production and/or importation of biodiesel and renewable
diesel in the final few months of years during which the tax credit was
available to take advantage of the expiring tax credit, as well as
relatively lower volumes of biodiesel and renewable diesel production
and import in 2014, 2015, and 2017 than would have occurred if the tax
credit had been in place.\86\
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\86\ We also acknowledge that the fact that EPA did not finalize
the required volumes of renewable fuel under the RFS program for
2014 and 2015 until December 2015 likely had an impact on the volume
of advanced biodiesel and renewable diesel supplied in these years.
Further, the preliminary tariffs on biodiesel imported from
Argentina and Indonesia announced in August 2017 likely had a
negative impact on the volume of biodiesel supplied in 2017.
---------------------------------------------------------------------------
The historical data suggests that the supply of advanced biodiesel
and renewable diesel could potentially increase from 2.33 billion
gallons in 2017 to 2.8 billion gallons in 2019 (the projected volume
needed to meet the advanced biofuel volume for 2019 after reducing the
statutory advanced biofuel volume by the same amount as the cellulosic
biofuel reduction). This would represent an average annual rate of
growth of approximately 235 million gallons per year, slightly higher
than the average increase in the volume of advanced biodiesel and
renewable diesel used in the U.S. from 2011 through 2017 (218 million
gallons per year) and significantly less the highest annual increase
during this time (779 million gallons from 2015 to 2016).
After reviewing the historical volume of advanced biodiesel and
renewable diesel used in the U.S. and considering the possible impact
of the expiration of the biodiesel tax credit (discussed above), EPA
next considers other factors that may impact the production, import,
and use of advanced biodiesel and renewable diesel in 2019. The
production capacity of registered advanced biodiesel and renewable
diesel production facilities is highly unlikely to limit the production
of these fuels, as the total production capacity for biodiesel and
renewable diesel at registered facilities in the U.S. (4.1 billion
gallons) exceeds the volume of these fuels that are projected to be
[[Page 32045]]
needed to meet the advanced biofuel volume for 2019 after exercising
the cellulosic waiver authority (2.8 billion gallons).\87\ Significant
registered production also exists internationally. Similarly, the
ability for the market to distribute and use advanced biodiesel and
renewable diesel appears unlikely constrain the growth of these fuels
to a volume lower than 2.8 billion gallons. The investments required to
distribute and use this volume of biodiesel and renewable diesel are
expected to be modest, as this volume is less than 200 million gallons
greater than the volume of biodiesel and renewable diesel produced,
imported, and used in the U.S. in 2016.
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\87\ The production capacity of the sub-set of biodiesel and
renewable diesel producers that generated RINs in 2017 is
approximately 3.1 billion gallons. See ``Biodiesel and Renewable
Diesel Registered Capacity (May 2018)'' Memorandum from Dallas
Burkholder to EPA Docket EPA-HQ-OAR-2018-0167.
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Conversely, the availability of advanced feedstocks that can be
used to produce advanced biodiesel and renewable diesel and the
projected availability of imported advanced biodiesel and renewable
diesel may limit the volume of these fuels available to the U.S. in
2019. We acknowledge that an increase in the required use of advanced
biodiesel and renewable diesel could be realized through a diversion of
advanced feedstocks from other uses, or a diversion of advanced
biodiesel and renewable diesel from existing markets in other
countries, and that volume of advanced biodiesel and renewable diesel
and advanced feedstocks produced globally exceeds the volume projected
to be required in 2019 (2.8 billion gallons of advanced biodiesel and
renewable diesel and the corresponding volume of advanced feedstocks)
by a significant margin.\88\ However, we perceive the net benefits
associated with such increased advanced biofuel and renewable fuel
volumes to be significantly less than the net benefits associated with
the production of additional advanced biodiesel and renewable diesel
from newly-available advanced feedstocks, due to the likelihood that
parties that previously used advanced biofuel feedstocks will replace
them with low cost palm or petroleum derived products.
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\88\ The March 2018 WASDE projects production of vegetable oils
in 2017/18 in the World to be 197.78 million metric tons. This
quantity of vegetable oil would be sufficient to produce
approximately 56.5 billion gallons of biodiesel and renewable
diesel.
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This is both because of the potential disruption and associated
cost impacts to other industries resulting from feedstock switching,
and the potential adverse effect on lifecycle GHG emissions associated
with feedstocks for biofuel production that would have been used for
other purposes and which must then be backfilled with other feedstocks.
Similarly, increasing the supply of biodiesel and renewable diesel to
the U.S. by diverting fuel that would otherwise have been used in other
countries results in higher lifecycle GHG emissions than if the supply
of these fuels was increased through additional biofuel production,
especially if this diversion results in increased consumption of
petroleum fuels in the countries that would have otherwise consumed the
biodiesel or renewable diesel. By focusing our assessment of the
potential growth in the attainable volume of biodiesel and renewable
diesel on the expected growth in the production of advanced feedstocks
(rather than the total supply of these feedstocks in 2018, which would
include feedstocks currently being used for non-biofuel purposes), we
are attempting to minimize the incentives for the RFS program to
increase the supply of advanced biodiesel and renewable diesel through
feedstock switching or diverting biodiesel and renewable diesel from
foreign market to the U.S.
Advanced biodiesel and renewable diesel feedstocks include both
waste oils, fats, and greases; and oils from planted crops. While we
believe a small increase in supply of waste oils, fats, and greases may
be possible in 2019, we believe this increase is limited as most of
these waste oils, fats, and greases that can be recovered economically
are already being recovered and used in biodiesel and renewable diesel
production or for other purposes. Most of the vegetable oil used to
produce advanced biodiesel and renewable diesel that is sourced from
planted crops comes from crops primarily grown for purposes other than
providing feedstocks for biodiesel and renewable diesel, such as for
livestock feed with the oil that is used as feedstock for renewable
fuel production a co-product or by-product.\89\ This is true for
soybeans and corn, which are the two largest sources of feedstock from
planted crops used for biodiesel production in the U.S.\90\ We do not
believe that the increased demand for soybean oil or corn oil caused by
a higher 2019 advanced biofuel standard would result in an increase in
soybean or corn prices large enough to induce significant changes in
agricultural activity, at least for the changes in advanced biodiesel
and renewable diesel feedstock demand that may be caused by this
proposed 2019 standard.
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\89\ For example, corn oil is a co-product of corn grown
primarily for feed or ethanol production, while soy and canola are
primarily grown as livestock feed.
\90\ According to EIA data 6,230 million pounds of soy bean oil
and 1,579 million pounds of corn oil were used to produce biodiesel
in the U.S. in 2017. Other significant sources of feedstock were
yellow grease (1,471 million pounds), canola oil (1,452 million
pounds), and white grease (591 million pounds). Numbers from EIA's
March 2018 Monthly Biodiesel Production Report.
---------------------------------------------------------------------------
We believe the most reliable source for projecting the expected
increase in vegetable oils in the U.S. is USDA's World Agricultural
Supply and Demand Estimates (WASDE). At the time of our assessment for
this proposed rule, the most current version of the WASDE report only
projects domestic vegetable oil production through 2018. Based on
domestic vegetable oil production from 2011-2017 as reported by WASDE,
the average annual increase in vegetable oil production in the U.S. was
0.278 million metric tons per year.\91\ Assuming a similar increase in
domestic vegetable oil production from 2018 to 2019, this additional
quantity of vegetable oils could be used to produce approximately 80
million additional gallons of advanced biodiesel or renewable diesel in
2019 relative to 2018.\92\
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\91\ According to the March 2018 WASDE report, U.S. vegetable
oil production in the 2016/2017 agricultural marketing year is
estimated to be 11.43 million metric tons. According to the January
2013 WASDE report, U.S. vegetable oil production in the 2010/2011
agricultural marketing year was 9.76 million metric tons.
\92\ To calculate this volume, we have used a conversion of 7.7
pounds of feedstock per gallon of biodiesel. This is based on the
expected conversion of soybean oil (http://extension.missouri.edu/p/G1990), which is the largest source of feedstock used to produce
advanced biodiesel and renewable diesel. Conversion rates for other
types of vegetable oils used to produce biodiesel and renewable
diesel are similar to those for soybean oil.
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In addition to virgin vegetable oils, we also expect increasing
volumes of distillers corn oil \93\ to be available for use in 2019.
The WASDE report does not project distillers corn oil production, so
EPA must use an alternative source to project the growth in the
production of this feedstock. For this proposed rule EPA is using
results from the World Agricultural Economic and Environmental Services
(WAEES) model to project the growth in the production of distillers
corn oil.\94\ In
[[Page 32046]]
assessing the likely increase in the availability of distillers corn
oil from 2018 to 2019, the authors of the WAEES model considered the
impacts of an increasing adoption rate of distillers corn oil
extraction technologies at domestic ethanol production facilities, as
well as increased corn oil extraction rates enabled by advances in this
technology. The WAEES model projects that production of distillers corn
oil in 2018 will increase by 167 million pounds, from 2615 million
pounds in agricultural marketing year 2017/2018 to 2,782 million pounds
in agricultural marketing year 2018/2019. According to the WAEES model,
this projected increase in the production of distillers corn oil, if
devoted entirely to biofuel production, could be used to produce
approximately 22 million additional gallons of advanced biodiesel or
renewable diesel in 2019. We believe it is reasonable to use these
estimates from the WAEES model for these purposes.
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\93\ Distillers corn oil is non-food grade corn oil produced by
ethanol production facilities.
\94\ For the purposes of this rule, EPA relied on WAEES modeling
results submitted as comments by the National Biodiesel Board on the
2018 final rule (Kruse, J., ``Implications of an Alternative
Advanced and Biomass Based Diesel Volume Obligation for Global
Agriculture and Biofuels'', August 21, 2017, World Agricultural
Economic and Environmental Services (WAEES), EPA-HQ-OAR-2017-0091-
3880).
---------------------------------------------------------------------------
While the vast majority of the increase in advanced biodiesel and
renewable diesel feedstocks produced in the U.S. from 2018 to 2019 is
expected to come from virgin vegetable oils and distillers corn oil,
increases in the supply of other sources of advanced biodiesel and
renewable diesel feedstocks, such as biogenic waste oils, fats, and
greases, may also occur. These increases, however, are expected to be
modest, as many of these feedstocks that can be recovered economically
are already being used to produce biodiesel or renewable diesel, or in
other markets. In fact, the WAEES model projects a decrease of 3
million gallons in the volume of biodiesel produced from feedstocks
other than soybean oil, canola oil, and distillers corn oil from 2018
to 2019.\95\ In total, we expect that increases in feedstocks produced
in the U.S. are sufficient to produce approximately 100 million more
gallons of advanced biodiesel and renewable diesel in 2019 relative to
2018. In our 2018 final rule, we determined that 2.55 billion gallons
of advanced biodiesel and renewable diesel were reasonably attainable
in 2018,\96\ therefore our projection of the reasonably attainable
volume of advanced biodiesel and renewable diesel in 2019 is 2.65
billion gallons.
---------------------------------------------------------------------------
\95\ Id.
\96\ 82 FR 58512 (December 12, 2017).
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EPA's projections of the growth of advanced feedstocks does not,
however, suggest that the total supply of advanced biodiesel and
renewable diesel to the U.S. in 2018 will be limited to 2.65 billion
gallons. Rather, this is the volume of these fuels that we project
could be supplied without diverting significant quantities of advanced
feedstocks or biofuels from existing uses. The March 2018 WASDE reports
that production of vegetable oil in the U.S. in the 2017/2018 market
year (the latest year for which projections are available) will be
sufficient to produce approximately 3.3 billion gallons of biodiesel
and renewable diesel (including both advanced and conventional
biofuels) if the entire volume of vegetable oil was used to produce
these fuels. Additional advanced biodiesel and renewable diesel could
be produced from waste fats, oils, and greases. The global production
of vegetable oil projected in the 2017/2018 marketing year would be
sufficient to produce approximately 56.5 billion gallons of biodiesel
and renewable diesel (including both advanced and conventional
biofuels).\97\ While it would not be reasonable to assume that all, or
even a significant portion, of global vegetable oil production could be
available to produce biodiesel or renewable diesel supplied to the U.S.
for a number of reasons,\98\ the large global supply of vegetable oil
strongly suggests that under the right market conditions 2.8 billion
gallons of advanced biodiesel and renewable diesel is attainable in
2019. Reaching these levels, however, may result in the diversion of
advanced feedstocks currently used in other markets and/or the import
of biodiesel and renewable diesel from these feedstocks.
---------------------------------------------------------------------------
\97\ The March 2018 WASDE projects production of vegetable oils
in 2017/18 in the U.S. and the World to be 11.64 and 197.78 million
metric tons respectively. To convert projected vegetable oil
production to potential biodiesel and renewable diesel production we
have used a conversion of 7.7 pounds of feedstock per gallon of
biodiesel.
\98\ These reasons include the demand for vegetable oil in the
food, feed, and industrial markets both domestically and globally;
constraints related to the production, import, distribution, and use
of significantly higher volumes of biodiesel; and the fact that
biodiesel and renewable diesel produced from much of the vegetable
oil available globally would not qualify as an advanced biofuel
under the RFS program.
---------------------------------------------------------------------------
Further, the supply of advanced biodiesel and renewable diesel to
the U.S. in 2019 could be increased by approximately 150 million
gallons if all of the exported volumes of these fuels were used
domestically. Diverting this fuel to markets in the U.S. may be
complicated, however, as doing so would likely require higher prices
for these fuels in the U.S. (to divert the fuels from foreign markets
that are presumably more profitable currently). It may also be more
difficult and costly to distribute this additional volume of biodiesel
and renewable diesel to domestic markets than the current foreign
markets. Finally, reducing advanced biodiesel and renewable diesel
exports may indirectly result in the decreased availability of imported
volumes of these fuels, as other countries seek to replace volumes
previously imported from the U.S.
EPA next considered potential changes in the imports of advanced
biodiesel and renewable diesel produced in other countries. In previous
years, significant volumes of foreign produced advanced biodiesel and
renewable diesel have been supplied to markets in the U.S. (see Table
IV.B.2-1 above). These significant imports were likely the result of a
strong U.S. demand for advanced biodiesel and renewable diesel,
supported by the RFS standards, the LCFS in California, the biodiesel
blenders tax credit, and the opportunity for imported biodiesel and
renewable diesel to realize these incentives.
The RFS requirements and California's LCFS are expected to continue
to provide an incentive for imports of advanced biodiesel and renewable
diesel in 2019. Several other factors, however, may negatively impact
the volume of these fuels imported in 2019. In February 2018 the
biodiesel blenders tax credit, which had expired at the end of 2016,
was retroactively reinstated for biodiesel blended in 2017 but was not
extended to apply to biodiesel blended in 2018 or 2019.\99\ Perhaps
more significantly, in December 2017 the U.S. International Trade
Commission adopted tariffs on biodiesel imported from Argentina and
Indonesia.\100\ According to data from EIA,\101\ no biodiesel was
imported from Argentina or Indonesia from September 2017--February
2018, after a preliminary decision to impose tariffs on biodiesel
imported from these countries was announced in August 2017. Biodiesel
imports from these countries were significant, accounting for over 550
million gallons in 2016 and approximately 290 million gallons in 2017.
At this time, the ultimate impact these tariffs will have on overall
imports of advanced biodiesel and renewable diesel to the U.S. remains
uncertain. It is possible that imports of advanced biodiesel and
renewable diesel from
[[Page 32047]]
other countries not impacted by these tariffs will increase to make up
for all, or some portion of the biodiesel imported from Argentina and
Indonesia in previous years. The volume of imported biodiesel in 2017
sourced from countries not impacted by the tariffs, however, is
significantly less than the volume supplied by Argentina and
Indonesia.\102\ It is possible, therefore, that the supply of imported
advanced biodiesel and renewable diesel available in the U.S. in 2019
will decrease from the relatively high levels in recent years.\103\
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\99\ Bipartisan Budget Act of 2018, Public Law 115-123, 132
Stat. 64 Sec. Sec. 40406, 40407, and 40415 (2018).
\100\ ``Biodiesel from Argentina and Indonesia Injures U.S.
Industry, says USITC,'' Available online at: https://www.usitc.gov/press_room/news_release/2017/er1205ll876.htm.
\101\ See ``EIA Biomass-Based Diesel Import Data'' available in
docket EPA-HQ-OAR-2018-0167.
\102\ According to EIA data, total biodiesel imports from
countries other than Argentina and Indonesia totaled 153 million
gallons in 2016 and 103 million gallons in 2017. See ``EIA Biomass-
Based Diesel Import Data'' available in docket EPA-HQ-OAR-2018-0167.
\103\ According to data from EMTS, 954 million gallons of
advanced biodiesel and renewable diesel were imported into the U.S.
in 2016 and 854 million gallons of these fuels were imported in
2017. Note that imported volumes of biodiesel and renewable diesel
from EMTS and EIA do not precisely match. The primary reason for
this difference is that EIA data is sourced from EIA surveys, while
the EMTS data is generated by the parties that produce and/or import
biodiesel and renewable diesel into the U.S. For the purposes of
this discussion we have cited the EIA data, as this data more easily
allows us to quantify the fuel impacted by the recent tariffs
(biodiesel imported from Argentina and Indonesia).
---------------------------------------------------------------------------
Domestic production of advanced biodiesel and renewable diesel in
2016 and 2017 was approximately 1.85 billion gallons. Of this total,
approximately 150 million gallons of domestically produced biodiesel
was exported in 2016 and 2017. An additional 100 to150 million gallons
of these fuels were imported from countries unaffected by the recent
tariffs. If, by 2019, alternative sources of imported biodiesel and
renewable diesel are identified and the imported volume of advanced
biodiesel and renewable diesel returns to the levels observed in 2016
and 2017 (approximately 700 million gallons per year) domestic
production would need to increase by approximately 125 million gallons
per year in both 2018 and 2019 to reach a total advanced biodiesel and
renewable diesel supply of 2.8 billion gallons by 2019.\104\ These
increases appear attainable, as they are lower than the average annual
increase of advanced biodiesel and renewable diesel production in the
U.S. between 2011 and 2017 (134 million gallons per year). These
increases are also approximately equal to the projected increases in
advanced feedstock availability in 2017 and 2018.\105\ We therefore
project that a volume of 2.8 billion gallons of advanced biodiesel and
renewable diesel is attainable in 2019 if the imported volume of these
fuels does not fall significantly below the volumes imported in 2016
and 2017. We note, however, that using this volume of advanced
biodiesel and renewable diesel in the U.S. would likely result in the
diversion of advanced biodiesel and renewable diesel and/or feedstocks
used to produce these fuels, as advanced biodiesel and renewable diesel
that is currently exported would instead be used in the U.S. and
alternative sources for significant volumes of these fuels would need
to be found.
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\104\ Note that this estimate assumes that the U.S. consumes all
domestically produced biodiesel and renewable diesel, rather than
exporting any of this fuel. Alternatively, if the U.S. continues to
export approximately 150 million gallons of biodiesel per year in
2019 domestic production of advanced biodiesel and renewable diesel
would have to increase by approximately 200 million gallons per
year.
\105\ In the 2018 final rule, EPA projected that advanced
biodiesel and renewable diesel feedstocks would increase to allow
production of approximately 150 million additional gallons of
advanced biodiesel and renewable diesel in 2018. 82 FR 58511
(December 12, 2017). In this proposed rule we are projecting
additional growth in advanced biodiesel and renewable diesel
feedstocks to allow production of approximately 100 million
additional gallons of advanced biodiesel and renewable diesel in
2019 (relative to the volume of advanced feedstocks projected for
2018).
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After a careful consideration of the factors discussed above, EPA
has determined that 2.8 billion gallons of advanced biodiesel and
renewable diesel projected needed to satisfy the implied statutory
volume for non-cellulosic advanced biofuel in 2019 (4.5 billion
gallons) are attainable. The total production capacity of registered
biodiesel and renewable diesel producers is significantly higher than
2.8 billion gallons, even if only those facilities that generated RINs
for advanced biodiesel and renewable diesel in 2017 are considered.
This volume (2.8 billion gallons) is also not significantly higher than
the total volume of biodiesel and renewable diesel supplied in 2016
(approximately 2.6 billion gallons), strongly suggesting that
production capacity and the ability to distribute and use biodiesel and
renewable diesel will not limit the supply of advanced biodiesel and
renewable diesel to a volume below 2.8 billion gallons in 2018.
Sufficient feedstocks are expected to be available to produce this
volume of advanced biodiesel and renewable diesel in 2019, however
doing so may result in some level of diversion of advanced feedstocks
and/or advanced biodiesel and renewable diesel from existing uses.
Achieving this level of advanced biodiesel and renewable diesel in
2019, however, will likely require finding alternative sources for
biodiesel imports to replace the volume of biodiesel and renewable
diesel that were supplied from Argentina and Indonesia in 2016 and
2017. Alternatively, obligated parties could rely on the significant
volume of carryover advanced RINs projected to be available in 2019
(See Section II.B for a further discussion of carryover RINs).
C. Proposed Volume Requirement for Advanced Biofuel
In exercising the cellulosic waiver authority for 2017 and earlier,
we determined it was appropriate to require a partial backfilling of
missing cellulosic volumes with volumes of non-cellulosic advanced
biofuel we determined to be reasonably attainable, notwithstanding the
increase in costs associated with those decisions.\106\ For the 2018
standards, in contrast, we placed a greater emphasis on cost
considerations in the context of balancing the various considerations,
ultimately concluding that the applicable volume requirement should be
based on the maximum reduction permitted under the cellulosic waiver
authority. We are proposing to take a similar approach for 2019. That
is, while it may be possible that more than 4.88 billion gallons of
advanced biofuel might be attainable in 2019, requiring additional
volumes would lead to higher costs, feedstock switching and/or
diversion of foreign advanced biofuels. We do not believe that it would
be appropriate to set the advanced biofuel volume requirement higher
than 4.88 billion gallons given that it could lead to these results.
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\106\ See, e.g., Response to Comments Document for the 2014-2016
Rule, pages 628-631, available in docket EPA-HQ-OAR-2015-0111.
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Based on the information presented above, we believe that 4.88
billion gallons of advanced biofuel is attainable in 2019. After a
consideration of the projected volume of cellulosic biofuel and
reasonably attainable volumes of imported sugarcane ethanol and other
advanced biofuels, we determined that 2.8 billion gallons of advanced
biodiesel and renewable diesel would be needed to reach 4.88 billion
gallons of advanced biofuel. Based on a review of the factors relevant
to the supply of advanced biodiesel and renewable diesel as discussed
in Section IV.B.2 above, including historic production and import data,
the production capacity of registered biodiesel and renewable diesel
producers, and the availability of advanced feedstocks, we have
determined that 2.8 billion gallons of BBD is attainable in 2019.
However, we also acknowledge that 2.8 billion gallons of BBD is
[[Page 32048]]
considerably higher than the 2.33 billion gallons actually supplied in
2017 and the 2.55 billion gallons determined to be reasonably
attainable in 2018. While 2.8 billion gallons would require an average
growth in supply of 235 million gallons per year between 2017 and 2019,
this is only slightly higher than the average annual growth rate in
years 2011--2017. Nevertheless, there is some uncertainty regarding
whether 2.8 billion gallons is attainable in 2019. This fact has led us
to consider whether the use of carryover RINs might be appropriate.
The carryover RIN bank has continued to grow over the past several
years as described in Section II.B, and is currently at its largest
historical level. It represents a source of RINs that could help
obligated parties meet an advanced biofuel volume requirement of 4.88
billion gallons in 2019 if the market fails to supply sufficient
advanced biofuels in 2019. If the market does choose to meet a volume
requirement of 4.88 billion gallons in this way, it would be for the
first time in the history of the RFS program. Although we did point to
the carryover RIN bank in 2013, along with the potential for additional
volumes of E85, as a means for meeting the statutory volume requirement
of 16.55 billion gallons, in that case the concern was the portion of
the standard that is not required to be advanced biofuel (e.g.
conventional biofuel). Ultimately, the market supplied more advanced
biofuel than it needed to meet the applicable volume requirement for
advanced biofuel while falling short of the total renewable fuel volume
requirement.
Although we believe that the 2.8 billion gallon volume is
attainable, and any shortfalls could be met through the use of
carryover RINs, we also solicit comment and supporting data and
rationale on whether circumstances exist that would warrant further
reductions in volumes through the exercise of the general waiver
authority (e.g., due to severe economic harm). We recognize that
identifying severe economic harm caused by the implementation of RFS
requirements is a difficult and complex issue and one of intense
interest to a number of stakeholders. We discussed in past notices, and
in the most recent annual rulemaking for 2018, the type of information
we generally think would be relevant to identifying severe economic
harm. For example, in 2008, we examined modeling showing expected
levels of production and price for both corn and ethanol with and
without a waiver. We also provided quantitative estimates of the impact
of a waiver on: Food expenditures for average and lowest quintile
households; feeds costs for cattle, pigs, poultry and dairy; and
gasoline prices and gasoline expenditures for average and lowest
quintile households.
It should be noted that by exercising the full cellulosic waiver
authority for advanced biofuel, the implied statutory volume target for
non-cellulosic advanced biofuel of 4.5 billion gallons in 2019 would be
maintained. This represents an increase of 0.5 billion gallons from the
2018 volume requirements.
D. Proposed Volume Requirement for Total Renewable Fuel
As discussed in Section II.A.1, we believe that the cellulosic
waiver provision is best interpreted to provide equal reductions in
advanced biofuel and total renewable fuel. We have consistently
articulated this interpretation.\107\ For the reasons we have
previously articulated, we believe this interpretation is consistent
with the statutory language and best effectuates the objectives of the
statute. If EPA were to reduce the total renewable fuel volume
requirement by a lesser amount than the advanced biofuel volume
requirement, we would effectively increase the opportunity for
conventional biofuels to participate in the RFS program beyond the
implied statutory volume of 15 billion gallons. Applying an equal
reduction of 8.12 billion gallons to both the statutory target for
advanced biofuel and the statutory target for total renewable fuel
would result in a total renewable fuel volume of 19.88 billion gallons
as shown in Table IV.A-1.\108\ A memorandum to the docket provides a
description of the ways in which the market could make this volume of
total renewable fuel available.\109\
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\107\ For instance, see discussion in the final rules setting
the 2013, 2014-2016, and 2017 standards: 78 FR 49809 -49810, August
15, 2013; 80 FR 77434, December 14, 2015; 81 FR 89752--89753,
December 12, 2016.
\108\ EPA also considered the availability of carryover RINs in
determining whether reduced use of the cellulosic waiver authority
would be warranted. For the reasons described in Section II.B, we do
not believe this to be the case.
\109\ ``Market impacts of biofuels in 2019,'' memorandum from
David Korotney to docket EPA-HQ-OAR-2018-0167. In prior actions
including the 2018 annual rule proposal, similar analyses indicated
that the market was capable of both producing and consuming the
required volume of renewable fuels, and that as a result there was
no basis for finding an inadequate domestic supply of total
renewable fuel. See 82 FR 34229 & n.82. Given the D.C. Circuit's
decision in ACE, however, the current assessment of demand-side
constraints is no longer relevant for determining inadequate
domestic supply. However, we believe consideration of the ways that
the market could make this volume available may still be relevant to
whether and how EPA exercises its waiver authorities, such as our
consideration of whether the proposed volumes will cause severe
economic harm.
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This volume of total renewable fuel results in an implied volume of
15 billion gallons of conventional fuel, which is the same as in the
2018 final rule.
V. Impacts of 2019 Volumes on Costs
In this section, EPA presents its assessment of the illustrative
costs of the proposed 2019 RFS rule. It is important to note that these
illustrative costs do not attempt to capture the full impacts of this
proposed rule. We frame the analyses we have performed for this
proposed rule as ``illustrative'' so as not to give the impression of
comprehensive estimates. These estimates are provided for the purpose
of showing how the cost to produce a gallon of a ``representative''
renewable fuel compares to the cost of petroleum fuel. There are a
significant number of caveats that must be considered when interpreting
these illustrative cost estimates. For example, there are many
different feedstocks that could be used to produce biofuels, and there
is a significant amount of heterogeneity in the costs associated with
these different feedstocks and fuels. Some renewable fuels may be cost
competitive with the petroleum fuel they replace; however, we do not
have cost data on every type of feedstock and every type of fuel.
Therefore, we do not attempt to capture this range of potential costs
in our illustrative estimates.
Illustrative cost estimates are provided below for the proposal
discussed in Sections III and IV that reduces the cellulosic, advanced,
and total renewable fuel volume requirements using the cellulosic
waiver authority under CAA section 211(o)(7)(D)(i). For this proposal,
we examine two different cases. In the first case, we provide
illustrative cost estimates by comparing the proposed 2019 renewable
fuel volumes to 2019 statutory volumes under CAA section
211(o)(7)(D)(i). In the second case, we examine the proposed 2019
renewable fuel volumes to the final 2018 renewable fuel volumes to
estimate changes in the annual costs of the proposed 2019 RFS volumes
in comparison to the 2018 volumes.
A. Illustrative Costs Analysis of Exercising the Cellulosic Waiver
Authority Compared to the 2019 Statutory Volumes Baseline
In this section, EPA provides illustrative cost estimates that
compare
[[Page 32049]]
the proposed 2019 cellulosic biofuel volume requirements to the 2019
cellulosic statutory volume that would be required absent the exercise
of our cellulosic waiver authority under CAA section 211(o)(7)(D)(i).
As described in Section III, we are proposing a cellulosic volume of
381 million gallons for 2019. The result is that we are using our
cellulosic waiver authority to waive the statutory cellulosic volume of
8.5 billion gallons by 8.12 billion gallons. Estimating the cost
savings from volumes that are not projected to be produced is
inherently challenging. EPA has taken the relatively straightforward
methodology of multiplying this waived volume of 8.12 billion gallons
by the wholesale per-gallon costs of cellulosic biofuel production
relative to the petroleum fuels they displace.
While there may be growth in other cellulosic renewable fuel
sources, we believe it is appropriate to use cellulosic ethanol
produced from corn kernel fiber as the representative cellulosic
renewable fuel. The majority of liquid cellulosic biofuel in 2019 is
expected to be produced using this technology, and application of this
technology in the future could result in significant incremental
volumes of cellulosic biofuel. In addition, as explained in Section
III, we believe that production of the major alternative cellulosic
biofuel--CNG/LNG derived from biogas--is limited to approximately 630
million gallons due to a limitation in the number of vehicles capable
of using this form of fuel.\110\
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\110\ EPA projects that 580 million ethanol-equivalent gallons
of CNG/LNG will be used as transportation fuel in 2019 based on
EIA's April 2018 Short Term Energy Outlook (STEO). To calculate this
estimate, EPA used the Natural Gas Vehicle Use from the STEO Custom
Table Builder (0.13 billion cubic feet/day in 2019). This projection
includes all CNG/LNG used as transportation fuel from both renewable
and non-renewable sources. EIA does not project the amount of CNG/
LNG from biogas used as transportation fuel. To convert billion
cubic feet/day to ethanol-equivalent gallons EPA used conversion
factors of 946.5 BTU per cubic foot of natural gas (lower heating
value, per calculations using ASTM D1945 and D3588) and 77,000 BTU
of natural gas per ethanol-equivalent gallon per Sec.
80.1415(b)(5).
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EPA uses a ``bottom-up'' engineering cost analysis to quantify the
costs of producing a gallon of cellulosic ethanol derived from corn
kernel fiber. There are multiple processes that could yield cellulosic
ethanol from corn kernel fiber. EPA assumes a cellulosic ethanol
production process that generates biofuel using distiller's grains, a
co-product of generating corn starch ethanol that is commonly dried and
sold into the feed market as distillers dried grains with solubles
(DDGS), as the renewable biomass feedstock. We assume an enzymatic
hydrolysis process with cellulosic enzymes to break down the cellulosic
components of the distiller's grains. This process for generating
cellulosic ethanol is similar to approaches currently used by industry
to generate cellulosic ethanol at a commercial scale, and we believe
these cost estimates are likely representative of the range of
different technology options being developed to produce ethanol from
corn kernel fiber. We then compare the per-gallon costs of the
cellulosic ethanol to the petroleum fuels that would be replaced at the
wholesale stage, since that is when the two are blended together.
These cost estimates do not consider taxes, retail margins, or
other costs or transfers that occur at or after the point of blending
(transfers are payments within society and are not additional costs).
We do not attempt to estimate potential cost savings related to avoided
infrastructure costs (e.g., the cost savings of not having to provide
pumps and storage tanks associated with higher-level ethanol blends).
When estimating per-gallon costs, we consider the costs of gasoline on
an energy-equivalent basis as compared to ethanol, since more ethanol
gallons must be consumed to travel the same distance as on gasoline due
to the ethanol's lower energy content.
Table V.A-1 below presents the cellulosic fuel cost savings with
this proposed rule that are estimated using this approach.\111\ The
per-gallon cost difference estimates for cellulosic ethanol ranges from
$0.49-$2.65 per ethanol-equivalent gallon.\112\ Given that cellulosic
ethanol production is just starting to become commercially available,
the cost estimates have a significant range. Multiplying those per-
gallon cost differences by the amount of cellulosic biofuel waived in
this proposed rule results in approximately $4.0-$22 billion in cost
savings.
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\111\ Details of the data and assumptions used can be found in a
Memorandum available in the docket entitled ``Cost Impacts of the
Proposed 2019 Annual Renewable Fuel Standards'', Memorandum from
Michael Shelby, Dallas Burkholder, and Aaron Sobel available in
docket EPA-HQ-OAR-2018-0167.
\112\ For the purposes of the cost estimates in this section,
EPA has not attempted to adjust the price of the petroleum fuels to
account for the impact of the RFS program, since the changes in the
renewable fuel volume are relatively modest. Rather, we have simply
used the wholesale price projections for gasoline and diesel as
reported in EIA's April 2018 STEO.
Table V.A-1--Illustrative Costs of Exercising the Cellulosic Waiver
Authority Compared to the 2019 Statutory Volumes Baseline
------------------------------------------------------------------------
------------------------------------------------------------------------
Cellulosic Volume Required (Million Ethanol-Equivalent 381
Gallons)...............................................
Change in Required Cellulosic Biofuel from 2019 (8,119)
Statutory Volume (Million Ethanol-Equivalent Gallons)..
Cost Difference Between Cellulosic Corn Kernel Fiber $0.49-$2.65
Ethanol and Gasoline Per Gallon ($/Ethanol-Equivalent
Gallons) \113\.........................................
Annual Change in Overall Costs (Million $) \114\........ $(4,000)-$(22,
000)
------------------------------------------------------------------------
B. Illustrative Costs Analysis of Exercising the Cellulosic Waiver
Authority Compared to the 2018 RFS Volumes Baseline
In this section, we provide illustrative cost estimates for EPA
exercising its cellulosic waiver authority to reduce statutory
cellulosic volumes for 2019 (with corresponding reductions to the
advanced and total renewable fuel volumes) compared to the final 2018
RFS volumes. This results in an increase in cellulosic volumes for the
2019 RFS of 93 gallons (ethanol-equivalent) and an increase in the non-
cellulosic advanced biofuel volumes for 2019 of 500 million gallons
(ethanol-equivalent).
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\113\ For this table and all subsequent tables in this section,
approximate costs in per gallon cost difference estimates are
rounded to the cents place.
\114\ For this table and all subsequent tables in this section,
approximate resulting costs (other than in per-gallon cost
difference estimates) are rounded to two significant figures.
---------------------------------------------------------------------------
1. Cellulosic Biofuel
We anticipate that the increase in proposed 2019 cellulosic biofuel
volumes would be composed of 10 million gallons of liquid cellulosic
biofuel and 84 million gallons of CNG/LNG derived from landfill
biogas.\115\ Based upon the methodology outlined above in V.A, we use
corn kernel fiber
[[Page 32050]]
as the representative liquid cellulosic biofuel to develop cost
estimates of cellulosic ethanol. We estimate a cost difference between
cellulosic corn fiber-derived ethanol and gasoline of $0.49-$2.65 on an
ethanol-equivalent gallon basis. Next, the per-gallon costs of
cellulosic renewable fuel are multiplied by the 10 million gallon
increase between the proposed 2019 cellulosic volume and the final 2018
cellulosic RFS volume requirements to estimate the total costs from the
increase in cellulosic ethanol.
---------------------------------------------------------------------------
\115\ These volumes do not add to 93 million gallons due to
rounding.
---------------------------------------------------------------------------
For CNG/LNG-derived cellulosic biogas, we provide estimates of the
cost of displacing natural gas with CNG/LNG derived from landfill
biogas to produce 84 million ethanol-equivalent gallons of cellulosic
fuel. To estimate the cost of production of CNG/LNG derived from
landfill gas (LFG), EPA uses Version 3.2 of the Landfill Gas Energy
Cost Model, or LFG cost-Web. EPA ran the financial cost calculator for
projects with a design flow rate of 1,000 and 10,000 cubic feet per
minute with the suggested default data and a project start year of
2019. The costs estimated for this analysis exclude any pipeline costs
to transport the high BTU gas, as well as any costs associated with
compressing the gas to CNG/LNG. These costs are not expected to differ
significantly between LFG or natural gas. In addition, the cost
estimates excluded the gas collection and control system infrastructure
at the landfill, as EPA expects that landfills that begin producing
high BTU gas in 2019 are very likely to already have this
infrastructure in place.\116\
---------------------------------------------------------------------------
\116\ Ibid.
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To estimate the illustrative cost impacts of the change in CNG/LNG
derived from LFG, we compared the cost of production of CNG/LNG derived
from LFG in each case to the projected price for natural gas in 2019 in
EIA's April 2018 STEO.\117\ Finally, we converted these costs to an
ethanol-equivalent gallon basis. The resulting cost estimates are shown
in Table V.B.2-1. Adding the cost of cellulosic ethanol to the costs of
CNG/LNG landfill gas, the total costs of the proposed 2019 cellulosic
volume compared to 2018 RFS cellulosic volume range from $2.3-$32
million.
---------------------------------------------------------------------------
\117\ Henry Hub Spot price estimate for 2019. Energy Information
Administration (EIA), Short Term Energy Outlook (STEO) available in
docket EPA-HQ-OAR-2018-0167.
---------------------------------------------------------------------------
2. Advanced Renewable Fuel
EPA provides a range of illustrative cost estimates for the
increases in the advanced standard of 500 million ethanol-equivalent
gallons using two different advanced biofuels. In the first scenario,
we assume that all the increase in advanced biofuel volumes is
comprised of soybean oil BBD. In the second scenario, we assume that
all the increase in the advanced volume is comprised of sugarcane
ethanol from Brazil.
Consistent with the analysis in previous annual RFS volume rules, a
``bottom-up'' engineering cost analysis is used that quantifies the
costs of producing a gallon of soybean-based biodiesel and then
compares that cost to the energy-equivalent gallon of petroleum-based
diesel. We compare the cost of biodiesel and diesel fuel at the
wholesale stage, since that is when the two are blended together and
represents the approximate costs to society absent transfer payments
and any additional infrastructure costs. On this basis, EPA estimates
the costs of producing and transporting a gallon of biodiesel to the
blender in the U.S.
To estimate the illustrative costs of sugarcane ethanol, we compare
the cost of sugarcane ethanol and gasoline at the wholesale stage,
since that is when the two are blended together and represents the
approximate costs to society absent transfer payments and any
additional infrastructure costs (e.g., blender pumps). On this basis,
EPA estimates the costs of producing and transporting a gallon of
sugarcane ethanol to the blender in the U.S. More background
information on the cost assessment described in this Section, including
details of the data sources used and assumptions made for each of the
scenarios, can be found in a Memorandum available in the docket.\118\
Table VI.B.2-1 below also presents estimates of per energy-
equivalent gallon costs for producing: (1) Soybean biodiesel (in
ethanol-equivalent gallons) and (2) Brazilian sugarcane ethanol,
relative to the petroleum fuels they replace at the wholesale level.
For each of the fuels, these per-gallon costs are then multiplied by
the increase in the 2019 non-cellulosic advanced volume relative to the
2018 final advanced standard volume to obtain an overall cost increase
of $380-$710 million. In addition, in Table V.B.2-1, we also present
estimates of the total cost of this proposal relative to 2018 RFS fuel
volumes. We add the increase in cost of the proposed 2019 cellulosic
standard volume, $2.3-$32 million, with the additional costs of the
increase in non-cellulosic advanced biofuel volumes resulting from the
proposed 2019 advanced standard volume, $380-$710 million. The overall
total costs of this proposal range from $380-$740 million.
Table V.B.2-1--Illustrative Costs of Exercising the Cellulosic Waiver
Authority Compared to the 2018 RFS Volumes Baseline
------------------------------------------------------------------------
------------------------------------------------------------------------
Cellulosic Volume
------------------------------------------------------------------------
Corn Kernel Fiber Cellulosic Ethanol Costs:
Cost Difference Between Cellulosic Corn Kernel Fiber $0.49-$2.65
Ethanol and Gasoline Per Gallon ($/Ethanol-
Equivalent Gallons)................................
Annual Increase in Overall Costs (Million $)........ 4.9-26
CNG/LNG Derived from Biogas Costs:
Cost Difference Between CNG/LNG Derived from (0.03)-0.08
Landfill Biogas and Natural Gas Per Gallon (/
Ethanol-Equivalent Gallons)........................
Annual Increase in Overall Costs (Million $)........ (2.6)-6.4
Annual Increase in Costs with Cellulosic Volume......... 2.3-32
(Million $).............................................
------------------------------------------------------------------------
Advanced Volume
------------------------------------------------------------------------
Soybean Biodiesel Scenario:
Cost Difference Between Soybean Biodiesel and 1.04-1.43
Petroleum Diesel Per Gallon (/Ethanol-Equivalent
Gallons)...........................................
Annual Increase in Overall Costs (Million $)........ 520-710
Brazilian Sugarcane Ethanol Scenario:
Cost Difference Between Sugarcane Ethanol and 0.76-1.22
Gasoline Per Gallon (/Ethanol-Equivalent Gallons)..
Annual Increase in Overall Costs (Million $)........ 380-610
[[Page 32051]]
Annual Increase in Overall Costs with Non-Cellulosic 380-710
Advanced Volume (Million $)............................
------------------------------------------------------------------------
Cellulosic and Advanced Volumes
------------------------------------------------------------------------
Annual Increase in Overall Costs with Cellulosic and 380-740
Advanced Volume........................................
(Million $).............................................
------------------------------------------------------------------------
The annual volume-setting process encourages consideration of the
RFS program on a piecemeal (i.e., year-to-year) basis, which may not
reflect the full, long-term costs and benefits of the program. For the
purposes of this proposed rule, other than the estimates of costs of
producing a ``representative'' renewable fuel compared to cost of
petroleum fuel, EPA did not quantitatively assess other direct and
indirect costs or benefits of changes in renewable fuel volumes. These
direct and indirect costs and benefits may include infrastructure
costs, investment, lifecycle GHG emissions and air quality impacts, and
energy security benefits, which all are to some degree affected by the
annual volumes. For example, we do not have a quantified estimate of
the lifecycle GHG or energy security benefits for a single year (e.g.,
2019). Also, there are impacts that are difficult to quantify, such as
rural economic development and employment changes from more diversified
fuel sources, that are not quantified in this rulemaking. While some of
these impacts were analyzed in the 2010 final rulemaking that
established the current RFS program,\119\ we have not analyzed these
impacts for the 2019 volume requirements.
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\119\ RFS2 Regulatory Impact Analysis (RIA). U.S. EPA 2010,
Renewable Fuel Standard Program (RFS2) Regulatory Impact Analysis.
EPA-420-R-10-006. February 2010. Docket EPA-HQ-OAR-2009-0472-11332.
---------------------------------------------------------------------------
VI. Biomass-Based Diesel Volume for 2020
In this section we discuss the proposed BBD applicable volume for
2020. We are proposing this volume in advance of those for other
renewable fuel categories in light of the statutory requirement in CAA
section 211(o)(2)(B)(ii) to establish the applicable volume of BBD for
years after 2012 no later than 14 months before the applicable volume
will apply. We are not at this time proposing the BBD percentage
standards that would apply to obligated parties in 2020 but intend to
do so in late 2019, after receiving EIA's estimate of gasoline and
diesel consumption for 2020. Although the BBD applicable volume sets a
floor for required BBD use, because the BBD volume requirement is
nested within both the advanced biofuel and the total renewable fuel
volume requirements, any BBD produced beyond the mandated 2020 BBD
volume can be used to satisfy both of these other applicable volume
requirements.
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 volumes are
specified in the statute, EPA is required under CAA section
211(o)(2)(B)(ii) to determine the applicable volume of BBD, 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 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 volume requirement for BBD
cannot be less than the applicable volume specified in the statute for
calendar year 2012, which is 1.0 billion gallons.\120\ 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 of BBD in years after those for which the
statute specifies such 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, beyond the
1.0 billion gallon minimum, on the level at which BBD volumes should be
set.
---------------------------------------------------------------------------
\120\ See CAA section 211(o)(2)(B)(v).
---------------------------------------------------------------------------
In establishing the BBD and cellulosic standards as nested within
the advanced biofuel standard, Congress clearly intended to support
development of BBD and especially cellulosic biofuels, while also
providing an incentive for the growth of other non-specified types of
advanced biofuels. In general, the advanced biofuel standard provides
an opportunity for other advanced biofuels (advanced biofuels that do
not qualify as cellulosic biofuel or BBD) to compete with cellulosic
biofuel and BBD to satisfy the advanced biofuel standard after the
cellulosic biofuel and BBD standards have been met.
B. Determination of the 2020 Applicable Volume of Biomass-Based Diesel
One of the primary considerations in determining the BBD volume for
2020 is a review of the implementation of the program to date, as it
affects BBD. This review is required by the CAA, and also provides
insight into the capabilities of the industry to produce, import,
export, and distribute BBD. It also helps us to understand what
factors, beyond the BBD standard, may incentivize the production and
import of BBD. Table VI.B.1-1 below shows, for 2011-2017, the number of
BBD RINs generated, the number of RINs retired due to export, the
number of RINs retired for reasons other than compliance with the
annual BBD standards, the consequent number of available BBD RINs, and
the BBD and
[[Page 32052]]
advanced biofuel standards for 2011-2019.
Table VI.B.1-1--Biomass-Based Diesel (D4) RIN Generation and Advanced Biofuel and
Biomass-Based Diesel Standards in 2011-2019
[Million RINs or gallons] \121\
--------------------------------------------------------------------------------------------------------------------------------------------------------
BBD RINs Advanced
BBD RINs Exported BBD retired, non- Available BBD BBD standard BBD standard biofuel
generated (RINs) compliance RINs \a\ (gallons) (RINs) standard
reasons (RINs)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011.................................... 1,692 72 98 1,522 800 1,200 1,350
2012.................................... 1,737 102 90 1,545 1,000 1,500 2,000
2013.................................... 2,739 124 101 2,514 1,280 1,920 2,750
2014.................................... 2,710 134 92 2,484 1,630 \b\ 2,490 2,670
2015.................................... 2,796 145 32 2,619 1,730 \b\ 2,655 2,880
2016.................................... 4,008 203 96 3,709 1,900 2,850 3,610
2017.................................... 3,849 244 35 3,570 2,000 3,000 4,280
2018.................................... N/A N/A N/A N/A 2,100 3,150 4,290
2019.................................... N/A N/A N/A N/A 2,100 3,150 4,880
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Available BBD RINs may not be exactly equal to BBD RINs Generated minus Exported RINs and BBD RINs Retired, Non-Compliance Reasons, due to rounding.
\b\ Each gallon of biodiesel qualifies for 1.5 RINs due to its higher energy content per gallon than ethanol. Renewable diesel qualifies for between 1.5
and 1.7 RINs per gallon, but generally has an equivalence value of 1.7. While some fuels that qualify as BBD generate more than 1.5 RINs per gallon,
EPA multiplies the required volume of BBD by 1.5 in calculating the percent standard per 80.1405(c). In 2014 and 2015 however, the number of RINs in
the BBD Standard column is not exactly equal to 1.5 times the BBD volume standard as these standards were established based on actual RIN generation
data for 2014 and a combination of actual data and a projection of RIN generation for the last three months of the year for 2015, rather than by
multiplying the required volume of BBD by 1.5. Some of the volume used to meet the BBD standard in these years was renewable diesel, with an
equivalence value higher than 1.5.
In reviewing historical BBD RIN generation and use, we see that the
number of RINs available for compliance purposes exceeded the volume
required to meet the BBD standard in 2011, 2012, 2013, 2016 and 2017.
Additional production and use of biodiesel was likely driven by a
number of factors, including demand to satisfy the advanced biofuel and
total renewable fuels standards, the biodiesel tax credit,\122\ and
favorable blending economics. The number of RINs available in 2014 and
2015 was approximately equal to the number required for compliance in
those years, as the standards for these years were finalized at the end
of November 2015 and EPA's intent at that time was to set the standards
for 2014 and 2015 to reflect actual BBD use.\123\ In 2016, with RFS
standards established prior to the beginning of the year and the
blenders tax credit in place, available BBD RINs exceeded the volume
required by the BBD standard by 859 million RINs (30 percent). In 2017,
the RFS standards were established prior to the beginning of the year,
and the blenders tax credit was only applied retroactively; even
without the certainty of a tax credit, the available BBD RINs exceeded
the volume required by the BBD standard by 570 million RINs (19
percent). This indicates that in appropriate circumstances there is
demand for BBD beyond the required volume of BBD. We also note that
while EPA has consistently established the required volume in such a
way as to allow non-BBD fuels to compete for market share in the
advanced biofuel category, since 2016 the vast majority of non-
cellulosic advanced biofuel used to satisfy the advanced biofuel
obligations has been BBD.
---------------------------------------------------------------------------
\121\ Available BBD RINs Generated, Exported BBD RINs, and BBD
RINs Retired for Non-Compliance Reasons information from EMTS.
\122\ 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 and applied retroactively
to all of 2014 as well as to the remaining weeks of 2014. In
December 2015 the biodiesel tax credit was authorized and applied
retroactively for all of 2015 as well as through the end of 2016. In
February 2018 the biodiesel tax credit was authorized and applied
retroactively for all of 2017.
\123\ See 80 FR 77490-92, 77495 (December 14, 2015).
---------------------------------------------------------------------------
The prices paid for advanced biofuel and BBD RINs beginning in
early 2013 through the March 2018 also support the conclusion that
advanced biofuel and/or total renewable fuel standards provide a
sufficient incentive for additional biodiesel volume beyond what is
required by the BBD standard. Because the BBD standard is nested within
the advanced biofuel and total renewable fuel standards, and therefore
can help to satisfy three RVOs, we would expect the price of BBD RINs
to exceed that of advanced and conventional renewable RINs.\124\ If,
however, BBD RINs are being used (or are expected to be used) by
obligated parties to satisfy their advanced biofuel obligations, above
and beyond the BBD standard, we would expect the prices of advanced
biofuel and BBD RINs to converge.\125\ Further, if BBD RINs are being
used (or are expected to be used) to satisfy obligated parties' total
renewable fuel obligation, above and beyond their BBD and advanced
biofuel requirements, we would expect the price for all three RIN types
to converge.
---------------------------------------------------------------------------
\124\ This is because when an obligated party retires a BBD RIN
(D4) to help satisfy their BBD obligation, the nested nature of the
BBD standard means that this RIN also counts towards satisfying
their advanced and total renewable fuel obligations. Advanced RINs
(D5) count towards both the advanced and total renewable fuel
obligations, while conventional RINs (D6) count towards only the
total renewable fuel obligation.
\125\ We would still expect D4 RINs to be valued at a slight
premium to D5 and D6 RINs in this case (and D5 RINs at a slight
premium to D6 RINs) to reflect the greater flexibility of the D4
RINs to be used towards the BBD, advanced biofuel, and total
renewable fuel standard. This pricing has been observed over the
past several years.
---------------------------------------------------------------------------
When examining RIN price data from 2012 through March 2018, shown
in Figure VI.B.2-1 below, we see that beginning in early 2013 and
through March 2018 (the last month for which data are available) the
advanced RIN price and BBD RIN prices were approximately equal.
Similarly, from early 2013 through late 2016 the conventional renewable
fuel and BBD RIN prices were approximately equal. This suggests that
the advanced biofuel standard and/or total renewable fuel standard are
capable of incentivizing increased BBD volumes beyond the BBD
[[Page 32053]]
standard. The advanced biofuel standard has incentivized additional
volumes of BBD since 2013, while the total standard had incentivized
additional volumes of BBD from 2013 through 2016.\126\ While final
standards were not in place throughout 2014 and most of 2015, EPA had
issued proposed rules for both of these years.\127\ In each year, the
market response was to supply volumes of BBD that exceeded the proposed
BBD standard in order to help satisfy the proposed advanced and total
biofuel standards.\128\ Additionally, the RIN prices in these years
strongly suggests that obligated parties and other market participants
anticipated the need for BBD RINs to meet their advanced and total
biofuel obligations, and responded by purchasing advanced biofuel and
BBD RINs at approximately equal prices. We do note, however, that in
2012 the BBD RIN price was significantly higher than both the advanced
biofuel and conventional renewable fuel RIN prices. In 2012 the E10
blendwall had not yet been reached, and it was likely more cost
effective for most obligated parties to satisfy the portion of the
advanced biofuel requirement that exceeded the BBD and cellulosic
biofuel requirements with advanced ethanol.
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\126\ Although we did not issue a rule establishing the final
2013 standards until August of 2013, we believe that the market
anticipated the final standards, based on EPA's July 2011 proposal
and the volume targets for advanced and total renewable fuel
established in the statute. (76 FR 38844, 38843.)
\127\ See 80 FR 33100 (2014-16 standards proposed June 10,
2015); 78 FR 71732 (2014 standards proposed Nov. 29, 2013).
\128\ EPA proposed a BBD standard of 1.28 billion gallons (1.92
billion RINs) for 2014 in our November 2013 proposed rule. The
number of BBD RINs available in 2014 was 2.67 billion. EPA proposed
a BBD standard of 1.70 billion gallons (2.55 billion RINs) for 2015
in our June 2015 proposed rule. The number of BBD RINs available in
2015 was 2.92 billion.
[GRAPHIC] [TIFF OMITTED] TP10JY18.004
In raising the 2013 BBD volume above the 1 billion gallon minimum
mandated by Congress, the EPA sought to ``create greater certainty for
both producers of BBD and obligated parties'' while also acknowledging
that, ``the potential for somewhat increased costs is appropriate in
light of the additional certainty of GHG reductions and enhanced energy
security provided by the advanced biofuel volume requirement of 2.75
billion gallons.'' \129\ Unknown at that time was the degree to which
the required volumes of advanced biofuel and total renewable fuel could
incentivize volumes of BBD that exceeded the BBD standard. In 2012 the
available supply of BBD RINs exceeded the required volume of BBD by a
very small margin (1,545 million BBD RINs were made available for
compliance towards meeting the BBD requirement of 1,500 million BBD
RINs). The remainder of the 2.0 billion-gallon advanced biofuel
requirement was satisfied with advanced ethanol, which was largely
imported from Brazil.\130\ From 2012 to 2013 the statutory advanced
biofuel requirement increased by 750 million gallons. If EPA had not
increased the required volume of BBD for 2013, and the advanced biofuel
standard had proved insufficient to increase the supply of BBD beyond
the statutory minimum of 1.0 billion gallons, an additional 750 million
gallons of non-BBD advanced biofuels beyond the BBD standard would have
been needed to meet the advanced biofuel volume requirement.
---------------------------------------------------------------------------
\129\ 77 FR 59458, 59462.
\130\ 594 million advanced ethanol RINs were generated in 2012.
---------------------------------------------------------------------------
The only advanced biofuel other than BBD available in appreciable
quantities in 2012 and 2013 was advanced ethanol, the vast majority of
which was imported sugarcane ethanol. EPA had significant concerns as
to whether or not the supply of advanced ethanol could increase this
significantly (750 million gallons) in a single year. These concerns
were heightened by the approaching E10 blendwall, which had the
potential to increase the challenges associated with supplying
increasing volumes of ethanol to the U.S. If neither BBD volumes nor
advanced ethanol volumes increased sufficiently, EPA was concerned that
some obligated parties
[[Page 32054]]
might be unable to acquire the advanced biofuel RINs necessary to
demonstrate compliance with their RVOs in 2013. Therefore, as discussed
above, EPA increased the volume requirement for BBD in 2013 to help
create greater certainty for BBD producers (by ensuring demand for
their product above the 1.0 billion gallon statutory minimum) and
obligated parties (by ensuring that sufficient RINs would be available
to satisfy their advanced biofuel RVOs). Since 2013, however, EPA has
gained significant experience implementing the RFS program. As
discussed above, RIN generation data has consistently demonstrated that
the advanced biofuel volume requirement, and to a lesser degree the
total renewable fuel volume requirement, are capable of incentivizing
the supply of BBD above and beyond the BBD volume requirement. The RIN
generation data also show that while EPA has consistently preserved the
opportunity for fuels other that BBD to contribute towards satisfying
the required volume of advanced biofuel, these other advanced biofuels
have not been supplied in significant quantities since 2013.
Table VI.B.1-2--Opportunity for and RIN Generation of ``Other'' Advanced Biofuels
[Million RINs]
----------------------------------------------------------------------------------------------------------------
Available BBD
Opportunity (D4) RINs in
for ``other'' Available excess of the
advanced advanced (D5) BBD
biofuels a RINs requirement b
----------------------------------------------------------------------------------------------------------------
2011............................................................ 150 225 322
2012............................................................ 500 597 45
2013............................................................ 829 552 594
2014 c.......................................................... 192 143 39
2015 c.......................................................... 162 147 24
2016............................................................ 530 97 903
2017............................................................ 969 144 570
----------------------------------------------------------------------------------------------------------------
a The required volume of ``other'' advanced biofuel is calculated by subtracting the number of cellulosic
biofuel and BBD RINs required each year from the number of advanced biofuel RINs required. This portion of the
advanced standard can be satisfied by advanced (D5) RINs, BBD RINs in excess of those required by the BBD
standard, or cellulosic RINs in excess of those required by the cellulosic standard.
b The available BBD (D4) RINs in excess of the BBD requirement is calculated by subtracting the number of BBD
RINs required each year from the number of BBD RINs available for compliance in that year. This number does
not include carryover RINs.
c The 2014 and 2015 volume requirements were established in November 2015 and were set equal to the number of
RINs projected to be available for each year.
In 2014 and 2015, EPA set the BBD and advanced standards at actual
RIN generation, and thus the space between the advanced biofuel
standard and the biodiesel standard was unlikely to provide an
incentive for ``other'' advanced biofuels. EPA now has data on the
amount of ``other'' advanced biofuels produced in 2016 and 2017 as
shown in the table above. For 2016 and 2017, the gap between the BBD
standard and the advanced biofuel provided an opportunity for ``other''
advanced biofuels to be generated to satisfy the advanced biofuel
standard. While EPA allowed for up to 530 million and 969 million
gallons of ``other'' advanced for 2016 and 2017 respectively, only 97
million and 144 million gallons of ``other'' advanced biofuels were
generated. This is significantly less than the volumes of ``other''
advanced available in 2012-2013. Despite creating space within the
advanced biofuel standard for ``other'' advanced, in recent years, that
space has not been filled with significant volumes of ``other''
advanced and BBD continues to fill most of the gap between the BBD
standard and the advanced standard.
Thus, while the advanced biofuel standard is sufficient to drive
biodiesel volume separate and apart from the BBD standard, there would
not appear to be a compelling reason to increase the ``space''
maintained for ``other'' advanced biofuel volumes. The overall volume
of non-cellulosic advanced biofuel volume is proposed to increase by
500 million gallons for 2019. Increasing the BBD volume by the same
amount would preserve the space already available for other advanced
biofuels to compete.
At the same time, the rationale for preserving the ``space'' for
``other'' advanced biofuels remains. We note that the BBD industry in
the U.S. and abroad has matured since EPA first increased the required
volume of BBD beyond the statutory minimum in 2013. To assess the
maturity of the biodiesel industry, EPA compared information on BBD RIN
generation by company in 2012 and 2017 (the most recent year for which
complete RIN generation by company is available). In 2012, the annual
average RIN generation per company producing BBD was about 11 million
RINs (about 7.3 million gallons) with approximately 50 percent of
companies producing less the 1 million gallons of BBD a year.\131\ The
agency heard from multiple commenters during the 2012 and 2013
rulemakings that higher volume requirements for BBD would provide
greater certainty for the emerging BBD industry and encourage further
investment. Since that time, the BBD industry has matured in a number
of critical areas, including growth in the size of companies, the
consolidation of the industry, and more stable funding and access to
capital. In 2012, the BBD industry was characterized by smaller
companies with dispersed market share. By 2017, the average BBD RIN
generation per company had climbed to almost 33 million RINs (22
million gallons) annually, a 3-fold increase. Only 33 percent of the
companies produced less than 1 million gallons of BBD in 2017.\132\
---------------------------------------------------------------------------
\131\ ``BBD RIN Generation by Company 2012, 2016, and 2017
CBI,'' available in EPA docket EPA-HQ-OAR-2017-0167.
\132\ Id.
---------------------------------------------------------------------------
We are conscious of public comments claiming that BBD volume
requirements that are a significant portion of the advanced volume
requirements effectively disincentivize the future development of other
promising advanced biofuel pathways.\133\ A variety of different types
of advanced biofuels, rather than a single type such as BBD, would
increase energy security (e.g., by increasing the diversity of
feedstock sources used to make biofuels, thereby
[[Page 32055]]
reducing the impacts associated with a shortfall in a particular type
of feedstock) and increase the likelihood of the development of lower
cost advanced biofuels that meet the same GHG reduction threshold as
BBD.\134\
---------------------------------------------------------------------------
\133\ See, e.g. Comments from National Biodiesel Board on the
2018 Annual Standards, available in EPA docket EPA-HQ-OAR-2017-0167.
\134\ All types of advanced biofuel, including BBD, must achieve
lifecycle GHG reductions of at least 50 percent. See CAA section
211(o)(1)(B)(i), (D).
---------------------------------------------------------------------------
With the considerations discussed above in mind, as well as our
analysis of the factors specified in the statute, we are proposing to
set the applicable volume of BBD at 2.43 billion gallons for 2020. This
increase, in conjunction with the statutory increase of 500 million
gallons of non-cellulosic advanced biofuel in 2019, would continue to
preserve a gap between the advanced biofuel volume and the sum of the
cellulosic biofuel and BBD volumes. This would allow other advanced
biofuels to continue to compete with excess volumes of BBD for market
share under the advanced biofuel standard. We believe this volume sets
the appropriate floor for BBD, and that the volume of advanced
biodiesel and renewable diesel actually used in 2020 will be driven by
the level of the advanced biofuel and total renewable fuel standards
that the Agency will establish for 2020. It also recognizes that while
maintaining an opportunity for other advanced biofuels is important,
the vast majority of the advanced biofuel used to comply with the
advanced biofuel standard in recent years has been BBD. Based on
information now available from 2016 and 2017, despite providing a
significant degree of space for ``other'' advanced biofuels, smaller
volumes of ``other'' advanced have been utilized to meet the advanced
standard. EPA believes that the BBD standard we are proposing to set
today still provides sufficient incentive to producers of ``other''
advanced biofuels, while also acknowledging that the advanced standard
has been met predominantly with biomass-based diesel. Our assessment of
the required statutory factors, summarized in the next section and
detailed in a memorandum to the docket (the ``2020 BBD docket
memorandum''), supports our proposal.\135\ We request comment on the
biomass-based diesel volume requirement for 2020.
---------------------------------------------------------------------------
\135\ ``Memorandum to docket: Draft Statutory Factors Assessment
for the 2020 Biomass-Based Diesel (BBD) Applicable Volumes.'' See
Docket EPA-HQ-OAR-2018-0167.
---------------------------------------------------------------------------
We believe this approach strikes the appropriate balance between
providing a market environment where the development of other advanced
biofuels is incentivized, while also maintaining support for the BBD
industry. Based on our review of the data, and the nested nature of the
BBD standard within the advanced standard, we conclude that the
advanced standard continues to drive the ultimate volume of BBD
supplied. However, given that BBD has been the predominant source of
advanced biofuel in recent years and the 500 million gallon increase in
non-cellulosic advanced biofuel we are proposing in this rule, we are
proposing a volume of 2.43 billion gallons of BBD for 2020. Setting the
BBD standard in this manner would preserve a considerable portion of
the advanced biofuel volume that could be satisfied by either
additional gallons of BBD or by other unspecified and potentially less
costly types of qualifying advanced biofuels.
C. Consideration of Statutory Factors Set Forth in CAA Section
211(o)(2)(B)(ii)(I)-(VI) for 2020
The BBD volume requirement is nested within the advanced biofuel
requirement, and the advanced biofuel requirement is, in turn, nested
within the total renewable fuel volume requirement.\136\ This means
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 we must consider the
potential impacts of increasing or decreasing BBD in comparison to
other advanced biofuels.\137\ For a given advanced biofuel standard,
greater or lesser BBD volume requirements do not change the amount of
advanced biofuel used to displace petroleum fuels; rather, increasing
the BBD requirement may result in the displacement of other types of
advanced biofuels that could have been used to meet the advanced
biofuels volume requirement. EPA is proposing to increase the BBD
volume for 2020 to 2.43 billion gallons from 2.1 billion gallons in
2019 based on our review of the statutory factors and the other
considerations noted above and in the 2020 BBD Docket Memorandum. This
increase, in conjunction with the statutory increase of 500 million
gallons of non-cellulosic advanced biofuel in 2019, would preserve a
gap for ``other'' advanced biofuels, that is the difference between the
advanced biofuel volume and the sum of the cellulosic biofuel and BBD
volumes. This would allow other advanced biofuels to continue to
compete with excess volumes of BBD for market share under the advanced
biofuel standard, while also supporting further growth in the BBD
industry.
---------------------------------------------------------------------------
\136\ See CAA section 211(o)(2)(B)(i)(IV), (II).
\137\ While excess BBD production could also displace
conventional renewable fuel under the total renewable standard, as
long as the BBD applicable volume is lower than the advanced biofuel
applicable volume our action in setting the BBD applicable volume is
not expected to displace conventional renewable fuel under the total
renewable standard, but rather other advanced biofuels. We
acknowledge, however, that under certain market conditions excess
volumes of BBD may also be used to displace conventional biofuels.
---------------------------------------------------------------------------
Consistent with our approach in setting the final BBD volume
requirement for 2019, EPA's primary assessment of the statutory factors
for the 2020 BBD applicable volume is that because the BBD requirement
is nested within the advanced biofuel volume requirement, we expect
that the 2020 advanced volume requirement, when set next year, will
determine the level of BBD production and imports that occur in
2020.\138\ Therefore, EPA continues to believe that approximately the
same overall volume of BBD would likely be supplied in 2020 even if we
were to mandate a somewhat lower or higher BBD volume for 2020 in this
final rule. Thus, we do not expect our 2020 BBD volume requirement to
result in a difference in the factors we consider pursuant to CAA
section 211(o)(2)(B)(ii)(I)-(VI).
---------------------------------------------------------------------------
\138\ Even though we are not proposing to set the 2020 advanced
biofuel volume requirement as part of this rulemaking, we expect
that, as in the past, the 2020 advanced volume requirement will be
higher than the 2020 BBD requirement, and, therefore, that the BBD
volume requirement for 2020 would not be expected to impact the
volume of BBD that is actually produced and imported during the
2020-time period.
---------------------------------------------------------------------------
As an additional supplementary assessment, we have considered the
potential impacts of selecting an applicable volume of BBD other than
2.43 billion gallons in 2020. Even if BBD volumes were to be impacted
by the 2020 BBD standard (which as noted above we do not currently
expect), setting a requirement higher or lower than 2.43 billion
gallons in 2020 would only be expected to affect BBD volumes minimally,
protecting to a greater or lesser degree BBD from competition with
other potential advanced biofuels. In this supplementary assessment we
have considered all of the statutory factors found in CAA section
211(o)(2)(B)(ii), and as described in the 2020 BBD docket memorandum,
our assessment does not, based on available information, lead us to
conclude that a higher or lower volume requirement for BBD than 2.43
billion gallons is more appropriate for 2020.
Overall and as described in the 2020 BBD docket memorandum, we have
determined that both the primary assessment and the supplemental
[[Page 32056]]
assessment of the statutory factors specified in CAA section
211(o)(2)(B)(ii)(I)-(VI) for the year 2020 does not lead us to conclude
that we should set the BBD standard at a level higher or lower than
2.43 billion gallons in 2020.
VII. Percentage Standards for 2019
The renewable fuel standards are expressed as volume percentages
and are used by each obligated party to determine their Renewable
Volume Obligations (RVOs). 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 non-
renewable gasoline and diesel produced or imported. The percentage
standards are set so that if every obligated party meets the
percentages by acquiring and retiring an appropriate number of RINs,
then the amount of renewable fuel, cellulosic biofuel, BBD, and
advanced biofuel used will meet the applicable volume requirements on a
nationwide basis.
Sections II through V provide our rationale and basis for the
proposed volume requirements for 2019.\139\ The volumes used to
determine the proposed percentage standards are shown in Table VII-1.
---------------------------------------------------------------------------
\139\ The 2019 volume requirement for BBD was established in the
2018 final rule.
Table VII-1--Volumes for Use in Determining the Proposed 2019 Applicable
Percentage Standards
------------------------------------------------------------------------
------------------------------------------------------------------------
Cellulosic biofuel............. Million ethanol- 381
equivalent gallons.
Biomass-based diesel........... Billion gallons........ 2.1
Advanced biofuel............... Billion ethanol- 4.88
equivalent gallons.
Renewable fuel................. Billion ethanol- 19.88
equivalent gallons.
------------------------------------------------------------------------
For the purposes of converting these volumes into percentage
standards, we generally use two decimal places to be consistent with
the volume targets as given in the statute, and similarly two decimal
places in the percentage standards. However, for cellulosic biofuel we
use three decimal places in both the volume requirement and percentage
standards to more precisely capture the smaller volume projections and
the unique methodology that in some cases results in estimates of only
a few million gallons for a single producer.
A. Calculation of Percentage Standards
To calculate the percentage standards, we are following the same
methodology for 2019 as we have in all prior years. The formulas used
to calculate the percentage standards applicable to producers and
importers of gasoline and diesel are provided in 40 CFR 80.1405. The
formulas rely on estimates of the volumes of gasoline and diesel fuel,
for both highway and nonroad uses, which are projected to be used in
the year in which the standards will apply. The projected gasoline and
diesel volumes are provided by EIA, and include projections of ethanol
and biodiesel used in transportation fuel. Since the percentage
standards apply only to the non-renewable gasoline and diesel produced
or imported, the volumes of renewable fuel are subtracted out of the
EIA projections of gasoline and diesel.
Transportation fuels other than gasoline or diesel, such as natural
gas, propane, and electricity from fossil fuels, are not currently
subject to the standards, and volumes of such fuels are not used in
calculating the annual percentage 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
percentage standards, as well as to determine the annual volume
obligations of an individual gasoline or diesel producer or importer
under Sec. 80.1407.
As specified in the RFS2 final rule,\140\ 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. The formula specified in the regulations for
calculation of the BBD percentage standard is based on biodiesel-
equivalence, and thus assumes that all BBD used to satisfy the BBD
standard is biodiesel and requires that the applicable volume
requirement be multiplied by 1.5 in order to calculate a percentage
standard that is on the same basis (i.e., ethanol-equivalent) as the
other three standards. However, BBD often contains some renewable
diesel, and a gallon of renewable diesel typically generates 1.7
RINs.\141\ In addition, there is often some renewable diesel in the
conventional renewable fuel pool. As a result, the actual number of
RINs generated by biodiesel and renewable diesel is used in the context
of our assessing volumes for purposes of deriving the applicable volume
requirements and associated percentage standards for advanced biofuel
and total renewable fuel, and likewise in obligated parties'
determination of compliance with any of the applicable standards. While
there is a difference in the treatment of biodiesel and renewable
diesel in the context of determining the percentage standard for BBD
versus determining the percentage standard for advanced biofuel and
total renewable fuel, it is not a significant one given our approach to
determining the BBD volume requirement. Our intent in setting the BBD
applicable volume is to provide a level of guaranteed volume for BBD,
but as described in Section VI.B, we do not expect the BBD standard to
be binding in 2019. That is, we expect that actual supply of BBD, as
well as supply of conventional biodiesel and renewable diesel, will be
driven by the advanced biofuel and total renewable fuel standards.
---------------------------------------------------------------------------
\140\ See 75 FR 14670 (March 26, 2010).
\141\ In some cases a gallon of renewable diesel generates
either 1.5 or 1.6 RINs.
---------------------------------------------------------------------------
B. Small Refineries and Small Refiners
In CAA section 211(o)(9), enacted as part of the Energy Policy Act
of 2005, and amended by the Energy Independence and Security Act of
2007, Congress provided a temporary exemption to small refineries\142\
through December 31, 2010. Congress provided that small refineries
could receive a temporary extension of the exemption beyond 2010 based
either on the results of a required DOE study, or based on an EPA
determination of ``disproportionate economic hardship'' on a case-by-
case basis in response to small refinery petitions. In reviewing
petitions, EPA, in consultation with the Department of Energy,
evaluates whether the small refinery has demonstrated disproportionate
economic hardship,
[[Page 32057]]
and may grant refineries exemptions upon such demonstration.
---------------------------------------------------------------------------
\142\ A small refiner that meets the requirements of 40 CFR
80.1442 may also be eligible for an exemption.
---------------------------------------------------------------------------
EPA has granted exemptions pursuant to this process in the past.
However, at this time no exemptions have been approved for 2019, and
therefore we have calculated the percentage standards for 2019 without
any adjustment for exempted volumes. EPA is maintaining its approach
that any exemptions for 2019 that are granted after the final rule is
released will not be reflected in the percentage standards that apply
to all gasoline and diesel produced or imported in 2019. EPA is not
soliciting comments on how small refinery exemptions are accounted for
in the percentage standards formulas in 40 CFR 80.1405, and any such
comments will be deemed beyond the scope of this rulemaking.
C. Proposed Standards
The formulas in 40 CFR 80.1405 for the calculation of the
percentage standards require the specification of a total of 14
variables covering factors such as the renewable fuel volume
requirements, projected gasoline and diesel demand for all states and
territories where the RFS program applies, renewable fuels projected by
EIA to be included in the gasoline and diesel demand, and exemptions
for small refineries. The values of all the variables used for this
final rule are shown in Table VII.C-1.\143\
---------------------------------------------------------------------------
\143\ To determine the 49-state values for gasoline and diesel,
the amount of these fuels used in Alaska is subtracted from the
totals provided by EIA because petroleum based fuels used in Alaska
do not incur RFS obligations. The Alaska fractions are determined
from the June 30, 2017 EIA State Energy Data System (SEDS), Energy
Consumption Estimates.
Table VII.C-1--Values for Terms in Calculation of the Proposed 2019
Standards 144
[Billion gallons]
------------------------------------------------------------------------
Term Description Value
------------------------------------------------------------------------
RFVCB.......................... Required volume of 0.381
cellulosic biofuel.
RFVBBD......................... Required volume of 2.10
biomass-based diesel.
RFVAB.......................... Required volume of 4.88
advanced biofuel.
RFVRF.......................... Required volume of 19.88
renewable fuel.
G.............................. Projected volume of 143.76
gasoline.
D.............................. Projected volume of 56.46
diesel.
RG............................. Projected volume of 14.74
renewables in gasoline.
RD............................. Projected volume of 2.83
renewables in diesel.
GS............................. Projected volume of 0.00
gasoline for opt-in
areas.
RGS............................ Projected volume of 0.00
renewables in gasoline
for opt-in areas.
DS............................. Projected volume of 0.00
diesel for opt-in
areas.
RDS............................ Projected volume of 0.00
renewables in diesel
for opt-in areas.
GE............................. Projected volume of 0.00
gasoline for exempt
small refineries.
DE............................. Projected volume of 0.00
diesel for exempt
small refineries.
------------------------------------------------------------------------
Projected volumes of gasoline and diesel, and the renewable fuels
contained within them, were derived from the April 2018 version of
EIA's Short-Term Energy Outlook.
---------------------------------------------------------------------------
\144\ See ``Calculation of proposed % standards for 2019'' in
docket EPA-HQ-OAR-2018-0167.
---------------------------------------------------------------------------
Using the volumes shown in Table VII.C-1, we have calculated the
proposed percentage standards for 2019 as shown in Table VII.C-2.
Table VII.C-2--Proposed Percentage Standards for 2019
------------------------------------------------------------------------
------------------------------------------------------------------------
Cellulosic biofuel...................................... 0.209
Biomass-based diesel.................................... 1.72
Advanced biofuel........................................ 2.67
Renewable fuel.......................................... 10.88
------------------------------------------------------------------------
VIII. Public Participation
We request comment on all aspects of this proposal. This section
describes how you can participate in this process.
A. How do I submit comments?
We are opening a formal comment period by publishing this document.
We will accept comments during the period indicated under the DATES
section above. If you have an interest in the proposed standards, we
encourage you to comment on any aspect of this rulemaking. We also
request comment on specific topics identified throughout this proposal.
Your comments will be most useful if you include appropriate and
detailed supporting rationale, data, and analysis. Commenters are
especially encouraged to provide specific suggestions for any changes
that they believe need to be made. You should send all comments, except
those containing proprietary information, to our Docket (see ADDRESSES
section above) by the end of the comment period.
You may submit comments electronically through the electronic
public docket, www.regulations.gov, by mail to the address shown in
ADDRESSES, or through hand delivery/courier. To ensure proper receipt
by EPA, identify the appropriate docket identification number in the
subject line on the first page of your comment. Please ensure that your
comments are submitted within the specified comment period. Comments
received after the close of the comment period will be marked ``late.''
EPA is not required to consider these late comments. If you wish to
submit Confidential Business Information (CBI) or information that is
otherwise protected by statute, please follow the instructions in
Section VIII.B below.
EPA will also hold a public hearing on this proposed rule. We will
announce the public hearing date and location for this proposal in a
supplemental Federal Register document.
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-2018-0167.
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
[[Page 32058]]
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.
IX. 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 illustrative
costs associated with this action. This analysis is presented in
Section V of this preamble.
B. Executive Order 13771: Reducing Regulations and Controlling
Regulatory Costs
This action is expected to be an Executive Order 13771 regulatory
action. Details on the estimated costs of this proposed rule can be
found in EPA's analysis of the illustrative costs associated with this
action. This analysis is presented in Section V of this preamble.
C. 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 will
not impose new or different reporting requirements on regulated parties
than already exist for the RFS program.
D. 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. We have evaluated the
impacts of this proposed rule on small entities from two perspectives:
As if the 2019 standards were a standalone action or if they are a part
of the overall impacts of the RFS program as a whole.
When evaluating the standards as if they were a standalone action
separate and apart from the original rulemaking which established the
RFS2 program, then the standards could be viewed as increasing the
cellulosic biofuel volume by 93 million gallons and the advanced and
total renewable fuel volumes required of obligated parties by 590
million gallons between 2018 and 2019. To evaluate the impacts of the
volume requirements on small entities relative to 2018, EPA has
conducted a screening analysis \145\ to assess whether it should make a
finding that this action would not have a significant economic impact
on a substantial number of small entities. Currently available
information shows that the impact on small entities from implementation
of this rule would not be significant. EPA has reviewed and assessed
the available information, which shows that obligated parties,
including small entities, are generally able to recover the cost of
acquiring the RINs necessary for compliance with the RFS standards
through higher sales prices of the petroleum products they sell than
would be expected in the absence of the RFS program.\146\ This is true
whether they acquire RINs by purchasing renewable fuels with attached
RINs or purchase separated RINs. The costs of the RFS program are thus
generally being passed on to consumers in the highly competitive
marketplace. Even if we were to assume that the cost of acquiring RINs
were not recovered by obligated parties, and we used the maximum values
of the illustrative costs discussed in Section V of this preamble and
the gasoline and diesel fuel volume projections and wholesale prices
from the April 2018 version of EIA's Short-Term Energy Outlook, and
current wholesale fuel prices, a cost-to-sales ratio test shows that
the costs to small entities of the RFS standards are far less than 1
percent of the value of their sales.
---------------------------------------------------------------------------
\145\ ``Screening Analysis for the Proposed Renewable Fuel
Standards for 2019,'' memorandum from Dallas Burkholder, Nick
Parsons, and Tia Sutton to EPA Air Docket EPA-HQ-OAR-2018-0167.
\146\ For a further discussion of the ability of obligated
parties to recover the cost of RINs see ``Denial of Petitions for
Rulemaking to Change the RFS Point of Obligation,'' EPA-420-R-17-
008, November 2017.
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While the screening analysis described above supports a
certification that this rule would not have a significant economic
impact on small refiners, we continue to believe that it is more
appropriate to consider the standards as a part of ongoing
implementation of the overall RFS program. When considered this way,
the impacts of the RFS program as a whole on small entities were
addressed in the RFS2 final rule (75 FR 14670, March 26, 2010), which
was the rule that implemented the entire program as required by 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 RFS2 final rule, 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. For gasoline and/or diesel
small refiners subject to the standards, the analysis included a cost-
to-sales ratio test, a ratio of the estimated annualized compliance
costs to the value of sales per company. From this test, it was
estimated that all directly regulated small entities would have
compliance costs that are less than one percent of their sales over the
life of the program (75 FR 14862, March 26, 2010).
We have determined that this proposed rule would not impose any
additional requirements on small entities beyond those already
analyzed, since the impacts of this rule are not
[[Page 32059]]
greater or fundamentally different than those already considered in the
analysis for the RFS2 final rule assuming full implementation of the
RFS program. This rule proposes to increase the 2019 cellulosic biofuel
volume requirement by 93 million gallons and the advanced and total
renewable fuel volume requirements by 590 million gallons relative to
the 2018 volume requirements, but those volumes remain significantly
below the statutory volume targets analyzed in the RFS2 final rule.
This exercise of EPA's waiver authority 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--which
are the volumes that we assessed in the screening analysis that we
prepared for implementation of the full program. Regarding the BBD
standard, we are proposing to increase the volume requirement for 2020
by 330 million gallons relative to the 2019 volume requirement we
finalized in the 2018 final rule. While this volume is an increase over
the statutory minimum value of 1 billion gallons, the BBD standard is a
nested standard within the advanced biofuel category, which we are
significantly reducing from the statutory volume targets. As discussed
in Section VI, we are proposing to set the 2020 BBD 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 the
standards being proposed in this action is a reduction in burden as
compared to implementation of the statutory volume targets as was
assumed in the RFS2 final rule analysis.
While the rule will not have a significant economic impact on a
substantial number of small entities, there are compliance
flexibilities in the program that can help to reduce impacts on small
entities. These flexibilities include being able to comply through RIN
trading rather than renewable fuel blending, 20 percent RIN rollover
allowance (up to 20 percent of an obligated party's RVO can be met
using previous-year RINs), and deficit carry-forward (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 RFS2 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, in part because we had serious
concerns regarding our authority to do so.
Additionally, we realize that there may be cases in which a small
entity may be in a difficult financial situation and the level of
assistance afforded by the program flexibilities is insufficient. For
such circumstances, the program provides hardship relief provisions for
small entities (small refiners), as well as for small refineries.\147\
As required by the statute, the RFS regulations include a hardship
relief provision (at 40 CFR 80.1441(e)(2)) that allows for a small
refinery to petition for an extension of its small refinery exemption
at any time based on a showing that the refinery is experiencing a
``disproportionate economic hardship.'' EPA regulations provide similar
relief to small refiners that are not eligible for small refinery
relief (see 40 CFR 80.1442(h)). EPA has currently identified a total of
10 small refiners that own 12 refineries subject to the RFS program,
all of which have been identified as being small refineries.
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\147\ See CAA section 211(o)(9)(B).
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EPA evaluates these petitions on a case-by-case basis and may
approve such petitions if it finds that a disproportionate economic
hardship exists. In evaluating such petitions, EPA consults with the
U.S. Department of Energy, and takes the findings of DOE's 2011 Small
Refinery Study and other economic factors into consideration. EPA
successfully implemented these provisions by evaluating petitions for
exemption from 20 small refineries for the 2016 RFS standards (3 of
which were owned by a small refiner) and 29 small refineries for the
2017 RFS standards (8 of which were owned by a small refiner).\148\
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\148\ EPA is currently evaluating 4 additional 2017 petitions,
bringing the total number of petitions for 2017 to 33.
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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, would not
change the compliance flexibilities currently offered to small entities
under the RFS program (including the small refinery hardship provisions
we continue to implement), and available information shows that the
impact on small entities from implementation of this rule would not be
significant viewed either from the perspective of it being a standalone
action or a part of the overall RFS program, we have therefore
concluded that this action would have no net regulatory burden for
directly regulated small entities.
E. Unfunded Mandates Reform Act (UMRA)
This action does not contain an unfunded mandate of $100 million or
more as described in UMRA, 2 U.S.C. 1531-1538, and does not
significantly or uniquely affect small governments. This action
implements mandates specifically and explicitly set forth in CAA
section 211(o) and we believe that this action represents the least
costly, most cost-effective approach to achieve the statutory
requirements.
F. 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.
G. 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.
H. 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)) and does not
concern an environmental health risk or safety risk.
I. 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 proposes the required
renewable fuel content of the transportation fuel supply for 2019,
consistent with the CAA and waiver authorities provided therein. The
RFS program and this rule are designed to
[[Page 32060]]
achieve positive effects on the nation's transportation fuel supply, by
increasing energy independence and security and lowering lifecycle GHG
emissions of transportation fuel.
J. National Technology Transfer and Advancement Act (NTTAA)
This rulemaking does not involve technical standards.
K. Executive Order 12898: Federal Actions To Address Environmental
Justice in Minority Populations and Low-Income Populations
The EPA believes that this action does not have disproportionately
high and adverse human health or environmental effects on minority
populations, low income populations, and/or indigenous peoples, as
specified in Executive Order 12898 (59 FR 7629, February 16, 1994).
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.
X. 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 comes 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, Administrative practice and procedure,
Air pollution control, Diesel fuel, Fuel additives, Gasoline, Imports,
Oil imports, Petroleum, Renewable fuel.
Dated: June 26, 2018.
E. Scott Pruitt,
Administrator.
For the reasons set forth in the preamble, EPA proposes 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 80.1405 is amended by adding new paragraph (a)(10) to read
as follows:
Sec. 80.1405 What are the Renewable Fuel Standards?
(a) * * *
(10) Renewable Fuel Standards for 2019.
(i) The value of the cellulosic biofuel standard for 2019 shall be
0.209 percent.
(ii) The value of the biomass-based diesel standard for 2019 shall
be 1.72 percent.
(iii) The value of the advanced biofuel standard for 2019 shall be
2.67 percent.
(iv) The value of the renewable fuel standard for 2019 shall be
10.88 percent.
* * * * *
[FR Doc. 2018-14448 Filed 7-9-18; 8:45 am]
BILLING CODE 6560-50-P