[Federal Register Volume 83, Number 237 (Tuesday, December 11, 2018)]
[Rules and Regulations]
[Pages 63704-63744]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-26566]
[[Page 63703]]
Vol. 83
Tuesday,
No. 237
December 11, 2018
Part II
Environmental Protection Agency
-----------------------------------------------------------------------
40 CFR Part 80
Renewable Fuel Standard Program: Standards for 2019 and Biomass-Based
Diesel Volume for 2020; Final Rule
Federal Register / Vol. 83 , No. 237 / Tuesday, December 11, 2018 /
Rules and Regulations
[[Page 63704]]
-----------------------------------------------------------------------
ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 80
[EPA-HQ-OAR-2018-0167; FRL-9987-66-OAR]
RIN 2060-AT93
Renewable Fuel Standard Program: Standards for 2019 and Biomass-
Based Diesel Volume for 2020
AGENCY: Environmental Protection Agency (EPA).
ACTION: Final rule.
-----------------------------------------------------------------------
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 establishes 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 establishing volume requirements for
cellulosic biofuel, advanced biofuel, and total renewable fuel that are
below the statutory volume targets. We are also establishing the
applicable volume of biomass-based diesel for 2020.
DATES: This final rule is effective on February 11, 2019.
ADDRESSES: The EPA has established a docket for this action under
Docket ID No. EPA-HQ-OAR-2018-0167. All documents in the docket are
listed on the https://www.regulations.gov website. Although listed in
the index, some information is not publicly available, e.g., CBI or
other information whose disclosure is restricted by statute. Certain
other material is not available on the internet and will be publicly
available only in hard copy form. Publicly available docket materials
are available electronically through http://www.regulations.gov.
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 final
rule are those involved with the production, distribution, and sale of
transportation fuels, including gasoline and diesel fuel or renewable
fuels such as ethanol, biodiesel, renewable diesel, and biogas.
Potentially affected categories include:
--------------------------------------------------------------------------------------------------------------------------------------------------------
NAICS \1\
Category codes SIC \2\ codes Examples of potentially affected entities
--------------------------------------------------------------------------------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------------------------------------------------------------------------------
\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
action. This table lists the types of entities that EPA is now aware
could potentially be affected by this action. Other types of entities
not listed in the table could also be affected. To determine whether
your entity would be affected by this action, you should carefully
examine the applicability criteria in 40 CFR part 80. If you have any
questions regarding the applicability of this action to a particular
entity, consult the person listed in the FOR FURTHER INFORMATION
CONTACT section.
Outline of This Preamble
I. Executive Summary
A. 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
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 Decision Regarding the Treatment of Carryover RINs
III. Cellulosic Biofuel Volume for 2019
A. Statutory Requirements
B. Cellulosic Biofuel Industry Assessment
1. Review of EPA's Projection of Cellulosic Biofuel in Previous
Years
2. Potential Domestic Producers
3. Potential Foreign Sources of Cellulosic Biofuel
4. Summary of Volume Projections for Individual Companies
C. Projection From the Energy Information Administration
D. 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. Volume Requirement for Advanced Biofuel
D. Volume Requirement for Total Renewable Fuel
V. Impacts of 2019 Volumes on Costs
A. Illustrative Costs Analysis of Exercising the Cellulosic
Waiver Authority Compared to the 2019 Statutory Volumes Baseline
B. Illustrative Costs of the 2019 Volumes Compared to the 2018
RFS Volumes Baseline
VI. Biomass-Based Diesel Volume for 2020
A. Statutory Requirements
B. Review of Implementation of the Program and 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 and Determination of the 2020
Biomass-Based Diesel Volume
VII. Percentage Standards for 2019
A. Calculation of Percentage Standards
B. Small Refineries and Small Refiners
C. Final Standards
VIII. Administrative Actions
A. Assessment of the Domestic Aggregate Compliance Approach
B. Assessment of the Canadian Aggregate Compliance Approach
IX. Public Participation
X. Statutory and Executive Order Reviews
[[Page 63705]]
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
L. Congressional Review Act (CRA)
XI. 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. 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\
---------------------------------------------------------------------------
\1\ 75 FR 14670, March 26, 2010.
\2\ Public Law 110-140, 121 Stat. 1492 (2007). Hereinafter,
``EISA.''
---------------------------------------------------------------------------
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 finalizing 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
finalizing 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\
---------------------------------------------------------------------------
\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,
December 12, 2017; Table I.A-2).
---------------------------------------------------------------------------
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 finalizing 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
finalizing 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\
---------------------------------------------------------------------------
\5\ Average biodiesel and/or renewable diesel blend percentages
based on EIA's October 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.
---------------------------------------------------------------------------
The resulting final 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 630 million gallons. Approximately 130 million gallons of
this increase would be due to the increase in the projected production
of cellulosic biofuel in 2019 relative to 2018. The cellulosic biofuel
volume is 37 million gallons greater than the proposed cellulosic
biofuel volume for 2019. The advanced biofuel and total renewable fuel
volumes are each 40 million gallons higher than the proposed volumes,
as a result of an increased projection of cellulosic biofuel production
in 2019 (see Section III for a further discussion of our cellulosic
biofuel projection). We are also establishing 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--Final Volume Requirements a
----------------------------------------------------------------------------------------------------------------
2019
2018 \b\ Statutory 2019 Proposed 2019 Final 2020 Final
volumes volumes volumes volumes
----------------------------------------------------------------------------------------------------------------
Cellulosic biofuel (million 288 8,500 381 418 n/a
gallons).......................
Biomass-based diesel (billion 2.1 >=1.0 N/A \c\ 2.1 \d\ 2.43
gallons).......................
Advanced biofuel (billion 4.29 13.00 4.88 4.92 n/a
gallons).......................
Renewable fuel (billion gallons) 19.29 28.00 19.88 19.92 n/a
----------------------------------------------------------------------------------------------------------------
\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).
\d\ EPA proposed 2.43 billion gallons of BBD in 2020 in the 2019 NPRM.
A. Summary of Major Provisions in This Action
This section briefly summarizes the major provisions of this final
rule. We are finalizing applicable volume requirements and associated
percentage standards for cellulosic biofuel, advanced biofuel, and
total renewable fuel for 2019; for BBD we are finalizing the percentage
standard for 2019 and the applicable volume requirement for 2020.
[[Page 63706]]
1. Approach to Setting Volume Requirements
For advanced biofuel and total renewable fuel, we are finalizing
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 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
Renewable Identification Numbers (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 describes the 2020 BBD volume requirement,
reflecting our 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 finalizing a cellulosic biofuel volume requirement of 418 million
ethanol-equivalent gallons for 2019 based on our production projection.
Our projection reflects consideration of the Energy Information
Administration's (EIA) projection of cellulosic biofuel production in
2019; RIN generation data for past years and 2018 to date that is
available to EPA through the EPA Moderated Transaction System (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 as in our proposed rule, described further 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
compressed natural gas and liquified natural gas (CNG/LNG) derived from
biogas that is used in the projection for CNG/LNG.
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 reducing the statutory volume target for advanced
biofuel by the same amount as we are reducing the statutory volume
target for cellulosic biofuel. This results in an advanced biofuel
volume requirement for 2019 of 4.92 billion gallons, which is 630
million gallons higher than the advanced biofuel volume requirement for
2018.
4. Total Renewable Fuel
We believe that the cellulosic waiver authority is best interpreted
to require equal reductions in advanced biofuel and total renewable
fuel. Consistent with our proposal, we are reducing total renewable
fuel by the same as the reduction in advanced biofuel, such that the
resulting implied volume requirement for conventional renewable fuel
will be 15 billion gallons, the same as the implied volume requirement
in the statute.
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 during calendar years
specified in the table in CAA 211(o)(B) 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 at 2.1
billion gallons. In this rule we are finalizing an increase to the BBD
volume for 2020 to 2.43 billion gallons.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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, we are establishing, in
coordination with USDA and DOE, an applicable volume of BBD for 2020 of
2.43 billion gallons.\8\
---------------------------------------------------------------------------
\8\ The final 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).
---------------------------------------------------------------------------
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
[[Page 63707]]
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 percentage standards was based on
projections provided by EIA as required under the statute. The final
applicable 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.
Table I.B.6-1--Final 2019 Percentage Standards
------------------------------------------------------------------------
Final
percentage
standards
------------------------------------------------------------------------
Cellulosic biofuel...................................... 0.230
Biomass-based diesel.................................... 1.73
Advanced biofuel........................................ 2.71
Renewable fuel.......................................... 10.97
------------------------------------------------------------------------
B. RIN Market Operations
In the rulemaking notices proposing the 2018 and 2019 RFS volume
requirements, we 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. Since
receiving those comments, we have continued to hold 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 2019 Notice of
Proposed Rulemaking (NPRM) suggested increasing the amount of data
related to the RIN market that EPA makes publicly available. In
response to these comments, we have made additional information
available through our public website.\9\ The website publishes data on
a number of items of interest to stakeholders, including the number of
small refinery exemption petitions received, granted, and denied by
year; the fuel volume exempted by year; weekly volume-weighted average
RIN prices by D-code; \10\ and weekly aggregated RIN transaction
volumes by D-code. We intend to update these data regularly going
forward. We believe this additional information will increase the
transparency of the RIN market, and improve EPA's administration of the
RFS program.
---------------------------------------------------------------------------
\9\ https://www.epa.gov/fuels-registration-reporting-and-compliance-help/public-data-renewable-fuel-standard.
\10\ Each RIN has a ``D-code'' that identifies the category of
fuel (D3 for cellulosic biofuel, D7 for cellulosic diesel, D4 for
biomass-based diesel, D5 for advanced biofuel, or D6 for
conventional biofuel) for which the RIN was generated.
---------------------------------------------------------------------------
We also received a number of comments on the potential impacts of
changing the regulations 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. On October 9, President Trump directed EPA
to undertake a CAA rulemaking that would change certain elements of the
RIN compliance system under the RFS program to improve both RIN market
transparency and overall functioning of the RIN market. EPA is
currently considering a number of regulatory reforms that could be
included in the proposal, such as: Prohibiting entities other than
obligated parties from purchasing separated RINs; requiring public
disclosure when RIN holdings held by an individual actor exceed
specified limits; limiting the length of time a non-obligated party can
hold RINs; and changing the timelines that apply to obligated parties
regarding when RINs must be retired for compliance purposes. We are not
currently considering changing the point of obligation in the RFS
program.\11\ While we have determined that RIN market issues will be
addressed separately and are not being considered as part of the
present rulemaking, EPA will consider comments received on this topic
on the proposed 2019 annual rule as we develop this separate action.
---------------------------------------------------------------------------
\11\ EPA previously considered, and ultimately denied, petitions
for reconsideration of the point of obligation in the RFS program.
See ``Denial of Petitions for Rulemaking to Change the RFS Point of
Obligation'' EPA-420-R-17-008, November 2017.
---------------------------------------------------------------------------
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 finalizing
the 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
establishing 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 renewable fuel.\12\
---------------------------------------------------------------------------
\12\ See supra n. 6.
---------------------------------------------------------------------------
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 requiring a
cellulosic biofuel volume 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
[[Page 63708]]
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 reducing 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.\13\ 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).
---------------------------------------------------------------------------
\13\ See 81 FR 89752-89753 (December 12, 2016).
---------------------------------------------------------------------------
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.\14\ 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.'' \15\ 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.\16\
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.\17\ 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.\18\
---------------------------------------------------------------------------
\14\ See 80 FR 77433-34 (December 14, 2015).
\15\ ACE, 864 F.3d at 730.
\16\ Id. at 733.
\17\ Id.
\18\ Id. at 734.
---------------------------------------------------------------------------
In this action we are using 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 concluding, as described in Section IV, that it is appropriate
for EPA to reduce the advanced biofuel volume under the cellulosic
waiver authority 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. We are
taking this action both because we do not believe that the statutory
volumes can be achieved, and because we do not believe that backfilling
of the shortfall in cellulosic with advanced biofuel would be
appropriate due to high costs, as well as other factors such as
feedstock switching and/or diversion of foreign advanced biofuels. 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 renewable fuel of 15 billion gallons,
and an implied volume allowance for non-cellulosic advanced biofuel of
4.5 billion gallons, equal to the implied statutory volumes for 2019.
We also believe that the volume of renewable fuel made available after
reductions using the cellulosic waiver authority is attainable, as
discussed in Section IV.
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.
EPA received comments suggesting that EPA should use the general
waiver to further reduce volumes under findings of inadequate domestic
supply, and/or severe harm to the economy or environment. Based on our
review of the comments and updated data, and consistent with EPA's
rationale and decisions in setting the 2018 standards, we decline to
exercise our discretion to reduce volumes under the general waiver
authority. Further discussion of these issues is found in the RTC
document and a memorandum to the docket.\19\
---------------------------------------------------------------------------
\19\ See ``Endangered Species Act No Effect Finding and
Determination of Severe Environmental Harm under the General Waiver
Authority for the 2019 Final Rule'' Memorandum from EPA Staff to EPA
Docket EPA-HQ-OAR-2018-0167.
---------------------------------------------------------------------------
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
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.\20\ 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
[[Page 63709]]
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.\21\ 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.\22\ 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 (2.666 billion RINs or approximately 16 percent
of the total renewable fuel volume requirement for 2013), 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.\23\ EPA's
approach to the consideration of carryover RINs in exercising our
cellulosic waiver authority was affirmed in Monroe Energy and ACE.\24\
---------------------------------------------------------------------------
\20\ 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 renewable volume obligation
(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.
\21\ See 80 FR 77482-87 (December 14, 2015), 81 FR 89754-55
(December 12, 2016), and 82 FR 58493-95 (December 12, 2017).
\22\ 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).
\23\ See 78 FR 49794-95 (August 15, 2013).
\24\ Monroe Energy v. EPA, 750 F.3d 909 (D.C. Cir. 2014), ACE,
864 F.3d at 713.
---------------------------------------------------------------------------
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 or other shortfalls in
renewable fuel production or distribution relative to petroleum fuel
supply, 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.\25\
---------------------------------------------------------------------------
\25\ Here we use the term ``buffer'' as shorthand reference to
all of the benefits that are provided by a sufficient bank of
carryover RINs.
---------------------------------------------------------------------------
1. Carryover RIN Bank Size
At the time of the 2019 NPRM, we estimated that there were
approximately 3.06 billion total carryover RINs available and proposed
that carryover RINs should not be counted on to avoid or minimize the
need to reduce the 2019 statutory volume targets. We also proposed that
the 2019 volume should not be set at levels that would intentionally
lead to a drawdown in the bank of carryover RINs (e.g., volumes that
were significantly beyond the market's ability to supply renewable
fuels).\26\
---------------------------------------------------------------------------
\26\ See 83 FR 32024 (July 10, 2018).
---------------------------------------------------------------------------
Since that time, obligated parties have performed their attest
engagements and submitted revised compliance reports for the 2017
compliance year and we now estimate that there are currently
approximately 2.59 billion total carryover RINs available,\27\ a
decrease of 470 million RINs from the 3.06 billion total carryover RINs
that were estimated to be available in the 2019 NPRM.\28\ This decrease
in the total carryover RIN bank compared to that projected in the 2019
NPRM results from various factors, including market factors, regulatory
and enforcement actions, and judicial proceedings. This estimate also
includes the millions of RINs that were not required to be retired by
small refineries that were granted hardship exemptions in recent
years,\29\ 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.\30\ This total volume of
carryover RINs is approximately 13 percent of the total renewable fuel
volume requirement that EPA is finalizing 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.\31\
---------------------------------------------------------------------------
\27\ The calculations performed to estimate the number of
carryover RINs currently available can be found in the memorandum,
``Carryover RIN Bank Calculations for 2019 Final Rule,'' available
in the docket.
\28\ See ``Carryover RIN Bank Calculations for 2019 NPRM,''
Docket Item No. EPA-HQ-OAR-2018-0167-0043.
\29\ Information about the number of small refinery exemptions
granted and the volume of RINs not required to be retired as a
result of those exemptions can be found at https://www.epa.gov/fuels-registration-reporting-and-compliance-help/rfs-small-refinery-exemptions.
\30\ 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), 376 (order approving
proposed settlement agreement), and 510 (Stipulation between the
Debtors and the United States on behalf of the Environmental
Protection Agency relating to Renewable Identification Number
Retirement Deadlines under Consent Decree and Environmental
Settlement Agreement) (Bankr. D. Del.). PESRM has emerged from
bankruptcy and EPA does not anticipate further relief being granted
under the RFS program.
\31\ See 40 CFR 80.1427(a)(5).
---------------------------------------------------------------------------
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 2019 NPRM, we estimated that there were approximately
700 million advanced carryover RINs available. Since that time,
obligated parties have performed their attest engagements and submitted
revised compliance reports for the 2017 compliance year and we now
estimate that there are currently approximately 600 million advanced
carryover RINs available,\32\ a decrease of 100 million RINs from the
700 million total carryover RINs that were estimated to be available in
the 2019 NPRM.\33\ This volume of advanced carryover RINs is
approximately 12 percent of the advanced renewable fuel volume
requirement that EPA is finalizing 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.\34\
---------------------------------------------------------------------------
\32\ The calculations performed to estimate the number of
carryover RINs currently available can be found in the memorandum,
``Carryover RIN Bank Calculations for 2019 Final Rule,'' available
in the docket.
\33\ See ``Carryover RIN Bank Calculations for 2019 NPRM,''
Docket Item No. EPA-HQ-OAR-2018-0167-0043.
\34\ See 40 CFR 80.1427(a)(5).
---------------------------------------------------------------------------
However, there remains considerable uncertainty surrounding the
number of carryover RINs that will be available for use in 2019 for a
number of reasons, including the potential impact of any future action
to address the remand in ACE, the possibility of additional small
[[Page 63710]]
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 13 percent of the 2019 total
renewable fuel volume requirement, and a bank of advanced carryover
RINs larger or smaller than 12 percent of the 2019 advanced biofuel
volume requirement.
2. EPA's Decision Regarding the Treatment of Carryover RINs
We have evaluated the volume of carryover RINs currently available
and considered whether they 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. We also
carefully considered the comments received, including comments on the
role of carryover RINs under our waiver authorities and the policy
implications of our decision.\35\ For the reasons described throughout
Section II.B, we do not believe we should intentionally draw down the
bank of carryover RINs and limit the exercise of our cellulosic waiver
authority. 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 have decided to maintain
our proposed approach and are making a determination to not set the
2019 volume requirements at levels that would envision an intentional
drawdown in the bank of carryover RINs. We note that we may or may not
take a similar approach in future years; we will assess the situation
on a case-by-case basis going forward and take into account the size of
the carryover RIN bank in the future and any lessons learned from
implementing past rules.
---------------------------------------------------------------------------
\35\ In their comments on the 2019 NPRM, parties generally
expressed two opposing points of view. Commenters representing
obligated parties supported EPA's proposed decision to not assume a
drawdown in the bank of carryover RINs in determining the
appropriate volume requirements, reiterating the importance of
maintaining the carryover RIN bank in order to provide obligated
parties with necessary compliance flexibilities, better market
trading liquidity, and a cushion against future program uncertainty.
Commenters representing renewable fuel producers, however, stated
that not accounting for carryover RINs goes against Congressional
intent of the RFS program and deters investment in cellulosic and
advanced biofuels. A full description of comments received, and our
detailed responses to them, is available in the RTC document in the
docket.
---------------------------------------------------------------------------
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 through September 2018 suggest production in 2018
will exceed production volumes in 2017.\36\ 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 2019, and
some of the uncertainties associated with those volumes.
---------------------------------------------------------------------------
\36\ 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 municipal
solid waste (MSW) digesters, and the cellulosic components of
biomass processed in other waste digesters.
---------------------------------------------------------------------------
[[Page 63711]]
[GRAPHIC] [TIFF OMITTED] TR11DE18.000
In order to project the volume of cellulosic biofuel production in
2019, we considered EIA's projection of cellulosic biofuel production
in 2019, 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 in 2019 for
consumption as transportation fuel, heating oil, or jet fuel in the
U.S.
There are two main elements to the cellulosic biofuel production
projection: Liquid cellulosic biofuel and CNG/LNG derived from biogas.
To project the range of potential production volumes of liquid
cellulosic biofuel we used the same general methodology as the
methodology used in the proposed rule, as well as 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 September
2018) 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 used the same general year-over-year growth
rate methodology as in the 2019 proposed rule and 2018 final rule, with
updated RIN generation data through September 2018. 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 (see Section III.B below for a further discussion of the
accuracy of EPA's methodology in 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.D-1 and III.D-2 below.
The balance of this section is organized as follows. Section III.A
provides a brief description of the statutory requirements. Section
III.B reviews the accuracy of EPA's projections in prior years, and
also discusses the companies the EPA assessed in the process of
projecting qualifying cellulosic biofuel production in the U.S. in 2018
in Section III.B. Section III.C discusses EIA's projection of
cellulosic biofuel production for 2019 and how this projection compares
to EPA's projection. Section III.D 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.\37\
---------------------------------------------------------------------------
\37\ 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. 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.
---------------------------------------------------------------------------
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,\38\ and we are also required to make
cellulosic waiver credits
[[Page 63712]]
available.\39\ Our consideration of the 2019 volume requirements for
advanced biofuel and total renewable fuel is presented in Section IV.
---------------------------------------------------------------------------
\38\ CAA section 211(o)(7)(D)(i).
\39\ See CAA section 211(o)(7)(D)(ii); 40 CFR 80.1456.
---------------------------------------------------------------------------
B. Cellulosic Biofuel Industry Assessment
In this section, we first explain our general approach to assessing
facilities or groups of facilities (which we collectively refer to as
``facilities'') that have the potential to produce cellulosic biofuel
in 2019. We then review the accuracy of EPA's projections in prior
years. Next, we discuss the criteria used to determine whether to
include potential domestic and foreign sources of cellulosic biofuel in
our projection for 2019. Finally, we provide a summary table of all
facilities that we expect to produce cellulosic biofuel in 2019.
In order to project 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.\40\ We considered a number of factors,
including EIA's projection of cellulosic biofuel production in 2019,
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, in making our projection of cellulosic
biofuel production for 2019. As discussed in greater detail below, our
projection of liquid cellulosic biofuel is based on a facility-by-
facility assessment of each of the likely sources of cellulosic biofuel
in 2019, while our projection of CNG/LNG derived from biogas is based
on an industry wide assessment. To make a determination of which
facilities are most likely to produce liquid cellulosic biofuel and
generate cellulosic biofuel RINs in 2019, each potential producer of
liquid cellulosic biofuel was investigated further 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.
---------------------------------------------------------------------------
\40\ For a further discussion of EPA's decision to focus on
commercial scale facilities, rather than R&D and pilot scale
facilities, see the 2019 proposed rule (83 FR 32031, July 10, 2018).
---------------------------------------------------------------------------
1. Review of EPA's Projection of Cellulosic Biofuel in Previous Years
As an initial matter, it is useful to review the accuracy of EPA's
past cellulosic biofuel projections. The record of actual cellulosic
biofuel production and EPA's projected production volumes from 2015-
2018 are shown in Table III.B-1 below. These data indicate that EPA's
projection was lower than the actual number of cellulosic RINs made
available in 2015,\41\ higher than the actual number of RINs made
available in 2016 and 2017, and lower than the actual number of RINs
projected to be made available in 2018. 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 2018,
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.
---------------------------------------------------------------------------
\41\ 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.
Table III.B.1-1--Projected and Actual Cellulosic Biofuel Production (2015-2018); Million Gallons \a\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Projected volume \b\ Actual production volume \c\
-----------------------------------------------------------------------------------------------
Liquid CNG/LNG Total Liquid CNG/LNG Total
cellulosic derived from cellulosic cellulosic derived from cellulosic
biofuel biogas biofuel \d\ biofuel biogas biofuel \d\
--------------------------------------------------------------------------------------------------------------------------------------------------------
2015 \e\................................................ 2 33 35 0.5 52.8 53.3
2016.................................................... 23 207 230 4.1 186.2 190.3
2017.................................................... 13 298 311 11.8 239.5 251.3
2018 \f\................................................ 14 274 288 14.0 309.0 323.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ As noted in Section III.A. above, EPA has consistently interpreted the term ``projected volume of cellulosic biofuel production'' to include volumes
of cellulosic biofuel likely to be made available in the U.S., including from both domestic production and imports. The volumes in this table
therefore include both domestic production of cellulosic biofuel and imported cellulosic biofuel.
\b\ Projected volumes for 2015 and 2016 can be found in the 2014-2016 Final Rule (80 FR 77506, 77508, December 14, 2015); projected volumes for 2017 can
be found in the 2017 Final Rule (81 FR 89760, December 12, 2016); projected volumes for 2018 can be found in the 2018 Final Rule (82 FR 58503,
December 12, 2017).
\c\ Actual production volumes are the total number of RINs generated minus the number of RINs retired for reasons other than compliance with the annual
standards, based on EMTS data.
\d\ Total cellulosic biofuel may not be precisely equal to the sum of liquid cellulosic biofuel and CNG/LNG derived from biogas due to rounding.
\e\ Projected and actual volumes for 2015 represent only the final 3 months of 2015 (October-December) as EPA used actual RIN generation data for the
first 9 months of the year.
\f\ Actual production in 2018 is projected based on actual data from January-September 2018 and a projection of likely production for October-December
2018.
EPA's projections of liquid cellulosic biofuel were higher than the
actual volume of liquid cellulosic biofuel produced each year from 2015
to 2017.\42\ 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
[[Page 63713]]
rule.\43\ The adjustments to our methodology adopted in the 2018 final
rule appear to have resulted in a projection that is very close to the
volume of liquid cellulosic biofuel expected to be produced in 2018
based on data through September 2018. In this 2019 final rule we are
again using percentile values based on actual production in previous
years, relative to the projected volume of liquid cellulosic biofuel in
these years (the approach first used in 2018). We have adjusted the
percentile values to project liquid cellulosic biofuel production based
on actual liquid cellulosic biofuel production in 2016 to 2018. Use of
this updated data results in slightly different percentile values than
we used to project production of liquid cellulosic biofuel in the 2019
proposed rule and the 2018 final rule. We believe that the use of the
methodology (described in more detail in Section III.D.1 below), with
the adjusted percentile values, 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.
---------------------------------------------------------------------------
\42\ We note, however, that because the projected volume of
liquid cellulosic biofuel in each year was very small relative to
the total volume of cellulosic biofuel, these over-projections had a
minimal impact on the accuracy of our projections of cellulosic
biofuel for each of these years.
\43\ 82 FR 58486 (December 12, 2017).
---------------------------------------------------------------------------
We next turn to the projection of CNG/LNG derived from biogas. For
2018, EPA for the first time used 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.
EPA used a facility-by-facility approach to project the production of
CNG/LNG derived from biogas from 2015-2017. Notably this methodology
resulted in significant over-estimates of CNG/LNG production in 2016
and 2017, leading EPA to develop the alternative industry wide
projection methodology first used in 2018. This updated approach
reflects the fact that this industry is far more mature than the liquid
cellulosic biofuel industry, with a far greater number of potential
producers of CNG/LNG derived from biogas. In such cases, industry-wide
projection methods can be more accurate than a facility-by-facility
approach, especially as macro market and economic factors become more
influential on total production than the success or challenges at any
single facility. The industry wide projection methodology slightly
under-projected the production of CNG/LNG derived from biogas in 2018.
However, the difference between the projected and actual production
volume of these fuels was smaller than in 2017.
As described in Section III.D.2 below, EPA is again projecting
production of CNG/LNG derived from biogas using the industry wide
approach. We calculate a year-over-year rate of growth in the renewable
CNG/LNG industry by comparing RIN generation for CNG/LNG derived from
biogas from October 2016-September 2017 to the RIN generation for these
same fuels from October 2017-September 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 generated and available to
be used for compliance with the annual standards in 2017 to estimate
the production of CNG/LNG derived from biogas in 2019.\44\ We have
applied the growth rate to the number of available 2017 RINs generated
for CNG/LNG derived from biogas as data from this year allows us to
adequately account for not only RIN generation, but also for RINs
retired for reasons other than compliance with the annual standards.
While more recent RIN generation data is available, the retirement of
RINs for reasons other than compliance with the annual standards
generally lags RIN generation, sometimes by up to a year or more.\45\
Should this methodology continue to under predict in the future as it
did in 2018, then we may need to revisit the methodology, but with only
2018 to compare to it is premature to make any adjustments.
---------------------------------------------------------------------------
\44\ To project the volume of CNG/LNG derived from biogas in
2019 we multiply the number of 2017 RINs generated for these fuels
and available to be used for compliance with the annual standards by
the calculated growth rate to project production of these fuels in
2018, and then multiply the resulting number by the growth rate
again to project the production of these fuels in 2019.
\45\ We note that we do not ignore this more recent data, but
rather use it to calculate the year-over-year growth rate used to
project the production of CNG/LNG derived from biogas in 2019.
---------------------------------------------------------------------------
2. Potential Domestic Producers
There are several companies and facilities \46\ 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,\47\
combined with the fact that to date nearly all cellulosic biofuel
produced in the U.S. has been used domestically \48\ 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. 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 2019 have already successfully completed facility
registration, and have successfully generated RINs.\49\ A brief
description of each of the domestic companies (or group of companies
for cellulosic CNG/LNG producers and the facilities using Edeniq's
technology) 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.\50\ 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.
---------------------------------------------------------------------------
\46\ The volume projection from CNG/LNG producers and facilities
using Edeniq's production technology do not represent production
from a single company or facility, but rather a group of facilities
utilizing the same production technology.
\47\ According to data from Argus Media, the price for 2018
cellulosic biofuel RINs averaged $2.40 in 2018 (through September
2018). Alternatively, obligated parties can satisfy their cellulosic
biofuel obligations by purchasing an advanced (or biomass-based
diesel) RIN and a cellulosic waiver credit. The price for 2017
advanced biofuel RINs averaged $0.55 in through September 2018 while
the price for a 2018 cellulosic waiver credit is $1.96 (EPA-420-B-
17-036).
\48\ The only known exception was a small volume of fuel
produced at a demonstration scale facility exported to be used for
promotional purposes.
\49\ 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.
\50\ ``Cellulosic Biofuel Producer Company Descriptions
(November 2018),'' memorandum from Dallas Burkholder to EPA Docket
EPA-HQ-OAR-2018-0167.
---------------------------------------------------------------------------
3. 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
[[Page 63714]]
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.
EPA's projection of cellulosic biofuel production in 2019 includes
cellulosic biofuel that is projected to be imported into the U.S. in
2019. 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.
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 and/or 2018; 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.
4. Summary of Volume Projections for Individual Companies
General information on each of the cellulosic biofuel producers (or
group of producers, for producers of CNG/LNG derived from biogas and
producers of liquid cellulosic biofuel 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.\51\
---------------------------------------------------------------------------
\51\ ``Cellulosic Biofuel Producer Company Descriptions
(November 2018),'' memorandum from Dallas Burkholder to EPA Docket
EPA-HQ-OAR-2018-0167.
\52\ 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).
\53\ 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.
\54\ For more information on these facilities see ``November
2018 Assessment of Cellulosic Biofuel Production from Biogas
(2019),'' memorandum from Dallas Burkholder to EPA Docket EPA-HQ-
OAR-2018-0167.
\55\ 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 ``November 2018 Liquid Cellulosic Biofuel Projections
for 2018 CBI'').
\56\ This date reflects the first production of ethanol from
this facility. The facility began production of methanol in 2015.
Table III.B.4-1--Projected Producers of Cellulosic Biofuel in 2019
--------------------------------------------------------------------------------------------------------------------------------------------------------
Facility
capacity Construction
Company name Location Feedstock Fuel (million gallons start date First production \53\
per year) \52\
--------------------------------------------------------------------------------------------------------------------------------------------------------
CNG/LNG Producers \54\......... 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 \55\.......... 2012............. September 2017.\56\
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.
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/Syngenta.................. Galva, IA......... Corn Kernel Fiber. Ethanol.......... 4................ Late 2013........ October 2014.
Raizen......................... Piracicaba City, Sugarcane bagasse. Ethanol.......... 11............... January 2014..... July 2015.
Brazil.
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 63715]]
C. Projection From the Energy Information Administration
Section 211(o)(3)(A) of the CAA requires EIA to ``provide to the
Administrator of the Environmental Protection Agency an estimate, with
respect to the following calendar year, of the volumes of
transportation fuel, biomass-based diesel, and cellulosic biofuel
projected to be sold or introduced into commerce in the United
States.'' EIA provided these estimates to EPA on October 12, 2018.\57\
With regard to liquid cellulosic biofuel, the EIA estimated that the
available volume in 2019 would be 10 million gallons.
---------------------------------------------------------------------------
\57\ ``EIA letter to EPA with 2019 volume projections 10-12-
18,'' available in docket EPA-HQ-OAR-2018-0167.
---------------------------------------------------------------------------
In its letter, EIA did not identify the facilities on which their
estimate of liquid cellulosic biofuel production was based. EIA did,
however, indicate in the letter that it only included domestic
production of cellulosic ethanol in their projections. These
projections, therefore, do not include cellulosic biofuel produced by
foreign entities and imported into the U.S., nor estimates of
cellulosic heating oil or CNG/LNG produced from biogas, which together
represent approximately 98 percent of our projected cellulosic biofuel
volume for 2019. When limiting the scope of our projection to the
companies assessed by EIA, we note that our volume projections are
equal. EPA projects approximately 10 million gallons of liquid
cellulosic biofuel will be produced domestically in 2019, all of which
is expected to be cellulosic ethanol.
D. Cellulosic Biofuel Volume for 2019
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. We refer to these facilities as consistent producers and new
producers, respectively. 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 calculated 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.\58\
---------------------------------------------------------------------------
\58\ ``November 2018 Liquid Cellulosic Biofuel Projections for
2018 CBI'' and ``Calculating the Percentile Values Used to Project
Liquid Cellulosic Biofuel Production for the 2019 FRM,'' memorandums
from Dallas Burkholder to EPA Docket EPA-HQ-OAR-2018-0167.
---------------------------------------------------------------------------
We first separate 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. For the final rule, we have updated the
companies included in our projection, the categorization of these
companies, and the low and high end of the potential production range
for each company for 2019 based on updated information. 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 (October 2017-September
2018).\59\ 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, 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.\60\ The projected range
for each group of companies is shown in Tables III.D.1-1 and III.D.1-2
below.\61\
---------------------------------------------------------------------------
\59\ 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.
\60\ 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.
\61\ More information on the data and methods EPA used to
calculate each of the ranges in these tables in contained in
``November 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.
Table III.D.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 facility) 0 10
------------------------------------------------------------------------
\a\Rounded to the nearest million gallons.
[[Page 63716]]
Table III.D.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 14 44
(registered facilities), Ensyn
(Renfrew facility), Poet-DSM,
GranBio, QCCP/Syngenta, Raizen.......
------------------------------------------------------------------------
\a\ Rounded to the nearest million gallons.
After defining likely production ranges for each group of
companies, we next determined the percentile values to use in
projecting a production volume for each group of companies. In this
final rule we have calculated the percentile values using actual
production data from January 2016 through September 2018 (the last
month for which actual data is available) and projected production data
for the remaining months of 2018 (October--December 2018). This
approach is consistent with the approach taken in the 2018 final rule.
For each group of companies and for each year from 2016--2018,
Table III.D.1-3 below shows the projected ranges for liquid cellulosic
biofuel production (from the 2014-16, 2017, and 2018 final rules),
actual production, and the percentile values that would have resulted
in a projection equal to the actual production volume.
Table III.D.1-3--Projected and Actual Liquid Cellulosic Biofuel Production in 2016-2018
[Million gallons]
----------------------------------------------------------------------------------------------------------------
Actual
Low end of the High end of production Actual
range the range \62\ percentile
----------------------------------------------------------------------------------------------------------------
New Producers: \63\
2016........................................ 0 76 1.06 1st
2017........................................ 0 33 8.79 27th
2018........................................ 0 47 4.16 9th
Average \a\................................. N/A N/A N/A 12th
Consistent Producers: \64\
2016........................................ 2 5 3.28 43rd
2017........................................ 3.5 7 3.02 -14th
2018........................................ 7 24 9.86 17th
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 2016-2018 rather than calculating a percentile value for
2016-2018 in aggregate. This approach gives equal weight to the accuracy of our projections from 2016-2018,
rather than allowing the average percentiles calculated to be dominated by years with greater projected
volumes.
Based upon the above analysis, EPA has projected cellulosic biofuel
production from new producers at the 12th percentile of the calculated
range and from consistent producers at the 15th percentile.\65\ 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 2016-2018. Prior to 2016, EPA used
different methodologies to project available volumes of cellulosic
biofuel, and thus believes it inappropriate to calculate percentile
values based on projections from those years.\66\
---------------------------------------------------------------------------
\62\ 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.
\63\ Companies characterized as new producers in the 2014-2016,
2017, and 2018 final rules were as follows: Abengoa (2016),
CoolPlanet (2016), DuPont (2016, 2017), Edeniq (2016, 2017), Enerkem
(2018), Ensyn Port Cartier (2018), GranBio (2016, 2017), IneosBio
(2016), and Poet (2016, 2017).
\64\ Companies characterized as consistent producers in the
2014-2016, 2017, and 2018 final rules were as follows: Edeniq Active
Facilities (2018), Ensyn Renfrew (2016-2018), GranBio (2018), Poet
(2018), and Quad County Corn Processors/Syngenta (2016-2018).
\65\ For more detail on the calculation of the percentile values
used in this final rule see ``Calculating the Percentile Values Used
to Project Liquid Cellulosic Biofuel Production for 2018 and 2019,''
available in EPA docket EPA-HQ-OAR-2018-0167.
\66\ EPA used a similar projection methodology for 2015 as in
2016-2018, however we only projected cellulosic biofuel production
volume for the final 3 months of the year, as actual production data
were available for the first 9 months. We do not believe it is
appropriate to consider data from a year for which 9 months of the
data were known at the time the projection was made in determining
the percentile values used to project volume over a full year.
---------------------------------------------------------------------------
EPA also considered whether or not to include the percentile value
from 2016 in our calculation of the percentile value to use in
projecting liquid cellulosic biofuel production in 2019. Including a
larger number of years in our calculation of the percentile value for
2019 would result in a larger data set that is less susceptible to
large fluctuations that result from unexpectedly high or low production
volumes in any one year that may not be indicative of future
production. However, including a larger number of years also
necessarily requires including older data that may no longer reflect
the likely production of liquid cellulosic biofuel in a future year,
especially given the rapidly changing nature of this industry.
We ultimately decided to include data from 2016 in calculating the
percentile values to project liquid cellulosic biofuel production in
2019, determining that there was significant value in including this
additional data. Even though the liquid cellulosic biofuel industry has
changed since 2016, these changes are not so significant as to render
this data obsolete. In determining the percentile values to use for
2019 we have also decided to weight the observed actual percentile
values from 2016-2018 equally. While the percentile
[[Page 63717]]
value from 2018 represents the most recent data available, it is also
dependent on the performance of a relatively small number of companies
in a single year, as well as a projection of the performance of these
facilities during the final three months of 2018. Using data from
multiple years, especially years in which we have complete production
data, is likely more representative of the future performance of these
groups of companies than data from any single year.
Commenters generally supported EPA's use of updated data (data not
available at the time of the proposed rule, but expected to be
available for the final rule) in calculating the percentage standards
for 2019. Several commenters objected to EPA's use of a single
percentile value based on historical production performance for each
group of companies. These commenters often described this approach as
``backwards looking'' and generally requested that EPA not discount
facility's projected production at all, determine a unique percentile
value for each facility based on facility specific factors, or return
to the percentile values used in the 2016 and 2017 rules (25th
percentile for new producers and 50th percentile for consistent
producers).
EPA disagrees with the commenters characterization of the
projection methodology used in this final rule as ``backwards
looking.'' As discussed above, and in more detail in a memorandum to
the docket,\67\ EPA has used data specific to 2019 in determining the
high end of the potential production range for these facilities. While
we acknowledge that we have relied on data from previous years in
calculating the percentile value we use to select a volume within the
potential production range for each group of companies, we believe that
this approach is appropriate and consistent with EPA's direction to
project cellulosic biofuel volumes with a neutral aim at accuracy. We
do not believe that we have significant data or expertise to
individually consider all of the potential variables associated with
each individual facility and produce a reasonably accurate projection.
Indeed, in the early years of the RFS program (2010-2013) EPA attempted
this approach with very poor results. Similarly, using the 25th and
50th percentiles to project potential production produced overly
optimistic projections in both 2016 (0.5 million gallons actual
production versus 2 million gallons projected production) and 2017 (4.1
million actual, 12 million projected). By contrast, the approach used
in the 2018 rule, which is also the approach used in this action,
produced a much more precise estimate (14 million actual, 14 million
projected). We believe the approach used today is likely to produce a
more accurate projection of liquid cellulosic biofuel production.\68\
This approach is therefore appropriate for projecting liquid cellulosic
biofuel production in 2019. As this approach incorporates new data each
year, we anticipate that we will be able to use it consistently in
future years. However, as in previous years, EPA will continue to
monitor the success of this approach going forward and will make
adjustments to increase accuracy as necessary.
---------------------------------------------------------------------------
\67\ ``November 2018 Liquid Cellulosic Biofuel Projections for
2018 CBI,'' memorandum from Dallas Burkholder to EPA Docket EPA-HQ-
OAR-2018-0167.
\68\ The comments discussed in this paragraph are discussed in
additional detail in Section 3.2.1 of the RTC document.
\69\ 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.
\70\ 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 ``November 2018 Assessment of Cellulosic Biofuel Production from
Biogas (2019)'' memorandum from Dallas Burkholder to EPA Docket EPA-
HQ-OAR-2018-0167.
---------------------------------------------------------------------------
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.D.1-4 below.
Table III.D.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 10 12th 1
without Consistent Commercial Scale Production.
Liquid Cellulosic Biofuel Producers; Producers 14 44 15th 19
with Consistent Commercial Scale Production....
---------------------------------------------------------------
Total....................................... N/A N/A N/A 20
----------------------------------------------------------------------------------------------------------------
\a\ Volumes rounded to the nearest 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 projection based on a year-over-year growth
rate, to project production of CNG/LNG derived from biogas used as
transportation fuel.\69\ For this final rule, EPA has calculated the
year-over-year growth rate in CNG/LNG derived from biogas by comparing
RIN generation from October 2017 to September 2018 (the most recent 12
months for which data are available) to RIN generation in the 12 months
that immediately precede this time period (October 2016 to September
2017). These RIN generation volumes are shown in Table III.D.2-1 below.
Table III.D.2-1--Generation of Cellulosic Biofuel RINs for CNG/LNG Derived From Biogas
[Million gallons] \70\
--------------------------------------------------------------------------------------------------------------------------------------------------------
RIN generation (October 2016-September 2017) RIN generation (October 2017-September 2018) Year-over-year increase
--------------------------------------------------------------------------------------------------------------------------------------------------------
216................................................................ 278 29.0%
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 63718]]
EPA then applied this 29 percent year-over-year growth rate to the
total number of 2017 cellulosic RINs generated and available for
compliance for CNG/LNG. This methodology results in a projection of 399
million gallons of CNG/LNG derived from biogas in 2019.\71\ 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 as our projection for 2019 is well below the total volume of
CNG/LNG that is currently used as transportation fuel.\72\
---------------------------------------------------------------------------
\71\ To calculate this value, EPA multiplied the number of 2017
RINs generated and available for compliance for CNG/LNG derived from
biogas (239.5 million), by 1.290 (representing a 29 percent year-
over-year increase) to project production of CNG/LNG in 2018, and
multiplied this number (309 million RINs) by 1.290 again to project
production of CNG/LNG in 2019.
\72\ EPA projects that 538 million ethanol-equivalent gallons of
CNG/LNG will be used as transportation fuel in 2019 based on EIA's
October 2018 Short Term Energy Outlook (STEO). To calculate this
estimate, EPA used the Natural Gas Vehicle Use from the STEO Custom
Table Builder (0.12 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 British Thermal Units (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 40 CFR 80.1415(b)(5).
---------------------------------------------------------------------------
EPA has also reviewed data on potential producers of CNG/LNG
derived from biogas that is used as transportation fuel. Compared to
EPA, these potential producers projected greater total production of
CNG/LNG derived from biogas in 2019 based on the capacity of such
projects. 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 the capacity of these projects as
our projection of CNG/LNG derived from biogas 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.
A number of commenters requested that, in addition to projecting
volume of CNG/LNG derived from biogas using a year-over-year growth
rate, EPA project additional volume to account for new projects and
those currently in development. We believe that the industry-wide
projection methodology used in this final rule already adequately
accounts for new facilities and those currently in development. The
growth rate used to project the production of CNG/LNG derived from
biogas in 2019 includes both increased production from existing
facilities, as well as new facilities that began producing fuel in the
last 12 months for which data are available. Thus, adding additional
volume to account for new facilities would effectively be double
counting production from new facilities.
Other commenters suggested that the industry wide projection was
inappropriate, and that EPA should return to a facility-by-facility
assessment, as was used to project CNG/LNG derived from biogas in 2016
and 2017. We believe that the mature nature of the industry producing
CNG/LNG derived from biogas lends itself well to an industry-wide
projection methodology and that this methodology can be more accurate
than a facility-by-facility approach, especially as macro market and
economic factors have apparently become more influential on total
production than the success or challenges at any single facility;
especially as producers are vying for business relationships with the
same pool of CNG/LNG fueled transportation fleets to enable them to
generate RINs. We further note that the facility-by-facility approach
used to project production of CNG/LNG produced from biogas in 2016 and
2017 significantly over-estimated production of these fuels.
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, even though it does not
consider all potential producers of these fuels on a facility-by-
facility basis.
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.D.3-1. Using the methodologies described in this section, we
project that 418 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.D.3-1--Projected Volume of Cellulosic Biofuel in 2019
[Million gallons]
------------------------------------------------------------------------
Projected
volume \a\
------------------------------------------------------------------------
Liquid Cellulosic Biofuel Producers; Producers without 1
Consistent Commercial Scale Production.................
Liquid Cellulosic Biofuel Producers; Producers with 19
Consistent Commercial Scale Production.................
CNG/LNG Derived from Biogas............................. 399
---------------
Total............................................... \b\ 418
------------------------------------------------------------------------
\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.
[[Page 63719]]
Further discussion of the companies expected to produce cellulosic
biofuel and make it commercially available in 2019 can be found in a
memorandum to the docket.\73\
---------------------------------------------------------------------------
\73\ ``Cellulosic Biofuel Producer Company Descriptions
(November 2018),'' memorandum from Dallas Burkholder to EPA Docket
EPA-HQ-OAR-2018-0167.
---------------------------------------------------------------------------
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). 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 requirement for conventional
renewable fuel is 15 billion gallons for all years after 2014, while
the advanced biofuel volume requirements, driven largely by growth in
cellulosic biofuel, continue to grow each year through 2022 to a total
of 21 billion gallons.
Due to a shortfall in the availability 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 reducing the statutory volume targets 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 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 that 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. We also address several
comments we received in response to the July 10, 2018 proposal; the
remaining comments are addressed in a separate RTC document.
To begin, we have evaluated the capabilities of the market and are
making a finding 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 reducing 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 extent to which we should reduce
advanced biofuel volumes by taking into account the availability of
advanced biofuels, their energy security and greenhouse gas (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 increasing likelihood of adverse unintended impacts associated
with use of advanced biofuel 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.\74\ 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.
---------------------------------------------------------------------------
\74\ 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 advanced biofuels in 2019 to allow
any backfilling for missing volumes of cellulosic biofuel.\75\ As a
result of this projection, the high cost of advanced biofuels, and our
consideration of carryover RINs, we are reducing the statutory volume
target for advanced biofuel by the same amount as the reduction in
cellulosic biofuel. This will result in the non-cellulosic component of
the advanced biofuel volume requirement being equal to the implied
statutory volume target of 4.5 billion gallons in 2019.
---------------------------------------------------------------------------
\75\ As described further below, ``reasonably attainable''
volumes are not merely those that can be attained given available
biofuel production capacity and feedstocks, but also take into
consideration factors such as costs and feedstock and/or fuel
diversions that could create disruptions in other markets.
---------------------------------------------------------------------------
Several stakeholders commented that it was inappropriate for EPA to
change its policy with regard to backfilling of missing cellulosic
biofuel with other advanced biofuel as it had done prior to 2018.
However, in making such comments, stakeholders misinterpreted our
approach in those years. While we permitted some backfilling, we did so
only after considering such factors as described above. The approach we
have taken for the 2019 volume requirements is no different than it was
in previous years, though the outcome of that approach is different due
to the different circumstances.
We note that the predominant non-cellulosic advanced biofuels
available in the near term are advanced biodiesel and renewable
diesel.\76\ We expect limited 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
incremental 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 generally 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 (other than qualifying advanced biofuels) that were
[[Page 63720]]
formerly produced using these feedstocks are likely to be replaced by
products produced using the lowest cost alternatives, likely derived
from palm oil (for food and animal feed) or petroleum sources (non-
edible consumer products). This in turn could increase the lifecycle
GHG emissions associated with these incremental volumes of non-
cellulosic advanced biofuel, since fuels produced from both palm oil
and petroleum have higher estimated lifecycle GHG emissions than
qualifying advanced biodiesel and renewable diesel.\77\ 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
be an increased likelihood of adverse unintended impacts associated
with such diversions. Taking these considerations into account, we
believe, as discussed in more detail below, that it is appropriate to
exercise our discretion under the cellulosic waiver authority to set
the advanced biofuel volume requirement at a level that would minimize
such diversions.
---------------------------------------------------------------------------
\76\ 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.
\77\ For instance, see the draft GHG assessment of palm oil
biodiesel and renewable diesel at 77 FR 4300 (January 27, 2012).
---------------------------------------------------------------------------
Furthermore, several other factors have added uncertainty regarding
the volume of advanced biofuels that we project are 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.\78\ \79\ Finally, China has recently imposed new
tariffs on soybean imports. Each of these factors is discussed in more
detail in Section IV.B.3 below.
---------------------------------------------------------------------------
\78\ ``Affirmative Final Antidumping Duty Determinations on
Biodiesel From Argentina and Indonesia,'' available in docket EPA-
HQ-OAR-2018-0167.
\79\ ``US adds more duties on biodiesel from Argentina &
Indonesia,'' Reuters article available in docket EPA-HQ-OAR-2018-
0167.
---------------------------------------------------------------------------
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 use of this authority. Many of the considerations
discussed in this final 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 in
comparison to the petroleum fuels they displace, GHG reduction
benefits, and energy security benefits).
As discussed in further detail in the following sections, our
assessment of advanced biofuel suggests that achieving the implied
statutory volume target for non-cellulosic advanced biofuel in 2019
(4.5 billion gallons) is attainable. While it may also be possible that
a volume of non-cellulosic advanced biofuel greater than 4.5 billion
gallons may be attainable, a volume equal to or higher than 4.5 billion
gallons would likely result in the diversion of advanced feedstocks
from other uses or diversion of advanced biofuels from foreign sources,
and thus is not reasonably attainable. In that case, our assessment of
other factors, such as cost and GHG impacts, indicate that while such
higher volumes may be attainable, 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 630 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 630 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 establishing
a 2019 applicable volume for cellulosic biofuel of 418 million gallons,
representing a reduction of 8,082 million gallons from the statutory
target of 8,500 million gallons. As a result, 8,082 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 4.92 and 19.92 billion gallons for advanced biofuel and
total renewable fuel, respectively.
Table IV.A-1--Lowest Permissible Volumes Using Only the Cellulosic
Waiver Authority
[Million gallons]
------------------------------------------------------------------------
Advanced Total
biofuel renewable fuel
------------------------------------------------------------------------
Statutory target........................ 13,000 28,000
Maximum reduction permitted under the 8,082 8,082
cellulosic waiver authority............
Lowest 2019 volume requirement permitted 4,918 19,918
using only the cellulosic waiver
authority..............................
------------------------------------------------------------------------
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.\80\ As discussed in Section II.A, EPA has broad discretion in
using the cellulosic
[[Page 63721]]
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 to reduce advanced biofuel
or total renewable fuel, nor what the appropriate volume reductions
(within the range permitted by statute) should be. This broad
discretion was affirmed in both Monroe and ACE.\81\ Thus, we have the
authority set the 2019 advanced biofuel volume requirement 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 using the full extent of the cellulosic waiver
authority in deriving volume requirements for 2019.
---------------------------------------------------------------------------
\80\ CAA section 211(o)(7)(D)(i).
\81\ 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 attainable and reasonably attainable
volumes of advanced biofuel to inform our exercise of the cellulosic
waiver authority. As used in this rulemaking, both ``reasonably
attainable'' and ``attainable'' are terms of art defined by EPA.\82\
Volumes described as ``reasonably attainable'' are those that can be
reached with minimal market disruptions, increased costs, and/or
reduced GHG benefits, and with minimal diversion of advanced biofuels
or advanced biofuel feedstocks from existing uses. We use this phrase
in today's action in the same way that we 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, higher
costs, and/or reduced GHG benefits. Neither ``reasonably attainable''
nor ``attainable'' are meant to convey the ``maximum achievable''
level, which as we explained in the 2017 final rule, we do not consider
to be an appropriate target under the cellulosic waiver authority.\83\
Finally, we note that our assessments of the ``reasonably attainable''
and ``attainable'' volumes of non-cellulosic advanced biofuels are not
intended to be as exacting as our projection of cellulosic biofuel
production, described in Section III of this rule.
---------------------------------------------------------------------------
\82\ Our consideration of ``reasonably attainable'' volumes is
not intended to imply that ``attainable'' volumes are unreasonable
or otherwise inappropriate. As we explain in this section, we
believe that an advanced biofuel volume of 4.92 billion gallons,
although not reasonably attainable, is attainable, and that
establishing such volume is an appropriate exercise of our
cellulosic waiver authority.
\83\ 81 FR 89762 (December 12, 2016). The maximum achievable
volume may be relevant to our consideration of whether to exercise
the general waiver authority on the basis of inadequate domestic
supply. In 2019, we have determined that the after exercising our
cellulosic waiver authority the advanced biofuel volume is
achievable, and therefore further reductions using the general
waiver authority on the basis of inadequate domestic supply are not
necessary.
---------------------------------------------------------------------------
As in prior rulemakings, we begin by considering what volumes of
advanced biofuels are reasonably attainable. 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.\84\ These considerations include both demand-
side and supply-side factors.\85\ 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. We also took these
factors into account in setting the 2017 and 2018 volume requirements,
and we continue to believe that they are appropriate considerations
under the broad discretion provided by the cellulosic waiver authority.
We are establishing the advanced biofuel volume requirement at a level
that would seek to minimize such feedstock/fuel diversions within the
discretion available under the cellulosic waiver authority.
---------------------------------------------------------------------------
\84\ See ACE, 864 F.3d at 735-36.
\85\ See id. at 730-35.
---------------------------------------------------------------------------
Our individual assessments of reasonably attainable volumes of each
type of advanced biofuel reflect this approach. As discussed in further
detail in this section, we find that 100 million gallons of advanced
ethanol, 60 million gallons of other advanced biofuels, and 2.61
billion gallons of advanced biodiesel and renewable diesel are
reasonably attainable. Together with our projected volume of 418
million gallons of cellulosic biofuel, the sum of these volumes falls
short of 4.92 billion gallons, which is the lowest advanced biofuel
requirement that EPA can require under the cellulosic waiver authority.
Therefore, we also have considered whether the market can
nonetheless make available 4.92 billion gallons of advanced biofuel,
notwithstanding likely feedstock/fuel diversions. That is, we assess
whether 4.92 billion gallons is merely ``attainable,'' as opposed to
reasonably attainable. 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 are attainable, notwithstanding potential 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 4.92 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. Imported
sugarcane ethanol from Brazil is the predominant form of imported
ethanol and the only significant source of imported advanced ethanol.
In setting the 2018 standards, we estimated that 100 million gallons of
imported sugarcane ethanol would be reasonably attainable.\86\ 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),
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.
---------------------------------------------------------------------------
\86\ 82 FR 58507 (December 12, 2017).
---------------------------------------------------------------------------
Since the 2018 final rule, new data reveals a continued trend of
low imports. At the time of the 2018 standards final rule, we had 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 all of 2017 is now available, and indicates that imports of
sugarcane ethanol reached just 77 million gallons. Moreover, EIA data
on monthly ethanol imports in 2018 through July indicate that no
ethanol was imported.\87\
---------------------------------------------------------------------------
\87\ However, EIA data on weekly imports of ethanol does
indicate that some ethanol was imported in August and October of
2018, totaling 37 million gallons. This volume was not reflected in
the monthly EIA data as of September 28, 2018.
---------------------------------------------------------------------------
[[Page 63722]]
[GRAPHIC] [TIFF OMITTED] TR11DE18.001
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 4.92 billion gallons is reasonably attainable for
2019. Although the advanced biofuel volume requirement for 2019 is
about 630 million gallons higher than that for 2018, creating some
incentive for increases in imports, we note that an even larger
increase in the required volume of advanced biofuel between 2016 and
2017 was accompanied by only a very small increase in imports of
sugarcane ethanol, from 34 million gallons in 2016 to 77 million
gallons in 2017. Moreover, 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,
though the difference in RIN values between conventional and advanced
ethanol may offset the cost difference to some degree.\88\ Even so, we
do not believe it would be appropriate to reduce the volume of imported
sugarcane ethanol below 100 million gallons for the purposes of
determining the 2019 volume requirement for advanced biofuel because
imports have typically been higher in the second half of the year
compared to the first half of the year, and have reached considerably
more than 100 million gallons in the past.\89\ Taking all of these
considerations into account, we are using 100 million gallons of
imported sugarcane ethanol for the purposes of projecting reasonably
attainable volumes of advanced biofuel for 2019.\90\ 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. Additional discussion on
this topic can be found in the RTC document.
---------------------------------------------------------------------------
\88\ For example, see the relative costs of imported sugarcane
ethanol and corn ethanol in Tables V.D-2 and V.D-3 in the final
rulemaking that established the 2017 standards (81 FR 89746,
December 12, 2016).
\89\ ``US Imports of Fuel Ethanol from EIA,'' available in
docket EPA-HQ-OAR-2018-0167.
\90\ We note that even if sugarcane ethanol imports fall below
our projection of 100 million gallons in 2019, the advanced biofuel
volume would still be achievable. For example, if sugarcane ethanol
imports were only 50 million gallons in 2019, the market could still
supply 4.5 billion gallons of non-cellulosic advanced biofuel by
supplying an additional 33 million gallons of advanced biodiesel.
---------------------------------------------------------------------------
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 affect import
volumes include uncertainty in the Brazilian political climate, weather
and harvests in Brazil, world ethanol demand and prices, constraints
associated with the E10 blendwall in the U.S., world demand for and
prices of sugar, and the cost of sugarcane ethanol relative to that of
corn ethanol. 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.
2. Other Advanced Biofuel
In addition to cellulosic biofuel, imported sugarcane ethanol, and
advanced biodiesel and renewable diesel, there are other advanced
biofuels that can be counted in the determination of reasonably
attainable volumes of advanced biofuel for 2019. These other 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 63723]]
Table IV.B.2-1--Historical Supply of Other Advanced Biofuels
[Million ethanol-equivalent gallons]
--------------------------------------------------------------------------------------------------------------------------------------------------------
CNG/LNG Heating oil Naphtha Domestic 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 as part of BBD 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).\91\
Total supply of these other advanced biofuels has exhibited no
consistent trend during 2013 to 2017. Based on data from EMTS for these
same categories of biofuel in 2018 through August, we estimate that
total RIN generation in 2018 will be approximately the same as in
2017.\92\ Based on this historical record, we believe that 60 million
gallons is reasonably attainable in 2019.
---------------------------------------------------------------------------
\91\ 79 FR 42128 (July 18, 2014).
\92\ See ``Projecting Advanced Biofuel Production and Imports
for 2018 (November 2018)'' Memorandum from Dallas Burkholder to EPA
Docket EPA-HQ-OAR-2018-0167.
---------------------------------------------------------------------------
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 CNG), 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 reasonable basis for
projecting substantial volumes from these sources in 2019.\93\
---------------------------------------------------------------------------
\93\ 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 assess the potential supply of
advanced biodiesel and renewable diesel. First, we calculate the amount
of advanced biodiesel and renewable diesel that would need to be
supplied to meet the advanced requirement were we to exercise our
maximum discretion under the cellulosic authority: 2.8 billion gallons.
This calculation, shown in Table IV.B.3-1 below, helps inform the
exercise of our waiver authorities. Second, we consider the historical
supply of these fuels and the impact of the biodiesel tax policy on
advanced biodiesel and renewable diesel use in the U.S. Next, we
consider factors that could potentially limit the supply of advanced
biodiesel including the production capacity of advanced biodiesel and
renewable diesel production facilities, the ability for the market to
distribute and use these fuels, the availability of feedstocks to
produce these fuels, and fuel imports and exports. Based on our
projection of the domestic growth in advanced biodiesel and renewable
diesel feedstocks we project a reasonably attainable volume of 2.61
billion gallons of advanced biodiesel and renewable diesel in 2019.
Since this volume is lower than the 2.8 billion gallons we calculated
would need to be supplied to meet the advanced requirement were we to
exercise our maximum discretion under the cellulosic authority, we
finally consider if additional supplies of advanced biodiesel and
renewable diesel are attainable. Ultimately, we conclude that a volume
of at least 2.8 billion gallons of advanced biodiesel and renewable
diesel is attainable in 2019. We note that we have not attempted to
determine the maximum attainable volume of these fuels. While the
maximum attainable volume of advanced biodiesel and renewable diesel in
2019 is greater than 2.8 billion gallons we do not believe it would be
appropriate to require a greater volume of these fuels (by establishing
a higher advanced biofuel volume for 2019) due to the high cost and the
increased likelihood of adverse unintended impacts associated with
these fuels.
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 advanced 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.
[[Page 63724]]
Table IV.B.3-1--Determination of Volume of Biodiesel and Renewable
Diesel Needed in 2019 To Achieve 4.92 Billion Gallons of Advanced
Biofuel
[Million ethanol-equivalent gallons except as noted]
------------------------------------------------------------------------
------------------------------------------------------------------------
Lowest 2019 advanced biofuel volume requirement 4,918
permitted using under the cellulosic waiver authority..
Cellulosic biofuel...................................... 418
Imported sugarcane ethanol.............................. 100
Other advanced.......................................... 60
Calculated advanced biodiesel and renewable diesel 4,340/2,800
needed (ethanol-equivalent gallons/physical gallons)
\94\...................................................
------------------------------------------------------------------------
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 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.\95\ A review of
the volumes 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.
---------------------------------------------------------------------------
\94\ To calculate the volume of advanced biodiesel and renewable
diesel that would generate the 4.34 billion RINs needed to meet the
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).
\95\ 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). While cellulosic diesel (D7) also
contributed towards an obligated party's advanced biofuel
obligation, these fuels are discussed in Section III rather than in
this section. 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 40 CFR 80.1426 or in petition
approvals issued pursuant to section 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 section
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 waste sources or by-products of
other industries (such as the production of livestock feed or ethanol
production), are sourced from increased oilseed production, or are
sourced from the diversion of feedstocks from existing uses. The energy
security and GHG reduction value associated with the growth in the use
of advanced biofuels is greater when these fuels are produced from
waste fats and oils or feedstocks that are byproducts of other
industries (such as soybean oil from soybeans primarily grown as animal
feed), 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 oil \96\ or petroleum
derived products, as we believe would likely be the case in 2019.\97\
In this case the global production 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 be reduced.
---------------------------------------------------------------------------
\96\ For instance, see the draft GHG assessment of palm oil
biodiesel and renewable diesel at 77 FR 4300 (January 27, 2012).
\97\ 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.\98\ In previous years, biodiesel and renewable
diesel produced in the U.S. have been almost exclusively advanced
biofuel.\99\ Imports of advanced biodiesel increased through 2016, but
were lower in 2017 and 2018, 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.
---------------------------------------------------------------------------
\98\ From 2011 through 2017 approximately 95 percent 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.
\99\ From 2011 through 2017 over 99.9 percent 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.
[[Page 63725]]
Table IV.B.3-2--Advanced (D4 and D5) Biodiesel and Renewable Diesel From 2011 to 2017
[Million gallons] a
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011 2012 2013 2014 \b\ 2015 \b\ 2016 2017 2018 \c\
--------------------------------------------------------------------------------------------------------------------------------------------------------
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) 1,896 (+323)
Domestic Renewable Diesel (Annual Change)... 58 (N/A) 11 (-47) 92 (+81) 155 (+63) 175 (+20) 221 (+46) 258 (+37) 255 (-3)
Imported Biodiesel (Annual Change).......... 44 (N/A) 40 (-4) 156 (+116) 130 (-26) 261 (+131) 561 (+300) 462 (-99) 212 (-250)
Imported Renewable Diesel (Annual Change)... 0 (N/A) 28 (+28) 145 (+117) 129 (-16) 121 (-8) 170 (+49) 193 (+23) 197 (+4)
Exported Biodiesel and Renewable Diesel 48 (N/A) 102 (+54) 125 (+23) 134 (+9) 133 (-1) 129 (-4) 157 (+28) 103 (-54)
(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) 2,457 (+128)
--------------------------------------------------------------------------------------------------------------------------------------------------------
\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.
\c\ Data for 2018 is based on actual production and import data through September 2018, and a projection for October-December 2018. For more information
on how the volumes for 2018 were determined see ``Projecting Advanced Biofuel Production and Imports for 2018 (November 2018)'' Memorandum from Dallas
Burkholder to EPA Docket EPA-HQ-OAR-2018-0167.
Table IV.B.3-3--Conventional (D6) Biodiesel and Renewable Diesel From 2011 to 2017
[Million gallons] a
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011 2012 2013 2014 \b\ 2015 \b\ 2016 2017 2018 \c\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Domestic Biodiesel (Annual Change).............. 0 (N/A) 0 (+0) 6 (+6) 1 (-5) 0 (+0) 0 (+0) 0 (+0) 0 (+0)
Domestic Renewable Diesel (Annual Change)....... 0 (N/A) 0 (+0) 0 (+0) 0 (+0) 0 (+0) 0 (+0) 0 (+0) 0 (+0)
Imported Biodiesel (Annual Change).............. 0 (N/A) 0 (+0) 31 (+31) 52 (+21) 74 (+22) 113 (+39) 0 (-113) 0 (+0)
Imported Renewable Diesel (Annual Change)....... 0 (N/A) 0 (+0) 53 (+53) 0 (-53) 106 (+106) 43 (-63) 144 (+101) 123 (-21)
Exported Biodiesel and Renewable Diesel (Annual 0 (N/A) 0 (+0) 0 (+0) 0 (+0) 0 (+0) 1 (+1) 0 (-1) 0 (+0)
Change)........................................
-------------------------------------------------------------------------------------------------------
Total (Annual Change)....................... 0 (N/A) 0 (+0) 90 (+90) 53 (-37) 180 (+127) 155 (-25) 144 (-11) 123 (-21)
--------------------------------------------------------------------------------------------------------------------------------------------------------
\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.
\c\ Data for 2018 is based on actual production and import data through September 2018, and a projection for October-December 2018. For more information
on how the volumes for 2018 were determined see ``Projecting Biodiesel and Renewable Diesel Production and Imports for 2018 (November 2018)''
Memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-2018-0167.
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 127 million fewer gallons from 2016 to 2017 to a high of
779 million additional 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 changes
in advanced biodiesel and renewable diesel in previous years and the
significant variability in these changes.
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.\100\ While the
biodiesel blenders tax credit has applied in each year from 2010 to
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 occurred even though 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,
[[Page 63726]]
and 2017 than would have occurred if the tax credit had been in
place.\101\
---------------------------------------------------------------------------
\100\ The status of the tax credit does not impact our
assessment of the reasonably attainable volume of advanced biodiesel
and renewable diesel in 2019 as our assessment is primarily based on
feedstock availability. The status of the tax credit may affect the
maximum attainable volume of these fuels, but our assessment
demonstrates that 2.8 billion gallons of advanced biodiesel and
renewable diesel is attainable whether or not the tax credit is
renewed prospectively (or retrospectively) for 2019.
\101\ We also acknowledge that EPA not finalizing the required
volumes of renewable fuel under the RFS program for 2014 and 2015
until December 2015 likely affected 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 negatively affected the
volume of biodiesel supplied in 2017.
---------------------------------------------------------------------------
Some commenters stated that the tax credit has no impact on the
potential supply of advanced biodiesel and renewable diesel. They
generally argued that while the tax credit impacted the cost of
biodiesel, as well as the RIN price needed to make advanced biodiesel
and renewable diesel cost competitive with petroleum diesel, the RIN
price was ultimately capable of incentivizing the production and use of
advanced biodiesel and renewable diesel with or without the tax credit.
We recognize that this is theoretically true; because the RIN prices
vary with the supply and demand for RINs, the RIN price can rise to
provide the same value as the tax credit in its absence. However, we
note that it is this very aspect of the price of RINs, the potential
that RIN prices may rise or fall depending on market conditions, that
can hinder their ability to incentivize increased production and use of
advanced biodiesel and renewable diesel. Further, higher advanced
biofuel RIN prices can incentivize the production of other advanced
fuels if these fuels can be produced at a price that is cost
competitive with advanced biodiesel and renewable diesel. Conversely,
the tax credit provides a fixed price incentive for all biodiesel and
renewable diesel blended into the diesel fuel pool in the U.S., and is
not available to other advanced biofuels. Ultimately, as discussed
above the supply of biodiesel and renewable diesel is likely to be
influenced by a number of factors, including the 2019 RFS volume
requirements, the advanced and BBD RIN prices, expectations about the
availability of the biodiesel blenders tax credit, and a number of
other market-based factors.
The historical data suggests that the supply of advanced biodiesel
and renewable diesel could potentially increase from the projected 2.54
billion gallons in 2018 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 increase of
approximately 250 million gallons from 2018 to 2019, 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 than 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
needed to meet the advanced biofuel volume for 2019 after exercising
the cellulosic waiver authority (2.8 billion gallons).\102\ 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.
---------------------------------------------------------------------------
\102\ 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.
---------------------------------------------------------------------------
Conversely, the availability of advanced feedstocks that can be
used to produce advanced biodiesel and renewable diesel, as well as the
availability of imported advanced biodiesel and renewable diesel, may
be limited 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. Furthermore, the volume of advanced biodiesel and renewable
diesel and their corresponding feedstocks projected to be 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.\103\ It is also the case that actions unrelated to the RFS
program, such as recent tariffs on soybeans exported to China, could
result in increased supplies of domestic biodiesel feedstocks.\104\
However, we expect that further increases in advanced biofuel and
renewable fuel volumes would be increasingly likely to incur adverse
unintended impacts.
---------------------------------------------------------------------------
\103\ The October 2018 WASDE projects production of vegetable
oils in 2017/2018 in the World to be 203.33 million metric tons.
This quantity of vegetable oil would be sufficient to produce
approximately 58.1 billion gallons of biodiesel and renewable
diesel. Global production of biodiesel is projected to be 38.0
billion liters (10.0 billion gallons) according to the 2018 OECD-FAO
Agricultural Outlook.
\104\ The potential impacts of this tariff on the availability
of biodiesel feedstocks is discussed in our discussion of available
vegetable oils below.
---------------------------------------------------------------------------
We perceive the net benefits to be lower 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 by an increased collection of waste fats and oils or
increased production of feedstocks that are byproducts of other
industries, 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 markets to the U.S.
Advanced biodiesel and renewable diesel feedstocks include both
waste oils, fats, and greases; and oils from planted crops. We received
many comments from parties projecting that
[[Page 63727]]
available feedstocks from both of these sources are expected to
increase in 2019. We agree that increases in the availability of
advanced feedstocks would in 2019 and we have projected the magnitude
of these increases using the best available data, including data
received in comments on this rule. The projected growth in advanced
feedstocks, however, is expected to be modest relative to the volume of
these feedstocks that are currently being used to produce biodiesel and
renewable diesel. Most of the 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. The
availability of animal fats will likely increase with beef, pork, and
poultry production. 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.\105\ 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.\106\ 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.\107\ However, we acknowledge that production of these
feedstocks is likely to increase as crop yields, oil extraction rates,
and demand for the primary products increase in 2019.
---------------------------------------------------------------------------
\105\ 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.
\106\ 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
September 2018 Monthly Biodiesel Production Report.
\107\ This position is supported by several commenters,
including the South Dakota Soybean Association (EPA-HQ-OAR-2018-
0167-0389), the International Council on Clean Transportation (EPA-
HQ-OAR-2018-0167-0531), and the Union of Concerned Scientists (EPA-
HQ-OAR-2018-0167-0535).
---------------------------------------------------------------------------
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 final rule, the most current version of the WASDE is from October
2018. The projected increase in vegetable oil production in the U.S.
from 2017/2018 to 2018/2019 is 0.14 million metric tons per year. This
additional quantity of vegetable oils could be used to produce
approximately 40 million additional gallons of advanced biodiesel or
renewable diesel in 2019 relative to 2018.\108\ We recognize that
oilseed production is projected in increase by a much greater amount
(6.89 million metric tons).\109\ However, it is the vegetable oil,
rather than oilseed production, that is of relevance as an advanced
biodiesel and renewable diesel feedstock.
---------------------------------------------------------------------------
\108\ 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.
\109\ World Agricultural Supply and Demand Estimates. United
States Department of Agriculture. October 11, 2018.
---------------------------------------------------------------------------
A number of commenters mentioned the tariffs recently enacted by
China on soybean exports from the U.S. as a potential source of
additional feedstock for advanced biodiesel and renewable diesel. The
potential impacts of these tariffs are significant, as approximately 25
percent of the U.S. soybean crop is currently exported to China.\110\
However, the duration and ultimate impacts of these tariffs on total
exports of U.S. soybeans are highly uncertain. In recent months, the
price premium for soybeans from Brazil (the largest global exporter of
soybeans), which are not impacted by the tariffs, have increased to
approximately $2 per bushel.\111\ A likely result of this price premium
is that countries other than China will turn to U.S. sources of
soybeans, rather than sourcing soybeans from Brazil. Ultimately, the
tariffs could have little impact on the overall exports of soybeans
from the U.S.
---------------------------------------------------------------------------
\110\ Hart, Chad and Schulz, Lee. China's Importance in U.S. Ag
Markets. CARD Agricultural Policy Review. Available online: https://www.card.iastate.edu/ag_policy_review/article/?a=41.
\111\ Durisin, Megan and Dodge, Sam. Why Soybeans Are at the
Heart of the U.S.-China Trade War. Bloomberg. Published July 5,
2018. Updated July 9, 2018.
---------------------------------------------------------------------------
The most recent WASDE report projects that exports of oilseeds will
decrease by approximately 2 million metric tons (approximately 3
percent) from 2017/2018 to 2018/2019. In addition, the WASDE projects
that exports of vegetable oils will decrease by 0.10 million metric
tons during this same time period. The October WASDE appears to take
the recent tariffs into account, as there is a notable decrease in the
expected trade of oilseeds in the recent WASDE projections relative to
WASDE projections made prior to the announcement of Chinese tariffs on
U.S. soybeans.\112\ If the 2 million metric tons of soybeans were
crushed to produce vegetable oil, this oil, along with the 0.10 million
metric ton decrease in vegetable oil exports, could be used to produce
approximately 130 million gallons of biodiesel and renewable diesel,
less than 6 percent of the current market.\113\ We believe this is a
reasonable estimate of the volume of biodiesel and renewable diesel
that could be produced from a decrease in exports of oilseeds and
vegetable oil from the U.S. in 2019. However, any biodiesel and
renewable diesel produced from soybeans previously exported to China
are necessarily diverted from other uses (even if the reason for this
diversion is the tariffs, rather than the RFS program), and are
therefore more likely to have the adverse unintended impacts associated
with diverted feedstocks. We therefore have not included this potential
volume increase in our assessment of the reasonably attainable volume
of these fuels in 2019. These feedstocks are a likely source of
additional supply of advanced biodiesel and renewable diesel that could
contribute towards satisfying the difference between the reasonably
attainable volume of these fuels and the 2.8 billion gallons of these
fuels projected to be used to satisfy the advanced biofuel volume for
2019. We further note that even if the 130 million gallons of biodiesel
and renewable diesel that could be produced from a
[[Page 63728]]
decrease in exports of oilseeds and vegetable oil from the U.S. in 2019
were included in our projection of the reasonably attainable volume of
advanced biodiesel and renewable diesel, this projection would still be
less than 2.8 billion gallons.
---------------------------------------------------------------------------
\112\ Projected trade of oilseeds decreased from 63.46 million
metric tons for 2018/2019 in the June 2018 WASDE report to 57.20
million metric tons for 2018/2019 in the October 2018 WASDE.
\113\ To calculate the quantity of oil that can be produced from
2 million metric tons of oilseeds we converted this total to
approximately 73 million bushels of soybeans, assuming 60 pounds per
bushel. We then calculated that this quantity of soybeans could
produce approximately 800 million pounds of oil assuming each bushel
of soybeans produced 11 pounds of oil. To this, we added the
approximately 220 million pounds (0.10 million metric tons) of
decreased exports of vegetable oils for a total of 1.02 billion
pounds of vegetable oils. Finally, we divided this total by 7.7
pounds of vegetable oil per gallon of biodiesel (or renewable
diesel) to estimate that 130 million gallons of biodiesel and
renewable diesel could be produced from these feedstocks. Support
for the 7.7 pounds of vegetable oil per gallon of biodiesel
conversion factor can be found here: http://extension.missouri.edu/p/G1990. All other conversion factors are from Irwin, S. ``The Value
of Soybean Oil in the Soybean Crush: Further Evidence on the Impact
of the U.S. Biodiesel Boom.'' farmdoc daily (7):169, Department of
Agricultural and Consumer Economics, University of Illinois at
Urbana-Champaign, September 14, 2017.
---------------------------------------------------------------------------
In addition to virgin vegetable oils, we also expect increasing
volumes of distillers corn oil \114\ 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 final 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.\115\ In 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 approximately 120
million pounds from the 2017/2018 to the 2018/2019 agricultural
marketing year. This quantity of feedstock could be used to produce
approximately 15 million gallons of biodiesel or renewable diesel. We
believe it is reasonable to use these estimates from the WAEES model
for these purposes.
---------------------------------------------------------------------------
\114\ Distillers corn oil is non-food grade corn oil produced by
ethanol production facilities.
\115\ For the purposes of this rule, EPA relied on WAEES
modeling results submitted as comments by the National Biodiesel
Board on the 2019 proposed rule (Kruse, J., ``Implications of an
Alternative Advanced and Biomass Based Diesel Volume Obligation for
Global Agriculture and Biofuels'', August 13, 2018, World
Agricultural Economic and Environmental Services (WAEES)).
---------------------------------------------------------------------------
While much 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 an increase of only 5 million gallons in
the volume of biodiesel produced from feedstocks other than soybean
oil, canola oil, and distillers corn oil from 2018 to 2019.\116\
Conversely, an assessment conducted by LMC in 2017 and submitted in
comments on our proposed rule projected that the waste oil supply in
the U.S. could increase by approximately 2.4 million metric tons from
2016 to 2022.\117\ This estimate represents a growth rate of
approximately 0.4 billion tons per year, or enough feedstock to produce
approximately 115 million gallons of biodiesel and renewable diesel per
year. This estimate, however, only accounts for potential sources of
feedstock, and not for the economic viability of recovering waste oils.
While we acknowledge that additional waste oils could be collected in
2019, these waste oils will only be collected if it is economically
viable to do so. Neither the results of the WAEES model, nor the future
prices of soybean oil,\118\ suggest the prices for waste oils will
increase to a level that will incentivize significantly more wasted oil
collection in 2019 relative to previous years. We have therefore
included an additional 5 million gallons of advanced biodiesel and
renewable diesel from wasted oils in our assessment of the reasonably
attainable volume for 2019, consistent with the results of the WAEES
model.
---------------------------------------------------------------------------
\116\ Id.
\117\ LMC International. Global Waste Grease Supply. August
2017.
\118\ CME Group Soybean Oil Futures Quotes. Accessed online
October 23, 2018.
---------------------------------------------------------------------------
In total, we expect that increases in feedstocks produced in the
U.S. are sufficient to produce approximately 60 million more gallons of
advanced biodiesel and renewable diesel in 2019 relative to 2018. This
number includes 40 million gallons from increased vegetable oil
production, 15 million gallons from increased corn oil production, and
5 million gallons from increased waste oil collection. This number does
not include additional volumes related to decreases in exported volumes
of soybeans to China as a result of tariffs and/or increased collection
of waste oils. Decreased exports of soybeans and soybean oil, represent
feedstocks diverted from use in other countries, while any increase in
the collection of waste oils is highly uncertain. Our projection also
does not consider factors which could potentially decrease the
availability of advanced biofuel feedstocks that could be used to
produce biodiesel or renewable diesel, such as an increase in the
volume of vegetable oils used in food markets or other non-biofuel
industries. In our 2018 final rule, we determined that 2.55 billion
gallons of advanced biodiesel and renewable diesel were reasonably
attainable in 2018,\119\ therefore our projection of the reasonably
attainable volume of advanced biodiesel and renewable diesel in 2019 is
2.61 billion gallons.
---------------------------------------------------------------------------
\119\ 82 FR 58512 (December 12, 2017).
---------------------------------------------------------------------------
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 2.61 billion
gallons. Rather, this is the volume of these fuels that we project
could be supplied while seeking to minimize quantities of advanced
feedstocks or biofuels from existing uses. The October 2018 WASDE
reports that production of vegetable oil in the U.S. in the 2018/2019
market year will be sufficient to produce approximately 3.5 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 2018/2019 marketing year
would be sufficient to produce approximately 58.1 billion gallons of
biodiesel and renewable diesel (including both advanced and
conventional biofuels).\120\ 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,\121\ 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.
---------------------------------------------------------------------------
\120\ The October 2018 WASDE projects production of vegetable
oils in 2018/19 in the U.S. and the World to be 12.27 and 203.33
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.
\121\ 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 renewable diesel;
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
[[Page 63729]]
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 low carbon fuel standard (LCFS) in
California, the biodiesel blenders tax credit, and the opportunity for
imported biodiesel and renewable diesel to realize these incentives. As
in 2018, we have not included the potential for increased volumes of
imported advanced biodiesel and renewable diesel in our projection of
the reasonably attainable volume for 2019. There is a far higher degree
of uncertainty related to the availability and production of advanced
biodiesel and renewable diesel in foreign countries, as this supply can
be impacted by a number of unpredictable factors such as the imposition
of tariffs and increased incentives for the use of these fuels in other
countries (such as tax incentives or blend mandates). EPA also lacks
the data necessary to determine the quantity of these fuels that would
otherwise be produced and used in other countries, and thus the degree
to which the RFS standards are simply diverting this fuel from use in
other countries as opposed to incentivizing additional production.
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.\122\ Perhaps
more significantly, in December 2017 the U.S. International Trade
Commission adopted tariffs on biodiesel imported from Argentina and
Indonesia.\123\ According to data from EIA,\124\ no biodiesel was
imported from Argentina or Indonesia since September 2017, 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 prior to the imposition of tariffs,
accounting for over 550 million gallons in 2016 and approximately 290
million gallons in 2017.
---------------------------------------------------------------------------
\122\ Bipartisan Budget Act of 2018, Public Law 115-123, 132
Stat. 64 sections 40406, 40407, and 40415 (2018).
\123\ ``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.
\124\ See ``U.S. Imports of Biodiesel'' available in docket EPA-
HQ-OAR-2018-0167.
---------------------------------------------------------------------------
Despite these tariffs, imports of biodiesel and renewable diesel
have not ceased. From January to June 2018, biodiesel and renewable
diesel imports (according to EIA data) are approximately 172 million
gallons, suggesting an annual volume of approximately 390 million
gallons if the current import rates and seasonal trends hold through
the end of the year.\125\ This suggests that imported volumes of
advanced biodiesel and renewable diesel from countries other than
Argentina and Indonesia may increase by approximately 100 million
gallons in 2018 (from approximately 290 million gallons in 2017).
However overall imports have not returned to the levels observed prior
to the tariffs. 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 appears likely that imports of advanced
biodiesel and renewable diesel from other countries not impacted by
these tariffs will continue to increase, however these increases may
not be sufficient to replace all of the biodiesel imported from
Argentina and Indonesia in previous years by 2019.
---------------------------------------------------------------------------
\125\ See ``U.S. Imports of Biodiesel'' available in docket EPA-
HQ-OAR-2018-0167 and ``Projecting Biodiesel and Renewable Diesel
Production and Imports for 2018 (November 2018)'' Memorandum from
Dallas Burkholder to EPA Docket EPA-HQ-OAR-2018-0167.
---------------------------------------------------------------------------
In addition to EPA's assessment of the market's ability to produce,
import, distribute, and use the 2.8 billion gallons of advanced
biodiesel and renewable diesel projected to be used in 2019 to meet the
advanced biofuel volume requirement, EPA compared the projected
increase in these fuels to the increases observed in recent years.
While each year's circumstances are unique, a projected increase
comparable to pas increases further confirms that the volume is
attainable. Domestic production of advanced biodiesel and renewable
diesel in 2016 and 2017 was approximately 1.85 billion gallons, and is
expected to increase to approximately 2.15 billion gallons in 2018
based on production data through September 2018. Of this total,
approximately 150 million gallons of domestically produced biodiesel
was exported in 2016 and 2017. If imported biodiesel and renewable
diesel volumes continue to increase through 2019 by approximately 100
million gallons per year (to approximately 500 million gallons in 2019)
domestic production would need to increase by approximately 300 million
gallons in 2019 to reach a total advanced biodiesel and renewable
diesel supply of 2.8 billion gallons by 2019.\126\ This growth is
attainable, as it is approximately equal to the increase in the
domestic production of advanced biodiesel and renewable diesel from
2017 to 2018 (approximately 300 million gallons), and significantly
lower than the rate of growth observed in previous years (for example
the increase of 653 million gallons from 2012 to 2013 or the increase
of 779 million gallons from 2015 to 2016). We note, however, that using
this volume of advanced biodiesel and renewable diesel in the U.S. may
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 may instead be used in the
U.S. and alternative sources for significant volumes of these fuels
would need to be found.
---------------------------------------------------------------------------
\126\ This estimate assumes that the U.S. continues to export
approximately 150 million gallons of biodiesel per year in 2019.
Alternatively, if the U.S. consumes all domestically produced
biodiesel and renewable diesel, rather than exporting any of this
fuel, domestic production of advanced biodiesel and renewable diesel
would have to increase by approximately 150 million gallons in 2019.
This volume is approximately equal to the increase in the domestic
production of advanced biodiesel and renewable diesel from 2018 to
2019, which we also believe is attainable.
---------------------------------------------------------------------------
After a careful consideration of the factors discussed above, EPA
has determined that the 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
[[Page 63730]]
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 (3.1 billion gallons). This
volume (2.8 billion gallons) is only 200 million gallons 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.
Finally, the increase in the production and import of advanced
biodiesel and renewable diesel projected from 2018 to 2019 is
comparable to (or has been exceeded) by the increases observed in
recent years. While we do not believe it will be necessary, in the
event that the supply of advanced biodiesel and renewable diesel falls
short of the projected 2.8 billion gallons in 2019, 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. 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.\127\ 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. For 2019 we concluded that while it may be possible that
more than 4.92 billion gallons of advanced biofuel is attainable in
2019, requiring additional volumes would lead to higher costs, and
would likely result in feedstock switching and/or diversion of foreign
advanced biofuels.\128\ We do not believe that it would be appropriate
to set the advanced biofuel volume requirement higher than 4.92 billion
gallons given that it could lead to these results.
---------------------------------------------------------------------------
\127\ See, e.g., Renewable Fuel Standards for 2014, 2015 and
2016, and the Biomass-Based Volume for 2017: Response to Comments
(EPA-420-R-15-024, November 2015), pages 628-631, available in
docket EPA-HQ-OAR-2015-0111-3671.
\128\ There will likely be some feedstock switching and/or
diversion of foreign advanced biofuels to achieve an advanced
biofuel volume of 4.92 billion gallons. However, further reductions
in the advanced biofuel volume requirement would require the use of
the general waiver authority, which we do not believe is warranted.
---------------------------------------------------------------------------
We further note that while there is some uncertainty in the volume
of advanced biofuel that may be attainable or reasonably attainable,
even if greater volumes of advanced biofuel are attainable or
reasonably attainable, the high cost of these fuels provides sufficient
justification for our decision to reduce the advanced biofuel volume
for 2019 by the maximum amount under the cellulosic waiver authority.
In Section V we present illustrative cost projections for sugarcane
ethanol and soybean biodiesel in 2019, the two advanced biofuels that
would be most likely to provide the marginal increase in volumes of
advanced biofuel in 2019 in comparison to 2018. Sugarcane ethanol
results in a cost increase compared to gasoline that ranges from $0.39-
$1.04 per ethanol-equivalent gallon. Soybean biodiesel results in a
cost increase compared to diesel fuel that ranges from $0.74-$1.23 per
ethanol-equivalent gallon. The cost of these renewable fuels is high as
compared to the petroleum fuels they displace.
Based on the information presented above, we believe that 4.92
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 4.92 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 advanced biodiesel and renewable
diesel is attainable in 2019.
However, we also acknowledge that 2.8 billion gallons of advanced
biodiesel and renewable diesel is higher than the approximately 2.5
billion gallons projected to be supplied in 2018 based on available
data through September 2018. While 2.8 billion gallons would require an
increase in supply of approximately 300 million gallons between 2018
and 2019, this is approximately equal to the increase in domestic
production of these fuels from 2017 to 2018, and approximately 100
million gallons less than the increase in the supply of advanced
biodiesel and renewable diesel between 2017 and 2018 after adjusting
for imported volumes of these fuels from Argentina and Indonesia in
2017.\129\ Nevertheless, there is some uncertainty regarding whether
the market will actually supply 2.8 billion gallons in 2019.
---------------------------------------------------------------------------
\129\ To calculate the increase in the supply of advanced
biodiesel and renewable diesel between 2017 and 2018 after adjusting
for imported volumes of these fuels from Argentina and Indonesia in
2017, we subtracted the volume of biodiesel imported from Argentina
and Indonesia in 2017 from the total volume of these fuels supplied
in 2017 and compared this volume of advanced biodiesel and renewable
diesel supplied in 2018. There have been no imports of biodiesel
from Argentina and Indonesia since August 2017, when tariffs on
biodiesel imported from these countries were announced.
---------------------------------------------------------------------------
In the event that the market does not supply this volume, the
carryover RIN bank represents a source of RINs that could help
obligated parties meet an advanced biofuel volume requirement of 4.92
billion gallons in 2019 if the market fails to supply sufficient
advanced biofuels in 2019. As discussed in greater detail in Section
II.B.1 of the preamble, carryover RINs provide obligated parties
compliance flexibility in the face of substantial uncertainties in the
transportation fuel marketplace, and provide a liquid and well-
functioning RIN market upon which success of the entire program
depends. We currently estimate that there are approximately 620 million
advanced carryover RINs available.
In response to the proposal, we received comments supporting our
proposed volume requirement of 4.92 billion gallons, as well as
comments requesting higher or lower volumes. EPA's assessment of these
comments is provided in the RTC document.
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.
[[Page 63731]]
D. Volume Requirement for Total Renewable Fuel
As discussed in Section II.A.1, we believe that the cellulosic
waiver provision is best interpreted to reduce the advanced biofuel and
total renewable fuel volumes by equal amounts. 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 we 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
results in a total renewable fuel volume of 19.92 billion gallons as
shown in Table IV.A-1.\130\ 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.
---------------------------------------------------------------------------
\130\ 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.
---------------------------------------------------------------------------
In response to the July 10, 2018 proposal, some stakeholders said
that EPA had not evaluated whether 19.92 billion gallons of total
renewable fuel was attainable as it did for advanced biofuel. As a
result, they indicated that EPA had not fulfilled its responsibilities
under the statute and had not given stakeholders meaningful opportunity
to evaluate the proposed volume requirement. In response, we note first
of all that we proposed, and are finalizing, the maximum reduction
possible under the cellulosic waiver authority, and thus no additional
reductions are possible under that authority. Secondly, while the
general waiver authority does provide a means for further reductions in
the applicable volume requirement for total renewable fuel, the record
before us does not indicate that a waiver is warranted as described in
Section II of the RTC.
Notwithstanding the fact that we did not propose to use, and in
this final rule are not using the general waiver authority, we did in
fact provide a description of the ways in which the market could make
19.92 billion gallons volume of total renewable fuel available in 2019
in a memorandum to the docket.\131\ Some stakeholders pointed
specifically to a lack of any analysis of the volumes of E0, E15, and
E85 as a reason that the assessment in that memorandum was
insufficient. However, the supply and use of these gasoline-ethanol
blends is strongly influenced by consumer demand. We noted in the
proposal that, regardless of the outcome of such an assessment, we were
precluded from waiving volumes due to inadequate domestic supply
insofar as our assessment depended on a consideration of demand-side
factors.
---------------------------------------------------------------------------
\131\ ``Updated market impacts of biofuels in 2019,'' memorandum
from David Korotney to docket EPA-HQ-OAR-2018-0167. In prior actions
including the 2019 proposed rule and 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
(July 21, 2017). Given the D.C. Circuit's decision in ACE, however,
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 generally relevant to whether and how EPA
exercises its waiver authorities, such as our consideration of
whether the volumes will cause severe economic harm.
---------------------------------------------------------------------------
More importantly, an analysis of the volumes of E0, E15, and E85
that could be supplied in 2019 was not necessary to determine whether
the volume requirement of 19.92 billion gallons could be reached.\132\
This is because it is the total volume of ethanol that can be consumed
that is the relevant consideration in evaluating the reasonableness of
19.92 billion gallons, not the specific volumes of E0, E15, and
E85.\133\ To this end, we began with the assumption that the nationwide
average ethanol concentration could reach 10.11 percent in 2019 because
it had reached this same level in 2017. In the context of a market
wherein nearly all gasoline contains 10 percent ethanol, the average
ethanol concentration provides a better indication of the net effect of
all E0, E15, and E85 without the need to estimate the volumes of each.
In essence, our assumption that the average ethanol concentration would
be at least 10.11 percent provided a surrogate for attempting to
separately estimate volumes of E0, E15, and E85, which would contain a
high degree of uncertainty. Thus, as a result our use of the average
ethanol content is both more straightforward and more robust. In
addition to a consideration of the volumes of non-ethanol renewable
fuel that could be available in 2019, our consideration of 10.13
percent nationwide average ethanol concentration led us to a proposed
determination that the market could make available 19.88 billion
gallons of total renewable fuel in 2019. Following this same approach,
the updated market impacts for this final rule similarly demonstrates
that the market can make available 19.92 billion gallons of total
renewable fuel in 2019.
---------------------------------------------------------------------------
\132\ Cf. API, 706 F.3d at 481 (``Nothing in the text of Sec.
7545(o)(7)(D)(i), or any other applicable provision of the Act,
plainly requires EPA to support its decision not to reduce the
applicable volume of advanced biofuels with specific numerical
projections.'').
\133\ Importantly, EPA is not requiring the use of any specific
ethanol blend; rather, the market chooses which biofuels and blends
to use to satisfy the biofuel standards. See 42 U.S.C.
7545(o)(2)(A)(iii)(II)(bb) (the RFS program ``shall not'' ``impose
any per-gallon obligation for the use of renewable fuel'').
---------------------------------------------------------------------------
V. Impacts of 2019 Volumes on Costs
In this section, EPA presents its assessment of the illustrative
costs of the final 2019 RFS rule. It is important to note that these
illustrative costs do not attempt to capture the full impacts of this
final rule. We frame the analyses we have performed for this 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 this final rule.
The volumes for which we have provided cost estimates and are described
in Sections III and IV, and result from reducing the cellulosic,
advanced, and total renewable fuel volume requirements using the
cellulosic waiver authority under CAA section 211(o)(7)(D)(i). For this
rule we examine two different cases. In the first case, we provide
illustrative cost estimates by comparing the final 2019 renewable fuel
volumes to 2019 statutory volumes. In the second case, we examine the
final 2019 renewable fuel volumes to the final 2018 renewable fuel
volumes to estimate changes in the annual costs of the final 2019 RFS
volumes in comparison to the 2018 volumes.
[[Page 63732]]
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 the final 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).\134\ As described in Section III, we are finalizing a
cellulosic volume of 418 million gallons for 2019, using our cellulosic
waiver authority to waive the statutory cellulosic volume of 8.5
billion gallons by 8.082 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 cellulosic volume by the wholesale per-
gallon costs of cellulosic biofuel production relative to the petroleum
fuels they displace.
---------------------------------------------------------------------------
\134\ Since the implied non-cellulosic advanced biofuel and
implied conventional renewable fuel volumes are unchanged from the
statutory implied volumes, see supra note, there is no need to
estimate cost impacts for these volumes.
---------------------------------------------------------------------------
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 538
million gallons due to a limitation in the number of vehicles capable
of using this form of fuel.\135\
---------------------------------------------------------------------------
\135\ EPA projects that 538 million ethanol-equivalent gallons
of CNG/LNG will be used as transportation fuel in 2019 based on
EIA's October 2018 Short Term Energy Outlook (STEO). To calculate
this estimate, EPA used the Natural Gas Vehicle Use from the STEO
Custom Table Builder (0.12 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 40
CFR 80.1415(b)(5).
---------------------------------------------------------------------------
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 final rule that are estimated using this approach.\136\ The per-
gallon cost difference estimates for cellulosic ethanol ranges from
$0.27-$2.80 per ethanol-equivalent gallon.\137\ 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 final rule results in approximately $2.2-$23 billion in cost
savings.
---------------------------------------------------------------------------
\136\ Details of the data and assumptions used can be found in a
Memorandum available in the docket entitled ``Cost Impacts of the
Final 2019 Annual Renewable Fuel Standards'', Memorandum from
Michael Shelby, Dallas Burkholder, and Aaron Sobel available in
docket EPA-HQ-OAR-2018-0167.
\137\ 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 October 2018 STEO.
\138\ For this table and all subsequent tables in this section,
approximate costs in per gallon cost difference estimates are
rounded to the cents place.
\139\ 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.
Table V.A-1--Illustrative Costs of Exercising the Cellulosic Waiver
Authority Compared to the 2019 Statutory Volumes Baseline
------------------------------------------------------------------------
------------------------------------------------------------------------
Cellulosic Volume Required (Million Ethanol- 418
Equivalent Gallons)................................
Change in Required Cellulosic Biofuel from 2019 (8,082)
Statutory Volume (Million Ethanol-Equivalent
Gallons)...........................................
Cost Difference Between Cellulosic Corn Kernel Fiber $0.27-$2.80
Ethanol and Gasoline Per Gallon ($/Ethanol-
Equivalent Gallons) \138\..........................
Annual Change in Overall Costs (Million $) \139\.... $(2,200)-$(23,000)
------------------------------------------------------------------------
B. Illustrative Costs of the 2019 Volumes 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 130 gallons (ethanol-equivalent) and an increase in the
non-cellulosic advanced biofuel volumes for 2019 of 500 million gallons
(ethanol-equivalent).
1. Cellulosic Biofuel
We anticipate that the increase in the final 2019 cellulosic
biofuel volumes would be composed of 5 million gallons of liquid
cellulosic biofuel and 125
[[Page 63733]]
million gallons of CNG/LNG derived from landfill biogas. Based upon the
methodology outlined in Section V.A, we use corn kernel fiber 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 $0.27-$2.80 on an ethanol-
equivalent gallon basis. Next, the per-gallon costs of cellulosic
renewable fuel are multiplied by the 5 million gallon increase between
the final 2019 cellulosic volume and the final 2018 cellulosic RFS
volume requirements to estimate the total costs from the increase in
cellulosic ethanol.
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 125 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. The costs estimated for this
analysis exclude any pipeline costs to transport the pipeline quality
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.\140\
---------------------------------------------------------------------------
\140\ Details of the data and assumptions used can be found in a
Memorandum available in the docket entitled ``Cost Impacts of the
Final 2019 Annual Renewable Fuel Standards'', Memorandum from
Michael Shelby, Dallas Burkholder, and Aaron Sobel available in
docket EPA-HQ-OAR-2018-0167.
---------------------------------------------------------------------------
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 October 2018 STEO.\141\ 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 final 2019 cellulosic
volume compared to 2018 RFS cellulosic volume range from $(2.9)-$23
million.
---------------------------------------------------------------------------
\141\ Henry Hub Spot price estimate for 2019. EIA, Short Term
Energy Outlook (STEO) available in docket EPA-HQ-OAR-2018-0167.
---------------------------------------------------------------------------
2. Advanced Biofuel
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.\142\
---------------------------------------------------------------------------
\142\ Details of the data and assumptions used can be found in a
Memorandum available in the docket entitled ``Cost Impacts of the
Final 2019 Annual Renewable Fuel Standards'', Memorandum from
Michael Shelby, Dallas Burkholder, and Aaron Sobel available in
docket EPA-HQ-OAR-2018-0167.
---------------------------------------------------------------------------
Table V.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 $190-$610 million.
In addition, in Table V.B.2-1, we also present estimates of the
total cost of this final rule relative to 2018 RFS fuel volumes. We add
the increase in cost of the final 2019 cellulosic standard volume,
$(2.9)-$23 million, with the additional costs of the increase in non-
cellulosic advanced biofuel volumes resulting from the final 2019
advanced standard volume, $190-$610 million. The overall total costs of
this final rule range from $190-$630 million (after rounding to two
significant figures).
Table V.B.2-1--Illustrative Costs of the 2019 Volumes Compared to the
2018 RFS Volumes Baseline
------------------------------------------------------------------------
------------------------------------------------------------------------
Cellulosic Volume
------------------------------------------------------------------------
Corn Kernel Fiber Cellulosic Ethanol Costs:
Cost Difference Between Cellulosic Corn Kernel Fiber $0.27-$2.80
Ethanol and Gasoline Per Gallon ($/Ethanol-
Equivalent Gallons)................................
Change in Volume (Million Ethanol-Equivalent 5
Gallons)...........................................
Annual Increase in Overall Costs (Million $)........ $1.4-$14
CNG/LNG Derived from Biogas Costs:
Cost Difference Between CNG/LNG Derived from $(0.03)-$0.07
Landfill Biogas and Natural Gas Per Gallon ($/
Ethanol-Equivalent Gallons)........................
Change in Volume (Million Ethanol-Equivalent 125
Gallons)...........................................
Annual Increase in Overall Costs (Million $)........ $(4.3)-$9.0
Range of Annual Increase in Costs with Cellulosic Volume $(2.9)-$23
(Million $)............................................
------------------------------------------------------------------------
[[Page 63734]]
Advanced Volume
------------------------------------------------------------------------
Soybean Biodiesel Scenario:
Cost Difference Between Soybean Biodiesel and $0.74-$1.23
Petroleum Diesel Per Gallon ($/Ethanol-Equivalent
Gallons)...........................................
Change in Volume (Million Ethanol-Equivalent 500
Gallons)...........................................
Annual Increase in Overall Costs (Million $)........ $370-$610
Brazilian Sugarcane Ethanol Scenario:
Cost Difference Between Sugarcane Ethanol and $0.39-$1.04
Gasoline Per Gallon ($/Ethanol-Equivalent Gallons).
Change in Volume (Million Ethanol-Equivalent 500
Gallons)...........................................
Annual Increase in Overall Costs (Million $)........ $190-$520
Range of Annual Increase in Overall Costs with Non- $190-$610
Cellulosic Advanced Volume (Million $).................
------------------------------------------------------------------------
Cellulosic and Advanced Volumes
------------------------------------------------------------------------
Range of Annual Increase in Overall Costs with $190-$630
Cellulosic and Advanced Volume (Million $) \143\.......
------------------------------------------------------------------------
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 final 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, climate change impacts, 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,\144\ we have not analyzed these
impacts for the 2019 volume requirements.
---------------------------------------------------------------------------
\143\ Summed costs are presented using two significant figures.
\144\ 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 BBD applicable volume for 2020. We
are setting 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 setting 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. At that time, we will also set the percentage
standards for the other renewable fuel types 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.\145\ 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.
---------------------------------------------------------------------------
\145\ 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
[[Page 63735]]
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. Review of Implementation of the Program and 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, and the consequent number of available BBD RINs;
and for 2011-2019, the BBD and advanced biofuel standards.
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] \146\
--------------------------------------------------------------------------------------------------------------------------------------------------------
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.................................... 1,692 110 98 1,483 800 1,200 1,350
2012.................................... 1,737 183 90 1,465 1,000 1,500 2,000
2013.................................... 2,739 298 101 2,341 1,280 1,920 2,750
2014.................................... 2,710 126 92 2,492 1,630 \b\ 2,490 2,670
2015.................................... 2,796 133 32 2,631 1,730 \b\ 2,655 2,880
2016.................................... 4,008 203 52 3,753 1,900 2,850 3,610
2017.................................... 3,849 244 35 3,570 2,000 3,000 4,280
2018 \c\................................ 3,898 154 40 3,740 2,100 3,150 4,290
2019.................................... N/A N/A N/A N/A 2,100 3,150 4,920
--------------------------------------------------------------------------------------------------------------------------------------------------------
\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.
\c\ ``2018 BBD RINs generated,'' ``Exported BBD,'' and ``BBD RINs retired, Non-Compliance Reasons'' are projected based on data through September 2018.
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,\147\ 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.\148\ 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). Extrapolated data for 2018 also indicates that available BBD
RINs will exceed the BBD standard. This indicates that in certain
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.
---------------------------------------------------------------------------
\146\ Available BBD RINs Generated, Exported BBD RINs, and BBD
RINs Retired for Non-Compliance Reasons information from EMTS.
\147\ 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.
\148\ See 80 FR 77490-92, 77495 (December 14, 2015).
---------------------------------------------------------------------------
The prices paid for advanced biofuel and BBD RINs beginning in
early 2013 through September 2018 (the last month for which data are
available) 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.\149\ If,
[[Page 63736]]
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.\150\ 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.
---------------------------------------------------------------------------
\149\ 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.
\150\ 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 September 2018,
shown in Figure VI.B.2-1 below, we see that beginning in early 2013 and
through September 2018 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 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.\151\ While final standards were not in place throughout 2014 and
most of 2015, EPA had issued proposed rules for both of these
years.\152\ 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.\153\ 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.
---------------------------------------------------------------------------
\151\ 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 July 1, 2011).
\152\ See 80 FR 33100 (2014-16 standards proposed June 10,
2015); 78 FR 71732 (2014 standards proposed Nov. 29, 2013).
\153\ 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] TR11DE18.002
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.'' \154\ Unknown at that
[[Page 63737]]
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.\155\ 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.
---------------------------------------------------------------------------
\154\ 77 FR 59458, 59462 (September 27, 2012).
\155\ 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 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............................................................ 150 225 283
2012............................................................ 500 597 -35
2013............................................................ 829 552 421
2014 \c\........................................................ 192 143 2
2015 \c\........................................................ 162 147 -24
2016............................................................ 530 97 903
2017............................................................ 969 144 570
2018 \d\........................................................ 852 121 590
----------------------------------------------------------------------------------------------------------------
\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 required BBD
volume (multiplied by 1.5 to account for the equivalence value of biodiesel) required each year from the
number of BBD RINs available for compliance in that year. This number does not include carryover RINs, nor do
we account for factors that may impact the number of BBD RINs that must be retired for compliance, such as
differences between the projected and actual volume of obligated gasoline and diesel.
\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.
\d\ Available Advanced RINs and available D4 RINs in excess of the BBD requirement are projected based on data
through September 2018.
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 the RFS volumes created the opportunity for up to 530
million and 969 million gallons of ``other'' advanced for 2016 and 2017
respectively to be used to satisfy the advanced biofuel obligation,
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, only a small fraction of that space has been filled with
``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
[[Page 63738]]
volume of non-cellulosic advanced biofuel in this final rule increases
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 than 1 million gallons of BBD a year.\156\ 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.\157\
---------------------------------------------------------------------------
\156\ ``BBD RIN Generation by Company 2012, 2016, and 2017
CBI,'' available in EPA docket EPA-HQ-OAR-2018-0167.
\157\ 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.\158\ 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 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.\159\
---------------------------------------------------------------------------
\158\ See, e.g., Comments from Advanced Biofuel Association,
available in EPA docket EPA-HQ-2018-0167-1277.
\159\ 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).
---------------------------------------------------------------------------
We received comments from stakeholders suggesting that the BBD
volume standard is unique, as it is required to be set 14 months prior
to beginning of the compliance year, in contrast to the advanced
standard which is often modified only a month prior to the compliance
year. These commenters suggested that EPA should therefore increase the
BBD standard to allow for industry to utilize the 14-month notice to
make investments. EPA acknowledges this unique aspect of the BBD
volume, but still believes a volume of 2.43 billion appropriately
provides a floor for guaranteed BBD volume, while also providing space
for other advanced biofuels to compete in the market. 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 finalizing in this rule, we are setting a volume of 2.43 billion
gallons of BBD for 2020.
We recognize that the space for other advanced biofuels in 2020
will ultimately depend on the 2020 advanced biofuel volume. While EPA
is not establishing the advanced biofuel volume for 2020 in this
action, we anticipate that the non-cellulosic advanced biofuel volume
for 2020, when established, will be greater than 3.65 billion gallons
(equivalent to 2.43 billion gallons of BBD, after applying the 1.5
equivalence ratio). This expectation is consistent with our actions in
previous years. Accordingly, we expect that the 2020 advanced biofuel
volume, together with the 2020 BBD volume established today, will
continue to 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 and Determination of the 2020
Biomass-Based Diesel Volume
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.\160\ 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.\161\ 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 increasing 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.
---------------------------------------------------------------------------
\160\ See CAA section 211(o)(2)(B)(i)(IV), (II).
\161\ 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 use, production and imports that occur in
2020.\162\ Therefore, EPA
[[Page 63739]]
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 significant
difference in the factors we consider pursuant to CAA section
211(o)(2)(B)(ii)(I)-(VI) in 2020.
---------------------------------------------------------------------------
\162\ Even though we are not establishing 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 used, produced and imported during
the 2020-time period.
---------------------------------------------------------------------------
As an additional assessment, we considered in the 2020 BBD docket
memorandum \163\ the potential impacts on the statutory factors of
selecting an applicable volume of BBD other than 2.43 billion gallons
in 2020 and also in the longer term. While BBD volumes and resulting
impact on the statutory factors found in 211(o)(2)(B)(ii), will not
likely be significantly impacted by the 2020 BBD standard in the short
term, leaving room for growth of other advanced could have a beneficial
impact on certain statutory factors in the long term. Even if BBD
volumes were to be impacted by the 2020 BBD standard, setting a
requirement higher or lower than 2.43 billion gallons in 2020 would
only be expected to affect BBD volumes and the statutory factors found
in CAA section 211(o)(2)(B)(ii)(I)-(VI) minimally in 2020. However, we
find that over a longer timeframe, providing support for other advanced
biofuels could have beneficial effects for a number of the statutory
factors.
---------------------------------------------------------------------------
\163\ ``Memorandum to docket: Statutory Factors Assessment for
the 2020 Biomass-Based Diesel (BBD) Applicable Volumes.'' See Docket
EPA-HQ-OAR-2018-0167.
---------------------------------------------------------------------------
With the considerations discussed above in mind, as well as our
analysis of the factors specified in the statute, we are setting 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 significant 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 finalizing 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, as well as the implementation of the
program, supports a volume of 2.43 billion gallons.
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.
Sections II through V provide our rationale and basis for the final
volume requirements for 2019.\164\ The volumes used to determine the
percentage standards are shown in Table VII-1.
---------------------------------------------------------------------------
\164\ The 2019 volume requirement for BBD was established in the
2018 final rule.
Table VII-1--Volumes for Use in Determining the Final 2019 Applicable
Percentage Standards
------------------------------------------------------------------------
------------------------------------------------------------------------
Cellulosic biofuel............. Million ethanol- 418
equivalent gallons.
Biomass-based diesel........... Billion gallons........ 2.1
Advanced biofuel............... Billion ethanol- 4.92
equivalent gallons.
Renewable fuel................. Billion ethanol- 19.92
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 40 CFR 80.1407.
As specified in the RFS2 final rule,\165\ 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
[[Page 63740]]
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.\166\ 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 assessment of 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.
---------------------------------------------------------------------------
\165\ See 75 FR 14670 (March 26, 2010).
\166\ Under 40 CFR 80.1415(b)(4), renewable diesel with a lower
heating value of at least 123,500 Btu/gallon is assigned an
equivalence value of 1.7. A minority of renewable diesel has a lower
heating value below 123,500 BTU/gallon and is therefore assigned an
equivalence value of 1.5 or 1.6 based on applications submitted
under 40 CFR 80.1415(c)(2).
---------------------------------------------------------------------------
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 \167\
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,
determines whether the small refinery has demonstrated disproportionate
economic hardship, and may grant refineries exemptions upon such
demonstration.
---------------------------------------------------------------------------
\167\ 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. We are maintaining our 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.
C. Final 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.\168\
---------------------------------------------------------------------------
\168\ 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 29, 2018 EIA State Energy Data System (SEDS), Energy
Consumption Estimates.
Table VII.C-1--Values for Terms in Calculation of the Final 2019
Standards \169\
[Billion gallons]
------------------------------------------------------------------------
Term Description Value
------------------------------------------------------------------------
RFVCB.......................... Required volume of 0.418
cellulosic biofuel.
RFVBBD......................... Required volume of 2.10
biomass-based diesel.
RFVAB.......................... Required volume of 4.92
advanced biofuel.
RFVRF.......................... Required volume of 19.92
renewable fuel.
G.............................. Projected volume of 142.62
gasoline.
D.............................. Projected volume of 56.31
diesel.
RG............................. Projected volume of 14.53
renewables in gasoline.
RD............................. Projected volume of 2.75
renewables in diesel.
GS............................. Projected volume of 0
gasoline for opt-in
areas.
RGS............................ Projected volume of 0
renewables in gasoline
for opt-in areas.
DS............................. Projected volume of 0
diesel for opt-in
areas.
RDS............................ Projected volume of 0
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 provided by EIA in a letter to EPA that is
required under the statute, and represent consumption values from the
October 2018 version of EIA's Short-Term Energy Outlook.\170\
---------------------------------------------------------------------------
\169\ See ``Calculation of final % standards for 2019'' in
docket EPA-HQ-OAR-2018-0167.
\170\ ``EIA letter to EPA with 2019 volume projections 10-12-
18,'' available in docket EPA-HQ-OAR-2018-0167.
---------------------------------------------------------------------------
Using the volumes shown in Table VII.C-1, we have calculated the
final percentage standards for 2019 as shown in Table VII.C-2.
Table VII.C-2--Final Percentage Standards for 2019
------------------------------------------------------------------------
------------------------------------------------------------------------
Cellulosic biofuel...................................... 0.230
Biomass-based diesel.................................... 1.73
Advanced biofuel........................................ 2.71
[[Page 63741]]
Renewable fuel.......................................... 10.97
------------------------------------------------------------------------
VIII. Administrative Actions
A. Assessment of the Domestic Aggregate Compliance Approach
The RFS regulations specify an ``aggregate compliance'' approach
for demonstrating that planted crops and crop residue from the U.S.
complies with the ``renewable biomass'' requirements that address lands
from which qualifying feedstocks may be harvested.\171\ In the 2010
RFS2 rulemaking, EPA established a baseline number of acres for U.S.
agricultural land in 2007 (the year of EISA enactment) and determined
that as long as this baseline number of acres was not exceeded, it was
unlikely that new land outside of the 2007 baseline would be devoted to
crop production based on historical trends and economic considerations.
The regulations specify, therefore, that renewable fuel producers using
planted crops or crop residue from the U.S. as feedstock in renewable
fuel production need not undertake individual recordkeeping and
reporting related to documenting that their feedstocks come from
qualifying lands, unless EPA determines through one of its annual
evaluations that the 2007 baseline acreage of 402 million acres
agricultural land has been exceeded.
---------------------------------------------------------------------------
\171\ 40 CFR 80.1454(g).
---------------------------------------------------------------------------
In the 2010 RFS2 rulemaking, EPA committed to make an annual
finding concerning whether the 2007 baseline amount of U.S.
agricultural land has been exceeded in a given year. If the baseline is
found to have been exceeded, then producers using U.S. planted crops
and crop residue as feedstocks for renewable fuel production would be
required to comply with individual recordkeeping and reporting
requirements to verify that their feedstocks are renewable biomass.
The Aggregate Compliance methodology provided for the exclusion of
acreage enrolled in the Grassland Reserve Program (GRP) and the
Wetlands Reserve Program (WRP) from the estimated total U.S.
agricultural land. However, the 2014 Farm Bill terminated the GRP and
WRP as of 2013 and USDA established the Agriculture Conservation
Easement Program (ACEP) with wetlands and land easement components. The
ACEP is a voluntary program that provides financial and technical
assistance to help conserve agricultural lands and wetlands and their
related benefits. Under the Agricultural Land Easements (ACEP-ALE)
component, USDA helps Indian tribes, state and local governments, and
non-governmental organizations protect working agricultural lands and
limit non-agricultural uses of the land. Under the Wetlands Reserve
Easements (ACEP-WRE) component, USDA helps to restore, protect and
enhance enrolled wetlands. The WRP was a voluntary program that offered
landowners the opportunity to protect, restore, and enhance wetlands on
their property. The GRP was a voluntary conservation program that
emphasized support for working grazing operations, enhancement of plant
and animal biodiversity, and protection of grassland under threat of
conversion to other uses.
USDA and EPA concur that the ACEP-WRE and ACEP-ALE represent a
continuation in basic objectives and goals of the original WRP and GRP.
Therefore, in preparing this year's assessment of the total U.S. acres
of agricultural land, the acreage enrolled in the ACEP-WRE and ACEP-ALE
was excluded.
Based on data provided by the USDA Farm Service Agency (FSA) and
Natural Resources Conservation Service (NRCS), we have estimated that
U.S. agricultural land reached approximately 381 million acres in 2018,
and thus did not exceed the 2007 baseline acreage. This acreage
estimate is based on the same methodology used to set the 2007 baseline
acreage for U.S. agricultural land in the RFS2 final rulemaking, with
the GRP and WRP substitution as noted above. Specifically, we started
with FSA crop history data for 2018, from which we derived a total
estimated acreage of 381,694,332 acres. We then subtracted the ACEP-ALE
and ACEP-WRE enrolled areas by the end of Fiscal Year 2018, 798,023
acres, to yield an estimate of 380,896,309 acres or approximately 381
million acres of U.S. agricultural land in 2018. The USDA data used to
make this derivation can be found in the docket to this
rule.172 173
---------------------------------------------------------------------------
\172\ USDA also provided EPA with 2018 data from the
discontinued GRP and WRP programs. Given this data, EPA estimated
the total U.S. agricultural land both including and omitting the GRP
and WRP acreage. In 2018, combined land under GRP and WRP totaled
2,975,165 acres. Subtracting the GRP, WRP, ACEP-WRE, and ACEP-ALE
acreage yields an estimate of 377,921,144 acres or approximately 378
million total acres of U.S. agricultural land in 2018. Omitting the
GRP and WRP data yields approximately 381 million acres of U.S.
agricultural land in 2018.
\173\ In providing the 2018 agricultural land data to EPA, USDA
provided updated data from 2017. An explanation of this data and a
revised estimate of 2017 total U.S. agricultural land can be found
in the docket to this rule.
---------------------------------------------------------------------------
B. Assessment of the Canadian Aggregate Compliance Approach
The RFS regulations specify a petition process through which EPA
may approve the use of an aggregate compliance approach for planted
crops and crop residue from foreign countries.\174\ On September 29,
2011, EPA approved such a petition from the Government of Canada.
---------------------------------------------------------------------------
\174\ 40 CFR 80.1457.
---------------------------------------------------------------------------
The total agricultural land in Canada in 2018 is estimated at 118.5
million acres; below the 2007 baseline of 123 million acres. This total
agricultural land area includes 96.3 million acres of cropland and
summer fallow, 12.4 million acres of pastureland and 9.8 million acres
of agricultural land under conservation practices. This acreage
estimate is based on the same methodology used to set the 2007 baseline
acreage for Canadian agricultural land in EPA's response to Canada's
petition. The data used to make this calculation can be found in the
docket to this rule.
IX. Public Participation
Many interested parties participated in the rulemaking process that
culminates with this final rule. This process provided opportunity for
submitting written public comments following the proposal that we
published on July 3, 2018 (83 FR 31098), and we also held a public
hearing on July 18, 2018, at which many parties provided both verbal
and written testimony. All comments received, both verbal and written,
are available in Docket ID No. EPA-HQ-OAR-2018-0167 and we considered
these comments in developing the final rule. Public comments and EPA
responses are discussed throughout this preamble and in the
accompanying RTC document, which is available in the docket for this
action.
X. 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. EPA prepared an analysis of illustrative
costs associated with this action. This analysis is presented in
Section V of this preamble.
[[Page 63742]]
B. Executive Order 13771: Reducing Regulations and Controlling
Regulatory Costs
This action is considered an Executive Order 13771 regulatory
action. Details on the estimated costs of this final 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 final 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 final 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 130 million gallons and the advanced
biofuel and total renewable fuel volume requirements by 630 million
gallons between 2018 and 2019. To evaluate the impacts of the volume
requirements on small entities relative to 2018, we have conducted a
screening analysis \175\ to assess whether we should make a finding
that this action will 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 will not be significant. We have 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.\176\ 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 October 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.
---------------------------------------------------------------------------
\175\ ``Screening Analysis for the Final Renewable Fuel
Standards for 2019,'' memorandum from Dallas Burkholder, Nick
Parsons, and Tia Sutton to EPA Air Docket EPA-HQ-OAR-2018-0167.
\176\ 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.
---------------------------------------------------------------------------
While the screening analysis described above supports a
certification that this rule will 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, which was the rule that implemented
the entire program as required by EISA 2007.\177\ 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.
---------------------------------------------------------------------------
\177\ 75 FR 14670 (March 26, 2010).
---------------------------------------------------------------------------
For the SBREFA process for the RFS2 final rule, we 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, we 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 final rule will not impose any
additional requirements on small entities beyond those already
analyzed, since the impacts of this rule are not greater or
fundamentally different than those already considered in the analysis
for the RFS2 final rule assuming full implementation of the RFS
program. This final rule increases the 2019 cellulosic biofuel volume
requirement by 130 million gallons and the advanced biofuel and total
renewable fuel volume requirements by 630 million gallons relative to
the 2018 volume requirements, but those volumes remain significantly
below the statutory volume targets analyzed in the RFS2 final rule.
Compared to the burden that would be imposed under the volumes that we
assessed in the screening analysis for the RFS2 final rule (i.e., the
volumes specified in the Clean Air Act), the volume requirements
proposed in this rule reduce burden on small entities. Regarding the
BBD standard, we are increasing 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 setting 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 finalized 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
[[Page 63743]]
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.\178\
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
9 small refiners that own 11 refineries subject to the RFS program, all
of which are also small refineries.
---------------------------------------------------------------------------
\178\ See CAA section 211(o)(9)(B).
---------------------------------------------------------------------------
We evaluate 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, we consult with the U.S.
Department of Energy and consider the findings of DOE's 2011 Small
Refinery Study and other economic factors. To date, EPA has adjudicated
petitions for exemption from 29 small refineries for the 2017 RFS
standards (8 of which were owned by a small refiner).\179\
---------------------------------------------------------------------------
\179\ EPA is currently evaluating 7 additional 2017 petitions (1
of which is owned by a small refiner) and 15 additional 2018
petitions (7 of which are owned by a small refiner), bringing the
total number of petitions for 2017 to 36 and for 2018 to 15. More
information on Small Refinery Exemptions is available on EPA's
public website at: https://www.epa.gov/fuels-registration-reporting-and-compliance-help/rfs-small-refinery-exemptions.
---------------------------------------------------------------------------
In sum, this final rule will 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 will 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 will 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 action 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 will be affected only to the extent they
produce, purchase, or 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
EPA interprets Executive Order 13045 as applying only to those
regulatory actions that concern environmental health or safety risks
that 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 establishes 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 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
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 regulatory action 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.
L. Congressional Review Act (CRA)
This action is subject to the CRA, and EPA will submit a rule
report to each House of the Congress and to the Comptroller General of
the United States. This action is a ``major rule'' as defined by 5
U.S.C. 804(2).
XI. 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 final rule comes from sections
114, 208, and 301(a) of the Clean Air Act, 42 U.S.C. 7414, 7542, and
7601(a).
[[Page 63744]]
List of Subjects in 40 CFR Part 80
Environmental protection, Administrative practice and procedure,
Air pollution control, Diesel fuel, Fuel additives, Gasoline, Imports,
Oil imports, Petroleum, Renewable fuel.
Dated: November 30, 2018.
Andrew R. Wheeler,
Acting Administrator.
For the reasons set forth in the preamble, EPA is amending 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 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
0.230 percent.
(ii) The value of the biomass-based diesel standard for 2019 shall
be 1.73 percent.
(iii) The value of the advanced biofuel standard for 2019 shall be
2.71 percent.
(iv) The value of the renewable fuel standard for 2019 shall be
10.97 percent.
* * * * *
[FR Doc. 2018-26566 Filed 12-10-18; 8:45 am]
BILLING CODE 6560-50-P