[Federal Register Volume 77, Number 5 (Monday, January 9, 2012)]
[Rules and Regulations]
[Pages 1320-1358]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-33451]
[[Page 1319]]
Vol. 77
Monday,
No. 5
January 9, 2012
Part V
Environmental Protection Agency
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40 CFR Part 80
Regulation of Fuels and Fuel Additives: 2012 Renewable Fuel Standards;
Final Rule
Federal Register / Vol. 77 , No. 5 / Monday, January 9, 2012 / Rules
and Regulations
[[Page 1320]]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 80
[EPA-HQ-OAR-2010-0133; FRL-9614-4]
RIN 2060-AQ76
Regulation of Fuels and Fuel Additives: 2012 Renewable Fuel
Standards
AGENCY: Environmental Protection Agency (EPA).
ACTION: Final rule.
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SUMMARY: Under the Clean Air Act Section 211(o), the Environmental
Protection Agency is required to set the renewable fuel standards each
November for the following year. In general the standards are designed
to ensure that the applicable volumes of renewable fuel specified in
the statue are used. However, the statute specifies that EPA is to
project the volume of cellulosic biofuel production for the upcoming
year and must base the cellulosic biofuel standard on that projected
volume if it is less than the applicable volume set forth in the Act.
EPA is today finalizing a projected cellulosic biofuel volume for 2012
and annual percentage standards for cellulosic biofuel, biomass-based
diesel, advanced biofuel, and renewable fuels that will apply to all
gasoline and diesel produced or imported for domestic use in year 2012.
In the NPRM we also proposed an applicable volume of 1.28 billion
gallons for biomass-based diesel for 2013. The statute specifies that
the minimum volume of biomass-based diesel for years 2013 and beyond
must be at least 1.0 billion gallons. We are continuing to evaluate the
many comments on the NPRM from stakeholders, and will issue a final
rule setting the applicable biomass-based diesel volume for calendar
year 2013 as expeditiously as practicable. This action also presents a
number of changes to the RFS2 regulations that are designed to clarify
existing provisions and to address several unique circumstances that
have come to light since the RFS2 program became effective on July 1,
2010. Finally, today's rule also makes a minor amendment to the
gasoline benzene regulations regarding inclusion of transferred
blendstocks in a refinery's early benzene credit generation
calculations.
DATES: This final rule is effective on January 9, 2012.
ADDRESSES: EPA has established a docket for this action under Docket ID
No. EPA-HQ-OAR-2010-0133. All documents in the docket are listed in the
www.regulations.gov index. Although listed in the index, some
information is not publicly available, e.g., CBI or other information
whose disclosure is restricted by statute. Certain other material, such
as copyrighted material, will be publicly available only in hard copy.
Publicly available docket materials are available either electronically
in www.regulations.gov or in hard copy at the Air and Radiation Docket
and Information Center, EPA/DC, EPA West, Room 3334, 1301 Constitution
Ave. NW., Washington, DC. The Public Reading Room is open from 8:30
a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The
telephone number for the Public Reading Room is (202) 566-1744, and the
telephone number for the Air Docket is (202) 566-1742.
FOR FURTHER INFORMATION CONTACT: Julia MacAllister, Office of
Transportation and Air Quality, Assessment and Standards Division,
Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor, MI
48105; Telephone number: (734) 214-4131; Fax number: (734) 214-4816;
Email address: [email protected], or Assessment and Standards
Division Hotline; telephone number (734) 214-4636; Email address
[email protected].
SUPPLEMENTARY INFORMATION:
I. General Information
A. Does this action apply to me?
Entities potentially affected by this proposed rule are those
involved with the production, distribution, and sale of transportation
fuels, including gasoline and diesel fuel or renewable fuels such as
ethanol and biodiesel. Potentially regulated categories include:
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NAICS \1\ Examples of potentially regulated
Category Codes SIC \2\ Codes entities
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Industry................................... 324110 2911 Petroleum Refineries.
Industry................................... 325193 2869 Ethyl alcohol manufacturing.
Industry................................... 325199 2869 Other basic organic chemical
manufacturing.
Industry................................... 424690 5169 Chemical and allied products
merchant wholesalers.
Industry................................... 424710 5171 Petroleum bulk stations and
terminals.
Industry................................... 424720 5172 Petroleum and petroleum products
merchant wholesalers.
Industry................................... 454319 5989 Other fuel dealers.
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\1\ North American Industry Classification System (NAICS).
\2\ Standard Industrial Classification (SIC) system code.
This table is not intended to be exhaustive, but rather provides a
guide for readers regarding entities likely to be regulated by this
final action. This table lists the types of entities that EPA is now
aware could potentially be regulated by this final action. Other types
of entities not listed in the table could also be regulated. To
determine whether your activities will be regulated by this final
action, you should carefully examine the applicability criteria in 40
CFR part 80. If you have any questions regarding the applicability of
this final action to a particular entity, consult the person listed in
the preceding section.
Outline of This Preamble
I. Executive Summary
A. Standards for 2012
1. Assessment of 2012 Cellulosic Biofuel Volume
2. Advanced Biofuel and Total Renewable Fuel in 2012
3. Percentage Standards for 2012
4. Historical Renewable Fuel Production
B. Regulatory Changes
C. 2012 Price for Cellulosic Biofuel Waiver Credits
D. Assessment of the Domestic Aggregate Compliance Approach
E. Assessment of the Canadian Aggregate Compliance Approach
II. Projection of Cellulosic Volume and Assessment of Biomass-Based
Diesel and Advanced Biofuel for 2012
A. Statutory Requirements
B. Cellulosic Biofuel Volume Assessment
1. Existing Cellulosic Biofuel Facilities
2. Potential New Facilities in 2012
3. Imports of Cellulosic Biofuel
4. Projections From the Energy Information Administration
5. Comments on the Proposed Rule
6. Summary of Volume Projections
C. Advanced Biofuel and Total Renewable Fuel in 2012
D. Biomass-Based Diesel in 2012
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III. Final Percentage Standards for 2012
A. Background
B. Calculation of Standards
1. How are the standards calculated?
2. Small Refineries and Small Refiners
3. Final Percentage Standards
IV. Changes to RFS2 Regulations
A. Summary of Amendments
B. Technical Justification for Equivalence Value Application
C. Changes to Definitions of Terms
1. Definition of Annual Cover Crop
2. Definition of ``Naphtha''
D. Technical Amendments Related to RIN Generation and Separation
1. RIN Separation Limit for Obligated Parties
2. RIN Retirement Provision for Error Correction
3. Production Outlook Reports Submission Deadline
4. Attest Procedures
E. Technical Amendments Related to Registration & Recordkeeping
1. Construction Discontinuance & Completion Documentation
2. Third-Party Engineering Reviews
3. Foreign Ethanol Producers
F. Additional Amendments and Clarifications
1. Third-Party Engineering Review Addendum
2. RIN Generation for Fuel Imported From a Registered Foreign
Producer
3. Bond Posting
4. Prohibition Against Repeat Generation of RINs
5. Acceptance of Separated Yard Waste and Food Waste Separation
Plans
6. Transferred Blendstocks in Early Benzene Credit Generation
Calculations
V. Annual Administrative Announcements
A. 2011 Price for Cellulosic Biofuel Waiver Credits
B. Assessment of the Domestic Aggregate Compliance Approach
C. Assessment of the Canadian Aggregate Compliance Approach
VI. Comments Outside the Scope of This Rulemaking
VII. Public Participation
VIII. Statutory And Executive Order Reviews
A. Executive Order 12866: Regulatory Planning and Review and
Executive Order 13563: Improving Regulation and Regulatory Review
B. Paperwork Reduction Act
C. Regulatory Flexibility Act
D. Unfunded Mandates Reform Act
E. Executive Order 13132: Federalism
F. Executive Order 13175: Consultation and Coordination With
Indian Tribal Governments
G. Executive Order 13045: Protection of Children From
Environmental Health Risks and Safety Risks
H. Executive Order 13211: Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use
I. National Technology Transfer Advancement Act
J. Executive Order 12898: Federal Actions To Address
Environmental Justice in Minority Populations and Low-Income
Populations
K. Congressional Review Act
IX. Statutory Authority
I. Executive Summary
The Renewable Fuel Standard (RFS) program began in 2006 pursuant to
the requirements in Clean Air Act (CAA) section 211(o) which were added
through the Energy Policy Act of 2005 (EPAct). The statutory
requirements for the RFS program were subsequently modified through the
Energy Independence and Security Act of 2007 (EISA), resulting in the
promulgation of revised regulatory requirements on March 26, 2010.\1\
The transition from the RFS1 requirements of EPAct to the RFS2
requirements of EISA generally occurred on July 1, 2010.
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\1\ 75 FR 14670.
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Under RFS2, EPA is required to determine and publish the applicable
annual percentage standards for each compliance year by November 30 of
the previous year. As part of this effort, EPA must determine the
projected volume of cellulosic biofuel production for the following
year. If the projected volume of cellulosic biofuel production is less
than the applicable volume specified in section 211(o)(2)(B)(i)(III) of
the statute, EPA must lower the applicable volume used to set the
annual cellulosic biofuel percentage standard to the projected volume
of production. When we lower the applicable volume of cellulosic
biofuel in this manner, we are also authorized to lower the applicable
volumes of advanced biofuel and/or total renewable fuel by the same or
a lesser amount. Since these evaluations are based on evolving
information about emerging segments of the biofuels industry, and may
result in the applicable volumes differing from those in the statute,
we believe that it is appropriate to establish the applicable volumes
through a notice-and-comment rulemaking process. Today's notice
provides our final evaluation of the projected production of cellulosic
biofuel for 2012, our evaluation of whether to lower the applicable
volumes of advanced biofuel and total renewable fuel, and the final
percentage standards for compliance year 2012. We are finalizing a
cellulosic biofuel requirement of 10.45 mill ethanol-equivalent gallons
for 2012, and are not reducing the advanced biofuel or total renewable
fuel requirements below the levels specified in the statute. For future
years, EPA will continue to evaluate whether it is appropriate to
adjust the volume of advanced and total renewable fuel, if EPA adjusts
the volume of cellulosic biofuel. In making such determinations, EPA
will consider all relevant factors. The evaluations that led to these
2012 volume requirements were based on our evaluation of individual
producers' production plans and progress, a consideration of comments
received in response to our notice of proposed rulemaking published on
July 1, 2011,\2\ the estimate of projected biofuel volumes that the
Energy Information Administration (EIA) is required to provide to EPA
by October 31, and other information that became available.
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\2\ 76 FR 38844.
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Today's final rule does not include an assessment of the
environmental impacts of the percentage standards we are setting for
2012. All of the impacts of the RFS2 program were addressed in the RFS2
final rule published on March 26, 2010, including impacts of the
biofuel standards specified in the statute. Today's rulemaking simply
sets the standards for 2012 whose impacts were already analyzed
previously.
Today's notice also finalizes a number of changes to the RFS2
regulations. These changes are designed to reduce confusion among
regulated parties and streamline implementation by clarifying certain
terms and phrases and addressing unique circumstances that came to
light after the RFS2 program went into effect on July 1, 2010.
Additionally, this notice also makes a minor amendment to the gasoline
benzene regulations regarding inclusion of transferred blendstocks in a
refinery's early benzene credit generation calculations. Further
discussion of all of these changes can be found in Section IV.
Finally, in today's rulemaking we are announcing the price for
cellulosic biofuel waiver credits that will be available for compliance
with the 2012 cellulosic biofuel requirement, and are also announcing
the results of our annual assessment of the aggregate compliance
approach for U.S. crops and crop residue. These announcements are
provided in Section V.
EPA is required to determine the applicable volume of biomass-based
diesel (BBD) that will be required in 2013 and beyond based on
consideration of a variety of factors, and promulgate regulations
establishing the volumes. The statute specifies that the volume of
biomass-based diesel for years 2013 and beyond must be at least 1
billion gallons. In the NPRM we proposed an applicable volume of 1.28
bill gallons for BBD for 2013. We are continuing to evaluate the many
comments on the NPRM from stakeholders as well as fulfilling other
analytical requirements. In determining
[[Page 1322]]
the BBD applicable volume, the statute requires an analysis of the
impact of the BBD volume on a variety of factors such as the impact of
BBD on energy security, transportation fuel costs, job creation, water
quality, and other factors. EPA intends to gather additional
information to enhance our analysis of these factors including
consideration of costs and benefits consistent with the provisions of
E.O. 13563, to ensure an appropriately balanced decision. For these
reasons, we are not finalizing an applicable volume for 2013 BBD in
today's rulemaking. We recognize that the statute calls for EPA to
promulgate the applicable volume of BBD for 2013 no later than 14
months before that year. We do intend to issue a final determination
setting the applicable BBD volume for calendar year 2013 as
expeditiously as practicable.
A. Standards for 2012
1. Assessment of 2012 Cellulosic Biofuel Volume
To estimate the volume of cellulosic biofuel that can be made
available in the U.S. in 2012, we researched all potential production
sources by company and facility. This included sources that were still
in the planning stages, those that were under construction, and those
that are already producing some volume of cellulosic ethanol,
cellulosic diesel, or some other type of cellulosic biofuel. Facilities
primarily focused on research and development work with no intention of
marketing any fuel produced were not considered for this assessment.
From this universe of potential cellulosic biofuel sources we
identified the subset that had a possibility of producing some volume
of qualifying cellulosic biofuel for use as transportation fuel in
2012.
In today's final rule we specify the projected available volume for
2012 that forms the basis for the percentage standard for cellulosic
biofuel. To arrive at this final volume, we took into consideration
additional factors such as the current and expected state of funding,
the status of the technology, progress towards construction and
production goals, and other significant factors that could potentially
impact fuel production or the ability of the produced fuel to generate
cellulosic Renewable Identification Numbers (RINs). We also considered
projections of cellulosic biofuel provided by the EIA. Further
discussion of these factors can be found in Section II.B.
In our assessment we focused on domestic sources of cellulosic
biofuel. While imports of cellulosic biofuels are possible and could be
eligible to generate RINs, we believe this is unlikely due to local
demand for cellulosic biofuels in the countries in which they are
produced as well as the cost associated with transporting these fuels
to the U.S. Of the domestic sources, we estimated that six facilities
can make volumes of cellulosic biofuel available for transportation use
in the U.S. in 2012. These facilities are listed in Table I.A.1-1 along
with our estimate of the projected 2012 volume for each.
Table I.A.1-1--Projected Available Cellulosic Biofuel Plant Volumes for 2012
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Projected
available volume
Company Location Fuel type (million ethanol-
equivalent
gallons)
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American Process Inc................... Alpena, MI............... Ethanol.................. 0.5
Fiberight.............................. Blairstown, IA........... Ethanol.................. 2.0
INEOS Bio.............................. Vero Beach, FL........... Ethanol.................. 3.0
KiOR................................... Columbus, MS............. Gasoline, Diesel......... 4.8
KL Energy Corp......................... Upton, WY................ Ethanol.................. 0.1
ZeaChem................................ Boardman, OR............. Ethanol.................. 0.05
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Total.............................. ......................... ......................... 10.45
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Each of the facilities listed in the Table I.A.1-1 are at different
points in their progress towards the production of commercial volumes
of cellulosic biofuel. KL Energy Corp. is the only facility in the
United States currently generating cellulosic biofuel RINs. American
Process Inc., Fiberight, and ZeaChem all anticipate completing
construction on their production facilities in late 2011 or early 2012
and plan to begin producing biofuel soon after their facilities are
complete. INEOS Bio and KiOR are targeting April 2012 and mid 2012 for
the start-up of their respective cellulosic biofuel production
facilities. The variation in these expected start-up times, along with
the facility production capacities, company production plans, and a
variety of other factors have all been taken into account in projecting
the available volume of cellulosic biofuel from each these facilities.
2. Advanced Biofuel and Total Renewable Fuel in 2012
The statute indicates that we may reduce the applicable volume of
advanced biofuel and total renewable fuel if we determine that the
projected volume of cellulosic biofuel production for 2012 falls short
of the statutory volume of 500 million gallons. As shown in Table
I.A.1-1, we have determined that this is the case. Therefore, we also
must evaluate the need to lower the applicable volumes for advanced
biofuel and total renewable fuel.
To address the need to lower the advanced biofuel standard, we
first consider whether it appears likely that the biomass-based diesel
volume of 1.0 billion gallons specified in the statute can be met in
2012. As discussed in Section II.E, we believe that the 1.0 billion
gallon standard can indeed be met. Since biodiesel has an Equivalence
Value of 1.5, 1.0 billion physical gallons of biodiesel would provide
1.5 billion ethanol-equivalent gallons that can be counted towards the
advanced biofuel standard of 2.0 billion gallons. Of the remaining 0.5
bill gallons, 10.45 mill gallons will be met with cellulosic biofuel.
Based on our analysis as described in Section II.C, we believe that
there will be sufficient volumes of other advanced biofuels, such as
imported sugarcane ethanol, additional biodiesel, or renewable diesel,
such that the applicable volume for advanced biofuel can remain at the
statutory level of 2.0 billion gallons. In addition, as discussed in
Section II.C, we believe there will be sufficient volumes to satisfy
the 15.2 billion gallon applicable
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volume of total renewable fuel specified in the Act, so the 2012 total
renewable fuel percentage standard is based on that volume.
3. Percentage Standards for 2012
The renewable fuel standards are expressed as a volume percentage,
and are used by each refiner, blender or importer to determine their
renewable fuel volume obligations. The applicable percentages are set
so that if each regulated party meets the percentages, and if EIA
projections of gasoline and diesel use are accurate, then the amount of
renewable fuel, cellulosic biofuel, biomass-based diesel, and advanced
biofuel used will meet the volumes required on a nationwide basis.
To calculate the percentage standard for cellulosic biofuel for
2012, we have used the projected annual volume of 10.45 million
ethanol-equivalent gallons (representing 8.65 million physical
gallons). The applicable volumes for biomass-based diesel, advanced
biofuel, and total renewable fuel for 2012 will be those specified in
the statute. These volumes are shown in Table I.A.3-1.
Table I.A.3-1--Final Volumes for 2012
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Actual volume Ethanol equivalent volume \a\
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Cellulosic biofuel.................... 8.65 mill gal............ 10.45 mill gal.
Biomass-based diesel.................. 1.0 bill gal............. 1.5 bill gal.
Advanced biofuel...................... 1.3-1.5 \b\ bill gal..... 2.0 bill gal.
Renewable fuel........................ 14.5-14.7 \b\ bill gal... 15.2 bill gal.
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\a\ Biodiesel and cellulosic diesel have equivalence values of 1.5 and 1.7 ethanol equivalent gallons
respectively. As a result, ethanol-equivalent volumes are larger than actual volumes for cellulosic biofuel
and biomass-based diesel.
\b\ Range depends on the equivalence values of advanced biofuels other than cellulosic biofuel and biomass-based
diesel.
Four separate standards are required under the RFS2 program,
corresponding to the four separate volume requirements shown in Table
I.A.3-1. The specific formulas we use to calculate the renewable fuel
percentage standards are contained in the regulations at Sec. 80.1405
and repeated in Section III.B.1. The percentage standards represent the
ratio of renewable fuel volume to projected non-renewable gasoline and
diesel volume. The projected volume of transportation gasoline and
diesel used to calculate the standards in today's final rule was
provided by EIA.\3\
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\3\ Letter from Howard K. Gruenspecht, Acting Administrator,
Energy Information Administration, to Lisa P. Jackson,
Administrator, EPA. October 19, 2011.
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In March 2011, DOE evaluated the impacts of the RFS program on
small entities and concluded that some small refineries would suffer a
disproportionate economic hardship if required to participate in the
program.\4\ As a result, we are required to exempt these few refineries
from being obligated parties for a minimum of two years (2011 and
2012), and must also exempt their gasoline and diesel volumes from the
calculation of the annual percentage standards. In addition, EPA has
approved a number of individual small refinery petitions submitted
pursuant to 40 CFR Sec. 80.1441(e)(2) since publication of the
proposed rule, and has also adjusted the final 2012 percentage
standards to reflect the exemption of these small refineries from being
RFS obligated parties in 2012. The final standards for 2012 are shown
in Table I.A.3-2 and include the adjustment for exempt small refineries
(which constitute about 3.6% of the gasoline pool and 4.5% of the
diesel pool). Detailed calculations can be found in Section III.
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\4\ ``Small Refinery Exemption Study: An Investigation into
Disproportionate Economic Hardship,'' U.S. Department of Energy,
March 2011.
Table I.A.3-2--Final Percentage Standards for 2012
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Cellulosic biofuel........................................... 0.006%
Biomass-based diesel......................................... 0.91
Advanced biofuel............................................. 1.21
Renewable fuel............................................... 9.23
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4. Historical Renewable Fuel Production
To provide a comparison to the 2012 volume requirements shown in
Table I.A.3-1, we determined the actual annual production volumes for
the four RFS categories of renewable fuel. Since data on 2011
production is currently incomplete, we have shown the production
volumes for the full year beginning in July 2010 and ending in June
2011. July 2010 also marks the start of the RFS2 program when data
collection began with the EPA-Moderated Transaction System (EMTS) on
production of renewable fuel and generation of RINs.
Table I.A.4-1--Production of Renewable Fuel From July 2010-June 2011 \a\
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Actual volume Ethanol equivalent volume \a\
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Cellulosic biofuel.................... 0 mill gal............... 0 mill gal.
Biomass-based diesel.................. 0.43 \b\ bill gal........ 0.64 \b\ bill gal.
Advanced biofuel...................... 0.47 bill gal............ 0.70 bill gal.
Renewable fuel........................ 14.05 bill gal........... 14.29 bill gal.
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\a\ Except for biomass-based diesel, data derived from the EPA-Moderated Transaction System (EMTS) at http://www.epa.gov/otaq/fuels/rfsdata/index.htm.
\b\ Due to ongoing investigations of biodiesel RIN generation, these values have been derived from Census Bureau
data on fats and oils at http://www.census.gov/manufacturing/cir/historical_data/m311k/index.html.
[[Page 1324]]
B. Regulatory Changes
In today's action we are also finalizing a number of changes to the
RFS2 regulations. These changes are intended to:
Clarify certain provisions because we have learned that
there is some confusion among some regulated parties
Clarify the application of certain provisions to unique
circumstances
Provide greater specificity in the definition of certain
terms
Correct regulatory language that inadvertently
misrepresented our intent
Today's rule also makes a minor amendment to the gasoline benzene
regulations regarding inclusion of transferred blendstocks in a
refinery's early benzene credit generation calculations. A detailed
discussion of these regulatory changes is provided in Section IV.
C. 2012 Price for Cellulosic Biofuel Waiver Credits
Since we are reducing the required volume of cellulosic biofuel for
2012 below the applicable volume specified in the statute, EPA is
required to offer biofuel waiver credits to obligated parties that can
be purchased in lieu of acquiring cellulosic biofuel RINs.\5\ These
waiver credits are not allowed to be traded or banked for future use,
are only allowed to be used to meet the 2012 cellulosic biofuel
standard, and cannot be applied to deficits carried over from 2011.
Moreover, unlike cellulosic biofuel RINs, waiver credits may not be
used to meet either the advanced biofuel standard or the total
renewable fuel standard. For the 2012 compliance period, we are making
cellulosic biofuel waiver credits available to obligated parties for
end-of-year compliance should they need them at a price of $0.78 per
credit. Further discussion is provided in Section VI.A.
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\5\ One waiver credit would apply to one gallon of an obligated
party's cellulosic biofuel Renewable Volume Obligation (RVO).
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D. Assessment of the Domestic Aggregate Compliance Approach
As part of the RFS2 regulations, EPA established an aggregate
compliance approach for renewable fuel producers who use planted crops
and crop residue from U.S. agricultural land. This compliance approach
relieved such producers (and importers of such fuel) of the individual
recordkeeping and reporting requirements otherwise required of
producers and importers to verify that feedstocks used in the
production of RIN-qualifying renewable fuel meet the definition of
renewable biomass. EPA determined that 402 million acres of U.S.
agricultural land was available in 2007 (the year of EISA enactment)
for production of crops and crop residue that would meet the definition
of renewable biomass, and determined that as long as this total number
of acres is not exceeded, it is unlikely that new land has been devoted
to crop production based on historical trends and economic
considerations. We indicated that we would conduct an annual evaluation
of total U.S. acreage that is cropland, pastureland, or conservation
reserve program land, and that if the value exceed 402 million acres,
producers using domestically-grown crops or crop residue to produce
renewable fuel would be subject to individual recordkeeping and
reporting to verify that their feedstocks meet the definition of
renewable biomass.
The RFS2 regulations provide that EPA will make a finding
concerning whether the 2007 baseline amount of U.S. agricultural land
has been exceeded in a given year and will publish this finding in the
Federal Register by November 30 of the same year. Based on data
provided by the USDA, we have estimated that U.S. agricultural land
reached 392 million acres in 2011, and thus did not exceed the 2007
baseline acreage.
We also stated in the preamble to the final RFS2 rule that if, at
any point, EPA finds that the total agricultural land is greater than
397 million acres, EPA will conduct further investigations to evaluate
validity of the domestic aggregate compliance approach. The total
acreage estimate of 392 million acres does not exceed the trigger point
for further investigation; therefore EPA does not plan to conduct
further investigations into this matter. Additional discussion on this
matter can be found in Section V.B of this preamble.
E. Assessment of the Canadian Aggregate Compliance Approach
On September 29, 2011, EPA approved the use of an aggregate
compliance approach to renewable biomass verification for planted crops
and crop residue grown in Canada. On March 15, 2011, EPA issued a
notice of receipt of and solicited public comment on a petition for EPA
to authorize the use of an aggregate approach for compliance with the
Renewable Fuel Standard renewable biomass requirements, submitted by
the Government of Canada. The petition requested that EPA determine
that an aggregate compliance approach will provide reasonable assurance
that planted crops and crop residue from Canada meet the definition of
renewable biomass.
The Government of Canada utilized several types of land use data to
demonstrate that the land included in their 124 million acre baseline
is cropland, pastureland or land equivalent to U.S. Conservation
Reserve Program land that was cleared or cultivated prior to December
19, 2007, and was actively managed or fallow and nonforested on that
date (and is therefore RFS2 qualifying land). The total agricultural
land in Canada in 2011 is estimated at 121 million acres. This data was
presented to EPA in a report titled: Changes to the Renewable Fuel
Standard Program Aggregate Compliance for Canadian Crops and Crop
Residues: Data Analysis and Justification Report 2011. This report has
been docketed at EPA-HQ-OAR-2010-0133. The total acreage estimate of
121 million acres does not exceed the trigger point for further
investigation; therefore EPA does not plan to conduct further
investigations into this matter. Additional discussion on this matter
can be found in Section V.B of this preamble.
II. Projection of Cellulosic Volume and Assessment of Biomass-Based
Diesel and Advanced Biofuel for 2012
In order to project production volume of cellulosic biofuel in 2012
for use in setting the percentage standard, we collected information on
individual facilities that have the potential to produce qualifying
volumes for consumption as transportation fuel, heating oil, or jet
fuel in the U.S. in 2012. This section describes the projected
available volume of cellulosic biofuel in 2012 as well as some of the
uncertainties associated with those volumes. Section III describes the
derivation of the percentage standards that will apply to obligated
parties in 2012.
The 2012 volume projections in today's final rule were based on
several sources of information:
An estimate from EIA of the volumes of transportation
fuel, biomass-based diesel, and cellulosic biofuel that they project
will be sold or introduced into commerce in the U.S. in 2012.
Progress that the cellulosic biofuel industry is making in
2011
Our own assessment of the cellulosic biofuel industry's
projected volumes for 2012
Comments in response to the NPRM
In addition to the sources of information listed above EPA had also
intended to consider the Production Outlook Reports that are required
under Sec. 80.1449 for all registered renewable
[[Page 1325]]
fuel producers and importers. These Production Outlook Reports were not
as useful as EPA had hoped in helping to provide information on the
intentions of cellulosic biofuel producers in 2012 as very few had
registered under the RFS program and they were thus not required to
submit a report. EPA expects that in future years as more cellulosic
biofuel producers register under the RFS program these reports will
become of greater value in helping to determine the appropriate
projected available volume of cellulosic biofuel.
In directing EPA to project cellulosic biofuel production for
purposes of setting the annual cellulosic biofuel standard, Congress
did not specify what degree of certainty should be reflected in the
projections. However, in response to the NPRM, some commenters cited
Executive Order 13563 which states that regulations must in general
``promote predictability and reduce uncertainty.'' We agree that this
must be a goal in the process of determining the appropriate cellulosic
biofuel requirement for 2012. The greatest certainty is achieved when
the level of the standard is firmly established before it becomes
applicable, and all regulated parties can have confidence regarding
that standard. Doing this ensures that obligated parties know what
their obligations will be so that they can begin efforts to meet those
obligations, and biofuel producers know what baseline demand for their
product will be so that they can secure financing and ramp up
production with confidence.
In contrast to statements made by several obligated parties,
meeting the dual goals of predictability and reducing uncertainty does
not require EPA to specify an applicable volume for cellulosic biofuel
that is as low as possible, or based only on demonstrated (as opposed
to reasonably anticipated) production. Due to the availability of
cellulosic waiver credits, obligated parties always have the means to
comply with the cellulosic biofuel standard that we set,\6\ and at a
cost that is predictable. There is, therefore, no uncertainty with
regard to the level of their obligations or the means available to
achieve it.
---------------------------------------------------------------------------
\6\ So long as the required volume is below the volume specified
in the statute, such that cellulosic biofuel waiver credits are
available.
---------------------------------------------------------------------------
Moreover, Executive Order 13563 also states that regulations must
in general promote ``economic growth, innovation, competitiveness, and
job creation,'' while ``taking into account benefits and costs, both
quantitative and qualitative.'' While the cellulosic biofuel standard
that we set should be within the range of what can be attained based on
projected domestic production and import potential, the standard that
we set helps drive the production of volumes that will be made
available. This is consistent with comments submitted by the
Biotechnology Industry Organization and the Renewable Fuels
Association. Thus while any standard we set for cellulosic biofuel
standard for 2012 will have some uncertainty in terms of actual
attainment, our intention is to balance such uncertainty with the
objective of promoting growth in the industry. Our final projected
available volume of 8.65 million gallons of cellulosic biofuel (10.45
million ethanol-equivalent gallons) for 2012 reflects these
considerations.
A. Statutory Requirements
The volumes of renewable fuel to be used under the RFS2 program
each year (absent an adjustment or waiver by EPA) are specified in CAA
211(o)(2). These volumes for 2012 are shown in Table II.A-1.
Table II.A-1--Required Volumes in the Clean Air Act for 2012
[Bill gal]
------------------------------------------------------------------------
Ethanol equivalent
Actual volume volume
------------------------------------------------------------------------
Cellulosic biofuel.......... \a\ 0.5 0.5
Biomass-based diesel........ 1.0 1.5
Advanced biofuel............ \a\ 2.0 2.0
Renewable fuel.............. \a\ 15.2 15.2
------------------------------------------------------------------------
\a\ These values assume that the biofuels would be ethanol. If any
portion of the biofuels used to meet these applicable volumes has a
volumetric energy content greater than that for ethanol, these values
will be lower.
By November 30 of each year, the EPA is required under CAA 211(o)
to determine and publish in the Federal Register the renewable fuel
percentage standards for the following year. These standards are to be
based in part on transportation fuel volumes estimated by the EIA for
the following year. The calculation of the percentage standards is
based on the formulas in Sec. 80.1405(c) which express the required
volumes of renewable fuel as a volume percentage of gasoline and diesel
sold or introduced into commerce in the 48 contiguous states plus
Hawaii.
The statute requires that if EPA determines that the projected
volume of cellulosic biofuel production for the following year is less
than the applicable volume shown in Table II.A-1, then EPA is to reduce
the applicable volume of cellulosic biofuel to the projected volume
available during that calendar year. In addition, if EPA reduces the
required volume of cellulosic biofuel below the level specified in the
statute, the Act also indicates that we may reduce the applicable
volume of advanced biofuels and total renewable fuel by the same or a
lesser volume.
B. Cellulosic Biofuel Volume Assessment
In order to project cellulosic biofuel production for 2012, EPA has
tracked the progress of over 100 biofuel production facilities. From
this list of facilities we used publically available information, as
well as information provided by DOE and USDA, to make a preliminary
determination of which facilities are the most likely candidates to
produce cellulosic biofuel and make it commercially available in 2012.
Each of these companies was investigated further in order to determine
the current status of their facilities and their likely cellulosic
biofuel production volumes for the coming years. Information such as
the funding status of these facilities, announced construction and
production ramp up periods, and annual fuel production targets were
taken into account. We also considered each company's history of
meeting milestone targets and production goals where
[[Page 1326]]
applicable. Our projection of the volume of cellulosic biofuel
production in 2012 is based on this information as well as our own
assessment of the likelihood of these facilities successfully producing
cellulosic biofuel in the volumes indicated. A brief description of
each of the companies we believe can produce cellulosic biofuel and
make it commercially available in 2012 can be found below.
1. Existing Cellulosic Biofuel Facilities
The rule that established the required 2011 cellulosic biofuel
volume identified five production facilities that we projected would
produce cellulosic biofuel and make the fuel commercially available in
2011. Each of these production facilities are now structurally
complete, however they are in various stages of biofuel production. All
of these facilities have either produced some volume of cellulosic
biofuel in 2011, or are on schedule to do so later in the year. Only KL
Energy and Range Fuels, however, have completed registration of
cellulosic biofuel production facilities under the RFS2 program and as
such they are currently the only facilities of the five listed here
currently eligible to generate cellulosic biofuel RINs. For more
background information on each of these facilities see the 2011
standards rule.\7\
---------------------------------------------------------------------------
\7\ 75 FR 76790, December 9, 2010.
---------------------------------------------------------------------------
DuPont Danisco Cellulosic Ethanol (DDCE) successfully started up
their small demonstration facility in Vonore, Tennessee in late 2010.
This facility has a maximum production capacity of 250,000 gallons of
ethanol per year and uses an enzymatic hydrolysis process to convert
corn cobs into ethanol. In conversations with EPA in July 2011 DDCE
indicated that this facility was currently producing ethanol at
approximately half the nameplate capacity, corresponding to a volume of
125,000 gallons per year. The focus of this facility, however, remains
gathering information to help successfully design and operate DDCE's
first commercial scale facility. All the cellulosic ethanol currently
produced at this facility is used for testing purposes or given away.
No RINs are currently generated for this ethanol and it is not
available for purchase by obligated parties. DDCE has indicated that
they have no plans to generate RINs or sell ethanol produced at their
facility in Vonore in 2012. No volume of cellulosic ethanol has
therefore been included in the projections of available cellulosic
biofuel for 2012.
Fiberight uses an enzymatic hydrolysis process to convert the
biogenic portion of separated municipal solid waste (MSW) into ethanol.
Construction on the first stage of Fiberight's Blairstown, Iowa
facility was completed in the summer of 2010. The production capacity
of the first stage of this project is 2 million gallons of ethanol per
year. Fiberight had planned to begin production of cellulosic biofuel
from this facility in late 2010 but poor economic conditions, due in
part to low cellulosic RIN values in 2010, caused them to postpone fuel
production. Fiberight had also planned to begin construction on an
expansion of this facility in late 2010 that would increase the
production potential to 6 million gallons of ethanol per year, but were
unable to secure funding to carry out the construction as planned. They
have since secured funding and began construction on the expansion of
their Blairstown facility in April 2011. Fiberight anticipates that
they will begin fuel production in early 2012 and will ramp up
production at this facility throughout 2012. EPA projects the
production of 2 million gallons of cellulosic ethanol from this
facility in 2012.
KiOR continues to produce a small volume of renewable crude from
agricultural residue at their demonstration facility in Houston, Texas
using a technology they call Biomass Catalytic Cracking (BCC). This
technology uses heat and a proprietary catalyst to convert biomass to a
renewable crude with a relatively low oxygen content. The renewable
crude is then upgraded to produce renewable gasoline and diesel, as
well as a small quantity of fuel oil. While KiOR plans to continue to
operate their Houston facility in 2012 its main purpose will be to
provide small quantities of fuel for testing purposes and to provide
data for the optimization of KiOR's first commercial facility. In
conversations with EPA KiOR has indicated that it is unlikely that any
significant volume of fuel from this facility will be sold
commercially. EPA has therefore not included any volume from KiOR's
Houston facility in our projected available volumes for 2012.
KL Energy has developed a process to convert cellulose and
hemicellulose into cellulosic sugars using a thermal-mechanical
pretreatment process followed by an enzymatic hydrolysis. It had
initially planned to used woody biomass as their feedstock for
cellulosic biofuel production; however its production process is
versatile enough to allow for a wide variety of cellulosic feedstocks
to be used. In August 2010 KL Energy announced a joint development
agreement with Petrobras America Inc. As part of the agreement
Petrobras has invested $11 million to modify KL Energy's facility in
Upton, Wyoming to allow it to process bagasse and other waste products.
If successful, Petrobras and KL Energy plan to work together to
integrate the technology into currently existing ethanol production
facilities in Brazil. The modifications to KL Energy's facility were
completed earlier this year. KL Energy is currently producing small
volumes of cellulosic ethanol and plans to continue to do so throughout
2012. In August 2011 KL Energy successfully registered its cellulosic
biofuel production facility under the RFS program making it eligible to
generate RINs for biofuel produced from this facility. KL Energy has
indicated to EPA its intent to generate RINs for the fuel it produces
and to sell it commercially in the United States. EPA projects that
100,000 gallons of cellulosic ethanol will be available from this
facility in 2012.
Range Fuels began production of methanol at their Soperton, Georgia
facility in the third quarter of 2010. This facility uses a
thermochemical technology to produce syngas (consisting of mostly
hydrogen and carbon monoxide) from a woody biomass feedstock. The
syngas is then converted into fuel with the aid of a chemical catalyst
developed by Range. Range has developed the capability to produce both
methanol and ethanol, depending on the catalyst used. In January 2011,
after producing a small volume of ethanol from this facility and
proving this capability, Range Fuels shut down the Soperton facility in
order to work through technical difficulties they had been
experiencing. No timeline has been given for the restart of this
facility and fuel production from this facility in 2012 appears
unlikely. No cellulosic fuel production from Range Fuels has been
included in EPA's 2012 projected available volume.
2. Potential New Facilities in 2012
In the proposed rule EPA discussed five new cellulosic biofuel
production facilities that had plans to begin commercial production at
some point in 2012. These facilities were at various stages in the
construction process, and as such had various degrees of uncertainty
associated with any projected 2012 commercial production. Three of
these facilities, those being developed by INEOS Bio, KiOR, and
ZeaChem, have made significant progress towards completion and are
expected to produce and market cellulosic biofuel in 2012. Two of the
companies mentioned in the proposed rule, Fulcrum Bioenergy and
Terrabon,
[[Page 1327]]
are no longer on a schedule to produce cellulosic biofuel in 2012.
Finally, EPA has become aware of a sixth company, American Process
Inc., which is developing a cellulosic biofuel project that is likely
to produce and market some volume of cellulosic biofuel in 2012. The
following section provides updated information on each of the companies
discussed in the proposed rule, as well as a summary of the project
being developed by American Process Inc.
Fulcrum Bioenergy is planning to build a facility capable of
producing 10.5 million gallons of cellulosic ethanol and 16 megawatts
of renewable electricity per year. It has developed a thermochemical
technology to produce ethanol from separated MSW via syngas using a
chemical catalyst. In November 2010 Fulcrum announced that it had
received a term sheet for an $80 million loan guarantee from DOE and
was entering into the final phase of the loan guarantee program. Prior
to that Fulcrum had announced that it had signed long term feedstock
supply contracts for this facility as well as engineering, procurement,
and construction contracts. In January 2011 Fulcrum announced it had
closed on a $75 million Series C financing that would provide the
remaining necessary capital for the construction of its first
commercial production facility pending the closing of its DOE loan
guarantee. The loan guarantee, however, has yet to be finalized. As a
result the start of the construction of this facility, originally
planned for the second quarter of 2011, is now expected to begin in
late 2011. EPA has not included any volume of cellulosic biofuel from
Fulcrum Bioenergy's facility in our 2012 projected available volume
because of this delay.
INEOS Bio has developed a process for producing cellulosic ethanol
by first gasifying feedstock material into a syngas and then using
naturally occurring bacteria to ferment the syngas into ethanol. In
January 2011 USDA announced a $75 million loan guarantee for the
construction of INEOS Bio's first commercial facility to be built in
Vero Beach, Florida. This was in addition to the grant of up to $50
million INEOS Bio received from DOE in January 2010. This facility will
be capable of producing 8 million gallons of cellulosic biofuel as well
as 6 megawatts of renewable electricity from a variety of feedstocks
including yard, agricultural, and wood waste, as well as separated MSW.
On February 9, 2011 INEOS Bio broke ground on this facility. Since
February significant progress has been made and INEOS Bio remains on
target to complete construction on this facility in April 2012.
Commercial production of cellulosic ethanol is expected to begin soon
after construction is complete. Three million gallons of cellulosic
ethanol from this facility has been included in EPA's projected
available volume for 2012.
After successful operation of their demonstration plant in Houston,
Texas KiOR began construction on its first commercial scale facility in
May 2011. This facility, located in Columbus, Mississippi, will convert
biomass to a low oxygen biocrude using a process KiOR calls Biomass
Catalytic Cracking (BCC). BCC uses a catalyst developed by KiOR in a
process similar to Fluid Catalytic Cracking currently used in the
petroleum industry. KiOR's Columbus facility will also be capable of
upgrading this biocrude into finished gasoline and diesel as well as a
small quantity of fuel oil. KiOR plans to finish construction on this
facility in the first half of 2012 and begin commercial production
early in the third quarter of 2012. KiOR has also announced plans to
construct several more commercial scale biofuel production facilities
in Mississippi and across the southeastern United States. It is
unlikely any of these additional facilities will begin production of
biofuel in 2012. EPA has included 3 million gallons of cellulosic
biofuel (4.8 million ethanol equivalent gallons) from KiOR's Columbus
facility in our projected available volume for 2012.
Terrabon completed construction of a small demonstration scale
facility for the conversion of MSW and other waste materials into
gasoline in 2010 and are currently developing plans for their first
commercial scale facility. Terrabon utilizes a unique production
process that can be used to produce gasoline, diesel, or jet fuel.
Feedstock is first fermented into carboxylic acids by a variety of
micro organisms. These carboxylic acids are then neutralized to form
carboxylate salts that are dewatered, dried, and thermally converted to
ketones. Finally, the ketones are hydrogenated to form alcohols which
can then be refined into gasoline, diesel, or jet fuel. Terrabon had
hoped to begin producing cellulosic biofuel at their first commercial
scale facility some time in 2012, however difficulties in securing the
necessary funding have delayed the expected start up of their first
commercial scale facility to 2013. EPA has not included any volume of
cellulosic biofuel from Terrabon in our 2012 projected available
volume.
ZeaChem has begun construction on a small demonstration scale
facility in Boardman, Oregon capable of producing 250,000 gallons of
cellulosic ethanol per year. Its production process uses a combination
of biochemical and thermochemical technologies to produce ethanol and
other renewable chemicals from cellulosic materials. The feedstock is
first fractionated into two separate streams containing cellulosic
sugars and lignin. The cellulosic sugars are fermented into ethyl
acetate using a naturally occurring acetogen, which can then be
hydrogenated into ethanol. The hydrogen necessary for this process is
produced by gasifying the lignin stream from the cellulosic biomass.
ZeaChem's process is flexible and is capable of producing a wide range
of renewable chemical and fuel molecules in addition to ethanol.
ZeaChem received a grant of up to $25 million from DOE in January 2010
for the construction of their demonstration facility. Since then
ZeaChem has made significant progress on its demonstration facility and
currently plans to begin production of cellulosic ethanol from this
facility in early 2012. It has indicated to EPA, however, that it is
highly unlikely to achieve full production capacity at this facility in
its first year of production and has suggested that the production of
50,000 gallons of cellulosic ethanol from this facility in 2012 is a
more realistic expectation. Despite this small volume, ZeaChem does
intend to generate RINs for the fuel that they produce and to market it
commercially. Based on this information EPA has included 0.05 million
gallons of cellulosic ethanol in our projected available volume for
2012.
American Process Inc. (API) is developing a project in Alpena,
Michigan capable of producing up to 900,000 gallons of cellulosic
ethanol per year from woody biomass. This facility will use a
technology developed by API called GreenPower+TM. This
technology extracts the hemicelluloses portion of woody biomass using
hot water and hydrolyzes it into cellulosic sugars. These cellulosic
sugars are then converted to ethanol or other alcohols, while the
remaining portion of the woody biomass, containing mostly cellulose and
lignin, is processed into wood paneling at a co-located facility. At
larger scale facilities API anticipates burning the residual biomass in
a boiler to produce renewable steam and electricity as well as
cellulosic biofuel. In January 2010 API received a grant from DOE for
up to $18 million for the construction of their demonstration facility.
Construction of the Alpena, Michigan facility began in March 2011 and
API anticipates beginning the production of cellulosic ethanol at this
site early in 2012. API was not
[[Page 1328]]
discussed as a potential producer of cellulosic biofuels in 2012 in our
proposed rule due to uncertainty about its ability to generate RINs
with the intended feedstock and production process. EPA anticipates
these issues will be resolved. Cellulosic biofuel produced at API's
facility will therefore likely be eligible for cellulosic RINs. For our
2012 projected available volume of cellulosic biofuels we have included
500,000 gallons of cellulosic ethanol from this facility. This volume
represents the low end of API's production target for that year due to
the uncertainties associated with the start up of a new industrial
facility utilizing a technology unproven at industrial scale.
Another potential source of cellulosic biofuel in 2012 is the
application of a technology being developed by EdeniQ. EdeniQ is
developing a suite of enzymes capable of breaking down cellulose into
simple sugars that can then be fermented into ethanol. Rather than
build its own production facilities EdeniQ plans to license its enzymes
to existing corn ethanol facilities. Such licensing would be
accompanied by the Cellunator, an advanced milling device EdeniQ has
developed to reduce the particle size of corn kernels to enable greater
conversion of starch to ethanol as well as the conversion of cellulose
to simple sugars. EdeniQ claims that its technology would allow corn
ethanol facilities to increase ethanol production by 1-2% by converting
the cellulosic portion of the corn kernel into ethanol. EdeniQ is also
working to increase the effectiveness of its enzymes in order to enable
ethanol production increases of 3-4% from the cellulose in the corn
kernel in the future. EdeniQ plans to begin commercial trials of its
technology in the second half of 2011. This technology has the
potential to be implemented rapidly and produce significant amounts of
cellulosic ethanol in 2012 as it requires relatively small capital
additions to already existing corn ethanol facilities. While this
technology is promising, there is currently no pathway in the RFS2
regulations for the generation of cellulosic biofuel RINs using the
cellulosic portion of the corn kernel as a feedstock. Moreover, EdeniQ
has not announced any agreements with corn ethanol producers to install
this technology to enable the production of cellulosic ethanol. For
these reasons, EPA has not included any cellulosic ethanol production
from EdeniQ's technology in our 2012 projections.
In addition to the facilities mentioned above, EPA is also aware of
three companies planning to begin the production of cellulosic biofuels
in early 2013. Coskata, Enerkem, and Poet are planning on completing
construction on their first commercial scale cellulosic biofuel
facilities in late 2012 or early 2013 and producing commercial volumes
of biofuels in 2013. While all of these facilities continue to make
progress towards commercial production of cellulosic biofuel in 2013 it
is highly unlikely that any of these facilities will be capable of
producing cellulosic biofuels by the end of 2012. EPA has therefore not
included any volume of cellulosic biofuel from these facilities in our
projected available volume for 2012. These facilities, along with
several other commercial cellulosic biofuel facilities planning to
begin production in 2013, notably the first commercial scale facilities
from Abengoa and Mascoma, indicate that the potential exists for the
rapid expansion of production volumes in future years.
3. Imports of Cellulosic Biofuel
While domestically produced cellulosic biofuels are the most likely
source of cellulosic biofuel available in the United States, producers
and/or importers of cellulosic biofuel produced in other countries may
also generate RINs and participate in the RFS2 program. While the RFS2
program does provide a financial incentive for companies to import
cellulosic biofuels into the United States, the combination of local
demand, financial incentives from other governments, and transportation
costs for the cellulosic biofuel has resulted in no cellulosic biofuel
being imported to the United States thus far. EPA believes this
situation is likely to continue in the near future. Additionally, the
majority of internationally based cellulosic biofuel facilities that
currently exist or plan to complete construction by the end of 2012 are
small research and development or pilot facilities not designed for the
commercial production of fuel.
Two notable exceptions, both located in Canada, are Enerkem and
Iogen. Enerkem has a currently existing commercial production facility
in Westbury, Quebec and is expecting to complete construction on a
second facility in Edmonton, Alberta in late 2011. Iogen has a small
demonstration facility in Ottawa and is currently exploring the
possibility of building its first commercial facility near Prince
Albert, Saskatchewan. The large expected production volumes and
relatively small distance this fuel would have to be transported to
reach the United States make these facilities the most likely
candidates to import cellulosic biofuel into the United States. In
conversations with EPA, however, both companies indicated that they had
no current intentions of importing fuel from their Canadian production
facilities into the United States. On September 1, 2010 the government
of Canada finalized regulations requiring all gasoline sold in Canada
to have a renewable content of 5% and all diesel fuel and heating oil
to have a renewable content of 2%. These regulations will further
increase local demand for any cellulosic biofuel produced from these
two facilities and decrease the likelihood of any of this fuel being
exported to the United States. For these reasons we have not included
any cellulosic biofuel production from foreign facilities in our
projections of cellulosic biofuel availability in 2012.
4. Projections From the Energy Information Administration
Section 211(o)(3)(A) of the Clean Air Act requires EIA to ``* * *
provide to the Administrator of the Environmental Protection Agency an
estimate, with respect to the following calendar year, of the volumes
of transportation fuel, biomass-based diesel, and cellulosic biofuel
projected to be sold or introduced into commerce in the United
States.'' EIA provided these estimates to us on October 19, 2011.\8\
With regard to cellulosic biofuel, the EIA estimated that the available
volume in 2012 would be 6.9 million gallons based on its assessment of
the utilization of production capacity. A summary of the commercial
scale plants they considered and associated production volumes is shown
below in Table II.B.4. In addition to the facilities listed in this
table EIA also projects that three pilot-scale facilities, those owned
by American Process (Alpena, MI), KL Process Design (Upton, WY) and
ZeaChem (Boardman, OR) will produce an additional 0.2 million gallons
of cellulosic biofuel and make it available for sale in the U.S. in
2012.
---------------------------------------------------------------------------
\8\ Letter from Howard K. Gruenspecht, EIA Acting Administrator,
to Lisa Jackson, EPA Administrator, October 19, 2011.
[[Page 1329]]
Table II.B.4--Commercial-Scale Cellulosic Biofuel Plants Expected To Generate Cellulosic Biofuel RINs in 2012
--------------------------------------------------------------------------------------------------------------------------------------------------------
Nameplate Projected
capacity Projected production
Year online Company Location Product (million utilization (million
gallons) (%) gallons)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011/12........................ Fiberight, LLC........ Blairstown, IA........ Ethanol................ 6.4 25 1.6
2012........................... INP Bioenergy \a\..... Vero Beach, FL........ Ethanol................ 8.0 25 2.0
2012........................... KiOR.................. Columbus, MS.......... Liquids................ 12.2 25 3.1
-----------------------------------------------
Total...................... ...................... ...................... ....................... 26.6 25% 6.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ EPA refers to INEOS New Planet (INP) Bioenergy as INEOS Bio throughout this rule.
EIA's projections of cellulosic biofuel production in 2012 are very
similar to EPA's projections discussed above and summarized in Section
II.B.6 below. The lists of companies that EIA and EPA expect to
generate cellulosic biofuel RINS in 2012 are the same. There are,
however, several small differences in the volumes of cellulosic biofuel
expected to be produced at some of the production facilities listed.
EPA has slightly higher projections of cellulosic biofuel production
for Fiberight (2 million gallons vs. 1.59 million gallons), INEOS Bio
(3 million gallons vs. 2 million gallons), and American Process Inc.
(0.5 million gallons vs. less than 0.2 million gallons). These slight
variations are a result of different methodologies used by EIA and EPA
to project biofuel production in future years. Both Fiberight and INEOS
Bio are commercial scale facilities that plan to begin production in
2012. As a result, EIA has used a standard utilization factor of 25%
(used for the first year of production for all commercial scale
facilities) along with the nameplate capacity of these facilities to
project their production volumes for 2012. EPA believes it is more
appropriate to consider the timing of the anticipated start up of these
facilities within 2012. Facilities planning to begin production early
in the year should not have the same expected utilization factor as
those planning to begin production near the end of the year. Both
Fiberight and INEOS Bio plan to complete construction and begin the
production of fuel in early 2012, and therefore EPA has projected
production volumes from these facilities that are equivalent to 2012
utilization rates of slightly higher than 25% in comparison to their
full, long-term production potential.
EIA's projected production volume for American Process Inc. assumes
a utilization factor of 10%, consistent with the factor that EIA uses
for all demonstration scale facilities. While this may be reasonable in
many cases as the purpose of most pilot plants is not to produce fuel
for commercial scale, American Process Inc. has communicated to EPA
that it plans to produce volumes approaching its facility's nameplate
capacity in their first year. While EPA believes this is unlikely due
to the challenges of starting up a facility utilizing a technology that
has not been proven at commercial scale, we believe a volume
corresponding to a utilization rate higher than 10%, but at the low end
of American Process Inc.'s target production range is appropriate.
While the production volumes of the other companies listed in EIA and
EPA's projected available volume tables are not identical, the
differences are small and their impact on the overall volume projection
is negligible.
There is also a slight variation in the nameplate capacities for
two of the listed facilities, Fiberight and KiOR. This is once again
the result of differing methods for determining the nameplate
capacities used by EIA and EPA. EIA used publically available
information to calculate the nameplate capacities for these two
facilities. The Fiberight plant is a converted corn ethanol facility
that had a production capacity of 25.5 million gallons per year.
Fiberight announced they expected to be able produce cellulosic ethanol
at 25% of the original capacity and these numbers formed the basis for
EIA's nameplate capacity. Similarly for KiOR EIA's nameplate capacity
was based on the number of tons the facility could process per day and
the expected yield. EPA's nameplate capacities, conversely, are based
on conversations with each of these companies. EPA does not believe
these slight differences in nameplate capacities have a significant
impact on the cellulosic biofuel volume projections made by EPA and
EIA.
While the cellulosic biofuel volume projections for 2012 provided
by EIA are not identical to those being finalized in this rule EPA
believes that they are similar enough to support the volumes we are
finalizing. Where differences exist they are primarily due to EPA's
consideration of facility specific situations rather than use of
uniform utilization factors. As discussed above, EPA believes this is
appropriate, and that wherever possible these facility specific factors
should be taken into account. CAA 211(o)(7)(D) vests the authority for
making the projection with EPA, since it provides that the projection
is ``determined by the Administrator based on the estimate provided [by
EIA].'' If Congress intended that EPA simply adopt EIA's projection
without an independent evaluation, it would not have specified that the
projection is ``determined by the [EPA] Administrator''. Although the
statute provides that our determination must be ``based on the estimate
provided'' by EIA, we believe that our consideration of EIA's estimate
in deriving our own projection as described above satisfies this
statutory requirement.
5. Comments on the Proposed Rule
EPA received comments on our proposed rule recommending various
methodologies or suggested volumes for the final rule. Several parties
supported our projected volumes and emphasized the importance of
maintaining a consistent policy supporting growth in the cellulosic
biofuel industry. Other comments we received recommended that the
volume we set for cellulosic biofuel be based only on the demonstrated
production rates of facilities that have been in production for at
least three months. EPA believes this approach is inconsistent with the
requirement that the mandated volume of cellulosic biofuel be based on
the projected, not demonstrated, volume for any given year. Using the
approach recommended by the commenters would effectively project no
market growth from the end of 2011 through 2012, and would lead to no
2012 market demand for additional cellulosic biofuel capacity that
comes on line during the course of 2012, hindering industry growth. As
a result, the incentives for the cellulosic biofuels industry to grow,
which are one of the primary purposes
[[Page 1330]]
of the RFS program and which are consistent with Executive Order 13563,
would be compromised.
Several other commenters claimed that cellulosic biofuel technology
was not yet capable of producing the volumes of fuel indicated in our
proposal and that the proposed range of cellulosic biofuels was too
high. Chevron suggested that EPA finalize the lower end of the proposed
range (3.55 million ethanol-equivalent gallons). After reassessing the
state of the cellulosic biofuel industry and tracking the progress
being made towards the production of cellulosic biofuels at commercial
scale facilities, EPA believes the industry is capable of exceeding the
lower end of the range of projected volume from our proposed rule. In
order to provide the appropriate economic conditions for the cellulosic
biofuel industry to grow in accordance with the objectives of the
statute, it is important that these fuels, once produced, have a viable
market. EPA believes that setting the 2012 standard for cellulosic
biofuels at the low end of the proposed range, or some lower volume,
could potentially result in a depressed market for cellulosic biofuel
and would discourage cellulosic biofuel producers from producing
quantities of fuel in 2012 that are actually attainable.
Alternatively, we also received comments requesting that EPA
finalize the high end of the proposed volume (15.7 ethanol-equivalent
gallons). While this approach would provide a strong incentive for
potential cellulosic biofuel producers to maximize their production of
fuel, EPA does not believe it would be consistent with the requirement
that the volume mandate be based on the projected production volume. As
discussed above, several companies have experienced delays in their
construction plans since the proposed rule has been published, and
others have lowered their production targets or indicated that they no
longer intend to generate RINs for the cellulosic biofuel they produce.
While it is possible that one or more of the companies for whom we have
included volumes in our 2012 projection may produce a greater volume of
fuel than we currently anticipate, EPA does not believe it would be
appropriate to rely on such speculation in setting the applicable
volume of cellulosic biofuel for 2012. We believe that the 2012
cellulosic biofuel applicable volume of 8.65 million gallons (10.45
million ethanol-equivalent gallons) finalized in this rule is a
reasonable projection of the volume of cellulosic biofuel that will be
produced and made available for RFS compliance in 2012. While this
volume is slightly higher than the volume projected by EIA we believe
this is appropriate based on the consideration of company specific
factors such as when in the year the companies anticipate the start of
fuel production and production targets shared with EPA. The difference
in the methodologies used for EIA and EPA's projections is discussed in
further detail in Section II.B.4.
The Consumers Energy Alliance, in addition to suggesting that the
range of cellulosic biofuel production in our proposed rule was too
high, also requested that EPA perform a cost-benefit analysis to
determine the implications of our proposed standards. The Clean Air Act
clearly states that in the event that the projected volume of
cellulosic biofuel production for the following year is less than the
applicable volume shown in Table II.A-1, EPA is to reduce the
applicable volume of cellulosic biofuel to the projected volume
available during that calendar year. Since the mandated volume for any
given year is to be based solely on the projected volume available for
that year, a cost-benefit analysis is not necessary.
Two cellulosic biofuel companies, American Process Inc. and
ZeaChem, commented on the volume of cellulosic biofuels they expect to
produce in 2012 and requested that EPA's projections of available
volumes of cellulosic biofuel be adjusted accordingly. After
consideration of these comments and additional information provided by
these two companies EPA agrees that the adjustments they suggested are
appropriate. As a result a volume of 500,000 gallons of cellulosic
ethanol from American Process Inc., a volume representing the lower end
of their production target for 2012, has been included in our projected
available volume. The volume of fuel projected from ZeaChem's facility
has been changed to 50,000 gallons of cellulosic ethanol in 2012 to
more accurately reflect their current expectations for their facility.
Finally, EPA received several comments from obligated parties
requesting that in any year in which actual annual production of
cellulosic biofuel falls below the applicable volume used to set the
annual standard, that EPA use its waiver authority to waive a volume of
cellulosic biofuel equal to the shortfall in February of the following
year, prior to the February 28 deadline for submission of compliance
demonstration reports by obligated parties. This approach, these
commenters argued, would ensure that their obligations match the number
of cellulosic biofuel RINs that are available in the market. These
comments deal with EPA's general waiver authority under CAA
211(o)(7)(A), and thus are not directly related to the annual standard
setting process or the waiver authority that is specific to cellulosic
biofuel under 211(o)(7)(D). At this time EPA has received no petitions
for a waiver of the 2011 cellulosic biofuel volume under 211(o)(7)(A)
due to inadequate domestic supply, and thus we are not considering at
this time whether and how any portion of the 2011 cellulosic biofuel
applicable volume should be waived.
6. Summary of Volume Projections
The information EPA has gathered on the potential cellulosic
biofuel producers in 2012, described above, allows us to project
facility-specific volumes of cellulosic biofuel production for 2012.
This information is summarized in Table II.B.6-1 below.
Table II--B.6-1--Cellulosic Biofuel 2012 Projected Available Volume
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012
Capacity Earliest Projected Ethanol
Company name Location Feedstock Fuel (MGY) production available equivalent
volume (MG) gallons (MG)
--------------------------------------------------------------------------------------------------------------------------------------------------------
American Process Inc........... Alpena, MI........ Waste Wood........ Ethanol........... 0.9 Early 2012....... 0.5 0.5
Fiberight...................... Blairstown, IA.... MSW............... Ethanol........... 6 Early 2012....... 2.0 2.0
INEOS Bio \a\.................. Vero Beach, FL.... Ag Residue, MSW... Ethanol........... 8 May 2012......... 3.0 3.0
KiOR........................... Columbus, MS...... Pulp Wood......... Gasoline, Diesel.. 10 Mid 2012......... 3.0 4.8
KL Energy...................... Upton, WY......... Bagasse........... Ethanol........... 1.5 Online........... 0.1 0.1
[[Page 1331]]
ZeaChem........................ Boardman, OR...... Planted Trees..... Ethanol........... 0.25 Early 2012....... 0.05 0.05
----------------------------------------------
Total...................... .................. .................. .................. ............ ................. 8.65 10.45
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ This facility is listed as INP Bioenergy in EIA's projections.
While the production volumes in Table II.B.6-1 have some
uncertainty, we believe that a total volume of 8.65 million gallons
(10.45 million ethanol-equivalent gallons) is reasonably attainable. By
basing the 2012 cellulosic biofuel standard on the reasonably
attainable volumes rather than proven production volumes, we aim to
avoid a scenario in which cellulosic biofuel production exceeds the
mandated volume; no mechanism exists for this standard to be raised
should cellulosic biofuel production exceed the 2011 standard. Such a
scenario would result in weak demand for cellulosic biofuels and RINs.
Moreover, the standard that we set determines in large part the volumes
of cellulosic biofuel that will be produced. We believe that the intent
of Congress in establishing steadily increasing applicable volumes of
cellulosic biofuel in the RFS program through EISA was to provide a
reliable market for these fuels and in so doing to spur growth in the
cellulosic biofuels industry. EPA believes the projected available
volume finalized in this rule best reflects these intentions.
Based on our assessment of the potential production capabilities of
individual companies as described above, EPA is finalizing the
cellulosic biofuel standard for 2012 at 10.45 million ethanol-
equivalent gallons of cellulosic biofuel. This number represents the
volume of RIN-generating cellulosic biofuel that we believe can be made
available for use as transportation fuel, heating oil, or jet fuel in
2012. It incorporates reductions from the annual production capacity of
each facility based on when fuel production can begin and assumptions
regarding a ramp-up period to full production. We believe that a
production volume of 10.45 million ethanol-equivalent gallons is
reasonably attainable despite the uncertainties. Moreover, by setting
the standard for cellulosic biofuel based on the volumes that are
reasonably attainable, we are providing incentives for producers to
overcome uncertainties and greater opportunities for funding based on
an established demand.
There are also a variety of factors that could lead to production
volumes greater than those listed in Table II.B.6-1 and make up for
potential shortfalls elsewhere. For instance:
For each of the facilities listed, we are projecting that
their production will be some volume less than the capacity of their
facility. It is possible, however, that these companies could produce a
greater volume of fuel than they are currently anticipating or has been
projected by EPA.
It is possible that companies that are currently targeting
2013 for commercial production may produce cellulosic biofuel ahead of
schedule and generate RINs in 2012. None of this volume was included in
our projection for 2012.
A high demand for cellulosic biofuels may be sufficient to
cause companies to import fuel into the United States, even if they
currently have no plans to do so. As described in Section II.B.3 above,
there are several foreign producers that are either producing
cellulosic biofuel now, or could potentially produce some cellulosic
biofuel volume in 2012.
Finally, we note that if the actual volume of cellulosic biofuel
RINs that are available in 2012 falls short of the 10.45 million gallon
RINs used to derive the 2012 cellulosic biofuel standard, obligated
parties have other recourses:
Purchase cellulosic biofuel waiver credits from the EPA
(see further discussion in Section V.A)
Carry over a deficit from 2012 into 2013 according to
Sec. 80.1427(b) under certain conditions
C. Advanced Biofuel and Total Renewable Fuel in 2012
Under CAA 211(o)(7)(D)(i), EPA has the discretion to reduce the
applicable volumes of advanced biofuel and total renewable fuel in the
event that the projected volume of cellulosic biofuel production is
determined to be below the applicable volume specified in the statute.
As described in Section II.B above, we are indeed projecting the volume
of cellulosic biofuel production for 2012 at significantly below the
statutory applicable volume of 500 million gallons. Because cellulosic
biofuel is used to satisfy the cellulosic biofuel standard, the
advanced biofuel standard, and the total renewable fuel standard, any
reductions in the applicable volume of cellulosic biofuel will also
affect the means through which obligated parties comply with the
advanced biofuel standard and the total renewable fuel standard.
Therefore, we have considered whether and to what degree to lower the
advanced biofuel and total renewable fuel applicable volumes for 2012.
If the required volume of cellulosic biofuel for a given year is
less than the volume specified in the statute, it is important to
evaluate whether there would be sufficient volume of advanced biofuels
to satisfy the applicable volume of advanced biofuel volume set forth
in the statute. Even with a reduced volume of cellulosic biofuel, other
advanced biofuels, such as biomass-based diesel, sugarcane ethanol, or
other biofuels, may be available in sufficient volumes to make up for
the shortfall in cellulosic biofuel.
Several commenters stated their belief that the applicable volume
of advanced biofuel should always be lowered concurrently, and to the
same degree, that the applicable volume of cellulosic biofuel is
lowered from the levels set forth in the statute. Since we are
finalizing a cellulosic biofuel applicable volume today that is
approximately 490 million gallons below the 500 mill gal applicable
volume specified in the statute, this approach would lead to a
reduction in the advanced biofuel standard of 490 million gallons as
well, from 2,000 mill gallons to 1,510 mill gallons. However, as
described in the NPRM, we believe that it would not be consistent with
the energy security and greenhouse gas reduction goals of the statute
to reduce the applicable volume of advanced biofuel set forth in the
statute if there are sufficient volumes of advanced biofuels available,
even if those volumes do not include the amount of cellulosic biofuel
that Congress may have desired. Our authority to lower the advanced
biofuel and/or total renewable fuel applicable
[[Page 1332]]
volumes is discretionary, and in general we believe that actions to
lower these volumes should only be taken if insufficient volumes of
qualifying biofuel can be made available, based on such circumstances
as insufficient production capacity, insufficient feedstocks, competing
markets, constrained infrastructure, or the like. As discussed below,
we project that sufficient volumes of advanced biofuel can be made
available in 2012 such that the 2.0 bill gallon advanced biofuel
requirement need not be reduced.
If we were to maintain the advanced biofuel, biomass-based diesel,
and total renewable fuel volume requirements at the levels specified in
the statute, while also lowering the cellulosic biofuel standard to
10.45 million ethanol-equivalent gallons, then 1,510 million gallons of
the 2.0 billion gallon advanced biofuel mandate would be satisfied
automatically through the satisfaction of the cellulosic and biomass
based diesel standards. An additional 490 million ethanol-equivalent
gallons of additional advanced biofuels would be needed. See Table
II.C-1.
Table II--C-1--Projected Fuel Mix in 2012 Assuming No Change in Advanced Biofuel or Total Renewable Fuel Volume
Requirements
[Mill gallons]
----------------------------------------------------------------------------------------------------------------
Ethanol-equivalent volume Physical volume
----------------------------------------------------------------------------------------------------------------
Total renewable fuel................................ 15,200 14,535-14,698
Conventional renewable fuel \a\..................... 13,200 13,200
Total advanced biofuel.............................. 2,000 1,335-1,498
Cellulosic biofuel.................................. 10.45 8.65
Biomass-based diesel................................ 1,500 1,000
Other advanced biofuel \b\.......................... 490 \c\ 326-490
----------------------------------------------------------------------------------------------------------------
\a\ Predominantly corn-starch ethanol.
\b\ Rounded to nearest million gallons for simplicity.
\c\ Physical volume is a range because other advanced biofuel may be ethanol, biodiesel, or some combination of
the two.
The most likely sources of additional advanced biofuel would be
imported sugarcane ethanol and additional biomass-based diesel, though
there may also be some volumes of other types of advanced biofuel
available as discussed below. To determine if there are likely to be
sufficient volumes of these biofuels to meet the need for 490 million
gallons of other advanced biofuel, we first examined historical data on
ethanol imports and projections from EIA and USDA for 2012. Brazilian
imports have made up a sizeable portion of total ethanol imported into
the U.S. in the past, and these volumes were predominantly produced
from sugarcane. Ethanol imports averaged about 380 million gallons per
year over the last five years, and reached an all-time high of 730
million gallons in 2006.\9\ However, ethanol imports were significantly
lower in 2010 than in previous years, and continue to be low in the
first half of 2011. This decline in imports may be related to the
cessation of the duty drawback that became effective on October 1,
2008, to changes in world sugar prices, and increases in demand within
Brazil.\10\ Several commenters cited these lower import volumes in the
last two years as evidence that importation of sugarcane ethanol will
be low in 2012 as well.
---------------------------------------------------------------------------
\9\ ``Monthly U.S. Imports of Fuel Ethanol,'' EIA, released 3/
30/2011.
\10\ Lundell, Drake, ``Brazilian Ethanol Export Surge to End;
U.S. Customs Loophole Closed Oct. 1,'' Ethanol and Biodiesel News,
Issue 45, November 4, 2008.
---------------------------------------------------------------------------
However, we believe that the broader view of historical data on
sugarcane ethanol imports supports our view that Brazil has significant
export potential under the appropriate economic circumstances. Monthly
ethanol imports in June and July of 2011 were significantly higher than
during any of the previous 16 months, at 3 and 13 million gallons,
respectively.\11\ Moreover, Brazil continues to be second worldwide in
the production of ethanol, producing a total of 6.9 bill gallons in
2009.\12\ By establishing an increased U.S. demand for 490 million
gallons of other advanced biofuel in 2012, we would be enhancing the
export market for Brazilian sugarcane ethanol. This could increase the
percentage of ethanol produced from sugarcane (as opposed to sugar
production), and lead to higher volumes of sugarcane ethanol exported
to the U.S. Insofar as there is insufficient availability of
domestically produced advanced biofuel to meet the need for 490 mill
gallons, the price of advanced biofuel RINs would likely increase,
providing the incentive for Brazil to export more sugarcane ethanol
into the U.S. California's Low Carbon Fuel Standard also went into
effect in 2010, and may result in some refiners importing additional
volumes of sugarcane ethanol from Brazil into California in 2012. These
same volumes would count towards the federal RFS2 program as well.
---------------------------------------------------------------------------
\11\ Monthly U.S. Imports of Fuel Ethanol, Energy Information
Administration, Release Date 9/29/2011.
\12\ Portal Brasil, Energy Matrix for Ethanol, http://www.brasil.gov.br/sobre/economy/energy-matrix/ethanol/br_model1?set_language=en.
---------------------------------------------------------------------------
Projections from other sources also suggest that a large portion of
the 490 million gallons of advanced biofuel needed could be supplied by
imported sugarcane ethanol. For instance, in its Annual Energy Outlook
2011, EIA projects ethanol imports of approximately 300 million gallons
for 2012.\13\ In addition, the university-based Food and Agricultural
Policy Research Institute (FAPRI) released its 2011 U.S. and World
Agricultural Outlook report in which it projects 2012 ethanol imports
of 728 million gallons.\14\ This is a substantial increase compared to
FAPRI's previous projection of 317 mill gallons as cited in our NPRM.
While other sources suggest that total Brazillian exports of sugarcane
ethanol decreased in 2011 and may decrease in 2012, the higher RIN
prices associated with the advanced biofuel mandate would be expected
to create an incentive for a greater proportion of Brazillian exports
to be imported into the U.S. For instance, according to the FAPRI
report, the increase in imports into the U.S. would be concurrent with
reductions in imports into other countries rather than an increase in
exports of sugarcane ethanol from Brazil.
---------------------------------------------------------------------------
\13\ Table 11 of AEO2011, Report Number DOE/EIA-0383(2011).
http://www.eia.doe.gov/forecasts/aeo/tables_ref.cfm.
\14\ Table ``Ethanol Trade'', Commodity Outlook/Biofuels, FAPRI-
ISU 2011 World Agricultural Outlook. http://www.fapri.iastate.edu/outlook/2011/.
---------------------------------------------------------------------------
[[Page 1333]]
We also examined the potential for excess biodiesel to help meet
the need for 490 million gallons of advanced biofuel. The applicable
volume of biomass based diesel established in the statute for 2012 is
1.0 billion gallons (which corresponds to 1.5 billion ethanol-
equivalent gallons). As discussed more fully in Section II.D below, we
believe that the biodiesel industry has the potential for producing
volumes above 1.0 billion gallons if demand for such volume exists.
There are also other potential sources of advanced biofuels. Based
on RIN generation reports collected via the EPA-Moderated Transaction
System (EMTS), 32 million ethanol-equivalent gallons of advanced
biofuel with a D code of 5 were produced in the first half of 2011.\15\
Extrapolated to the end of the year, it would be reasonable to expect a
total of over 60 million ethanol-equivalent gallons of such advanced
biofuel to be produced in 2011. Production Outlook Reports also
provided some insight into producers' expectations for 2012. For 2012,
producers of advanced biofuel projected that they would produce about
80 million ethanol-equivalent gallons, composed of some combination of
ethanol, renewable diesel, and heating oil.
---------------------------------------------------------------------------
\15\ RFS2 EMTS Informational Data, updated on August 18, 2011.
http://www.epa.gov/otaq/fuels/renewablefuels/compliancehelp/rfsdata.htm.
---------------------------------------------------------------------------
Another potential source of advanced biofuels is electricity
generated from renewable biomass that is used as a transportation fuel.
EIA data indicates that in 2009, the most recent year for which data is
available, 36.05 million megawatt-hours of electricity was generated
from wood and wood derived fuels, and an additional 18.4 million
megawatt-hours was generated from other biomass in the United
States.\16\ This is significantly more than the 6.8 million megawatt-
hours of electricity used in the transportation sector in 2009,\17\
equivalent to about 300 mill ethanol-equivalent gallons. While not all
the feedstocks used to generate the electricity included in these
totals would meet the RFS2's renewable biomass definition, this remains
a very large potential source of advanced biofuel RINs.
---------------------------------------------------------------------------
\16\ Table ES1 of Electric Power Industry 2009: Year in Review.
Available online: http://www.eia.doe.gov/cneaf/electricity/epa/epayir.pdf.
\17\ Table 36 of AEO2011, Report Number DOE/EIA-0383(2011).
Number based on the conversion that 1 megawatt hour is equivalent to
3.41 million BTU http://www.eia.doe.gov/forecasts/aeo/tables_ref.cfm.
---------------------------------------------------------------------------
Currently, there are no valid pathways in Table 1 to Sec. 80.1426
for the generation of RINs representing electricity used as
transportation fuel. However, several companies have approached EPA
with requests for such a pathway, and investigations are underway. It
is possible that one or more new pathways for electricity may be
available for use in 2012.
In addition to verifying that the feedstocks used to generate
renewable electricity meet the renewable biomass definition, producers
would also be required to document that the electricity they produce is
used as a transportation fuel in order to be eligible to generate RINs.
Until recently there were very few vehicles capable of using
electricity as a transportation fuel, limited mainly to electric trains
and trolley cars. Expected increases in the number of vehicles with
this capability, such as electric vehicles and plug in hybrids, has the
potential to dramatically increase the degree to which electricity is
able to be used as a transportation fuel. Verifying that the renewable
electricity produced is used as a transportation fuel would still
remain a challenge, however the potential for capitalizing on the RIN
value, without the necessity of making major changes in the areas of
fuel production, distribution, or end use, may be a large enough
incentive to overcome this challenge. While the uncertainties
associated with the generation of advanced biofuel RINs representing
renewable electricity used as transportation fuel prevent EPA from
making a quantitative projection for 2012, such RINs may nevertheless
play a role in meeting the advanced biofuel standard.
In light of the potential volumes of imported sugarcane ethanol,
excess biodiesel, and other sources of advanced biofuel, we continue to
believe that there will likely be sufficient volumes of advanced
biofuels to meet the need for 490 million ethanol-equivalent gallons.
As a result, the applicable volume of advanced biofuel set forth in the
statute need not be lowered. A number of commenters on the NPRM agreed
with this assessment. However, several commenters raised a concern
about the ethanol blendwall, saying that the volume of ethanol that can
be legally and practically consumed in 2012 is a limiting factor in how
much advanced biofuel can be consumed. We disagree. Based on gasoline
energy demand projections from EIA,\18\ a total of about 14.3 bill
gallons of ethanol could be consumed in 2012 if all gasoline contained
10% ethanol.\19\ Under the requirements of the RFS program, however,
the total volume of ethanol that would need to be consumed to meet the
RFS standards would be no more than 13.7 bill gallons in 2012.\20\ This
assumes an extreme case in which all renewable fuel that is not
advanced biofuel is assumed to be ethanol, and all advanced biofuel
other than biomass-based diesel is also assumed to be ethanol.
---------------------------------------------------------------------------
\18\ Total energy demand for light-duty vehicles, motorcycles,
and nonroad per AEO 2011 Tables 10, 45, and 46.
\19\ In reality, there may be some areas where gasoline without
ethanol endures, but there will also be some E85 and potentially
other gasoline-ethanol blends as well. We have used a scenario
consisting of 100% E10 for this exercise.
\20\ From Table II.C-1, sum of ethanol-equivalent gallons of
conventional renewable fuel, cellulosic biofuel, and other advanced
biofuel.
---------------------------------------------------------------------------
It is possible that more ethanol may be produced/imported in 2012
than is necessary to meet the RFS requirements, and such circumstances
could accelerate the arrival of the blendwall. However, this would only
occur if market forces favored the consumption of higher volumes of
ethanol, and we cannot make reliable predictions of such market forces.
Since the applicable standards are set before a given compliance year
begins, obligated parties should be coordinating with producers,
distributors, and blenders of the various forms of ethanol (e.g.
cellulosic ethanol, corn-ethanol, sugarcane ethanol) to ensure that all
RFS standards are met by the end of the compliance period.
Based on our assessment of the availability of volumes of advanced
biofuel beyond those required to meet the cellulosic biofuel and
biomass-based diesel standards, we do not believe that the advanced
biofuel standard need be lowered below the 2.0 billion gallon level
specified in the Act. Thus, we are not reducing the applicable volume
of advanced biofuel for 2012.
A number of parties that commented on the NPRM requested that the
applicable volume for total renewable fuel in 2012 be reduced. However,
all such commenters tied the reduction in total renewable fuel to a
reduction in the advanced biofuel standard. Since we are not lowering
the advanced biofuel standard for 2012, and there are expected to be
sufficient volumes of corn-ethanol to meet the need for 13.2 bill
gallons of conventional renewable fuel (see Table II.C-1), we do not
believe that there is a need to lower the total renewable fuel
standard.
D. Biomass-Based Diesel in 2012
Unlike for cellulosic biofuel, the statute does not require EPA to
project available volumes of biomass-based
[[Page 1334]]
diesel for years up through 2012 and to base the standard on the
projected available volume. Instead, the standard for 2012 is to be
based on the statutory applicable volume of 1.0 bill gallons. However,
the statute does include waiver provisions that allow for lowering the
applicable volume of biomass-based diesel under certain circumstances.
Moreover, as described more fully in Section II.C above, we must
determine whether the required volumes of advanced biofuel and/or total
renewable fuel should be reduced if we reduce the required volume of
cellulosic biofuel. Since biomass-based diesel is also an advanced
biofuel, the amount of biomass-based diesel that is consumed in 2012
directly affects our consideration of adjustments to the volumetric
requirements for advanced biofuel and total renewable fuel. We
therefore investigated whether the applicable volume of 1.0 bill
gallons for biomass-based diesel is achievable in 2012, and whether
additional volumes are also feasible.
We examined recent production rates, production capacity of the
industry, and projections for future production from a variety of
sources. Although there are several different fuel types that can
qualify as biomass-based diesel, biodiesel is by far the predominant
type. Thus, our assessment focused primarily on biodiesel, though we
also investigated potential volumes of renewable diesel.
According to information from the EPA-Moderated Transaction System
(EMTS) and RIN generation reports submitted to EPA from producers, we
estimate that the volume of biomass-based diesel produced in 2010 was
about 380 mill gallons.\21\ A number of commenters pointed to this low
volume as an indication that the volume requirements of 800 mill
gallons in 2011 and 1.0 bill gallons in 2012 are not achievable.
However, many of the activities of the biodiesel industry in 2010 were
due to unique circumstances that may not apply in 2012. It is likely
that a contributing factor to the lower production volumes in 2010 was
the expiration of the biodiesel tax credit at the end of 2009 and its
absence throughout 2010, and the fact that the RFS program effectively
created a demand for about 345 mill gallons in 2010.\22\ A more
comprehensive view of historical biodiesel production levels strongly
indicates that the U.S. biodiesel industry has produced higher volumes
when demand for it existed, and that as a result the industry has the
capability to produce greater volumes than it did in 2010 under the
appropriate circumstances. This point is illustrated in Figure II.D-1
below.
---------------------------------------------------------------------------
\21\ Consists of approximately 209 mill gallons as recorded
through EMTS for volume produced under the RFS2 regulations in July
through December, and approximately 171 mill gallons as recorded
through RIN generation reports submitted by producers for volume
produced under the RFS1 regulations in January through June.
\22\ See question 6.7 in EPA's ``Questions and Answers on
Changes to the Renewable Fuel Standard Program (RFS2)'', http://www.epa.gov/otaq/fuels/renewablefuels/compliancehelp/rfs2-aq.htm#6.
[GRAPHIC] [TIFF OMITTED] TR09JA12.000
The biodiesel industry's production potential supports the view
that it can more than satisfy the applicable volume of biomass based
diesel specified in the statute for 2012. As of August, 2011, the
aggregate production capacity of biodiesel plants in the U.S. was
estimated at 2.4 billion gallons per year across 148 facilities.\23\ We
expect the time and reinvestment required to ramp up production at
existing facilities to be less than the time required to build and
begin production at new plants, which takes about a year on
average.\24\ Thus, restarting idled plants will not be a hindrance to
meeting the applicable volumes for biomass-based diesel in 2011 or
2012. A higher mandate for biomass-based diesel will increase demand
for biodiesel with associated increases in RIN prices. This in turn
[[Page 1335]]
will create the incentive for biodiesel producers to put idled capacity
into production.
---------------------------------------------------------------------------
\23\ Figures taken from National Biodiesel Board's Member Plant
List as of August 22, 2011. Some plants did not report production
capacity. http://biodiesel.org/buyingbiodiesel/plants/showall.aspx.
\24\ Based on construction times for new plants listed in
Biodiesel Magazine from July 2006 through May 2009.
---------------------------------------------------------------------------
Additionally, information from the U.S. Census Bureau indicates
that monthly production volumes of biodiesel have increased steadily in
the first half of 2011, reaching about 78 mill gallons by July.\25\ See
Figure II.D-2.
---------------------------------------------------------------------------
\25\ U.S. Census Bureau, Fats and Oils, Production, Consumption,
and Stocks, Survey M311K. http://www.census.gov/manufacturing/cir/historical_data/m311k/index.html. Assumes 7.68 lb/gal conversion.
[GRAPHIC] [TIFF OMITTED] TR09JA12.001
Over the seven months shown in this figure, biodiesel production
increased by an average of about 16% each month. This trend
demonstrates that the industry is responding to the higher demand
created by the 800 mill gal biomass-based diesel volume requirement
under the RFS program in 2011. Biodiesel production will only need to
increase at a more modest rate of about 3% each month after July in
order for the total 2011 production volume to reach 800 mill gallons.
Moreover, further increases in monthly production volumes would not be
necessary after December 2011 for the industry to reach a total
production volume of 1.0 bill gallons in 2012. We believe, therefore,
that the 1.0 bill gallon requirement for biomass-based diesel in 2012
can be met. Moreover, given the increases in monthly production volumes
that occurred in the first half of 2011 and the significant amount of
underutilized production capacity that exists within the biodiesel
industry, there is also reason to believe that monthly production
volumes will increases after July 2011 at a rate that is more than
needed to meet the statutory biomass-based diesel volume requirements,
providing additional volumes that can be used to meet the advanced
biofuel standard.
Projections from other sources provide additional support to our
conclusions that 1.0 bill gal biomass-based diesel can be produced in
2012. For instance, the U.S. Department of Agriculture projects that
over 400 mill gallons of biodiesel will be produced from soybean oil in
2012, and adds that ``Although some other first-use vegetable oils are
also used to produce biodiesel, most of the remaining biodiesel
production needed to reach the 1-billion-gallon mandate of the 2007
Energy Act uses animal fats or recycled vegetable oil as the
feedstock.'' \26\ This projection is further supported by the
Agricultural Marketing Resource Center at Iowa State University, which
projects that soy-oil biodiesel production may reach as high as 470
mill gallons and that non-soy biodiesel may reach as high as 460 mill
gallons.\27\ Both of these sources project more growth in non-soy oil
feedstock volumes than soy oil. Finally, EIA projects that the total
volume of biodiesel in 2012 would be about 830 mill gallons.\28\ While
all of these projections suggest that volumes of biodiesel may fall
short of 1.0 bill gallons, they do not take into account the increase
in monthly production volumes as noted above, nor sources of renewable
diesel that will also be available. For instance, Dynamic Fuels has
constructed one plant in Geismar, Louisiana that started production of
renewable diesel in November, 2010.\29\ In the final RFS2 rule, we
projected that
[[Page 1336]]
annual renewable diesel production could reach 150 mill gallons based
on feedstock availability. Renewable diesel can also be produced at
existing refineries with little modification to processing
equipment.\30\ Thus, we currently believe that the total production
volume of biomass-based diesel can readily reach 1.0 bill gal in 2012.
---------------------------------------------------------------------------
\26\ USDA Agricultural Projections to 2020, Long-Term
Projections Report OCE-2011-1, February 2011. See Table 24. Assumes
7.68 lb/gal.
\27\ Soybean Oil and Biodiesel Usage Projections and Balance
Sheet, updated 2/18/2011. A version made available on 8/1/2011 shows
similar volumes of soybean oil for biodiesel use, but does not
provide information about non-soy oil sources of biodiesel. http://www.extension.iastate.edu/agdm/crops/outlook/soybeanbalancesheet.pdf. Values cited are for the ``High'' case.
\28\ Short-Term Energy Outlook, August 2011. Table 8.
\29\ Project status updates are available via the Syntroleum Web
site, http://dynamicfuelsllc.com/wp-news/.
\30\ For such a product to qualify for biomass-based diesel,
however, it cannot be co-processed with petroleum feedstock. This
might limit its potential for refinery-based production of
qualifying product.
---------------------------------------------------------------------------
We also reviewed information submitted by registered producers of
biomass-based diesel under the requirements of Sec. 80.1449 for
Production Outlook Reports. Of the 65 facilities that submitted a
report, the total projected 2012 volume of biomass-based diesel was 937
mill gallons. We believe that this projection is indicative of the
industry's expectation that the applicable volume requirement for 2012
will be 1.0 bill gallons and its intention to meet that requirement.
Moreover, the projection provided in these reports likely
underestimates the actual expectations and capabilities of the
industry, since the number of facilities that submitted a report is far
less than the total number of facilities capable of producing biodiesel
and renewable diesel.
In additional to production capacity and projections of 2012
production volume, we also investigated feedstocks used to produce
biomass-based diesel. We believe that there will be sufficient sources
of qualifying renewable biomass to more than meet the needs of the
biodiesel industry in 2012. The largest sources of feedstock for
biodiesel in 2012 are expected to be soy oil, canola oil, rendered
fats, and corn oil extracted during production of fuel ethanol. In
response to the NPRM, the National Biodiesel Board (NBB) cited
historically high soybean production rates for 2011 as evidence that
there will be ample volumes of soybean oil available for biodiesel
production. Likewise, the Renewable Energy Group (REG) provided
information on significant increases in the availability of inedible
corn oil from ethanol producers that it believes will occur in the next
1-2 years.
While commenters did not provide any information suggesting that
the applicable volume of 1.0 bill gallons cannot be reached, some
raised concerns about impacts on other industries and feedstock price.
For instance, the American Trucking Association (ATA) stated that
feedstocks will need to be diverted from other uses in order to meet
the 1.0 bill gallon requirement, and the American Cleaning Institute
(ACI) provided information about how such a diversion could affect the
oleochemical industry. We address concerns about price in more detail
below in our discussion of ATA's request for a waiver of the 2012
applicable volume of 1.0 bill gallons.
While we agree that the total volume of animal fats is largely
inelastic and is unlikely to grow significantly due to the presence of
the increasing market for biomass-based diesel, we also agree with the
statement from ACI that ``there is nothing in EISA or the proposed rule
that limits the amount of animal fats that can be used to meet the
mandate.'' Under the statutory definition of renewable biomass, valid
feedstocks include animal waste material and animal byproducts. We
believe that animal fats fall into these categories, and as a result we
do not have the authority to exclude or limit volumes of animal fats
that are used for production of biomass-based diesel. Such wastes could
potentially be considered ``biogenic waste oils/fats/greases'' or
``non-cellulosic portions of separated food waste'' under the RIN-
generating pathways listed in Table 1 to Sec. 80.1426, and could thus
be eligible for the production of RIN-generating biofuel.
In response to the NPRM, we received comments both in support of
and opposed to our proposal to maintain the statute's applicable volume
of 1.0 bill gallons for biomass-based diesel in 2012. In general,
producers of biodiesel and crop-based feedstocks were supportive,
citing the sufficiency of available feedstocks and production capacity.
Several supporters indicated that historically low biodiesel production
volumes are not an appropriate reference point on which to base the
capabilities of the industry for the future, since the higher biomass-
based diesel mandates established by Congress for 2011 and 2012 are
expected to drive production volumes more than any other factor.
Parties opposed to maintaining the statutory applicable volume of
1.0 bill gallons for 2012 were primarily obligated parties, as well as
representatives of diesel trucking companies and the oleochemical
industry. To a large degree, these commenters pointed to historical
biodiesel production levels in support of their belief that 1.0 bill
gallons in 2012 is not achievable. As described above, we do not agree
with this conclusion.
One party opposed to maintaining the 1.0 bill gal requirement for
2012 also raised concerns about infrastructure. We acknowledge that the
required expansion of the biodiesel handling capacity at terminals will
represent a challenge to industry. However, as discussed in the NPRM,
we continue to believe that there will be sufficient biomass-based
diesel distribution infrastructure in place to support the use of 1.0
bill gal biodiesel in 2012. For instance, NBB stated in their comments
that in most markets, terminals can treat 5% biodiesel blends as a
fungible commodity like diesel fuel and that they believe that many
terminals may be storing B5 blends. To the extent terminals store a
finished B5 blend, it would obviate the need for much of the segregated
biodiesel storage and blending capability that is assumed in our
infrastructure analysis. The Iowa Biodiesel Board stated that claims
that industry cannot accommodate the distribution of the target gallons
are baseless and cited various examples of recent biodiesel blending
initiatives at Iowa terminals.
Industry activities are currently progressing to ramp up biodiesel
consumption from the approximately 380 mill gallons estimated to be
used in the U.S. in 2010 to the volumes that will be needed in 2011 to
meet the biomass-based diesel volume requirement. For example, Kinder
Morgan and the Renewable Energy Group opened a substantial biodiesel
distribution facility to serve the Chicago area in December of
2010.\31\ Magellan also recently announced that it plans to complete
its biodiesel blending facility in Sioux Falls Minnesota in 2011.\32\
In June of this year, Sunoco Logistics and Sprague Energy opened a new
terminal facility to supply biodiesel blended transportation fuel and
heating fuel to New Jersey.\33\ These new terminal facilities employ
segregated biodiesel storage and blending capability. Just as there has
been considerable biodiesel production capacity idled due to lack of
demand which will be brought back on line as biodiesel volumes ramp up,
we believe that there may also be substantial idled biodiesel
distribution assets that could be brought back into service. It seems
reasonable to assume that at least some of the distribution assets used
previously to deliver biodiesel
[[Page 1337]]
manufactured at now idled production plants would still be available.
---------------------------------------------------------------------------
\31\ Biodiesel Magazine, November 17, 2010. http://www.biodieselmagazine.com/articles/4568/chicago-area-terminal-soon-to-offer-biodiesel.
\32\ Report to the Legislature, Annual Report on Biodiesel,
Minnesota Department of Agriculture, January 15, 2011. http://
www.mda.state.mn.us/en/news/government/~/media/Files/news/
govrelations/legrpt-biodiesel2011.ashx.
\33\ http://www.tankterminals.com/news_detail.php?id=1284.
---------------------------------------------------------------------------
Of the parties that requested a reduction in the applicable volume
of 1.0 bill gallons for 2012, the American Trucking Association (ATA)
and Chevron explicitly invoked the waiver mechanism provided at
211(o)(7)(E). The full text of this statutory provision is shown below:
(E) BIOMASS-BASED DIESEL.--
(i) MARKET EVALUATION.--The Administrator, in consultation with
the Secretary of Energy and the Secretary of Agriculture, shall
periodically evaluate the impact of the biomass-based diesel
requirements established under this paragraph on the price of diesel
fuel.
(ii) WAIVER.--If the Administrator determines that there is a
significant renewable feedstock disruption or other market
circumstances that would make the price of biomass-based diesel fuel
increase significantly, the Administrator, in consultation with the
Secretary of Energy and the Secretary of Agriculture, shall issue an
order to reduce, for up to a 60-day period, the quantity of biomass-
based diesel required under subparagraph (A) by an appropriate
quantity that does not exceed 15 percent of the applicable annual
requirement for biomass-based diesel. For any calendar year in which
the Administrator makes a reduction under this subparagraph, the
Administrator may also reduce the applicable volume of renewable
fuel and advanced biofuels requirement established under paragraph
(2)(B) by the same or a lesser volume.
(iii) EXTENSIONS.--If the Administrator determines that the
feedstock disruption or circumstances described in clause (ii) is
continuing beyond the 60-day period prescribed in clause (ii) or
this clause, the Administrator, in consultation with the Secretary
of Energy and the Secretary of Agriculture, may issue an order to
reduce, for up to an additional 60-day period, the quantity of
biomass-based diesel required under subparagraph (A) by an
appropriate quantity that does not exceed an additional 15 percent
of the applicable annual requirement for biomass-based diesel.
The waiver authority provided in paragraph 211(o)(7)(E)(ii) is
based on an EPA determination that there ``is'' a feedstock disruption
or other market circumstance that would make the price of biomass-based
diesel rise significantly. The authority to extend a temporary waiver
in paragraph (iii) is based on an EPA determination that such
disruption or circumstance ``is continuing.'' Thus, we believe that any
waiver of the 2012 biomass-based diesel requirements under this
statutory provision must be based on an evaluation of feedstock
conditions or other circumstances that exist currently and ``would
make'' the price of biomass based diesel rise significantly in 2012. If
Congress had intended that we project future market circumstances that
might lead to significant prices increases, it could have used ``will
be'' in place of ``is'' in paragraph 211(o)(7)(E)(ii). Thus, we believe
that any waiver of the biomass-based diesel requirements for 2012 must
be based on a current evaluation of the market, rather than a projected
one.
We do not believe that the information provided by Chevron and ATA
warrants a waiver of the 2012 biomass-based diesel volume at this time.
While ATA provided some information on the relative price of biodiesel
and conventional diesel, it did not demonstrate how this price
difference represented a price increase as required under the statute.
Also, they did not cite any particular renewable feedstock disruption
or other market circumstance to demonstrate how the difference in price
between conventional diesel fuel and biomass-based diesel meets the
statutory criterion for a significant increase in the price of biomass-
based diesel.
Both Chevron and ATA cite an expected expiration of the biodiesel
tax credit at the end of 2011 as a reason that prices will increase
significantly. EPA has not determined whether the expiration of a tax
credit should be considered a ``market circumstance'' within the
meaning of CAA 211(o)(7)(E)(ii), and is making no determination
regarding that matter at this time. Whether or not such a development
would be a ``market circumstance,'' it is clear that it is not an
existing circumstance, and conjecture that the tax credit may not be
continued in the future does not provide an appropriate basis for a
waiver under 211(o)(7)(E)(ii). Apart from possible consideration under
the statutory waiver provisions, however, we note that the applicable
volumes set by Congress must be met regardless of the status of Federal
or state tax credits, subsidies, incentives, and the like.
One commenter requested a cost-benefit analysis in the context of
determining the appropriate volume for biomass-based diesel in 2012.
Under the statute, we are to set the percentage standard for biomass-
based diesel for 2012 based on the applicable volume of 1.0 bill
gallons specifically set forth in the statute in CAA 211(o)(2)(B)(IV).
While the statute does provide limited mechanisms for waiving all or a
portion of any annual biomass-based diesel standard in 2012 under CAA
211(o)(7), the statute does not require a cost-benefit analysis either
in setting a standard based on the statutory applicable volume or in
considering whether or not to issue a waiver. For instance, under
211(o)(7)(A), waivers can be granted based on an EPA finding of severe
harm to the economy or environment of a state, region, or the United
States, or inadequate domestic supply. Under 211(o)(7)(E) waivers can
be granted based on a significant renewable feedstock disruption or
other market circumstance that would make the price of biomass-based
diesel fuel increase significantly. Neither of these statutory
provisions provides for a comparison of the costs associated with
meeting the biomass-based diesel standard to the benefits of meeting
that standard. Therefore, we do not believe that cost-benefit analyses
are necessary or appropriate in the context of considering the 2012
biomass-based diesel volume of 1.0 bill gallons.
Based on our review of the production potential of the biodiesel
industry, projections from several sources, and our assessment of
available feedstocks, we believe that the 1.0 billion gallons needed to
satisfy the applicable volume of biomass-based diesel specified in the
statute can be produced in 2012, and that more than 1.0 bill gallons of
production is possible. Moreover, we do not believe that waiving a
portion of the 2012 biomass-based diesel volume of 1.0 bill gallons
under the provisions of 211(o)(7)(E) is appropriate at this time.
III. Final Percentage Standards for 2012
A. Background
The renewable fuel standards are expressed as a volume percentage,
and are used by each refiner, blender or importer to determine their
renewable volume obligations (RVO). Since there are four separate
standards under the RFS2 program, there are likewise four separate RVOs
applicable to each obligated party. Each standard applies to the sum of
all gasoline and diesel produced or imported for use in the U.S. The
applicable percentage standards are set so that if each regulated party
meets the percentages, then the amount of renewable fuel, cellulosic
biofuel, biomass-based diesel, and advanced biofuel used will meet the
volumes required on a nationwide basis.
As discussed in Section II.B.6, we are finalizing a required volume
of cellulosic biofuel for 2012 of 8.65 million gallons (10.45 million
ethanol equivalent gallons). The advanced biofuel and total renewable
fuel volumes will not be reduced below the applicable volumes specified
in the statute. The final 2012 volumes used to determine the four
percentage standards are shown in Table III.A-1.
[[Page 1338]]
Table III.A-1--Final Volumes for 2012
----------------------------------------------------------------------------------------------------------------
Actual volume Ethanol equivalent volume
----------------------------------------------------------------------------------------------------------------
Cellulosic biofuel.................... 8.65 mill gal............ 10.45 mill gal.
Biomass-based diesel.................. 1.0 bill gal............. 1.5 bill gal.
Advanced biofuel...................... 2.0 bill gal............. 2.0 bill gal.
Renewable fuel........................ 15.2 bill gal............ 15.2 bill gal.
----------------------------------------------------------------------------------------------------------------
The formulas used in deriving the annual renewable fuel standards
are based in part on estimates of the volumes of gasoline and diesel
fuel, for both highway and nonroad uses, that will be used in the year
in which the standards will apply. Producers of other transportation
fuels, such as natural gas, propane, and electricity from fossil fuels,
are not subject to the standards, and volumes of such fuels are not
used in calculating the annual standards. Since the standards apply to
producers and importers of gasoline and diesel, these are the
transportation fuels used to set the standards, and then again to
determine the annual volume obligations of an individual gasoline or
diesel producer or importer.
B. Calculation of Standards
1. How are the standards calculated?
The following formulas are used to calculate the four percentage
standards applicable to producers and importers of gasoline and diesel
(see Sec. 80.1405):
[GRAPHIC] [TIFF OMITTED] TR09JA12.002
Where:
StdCB,i = The cellulosic biofuel standard for year i, in
percent.
StdBBD,i = The biomass-based diesel standard (ethanol-
equivalent basis) for year i, in percent.
StdAB,i = The advanced biofuel standard for year i, in
percent.
StdRF,i = The renewable fuel standard for year i, in
percent.
RFVCB,i = Annual volume of cellulosic biofuel required by
section 211(o) of the Clean Air Act for year i, in gallons.
RFVBBD,i = Annual volume of biomass-based diesel required
by section 211(o) of the Clean Air Act for year i, in gallons.
RFVAB,i = Annual volume of advanced biofuel required by
section 211(o) of the Clean Air Act for year i, in gallons.
RFVRF,i = Annual volume of renewable fuel required by
section 211(o) of the Clean Air Act for year i, in gallons.
Gi = Amount of gasoline projected to be used in the 48
contiguous states and Hawaii, in year i, in gallons.
Di = Amount of diesel projected to be used in the 48
contiguous states and Hawaii, in year i, in gallons.
RGi = Amount of renewable fuel blended into gasoline that
is projected to be consumed in the 48 contiguous states and Hawaii,
in year i, in gallons.
RDi = Amount of renewable fuel blended into diesel that
is projected to be consumed in the 48 contiguous states and Hawaii,
in year i, in gallons.
GSi = Amount of gasoline projected to be used in Alaska
or a U.S. territory in year i if the state or territory opts-in, in
gallons.
RGSi = Amount of renewable fuel blended into gasoline
that is projected to be consumed in Alaska or a U.S. territory in
year i if the state or territory opts-in, in gallons.
DSi = Amount of diesel projected to be used in Alaska or
a U.S. territory in year i if the state or territory opts-in, in
gallons.
RDSi = Amount of renewable fuel blended into diesel that
is projected to be consumed in Alaska or a U.S. territory in year i
if the state or territory opts-in, in gallons.
GEi = The amount of gasoline projected to be produced by
exempt small refineries and small refiners in year i, in gallons, in
any year they are exempt per Sec. Sec. 80.1441 and 80.1442,
respectively.
DEi = The amount of diesel projected to be produced by
exempt small refineries and small refiners in year i, in gallons, in
any year they are exempt per Sec. Sec. 80.1441 and 80.1442,
respectively.
[[Page 1339]]
The four separate renewable fuel standards for 2012 are based in
part on the gasoline and diesel consumption volumes projected by EIA.
The Act requires EPA to base the standards on an EIA estimate of the
amount of gasoline and diesel that will be sold or introduced into
commerce for that year. EIA estimates 8.85 million barrels per day of
gasoline (~136 billion gallons) and 3.36 million barrels per day of
transportation diesel (~ 52 billion gallons) will be sold or introduced
into commerce in 2012.\34\ Because diesel used in ocean-going vessels
is excluded from the RFS2 program, that amount must be subtracted from
the total projected transportation diesel value. EIA estimates
approximately 26,000 barrels per day of transportation diesel will be
used in ocean-going vessels in 2012, resulting in approximately 3.334
million barrels per day (51.11 billion gallons) projected for all other
transportation uses in 2012.
---------------------------------------------------------------------------
\34\ Letter, Howard K. Gruenspecht, Acting Administrator, U.S.
Energy Information Administration, to Lisa P. Jackson,
Administrator, U.S. Environmental Protection Agency, October 19,
2011.
---------------------------------------------------------------------------
The gasoline and diesel volumes are adjusted to account for
renewable fuel volumes--ethanol (estimated by EIA) and biodiesel (based
on EIA's Short-Term Energy Outlook (STEO)). For 2012, these values are
0.87 million barrels per day (~13 billion gallons) and 0.119
quadrillion Btu \35\ (~ 0.9 billion gallons), respectively.
---------------------------------------------------------------------------
\35\ Table 8 ``U.S. Renewable Energy Supply and Consumption,''
Short Term Energy Outlook, U.S. Energy Information Administration,
October 2011.
---------------------------------------------------------------------------
In addition, because Alaska does not participate in the RFS2
program, the gasoline and diesel volumes must be further reduced by
Alaska's projected share of transportation fuels. To determine the 49-
state values for gasoline and diesel, the amounts of these fuels used
in Alaska is subtracted from the totals provided by DOE. Just as with
its corresponding gasoline and diesel volumes, renewable fuels used in
Alaska are not included in the renewable fuel volumes that are
subtracted from the total gasoline and diesel volume estimates. Section
211(o) of the Clean Air Act requires that the renewable fuel be
consumed in the contiguous 48 states, and any other state or territory
that opts-in to the program (as Hawaii has done). However, because
renewable fuel produced in Alaska is unlikely to be transported to the
contiguous 48 states or to Hawaii, including Alaska's renewable fuel
volumes in the calculation of the standard would not serve the purpose
intended by section 211(o) of the Clean Air Act of ensuring that the
statutorily required renewable fuel volumes are consumed in the 48
contiguous states and any state or territory that opts-in.
The 2012 Alaska fractions of U.S. consumption are determined from
the most recent (2009) EIA State Energy Data System (SEDS) estimates,
assuming fairly constant Alaska to U.S. year-to-year ratios. We used
Table CT1 ``Energy Consumption Estimates for Major Energy Sources in
Physical Units, 1960-2009, Alaska'' to get total gasoline and ethanol
consumption for Alaska for 2009. We coupled this data with total U.S.
estimates from Table C2 ``Energy Consumption Estimates for Major Energy
Sources in Physical Units, 2009'' to determine the corresponding Alaska
fractions. The gasoline fraction is approximately 0.2%. Ethanol use in
Alaska is estimated at 8.4% of its gasoline consumption (based on the
data in Table CT1), or approximately 0.2% of national ethanol
consumption. Because only transportation diesel fuel is subject to the
RFS program, we need more specific data than that used to calculate the
gasoline and ethanol fractions. We used data from Table C8
``Transportation Sector Energy Consumption Estimates, 2009'' to
calculate the Alaska transportation distillate fuel oil fraction, 0.8%.
Biodiesel use is assumed to be zero. The Alaska and U.S. data just
described are shown in Table III.B-1.
Table III.B-1--Alaska and U.S. Data
----------------------------------------------------------------------------------------------------------------
Alaska
fraction\x\
Alaska U.S. (in
percent)
----------------------------------------------------------------------------------------------------------------
Motor Gasoline........................... 6725 Mbbl \a\.............. 3283.7 MMbbl \b\........... 0.2
Fuel Ethanol............................. 565 Mbbl \a\............... 262.8 MMbbl \b\............ 0.2
Transportation Distillate................ 46.1 tBtu \c\.............. 5528.3 tBtu \c\............ 0.8
----------------------------------------------------------------------------------------------------------------
\a\ Source: EIA State Energy Data System, Table CT1 ``Energy Consumption Estimates for Major Energy Sources in
Physical Units, 1960-2009, Alaska''.
\b\ Source: EIA State Energy Data System, Table C2 ``Energy Consumption Estimates for Major Energy Sources in
Physical Units, 2009''.
\c\ Source: EIA State Energy Data System, Table C8 ``Transportation Sector Energy Consumption Estimates, 2009''.
\x\ Calculated value.
2. Small Refineries and Small Refiners
In CAA section 211(o)(9), enacted as part of the Energy Policy Act
of 2005, Congress provided a temporary exemption to small refineries
(those refineries with a crude throughput of no more than 75,000
barrels of crude per day) through December 31, 2010. In RFS1, we
exercised our discretion under section 211(o)(3)(B) and extended this
temporary exemption to the few remaining small refiners that met the
Small Business Administration's (SBA) definition of a small business
(1,500 employees or less company-wide) but did not meet the statutory
small refinery definition as noted above. Because EISA did not alter
the small refinery exemption in any way, the RFS2 program regulations
exempted gasoline and diesel produced by small refineries and small
refiners in 2010 from the renewable fuels standard (unless the
exemption was waived), see 40 CFR 80.1141.
Under the RFS program, Congress provided two ways that small
refineries can receive a temporary extension of the exemption beyond
2010. One is based on the results of a study conducted by the
Department of Energy (DOE) to determine if small refineries would face
a disproportionate economic hardship under the RFS program. The other
is based on EPA determination of disproportionate economic hardship on
a case-by-case basis in response to refiner petitions.
In January 2009, DOE issued a study which did not find that small
refineries would face a disproportionate economic hardship under the
RFS program.\36\ The conclusions were based in part on the expected
robust availability of RINs and
[[Page 1340]]
EPA's ability to grant relief on a case-by-case basis. As a result,
beginning in 2011 small refiners and small refineries were required to
participate in the RFS program as obligated parties, and there was no
small refiner/refinery volume adjustment to the 2011 standard as there
was for the 2010 standard.
---------------------------------------------------------------------------
\36\ DOE report ``EPACT 2005 Section 1501 Small Refineries
Exemption Study'', (January, 2009).
---------------------------------------------------------------------------
Following the release of DOE's 2009 small refinery study, Congress
directed DOE to complete a reassessment and issue a revised report. DOE
recently re-evaluated the impacts of the RFS program on small entities
and concluded that 21 small refineries would suffer a disproportionate
hardship if required to participate in the program.\37\ As a result,
these refineries will be exempt from being obligated parties for a
minimum of two additional years, 2011 and 2012.\38\ In 2009, the
gasoline produced by refineries identified in the DOE report as well as
those refineries exempted through the petition process constituted
approximately 3.6% of total US gasoline, and 4.5% of total US diesel.
Applying these percentages to the 2012 projections of gasoline and
diesel volumes yields exempt small refinery gasoline volume of 4.87
billion gallons and diesel volume of 2.28 billion gallons.
---------------------------------------------------------------------------
\37\ ``Small Refinery Exemption Study: An Investigation into
Disproportionate Economic Hardship,'' U.S. Department of Energy,
March 2011.
\38\ Since the standards are applied on an annual basis, the
exemptions are likewise on an annual basis even though the
determination of which refineries would receive an extension to
their exemption did not occur until after January 1, 2011.
---------------------------------------------------------------------------
CAA section 211(o) requires that the small refinery adjustment also
account for renewable fuels used during the prior year by small
refineries that are exempt and do not participate in the RFS2 program.
Accounting for this volume of renewable fuel would reduce the total
volume of renewable fuel use required of others, and thus directionally
would reduce the percentage standard. However, as we discussed in RFS1,
the amount of renewable fuel that would qualify, i.e., that was used by
exempt small refineries but not used as part of the RFS program, is
expected to be very small. In fact, these volumes would not
significantly change the resulting percentage standards. Whatever
renewable fuels small refineries blend will be reflected as RINs
available in the market; thus there is no need for a separate
accounting of their renewable fuel use in the equations used to
determine the standards. Thus we assign a value of zero to small
refinery renewable fuel use.
The 2012 standards reflect the exemption of these refineries. In
addition, and separate from the DOE determination, EPA may extend the
exemption for individual small refineries on a case-by-case basis if
they demonstrate disproportionate economic hardship.
In the NPRM, we stated that ``requests for exemptions that are
approved after the release of the final 2012 RFS standards will not
affect the 2012 standards.'' This position is unchanged from that set
in the final rule establishing the 2011 standards.\39\ At that time, we
stated, ``EPA believes the Act is best interpreted to require issuance
of a single annual standard in November that is applicable in the
following calendar year, thereby providing advance notice and certainty
to obligated parties regarding their regulatory requirements. Periodic
revisions to the standards to reflect waivers issued to small
refineries or refiners would be inconsistent with the statutory text,
and would introduce an undesirable level of uncertainty for obligated
parties.'' However, a few commenters took issue with this approach.
Specifically, these commenters maintain that EPA did not provide notice
and comment opportunities regarding the extensions of the small
refinery exemptions for the current compliance period (2011), and that
EPA cannot grant such extensions (mid-year) without modifying the
standards because such authority is not provided in the statute. In
addition, these commenters extend the application of their comments to
any extensions of exemptions that may occur after issuance of the final
2012 standards. Commenters suggested requiring petitions to be
submitted in time to be considered in the annual standard-setting
process. One commenter also suggested that the volumes waived in 2011
as a result of the small refiner waivers be ``made up'' in setting the
2012 standards. EPA understands the desire of the commenters to have
the annual required volumes of renewable fuels realized. However, while
the statute requires EPA to publish the standards for the following
year by November 30 of the preceding year, there is no provision for
changing the percentage standards once they are set outside of the
waiver provisions of CAA 211(o)(7). In addition, we are not required to
ensure that the biofuel volumes in the statute are precisely met. We
are required to use the specified volumes to set the percentage
standards, but there are no provisions for ensuring that the percentage
standards actually result in the specified volumes actually being
consumed. This outcome is evidenced by the fact that we use projections
of gasoline and diesel volume for the next year which might turn out to
be too high or too low. Insofar as those projections are wrong, the
percentage standards will not produce a demand for biofuels that
exactly corresponds to the volumes in the statute. Thus Congress
allowed for some imprecision to exist in the actual volumes of
renewable fuel that are consumed as a result of the percentage
standards that we set each November, and did not provide a means for
correcting the percentage standards after November to ensure that the
applicable volumes of renewable fuel are exactly met in a given
compliance year.
---------------------------------------------------------------------------
\39\ See 75 FR 76805, December 9, 2010.
---------------------------------------------------------------------------
3. Final Percentage Standards
As finalized in the March 26, 2010 RFS2 rule, the standards are
expressed in terms of energy-equivalent gallons of renewable fuel, with
the cellulosic biofuel, advanced biofuel, and total renewable fuel
standards based on ethanol equivalence and the biomass-based diesel
standard based on biodiesel equivalence. However, all RIN generation is
based on ethanol-equivalence. More specifically, the RFS2 regulations
provide that production or import of a gallon of biodiesel will lead to
the generation of 1.5 RINs. In order to ensure that demand for 1.0
billion physical gallons of biomass-based diesel will be created in
2012, the calculation of the biomass-based diesel standard provides
that the required volume be multiplied by 1.5. The net result is a
biomass-based diesel gallon being worth 1.0 gallons toward the biomass-
based diesel standard, but worth 1.5 gallons toward the other
standards.\40\
---------------------------------------------------------------------------
\40\ 75 FR 14716, March 26, 2010.
---------------------------------------------------------------------------
The levels of the percentage standards would be reduced if Alaska
or a U.S. territory chooses to participate in the RFS2 program, as
gasoline and diesel produced in or imported into that state or
territory would then be subject to the standard. Neither Alaska nor any
U.S. territory has chosen to participate in the RFS2 program at this
time, and thus the value of the related terms in the calculation of the
standards is zero.
Note that the terms for projected volumes of gasoline and diesel
use include gasoline and diesel that has been blended with renewable
fuel. Because the gasoline and diesel volumes estimated by EIA include
renewable fuel use, we must subtract the total renewable fuel volume
from the total
[[Page 1341]]
gasoline and diesel volume to get total non-renewable gasoline and
diesel volumes, as discussed earlier. The values of the variables
described above are shown in Table III.B.3-2. Terms not included in
this table have a value of zero.
Table III.B.3-2--Values for Terms in Calculation of the Standards
[Bill gal]
------------------------------------------------------------------------
Term Value
------------------------------------------------------------------------
RFVCB,2012................................................. 0.01045
RFVBBD,2012................................................ 1.0
RFVAB,2012................................................. 2.0
RFVRF,2012................................................. 15.20
G2012...................................................... 135.39
D2012...................................................... 50.68
GE2012..................................................... 4.87
DE2012..................................................... 2.28
RG2012..................................................... 13.31
RD2012..................................................... 0.93
------------------------------------------------------------------------
Using the volumes shown in Table III.B.3-2, we have calculated the
percentage standards for 2012 as shown in Table III.B.3-3.
Table III.B.3-3--Final Percentage Standards for 2012
------------------------------------------------------------------------
------------------------------------------------------------------------
Cellulosic biofuel........................................... 0.006%
Biomass-based diesel......................................... 0.91%
Advanced biofuel............................................. 1.21%
Renewable fuel............................................... 9.23%
------------------------------------------------------------------------
IV. Changes to RFS2 Regulations
As the RFS2 program got underway in the second half of 2010, we
discovered that a number of regulatory provisions were causing
confusion among regulated parties. In some cases the confusion was due
to a lack of specificity in terms, while in others it was due to unique
circumstances that were not sufficiently addressed in the RFS2
regulations. A few amendments are being finalized in order to correct
these problems and to amend regulatory language that inadvertently
misrepresented our intent as reflected in the preamble to the final
RFS2 regulations. In addition, as we have worked with regulated parties
to ensure that the RFS program is operating as intended, we identified
areas in the regulations that could benefit from streamlining. We also
identified one provision in the gasoline benzene regulations that
misrepresented our intent as stated in the preamble. As a result, we
are finalizing a number of amendments to the RFS regulations, and one
amendment to the gasoline benzene regulations, in 40 CFR Part 80.
A. Summary of Amendments
Below is a table listing the provisions that we are amending in
today's action. We have provided additional explanation for several of
these amendments in Sections IV.B through IV.F below.
Table IV.A-1--Summary of Technical Amendments
------------------------------------------------------------------------
Section Description
------------------------------------------------------------------------
80.1275(d)(3).......................... Removed to allow for the
inclusion of transferred
blendstocks in the calculation
of benzene early credits.
80.1401................................ Amended definition of ``annual
cover crop'' to clarify that
the crop has no existing
market to which it can be sold
except for its use as
feedstock for the production
of renewable fuel.
80.1401................................ Amended definition of
``naphtha'' to clarify that it
applies to hydrocarbons only,
must be commonly or
commercially known as naphtha,
and is used for producing
gasoline.
80.1405(a), (b), and (d)............... Amended to state the standards
for 2012 and the date of the
annual standards calculation.
80.1405(c)............................. Amended terms ``GEi'' and
``DEi'' to reference the
amount of gasoline and/or
diesel produced by small
refineries and small refiners
that are exempt pursuant to
Sec. Sec. 80.1441 and
80.1442.
80.1415(c)(2).......................... Amended to state the specific
requirements needed for
technical justifications for
applications for Equivalence
Values.
80.1426(f)(1).......................... Corrected typographical error
in cross reference to
paragraph (f)(6) of Sec.
80.1426.
80.1426(f)(5)(ii)...................... Amended requirements so that
the separated yard waste plans
and separated food waste plans
need not be approved by EPA,
but instead only need to be
accepted by EPA under the
registration provisions.
80.1429(b)(2).......................... Amended to clarify that
``fossil-based'' diesel fuel
is different from renewable
diesel fuel.
80.1429(b)(9).......................... Amended to include RIN
separation limitations on
parties whose non-export RVOs
are solely related to imports
of gasoline and diesel or the
use of blendstocks to produce
gasoline or diesel.
80.1449(a)............................. Amended Production Outlook
Report due date; added
allowance for unregistered
renewable fuel producers and
importers to submit Production
Outlook Reports.
80.1450(d)(1)-(d)(3)................... Amended to add more specificity
on when updates, addenda, or
resubmittals are required for
engineering reviews and to
include references to foreign
ethanol producers.
80.1451(a)(1)(xi)...................... Amended to clarify that this
section references RFS1 RINs
retired for compliance.
80.1452(b)(2).......................... Corrected typographical error.
80.1452(b)(4).......................... Amended to clarify that a RIN-
generating importer must
submit to EMTS the EPA
facility registration number
of the facility at which the
renewable fuel producer or
foreign ethanol producer
produced the batch.
Sec. 80.1452(b)(5)................... Amended to clarify that for
imports of renewable fuel, the
RIN-generator must submit to
EMTS the EPA facility
registration number of the
importer that imported the
batch.
80.1460(b)(6).......................... Adds the existing prohibition
against generating a RIN for
fuel for which RINs have
previously been generated.
80.1464(a)(2)(iii), (a)(2)(iv), Added to clarify that auditors
(b)(2)(iii), (b)(2)(iv), (c)(1)(iii), must verify that product
and (c)(1)(iv). transfer documents for RIN
transactions contain the
required information for
obligated parties/exporters
and for renewable fuel
producers/importers.
[[Page 1342]]
80.1464(a)(2)(i), (a)(3)(ii), Amended to clarify that
(b)(2)(i), (b)(3)(ii). auditors must validate RIN
separations for obligated
parties/exporters and for
renewable fuel producers/
importers; amended to correct
typographical error.
80.1465(h)(2); 80.1466(h)(2); and Amended to remove the option of
80.1467(e)(1), (e)(2), and (g)(2). using an alternative
commitment in lieu of paying a
bond and to clarify the amount
of bond a foreign entity must
post.
------------------------------------------------------------------------
There are also two changes to Table 1 to Sec. 80.1426 that we
proposed in the July 1, 2011 NPRM that we are not finalizing in today's
action, but which instead will be finalized in a separate action. The
first change would amend the table to include ID letters for each
pathway to facilitate references to specific pathways. The second
change would add ``rapeseed'' to the existing pathway that currently
allows canola oil to be used as a valid feedstock in the production of
biodiesel. These two changes are being finalized in a separate action
in order to ensure that multiple changes to Table 1 to Sec. 80.1426
that are made sequentially do not inadvertently result in later changes
over-writing earlier changes.
B. Technical Justification for Equivalence Value Application
A producer or importer of renewable fuels is required to submit an
equivalence value (EV) application in accordance with Sec. 80.1415(c)
for any renewable fuel that does not have an EV listed in Sec.
80.1415(b). In addition, a producer or importer could apply for an
alternative EV if the producer or importer has reason to believe that a
different EV than that listed in Sec. 80.1415(b) is warranted. Section
80.1415(c) provides the calculation equation for the EV of the
renewable fuel and the requirements for the technical justification to
be submitted in the EV application.
We have received many inquires from producers and importers of
renewable fuels requesting clarification of the specific requirements
for the technical justification listed in Sec. 80.1415(c). In
addition, based on the many EV applications we have evaluated, we have
found that we needed to request additional information from producers
and importers to better understand the composition of the renewable
fuel they produced, such as intermediate steps and energy inputs in
production process, sources of renewable and non-renewable feedstock,
and so forth, to better evaluate and assign the correct EV to the
producer or importer's renewable fuel.
Therefore, we are finalizing in this rulemaking amendments to Sec.
80.1415(c)(2) to clarify the current requirements and to include
additional requirements for the technical justification to be submitted
in the EV application. The final amendments to Sec. 80.1415(c)(2)
include:
--A calculation for the requested equivalence value according to the
equation in Sec. 80.1415(c)(1), including supporting documentation for
the energy content (EC) of the renewable fuel such as a certificate of
analysis from a laboratory that verifies the lower heating value in Btu
per gallon of the renewable fuel produced.
--For each feedstock, component or additive used to make the renewable
fuel, provide a description, the percent input and identify whether or
not it is renewable biomass or is derived from renewable biomass.
--For each feedstock that could independently qualify as a renewable
fuel, state whether or not RINs have been previously generated for the
feedstock.
--A description of renewable fuel and the production process, including
a block diagram that shows quantities of all inputs and outputs
required at each step of the production process for the production of
one batch of renewable fuel.
We received no adverse comments on our proposed changes to Sec.
80.1415(c)(2), and so are finalizing the changes as proposed.
C. Changes to Definitions of Terms
1. Definition of Annual Cover Crop
As explained in the preamble of the RFS2 final rulemaking, EPA
extended modeling for cellulosic biofuel made from corn stover and
biodiesel/renewable diesel made from waste oils/fats/greases to certain
fuels made from annual cover crops, based on the expectation that
cultivation of annual cover crops, as defined in Sec. 80.1401, will
have little impact on the agricultural commodity markets and therefore
little or no land use impact associated with them. Therefore, certain
fuels (as specified in Table 1 to Sec. 80.1426) derived from annual
cover crop feedstocks qualify for D-codes under the advanced biofuel,
biomass-based diesel, and cellulosic renewable fuel categories.
Section 80.1401 of the final RFS2 rule defines ``annual cover
crop.'' We proposed to amend the definition of annual cover crop in
order to more clearly define those feedstocks that meet the intent of
including cover crops in several pathways in Table 1 to Sec. 80.1426.
As explained in the proposal, in order to extend our modeling to
cover crops, we used the rationale that annual cover crops would have
no indirect land use impact since they are planted on land otherwise
used for crop production. Direct greenhouse gas emissions would only be
associated with growing, harvesting and transporting the cover crop,
and then processing into biofuel. (See 75 FR 14794 col. 3.) These
direct impacts could include requiring the farmer to use more
commercial fertilizer in compensation for removing cover crops that
would have been plowed into the field, or in decreasing yield of food
crops. However, our determination that cover crops qualified for D-
codes under the advanced biofuel, biomass-based diesel, and cellulosic
renewable fuel categories was based on the fact that they did not have
any indirect impacts. Thus, we assumed that no additional land would be
required to plant annual cover crops, that cover crops would not
displace primary crop production, and that the use of the cover crop as
a feedstock for renewable fuels would not have secondary impacts on
other agricultural commodity markets. This implies that annual cover
crops would not be planted and harvested for the purpose of being sold
to existing markets. If a cover crop already had an existing market,
then the increased use of cover crops as feedstocks for renewable fuel
production could potentially impact the existing markets. Therefore, we
proposed to amend the current definition for ``annual cover crop'' to
clarify that for purposes of the RFS program the term only includes
crops that have no existing market to which they can be sold except for
the use of the feedstock for renewable fuel. This will ensure that no
unintended land use or significant indirect effects result from the use
of annual cover
[[Page 1343]]
crops as feedstocks for renewable fuel production.
Several parties commented against this change, stating that it is
too restrictive and thus would prevent some crops they considered cover
crops from qualifying as eligible feedstock under the RFS2 program.
While this change clarifies that crops having existing market impacts
would not qualify as cover crops, such exclusion is consistent with the
basis for including the cover crop provision. EPA determined that crops
with no market value could be planted on land without any expected
impact on other crops and thus no expected indirect land use impact.
This amendment clarifies that only crops with no market impact can
qualify as cover crops and is consistent with the underlying analysis.
However, even if a crop does not qualify under this revised cover crop
definition, that does not prevent it from being included as an eligible
feedstock under the RFS2 program. As stated in the proposal, EPA
recognizes that there may be additional fuel pathways requiring
lifecycle greenhouse gas (GHG) assessments and the assignment of
appropriate RIN D-Codes, including those using feedstocks that do not
meet the proposed amended definition of annual cover crop. For further
guidance on the process for requesting EPA evaluation of new fuel
pathways, please refer to the following sites:
http://www.epa.gov/otaq/fuels/renewablefuels/compliancehelp/rfs2-lca-pathways.htm
http://www.epa.gov/otaq/fuels/renewablefuels/compliancehelp/lca-petition-instructions.htm#1
2. Definition of ``Naphtha''
In the RFS2 final rule, we included several RIN-generating pathways
in Table 1 to Sec. 80.1426 for naphtha made from renewable biomass. We
also provided a definition of naphtha in Sec. 80.1401. However, the
definition we finalized was overly broad and did not adequately
represent our intent to limit naphtha to gasoline blendstocks. As a
result, some biofuel producers have expressed interest in interpreting
the term ``naphtha'' to include materials that, while falling within
the boiling range of gasoline, are not used as a blendstock to produce
gasoline.
To remedy this situation, we proposed to revise the definition of
naphtha to also specify that it applies only to blendstocks which are
composed of only hydrocarbons, are commonly or commercially known as
naphtha, and are used to produce gasoline. We received no adverse
comments on this proposal, and so are finalizing it as proposed.
D. Technical Amendments Related to RIN Generation and Separation
1. RIN Separation Limit for Obligated Parties
We proposed to amend section Sec. 80.1429(b)(9) to limit the
amount of RINs a company who is an obligated party solely by virtue of
importation of obligated fuel can separate to meet their Renewable
Volume Obligation (RVO). This proposal was designed to prevent abuse of
the obligated party RIN separation provision by a company that imports
a relatively small amount of an obligated volume, but then separates a
large amount of RINs. It was also designed to help prevent hoarding of
RINs by parties that do not need them for compliance purposes, and to
generally increase the liquidity of RINs. EPA structured the original
RFS1 separation regulations around facilitating compliance by obligated
parties who must acquire RINs to meet their RVOs. This change is
consistent with the original design and also ensures that importers can
separate enough RINs to meet their obligations. Overall, commenters
were against this amendment with many companies indicating that they
are currently taking advantage of the ability to separate all RINs in
their possession if they are an obligated party solely related to their
gasoline and/or diesel imports, and that they wish to continue to do
so.
One commenter opposed this change, stating that the RIN life
limitation would prevent hoarding. EPA does not agree with this; the
life of a RIN prevents use for compliance after a designated amount of
time, see Sec. 80.1447(a)(6), this does not provide an adequate
mechanism to prevent hoarding of RINs.
Several commenters stated that the carryover provisions prevent RIN
hoarding. EPA does not agree; the carryover provisions, Sec.
80.1428(a)(5), refer only to the ratio of assigned RINs to volumes of
renewable fuel owned at the end of a quarter. There is no limit on the
amount of separated RINs that a party may own at the end of a quarter.
Several commenters stated that market liquidity would decrease if
obligated importers could not separate all RINs that they own. They
also stated that RINs will be held by fewer obligated parties. We
believe that market liquidity would not be decreased; RIN separation
would still occur according to Sec. 80.1429 and obligated parties
would still have access to the separated RINs needed for compliance. In
fact, to the extent that the provision prevents RIN hoarding, as
intended, it should increase RIN liquidity. EPA has determined that
this will not change or limit who can participate in the RFS program or
become an obligated party; it will only limit the number of RINs that
certain importers can separate. In addition, these obligated importers
and any other RIN owning party can separate RINs without being subject
to the limitation in Sec. 80.1429(b)(9) for any of the reasons
outlined in Sec. 80.1429(b)(2)-(b)(5) and (b)(8).
One commenter was concerned about how an obligated importer would
know how many RINs they could separate for ``receipt of fuel by an
obligated party'' noting that they will not know their exact RVO until
the end of the compliance year. EPA believes that obligated importers
should separate RINs on the basis of ``receipt of fuel by an obligated
party'' only to the extent necessary to meet their existing obligation.
One commenter felt that the proposed amendment would limit the
actual capacity of an importer to introduce a volume of renewable fuel
into the marketplace. EPA does not agree with this statement and
believes that limiting RIN separation using the reason ``receipt of
fuel by an obligated party'' would not reduce the amount of renewable
fuel that is in demand and may be sold.
One commenter requested confirmation of the following statement:
``this change would, in no way, limit the right of a company to
separate RINs from renewable fuel if that entity is acting as a blender
and blending renewable fuel into transportation, heating fuel or jet
fuel.'' EPA confirms the previous statement with one clarification.
Amended Sec. 80.1429 applies ``except as provided in paragraphs (b)(2)
through (b)(5) and (b)(8).'' Since the obligation for blenders to
separate RINs for renewable fuel that they blend to produce a
transportation fuel, heating oil or jet fuel appears in (b)(2), the
limitations in (b)(9) are not applicable to RIN separations pursuant to
that provision. We clarify, however, that (b)(2) applies to blending
``to produce'' a transportation fuel, heating oil or jet fuel. For
example, blending biodiesel at a rate of 5% into motor vehicle diesel
fuel would produce a transportation fuel.
One commenter indicated that this method of separation helped
companies that did not want to be involved with the RFS program;
allowing obligated importers to transfer renewable fuel without RINs
and not violating the quarterly check outlined in
[[Page 1344]]
Sec. 80.1428(a)(5). EPA notes that all parties have the ability to
separate up to 2.5 RINs per gallon pursuant to Sec. 80.1429. This
amendment, which will limit obligated importers' ability to separate
RINs, would not change this feature. This provision could facilitate
the transfer of fuel with separated RINs to parties not wishing to
receive RINs. Also, small blenders have the ability to delegate all RIN
related responsibilities to the party directly upstream as long as they
are blending less than 125,000 gallons of renewable fuel per year
(Sec. 80.1440). In addition to separating up to their RVO, obligated
importers and any other RIN owning party can separate for any of the
reasons outlined in Sec. 80.1429(b)(2)-(b)(5) and (b)(8) without being
subject to the limitation in (b)(9).
One commenter argued that the ability to separate as an obligated
importer allowed them more flexibility with RIN transfer dates. EPA
believes that this implies that the party uses its ability to separate
to avoid the requirement in Sec. 80.1428(a)(3) ``an assigned RIN
cannot be transferred to another person without simultaneously
transferring a volume of renewable fuel to that same person.'' The
commenter indicated that a reason for becoming an obligated importer is
to be able to separate all RINs and avoid the previously referenced
regulatory requirement. This also allows them to remain in compliance
with the EMTS transaction reporting time frames laid out on Sec.
80.1452(c). EPA believes that transfer date and the ability to transfer
separated RINs without renewable fuel are not relevant to this
amendment. The commenter's use of the provision is counter to how the
program was set up to ensure the distribution of RINs and could be used
not only to slow the transfer of RINs downstream to the blender or
final user of the renewable fuel, but also allow hoarding. The
commenter also stated that there is no requirement to report physical
fuel inventory and number of assigned RINs (Sec. 80.1428(a)(5)). EPA
has determined that this statement is not accurate pursuant to Sec.
80.1451. Currently, Sec. 80.1451(c)(2)(xiv), requires the volume of
renewable fuel owned at the end of the quarter. This volume must meet
the requirements of Sec. 80.1428(a)(5).
EPA believes that while commenters were mainly against the
amendment, specific arguments presented supported EPAs reason for the
amendment. For the reasons stated above, we are finalizing the
regulatory changes as proposed.
2. RIN Retirement Provision for Error Correction
As we stated in the proposal, in some instances, renewable fuel
producers or importers may improperly generate RINs in EMTS as a result
of calculation errors, meter malfunctions or clerical errors. Pursuant
to Sec. 80.1431(a), improperly generated RINs are invalid, and cannot
be used to achieve compliance with any Renewable Volume Obligations
(RVOs).
EPA sought comment on the possibility of amending Sec. 80.1431 to
provide the regulated community with limited flexibility to allow
certain RINs that were improperly generated to nevertheless be
transferred and used for compliance, provided the RIN-generator retires
equivalent RINs (the same quantity and fuel category (D-code) of RINs
with the same RIN year) in order to make the market whole.
We sought comment on whether EPA should amend the regulations to
include the flexibility for EPA to allow improperly generated RINs to
be used for compliance, whether the conditions set forth in the
proposal were appropriate, and whether there are additional or
alternative conditions that should be imposed if the flexibility were
to be granted. We proposed that the following general limitations
should apply to any flexibility to allow improperly generated RINs to
be transferred and used for compliance: (1) The RINs must have been
improperly generated as a result of an inadvertent error, (2) the
improperly generated RINs must have the correct D code, (3) the RIN
generator must correct the information submitted to EMTS and retire an
equivalent number and type of any excess RINs that were generated as a
result of the error within a fixed time period of 60 days, (4) the
flexibility to allow improperly generated RINs to be used for
compliance would only apply if the number of excess RINs generated for
a particular batch exceeds the number of RINs that should have been
generated by no more than two percent, and (5) the flexibility to allow
improperly generated RINs to be used for compliance should be limited
to a certain number of times per year per RIN generator.
We received several comments in support of providing EPA with some
sort of flexibility to allow improperly generated RINs to be used for
compliance, and a few comments that did not support EPA providing any
flexibility of this type. Supporters of the flexibility believe that
this flexibility is necessary for good faith RIN generators who have
made inadvertent mistakes. They argue that the flexibility will avoid
time spent by both EPA and regulated parties tracking invalidly
generated RINs to their current owner when equivalent RINs could be
retired to make the system whole. Commenters believe EPA's time is
better spent investigating more egregious violations. Many supporters
of the flexibility, however, believe that, given the proposed
limitations, the proposed flexibility would be too narrow. Commenters
believe that EPA should take into consideration the totality of the
circumstances, including the number of RINs/percent of the batch that
are invalid, the frequency of improper generation on the part of the
producer and indications of good faith mistake when determining whether
to allow the flexibility for improperly generated RINs to be used for
compliance, rather than imposing strict limitations on the use of the
flexibility.
EPA believes that providing this type of flexibility will reduce
disruptions to the RIN market while continuing to apply appropriate
pressure on parties that generate, transfer and use RINs to comply with
the regulations. However, EPA disagrees with the commenters that
advocated that the flexibility should be unlimited. EPA believes that
by limiting the use of this flexibility, RIN generators are provided an
incentive to implement and utilize measures and controls to ensure the
validly of information sent to EMTS in a more timely manner. Therefore,
in today's rule in 80.1431(c) and (d), EPA is finalizing an approach
that provides flexibility to RIN generators to retire equivalent RINs
in situations where they have over-generated RINs on a batch due a
broken meter, an inadvertent temperature correction error, or an
inadvertent administrative error. This flexibility may only be used
under certain conditions, though, in order to mitigate harm to the RIN
market, as specified in the regulations and discussed in detail below.
Some commenters supported the proposed 60-day time allowance for a
RIN generator to correct RIN generation information submitted to EMTS.
The commenters believe 60 days is sufficient to identify and correct
inadvertent mistakes, and the time limit provides an incentive for the
regulated community to regularly verify that RINs have been correctly
generated. On the other hand, another commenter thought that the
correction period should be longer than 60 days. One commenter
suggested 18 months for RIN generators to notify EPA of improperly
generated RINs at which point EPA would determine whether to allow
those invalid RINs to be used for
[[Page 1345]]
compliance. The commenter believed this would allow invalid RINs to be
discovered during the attest audit conducted each year concerning the
renewable fuel producer's compliance records.
Additionally, commenters generally disagreed with EPA's proposal to
limit the flexibility to situations where the number of excess RINs
generated for a particular batch exceeds the number of RINs that should
have been generated by no more than 2%. Commenters argued that a simple
typing error in any digit can easily result in an over-generation that
far exceeds 2%. One commenter suggested that the number of RINs
eligible for the flexibility be limited to no more than 2% of a
specific RVO category (e.g. Cellulosic Biofuel, Advanced Biofuel, etc.)
for any given year. Another suggested that there is no reason to limit
the flexibility this way, and that EPA should maintain discretion to
determine when invalid RINs can be used for compliance, regardless of
what percentage of the RIN batch is invalid. The commenter states that
there is no reasonable equitable basis for limiting the availability of
the flexibility to situations involving an error of no more than 2%,
since there can be significant variability in the size of renewable
fuel batches; for example, 2% of a large batch could consist of more
RINs than an entire batch for a smaller facility.
In today's final rule, EPA did not limit the ability to use the
flexibility to a certain number of RINs or percentage of a batch as
proposed because we agree with commenters' suggestion that a simple
typing or meter error may result in a large number of excess RINs just
as easily as it could result in an error that constitutes only a small
number of RINs. EPA's decision to eliminate the two percent limitation
may result in more regulated parties taking advantage of the
flexibility created by this rule. Nevertheless, EPA is limiting the use
of the flexibility to situations in which RIN generators who improperly
over-generated RINs on a batch fit certain criteria, including taking
remedial action to retire equivalent RINs within 30 days of the
original invalid RIN generation submission in EMTS, as specified in
80.1431(c)(7). EPA believes that it is appropriate to require RIN
generators to correct the information submitted to EMTS within 30 days
to encourage the regulated community to take prompt corrective action,
which will aid in maintaining market integrity. EPA believes that
limiting the amount of time that RIN generators are afforded to avail
themselves of this flexibility is necessary to provide an incentive to
RIN generators to conduct timely internal inspections of their RIN
generation activities in order to ensure that RINs are properly
generated and the accuracy of RIN information in EMTS.
We also sought comment on the possibility of establishing a limit
on the number of times this flexibility could be requested within a
compliance period by a given RIN generator. We stated that we believe
such a limitation could encourage RIN generators to take appropriate
measures to avoid generating invalid RINs, and limit the possibility
that RIN generators would intentionally generate invalid RINs to take
advantage of short term RIN price spikes. Some commenters argued that
there should not be a limit on the number of times a RIN generator can
request EPA allow them to use the flexibility, but that if a particular
company regularly generates RINs improperly, that company should be
penalized on a case-by-case basis, taking into account whether the
error was truly a mistake made in good faith.
EPA disagrees with commenters' belief that RIN generators should
have unlimited access to these flexibilities. EPA believes that the
flexibility should be limited to a set number (namely, five) of
improperly generated batches per year and is finalizing regulations to
that effect in 80.1431(c)(6). By limiting the number of times a RIN
generator may utilize the flexibility to retire equivalent RINs, the
regulations will encourage RIN generators to implement robust measures
and controls to prevent errors from occurring, knowing that the
flexibility is only available to them for five batches each compliance
year. Additionally, limiting the number of batches to which this
flexibility can be applied restricts the ability of RIN generators that
might otherwise intentionally generate invalid RINs to take advantage
of short term RIN price spikes.
Finally, EPA is finalizing a provision informing the regulated
community that EPA intends to publicly post information concerning RIN
generators utilizing this flexibility in 80.1431(c)(7)(B). By posting
this information, EPA is assisting obligated and other regulated
parties in their due diligence to ensure compliance with all RFS2
regulations. EPA believes that posting information concerning the use
of this flexibility will incentivize proper RIN generation in the
future.
Further, EPA may remove improperly generated RINs from EMTS if the
RIN generator has failed to properly meet the remedial action
requirements stated in the regulations, as specified in 80.1431(d). EPA
believes this will prevent invalid RINs that do not meet the
requirements in 80.1431(c) from propagating through the market and
being used for compliance purposes, thus preventing additional
violations. While EPA is aware that the proposal did not include the
ability to remove improperly generated RINs, EPA believes this ability
is a logical outgrowth from the comments that EPA should spend more
time investigating egregious violations. This provision will allow EPA
to quickly remove from the market those RINs reported by the RIN
generator to be invalid due to reasons in 80.1431(c)(2), thus affording
EPA more time to spend investigating egregious violations.
Finally, a number of commenters noted that good faith purchasers
and the ultimate users of the RINs, the obligated parties, should not
be subject to a violation for unwittingly buying and/or retiring
invalid RINs for compliance. EPA disagrees, and believes that the
``buyer beware'' aspect of the RIN trading program is one of the
cornerstones of the program. It provides an important incentive for the
regulated community to comply with the regulations and mandates due
diligence on the part of all RIN buyers. It encourages self-policing on
the part of RIN generators, owners and users in order to keep the
program functioning smoothly. EPA is not making any changes to the
liability sections of RFS2 as a result of these comments and although
today's rule will allow obligated parties to use some invalid RINs for
compliance, the obligated parties and any intermediary party are still
liable for buying and/or transferring invalid RINs.
3. Production Outlook Reports Submission Deadline
In the final RFS2 regulations, in Sec. 80.1449(a), EPA set the
annual deadline for submitting Production Outlook Reports as March 31
of each year. However, EPA has determined that, in order for the
information contained in the Production Outlook Reports to be most
useful when setting the RFS2 volume requirements and associated
percentage standards for the following calendar year, the reports
should contain the most accurate projections possible. Since the
accuracy of projections tends to increase the closer those projections
are made to the following calendar year, we proposed that the March 31
deadline should be moved to June 1. This revised deadline would still
allow the information contained in the Production Outlook Reports to be
used in the development
[[Page 1346]]
of the final rulemaking setting the standards for the following year.
We received one comment on the proposed Production Outlook Reports
deadline of June 1 that suggested August 31, or as late as possible
that still ensures the information is useful in the development of the
final RFS standards for the following year. EPA believes, however, that
if the deadline is set later in the year, there would be insufficient
opportunity for EPA to quality check the incoming data prior to
incorporating it into the analysis for developing the RFS2 volume
requirements and associate percentage standards for the following
calendar year. EPA strives to make the most accurate projections
possible, so without time to check the data quality, there could be
inaccuracies in the volume requirements that lead to market disruption.
Another commenter suggested that having the Production Outlook
Reports deadline immediately after the May 31 attest engagement
deadline would place a significant burden on regulated parties at that
time, and suggests a deadline of June 30 for the Production Outlook
Reports. EPA believes that it is not a significant burden for regulated
parties to submit the Production Outlook Report at the same time as the
attest engagement report, especially considering the attest audit and
report are typically conducted by independent third-party auditors,
rather than the regulated parties themselves.
For the reasons stated above, EPA believes that the proposed June 1
deadline for Production Outlook Reports is reasonable and should not be
moved to later in the year. Therefore, EPA is finalizing the June 1
deadline for Production Outlook Reports.
4. Attest Procedures
In the final RFS2 regulations, EPA required in Sec.
80.1464(c)(1)(i) and (c)(2)(ii) that RIN owners conduct attest
procedures for RIN transaction and RIN activity reports that involve
RIN separations. This requirement was intended to be included in the
attest procedures for obligated parties and exporters as well as for
renewable fuel producers and RIN-generating importers, in order to
confirm that RINs are being properly separated by all parties
participating in the RIN market. Thus, we proposed amendments to Sec.
80.1464(a)(2)(i) and (a)(3)(ii) for obligated parties and exporters as
well as to Sec. 80.1464(b)(2)(i) and (3)(ii) for renewable fuel
producers and RIN-generating importers to include attest procedures
concerning verification of RIN separation.
Additionally, in the final RFS2 regulations, EPA required in Sec.
80.1464 that auditors of RIN generation reports verify that product
transfer documents (PTDs) include the required information. EPA
believes it would be beneficial for auditors to verify the required
information is present on PTDs for RIN transactions for all parties,
including obligated parties, renewable fuel producers and importers and
RIN owners. Thus, we proposed amendments to Sec. 80.1464(a)(2), (b)(2)
and (c)(1) to require auditors to verify that the PTDs for a
representative sample of RINs sold and purchased contains the
information required in Sec. 80.1453.
We received one comment that stated that the attestation procedures
should be comparable for all reporting activities of all regulated
parties. EPA believes, however, that the proposed regulatory changes to
the attest engagement procedures apply consistently to all regulated
parties in that all parties are responsible for ensuring that RINs that
they separate, purchase or use for compliance have been properly
separated and that they have associated PTDs with all of the required
information. Another commenter states that obligated parties should not
be required to audit RIN separation activities in addition to RIN
purchases. Again, EPA feels this additional check on RIN separation
activities will ensure that the RINs are properly separated and that
renewable fuel is actually being blended for use as transportation
fuel, heating oil or jet fuel. Therefore, EPA is finalizing the
amendments to the attest engagement procedures as proposed.
E. Technical Amendments Related to Registration & Recordkeeping
1. Construction Discontinuance & Completion Documentation
The registration requirements in Sec. 80.1450(b)(1)(vi) state that
for facilities claiming the exemption described in Sec. 80.1403(c) or
(d), evidence must be submitted demonstrating the date that
construction commenced. However, the registration requirements do not
explicitly require the submission of evidence demonstrating that they
meet the other requirements described in Sec. 80.1403(c)(1) and (2) or
(d)(1), (2) and (3).
In order to verify that facilities which claim to qualify for an
exemption under Sec. 80.1403(c) or (d) in fact meet all of the
qualification requirements for such an exemption, we proposed to amend
Sec. 80.1450(b)(1)(vi) to include requirements that the owner or
operator of facilities claiming exemption under Sec. 80.1403(c) submit
evidence demonstrating that construction was not discontinued for a
period of 18 months after construction began, and that construction was
completed by December 19, 2010. Similarly, we proposed that for
facilities claiming the exemption under Sec. 80.1403(d), evidence be
submitted demonstrating that construction was not discontinued for a
period of 18 months after construction began and that construction was
completed within 36 months of the commenced construction date.
We received comments that EPA should not adopt these proposed
amendments because the requirements would be overly burdensome and
unnecessary due to the fact that the majority of all facilities that
have claimed the exemption under Sec. 80.1403 have already been
registered and therefore these amended requirements would have no
effect on these facility's registration. Secondly, the commenter stated
that the proposed requirement to submit evidence that construction was
not discontinued for a period of 18 months is unreasonable because it
is unclear how a facility could prove a lack of construction activity.
Thirdly, the commenter stated that the proposed amendment to submit
evidence that construction was timely completed was unnecessary because
a facility's operation activity such as production of fuel was enough
to serve as evidence that construction was completed. The commenter
suggested that EPA only request evidence to demonstrate that these
requirements are met from facilities that EPA believes did not rightly
claim the exemption under Sec. 80.1403.
In order to fully assess the concerns raised by the commenters, EPA
has decided to investigate this issue in more detail and analyze some
additional options. Therefore, at this time, EPA is not taking final
action with respect to this proposed amendment.
2. Third-Party Engineering Reviews
The regulations stipulate that producers of renewable fuels and
foreign ethanol producers are required to update their registration
information, and submit an updated independent third-party engineering
review, every 3 years after their initial registration in accordance
with Sec. 80.1450(d)(3). We have received many inquiries regarding the
start date that EPA uses to determine the 3 year period after which the
producer must submit an updated independent third party engineering
review (such as the registration acceptance date, the third-party
professional engineer's signature date
[[Page 1347]]
on the engineering review report, or the due date for engineering
reviews.
Given the lack of clarity in the current regulations, we proposed
amendments to specify the time frame for submission of updated
independent third-party engineering reviews which included a simplified
method that would group producers according to the calendar year they
were or will be registered, and set a fixed time frame for registration
updates for each group. We proposed to amend Sec. 80.1450(d)(3) to
stipulate that for all producers of renewable fuel and foreign ethanol
producers for which registration was accepted by EPA in calendar year
2010, that the updated registration information and independent third-
party engineering review would be submitted to EPA within the three
months prior to January 1, 2014, and within three months prior to
January 1 of every third calendar year thereafter. For all producers of
renewable fuel and foreign ethanol producers registered in any calendar
year after 2010, the updated registration information and independent
third-party engineering review would be submitted to EPA within three
months prior to January 1 of every third calendar year after the first
year the producer's registration was accepted by EPA. For example, a
producer registered in 2011 would be required to submit an updated
independent third-party engineering review by January 1, 2015, and by
January 1 every three calendar years thereafter.
We received comments that supported the adoption of the proposed
amendments for a simplified method of grouping producers according to
the calendar year that they were or will be registered to determine the
due date for submission of the updated registration information and
independent third-party engineering review. The commenter suggested
that we provide a clear method to determine the due date for individual
facilities to further help with the compliance of this requirement. We
agree with the commenter that providing more clarity and guidance would
help facilities comply with this requirement. Therefore, in the near
future and well before the due date for any updated engineering
reviews, we plan to compile and publish a guidance document that will
provide the date in which each facility's registration was accepted,
the calendar year in which each facility will be grouped, and the
corresponding triennial due dates for the updated engineering review
for each calendar year group. This guidance document will be published
on the RFS public Web site. Parties must also comply with all other
applicable requirements in 40 CFR Part 80, Subpart M. This guidance
does not, in any way, alter the requirements of the renewable fuel
program regulations, and does not establish or change legal rights or
obligations.
In addition, we are removing from the final rule the proposed 3
months allowance period prior to triennial due date. The reason we
included a 3 months allowance was to ensure that the updated
engineering reviews were not submitted so early as to not provide
appropriately updated information as of the three-year submission
deadline. We believed at the time of the proposal that the inclusion of
the 3 month window would ensure that facilities conduct their
engineering review closer to the end of the 3 year period, which we
assumed would provide the most up-to-date information. However, now we
believe that the inclusion of this 3 month period is unnecessary since
the owners or operators of a facility can determine for themselves when
it is appropriate to coordinate and conduct the engineering review for
their facility and that the regulatory requirement for ``updated''
engineering reviews provide sufficient clarity that the information
submitted to EPA must reflect the up-to-date information.
Therefore, we are finalizing in this rulemaking the proposed
simplified method to group facilities based on the calendar year in
which their facility's registration was accepted by EPA with the due
date for the updated registration and independent third party
engineering review to be submitted to EPA by January 31st of every 3
calendar years, starting from the acceptance date of the facility's
initial registration. We are allowing the engineering reviews to be
submitted at the end of January due to possible scheduling concerns
during the holiday season.
3. Foreign Ethanol Producers
We proposed that the amendments to the registration requirements in
Sec. 80.1450 also apply to foreign ethanol producers. As defined in
Sec. 80.1401, foreign ethanol producers are foreign producers that
produce ethanol for use in transportation fuel, heating oil or jet fuel
but who do not add denaturant to their product. Therefore, foreign
ethanol producers do not technically produce ``renewable fuel'' as
defined in our regulations. As discussed in the preamble to the Direct
Final Rule published on May 1, 2010 (see 75 FR 26032), the result of
the amendments made in the Direct Final Rule is to require foreign
ethanol facilities that produce ethanol that ultimately becomes part of
a renewable fuel for which RINs are generated to provide EPA the same
registration information as foreign renewable fuel facilities that
export their product to the United States. In both cases the required
registration information is important for enforcement purposes,
including verifying the use of renewable biomass as feedstock and the
assignment of appropriate D codes. Therefore, we believe amendments to
the registration requirements that we make in this final rule should
also be applicable to foreign ethanol producers for the same reasons.
We did not receive comments on this proposed change, so we are
finalizing the amendment as proposed.
F. Additional Amendments and Clarifications
1. Third-Party Engineering Review Addendum
We have received many inquires as to whether an addendum to the
existing independent third-party engineering review is sufficient to
meet the requirement that all producers of renewable fuel and foreign
ethanol producers submit an updated independent third-party engineering
review if they make changes to their facility that will qualify the
renewable fuel that is produced for a renewable fuel category or D code
that is not already reflected in the producer's registration
information. In some circumstances the majority of the information
verified in the existing independent third-party engineering review
would remain the same, and duplicating the entire effort does not
appear necessary. We believe the concept of allowing the submission of
an addendum in lieu of a updated independent third-party engineering
review is reasonable and therefore we are finalizing to amend the
requirements in Sec. 80.1450(d)(1) to state that a producer of
renewable fuel or foreign ethanol producer may submit an addendum to
the existing independent third-party engineering review on file with
EPA provided the addendum meets all the requirements in Sec.
80.1450(b)(2) and verifies for EPA the most up-to-date information at
the producer's existing facility. The updated independent third-party
engineering review or addendum shall be submitted at least 60 days
prior to producing the new type of renewable fuel and must meet all the
same requirements stipulated in Sec. 80.1450(b)(2) for the independent
third-party engineering review, including a new site visit conducted by
the third party to verify any changes to the facility that allows it
[[Page 1348]]
to produce a different renewable fuel that is not currently reflected
in their registration on file with EPA.
2. RIN Generation for Fuel Imported From a Registered Foreign Producer
In RFS2, EPA finalized provisions allowing importers to generate
RINs for renewable fuel imported from a foreign producer only under
certain circumstances. The importer may only generate RINs for fuel
imported from a foreign renewable fuel producer or foreign ethanol
producer if that producer is registered with EPA and has received EPA
company and facility identification numbers pursuant to Sec. 80.1450.
Pursuant to Sec. 80.1426(c)(4), the importer is prohibited from
generating RINs for fuel imported from a foreign producer that is not
registered with EPA. In the proposed rulemaking, EPA proposed to
clarify that when an importer is generating RINs for fuel imported from
a registered foreign renewable fuel producer or foreign ethanol
producer, the importer must submit to EPA via EMTS the importer's
company identification number, the facility identification number of
the import facility where the batch was imported, and the facility
identification number for the foreign renewable fuel or ethanol
producer that produced the batch of fuel for which the importer is
generating RINs. EPA did not receive comments on these clarifications,
and is therefore finalizing them as proposed in Sec. 80.1452(b)(4) and
(5).
3. Bond Posting
We proposed to amend paragraphs (e)(1), (e)(2) and (g)(2) of Sec.
80.1467 to make them consistent with Sec. 80.1467(g)(1). These
proposed amendments were intended to clarify that the amount of the
posted bond must cover the number of gallon RINs that are sold and/or
transferred, and also those RINs held and/or obtained by the foreign
entity, including those held and/or obtained to comply with a foreign
importer's RVO requirements. We also proposed to amend Sec. Sec.
80.1465-80.1467 by striking Sec. Sec. 80.1465(h)(2)(iii),
80.1466(h)(2)(iii) and 80.1467(e)(2)(iii), which allowed entities to
make alternative commitments in lieu of posting bonds. EPA believes
that this method is vague, unnecessary, and unenforceable.
One commenter at the hearing is against the removal of the
regulation allowing foreign producers to make alternative commitments
as it may discourage foreign renewable fuel producers from entering the
U.S. market. EPA disagrees as no foreign producer has used an
alternative commitment to date, and most foreign renewable fuel
producers do not post bonds and instead rely on the renewable fuel
importers to generate RINs for renewable fuel that is imported. For
those reasons and the reasons described above, we are finalizing the
proposed changes to the bond posting regulations as proposed.
4. Prohibition Against Repeat Generation of RINs
We are finalizing our proposal to add a new paragraph (b)(6) to the
prohibited acts of Sec. 80.1460 to specify in this section of the
regulations that RINs may not be generated for any fuel for which RINs
have previously been generated. Pursuant to Sec. 80.1401, a RIN is a
unique number generated to represent a volume of renewable fuel. If
more than one RIN is generated for a particular volume, the RIN will no
longer be unique, and is therefore improperly generated and cannot be
used to demonstrate compliance with the renewable volume obligations.
While generating RINs for a particular volume of fuel for which RINs
have already been generated is already prohibited, we are amending the
regulations to include this prohibition in Sec. 80.1460 for clarity.
5. Acceptance of Separated Yard Waste and Food Waste Separation Plans
We proposed to amend Sec. 80.1426(f)(5)(ii)(A) to remove the
requirement that the separated yard waste plan and separated food waste
plan must be approved by EPA, and instead only require that these two
plans be submitted and accepted by EPA under the registration
procedures specified in Sec. 80.1450(b)(1)(vii). The details and
information required to be submitted in the separated yard waste plan
and separated food waste plan are not overly burdensome or complex, and
therefore we believe it does not warrant a specific EPA approval, but
that EPA acceptance of these plans through the registration procedures
is sufficient.
We received comments that supported the adoption of this amendment
for separated food waste plan and separated yard waste plan. We also
received comments suggesting that we also adopt this amendment for the
separated MSW plan. The commenter stated that although the separated
MSW plan requires somewhat more information than the separated yard and
food waste plans, the same logic applies in that the separated MSW plan
will also be subject to EPA review as part of the producer's
registration process and therefore requiring a separate duplicate
approval for the separated MSW plan is not necessary.
First, we would like to clarify that there is not a duplicate
approval process for the separated MSW plan that serves as a separate
additional requirement for the producer's registration. Similar to the
proposed acceptance process for the producer's separated yard and food
waste plan, the approval process for the producer's separated MSW plan
will equally serve as verification of compliance as part of the
producer's registration. Secondly, we disagree with the commenter that
the separated MSW plan only requires somewhat more information than the
separated yard and food waste plans, and that the same logic applies in
terms of the review process. For the separated MSW plan, producers are
required to provide ongoing verification that there is separation of
recyclable paper, cardboard, plastics, rubber, textiles, metals, and
glass wastes to the extent reasonably practicable, including: The
extent and nature of the recycling that occurred prior to receipt of
the waste material, identification of available recycling technology
and practices that are appropriate for removing recycling materials
from the waste stream, and identification of the technology or
practices selected for implementation, including an explanation for
such selection, and reasons why other technologies or practices were
not implemented. In addition, producers are also required to provide
contracts relevant to materials recycled from municipal waste streams
and certification that recycling is conducted in a manner consistent
with goals and requirements of applicable State and local laws relating
to recycling and waste management as part of their registration
process. For the separated yard and food waste plan, the producers are
only required to provide ongoing verification that the separated yard
waste or food waste was kept separate since generation from other waste
materials, and for food waste, contain only incidental amounts of other
components. We believe the information submitted in the separated MSW
plan will be considerably more complex than information submitted in
the separated yard and food waste plans, and therefore, will require
EPA conduct a much more comprehensive review and also consider many
additional factors to ensure that the producer has met the all the
requirements stipulated. Based on the factors discussed, we believe
that it is not reasonable to apply the same proposed acceptance process
for separated yard and food waste plan to the separated MSW plan.
[[Page 1349]]
Therefore, we are finalizing in this rulemaking only for separated
yard waste plan and separated food waste plan to amend the requirement
that the plans must be approved by EPA, and instead only require that
the plans will be accepted by EPA under the registration procedures
specified in Sec. 80.1450(b)(1)(vii).
6. Transferred Blendstocks in Early Benzene Credit Generation
Calculations
Today's rule also finalizes one minor correction to the gasoline
benzene regulations which would clarify how refiners should account for
transferred blendstocks in their early benzene credit generation
calculations. Under current rules, refineries which generated early
benzene credits are required to reduce gasoline benzene during an early
credit generation period by at least 10% compared to the refinery's
benzene baseline, and are also required to make specific operational
changes and/or improvements in benzene control technology to reduce
gasoline benzene levels.\41\ Refineries which reduce their gasoline
benzene by at least 10%, in part by transferring reformate to another
refinery, could also generate early benzene credits, provided the
transferee refinery treated the reformate in specific benzene-reduction
processing units.\42\ See 72 FR 8486-87 (Feb. 26, 2007). However, the
gasoline benzene regulations also contain an additional provision that
requires all blendstock streams transferred to, from or between
refineries to be excluded from a refinery's early credit generation
calculations (except for reformate as described previously). This led
to an inconsistent comparison of a refinery's benzene during an early
credit generation period with a refinery's benzene baseline (which
included blendstocks transferred to the refinery), which was not EPA's
intent.
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\41\ Early credit generation periods were July 1, 2007 through
December 31, 2007, and calendar years 2008, 2009 and 2010.
\42\ Refineries produce gasoline by combining several different
blendstocks produced by various refinery processing units. Reformate
is a blendstock which contains approximately 80% of all benzene
found in gasoline, per the MSAT2 regulatory impact analysis.
---------------------------------------------------------------------------
As described in the preamble of the gasoline benzene final rule,
EPA intended that refineries not be allowed to generate early benzene
credits exclusively through blendstock trading, without making any
other qualifying reductions (see 72 FR 8487), but that refineries could
generate early benzene credits in part through qualifying reductions
and ``in part'' through other means such as blendstock transfers (see
72 FR 8496-97). However, the current regulations do not allow this
approach, and this inconsistency has caused confusion among refiners
about how to calculate the amount of early credits generated. Refiners
have generally followed the approach set out in the preamble (as EPA in
fact intended), and included all blendstocks transferred to a refinery
in the refinery's early credit generation calculations. Refiners
typically keep records on transferred blendstocks for 1-2 years, and
thus do not have sufficient data to exclude transferred blendstocks
from their early credit generation calculations.
EPA recently became aware of this inconsistency and is amending the
regulations to make them consistent with EPA's intent as described in
the preamble. This rule amends the gasoline benzene regulations at 40
CFR 80.1275(d)(3) by deleting that provision. This will allow a
refinery to include blendstocks transferred to the refinery in the
refinery's early benzene credit generation calculations (all other
conditions, including treatment which removes benzene in transferred
reformate streams still applying, of course). Consistent with EPA's
original intent, today's rule also allows a refinery to include
transferred blendstocks in past early credit generation calculations,
provided the refinery met all of the other requirements for generating
early benzene credits. EPA is finalizing this change to include
transferred blendstocks in past early credit generation calculation not
only because this was EPA's intent at the time of the benzene gasoline
rulemaking, but because some refiners have reasonably relied upon that
stated intent in devising their compliance strategies.
All of the comments received on this change to the regulations were
in support of this change. Commenters generally noted that the change
was needed in order to align the language in the regulations with the
intent stated in the preamble.
V. Annual Administrative Announcements
In the RFS2 final rule, we stated our intent to make two
announcements each year:
Set the price for cellulosic biofuel waiver credits that
will be made available to obligated parties in the event that we reduce
the volume of cellulosic biofuel below the applicable volume specified
in the Clean Air Act (CAA), and
Announce the results of our annual assessment of the
aggregate compliance approach for U.S. planted crops and crop residue.
The biofuel waiver credit price being announced today was
calculated in accordance with the specifications in Sec. 80.1456(d).
Since the manner in which EPA calculates the waiver credit price is
precisely set forth in EPA regulations (which were issued through a
notice-and-comment process), and since some of the variables necessary
to compute the price have only recently become available, EPA did not
propose a waiver credit price for comment. Similarly, because EPA's
assessment of the aggregate compliance approach announced today was
conducted using data sources, methodology, and criteria that were
identified and explained in the preamble to the RFS2 final rule, it was
not necessary to present a preliminary annual assessment for comment in
the NPRM.
A. 2011 Price for Cellulosic Biofuel Waiver Credits
Section 211(o)(7)(D) of the CAA requires that whenever EPA sets the
applicable volume of cellulosic biofuel at a level lower than that
specified in the Act, EPA is to provide a number of cellulosic credits
for sale that is no more than the EPA-determined applicable volume.
Congress also specified the formula for calculating the price for such
waiver credits: Adjusted for inflation, the credits must be offered at
the price of the higher of 25 cents per gallon or the amount by which
$3.00 per gallon exceeds the average wholesale price of a gallon of
gasoline in the United States.\43\ The inflation adjustment is for
years after 2008. EPA regulations provide that the inflation adjustment
is calculated by comparing the most recent Consumer Price Index for All
Urban Consumers (CPI-U) for the ``All Items'' expenditure category as
provided by the Bureau of Labor Statistics that is available at the
time EPA sets the cellulosic biofuel standard to the comparable value
that was reported soonest after December 31, 2008.\44\
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\43\ More information on wholesale gasoline prices can be found
on the Department of Energy's (DOE), Energy Information
Administration's (EIA) Web site at: http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EMA_EPM0_PBR_NUS_DPG&f=M.
\44\ See U.S. Department of Labor, Bureau of Labor Statistics
(BLS), Consumer Price Index Web site at: http://www.bls.gov/cpi/.
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In contrast to its directions to EPA for setting the price of a
cellulosic biofuel waiver credit, Congress afforded the Agency
considerable flexibility in designing regulations specifying the
permissible uses of the credits. The CAA states that EPA regulations
``shall
[[Page 1350]]
include such provisions, including limiting the credits' uses and
useful life, as the Administrator deems appropriate to assist market
liquidity and transparency, to provide appropriate certainty for
regulated entities and renewable fuel producers, and to limit any
potential misuse of cellulosic biofuel credits to reduce the use of
other renewable fuels, and for such other purposes as the Administrator
determines will help achieve the goals of this subsection.'' The final
RFS2 regulations provide a detailed discussion of how we designed the
provisions for cellulosic biofuel waiver credits in keeping with the
statutory language. In short, 2012 cellulosic biofuel waiver credits
(or ''waiver credits'') are only available for the 2012 compliance
year. Waiver credits will only be made available to obligated parties,
and they are nontransferable and nonrefundable. Further, obligated
parties may only purchase waiver credits up to the level of their
cellulosic biofuel RVO less the number of cellulosic biofuel RINs that
they own. A company owning cellulosic biofuel RINs and cellulosic
waiver credits may use both types of credits if desired to meet their
RVOs, but unlike RINs, waiver credits may not be carried over for use
in the next calendar year. Obligated parties may not use waiver credits
to meet a prior year deficit obligation. Finally, unlike cellulosic
biofuel RINs which may also be used to meet an obligated party's
advanced and total renewable fuel obligations, waiver credits may only
be used to meet a cellulosic biofuel RVO. An obligated party will still
need to additionally and separately acquire RINs to meet their advanced
biofuel and total renewable fuel obligations.
For the 2012 compliance period, since the applicable volume of
cellulosic biofuel used to set the annual cellulosic biofuel standard
is lower than the volume for 2012 specified in the CAA, we are making
cellulosic waiver credits available to obligated parties for end-of-
year compliance should they need them at a price of $0.78 per credit.
To calculate this price, EPA first determined the average wholesale
(refinery gate) price of gasoline using the most recent 12 months of
data available from the EIA Web site on September 30, 2011. Based on
this data, we calculated an average price of gasoline for the period
July 2010 to June 2011 of $2.44. In accordance with the Act, we then
calculated the difference of the inflation-adjusted value of $3.00, or
$3.22, and $2.44, which yielded $0.78. Next, we compared the value of
$0.78 to the inflation-adjusted value of $0.25, or $0.27. The Act
requires EPA to use the greater of these two values as the price for
cellulosic biofuel waiver credits.
The derivation of this value is more fully explained in a
memorandum submitted to the docket for this rulemaking,\45\ and a more
complete description of the statutory requirements and their
application can be found in the RFS2 final rule.\46\ The price for the
2013 compliance period, if necessary, will be set when we announce the
2013 cellulosic biofuel standard.
---------------------------------------------------------------------------
\45\ See memo to docket number EPA-HQ-OAR-2010-0133 from Scott
Christian, on the subject of ``Calculating the price for cellulosic
biofuel waiver credits,'' dated September 30, 2011.
\46\ 75 FR 14726-14728.
---------------------------------------------------------------------------
B. Assessment of the Domestic Aggregate Compliance Approach
The RFS2 regulations contain a provision for renewable fuel
producers who use planted crops and crop residue from U.S. agricultural
land that relieves them of the individual recordkeeping and reporting
requirements concerning the specific land from which their feedstocks
were harvested. To enable this approach, EPA established a baseline
number of acres for U.S. agricultural land in 2007 (the year of EISA
enactment) and determined that as long as this baseline number of acres
was not exceeded, it was unlikely that new land outside of the 2007
baseline would be devoted to crop production based on historical trends
and economic considerations. We therefore provided that renewable fuel
producers using planted crops or crop residue from the U.S. as
feedstock in renewable fuel production need not comply with the
individual recordkeeping and reporting requirements related to
documenting that their feedstocks are renewable biomass, unless EPA
determines through one of its annual evaluations that the 2007 baseline
acreage of agricultural land has been exceeded.
In the final RFS2 regulations, EPA committed to make an annual
finding concerning whether the 2007 baseline amount of U.S.
agricultural land has been exceeded in a given year and publish this
finding in the Federal Register by November 30 of the same 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.
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 392 million acres in 2011,
and thus did not exceed the 2007 baseline acreage. This acreage
estimate is based on the same methodology used to set the 2007 baseline
acreage for U.S. agricultural land in the RFS2 final rulemaking.
Specifically, we started with FSA crop history data for 2011, from
which we derived a total estimated acreage of 392 million acres. We
then subtracted the amount of land estimated to be participating in the
Grasslands Reserve Program (GRP) and Wetlands Reserve Program (WRP) by
the end of Fiscal Year 2011, 275,000 acres, to yield an estimate of
approximately 392 million acres of U.S. agricultural land in 2011. The
USDA data used to make this calculation can be found in the docket to
this rule.
C. Assessment of the Canadian Aggregate Compliance Approach
On March 15, 2011, EPA issued a notice of receipt of and solicited
public comment on a petition for EPA to authorize the use of an
aggregate approach for compliance with the Renewable Fuel Standard
renewable biomass requirements, submitted by the Government of Canada.
The petition requested that EPA determine that an aggregate compliance
approach will provide reasonable assurance that planted crops and crop
residue from Canada meet the definition of renewable biomass. After
through consideration of the petition, all supporting documentation
provided and the public comments received, EPA determined that the
criteria for approval of the petition were satisfied and approved the
use of an aggregate compliance approach to renewable biomass
verification for planted crops and crop residue grown in Canada.
The Government of Canada utilized several types of land use data to
demonstrate that the land included in their 124 million acre baseline
is cropland, pastureland or land equivalent to U.S. Conservation
Reserve Program land that was cleared or cultivated prior to December
19, 2007, and was actively managed or fallow and nonforested on that
date (and is therefore RFS2 qualifying land). The total agricultural
land in Canada in 2011 is estimated at 121 million acres. This total
agricultural land area includes 95.6 million acres of cropland and
summer fallow, 15.6 million acres of pastureland and 9.8 million acres
of agricultural land under conservation practices. This
[[Page 1351]]
acreage estimate is based on the same methodology used to set the 2007
baseline acreage for Canadian agricultural land in the RFS2 response to
petition. The data used to make this calculation can be found in the
docket to this rule.
VI. Comments Outside the Scope of This Rulemaking
In their comments responding to the NPRM, a number of parties used
the opportunity to raise concerns that were not directly related to the
issues and provisions we were addressing in the NPRM, such as the
proposed standards for 2012, the applicable volume of biomass-based
diesel for 2013, and the various proposed changes to the regulations
designed to clarify intent and streamline implementation. Neither did
these comments address setting the price for cellulosic biofuel credits
or EPA's annual evaluation of the U.S. aggregate compliance approach
for renewable biomass. In some cases, commenters requested EPA action
in some other area, such as the following:
Request for EPA to implement a more robust biofuel quality
assurance program
Request for EPA to mandate that 50% of all vehicles be
E100 capable by 2017
Request for EPA to encourage legislation that allows corn
ethanol to be categorized as advanced biofuel
Request for EPA to pursue changes to the statute that
would make valid renewable fuels feedstock-neutral.
In other cases, commenters raised issues related to other areas not
addressed in our NPRM, such as the following:
Other state and federal fuel regulations
Retail dispensing requirements and misfueling of E15 in
non-flexible fueled vehicles
Need for continuing federal incentives for biofuels, such
as tax subsidies
Relative energy security implications of imported
petroleum versus imported biofuels
Delayed RINs
Definition of heating oil.
While we are taking these comments under consideration as we
continue to implement the RFS2 program, these comments are outside the
scope of today's action. In some cases, they are also outside our
authority. Thus, we are not providing substantive responses to them at
this time.
We also received comments in a number of other areas that, while
outside the scope of this rulemaking, we believe would benefit from a
response to clarify our position and/or intentions. These issues are
addressed below.
One commenter provided a copy of a copyrighted report, ``Energy
Life-Cycle Assessment Of Soybean Biodiesel Revisited''. Similarly, both
Monsanto and RFA provided comments on the lifecycle GHG impacts of corn
ethanol, indicating that it should be a higher GHG reduction than what
was calculated by EPA as part of the RFS2 final rule and that we should
reevaluate corn ethanol lifecycle emissions based on new studies that
are available. Another commenter requested that we investigate the GHG
impacts of the oleochemical industry increasing the use of palm oil as
a feedstock as animal fats are increasingly diverted to the production
of biofuels. We will consider the information and analyses provided as
part of any future updates to our lifecycle evaluations of these
biofuels.
Another commenter urged EPA to quickly certify additional
feedstocks for cellulosic biofuels under the RFS. We are moving forward
responding to a series of petitions requesting EPA approval of other
pathways, including both feedstock-specific pathways (e.g., palm oil
and sorghum) and company- or process-specific pathways. A discussion of
the process involved and a list of the current pathways we are
currently evaluating can be found at: http://www.epa.gov/otaq/fuels/renewablefuels/compliancehelp/rfs2-lca-pathways.htm.
We appreciate that multiple stakeholders are highly interested in
the timeline on which EPA is conducting these analyses. We note that
the analysis required for the RFS fuel pathway determinations as
required under CAA 211(o) are comprehensive in nature, and EPA is
committed to ensuring they are conducted in an appropriately rigorous
fashion.
Some commenters noted that regulated parties are having difficulty
complying with the requirement that the RIN transfer date in EMTS and
on product transfer documents (PTDs) be the actual title transfer date.
Some of these commenters requested EPA enforcement discretion to allow
biofuel producers and first purchasers to update their electronic
systems in order to be in compliance with the title transfer date
regulatory requirement. Two commenters specified that this enforcement
discretion should be issued for six months in order to provide these
companies with sufficient time to update their systems. EPA believes
that the proposed enforcement discretion would likely introduce
confusion for anyone who attempts to review and match transactions with
records.
In contrast, several commenters requested that EPA reconsider its
position that the RIN transfer date reported to EMTS and identified on
PTDs must be the actual title transfer date. One commenter requested
that EPA allow invoice dates to be used in lieu of title transfer dates
as title transfer does not usually coincide with customer payments and
ultimately place a burden on the selling company's cash flow. While we
understand that some parties would prefer to use a date other than the
true title transfer date for purposes of EMTS reporting and PTDs, we
believe this would violate the clear language and intent of the
regulations.
One commenter requested that EPA provide adjustment mechanisms to
allow corrections in EMTS after noting that EMTS is a ``forward
looking'' system, meaning that EMTS transactions cannot be modified
once submitted. EPA is looking at several ways and has updated the RFS2
remedial action Web page since the comment period closed. EPA will
continually update its guidance for regulated parties to correct
violations that true mistakes on the following Web page: http://www.epa.gov/otaq/fuels/renewablefuels/compliancehelp/rfs2remedialactions.htm.
Additionally, in this rule, EPA is finalizing a regulation
amendment giving EPA discretion to allow invalidly generated RINs to be
used for compliance purposes on a case-by-case basis (see Section IV).
Several commenters requested that EPA edit Q&As 7.8 and 10.6 as
they conflict with the regulations. EPA will review and make edits to
the RFS2 Q&As in order to ensure agreement with the regulations as
appropriate at a later date.
VII. Public Participation
Many interested parties participated in the rulemaking process that
culminates with this final rule. This process provided opportunity for
submitting written public comments following the proposal that we
published on July 1, 2011 (76 FR 38844), and we considered these
comments in developing the final rule. Public comments and EPA
responses are discussed throughout this preamble.
VIII. Statutory and Executive Order Reviews
A. Executive Order 12866: Regulatory Planning and Review and Executive
Order 13563: Improving Regulation and Regulatory Review
Under Executive Order 12866 (58 FR 51735, October 4, 1993), this
action is a
[[Page 1352]]
``significant regulatory action'' because it raises novel legal or
policy issues. Accordingly, EPA submitted this action to the Office of
Management and Budget (OMB) for review under Executive Orders 12866 and
13563 (76 FR 3821, January 21, 2011) and any changes made in response
to OMB recommendations have been documented in the docket for this
action.
The economic impacts of the RFS2 program on regulated parties,
including the impacts of the required volumes of renewable fuel, were
already addressed in the RFS2 final rule promulgated on March 26, 2010
(75 FR 14670). This action finalizes the percentage standards
applicable in 2012 based on the volumes that were analyzed in the RFS2
final rule. This action is also finalizing technical amendments to the
RFS2 regulations that have been determined to have no adverse economic
impact on regulated parties since they generally clarify existing
requirements.
B. Paperwork Reduction Act
This action does not impose any new information collection burden.
While there are three regulatory amendments in today's rule that affect
the recordkeeping and reporting burdens for regulated parties, we
believe that the information collections already approved for the RFS2
program's general recordkeeping and reporting requirements, or the
information collection already under review, would also cover the these
technical amendments.
The regulatory changes are listed in Table VIII.B-1.
Table VIII.B-1--Technical Amendments Affecting Recordkeeping and
Reporting
------------------------------------------------------------------------
Section Description
------------------------------------------------------------------------
80.1449(a)............................. Amended Production Outlook
Report due date; added
allowance for unregistered
renewable fuel producers and
importers to submit Production
Outlook Reports.
80.1450(b)(1)(vi)...................... Amended to require submission
of additional evidence as part
of registration to verify
eligibility for exemptions in
Sec. 80.1403(c) or (d).
80.1450(d)(1)-(d)(3)................... Amended to add more specificity
on when updates, addenda, or
resubmittals are required for
engineering reviews and to
include references to foreign
ethanol producers.
------------------------------------------------------------------------
With regard to Production Outlook Reports, the change in due date
is not expected to have any impact on the reporting burden. In
addition, EPA recently prepared an Information Collection Request (ICR)
document to permit the submission of voluntary Production Outlook
Reports by domestic and foreign renewable fuels producers. The parties
affected by the ICR are not regulated parties under the RFS2 program.
The ICR has been submitted for approval to OMB under the Paperwork
Reduction Act, 44 U.S.C. 3501 et seq. and may be identified by EPA ICR
number 2409.01. Documents related to the ICR have been placed in docket
number EPA-HQ-OAR-2005-0161, which is accessible at http://www.regulations.gov.
On October 14, 2010, EPA published a notice in the Federal Register
announcing our intent to submit the proposed ICR for voluntary
Production Outlook Reports to OMB for approval. (See 75 FR 63173). The
60-day comment period closed on December 14, 2010. No comments were
received. On February 8, 2011, EPA published a Federal Register notice
announcing submission of the ICR to OMB. Additional comments were
solicited via an additional comment period through March 10, 2011.\47\
---------------------------------------------------------------------------
\47\ See ``Agency Information Collection Activities; Submission
to OMB for Review and Approval; Comment Request; Production Outlook
Reports for Un-Registered Renewable Fuel Producers (New
Collection),'' 76 FR 6781 (February 8, 2011). The document
identification number for this notice is EPA-HQ-OAR-2005-0161-3221.
The document identification number for the supporting statement is
EPA-HQ-OAR-2005-0161-3222.
---------------------------------------------------------------------------
The Office of Management and Budget (OMB) has previously approved
the information collection requirements contained in the existing
regulations at 40 CFR Part 80, Subpart M under the provisions of the
Paperwork Reduction Act, 44 U.S.C. 3501 et seq. This would include the
following approved information collections (with OMB control numbers
and expiration dates listed in parenthesis): ``Renewable Fuels Standard
Program: Petition and Registration'' (OMB Control Number 2060-0367,
expires March 31, 2013); ``Renewable Fuels Standard (RFS2)'' (OMB
Control Number 2060-0640, expires July 31, 2013); ``Regulations of
Fuels and Fuel Additives: 2011 Renewable Fuels Standard--Petition for
International Aggregate Compliance Approach'' OMB Control Number 2060-
0655, expires February 28, 2014). Detailed and searchable information
about these and other approved collections may be viewed on the Office
of Management and Budget (OMB) Paperwork Reduction Act Web site, which
is accessible at http://www.reginfo.gov/public/do/PRAMain. With regard
to the technical amendments in Sec. 80.1450, we believe that these
information collections already approved for the RFS2 program's general
recordkeeping and reporting requirements would also cover the
amendments in today's final rule.
C. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) generally requires an agency
to prepare a regulatory flexibility analysis of any rule subject to
notice and comment rulemaking requirements under the Administrative
Procedure Act or any other statute unless the agency certifies that the
rule will not have a significant economic impact on a substantial
number of small entities. Small entities include small businesses,
small organizations, and small governmental jurisdictions.
For purposes of assessing the impacts of today's rule on small
entities, small entity is defined as: (1) A small business as defined
by the Small Business Administration's (SBA) regulations at 13 CFR
121.201; (2) a small governmental jurisdiction that is a government of
a city, county, town, school district or special district with a
population of less than 50,000; and (3) a small organization that is
any not-for-profit enterprise which is independently owned and operated
and is not dominant in its field.
After considering the economic impacts of today's final rule on
small entities, we certify that this action will not have a significant
economic impact on a substantial number of small entities. The impacts
of the RFS2 program on small entities that are directly regulated under
the RFS2 program were already addressed in the RFS2 final rule
promulgated on March
[[Page 1353]]
26, 2010 (75 FR 14670). This rule simply:
Reduces the applicable volume of cellulosic biofuels in
2012 based on our projection of 2012 production levels.
Establishes percentage standards for 2012 based either on
this production projection (for cellulosic biofuels) or statutory
levels (for advanced biofuels, biomass-based diesel, and total
renewable fuel).
Makes minor technical amendments to the regulations.
Therefore, this action will not impose any additional requirements
on small entities beyond those which have already been evaluated.
D. Unfunded Mandates Reform Act
This rule does not contain a Federal mandate that may result in
expenditures of $100 million or more for State, local, and tribal
governments, in the aggregate, or the private sector in any one year.
This rule simply:
Reduces the applicable volume of cellulosic biofuels in
2012 based on our projection of 2012 production levels.
Establishes percentage standards for 2012 based either on
this production projection (for cellulosic biofuels) or statutory
levels (for advanced biofuels, biomass-based diesel, and total
renewable fuel).
Makes minor technical amendments to the regulations.
Thus, this action is not subject to the requirements of sections
202 or 205 of UMRA.
This action is also not subject to the requirements of section 203
of UMRA because it contains no regulatory requirements that might
significantly or uniquely affect small governments.
E. Executive Order 13132: Federalism
This action does not have federalism implications. It will not have
substantial direct effects on the States, on the relationship between
the national government and the States, or on the distribution of power
and responsibilities among the various levels of government, as
specified in Executive Order 13132. This action only applies to
gasoline, diesel, and renewable fuel producers, importers, distributors
and marketers and makes relatively minor corrections and modifications
to the RFS2 regulations. A summary of the concerns raised, and EPA's
response to those concerns, is provided in this preamble.
F. Executive Order 13175: Consultation and Coordination With Indian
Tribal Governments
This action does not have tribal implications, as specified in
Executive Order 13175 (65 FR 67249, November 9, 2000). This rule will
be implemented at the Federal level and impose compliance costs only on
transportation fuel refiners, blenders, marketers, distributors,
importers, exporters, and renewable fuel producers and importers.
Tribal governments would be affected only to the extent they purchase
and use regulated fuels. Thus, Executive Order 13175 does not apply to
this action.
G. Executive Order 13045: Protection of Children From Environmental
Health Risks and Safety Risks
EPA interprets EO 13045 (62 FR 19885, April 23, 1997) as applying
only to those regulatory actions that concern health or safety risks,
such that the analysis required under section 5-501 of the EO has the
potential to influence the regulation. This action is not subject to EO
13045 because it does not establish an environmental standard intended
to mitigate health or safety risks and because it implements specific
standards established by Congress in statutes.
H. Executive Order 13211: Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use
This rule is not a ``significant energy action'' as defined in
Executive Order 13211, ``Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use'' (66 FR 28355
(May 22, 2001)) because it is not likely to have a significant adverse
effect on the supply, distribution, or use of energy. This action
simply finalizes the annual standards for cellulosic biofuels for 2012
and clarifying changes and minor technical amendments to the
regulations.
I. National Technology Transfer Advancement Act
Section 12(d) of the National Technology Transfer and Advancement
Act of 1995 (``NTTAA''), Public Law 104-113, 12(d) (15 U.S.C. 272 note)
directs EPA to use voluntary consensus standards in its regulatory
activities unless to do so would be inconsistent with applicable law or
otherwise impractical. Voluntary consensus standards are technical
standards (e.g., materials specifications, test methods, sampling
procedures, and business practices) that are developed or adopted by
voluntary consensus standards bodies. NTTAA directs EPA to provide
Congress, through OMB, explanations when the Agency decides not to use
available and applicable voluntary consensus standards.
This action does not involve technical standards. Therefore, EPA
did not consider the use of any voluntary consensus standards.
J. Executive Order 12898: Federal Actions To Address Environmental
Justice in Minority Populations and Low-Income Populations
Executive Order (EO) 12898 (59 FR 7629 (Feb. 16, 1994)) establishes
federal executive policy on environmental justice. Its main provision
directs federal agencies, to the greatest extent practicable and
permitted by law, to make environmental justice part of their mission
by identifying and addressing, as appropriate, disproportionately high
and adverse human health or environmental effects of their programs,
policies, and activities on minority populations and low-income
populations in the United States.
EPA has determined that this final rule will not have
disproportionately high and adverse human health or environmental
effects on minority or low-income populations because it does not
affect the level of protection provided to human health or the
environment. This action does not relax the control measures on sources
regulated by the RFS2 regulations and therefore will not cause
emissions increases from these sources.
K. Congressional Review Act
The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the
Small Business Regulatory Enforcement Fairness Act of 1996, generally
provides that before a rule may take effect, the agency promulgating
the rule must submit a rule report, which includes a copy of the rule,
to each House of the Congress and to the Comptroller General of the
United States. EPA will submit a report containing this rule and other
required information to the U.S. Senate, the U.S. House of
Representatives, and the Comptroller General of the United States prior
to publication of the rule in the Federal Register. A major rule cannot
take effect until 60 days after it is published in the Federal
Register. This action is not a ``major rule'' as defined by 5 U.S.C.
804(2). Therefore, this rule will be effective on the date of
publication.
IX. Statutory Authority
Statutory authority for the rule finalized today can be found in
section 211 of the Clean Air Act, 42 U.S.C. 7545. Additional support
for the procedural and compliance related aspects of today's rule,
including the recordkeeping requirements, come from sections 114, 208,
and 301(a) of the
[[Page 1354]]
Clean Air Act, 42 U.S.C. 7414, 7542, and 7601(a).
List of Subjects in 40 CFR Part 80
Environmental protection, Administrative practice and procedure,
Air pollution control, Confidential business information, Diesel fuel,
Fuel additives, Gasoline, Imports, Labeling, Motor vehicle pollution,
Penalties, Petroleum, Reporting and recordkeeping requirements.
Dated: December 22, 2011.
Lisa P. Jackson,
Administrator.
For the reasons set forth in the preamble, 40 CFR part 80 is
amended as follows:
PART 80--REGULATION OF FUELS AND FUEL ADDITIVES
0
1. The authority citation for part 80 continues to read as follows:
Authority: 42 U.S.C. 7414, 7542, 7545, and 7601(a).
Sec. 80.1275 [Amended]
0
2. In Sec. 80.1275, remove paragraph (d)(3).
0
3. Section 80.1401 is amended by revising the definitions of ``Annual
cover crop'' and ``Naphtha'' to read as follows:
Sec. 80.1401 Definitions.
* * * * *
Annual cover crop means an annual crop, planted as a rotation
between primary planted crops, or between trees and vines in orchards
and vineyards, typically to protect soil from erosion and to improve
the soil between periods of regular crops. An annual cover crop has no
existing market to which it can be sold except for its use as feedstock
for the production of renewable fuel.
* * * * *
Naphtha means a blendstock falling within the boiling range of
gasoline which is composed of only hydrocarbons, is commonly or
commercially known as naphtha, and is used to produce gasoline.
* * * * *
0
4. Section 80.1405 is revised to read as follows:
Sec. 80.1405 What are the Renewable Fuel Standards?
(a) (1) Renewable Fuel Standards for 2010.
(i) The value of the cellulosic biofuel standard for 2010 shall be
0.004 percent.
(ii) The value of the biomass-based diesel standard for 2010 shall
be 1.10 percent.
(iii) The value of the advanced biofuel standard for 2010 shall be
0.61 percent.
(iv) The value of the renewable fuel standard for 2010 shall be
8.25 percent.
(2) Renewable Fuel Standards for 2011.
(i) The value of the cellulosic biofuel standard for 2011 shall be
0.003 percent.
(ii) The value of the biomass-based diesel standard for 2011 shall
be 0.69 percent.
(iii) The value of the advanced biofuel standard for 2011 shall be
0.78 percent.
(iv) The value of the renewable fuel standard for 2011 shall be
8.01 percent.
(3) Renewable Fuel Standards for 2012.
(i) The value of the cellulosic biofuel standard for 2012 shall be
0.006 percent.
(ii) The value of the biomass-based diesel standard for 2012 shall
be 0.91 percent.
(iii) The value of the advanced biofuel standard for 2012 shall be
1.21 percent.
(iv) The value of the renewable fuel standard for 2012 shall be
9.23 percent.
(b) EPA will calculate the value of the annual standards and
publish these values in the Federal Register by November 30 of the year
preceding the compliance period.
(c) EPA will calculate the annual renewable fuel percentage
standards using the following equations:
[GRAPHIC] [TIFF OMITTED] TR09JA12.003
[[Page 1355]]
Where:
StdCB,i = The cellulosic biofuel standard for year i, in
percent.
StdBBD,i= The biomass-based diesel standard for year i,
in percent.
StdAB,i= The advanced biofuel standard for year i, in
percent.
StdRF,i= The renewable fuel standard for year i, in
percent.
RFVCB,i= Annual volume of cellulosic biofuel required by
42 U.S.C. 7545(o)(2)(B) for year i, or volume as adjusted pursuant
to 42 U.S.C. 7545(o)(7)(D), in gallons.
RFVBBD,i= Annual volume of biomass-based diesel required
by 42 U.S.C. 7545 (o)(2)(B) for year i, in gallons.
RFVAB,i= Annual volume of advanced biofuel required by 42
U.S.C. 7545(o)(2)(B) for year i, in gallons.
RFVRF,i= Annual volume of renewable fuel required by 42
U.S.C. 7545(o)(2)(B) for year i, in gallons.
Gi= Amount of gasoline projected to be used in the 48
contiguous states and Hawaii, in year i, in gallons.
Di= Amount of diesel projected to be used in the 48
contiguous states and Hawaii, in year i, in gallons.
RGi= Amount of renewable fuel blended into gasoline that
is projected to be consumed in the 48 contiguous states and Hawaii,
in year i, in gallons.
RDi= Amount of renewable fuel blended into diesel that is
projected to be consumed in the 48 contiguous states and Hawaii, in
year i, in gallons.
GSi= Amount of gasoline projected to be used in Alaska or
a U.S. territory, in year i, if the state or territory has opted-in
or opts-in, in gallons.
RGSi= Amount of renewable fuel blended into gasoline that
is projected to be consumed in Alaska or a U.S. territory, in year
i, if the state or territory opts-in, in gallons.
DSi= Amount of diesel projected to be used in Alaska or a
U.S. territory, in year i, if the state or territory has opted-in or
opts-in, in gallons.
RDSi= Amount of renewable fuel blended into diesel that
is projected to be consumed in Alaska or a U.S. territory, in year
i, if the state or territory opts-in, in gallons.
GEi= The amount of gasoline projected to be produced by
exempt small refineries and small refiners, in year i, in gallons in
any year they are exempt per Sec. Sec. 80.1441 and 80.1442.
DEi= The amount of diesel fuel projected to be produced
by exempt small refineries and small refiners in year i, in gallons,
in any year they are exempt per Sec. Sec. 80.1441 and 80.1442.
(d) (1) The 2010 price for cellulosic biofuel waiver credits is
$1.56 per waiver credit.
(2) The 2011 price for cellulosic biofuel waiver credits is $1.13
per waiver credit.
(3) The 2012 price for cellulosic biofuel waiver credits is $0.78
per waiver credit.
0
5. Section 80.1415 is amended by revising paragraph (c)(2) to read as
follows:
Sec. 80.1415 How are equivalence values assigned to renewable fuel?
* * * * *
(c) * * *
(2) The application for an equivalence value shall include a
technical justification that includes all the following:
(i) A calculation for the requested equivalence value according to
the equation in paragraph (c)(1) of this section, including supporting
documentation for the value of EC used in the calculation such as a
certificate of analysis from a laboratory that verifies the lower
heating value in Btu per gallon of the renewable fuel produced.
(ii) For each feedstock, component, or additive that is used to
make the renewable fuel, provide a description, the percent input, and
identify whether or not it is renewable biomass or is derived from
renewable biomass.
(iii) For each feedstock that also qualifies as a renewable fuel,
state whether or not RINs have been previously generated for such
feedstock.
(iv) A description of the renewable fuel and the production
process, including a block diagram that shows all inputs and outputs at
each step of the production process with a sample quantity of all
inputs and outputs for one batch of renewable fuel produced.
* * * * *
0
6. Section 80.1426 is amended as follows:
0
a. By revising paragraph (f)(1).
0
b. By revising paragraph (f)(5)(ii).
Sec. 80.1426 How are RINs generated and assigned to batches of
renewable fuel by renewable fuel producers or importers?
* * * * *
(f) * * *
(1) Applicable pathways. D codes shall be used in RINs generated by
producers or importers of renewable fuel according to the pathways
listed in Table 1 to this section, paragraph (f)(6) of this section, or
as approved by the Administrator. In choosing an appropriate D code,
producers and importers may disregard any incidental, de minimis
feedstock contaminants that are impractical to remove and are related
to customary feedstock production and transport. Tables 1 and 2 to this
section do not apply to, and impose no requirements with respect to,
volumes of fuel for which RINs are generated pursuant to paragraph
(f)(6) of this section.
* * * * *
(5) * * *
(ii) (A) A feedstock qualifies under paragraph (f)(5)(i)(A) or
(f)(5)(i)(B) of this section only if it is collected according to a
plan submitted to and accepted by U.S. EPA under the registration
procedures specified in Sec. 80.1450(b)(1)(vii).
(B) A feedstock qualifies under paragraph (f)(5)(i)(C) of this
section only if it is collected according to a plan submitted to and
approved by U.S. EPA.
* * * * *
0
7. Section 80.1429 is amended by revising paragraphs (b)(2) and (b)(9)
introductory text to read as follows:
Sec. 80.1429 Requirements for separating RINs from volumes of
renewable fuel.
* * * * *
(b) * * *
(2) Except as provided in paragraph (b)(6) of this section, any
party that owns a volume of renewable fuel must separate any RINs that
have been assigned to that volume once the volume is blended with
gasoline or fossil-based diesel to produce a transportation fuel,
heating oil, or jet fuel. A party may separate up to 2.5 RINs per
gallon of blended renewable fuel.
* * * * *
(9) Except as provided in paragraphs (b)(2) through (b)(5) and
(b)(8) of this section, parties whose non-export renewable volume
obligations are solely related to either the importation of products
listed in Sec. 80.1407(c) or Sec. 80.1407(e) or to the addition of
blendstocks into a volume of finished gasoline, finished diesel fuel,
RBOB, or CBOB, can only separate RINs from volumes of renewable fuel if
the number of gallon-RINs separated in a calendar year is less than or
equal to a limit set as follows:
* * * * *
0
8. Section 80.1431 is amended by adding a new paragraph (c) to read as
follows:
Sec. 80.1431 Treatment of invalid RINs.
* * * * *
(c) Notwithstanding paragraph (b) of this section, improperly
generated RINs may be used for compliance provided that all of the
following conditions and requirements are satisfied and the renewable
fuel producer or importer who improperly generated the RINs
demonstrates that the conditions and requirements are satisfied through
the reporting and recordkeeping requirements set forth below, that:
(1) The number of RINs generated for a batch exceeds the number of
RINs that should have been properly generated.
(2) The RINs were improperly generated as a result of a broken
meter,
[[Page 1356]]
an inadvertent temperature correction error, or an inadvertent
administrative error.
(3) The renewable fuel producer or importer had in place at the
time the RINs were improperly generated a quality assurance/quality
control plan designed to ensure that process measuring equipment such
as meters and temperature probes are properly maintained and to prevent
inadvertent administrative errors.
(4) The renewable fuel producer or importer has taken any
appropriate additional steps to prevent similar violations from
occurring in the future.
(5) The improperly generated RINs have been transferred to another
party.
(6) The renewable fuel producer or importer has not improperly
generated RINs for the reasons described in paragraph (c)(2) of this
section on more than five batches during any calendar year.
(7) All of the following remedial actions have been implemented
within 30 days of the EMTS submission date of the improper RIN
generation:
(i) The renewable fuel producer or importer retires an equal number
of valid RINs with the same D Code and RIN year as the properly
generated RINs, using an EMTS retire code of 110.
(ii) The renewable fuel producer or importer reports all the
following information to EPA via EMTS, which EPA may make publicly
available:
(A) Company name.
(B) Company ID.
(C) Facility name.
(D) Facility ID.
(E) The date the renewable fuel was produced.
(F) The date the RINs were originally generated.
(G) The number of RINs generated.
(H) The number of RINs improperly generated.
(I) RIN year.
(J) D codes of generated RINs.
(K) Batch numbers.
(L) EMTS Transaction ID of the original generation.
(M) An explanation of how the violation occurred, and why the
improperly generated RINs meet the criteria in paragraph (c)(2) of this
section.
(N) Steps taken to prevent similar violations from occurring in the
future.
(O) Information under paragraphs (c)(3), (c)(4), and (c)(5) of this
section.
(P) Any additional information the Administrator may require.
(8) The renewable fuel producer or importer maintains all records
relating to the improper RIN generation and the associated remedial
actions taken, including but not limited to any of the following:
(i) All information regarding the generation of invalid RINs,
including information that is sufficient to demonstrate that the
improperly generated RINs meet the criteria in paragraph (c)(2) of this
section.
(ii) Documents demonstrating that the renewable fuel producer or
importer has implemented the quality control/quality assurance plan
required in paragraph (c)(3) of this section, and has taken all
appropriate additional steps to prevent similar violations from
occurring in the future.
(iii) All correspondence with EPA.
(iv) All EMTS transactions (Generation, Buy, Sell and Retire).
(v) All Product Transfer Documents (PTDs).
(d) If EPA determines that a renewable fuel producer improperly
generated RINs but did not meet the requirements set forth in paragraph
(c) of this section, then the requirements of paragraph (b) of this
section apply from the moment that the invalid RINs were generated in
EMTS. Once the RIN generator has identified improperly generated RINs
to EPA, then EPA may remove these improperly generated RINs from EMTS.
0
9. Section 80.1449 is amended by revising paragraph (a) introductory
text to read as follows:
Sec. 80.1449 What are the Production Outlook Report requirements?
(a) By June 1 of each year (September 1 for the report due in
2010), a registered renewable fuel producer or importer must submit and
an unregistered renewable fuel producer may submit all of the following
information for each of its facilities, as applicable, to EPA:
* * * * *
0
10. Section 80.1450 is amended by revising paragraphs (d)(1) through
(d)(3) to read as follows:
Sec. 80.1450 What are the registration requirements under the RFS
program?
* * * * *
(d) * * *
(1) Any producer of renewable fuel, and any foreign ethanol
producer who makes changes to his facility that will allow him to
produce renewable fuel, as defined in Sec. 80.1401 that is not
reflected in the producer's registration information on file with EPA
must update his registration information and submit a copy of an
updated independent third-party engineering review on file with EPA at
least 60 days prior to producing the new type of renewable fuel. The
producer may also submit an addendum to the independent third-party
engineering review on file with EPA provided the addendum meets all the
requirements in paragraph (b)(2) of this section and verifies for EPA
the most up-to-date information at the producer's existing facility.
(2) Any producer of renewable fuel and any foreign ethanol producer
who makes any other changes to a facility that will affect the
producer's registration information but will not affect the renewable
fuel category for which the producer is registered per paragraph (b) of
this section must update his registration information 7 days prior to
the change.
(3) All producers of renewable fuel and foreign ethanol producers
must update registration information and submit an updated independent
third-party engineering review according to the schedule in paragraph
(d)(3)(i) or (d)(3)(ii) of this section, and including the information
specified in paragraph (d)(3)(iii) of this section:
(i) For all producers of renewable fuel and foreign ethanol
producers registered in calendar year 2010, the updated registration
information and independent third-party engineering review shall be
submitted to EPA by January 31, 2013, and by January 31 of every third
calendar year thereafter; or
(ii) For all producers of renewable fuel and foreign ethanol
producers registered in any calendar year after 2010, the updated
registration information and independent third-party engineering review
shall be submitted to EPA by January 31 of every third calendar year
after the first year of registration.
(iii) In addition to conducting the engineering review and written
report and verification required by paragraph (b)(2) of this section,
the updated independent third-party engineering review shall include a
detailed review of the renewable fuel producer's calculations used to
determine VRIN of a representative sample of batches of each
type of renewable fuel produced since the last registration. The
representative sample shall be selected in accordance with the sample
size guidelines set forth at Sec. 80.127.
* * * * *
0
11. Section 80.1451 is amended by revising paragraph (a)(1)(xi) to read
as follows:
Sec. 80.1451 What are the reporting requirements under the RFS
program?
(a) * * *
(1) * * *
(xi) A list of all RINs generated prior to July 1, 2010 that were
retired for compliance in the reporting period.
* * * * *
[[Page 1357]]
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12. Section 80.1452 is amended revising paragraphs (b)(2), (b)(4), and
(b)(5) to read as follows:
Sec. 80.1452 What are the requirements related to the EPA Moderated
Transaction System (EMTS)?
* * * * *
(b) * * *
(2) The EPA company registration number of the renewable fuel
producer or foreign ethanol producer, as applicable.
* * * * *
(4) The EPA facility registration number of the facility at which
the renewable fuel producer or foreign ethanol producer produced the
batch, as applicable.
(5) The EPA facility registration number of the importer that
imported the batch, if applicable.
* * * * *
0
13. Section 80.1460 is amended by adding a new paragraph (b)(6) to read
as follows:
Sec. 80.1460 What acts are prohibited under the RFS program?
* * * * *
(b) * * *
(6) Generate a RIN for fuel for which RINs have previously been
generated.
* * * * *
0
14. Section 80.1464 is amended as follows:
0
a. By revising paragraph (a)(2) heading and paragraph (a)(2)(i).
0
b. By adding paragraphs (a)(2)(iii) and (a)(2)(iv).
0
c. By revising paragraph (a)(3)(ii).
0
d. By revising paragraph (b)(2) heading and paragraph (b)(2)(i).
0
e. By adding paragraphs (b)(2)(iii) and (b)(2)(iv).
0
f. By revising paragraph (b)(3)(ii).
0
g. By revising paragraph (c)(1) heading.
0
h. By adding paragraphs (c)(1)(iii) and (c)(1)(iv).
Sec. 80.1464 What are the attest engagement requirements under the
RFS program?
* * * * *
(a) * * *
(2) RIN transaction reports and product transfer documents.
(i) Obtain and read copies of a representative sample, selected in
accordance with the guidelines in Sec. 80.127, of each RIN transaction
type (RINs purchased, RINs sold, RINs retired, RINs separated, RINs
reinstated) included in the RIN transaction reports required under
Sec. 80.1451(a)(2) for the compliance year.
* * * * *
(iii) Verify that the product transfer documents for the
representative samples under paragraph (a)(2)(i) of this section of
RINs sold and the RINs purchased contain the applicable information
required under Sec. 80.1453 and report as a finding any product
transfer document that does not contain the required information.
(iv) Verify the accuracy of the information contained in the
product transfer documents reviewed pursuant to paragraph (a)(2)(iii)
of this section and report as a finding any exceptions.
(3) * * *
(ii) Obtain the database, spreadsheet, or other documentation used
to generate the information in the RIN activity reports; compare the
RIN transaction samples reviewed under paragraph (a)(2) of this section
with the corresponding entries in the database or spreadsheet and
report as a finding any discrepancies; compute the total number of
current-year and prior-year RINs owned at the start and end of each
quarter, purchased, separated, sold, retired and reinstated, and for
parties that reported RIN activity for RINs assigned to a volume of
renewable fuel, the volume and type of renewable fuel (as defined in
Sec. 80.1401) owned at the end of each quarter; as represented in
these documents; and state whether this information agrees with the
party's reports to EPA.
(b) * * *
(2) RIN transaction reports and product transfer documents.
(i) Obtain and read copies of a representative sample, selected in
accordance with the guidelines in Sec. 80.127, of each transaction
type (RINs purchased, RINs sold, RINs retired, RINs separated, RINs
reinstated) included in the RIN transaction reports required under
Sec. 80.1451(b)(2) for the compliance year.
* * * * *
(iii) Verify that the product transfer documents for the
representative samples under paragraph (b)(2)(i) of this section of
RINs sold and the RINs purchased contain the applicable information
required under Sec. 80.1453 and report as a finding any product
transfer document that does not contain the required information.
(iv) Verify the accuracy of the information contained in the
product transfer documents reviewed pursuant to paragraph (b)(2)(iii)
of this section and report as a finding any exceptions.
(3) * * *
(ii) Obtain the database, spreadsheet, or other documentation used
to generate the information in the RIN activity reports; compare the
RIN transaction samples reviewed under paragraph (b)(2) of this section
with the corresponding entries in the database or spreadsheet and
report as a finding any discrepancies; report the total number of each
RIN generated during each quarter and compute and report the total
number of current-year and prior-year RINs owned at the start and end
of each quarter, purchased, separated, sold, retired and reinstated,
and for parties that reported RIN activity for RINs assigned to a
volume of renewable fuel, the volume of renewable fuel owned at the end
of each quarter, as represented in these documents; and state whether
this information agrees with the party's reports to EPA.
* * * * *
(c) * * *
(1) RIN transaction reports and product transfer documents.
* * * * *
(iii) Verify that the product transfer documents for the
representative samples under paragraph (c)(1)(i) of this section of
RINs sold and RINs purchased contain the applicable information
required under Sec. 80.1453 and report as a finding any product
transfer document that does not contain the required information.
(iv) Verify the accuracy of the information contained in the
product transfer documents reviewed pursuant to paragraph (c)(1)(iii)
of this section and report as a finding any exceptions.
* * * * *
0
15. Section 80.1465 is amended by revising paragraph (h)(2) to read as
follows:
Sec. 80.1465 What are the additional requirements under this subpart
for foreign small refiners, foreign small refineries, and importers of
RFS-FRFUEL?
* * * * *
(h) * * *
(2) Bonds shall be posted by any of the following methods:
(i) Paying the amount of the bond to the Treasurer of the United
States.
(ii) Obtaining a bond in the proper amount from a third party
surety agent that is payable to satisfy United States administrative or
judicial judgments against the foreign refiner, provided EPA agrees in
advance as to the third party and the nature of the surety agreement.
* * * * *
0
16. Section 80.1466 is amended by revising paragraph (h)(2) to read as
follows:
Sec. 80.1466 What are the additional requirements under this subpart
for RIN- generating foreign producers and importers of renewable fuels
for which RINs have been generated by the foreign producer?
* * * * *
[[Page 1358]]
(h) * * *
(2) Bonds shall be posted by any of the following methods:
(i) Paying the amount of the bond to the Treasurer of the United
States.
(ii) Obtaining a bond in the proper amount from a third party
surety agent that is payable to satisfy United States administrative or
judicial judgments against the foreign producer, provided EPA agrees in
advance as to the third party and the nature of the surety agreement.
* * * * *
0
17. Section 80.1467 is amended by revising paragraphs (e)(1), (e)(2),
and (g)(2) to read as follows:
Sec. 80.1467 What are the additional requirements under this subpart
for a foreign RIN owner?
* * * * *
(e) * * *
(1) The foreign entity shall post a bond of the amount calculated
using the following equation:
Bond = G * $ 0.01
Where:
Bond = Amount of the bond in U.S. dollars.
G = The total of the number of gallon-RINs the foreign entity
expects to obtain, sell, transfer or hold during the first calendar
year that the foreign entity is a RIN owner, plus the number of
gallon-RINs the foreign entity expects to obtain, sell, transfer or
hold during the next four calendar years. After the first calendar
year, the bond amount shall be based on the actual number of gallon-
RINs obtained, sold, or transferred so far during the current
calendar year plus the number of gallon-RINs obtained, sold, or
transferred during the four calendar years immediately preceding the
current calendar year. For any year for which there were fewer than
four preceding years in which the foreign entity obtained, sold, or
transferred RINs, the bond shall be based on the total of the number
of gallon-RINs sold or transferred so far during the current
calendar year plus the number of gallon-RINs obtained, sold, or
transferred during any immediately preceding calendar years in which
the foreign entity owned RINs, plus the number of gallon-RINs the
foreign entity expects to obtain, sell or transfer during subsequent
calendar years, the total number of years not to exceed four
calendar years in addition to the current calendar year.
(2) Bonds shall be posted by any of the following methods:
(i) Paying the amount of the bond to the Treasurer of the United
States.
(ii) Obtaining a bond in the proper amount from a third party
surety agent that is payable to satisfy United States administrative or
judicial judgments against the foreign RIN owner, provided EPA agrees
in advance as to the third party and the nature of the surety
agreement.
* * * * *
(g) * * *
(2) Any RIN that is obtained, sold, transferred, or held that is in
excess of the number for which the bond requirements of this section
have been satisfied is an invalid RIN under Sec. 80.1431.
* * * * *
[FR Doc. 2011-33451 Filed 1-6-12; 8:45 am]
BILLING CODE 6560-50-P