Petition for Writ of Certiorari — Valero Energy Corporation, et al., Petitioners v. Environmental Protection Agency

Supreme Court briefDec 30, 2019

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No. 19-_____

IN THE

Supreme Court of the United States

VALERO ENERGY CORPORATION AND

AMERICAN FUEL & PETROCHEMICAL MANUFACTURERS,

Petitioners,

ENVIRONMENTAL PROTECTION AGENCY,

Respondent.

On Petition for a Writ of Certiorari

to the United States Court of Appeals

for the District of Columbia Circuit

PETITION FOR A WRIT OF CERTIORARI

VOLUME II OF II

CLARA M. POFFENBERGER

CLARA POFFENBERGER

ENVIRONMENTAL LAW

AND POLICY, LLC

2933 Fairhill Road

Fairfax, Virginia 22031

(703) 231-5251

EVAN A. YOUNG

Counsel of Record

ELLEN SPRINGER

JOSHUA MORROW

BAKER BOTTS L.L.P.

98 San Jacinto Boulevard

Suite 1500

Austin, Texas 78701

(512) 322-2506

evan.young@bakerbotts.com

Counsel for Petitioner Valero Energy Corporation

(additional counsel on inside front cover)

WILSON-EPES PRINTING CO., INC. – (202) 789-0096 – W ASHINGTON, D.C. 20002

SAMARA L. KLINE

BAKER BOTTS L.L.P.

2001 Ross Avenue

Dallas, Texas 75201

(214) 953-6825

MEGAN H. BERGE

BAKER BOTTS L.L.P.

The Warner

1299 Pennsylvania Ave., N.W.

Washington, D.C. 20004

(202) 639-1308

BRITTANY M. PEMBERTON

BRACEWELL LLP

2001 M Street N.W.

Suite 900

Washington, D.C. 20036

(202) 828-1708

Counsel for Petitioner

Valero Energy Corporation

RICHARD MOSKOWITZ

AMERICAN FUEL &

PETROCHEMICAL

MANUFACTURERS

1800 M Street, NW

Suite 900 North

Washington, D.C. 20036

(202) 457-0480

Counsel for Petitioner

American Fuel &

Petrochemical Manufacturers

TABLE OF CONTENTS

VOLUME I

Appendix A – Opinion of the D.C. Circuit

(August 30, 2019) ................................................................ 1a

Appendix B – Opinion of the D.C. Circuit

(September 6, 2019) .......................................................... 91a

Appendix C – Statutory Provisions Involved .............. 156a

VOLUME II

Appendix D – U.S. Environmental Protection

Agency, Renewable Fuel Standard Program Standards For 2017 And Biomass-Based Diesel

Volume For 2018: Response To Comments,

EPA-420-R-16-019 (November 2016) ........................... 187a

Appendix E – U.S. Environmental Protection

Agency, Renewable Fuel Standard Program:

Standards for 2017 and Biomass-Based Diesel

Volume for 2018, 81 Fed. Reg. 89,746

(December 12, 2016) (“2017 Rule”) ............................... 189a

Appendix F – U.S. Environmental Protection

Agency, Denial of Petitions for Rulemaking to

Change the RFS Point of Obligation,

EPA-420-R-17-008 (November 2017) ........................... 356a

Appendix G – U.S. Environmental Protection

Agency, Notice of Denial of Petitions for Rulemaking To Change the RFS Point of Obligation,

82 Fed. Reg. 56,779 (November 30, 2017) .................... 531a

Appendix H – U.S. Environmental Protection

Agency, Renewable Fuel Standard Program:

Standards for 2018 and Biomass-Based Diesel

Volume for 2019 (Proposed Rule) 82 Fed. Reg.

34,206 (July 21, 2017) ..................................................... 538a

(i)

Appendix I – U.S. Environmental Protection

Agency, Renewable Fuel Standard Program:

Standards for 2018 and Biomass-Based Diesel

Volume for 2019; Availability of Supplemental

Information and Request for Further Comment,

82 Fed. Reg. 46,174 (October 4, 2017) .......................... 541a

Appendix J – U.S. Environmental Protection

Agency, Renewable Fuel Standard Program Standards for 2018 and Biomass-Based Diesel

Volume for 2019: Response to Comments,

EPA-420-R-17-007 (December 2017) ........................... 550a

Appendix K – U.S. Environmental Protection

Agency, Renewable Fuel Standard Program:

Standards for 2018 and Biomass-Based Diesel

Volume for 2019, 82 Fed. Reg. 58,486

(December 12, 2017) (“2018 Rule”) ............................... 552a

187a

APPENDIX D

U.S. ENVIRONMENTAL

PROTECTION AGENCY

OFFICE OF TRANSPORTATION

AND AIR QUALITY

ASSESSMENT AND STANDARDS DIVISION

————

EPA-420-R-16-019

————

Renewable Fuel Standard

Program Standards For 2017

And Biomass-Based Diesel

Volume For 2018:

Response To Comments

————

NOVEMBER 2016

————

[Content Omitted]

In the proposed rule, EPA did not propose any

changes to the definition of an obligated party, nor

did we specifically seek comment on this issue. EPA

received comments requesting that we change the point

of obligation in the RFS program primarily from parties that are obligated under the current regulations.

We also received comments from several parties opposed

to changing the point of obligation. These comments

are beyond the scope of this rulemaking.

In a separate action EPA has proposed to deny the

petitions we have received to change the point of obligation in the RFS program. EPA has opened a public

188a

docket (EPA-HQ-OAR-2016-0544) to receive comments

on our proposed denial of these petitions.72 Our proposed response to the petitions we have received,

together with the petitions, comments received to-date

on the petitions, and EPA’s draft analysis can also be

found in this docket.

[Content Omitted]

The EPA Administrator signed the Proposed Denial of

Petitions for Rulemaking to Change the RFS Point of Obligation

on November 10, 2016. More information about this proposed

rule can be found at https://www.epa.gov/renewable-fuel-standardprogram/response-petitions-reconsideration-rfs2-rule-changepoint-obligation

189a

APPENDIX E

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

————

[EPA–HQ–OAR–2016–0004; FRL–9955–84–OAR]

RIN 2060–AS72

————

Renewable Fuel Standard Program:

Standards for 2017 and Biomass-Based

Diesel Volume for 2018

————

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule [December 12, 2016].

SUMMARY: Under section 211 of the Clean Air Act,

the Environmental Protection Agency (EPA) is required

to set renewable fuel percentage standards every year.

This action establishes the annual percentage standards for cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuel that apply to

all motor vehicle gasoline and diesel produced or imported in the year 2017. Relying on statutory authority

that is available when projected cellulosic biofuel production volumes are less than the applicable volume

specified in the statute, the EPA is setting volume

requirements for cellulosic biofuel, advanced biofuel,

and total renewable fuel that are below the statutory

applicable volumes, but which are nevertheless significantly higher than past requirements. The final rule

also establishes the four percentage standards applicable to obligated parties, namely producers and

importer of gasoline and diesel, based on the corresponding volume requirements. The final standards

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are expected to continue driving the market to overcome constraints in renewable fuel distribution infrastructure, which in turn is expected to lead to substantial growth over time in the production and use of

renewable fuels. In this action, we are also establishing the applicable volume of biomass-based diesel for

2018.

DATES: This final rule is effective on February 10,

2017.

ADDRESSES: The EPA has established a docket for

this action under Docket ID No. EPA–HQ–OAR–

2016–0004. All documents in the docket are listed on

the http://www.regulations.gov Web site. 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, is not placed on the Internet and will be publicly available only in hard copy

form. Publicly available docket materials are available

electronically through http:// www.regulations.gov.

FOR FURTHER INFORMATION CONTACT:

Julia MacAllister, Office of Transportation and Air

Quality, Assessment and Standards Division, Environmental Protection Agency, 2000 Traverwood Drive,

Ann Arbor, MI 48105; telephone number: 734–214–

4131; email address: macallister.julia@epa.gov.

SUPPLEMENTARY INFORMATION:

Entities potentially affected by this final rule are those

involved with the production, distribution, and sale of

transportation fuels, including gasoline and diesel fuel

or renewable fuels such as ethanol, biodiesel, renewable diesel, and biogas. Potentially regulated categories

include:

191a

1,2

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 entity would 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 FOR FURTHER INFORMATION

CONTACT section.

North American Industry Classification System (NAICS).

Standard Industrial Classification (SIC) system code.

192a

Outline of This Preamble

I. Executive Summary

A. Purpose of This Action

B. Summary of Major Provisions in This

Action

1. Approach to Setting Volume

Requirements

2. Cellulosic Biofuel

3. Advanced Biofuel

4. Total Renewable Fuel

5. Biomass-Based Diesel

6. Annual Percentage Standards

7. Assessment of Aggregate

Compliance

II. Authority and Need for Waiver of Statutory Applicable Volumes

A. Statutory Authorities for Reducing

Volume Targets

1. Cellulosic Waiver Authority

2. General Waiver Authority

3. General Comments Related to

Waiver Authorities

B. Treatment of Carryover RINs

1. Updated Projection of Carryover

RIN Volume

2. EPA’s Decision

III. Cellulosic Biofuel Volume for 2017

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A. Statutory Requirements

B. Cellulosic Biofuel Industry Assessment

1. Potential Domestic Producers

2. Potential Foreign Sources of Cellulosic Biofuel

3. Summary of Volume Projections

for Individual Companies

C. Projection From the Energy Information Administration

D. Cellulosic Biofuel Volume for 2017

IV. Advanced Biofuel Volume for 2017

A. Volumetric Limitation on Use of the

Cellulosic Waiver Authority

B. Determination of Reasonably Attainable and Appropriate Volumes

1. Imported Sugarcane Ethanol

2. Biodiesel and Renewable Diesel

3. Other Advanced Biofuel

4. Total Advanced Biofuel

V. Total Renewable Fuel Volume for 2017

A. Volumetric Limitation on Use of the

Cellulosic Waiver Authority

B. Assessing Adequacy of Supply

1. Ethanol

i. E0

ii. E15

iii. E85

194a

iv. Total Ethanol

2. Biodiesel and Renewable Diesel

i. Feedstock Availability

ii. Biodiesel and Renewable Diesel

Production Capacity

iii. Biodiesel and Renewable Diesel

Import Capacity

iv. Biodiesel and Renewable Diesel

Distribution Capacity

v. Biodiesel and Renewable Diesel

Retail Infrastructure Capacity

vi. Biodiesel and Renewable Diesel

Consumption Capacity

vii. Biodiesel and Renewable Diesel

Consumer Response

viii. Projected Supply of Biodiesel

and Renewable Diesel in 2017

3. Total Renewable Fuel Supply

C. Market Responses to the Advanced

Biofuel and Total Renewable Fuel Volume Requirements

D. Impacts of 2017 Standards on Costs

VI. Biomass-Based Diesel Volume for 2018

A. Statutory Requirements

B. Determination of Applicable Volume

of Biomass-Based Diesel

1. BBD Production and Compliance

Through 2015

195a

2. Interaction Between BBD and Advanced Biofuel Standards

3. BBD Volume for 2018

C. Consideration of Statutory Factors for

2018

VII. Percentage Standards for 2017

A. Calculation of Percentage Standards

B. Small Refineries and Small Refiners

C. Final Standards

VIII. Assessment of Aggregate Compliance

A. Assessment of the Domestic Aggregate

Compliance Approach

B. Assessment of the Canadian Aggregate

Compliance Approach

IX. Public Participation

X. Statutory and Executive Order Reviews

A. Executive Order 12866: Regulatory

Planning and Review and Executive

Order 13563: Improving Regulation

and Regulatory Review

B. Paperwork Reduction Act (PRA)

C. Regulatory Flexibility Act (RFA)

D. Unfunded

(UMRA)

Mandates

Reform

Act

E. Executive Order 13132: Federalism

F. Executive Order 13175: Consultation

and Coordination With Indian Tribal

Governments

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G. Executive Order 13045: Protection of

Children From Environmental Health

Risks and Safety Risks

H. Executive Order 13211: Actions Concerning Regulations That Significantly

Affect Energy Supply, Distribution, or

Use

I. National Technology Transfer and

Advancement Act (NTTAA)

J. Executive Order 12898: Federal Actions To Address Environmental Justice in Minority Populations, and LowIncome Populations

K. Congressional Review Act (CRA)

XI. Statutory Authority

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I. Executive Summary

The Renewable Fuel Standard (RFS) program began

in 2006 pursuant to the requirements in Clean Air Act

(CAA) section 211(o) that were added through the

Energy Policy Act of 2005 (EPAct). The statutory

requirements for the RFS program were subsequently

modified through the Energy Independence and Security Act of 2007 (EISA), resulting in the publication of

major revisions to the regulatory requirements on

March 26, 2010.1 EISA’s stated goals include moving

the United States toward “greater energy independence and security, to increase the production of clean

renewable fuels.” Today, nearly all of the approximately 142 billion gallons of gasoline used for transportation purposes contains 10 percent ethanol (E10),

and a substantial portion of diesel fuel contains biodiesel.

Renewable fuels represent an opportunity for the U.S.

to move away from fossil fuels towards a set of lower

lifecycle GHG transportation fuels, and the RFS program provides incentives for these lower lifecycle GHG

fuels to grow and compete in the market. While renewable fuels include non-advanced (conventional) corn

starch ethanol, which is the predominant renewable

fuel in use to date, Congress envisioned the majority

of growth from 2014 forward to come from advanced

biofuels, as the conventional volumes remain constant

in the statutory volume tables starting in 2015 while

the advanced volumes continue to grow.2

75 FR 14670, March 26, 2010.

In this document we follow the common practice of using the

term “conventional” renewable fuel to mean any renewable fuel

that is not an advance biofuel.

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The statute includes annual volume targets, and

requires EPA to translate those volume targets (or

alternative volume requirements established by EPA

in accordance with statutory waiver authorities) into

compliance obligations that refiners and importers must

meet every year. In this action, we are establishing the

annual percentage standards for cellulosic biofuel,

biomass-based diesel, advanced biofuel, and total renewable fuel that would apply to all gasoline and diesel

produced or imported in 2017. We are also establishing

the applicable volume of biomass-based diesel for 2018.

The standards we are setting are designed to

achieve the Congressional intent of increasing renewable fuel use over time in order to reduce lifecycle GHG

emissions of transportation fuels and increase energy

security, while at the same time accounting for the

real-world challenges that have slowed progress

toward these goals. Those challenges have made the

volume targets established by Congress for 2017 beyond

reach for all fuel categories other than biomass-based

diesel (BBD), for which the statute specifies only a

minimum requirement of 1.0 billion gallons. In setting

these standards for 2017, we have used the cellulosic

waiver authority provision provided by Congress to

establish volume requirements that will be lower than

the statutory targets for fuels other than biomass-based

diesel, but nevertheless represent significant growth

from past years.

The 2017 volume requirements for advanced biofuel

and total renewable fuel are higher than the levels we

proposed in the NPRM, reflecting our assessment of

updated information and a review of comments

received. We are also finalizing the proposed volume

requirement for BBD for 2018. This BBD volume

requirement will continue to provide support for the

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BBD industry, and we expect that larger volumes of

this fuel type are likely to be used to comply with the

advanced biofuel requirement. The final volume requirements are shown in Table I–1 below. These final volumes, when considered together with the volumes established over the past several years of the RFS program,

indicate that the RFS program is working to deliver

steady, ambitious growth in the total amount of renewable fuel produced and used in the United States,

consistent with Congressional intent.

TABLE I–1—PROPOSED AND FINAL

VOLUME REQUIREMENTSa

2017

2018

Proposed Final Proposed Final

Cellulosic biofuel

(million gallons)

Biomass-based

diesel (billion

gallons)

Advanced biofuel

(billion gallons)

Renewable fuel

(billion gallons)

312

311

n/a

2.0

2.1

4.0

4.28

n/a

18.8

19.28

n/a

Despite significant increases in renewable fuel use

in the United States, real-world constraints, such as

the slower than expected development of the cellulosic

biofuel industry and constraints in the marketplace

related to supply of certain biofuels to consumers, have

made the timeline laid out by Congress for the growth

All values are ethanol-equivalent on an energy content basis,

except for BBD which is biodiesel-equivalent.

The 2017 BBD volume requirement was established in the

2014–2016 final rule (80 FR 77420, December 14, 2015).

200a

in renewable fuel use (other than for BBD) impossible

to achieve. These challenges continue, and are largely

the same for 2017 as they were for 2016. However, a

careful review of the comments we received in response

to the May 31, 2016 Notice of Proposed Rulemaking

(NPRM) and other information that has become available since May has led us to conclude that volume

reductions for 2017 need not be as great as we had

proposed. In light of the lower reductions necessary, in

this final rule we rely exclusively on the cellulosic waiver

authority to provide reductions in both advanced biofuel and total renewable fuel volumes. That is, we have

determined that it is not necessary to provide an additional increment of volume reduction for total renewable fuels through use of the general waiver authority

based on a finding of inadequate domestic supply,

as we had done in the final rule establishing annual

standards for 2014–2016 (“Renewable Fuel Standard

Program: Standards for 2014, 2015, and 2016 and

Biomass-Based Diesel Volume for 2017,” (hereinafter

referred to as the “2014–2016 final rule”),3 and as we

also proposed to do in establishing standards for 2017.4

We believe that the RFS program can and will drive

renewable fuel use, and we have considered the ability

of the market to respond to the standards we set when

we assessed the amount of renewable fuel that can be

reasonably attained in 2017. Therefore, while this

final rule applies the tools Congress provided to make

adjustments to the statutory volume targets in recognition of the constraints that exist today, we believe the

standards we are setting in this action will drive growth

in renewable fuels, particularly advanced biofuels,

80 FR 77420, December 14, 2015.

81 FR 34778, May 31, 2016.

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which achieve substantial lifecycle GHG emissions. In

our view, while Congress recognized that supply challenges may exist as evidenced by the waiver provisions, it did not intend growth in the renewable fuels

market to be stopped by those challenges, including

those associated with the “E10 blendwall.”5 The fact

that Congress chose to mandate increasing and substantial amounts of renewable fuel clearly signals that

it intended the RFS program to create incentives

to increase renewable fuel supplies and overcome constraints in the market. The standards we are setting

in this action will provide those incentives.

The standards we are setting in this final rule are

part of a collection of actions, in both the government

and private sectors, to increase the use of renewable

fuels. In addition to ongoing efforts to evaluate new

pathways for RIN generation for advanced biofuels,

we have recently proposed regulatory provisions that

we believe will enhance the ability of the market to

increase not only the production of advanced and cellulosic biofuels, but also the use of higher-level ethanol

blends such as E15 and E85.6 DOE and USDA are

continuing to provide funds for the development of new

technologies and expansion of infrastructure for higher

ethanol blends, and the ethanol industry has also made

efforts to expand the use of higher ethanol blends

The “E10 blendwall” represents the volume of ethanol that

can be consumed domestically if all gasoline contains 10% ethanol

and there are no higher-level ethanol blends consumed such as

E15 or E85.

See the recently proposed Renewables Enhancement and

Growth Support (REGS) Rule (81 FR 80828, November 16, 2016).

More information about this proposed rule can be found at

https://www.epa.gov/renewable-fuel-standard-program/proposed

-renewables-enhancement-and-growth-support-regs-rule.

202a

through its Prime the Pump program. These actions

are expected to continue to help clear hurdles to support the ongoing growth in the use of renewable fuels

in future years.

A. Purpose of This Action

The national volume targets of renewable fuel that

are intended to be achieved under the RFS program

each year (absent an adjustment or waiver by EPA)

are specified in CAA section 211(o)(2). The statutory

volumes for 2017 are shown in Table I.A–1. The cellulosic biofuel and BBD categories are nested within the

advanced biofuel category, which is itself nested within the total renewable fuel category. This means, for

example, that each gallon of cellulosic biofuel or BBD

that is used to satisfy the individual volume requirements for those fuel types can also be used to satisfy

the requirements for advanced biofuel and total renewable fuel.

TABLE I.A–1—APPLICABLE 2017 VOLUMES

SPECIFIED IN THE CLEAN AIR ACT

[Billion Gallons]a

Cellulosic biofuel

Biomass-based diesel

Advanced biofuel

Renewable fuel

5.5

≥1.0

9.0

24.0

Under the RFS program, EPA is required to determine and publish annual percentage standards for

each compliance year. The percentage standards are

calculated to ensure use in transportation fuel of the

national “applicable volumes” of the four types of bioa

All values are ethanol-equivalent on an energy content basis,

except values for BBD which are given in actual gallons.

203a

fuel (cellulosic biofuel, BBD, advanced biofuel, and total

renewable fuel) that are set forth in the statute or

established by EPA in accordance with the Act’s requirements. The percentage standards are used by obligated

parties (generally, producers and importers of gasoline

and diesel fuel) to calculate their individual compliance obligations. Each of the four percentage standards is applied to the volume of non-renewable gasoline

and diesel that each obligated party produces or imports during the specified calendar year to determine

their individual volume obligations with respect to the

four renewable fuel types. The individual volume

obligations determine the number of RINs of each

renewable fuel type that each obligated party must

acquire and retire to demonstrate compliance.

EPA is establishing the annual applicable volume

requirements for cellulosic biofuel, advanced biofuel,

and total renewable fuel for 2017, and for BBD for

2018.7 Table I.A–2 lists the statutory provisions and

associated criteria relevant to determining the national

applicable volumes used to set the percentage standards in this final rule.

The 2017 BBD volume requirement was established in the

2014–2016 final rule.

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TABLE I.A—2—STATUTORY PROVISIONS FOR DETERMINATION OF APPLICABLE VOLUMES

Applicable

Clean air act

Criteria provided in statute for

volumes

reference

determination of applicable volume

Cellulosic biofuel ........... 211(o)(7)(D)(i) ............ Required volume must be lesser of volume specified in CAA

211(o)(2)(B)(i)(III) or EPA’s projected volume.

211(o)(7)(A) ................ EPA in consultation with other federal agencies may waive the

statutory volume in whole or in part if implementation would

severely harm the economy or environment of a State, region, or

the United States, or if there is an inadequate domestic supply.

Biomass-based

211(o)(2)(B)(ii)

Required volume for years after 2012 must be at least 1.0 billion

diesel ............................ and (v) ........................ gallons, and must be based on a review of implementation of the

program, coordination with other federal agencies, and an analysis

of specified factors.

211(o)(7)(A) ................ EPA in consultation with other federal agencies may waive the statutory volume in whole or in part if implementation would severely

harm the economy or environment of a State, region, or the United

States, or if there is an inadequate domestic supply.

Advanced biofuel ........... 211(o)(7)(D)(i) ............ If applicable volume of cellulosic biofuel is reduced below the statutory volume to the projected volume, EPA may reduce the advanced

biofuel and total renewable fuel volumes in CAA 211(o)(2)(B)(i)(I)

and (II) by the same or lesser volume. No criteria specified.

211(o)(7)(A) ................ EPA in consultation with other federal agencies may waive the statutory volume in whole or in part if implementation would severely

harm the economy or environment of a State, region, or the United

States, or if there is an inadequate domestic supply.

Total renewable

211(o)(7)(D)(i) ............ If applicable volume of cellulosic biofuel is reduced below the statufuel .................................

tory volume to the projected volume, EPA may reduce the advanced

biofuel and total renewable fuel volumes in CAA 211(o)(2)(B)(i)(I)

and (II) by the same or lesser volume. No criteria specified.

211(o)(7)(A) ................ EPA in consultation with other federal agencies may waive the statutory volume in whole or in part if implementation would severely

harm the economy or environment of a State, region, or the United

States, or if there is an inadequate domestic supply.

Section 211(o)(7)(E) also authorizes EPA in consultation with other federal agencies to issue a temporary waiver of applicable volumes

of BBD where there is a significant feedstock disruption or other market circumstance that would make the price of BBD fuel increase

significantly.

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207a

As shown in Table I.A–2, the statutory authorities

allowing EPA to modify or set the applicable volumes

differ for the four categories of renewable fuel. Under

the statute, EPA must annually determine the

projected volume of cellulosic biofuel production for

the following year. If the projected volume of cellulosic

biofuel production is less than the applicable volume

specified in section 211(o)(2)(B)(i)(III) of the statute,

EPA must lower the applicable volume used to set the

annual cellulosic biofuel percentage standard to the

projected production volume. In Section III of this final

rule, we present our analysis of cellulosic biofuel production and the final applicable volume for 2017. This

analysis is based on information provided by the

Department of Energy’s Energy Information Administration (EIA), an evaluation of producers’ production

plans and progress to date following discussions with

cellulosic biofuel producers, and is informed by comments we received in response to the NPRM.

With regard to BBD, Congress chose to set aside a

portion of the advanced biofuel standard for BBD, and

CAA section 211(o)(2)(B) specifies the applicable volumes of BBD to be used in the RFS program only

through year 2012. For subsequent years the statute

sets a minimum volume of 1 billion gallons, and directs

EPA, in coordination with the U.S. Departments of

Agriculture (USDA) and Energy (DOE), to determine

the required volume after review of implementation of

the renewable fuels program and consideration of a

number of factors. The BBD volume requirement must

be established 14 months before the year in which it

will apply. In the 2014–2016 final rule we established

the BBD volume for 2017. In Section VI of this preamble we discuss our assessment of statutory and other

relevant factors and our final volume requirement for

BBD for 2018, which has been developed in coordina-

208a

tion with USDA and DOE. We are increasing the

required volume of BBD so as to provide continued

support to that important contributor to the pool of

advanced biofuel while at the same time setting the

volume requirement in a manner anticipated to provide continued incentive for the development of other

types of advanced biofuel.

Regarding advanced biofuel and total renewable fuel,

Congress provided several mechanisms through which

those volumes could be reduced if necessary. If we

reduce the applicable volume of cellulosic biofuel below

the volume specified in CAA section 211(o)(2)(B)(i)(III),

we also have the authority to reduce the applicable

volumes of advanced biofuel and total renewable fuel

by the same or a lesser amount. We refer to this as the

“cellulosic waiver authority.” We may also reduce the

applicable volumes of any of the four renewable fuel

types using the “general waiver authority” provided in

CAA section 211(o)(7)(A) if EPA, in consultation with

USDA and DOE, finds that implementation of the

statutory volumes would severely harm the economy

or environment of a State, region, or the United States,

or if there is inadequate domestic supply. Sections II,

IV, and V of this final rule describe our use of the

cellulosic waiver authority alone to reduce volumes of

advanced biofuel and total renewable fuel, and our

assessment that the resulting volumes are reasonably

attainable. As described in the NPRM, and consistent

with the views that we expressed in the 2014–2016

final rule, we continue to believe that reductions in the

statutory targets for 2017 are necessary. However, in

light of our review of updated information and consideration of comments, we are making those reductions

under the cellulosic waiver authority alone and are not

finalizing an additional increment of reduction for total

renewable fuel based on a finding of inadequate domes-

209a

tic supply under the general waiver authority as we

had proposed. Despite the reductions we are finalizing

today, we continue to be mindful that the primary

objective of the statute is to increase renewable fuel

use over time. While progress has taken longer than

Congress anticipated, we note that today’s rule provides for 15 billion gallons of conventional renewable

fuel, the implied level envisioned under the statute for

2017, while also providing for a substantial increase in

the required volume of advanced biofuel over past

volume requirements.

B. Summary of Major Provisions in This Action

This section briefly summarizes the major provisions of this final rule. We are establishing applicable

volume requirements and associated percentage standards for cellulosic biofuel, advanced biofuel, and total

renewable fuel for 2017, as well as the percentage standard for BBD for 2017, and the applicable volume requirement for BBD for 2018.

1. Approach to Setting Volume Requirements

The approach we have taken in this final rule is

essentially the same as that presented in the NPRM

and in the 2014–2016 final rule with regard to establishing the cellulosic biofuel volume requirement, and

the use of the cellulosic waiver authority to reduce

advanced biofuel and total renewable fuel. However, it

differs in that we have not found it necessary to also

use the general waiver authority to provide an additional increment of reduction with respect to total

renewable fuel. While in the NPRM we proposed to

determine the maximum reasonably achievable supply of total renewable fuel, consistent with the general

waiver authority’s “inadequate domestic supply” crite-

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rion, in this final rule we have instead identified the

total renewable fuel volume that results from use of

the cellulosic waiver authority, and have determined

that this volume of total renewable fuel is reasonably

attainable. In this assessment, we took into account

the same constraints in the supply of renewable fuel

we noted in the NPRM, but have come to a different

result with respect to necessary volume reductions in

light of updated information and consideration of comments.

Section II provides a general description of our

approach to setting volume requirements in today’s

rule, including a review of the statutory waiver authorities and our consideration of carryover RINs. Section

III provides our assessment of the 2017 cellulosic

biofuel volume based on a projection of production that

reflects a neutral aim at accuracy. Sections IV and V

describe our assessment of reasonably attainable volumes of advanced biofuel and total renewable fuel,

respectively. Finally, Section VI provides our determination regarding the 2018 BBD volume requirement,

and reflects an analysis of a set of factors stipulated in

CAA section 211(o)(2)(B)(ii).

2. Cellulosic Biofuel

In the past several years the cellulosic biofuel industry has continued to make progress towards increased

commercial scale production. Cellulosic biofuel production reached record levels in 2015, driven largely

by compressed natural gas (CNG) and liquefied natural gas (LNG) derived from biogas, and is expected to

exceed these volumes in 2016. Cellulosic ethanol, while

produced in much smaller quantities than CNG/LNG

derived from biogas, was produced consistently on a

commercial scale for the first time in 2015. Cellulosic

ethanol production levels increased from existing facil-

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ities in 2016, and significant work continues to be done

to enable the production of cellulosic ethanol at new

facilities in 2017 and beyond. Available data suggest

that the production levels for both cellulosic CNG/LNG

and cellulosic ethanol in 2016 will exceed by a significant margin the levels produced in 2015. In this rule

we are establishing a cellulosic biofuel volume requirement of 311 million ethanol-equivalent gallons for 2017

based on the information we have received regarding

individual facilities’ capacities, production start dates

and biofuel production plans, information received in

public comments, input from other government agencies, and EPA’s own engineering judgment.

As part of estimating the volume of cellulosic biofuel

that will be made available in the U.S. in 2017, we considered all potential production sources by company

and facility. This included facilities still in the commissioning or start-up phases, as well as facilities

already producing some volume of cellulosic biofuel.9

From this universe of potential cellulosic biofuel sources,

we identified the subset that is expected to produce

commercial volumes of qualifying cellulosic biofuel for

use as transportation fuel, heating oil, or jet fuel by

the end of 2017. To arrive at projected volumes, we

collected relevant information on each facility. We

then developed projected production ranges based on

factors such as the status of the technology being used,

progress towards construction and production goals,

facility registration status, production volumes

achieved, and other significant factors that could poten9

Facilities primarily focused on research and development

(R&D) were not the focus of our assessment, as production from

these facilities represents very small volumes of cellulosic biofuel,

and these facilities typically have not generated RINs for the fuel

they have produced.

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tially impact fuel production or the ability of the

produced fuel to qualify for cellulosic biofuel Renewable Identification Numbers (RINs). We also used this

information to group these companies based on production history and to select a value within the aggregated

projected production ranges that we believe best represents the most likely production volume from each

group of companies in 2017. Further discussion of

these factors and the way they were used to determine

our final cellulosic biofuel projection for 2017 can be

found in Section III.

3. Advanced Biofuel

The conditions that compelled us to reduce the 2016

volume requirement for advanced biofuel below the

statutory target remain relevant in 2017. As for 2016,

we investigated the ability of volumes of non-cellulosic

advanced biofuels to backfill unavailable volumes of

cellulosic biofuel in 2017, through domestic production

or import. We took into account the substantial GHG

emissions reduction required of advanced biofuels, the

various constraints on supply of advanced biofuels, the

ability of the standards we set to bring about market

changes in the time available, and the potential impacts

associated with diverting some feedstocks from current use to the production of biofuel. Based on these

considerations and review of the comments received in

response to the NPRM and other information that has

become available, we have determined that a portion

of the shortfall in cellulosic biofuel may appropriately

be backfilled with advanced biofuel. We are exercising

our cellulosic waiver authority to reduce the statutory

applicable volume of advanced biofuel to a final volume requirement of 4.28 billion gallons for 2017. This

is somewhat higher than the proposed level of 4.0 billion gallons. The applicable volume for advanced bio-

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fuel that we are establishing for 2017 will result in

significant volume growth over the volume requirement for 2016, and will require the use of more noncellulosic advanced biofuel (3.97 billion gallons) than

would have been required under the statutory targets

(3.50 billion gallons).

4. Total Renewable Fuel

Following our determination of the appropriate

volume reduction for advanced biofuel for 2017 using

the cellulosic waiver authority, we applied the same

volume reduction to the statutory target for total renewable fuel, resulting in a volume requirement of 19.28

billion gallons. We then evaluated this total renewable

fuel volume to determine if it is reasonably attainable

given assessments of attainable volumes of individual

fuel types, including biodiesel, renewable diesel, ethanol (in the form of E10 or higher ethanol blends such

as E15 or E85, taking into account demand for E0),

and other renewable fuels. Based on comments received

in response to the NPRM and other information that

has become available, we have determined that a total

renewable fuel volume of 19.28 billion gallons is reasonably attainable in 2017. There is, therefore, no need

to use the general waiver authority to further reduce

the total renewable fuel volume requirement due to a

finding of inadequate domestic supply.10

The general waiver authority can also be used under a determination that the RFS volumes would cause “severe economic or

environmental harm.” As described in Section II.A.2 and in more

detail in the response to comments document accompanying this

rule, EPA does not believe that the record supports a finding of

severe economic or environmental harm with respect to the volume requirements we are finalizing today.

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5. Biomass-Based Diesel

In EISA, Congress specified increasing applicable

volumes of BBD through 2012. Beyond 2012 Congress

stipulated that EPA, in coordination with other agencies, was to establish the BBD volume taking into consideration implementation of the program to date and

various specified factors, providing that the required

volume for BBD could not be less than 1.0 billion gallons. For 2013, EPA established an applicable volume

of 1.28 billion gallons. For 2014 and 2015 we established the BBD volume requirement to reflect the

actual volume for each of these years of 1.63 and 1.73

billion gallons.11 For 2016 and 2017, we set the BBD

volume requirements at 1.9 and 2.0 billion gallons

respectively.

Given current and recent market conditions, the

advanced biofuel volume requirement is driving the

use of biodiesel and renewable diesel volumes over and

above volumes required through the separate BBD

standard, and we expect this to continue. Nevertheless,

we continue to believe for 2018 that it is appropriate

to set increasing BBD applicable volumes to provide a

floor to support continued investment to enable

increased production and use of BBD. In doing so we

also believe in the importance of maintaining opportunities within the advanced biofuel requirement for

growth in other types of advanced biofuel, such as

renewable diesel co-processed with petroleum, renewable gasoline blend stocks, and renewable heating oil,

as well as others that are under development.

The 2015 BBD standard was based on actual data for the

first 9 months of 2015 and on projections for the latter part of the

year for which data on actual use was not available at the time.

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Thus, based on a review of the implementation of

the program to date and all the factors required under

the statute, and in coordination with USDA and DOE,

we are finalizing an increase in the applicable volume

of BBD by 100 million gallons, to 2.1 billion gallons for

2018. We believe that this increase will support the

overall goals of the program while also maintaining

the incentive for development and growth in production of other advanced biofuels. Establishing the volumes at this level will encourage BBD producers to

manufacture higher volumes of fuel that will contribute to the advanced biofuel and total renewable fuel

requirements, while also leaving considerable opportunity within the advanced biofuel mandate for investment in and growth in production of other types of

advanced biofuel with comparable or potentially superior environmental or other attributes.

6. Annual Percentage Standards

The renewable fuel standards are expressed as a

volume percentage and are used by each producer and

importer of fossil-based gasoline or diesel to determine

their renewable fuel volume obligations. The percentage standards are set so that if each obligated party

meets the standards, and if EIA projections of gasoline

and diesel use for the coming year prove to be accurate,

then the amount of renewable fuel, cellulosic biofuel,

BBD, and advanced biofuel actually used will meet the

volume requirements used to derive the percentage

standards, required on a nationwide basis.

Four separate percentage standards are required

under the RFS program, corresponding to the four separate renewable fuel categories shown in Table I.A–1.

The specific formulas we use in calculating the renewable fuel percentage standards are contained in the

regulations at 40 CFR 80.1405. The percentage stand-

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ards represent the ratio of renewable fuel volume to

projected non-renewable gasoline and diesel volume.

The volume of transportation gasoline and diesel used

to calculate the final percentage standards was provided by the Energy Information Administration (EIA).

The final percentage standards for 2017 are shown in

Table I.B.6–1. Detailed calculations can be found in

Section VII, including the projected gasoline and

diesel volumes used.

TABLE I.B.6–1—FINAL 2017

PERCENTAGE STANDARDS

Cellulosic biofuel ........................

Biomass-based diesel .................

Advanced biofuel ........................

Renewable fuel ...........................

0.173%

1.67%

2.38%

10.70%

7. Assessment of Aggregate Compliance

By November 30 of each year we are required to

assess the status of the aggregate compliance approach

to land-use restrictions under the definition of renewable biomass for both the U.S. and Canada. In today’s

action we are providing the final announcements for

these administrative actions.

As part of the RFS 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 such feedstocks used in the production of

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

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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 exceeds 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. As described in Section VIII.A, based on data provided by the USDA and

using the methodology in place since 2014, we have

estimated that U.S. agricultural land totaled approximately 380 million acres in 2016 and thus did not exceed

the 2007 baseline acreage. This assessment means that

the aggregate compliance provision can continue to be

used in the U.S. for calendar year 2017.

On September 29, 2011, EPA approved the use of a

similar aggregate compliance approach 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 non-forested

on that date (and is therefore RFS2 qualifying land).

As described in Section VIII.B, based on data provided

by Canada, we have estimated that Canadian agricultural land totaled approximately 118.4 million acres in

2016 and thus did not exceed the 2007 baseline acreage. This assessment means that the aggregate com-

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pliance provision can continue to be used in Canada

for calendar year 2017.

II. Authority and Need For Waiver of Statutory Applicable Volumes

The statute provides the EPA with the authority to

reduce volume requirements below the applicable volume targets specified in the statute under specific circumstances. This section discusses those authorities and

our use of the cellulosic waiver authority alone to set

2017 volume requirements for cellulosic biofuel,

advanced biofuel, and total renewable fuel that are

below the statutory volume targets.

A. Statutory Authorities for Reducing Volume

Targets

In CAA section 211(o)(2), Congress specified increasing annual volume targets for total renewable fuel,

advanced biofuel, and cellulosic biofuel for each year

through 2022, and for biomass-based diesel through

2012, and authorized EPA to set volume requirements

for subsequent years in coordination with USDA and

DOE, and after consideration of specified factors. However, Congress also recognized that under certain circumstances it would be appropriate for EPA to set

volume requirements at a lower level than reflected in

the statutory volume targets, and thus provided waiver

provisions in CAA section 211(o)(7).

1. Cellulosic Waiver Authority

Section 211(o)(7)(D)(i) of the CAA provides that if

EPA determines that the projected volume of cellulosic

biofuel production for a given year is less than the

applicable volume specified in the statute, that EPA

must reduce the applicable volume of cellulosic biofuel

required to the projected production volume for that

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calendar year. In making this projection, EPA must

take a “neutral aim at accuracy.” API v. EPA, 706 F.3d

474 (D.C. Cir. 2013). Pursuant to this provision, EPA

has set the cellulosic biofuel requirement lower than

the statutory volumes for each year since 2010. As

described in Section III.D, the projected volume of

cellulosic biofuel production for 2017 is less than the

5.5 billion gallon volume target in the statute. Therefore, for 2017, we are setting the cellulosic biofuel volume requirement at a level lower than the statutory

applicable volume, in accordance with this provision.

Section 211(o)(7)(D)(i) also provides that “[f]or any

calendar year in which the Administrator makes . . . a

reduction [in cellulosic biofuel volumes], the Administrator may also reduce the applicable volume of

renewable fuel and advanced biofuels . . . by the same

or a lesser volume.” Using this authority, the reductions in total renewable fuel and advanced biofuel can

be less than or equal to, but no more than, the amount

of reduction in the cellulosic biofuel volume. EPA used

this authority to reduce applicable volumes of advanced

biofuel in 2014–16, and to reduce the total renewable

fuel volumes in those years by an equal amount. We

refer to authority in Section 211(o)(7)(D)(i) to waive

volumes of advanced and total renewable fuel as the

“cellulosic waiver authority.”

The cellulosic waiver authority was discussed by the

United States Court of Appeals for the District of

Columbia Circuit, in the context of its consideration of

a judicial challenge to the rule establishing the 2013

annual RFS standards. As the court explained,

The Clean Air Act provides that if EPA

reduces the cellulosic biofuel requirement, as

it did here, then it ‘may also reduce’ the advanced biofuel and total renewable fuel quotas

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‘by the same or a lesser volume.’ 42 U.S.C.

7545(o)(7)(D)(i). There is no requirement to

reduce these latter quotas, nor does the statute prescribe any factors that EPA must consider in making its decision. See id. In the

absence of any express or implied statutory

directive to consider particular factors, EPA

reasonably concluded that it enjoys broad

discretion regarding whether and in what

circumstances to reduce the advanced biofuel

and total renewable fuel volumes under the

cellulosic waiver provision. Monroe v. EPA,

750 F.3d 909, 915 (D.C. Cir. 2014).

Some stakeholders have commented that EPA may

only exercise the cellulosic waiver authority to reduce

total and advanced volumes in circumstances described

in CAA section 211(o)(7)(A) (that is, where there is

inadequate domestic supply or severe harm to the

environment or economy), or that it must in using the

cellulosic waiver authority consider the factors specified in section 211(o)(2)(B)(ii) that are required considerations when EPA sets applicable volumes for years

in which the statute does not do so. Contrary to these

comments, the Court found in the Monroe case that the

statute does not prescribe any factors that EPA must

consider in making is decision; EPA has broad discretion under 211(o)(7)(D)(i) to determine when and under

what circumstances to reduce the advanced and total

renewable fuel volumes when it reduces the statutory

applicable volume of cellulosic biofuel.

When using the cellulosic waiver authority, we believe

that there would be substantial justification to exercise our discretion to lower volumes of total and

advanced biofuels in circumstances where there are

questions regarding the sufficiency of production or

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import of potentially qualifying renewable fuels, and

where there is evidence of constraints that would limit

the ability of those biofuels to be used for purposes

specified in the Act (i.e., in transportation fuel, heating

oil, or jet fuel). In addition, we believe that it is appropriate in exercising the cellulosic waiver authority for

EPA to consider the Congressional objectives reflected

in the volumes tables in the statute, and the environmental objectives that generally favor the use of

advanced biofuels over non-advanced biofuels. For

example, in light of the larger GHG emissions reductions required for advanced biofuels as compared to

conventional biofuel, and the Congressional objective

to dramatically increase their use in the time period

between 2015 and 2022, we believe that it is generally

appropriate for reasonably attainable volumes of

advanced biofuel that are sourced in a manner expected

to provide significant GHG reduction benefits to backfill for shortages in cellulosic biofuel. On the other

hand, we do not believe it would be appropriate for the

gap in the availability of cellulosic biofuel in 2017 to

be filled or partially filled with non-advanced biofuel,

taking into consideration both the substantially lower

greenhouse gas emissions reductions required for nonadvanced biofuel12 and the Congressional intent

reflected in the statutory tables that use of these

biofuels in this time period would be limited.13 These

Non-advanced biofuel must meet the 20% reduction in

lifecycle GHG emissions described in CAA section 211(o)(2)(A)(i),

unless they qualify for an exemption under 40 CFR 80.1403.

Since the advanced biofuel volume requirement is nested

within the total renewable fuel volume requirement, the statutory implied volume for conventional renewable fuel in the statutory tables can be discerned by subtracting the applicable volume

of advanced biofuel from that of total renewable fuel. Performing

this calculation with respect to the tables in CAA section

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considerations are consistent with EPA’s past interpretation of the cellulosic waiver authority as envisioning equivalent reductions in the applicable volumes of advanced biofuels and total renewable fuels.14

See 74 FR 24914; 78 FR 49810.

We believe, as we did in setting the volumes in the

past, that the circumstances justifying use of our cellulosic waiver authority and thus a reduction in statutory

volumes are currently present, and we are again using

our cellulosic waiver authority under 211(o)(7)(D)(i) to

reduce volume requirements for advanced biofuel and

total renewable fuel. Congress envisioned that there

would be 5.5 billion gallons of cellulosic biofuel in 2017,

while our production projection, described in detail

in Section III, is for 311 million gallons. Under

211(o)(7)(D)(i), EPA must lower the required cellulosic

volume to the projected production volumes. See also

API v. EPA, 706 F.3d 474 (D.C. Cir. 2012). Doing so

also provides EPA with authority to lower advanced

and total renewable fuel volumes by the same or a

lesser amount.

211(o)(2)(B) indicates a Congressional expectation that in the

time period 2015–2022, advanced biofuel volumes would grow

from 5.5 to 21 billion gallons, while the implied volume for

conventional renewable fuel would remain constant at 15 billion

gallons.

Our consistent view has been that the provision is best interpreted and implemented to provide for equal reductions in advanced

biofuel and total renewable fuel. We believe that this approach is

consistent with the statutory language and best effectuates the

objectives of the statute, in that it allows for EPA to determine

an appropriate volume of advanced biofuel providing meaningful

GHG emissions reductions to backfill missing cellulosic volumes,

while also resulting in an implied volume for conventional

renewable fuel of no greater than 15 billion gallons as envisioned

in the statutory time period for 2015–2022.

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We have determined, as described in Section IV, that

the applicable volume for advanced biofuels specified

in the statute for 2017 cannot be achieved and, consistent with the principles described above, we are

exercising our cellulosic waiver authority to lower the

applicable volume of advanced biofuel to a level that is

both reasonably attainable and appropriate, and to

provide an equivalent reduction in the applicable volume of total renewable fuel. In addition, we have

determined that there is adequate supply to satisfy the

total renewable fuel volume derived through applying

an equal volume reduction as for advanced biofuel.

Therefore, no further reductions of the total renewable

fuel volume requirement are necessary to address concerns of inadequate supply. The resulting volume

requirements provide the benefits associated with the

use of reasonably attainable and appropriate volumes

of advanced biofuels to partially backfill for missing

volumes of cellulosic biofuel in 2017, while also providing for an implied volume requirement for conventional biofuel equal to that envisioned by Congress for

2017.

2. General Waiver Authority

Section 211(o)(7)(A) of the CAA provides that EPA,

in consultation with the Secretary of Agriculture and

the Secretary of Energy, may waive the applicable volume specified in the Act in whole or in part based on

petition by one or more States, by any person subject

to the requirements of the Act, or by the EPA Administrator on her own motion. Such a waiver must be

based on a determination by the Administrator, after

public notice and opportunity for comment that (1)

implementation of the requirement would severely

harm the economy or the environment of a State, a

region or the United States, or (2) there is an inade-

224a

quate domestic supply. Because the general waiver

provision provides EPA the discretion to waive the

statutory applicable volume “in whole or in part,” we

interpret this section as granting EPA authority to

fully or partially waive any of the four applicable volume requirements in appropriate circumstances. For

the years 2014–2016, EPA determined that there was

an inadequate domestic supply of total renewable fuel,

and used the general waiver authority to reduce the

total renewable fuel volumes further than the reductions obtained using the cellulosic waiver authority. In

the notice of proposed rulemaking for this rule, EPA

proposed to use the general wavier authority in a similar way, and for the same reason, in establishing the

2017 total renewable fuel volume requirement.

Based on further evaluation of the availability of

renewable fuel in the market, in the interim between

the NPRM and this final rule, and review of public

comment, EPA has determined that it is not necessary

to use the general waiver authority. That is, we have

determined that use of the cellulosic waiver authority

alone will be sufficient to yield a volume requirement

that is consistent with available supply.15

Some commenters noted that in addition to the authority to

reduce applicable volumes under the general waiver authority on

the basis of an “inadequate domestic supply” that EPA possesses

the ability to use the general waiver authority where it finds that

the RFS volumes would cause “severe economic or environmental

harm in a State, region, or the United States.” As described in

more detail in the response to comments document accompanying

this rule, EPA does not believe that the record supports a finding

of severe economic or environmental harm with respect to the

volume requirements we are finalizing today.

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3. General Comments Related to Waiver

Authorities

Many commenters suggested that EPA should only

use the cellulosic waiver authority to reduce volumes

of total renewable fuel in 2017. While we do not believe

this would have been possible under the circumstances

described in the proposal, in light of EPA’s re-evaluation

of available supplies, as discussed in Sections IV and

V, we are today following the approach suggested by

these commenters in using the cellulosic waiver authority exclusively to reduce volumes of both advanced

biofuel and total renewable fuel.

Some commenters said that EPA should not reduce

the volume requirements for advanced biofuel and total

renewable fuel at all and should instead set standards

for 2017 based on the statutory targets. In most cases,

these commenters based their positions on the availability of carryover RINs and an expectation that “letting the market work” would be sufficient to overcome

all constraints related the production and distribution

of fuels that can be used to satisfy these standards. As

described in Section II.B below, we continue to believe

that, in light of the expected volume of carryover RINs,

it would be inappropriate for 2017 to intentionally

draw down the bank of carryover RINs for the purposes

of increasing the volume requirements above levels

that can be satisfied with physical volume. As for “letting the market work,” we believe that this view is dismissive of the market constraints discussed in the

NPRM, Table II.E. 1–1 of the 2014–2016 final rule and

in Sections IV.B and V.B of this final rule. The market

is not unlimited in its ability to respond to the standards EPA sets. While setting the standards at the

statutory targets would undoubtedly produce a significant increase in RIN prices, doing so in light of the

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combined actions of all constraints shown in Table

II.E.1–1 of the 2014–2016 final rule and discussed in

Sections IV.B. and V.B. of this rule would nevertheless

create a shortfall in supply in 2017 that would likely

lead to a complete draw-down in the bank of carryover

RINs, noncompliance, and/or additional petitions for a

waiver of the standards. As described in Sections IV

and V, we are authorized to use the cellulosic waiver

authority in 2017 to reduce volumes of advanced and

total renewable fuel, and believe it is appropriate to do

so for the reasons noted in those sections.

B. Treatment of Carryover RINs

Consistent with our approach in the 2014–2016 final

rule, we have also considered the availability and role

of carryover RINs in our decision to exercise our cellulosic waiver authority in setting the advanced and

total volume requirements for 2017.16 Although the statute requires a credit program and specifies that the

credits shall be valid for a 12-month time period, neither the statute nor EPA regulations specify how or

whether EPA should consider the availability of carryover RINs in exercising its cellulosic waiver authority.17

The discussion of the role of carryover RINs as they relate

to the cellulosic volume standard for 2017 can be found in Section

III.D.

CAA section 211(o)(5) requires that EPA establish a credit

program as part of its RFS regulations, and that the credits be

valid to show compliance for 12 months as of the date of generation. EPA implemented this requirement though the use of RINs,

which can be used to demonstrate compliance for the year in

which they are generated or the subsequent compliance year.

Obligated parties can obtain more RINs than they need in a given

compliance year, allowing them to “carry over” these excess RINs

for use in the subsequent compliance year, although use of these

carryover RINs is limited to 20% of the obligated party’s RVO.

For the bank of carryover RINs to be preserved from one year to

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As noted in the context of the rule establishing the

2014–16 RFS standards, we believe that a bank of

carryover RINs is extremely important in providing

obligated parties compliance flexibility in the face of

substantial uncertainties in the transportation fuel

marketplace, and in providing a liquid and well-functioning RIN market upon which success of the entire

program depends.18 Carryover RINs provide flexibility

in the face of a variety of circumstances that could limit

the availability of RINs, including weather-related damage to renewable fuel feedstocks and other circumstances potentially affecting the production and distribution of renewable fuel.19 On the other hand, carryover RINs can be used for compliance purposes, and in

the context of the 2013 RFS rulemaking we noted that

an abundance of carryover RINs available in that year,

together with possible increases in renewable fuel production and import, justified maintaining the advanced

and total renewable fuel volume requirements for that

year at the levels specified in the statute.20

In the 2017 NPRM, EPA estimated that the likely

volume of the carryover RIN bank for 2017 would be

approximately 1.72 billion carryover RINs (including

all D codes). We proposed that in light of this relatively

the next, individual carryover RINs are used for compliance

before they expire and are essentially replaced with a newer

vintage RIN that is then held for use in the next year. For

example, if the volume of the RIN bank is unchanged from 2016

to 2017, then all of the vintage 2016 carryover RINs must be used

for compliance in 2017, or they will expire. However, the same

volume of 2017 RINs can then be “banked” for use in the next

year.

See 80 FR 77482–77487 (December 14, 2015).

See id., and 72 FR 23900 (May 1, 2007).

See 79 FR 49794 (August 15, 2013).

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limited volume and the important functions provided

by the RIN bank, that we would not set the volume

requirements for 2017 in a manner that would intentionally lead to a drawdown in the bank of carryover

RINs. In their comments on the 2017 NPRM, parties

generally expressed two opposing points of view. Commenters representing obligated parties supported EPA’s

proposed decision to not assume a drawdown in the

bank of carryover RINs in determining the appropriate level of volume requirements. These commenters

reiterated the importance of maintaining the carryover RIN bank in order to provide obligated parties

with necessary compliance flexibilities, better market

trading liquidity, and a cushion against future program uncertainty. Commenters representing renewable fuel producers, however, contended that carryover

RINs represent actual supply and should be accounted

for when establishing the annual volume standards

and, in particular, in any determination under the

general waiver authority that there is an “inadequate

domestic supply.” They expressed concern that obligated parties could use carryover RINs as an alternative to RINs generated for renewable fuel produced in

2017, leading to less demand for their product and

inadequate return on investment.21

1. Updated Projection of Carryover RIN

Volume

In the NPRM, EPA estimated that the carryover

RIN bank available in 2017 would be approximately

1.72 billion carryover RINs. Since that time, obligated

parties have submitted their compliance demonstra21

A full description of comments received, and our detailed

responses to them, is available in the Response to Comments document in the docket.

229a

tions for the 2014 compliance year and, based on that

information, we now estimate that there will at most

be 1.54 billion carryover RINs available for possible use

in complying with the standards for 2017, a decrease of

nearly 200 million RINs from the previous estimate.22

This is approximately 8 percent of the final 2017 total

renewable fuel volume standard and less than half of

the 20 percent limit permitted by the regulations to be

carried over for use in complying with the 2017 standards. However, there remains considerable uncertainty

surrounding this number since compliance demonstrations still need to be made for the 2015 and 2016 RFS

standards, and it is unclear at this time whether some

portion of the 1.54 billion carryover RINs we estimate

will be available for the 2017 compliance demonstrations will be used for compliance prior to 2017. In

addition, we note that there have been enforcement

actions in past years that have resulted in the retirement of RINs that were fraudulently generated and

were therefore invalid, and parties that relied on those

invalid RINs for compliance were required to acquire

valid substitutes to true up their past compliance

demonstrations. Future enforcement actions could

have similar results, and require that obligated parties

settle past enforcement-related obligations in addition

to the annual standards, thereby potentially creating

demand for RINs greater than can be accommodated

through actual renewable fuel blending in 2017.

Collectively, the result of satisfying RFS obligations

in 2015 and 2016 and settling enforcement-related

accounts could be an effective reduction in the size of

the collective bank of carryover RINs to a level below

The calculations performed to estimate the number of carryover RINs available in 2017 can be found in the memorandum,

“2017 Carryover RIN Bank Calculations,” available in the docket.

230a

1.54 billion RINs. Thus, we believe there is considerable uncertainty that a RIN bank as large as 1.54 billion

RINs will be available in 2017.

2. EPA’s Decision

EPA has decided to maintain the proposed approach,

and not set the volume requirements in the final rule

with the intention or expectation of drawing down the

current bank of carryover RINs. In finalizing this

approach, we carefully considered the many comments

received, including on the role of carryover RINs under

our waiver authorities and the policy implications of

our decision. While we have not assumed an intentional drawdown in the overall bank of carryover RINs

owned by obligated parties collectively in establishing

the volume requirements for 2017, we understand that

some obligated parties may choose to sell or use all or

part of their individual banks of carryover RINs. To

the extent that they do so, other obligated parties

would be in a position to bank carryover RINs by using

available renewable fuel or purchasing RINs representing such fuel, with the expected net result being

no effective change in the size of the overall bank of

carryover RINs that is owned collectively by obligated

parties.

In response to those parties who argued that carryover RINs must be considered part of the “supply” when

EPA uses the general waiver authority on the basis of

a finding of “inadequate domestic supply,” we note that

we are not using the general waiver authority in this

final action, so these arguments are irrelevant. We

believe that a balanced consideration of the possible

role of carryover RINs in achieving the statutory volume objectives for advanced and total renewable fuels,

versus maintaining an adequate bank of carryover

RINs for important programmatic functions, is appro-

231a

priate when EPA exercises its discretion under the

cellulosic waiver authority, and that the statute does

not specify the extent to which EPA should require a

drawdown in the bank of carryover RINs when it exercises this authority.

An adequate RIN bank serves to make the RIN market liquid and to avoid the possible need for adjustments to the standards. Just as the economy as a whole

functions best when individuals and businesses prudently plan for unforeseen events by maintaining inventories and reserve money accounts, we believe that the

RFS program functions best when sufficient carryover

RINs are held in reserve for potential use by the RIN

holders themselves, or for possible sale to others that

may not have established their own carryover RIN

reserves. Were there to be no RINs in reserve, then

even minor disruptions causing shortfalls in renewable

fuel production or distribution, or higher than expected

transportation fuel demand (requiring greater volumes

of renewable fuel to comply with the percentage standards that apply to all volumes of transportation fuel,

including the unexpected volumes) could lead to the

need for a new waiver of the standards, undermining

the market certainty so critical to the long term success of the RFS program. Furthermore, many obligated

parties lack the ability to separate one or more types

of RINs through blending. With a functioning liquid

RIN market this is not a problem because we expect

that these obligated parties will be able to comply by

securing these RINs on the open market. However, a

significant drawdown of the carryover RIN bank leading to a scarcity of RINs may stop the market from

functioning in an efficient manner, even where the

market overall could satisfy the standards. For all of

these reasons, the collective carryover RIN bank provides a needed programmatic buffer that both facili-

232a

tates individual compliance and provides for smooth

overall functioning of the program.23 With volume

requirements increasing annually, and the size of the

carryover RIN bank shrinking through use of carryover RINs in both 2013 and 2014, we believe it is

prudent not to intentionally draw down the RIN bank

for 2017 that we have determined will not likely be

larger than 1.54 billion carryover RINs, and which

could in fact be smaller.

For the reasons noted above, and consistent with the

approach we took in the 2014–2016 final rule, we have

determined that under current circumstances, an intentional drawdown of the carryover RIN bank should not

be assumed in establishing the 2017 volume requirements. The current bank of carryover RINs will provide

an important and necessary programmatic buffer that

will both facilitate individual compliance and provide

for smooth overall functioning of the program. Therefore, we are not setting renewable fuel volume requirements at levels that would envision the drawdown in

the bank of carryover RINs. However, we note that we

may or may not take a similar approach in future years;

we will assess the situation on a case-by-case basis

going forward, and take into account the size of the

carryover RIN bank in the future and any lessons

learned from implementing past rules.

[Content Omitted]

V. Total Renewable Fuel Volume for 2017

The national volume targets of total renewable fuel

to be used under the RFS program each year through

Here we use the term “buffer” as shorthand reference to all

of the benefits that are provided by a sufficient bank of carryover

RINs.

233a

2022 are specified in CAA section 211(o)(2)(B)(i)(I).

For 2017 the statute stipulates that the volume of total

renewable fuel should be 24 billion gallons. Since we

have determined that the statutory volume target for

cellulosic biofuel must be reduced to reflect the projected production volume of that fuel type in 2017, we

are authorized under CAA section 211(o)(7)(D)(i) to

reduce the advanced biofuel and total renewable fuel

targets by the same or a lesser amount. We also have

the authority to reduce any volume target under the

general waiver authority under specific conditions as

described in Section II.A.2. Although in the NPRM we

had proposed to use a combination of the cellulosic

waiver authority and the general waiver authority to

reduce the statutory volume target for total renewable

fuel for 2017, we have determined, based on comments

received in response to the NPRM and a review of

updated information, that 2017 supply is adequate to

meet a total renewable fuel volume requirement of

19.28 billion gallons resulting from the use of the

cellulosic waiver authority alone. The use of the

general waiver authority for 2017 to further reduce

the total renewable fuel standard is therefore not necessary. As a result, the implied volume for conventional (non-advanced) renewable fuel will be 15.0

billion gallons.

Today’s standards are significantly higher than

have been achieved in the past and will drive significant growth in renewable fuel use beyond what would

occur in the absence of the requirements. The final volume requirements for both advanced biofuel and total

renewable fuel recognize the ability of the market to

respond to the standards we set, thereby accomplishing the goals of the statute to increase renewable fuel

use.

234a

We investigated whether the market is on track to

meet the 2016 total renewable fuel volume requirement of 18.11 billion gallons, which EPA projected to

be the maximum achievable volume for that year in

the context of our use of the general waiver authority.

As described in a memorandum to the docket, supply

through the end of September coupled with a projection based on consideration of seasonal variations in

supply for previous years indicate that compliance

with the 2016 standards is indeed within reach.100 We

believe these results support the assessment conducted

for purposes of establishing the 2016 total renewable

fuel standard. For this final rule, we have taken a similar approach to assessing the adequacy of supply of

total renewable fuel that differs in some particulars as

described below.

A. Volumetric Limitation on Use of the Cellulosic

Waiver Authority

In Section IV.B we explained our use of the cellulosic

waiver authority to reduce the statutory volume target

for advanced biofuel to a level that we have determined is reasonably attainable and appropriate given

a consideration of factors related to the likely constraints on imports, distribution and use, and global

GHG impacts of incremental growth in advanced biodiesel and renewable diesel. This did not require a

reduction as large as the reduction in the statutory

volume target for cellulosic biofuel, and so this reduction was within the authority provided by CAA section

211(o)(7)(D)(i).

100

“Comparison of 2016 availability of RINs and 2016 standards,” memorandum from David Korotney to docket EPA–HQ–

OAR–2016–0004.

235a

As discussed in Section II.A.1, we believe that the

cellulosic waiver provision is best interpreted to require

equal reductions in advanced biofuel and total renewable fuel. We have consistently articulated this interpretation.101 Having determined that we should establish the advanced biofuel volume at a level requiring a

reduction of 4,719 million gallons from the statutory

target, applying an equal reduction to the statutory

target for total renewable fuel yields the results shown

below.

TABLE V.A–1—APPLYING EQUAL VOLUME

REDUCTIONS TO TOTAL RENEWABLE FUEL

AS FOR ADVANCED BIOFUEL UNDER

CELLULOSIC WAIVER AUTHORITY

[Million gallons]

Statutory target ...................

Reduction under the cellulosic waiver authority ............

Resulting volume .................

Advanced

Total

biofuel renewable

fuel

9,000 24,000

4,719

4,281

19,281

If we were to determine that there is an inadequate

domestic supply to satisfy the total renewable fuel volume resulting from use of the cellulosic waiver authority alone, we could use the general waiver authority,

described in Section II.A.2, to provide further reductions. Indeed, we proposed such an approach. However,

we have re-evaluated the situation in light of new data

and consideration of comments, and as described below

we have determined that there will be adequate supply

101

For instance, see discussion in the final rule setting the

2013 standards: 78 FR 49809–49810, August 15, 2013.

236a

to meet a total renewable fuel volume requirement of

19.28 billion gallons in 2017.102 As a result of this assessment, we have determined that further reductions in

the total renewable fuel applicable volume using the

general wavier authority are not necessary.

B. Assessing Adequacy of Supply

As noted above, the applicable volume of total renewable fuel was derived by applying the same volume

reduction to the statutory volume target for total

renewable fuel as was determined to be appropriate for

advanced biofuel, using the cellulosic waiver authority. This section describes our assessment that there is

adequate supply to meet an applicable volume requirement of 19.28 billion gallons. The objective of our

assessment is different than our analysis in the

NPRM, where we sought to identify the maximum

reasonably achievable volume of total renewable fuel

based on the sum of estimates of each type of renewable fuel, such as total ethanol, biodiesel and renewable

diesel, biogas, and other non-ethanol renewable fuels.

In this final rule, in contrast, we instead are evaluating those sources to determine if in the aggregate it

appears that there is adequate supply to meet the total

renewable fuel volume shown in Table V.A–1. Based

on our conclusion that there is sufficient supply as discussed below, it is unnecessary to address any inadequate domestic supply through use of the general

waiver authority.

Despite the different objective, we face much the

same challenges that we noted in the NPRM: It is a

102

Stakeholder comments most directly impacting our assessment of the adequacy of supply of total renewable fuel were directed

at distribution issues associated with biodiesel and renewable

diesel. See Section V.B.2 for further discussion.

237a

very challenging task to estimate the adequacy of supply

in light of the myriad complexities of the fuels market

and how individual aspects of the industry might change

in the future, and also because we cannot precisely

predict how the market will respond to the volumedriving provisions of the RFS program. This is the type

of assessment that is not given to precise measurement and necessarily involves considerable exercise of

judgment.

Our investigation into whether there is adequate

supply to meet the total renewable fuel volume shown

in Table V.A–1 was driven primarily by a consideration of the total amount of ethanol that can be reasonably attained in light of various constraints, and the

total volume of biodiesel and renewable diesel that can

be reasonably attained. We also considered smaller

contributions from non-ethanol cellulosic and other

non-ethanol renewable fuels (i.e. naphtha, heating oil,

butanol, and jet fuel). With regard to the more dominant contributors, the information that is available has

allowed us to make a relatively more precise estimate

of total supply of ethanol than of biodiesel/renewable

diesel. This is due to the fact that the primary constraints in the supply of ethanol in 2017 are readily

identifiable, although still challenging to quantify, while

there are many different factors that could potentially

constrain the supply of biodiesel and renewable diesel

in 2017. As a result, we did not attempt to derive a

specific estimate of reasonably attainable supply of

total biodiesel and renewable diesel. Instead, after

estimating what we consider to be reasonably attainable supply of ethanol in 2017, and taking into account

the estimates of non-ethanol cellulosic biofuel supply

discussed in Section III.D above and estimates of other

non-ethanol renewable fuel supply discussed in Section

IV.B.3, we considered whether the supply of total

238a

biodiesel and renewable diesel would be adequate to

satisfy a requirement of 19.28 billion gallons.103 The

following sections provide our assessment of ethanol

and biodiesel/renewable diesel volumes.

1. Ethanol

Ethanol is the most widely produced and consumed

biofuel, both domestically and globally. Since the beginning of the RFS program, the total volume of renewable fuel produced and consumed in the United States

has grown substantially each year, primarily due to

the increased production and use of corn ethanol.

However, the rate of growth in the supply of ethanol

to the U.S. market has decreased in recent years as

the gasoline market has become saturated with E10,

and efforts to expand the use of higher ethanol blends

such as E15 and E85 have not been sufficient to maintain past growth rates. Although we believe ethanol

use is growing and can continue to grow, the low number of retail stations selling these higher-level ethanol

blends, along with poor price advantages compared to

E10, and a limited number of FFVs, among others, represent challenges to the rate of growth of ethanol as a

transportation fuel in the United States.

In the 2014–2016 final rule we discussed in detail the

factors that constrain growth in ethanol supply and

the opportunities that exist for pushing the market to

103

As noted earlier, “reasonably attainable” volumes may be

less than the “maximum achievable” volumes we would seek to

identify when using the general waiver authority based on a

finding of inadequate domestic supply. It follows that if there are

sufficient reasonably attainable volumes of renewable fuel to

satisfy a total renewable fuel requirement of 19.28 billion gallons,

that there is no basis for a finding of inadequate domestic supply.

239a

overcome those constraints.104 That discussion generally remains relevant for 2017, though we believe that

the supply of ethanol can be somewhat higher in 2017

than in 2016.

Ethanol supply is not currently limited by production and import capacity, which is in excess of 15 billion gallons.105 Instead, the amount of ethanol supplied

is constrained by the following:



Overall gasoline demand and the volume

of ethanol that can be blended into gasoline as E10 (typically referred to as the

E10 blendwall).



The number of retail stations that offer

higher ethanol blends such as E15 and

E85.



The number of vehicles that can both

legally and practically consume E15 and/or

E85.



Relative pricing of E15 and E85 versus

E10 and the ability of RINs to affect this

relative pricing.



The supply of gasoline without ethanol (E0).

The applicable standards that we set under the RFS

program provide incentives for the market to overcome

many of these ethanol-related constraints.

While in the short term the RFS program is unlikely

to have a direct effect on overall gasoline demand or

the number of vehicles designed to use higher ethanol

104

105

80 FR 77456–77465.

“RFA 2016 Annual Industry Outlook,” docket EPA–HQ–

OAR–2016–0004.

240a

blends, it can provide incentives for changes in some

other market factors, such as the number of retail stations that offer higher ethanol blends and the relative

pricing of those higher ethanol blends in comparison

to E10. The RFS program complements other efforts

to increase the use of renewable fuels, such as the

following:



USDA’s Biofuel Infrastructure Partnership (BIP) program which has provided

$100 million in grants for the expansion of

renewable fuel infrastructure in 2016 (supported by additional State matching funds)



USDA’s Biorefinery Assistance Program

which has provided loan guarantees for

the development and construction of

commercial-scale biorefineries with a number of the new projects focused on producing fuels other than ethanol.



The ethanol industry’s Prime the Pump

program, which has committed more than

$45 million to date for retail refueling

infrastructure106

In response to the NPRM, many stakeholders

repeated their views from the 2014–2016 rulemaking

regarding the existence and nature of the E10 blendwall. Ethanol proponents generally regard the blendwall

as a fictional idea created by refiners, and said or

implied that increases in ethanol supply beyond the

blendwall are only limited by refiners’ unwillingness

to invest in the necessary infrastructure. Some also

said that EPA’s approach to setting standards, in

106

“Email dialogue with Robert White on Prime the Pump,”

docket EPA–HQ–OAR–2016–0004.

241a

which constraints on the supply of ethanol are used as

justification for reducing the volume requirement below

the statutory targets, was a self-fulfilling prophecy

that guaranteed that the blendwall would never be

exceeded. Refiners and marketers typically viewed the

constraints associated with the blendwall as representing a firm barrier that could not or should not be crossed,

with costs for necessary infrastructure changes being

prohibitively high and the associated opportunities for

greater profits at retail being inconsequentially low. In

their views, higher level ethanol blends such as E15

and E85 would be negligible in 2017 and standards

that required higher ethanol blends to increase dramatically would compel refiners to reduce domestic supply

of gasoline and diesel or risk non-compliance.

As stated in the 2014–2016 final rule and in the

NPRM, our view of the E10 blendwall falls between

these two viewpoints. We continue to believe that there

are real constraints on the ability of the market to

exceed an average nationwide ethanol content of 10%.

However, these constraints do not have the same

significance at all ethanol concentrations above 10%.

Instead, for the state of infrastructure that can be

available in 2017, the constraints represent a continuum of mild resistance to growth at the first increments above 10% ethanol and evolve to significant

obstacles at higher levels of ethanol. In short, the E10

blendwall is not the barrier that some stakeholders

believe it to be, but neither are increases in poolwide

ethanol concentrations above 10% unlimited in the

2017 timeframe.

We continue to believe that the constraints associated with the E10 blendwall do not represent a firm

barrier that cannot or should not be crossed. Rather,

the E10 blendwall marks the transition from rela-

242a

tively straightforward and easily achievable increases

in ethanol consumption as E10 to those increases in

ethanol consumption as E15 and E85 that are more

challenging to achieve. Comments received in response

to the NPRM provided no compelling evidence that the

nationwide average ethanol concentration in gasoline

cannot exceed 10.0%.

However, we also recognize that the market is not

unlimited in its ability to respond to the standards we

set. This is true both for expanded use of ethanol and

for non-ethanol renewable fuels. The fuels marketplace

in the United States is large, diverse, and complex,

made up of many different players with different, and

often competing, interests. Substantial growth in the

renewable fuel volumes beyond current levels will

require action by many different parts of the fuel

market, and a constraint in any one part of the market

can act to limit the growth in renewable fuel supply.

Whether notable constraints are in the technology development and commercialization stages, as has been the

case with cellulosic biofuels, the development of distribution infrastructure as is the case with ethanol, or in

the distribution and use of biodiesel, the end result is

that these constraints limit the growth rate in the

available supply of renewable fuel as transportation

fuel, heating oil, or jet fuel. These constraints were discussed in detail in the 2014–2016 final rule, and we

believe that the same constraints will operate to limit

supply for 2017 as well.107 Other factors outside the

purview of the RFS program also impact the supply of

renewable fuel, including the price of crude oil and

global supply and demand of both renewable fuels and

their feedstocks. These factors add uncertainty to the

107

See 80 FR 77450.

243a

task of estimating the adequacy of supply of renewable

fuel in the future.

While the constraints are real and must be taken

into account in our evaluation of whether there is adequate supply to meet 19.28 billion gallons of total

renewable fuel, none of those constraints represent

insurmountable barriers to growth. Rather, they are

challenges that are in the process of being addressed

and will be overcome in a responsive marketplace given

enough time and with appropriate investment. The

speed with which the market can overcome these constraints is a function of whether and how effectively

parties involved in the many diverse aspects of renewable fuel suppl respond to the challenges associated

with transitioning from fossil-based fuels to renewable

fuels, the incentives provided by the RFS program, and

other programs designed to incentivize renewable fuel

use.

i. E0

We based the proposed total renewable fuel volume

requirement in the NPRM on the same expectation

from the 2014–2016 final rule regarding supply of E0:

The RFS program would result in all but a tiny portion—

estimated at 200 million gallons—of gasoline to contain at least 10% ethanol. We based this determination on the following two considerations:

1. The RFS program will continue incentivizing the market to transition from E0 to

E10 and other higher level ethanol blends

through the RIN mechanism.

2. Recreational marine engines represent a

market segment that we believe would be

particularly difficult to completely transition from E0 since they are used in a water

244a

environment where there is a greater potential for water contamination of the fuel.

Some consumers are concerned that there

could be a potential for consequent engine

damage following phase separation of the

water and fuel.108

Based on the analysis conducted for the 2014–2016

final rule, it is most likely that any recreational marine

engines refueled at retail service stations (i.e., not at

marinas) would use only E10 since E0 is not typically

offered at retail. Moreover, only a small minority of

recreational marine engines refuel at marinas where

E0 is more likely to be available, catering to that

particular market. In a memorandum to the docket,

we evaluated the information that had been supplied

to us by stakeholders, highlighting the uncertainty in

that information and concluding that about 200

million gallons of E0 was a reasonable estimate of the

volume likely to be consumed by recreational marine

engines.109 In the NPRM, we expressed our belief that

this analysis also reflected reasonable expectations for

2017.

In response to the proposal for the 2017 standards,

some stakeholders said that we had significantly underestimated the volume of E0 used by recreational marine

108

We note that a recent report from the National Renewable

Energy Laboratory calls into question the significance of water

contamination for recreational marine engines. See “Gas becomes

stale before water uptake becomes a concern,” Ethanol Producer

Magazine, September 21, 2016. See also original report “Water

Uptake and Weathering of Ethanol-Gasoline Blends in Humid

Environments,” by Christensen & McCormick, National Renewable Energy Laboratory, September, 2016.

109

“Estimating E0 use in recreational marine engines,” memorandum from David Korotney to docket EPA–HQ–OAR–2015–0111.

245a

engines. However, no new information was provided

that was not already considered in the 2014–2016 final

rule and discussed in the aforementioned memorandum and, as before, no stakeholders provided any data

on actual consumption of E0 by recreational marine

engines. Moreover, the anecdotal information suggesting that most if not all recreational marine engines are

fueled on E0 does not represent an appropriate basis

for increasing our estimate since it was not based on

any form of data and moreover appears highly unlikely

given our expectation that only a small minority of

recreational marine engines refuel at marinas where

E0 is likely to be more prevalent.

Other stakeholders said that we had ignored significant demand for E0 in our determination of the total

volume of ethanol that can be supplied. They pointed

beyond recreational marine engines to other small

engines where there is demand for E0, and to Web

sites like Pure-gas.org, which claim to list more than

11,000 stations which offer E0. Several stakeholders

pointed to a report from EIA suggesting that 5.3 billion

gallons of E0 was consumed in 2015.110 Several refiners reiterated their comments responding to the 2014–

2016 proposal which used EIA data to conclude that

there is ongoing demand for E0 at a level of at least 3%

of the total gasoline pool. This estimate of E0 demand

was the primary basis for their request that the 2017

standards be set in such a way that the poolwide

gasoline ethanol concentration is no higher than 9.7%.

Other than references to data and analyses collected

by EIA, no stakeholder provided any data on actual E0

110

“Almost all U.S. gasoline is blended with 10% ethanol,”

Energy Information Administration, Today In Energy, May 4,

2016.

246a

consumption. With regard to data from EIA, in the

2014–2016 final rule we addressed refiners’ claim that

3% of the gasoline pool has been E0 for several years,

concluding that those estimates were generated from

incomplete EIA gasoline supply data which overestimated the potential demand for E0 at retail.111 Comments from refiners in response to the 2017 proposal

did not provide any new or different information that

would change our conclusions with regard to that 3%

estimate.

With regard to EIA’s more recent estimate that 5.3

billion gallons of E0 was consumed in 2015, we do not

believe that this value represents consumption of E0

at the retail. EIA’s estimate was based on survey data

from most U.S. terminals, which include information

about domestic distribution from the terminal level

and exports of ethanol-free gasoline, with the difference representing domestic disposition. EIA combines

this information with estimates of available ethanol,

assuming that the ethanol is used in a 10% blend with

ethanol-free gasoline. As described in a memorandum

to the docket, our analysis of EIA’s estimate of 5.3

billion gallons of E0 concludes that it would require

E85 volumes significantly higher than the volumes

likely to have been supplied in 2015.112 In our view, the

5.3 billion gallons of E0 estimated by EIA must include

volumes that are blended with ethanol downstream of

terminal prior to dispensing from retail and centralized fleet refueling stations where additional ethanol

blending can and does occur in excess of the blending

used in EIA’s estimate. The calculations are very

111

112

See discussion at 80 FR 77462.

“Ethanol Consumption in 2015 and Estimates of E0 Use,”

memorandum from David Korotney to Docket EPA–HQ–OAR–

2016–0004.

247a

sensitive to the exact volume of total ethanol available

for blending, with EIA and EPA estimated volumes of

total ethanol used differing by about 1 percent. We

believe that EMTS data provides more accurate information on actual use of ethanol in motor fuel than

EIA’s survey data on ethanol production, blending,

imports, and exports because it accounts for every gallon of ethanol produced but not exported, and is verified by the purchaser in the transaction within EMTS.

Based on our analysis, we estimate that E0 consumption at the retail level in 2015 would have been closer

to about 700 million gallons.

Some stakeholders pointed out that it would be difficult for the market to transition about 5 billion gallons

of E0 to E10 within one year. However, since we believe

that actual consumption of E0 in 2015 was much closer

to 700 million gallons than 5.3 billion gallons, continuing to transition away from E0 since then to 200 million gallons of E0 by the end of 2017 is achievable. As

a result, we continue to believe that 200 million gallons of E0 is a reasonable value to assume for purposes

of assessing the adequacy of supply of total renewable

fuel, based on our prior assessment that this volume

dedicated to recreational marine engine use may not

be significantly influenced by the standards we set in

this time period, and our expectation that the RFS program will continue to incentivize all but this small

portion of the gasoline pool to be blended with ethanol.

Stakeholders representing boat owners expressed

concern that by including only 200 million gallons of

E0 in the proposed derivation of maximum achievable

total renewable fuel volumes, EPA anticipated effectively limiting the availability of E0 to 200 million

gallons. This is not the case. The standards that EPA

sets are not specific to ethanol nor to specific ethanol

248a

blends. Once the standards are set, the market has the

flexibility to choose the mix of fuel types used to meet

those standards. If, for instance, the demand for E0 in

2017 is higher than 200 million gallons, the market

can compensate by providing higher volumes of E15

and/or E85, or additional non-ethanol renewable fuels.

ii. E15

In the NPRM, we proposed that a total ethanol volume of 14.4 billion gallons could be reached in 2017

based on the expectation that somewhat larger increases

in ethanol supply were possible in 2017 than we had

estimated for 2016. We did not provide specific estimates of E15 or E85 use in 2017, but instead said that

we generally expected the RFS program to influence

sales of E0, E15, and E85 in such a way as to produce

this increase in ethanol volume. For this final rule, we

have undertaken a more detailed estimate of the volumes of E15 and E85 that are possible in 2017, so as

to more confidently assess whether there is adequate

supply to reach a total renewable fuel volume requirement of 19.28 billion gallons.

Most comments in response to the NPRM repeated

viewpoints they had expressed in response to the

2014–2016 proposal. Refiners and their associations,

as well as parties representing fuel marketers and

retail, expressed doubt that the number of stations offering E15 could increase significantly in 2017 and pointed

to vehicle warranties that they believed would hinder

many owners of 2001+ model year vehicles from refueling on E15. They also repeated their concerns about

engine damage and liability for misfueling. Ethanol

proponents generally pointed to the large number of

in-use vehicles that are legally permitted to use E15

and information suggesting that many existing retail

stations are already compatible with E15, or can be

249a

inexpensively upgraded. They also pointed to incentives for expanded infrastructure provided by programs

such as USDA’s Biofuels Infrastructure Partnership

(BIP) program and the ethanol industry’s Prime the

Pump program. A more detailed discussion of our

views of these comments can be found in the 2014–

2016 final rule and in the Response to Comments document for this final rule.113

Consistent with our assessment for the 2014–16

final rule, we believe that neither the number of vehicles that are legally permitted to use E15, nor the

number of owners of such vehicles who would choose

to use it, are the predominant factors in determining

the volume of E15 that is reasonably attainable in

2017. Instead, we believe that it is the number of retail

stations offering E15 in 2017 that is more likely to

determine how much E15 is actually consumed. The

number of retail stations registered to offer E15 has

grown to about 400 in the fall of 2016 based on information collected by the RFG Survey Association, more

than doubling from the previous year. However, this is

still a very small fraction of the approximately 150,000

retail stations currently operating. Based on comments

received from retail station owners and their associations, this low number of retail stations offering E15 is

most likely due to liability concerns and low expectations for a return on an investment in new or upgraded

infrastructure.

We do not believe, based on past experience, that the

core concerns retailers have with liability over equipment compatibility and misfueling would change if the

RFS volume requirements were increased significantly. Similarly, while higher RFS volume require113

See discussion at 80 FR 77462–77464.

250a

ments could make it incrementally more attractive for

retailers to upgrade infrastructure to offer E15, the

concerns they expressed in their comments about high

capital costs and opportunities for return on their

investment would remain. As a result, setting higher

volume requirements would be unlikely to result in

dramatic increases in the number of additional retail

stations offering E15 in 2017 beyond those that may

be upgraded through existing grant programs. As a

result, we do not believe that E15 infrastructure expansion can occur on the much larger scale and faster

timeframe that ethanol proponents believe it can. However, we do believe that retail infrastructure can and

will change to offer more E15 in 2017. We have estimated the expansion that is possible in 2017 based on

information on both the BIP and Prime the Pump programs, as well as an expectation that independent

efforts to expand infrastructure will continue. As

described in a memorandum to the docket, we believe

that the number of stations will increase during the

course of the year, and that an annual average of about

1,640 retail stations will be able to offer E15 in 2017.114

Since actual experience with E15 sales is so limited,

and commenters provided little information on actual

E15 sales volumes, we have made an estimate of possible E15 use in 2017 using the same methodology that

was presented in the 2014–2016 final rule, supplemented by additional information about E15 that is

expected to be supplied by terminals.115 That estimate

114

“Projections of retail stations offering E15 and E85 in

2017,” memorandum from David Korotney to docket EPA–HQ–

OAR–2016–0004.

115

“Estimates of E15 and E85 volumes in 2017,” memorandum

from David Korotney to docket EPA–HQ–OAR–2016–0004.

251a

was based on the following equation, which was also

used in the 2014–2016 final rule:

E15 volume = (Total gasoline throughput per station)

(Number of stations offering E15) (Fraction

of total gasoline sales which are E15)

We have updated the values used in this calculation

based on comments provided by stakeholders and additional information that has become available since

release of the NPRM. First, we have updated the number of retail stations that may offer E15 in 2017, as

discussed above. Second, some stakeholders said that

retail stations being targeted under the BIP program

had greater total annual gasoline sales than average,

such that it would be inappropriate to assume that the

total gasoline throughput per retail service station in

the above equation is equal to the nationwide average,

currently about 0.95 million gallons per station per

year. Available information on the BIP program does

not include gasoline throughput, but larger retail stations would be more likely to produce the matching

funds necessary as a condition of receiving BIP grant

funds. One stakeholder that is actively and directly

working with many of the retailers using funds from

the BIP and Prime the Pump programs indicated that

the average total gasoline throughput for affected

retail stations is 2.8 billion gallons per year. Therefore,

we have used this value in our determination of E15

supply for 2017. Further discussion can be found in a

memorandum to the docket.116

Finally, in the 2014–2016 final rule we used a value

of 50% for the fraction of total gasoline sales which are

E15 at stations offering both E10 and E15 based on

the expectation that E10 and E15 could be priced

116

Ibid.

252a

equally on a volumetric energy basis. While we continue to believe that 50% is possible, a number of refiners pointed out reasons that 50% may be too high in

the near term, including the fact that there are likely

to be fewer dispensers at a given retail station offering

E15 than those offering only E10, and customer familiarity with E10. One party indicated that in Iowa in

2015, per-station E15 sales were 15% of per-station

E10 sales, though the data on which this conclusion

was based did not rely on retail stations selling both

E10 and E15; the per-station estimate for E10 was

based on all stations offering E10, regardless of whether

they also offered E15. Not only are the Iowa data not

necessarily representative of stations offering both

E10 and E15, we have no information to indicate

whether the experience in Iowa is representative of

conditions that could exist under the increasing RFS

standards in 2017. Nevertheless, we agree that the

fraction of total gasoline sales which is E15 at stations

offering both E15 and E10 is likely to be considerably

less than 50% for the reasons described earlier (e.g.,

number of dispensers offering E15 at a given station,

consumer unfamiliarity with E15), at least in 2017.

Since we only have one source of data upon which to

base our estimate, we are using that 15% value in our

assessment.

Although E15 has historically been produced at

retail stations in blender pumps, since release of the

NPRM we have become aware of new activities to

produce E15 at terminals.117 This E15 could be used in

retail equipment that has been certified to be compatible with E15, and so would expand the use of E15

beyond that available through blender pumps, includ117

“HWRT & RFA Announce First-Ever Offering of Pre-blended

E15,” docket EPA–HQ–OAR–2016–0004.

253a

ing those targeted by the BIP and Prime the Pump

programs. Based on currently available information,

four out of the approximately 1,400 terminals in the U.S.

would produce E15 in 2017, and we expect that E15

production at those four terminals would be small in

comparison to E10 production. As described in a memorandum to the docket, we estimate the E15 produced

through terminals would be 41 million gallons in 2017.118

Based on the above discussion, we have estimated

that total E15 supply in 2017 could reach 728 million

gallons, resulting in about 38 million gallons of ethanol more than would be supplied if that portion of the

gasoline pool were E10. We have included this in our

discussion of total ethanol volumes in Section V.B.1.iv

below.

iii. E85

As described previously, the NPRM did not provide

specific estimates of E15 or E85 use in 2017, but

instead indicated that we generally expected the RFS

program to influence sales of E0, E15, and E85 in such

a way as to produce a total ethanol supply of 14.4 billion gallons. Nevertheless, stakeholders provided comments on a variety of topics related to the estimation

of achievable volumes of E85.119 Many of these comments

focused on an analysis of the relationship between E85

sales volumes and E85 price discount derived from pub118

“Estimates of E15 and E85 volumes in 2017,” memorandum

from David Korotney to docket EPA–HQ–OAR–2016–0004.

119

We note that, in the 2014–2016 final rule, the estimation

of E85 volumes was made in the context of determining the

volume that constituted inadequate domestic supply under our

general waiver authority. For this final rule, we are using the

cellulosic waiver authority alone, and are estimating reasonably

attainable volumes of E85.

254a

lically available data from six states, which was provided with the 2014–2016 final rule.120

As for many other aspects of this rule, stakeholders

were strongly divided on the volumes of E85 that are

achievable in 2017. Refiners typically said that E85

volumes are likely to reach little more than around 100

million gallons in 2017 based on their own estimates

of E85 in previous years using data collected by EIA

from refiners, blenders, and ethanol production facilities. For instance, refiners suggested that E85 use in

2015 reached only 87 million gallons. However, as discussed in the 2014–2016 final rule, the EIA sources on

which this estimate was based do not capture all E85

that is actually used; not all production at terminals,

ethanol production facilities, or blenders with less than

50,000 barrels of product storage capacity are included,

nor is E85 captured which is produced using reformulated gasoline or natural gasoline as the petroleum

based component. Also, reported E85 production at

ethanol production facilities is likely to represent net

rather than total finished fuel production given the

occasional negative values reported in the past.121

These stakeholders provided no new information on

historical E85 supply beyond what these EIA sources

120

“Correlating E85 consumption volumes with E85 price,”

memorandum from David Korotney to docket EPA–HQ–OAR–

2015–0111.

121

Reported values for ethanol production facilities represent

net finished fuel produced. Insofar as finished fuel brought into

the facility (i.e., gasoline) exceeds finished fuel produced by the

facility (i.e., E85), a net negative value will result. This would

occur if gasoline brought into the facility is used as a denaturant

only, or as both a denaturant and in the production of E85. As a

result, the values reported by EIA do not capture actual E85

produced and made available by these facilities, which would be

the relevant value to use in our assessment.

255a

capture. As described in a memorandum to the docket,

our own estimate of actual E85 use in 2015 based on

E85 supply data from six states is approximately 186

million gallons.122 Moreover, we also do not believe it

would be appropriate to merely extrapolate 2017 E85

supply from trends in the past several years as some

stakeholders suggested. Doing so would ignore the ability of the market to respond to the standards that we

set.

In contrast, ethanol proponents said that E85 volumes could reach at least 500 million gallons in 2017,

and some provided estimates considerably higher. Several pointed to E85 supply projections from EIA’s

Annual Energy Outlook 2016 (AEO2016), which projects 735 million gallons for 2017. However, we do not

believe that the AEO is an appropriate basis for projecting E85 supply in 2017 for the purposes of setting

the applicable volume requirements under the RFS

program. For instance, the same modeling that projected 735 million gallons for 2017 also projected 326

and 508 million gallons, respectively, for 2014 and 2015.

These volumes are far higher than what we believe the

actual supply was in these years.123 And AEO2016

projects that total ethanol use in 2017 would be 13.8

billion gallons, far lower than the 14.4 billion gallons

that we proposed as the maximum achievable, and

also considerably lower than EIA’s own projections for

2017 in their Short-Term Energy Outlook (STEO). As

the STEO projections are based on more current information and are focused on more near-term outcomes,

122

“Final estimate of E85 consumption in 2015,” memorandum

from David Korotney to docket EPA–HQ–OAR–2016–0004.

123

For instance, as described in the 2014–2016 final rule (80

FR 77460), we estimate that E85 use in 2014 was about 150 mill

gal.

256a

and the STEO also forms the basis for the gasoline and

diesel demand projections that EIA has indicated should

be used for determining the applicable percentage

standards, we do not believe that AEO is an appropriate basis for estimating the E85 supply in 2017 that is

reasonably attainable, nor, as another commenter suggested, total gasoline energy demand for 2016. We

have used the STEO for the projection of 2017 total

gasoline demand, combined with our own projections

of total ethanol supply based on our estimates of reasonably attainable volumes of E15 and E85, along with

a small amount of E0.

For those stakeholders who provided detailed comments on how E85 supply might best be projected for

2017, those comments typically focused on three areas:



The number of flex-fueled vehicles (FFVs)

in the 2017 fleet that can use E85



The retail infrastructure that can be made

available in 2017 to supply E85 to FFVs



The degree to which E85 sales can be influenced by the E85 price discount relative to

E10

We continue to believe that the number of FFVs in

the fleet is not the controlling constraint on the use of

E85. According to AEO2016, the number of FFVs in

the fleet in 2017 is expected to be about 21 million.124

These vehicles could use up to 13 billion gallons of E85

if all of them had access to retail stations offering it

and all FFV owners chose to refuel on E85 instead of

E10. We acknowledge that a larger percentage of FFVs

in the fleet could increase the volume of E85 consumed,

but in the short term we believe that it is the relatively

124

Table 40, “Light-Duty Vehicle Stock by Technology Type.”

257a

very small number of retail stations offering E85 that

is operating as the primary constraint on the volumes

of E85 sold, and to a lesser extent the relative price of

E85 and E10.

Many stakeholders provided comments on how the

number of retail stations offering E85 could grow

through the end of 2017. Most pointed to a combination of USDA’s Biofuels Infrastructure Partnership

(BIP) program, the ethanol industry’s Prime the Pump

program, and ongoing efforts independent of these two

programs. Parties representing gasoline marketing and

retail, in contrast, generally repeated the concerns

that they raised in the 2014–2016 final rule about

costs for new infrastructure and low expected profit

margins in support of their view that the number of

retail stations offering E85 would grow slowly. Several

stakeholders pointed to specific examples of retail

stations that had stopped offering E85 due to poor

sales.

Based on the information provided by stakeholders

and other information that became available following

release of the NPRM, we believe that the BIP and

Prime the Pump programs will drive nearly all growth

in E85 stations through the end of 2017, with far less

growth occurring through independent efforts. As

described in a memorandum to the docket, we believe

that an annual average of about 4,300 retail stations

can offer E85 in 2017.125 This is a significant increase

in comparison to the 3,200 that we projected would

offer E85 in 2016 in the 2014–2016 final rule, but still

125

“Projections of retail stations offering E15 and E85 in 2017,”

memorandum from David Korotney to docket EPA–HQ–OAR–

2016–0004.

258a

a relatively small number of stations compared to the

estimated 150,000 retail stations nationwide.

In order to estimate reasonably attainable sales volumes of E85 in 2017, it is also necessary to estimate

the volume of E85 likely to be sold at each retail station

that offers it. Recognizing this, stakeholders provided

comments on the aforementioned analysis of the relationship between E85 sales volumes at retail and E85

price discount derived from publically available data

from six states. Refiners generally dismissed the value

of the data used in this analysis, saying that the uncertainty within the data and questions about its representativeness for the nation as a whole made it an

improper basis for future projections. They instead

suggested that E85 use in 2017 should be based only

on an extrapolation of E85 supply trends from the previous few years. We disagree. The data used for the

analysis demonstrated statistically significant correlations between E85 sales volumes and E85 price discounts, and represented between 21% and 31% of all

stations in the U.S. which offered E85.126 Moreover,

their suggested extrapolation from historical data would

insufficiently account for the influence of both the RFS

program itself and programs such as BIP and Prime

the Pump, and would also be based on historical estimates of E85 supply using EIA data that, as described

above, we believe are likely to be inaccurate.

Ethanol proponents recognized the value of the available data in developing correlations between E85 sales

at retail and E85 price discounts. However, they provided critiques of the analyses we had conducted for

the 2014–2016 final rule, and they also had alternative views on the application of the resulting correla126

Range depends on the month and year.

259a

tions. Comments provided by these stakeholders generally fell into broad areas:



The data should be represented by nonlinear rather than linear correlations



Estimates of E85 use derived from the

correlations should be based on substantial extrapolations beyond the limits of the

data, i.e. using much higher E85 price discounts than have occurred in the past

Some stakeholders conducted their own analyses of

the data wherein they employed additional statistical

techniques to attempt to more precisely determine the

nature of the relationship between E85 sales volumes

and E85 price discounts. These included such things

as adding seasonal and annual categorical variables

into the correlations and an investigation into different nonlinear functional forms.

In light of the comments provided by these stakeholders, we determined that the analyses conducted

for the 2014–2016 final rule should be updated. Not

only is additional data now available for the six states

included in the analyses, but more rigorous statistical

methods can be employed to more precisely determine

the relationship between E85 sales volumes and E85

price discount, including whether a nonlinear correlation is appropriate. As described in a memorandum to

the docket, our revised analyses indicate that a weak

nonlinear relationship can be discerned in the data,

and that it does provide a small increase in the explanatory power of the curve fit.127

127

“Updated correlation of E85 sales volumes with E85 price

discount,” memorandum from David Korotney to docket EPA–

HQ–OAR–2016–0004.

260a

In addition to an estimate of the number of retail

stations that may offer E85 in 2017, the use of a

correlation between E85 sales volumes and E85 price

discount to estimate reasonably attainable volumes of

E85 for 2017 requires that we estimate an E85 price

discount that would be reasonable for 2017. Again,

stakeholders were strongly divided on what E85 price

discount may be attainable in 2017. Refiners typically

said that an E85 price discount beyond energy parity

(about 22% below the price of E10) was not supportable based on historical data and pointed to EPA’s

analyses showing that a sizable portion of the RIN

value is not passed on to retail customers, diluting the

impact of RIN prices on E85 prices. Ethanol proponents instead said that historical E85 price discounts

should not be used as a gauge of what future E85 price

discounts could be under the influence of higher RFS

program standards. They discounted the limitations

associated with the pass-through of RIN values to

retail customers, arguing that if EPA set the standards high enough, the resulting higher RIN prices

would result in significantly discounted retail pricing

for E85 at the retail level. Some commenters presented

examples of individual stations or regions where it

appeared the RIN value was being passed-through to

a greater degree to support their statements, however

EPA does not believe these examples are representative of retailer behavior across the country.128

There is no straightforward mechanism for precisely

identifying an E85 price discount for use in assessing

2017 ethanol supply. While some stakeholders provided

examples of E85 price discounts that could be reached

under specific assumed RIN prices and assumed RIN

128

For a further discussion of these comments, see Section

2.3.8.2 of the Response to Comment document.

261a

value pass-through to retail customers, such examples

were purely speculative and provided no method for

determining the E85 price discount that is likely to be

reasonably attainable in 2017 given the E85 retail

prices we have observed to date and the history of the

fuels market.

In order to identify an E85 price discount that could

be reasonably be assumed for the nation as a whole in

2017, we continue to believe that an investigation of

E85 price discounts reached in the past is both less

speculative than the suggestions made by ethanol proponents in their comments and more consistent with

commonly accepted approaches to data analysis. However, we also do not believe that the average levels

achieved in the past are sufficiently representative of

what could be expected to occur in the future under the

influence of the RFS program. As described in a memorandum to the docket that we published with the NPRM,

the monthly average E85 price discount has rarely

exceeded energy parity (about 22%), and the highest

12-month average retail E85 price discount has been

significantly lower.129

129

“Estimating achievable volumes of E85,” memorandum from

David Korotney to docket EPA–HQ–OAR–2016–0004. Note that

this memorandum was published with the NPRM on May 31,

2016, and with the exception of the discussion of historical E85

price reductions is largely supplanted by memoranda published

with this final rule. See in particular “Estimates of E15 and E85

volumes in 2017,” memorandum from David Korotney to docket

EPA–HQ–OAR–2016–0004.

262a

TABLE V.B.1.iii–1—E85 PRICE DISCOUNTS

BETWEEN 2012 AND EARLY 2016

Fuels

E85prices.com

AAA

Institute

Highest

21.1%

23.7%

24.1%

E85 price (May 2015)

(Oct 2014) (Apr 2015).

discount

18.7%

in a single

(Oct 2014–

month

Sep 2015).

Highest

16.0%

19.6%

24.1%

12-month (Sep 2014–

(Sep 2014– (Apr 2015).

average

Aug 2015).

18.7%

E85 price

(Oct 2014–

discount

Sep 2015).

In that memorandum we indicated our belief that

achieving energy parity for a full year would be unprecedented, but appears to be within the capabilities of

the market given the historical values shown above.

E85 price discounts higher than energy parity that

were suggested by some stakeholders in their comments have not been achieved in the past for any

notable length of time, and thus, we believe, are not

likely for all of 2017. They may, however, occur in

future years as the number of retail stations offering

E85 increases and competition between them drives

E85 prices down. For the purposes of this final rule,

we have used an E85 price discount of 22% in estimating the supply of E85 in 2017.

Some stakeholders pointed to a statement in the

NPRM which said “. . . an increase in the nationwide

average E85 price reduction to 30% would be unprecedented,” and then argued that EPA had not provided

any justification for expecting this level to be sustaina-

263a

ble for a full year. We not that E85 price discounts

have reached 30% in the past, albeit locally and for

short time periods. However, we did not propose using

an E85 price discount of 30% in the determination of

the proposed 2017 volume requirement for total renewable fuel, but only provided it as one of several examples for how the market might respond.

130

Combining the updated correlation between E85

sales volumes and E85 price discounts with estimates

for the number of retail stations that can offer E85 in

2017 and a reasonably attainable E85 price discount

of 22%, we have determined that supply of about 275

million gallons of E85 is reasonably attainable in 2017,

resulting in about 182 million gallons of ethanol more

than would be supplied if that portion of the gasoline

pool were E10. This level of E85 supply is an increase

of almost 40% in just one year from the 200 million

gallons that we believed could be reached in 2016,

primarily reflecting the significant increase in the

number of stations projected to offer E85 in 2017 as a

result of USDA’s BIP program and the ethanol industry’s Prime the Pump program.

iv. Total Ethanol

The total supply of ethanol in 2017 is a function of the

respective volumes of E10, E15, and E85, while accounting for some E0. Assuming that the total demand for

gasoline energy is independent of the amounts of each

of these types of fuel, estimating the supply of E0, E15,

and E85 that are attainable can be used to derive the

supply of E10.

Several stakeholders commented that we should use

a more recent version of EIA’s Short-Term Energy

130

See discussion at 81 FR 34790.

264a

Outlook (STEO) than the April, 2016 version we used

in the NPRM to estimate gasoline demand in 2017. We

agree that we should use updated EIA data. For this

final rule we have used the October, 2016 version,

which projects a total gasoline energy demand of 17.29

Quadrillion Btu.131 Based on estimates of E0, E15, and

E85 supply for 2017 as discussed in previous sections,

the E10 volume and resulting total ethanol supply can

be calculated.

TABLE V.B.1.iv–1—GASOLINE VOLUMES

USE TO DETERMINE REASONABLY

ATTAINABLY ETHANOL SUPPLY IN 2017

Fuel volume

(mill gal)

E0 ...............

E10 .............

E15 .............

E85 a ..........

Total ...........

200

142,480

728

275

143,683

Ethanol

volume

(mill gal)

14,248

109

204

14,561

Energy

(Quad Btu)

0.025

17.151

0.086

0.026

17.288

Based on this assessment, we estimate an ethanol

supply for 2017 of 14.56 billion gallons. While the

market will ultimately determine the extent to which

compliance with the annual standards is achieved

through the use of greater volumes of ethanol versus

other, non-ethanol renewable fuels, we nevertheless

believe that this ethanol volume represents a reasona131

Derived from Table 4a of the STEO, converting consumed

gasoline and ethanol projected volumes into energy using conversion factors supplied by EIA. http://www.eia.gov/forecasts/steo

/archives/oct16.pdf.

Excludes gasoline consumption in Alaska. For further details,

see “Calculation of final % standards for 2017” in docket EPA–

HQ–OAR–2016–0004.

265a

bly attainable level that takes into account the ability

of the market to respond to the standards we set and

the constraints to fuel supply that we have noted.

One stakeholder said that EIA’s projections of future

gasoline demand as provided in the STEO have been

too low in previous years, and that EPA should account

for this underestimate when making projections of the

volume of ethanol that can be achieved in 2017. We

investigated this issue and determined that while EIA

projections of future gasoline demand do contain uncertainty, they are not consistently above or below actual

gasoline demand.132

In response to the NPRM, some stakeholders reiterated their concerns from the 2014–2016 final rule that

EPA’s methodology rewarded obligated parties for

their recalcitrance in not investing in the infrastructure needed to substantially increase ethanol use above

the E10 blendwall. In taking these positions, stakeholders cited both the statutory requirement that obligations be placed on “refineries, blenders, and importers, as appropriate” and EPA’s regulations which (with

limited exceptions) further narrow the applicability of

the obligations to producers and importers of gasoline

and diesel. As described in the 2014–2016 final rule,

we agree that the statutory language, in combination

with the regulatory structure, generally places the

responsibility on producers and importers of gasoline

and diesel to ensure that transportation fuel sold or

introduced into commerce contains the required volumes of renewable fuel. Obligated parties have a variety

of options available to them, both to increase volumes

in the near term and the longer term. The standards

132

“Accuracy of STEO gasoline demand projections,” memorandum from David Korotney to docket EPA–HQ–OAR–2016.

266a

that we are establishing today reflect both the responsibility placed on obligated parties as well as the shortterm activities available to them, and we expect

obligated parties to be taking actions now that will

help to increase renewable fuel volumes in future years.

However, as pointed out by some refiners in response

to the NPRM, this general responsibility does not

require obligated parties to take actions specific to E15

and/or E85 infrastructure, as the RFS program does

not require any volumes of ethanol specifically. We

continue to believe that as obligated parties procure

and blend renewable fuels into transportation fuel, or

purchase RINs from those who do so, the demand for

RINs will drive demand for renewable fuel, thereby

stimulating every participant in the fuels industry,

including obligated parties themselves, to increase

their activities to supply it.133 Moreover, the reductions

in statutory volumes reflected in this action are largely

the result of the inability to date of renewable fuel producers to commercialize the volumes of cellulosic biofuel

envisioned in the statute. This fact cannot reasonably

be attributed to actions or inactions of obligated parties.

One stakeholder said that the EPA should target a

poolwide gasoline ethanol content of less than 10% in

part because blenders need a buffer to account for

uncertainty associated with ethanol content testing

and downstream mixing in the fungible distribution

system. This stakeholder suggested that blenders have

historically aimed to blend at less than 10% ethanol,

and that as a result EPA should set standards con133

The EPA Administrator signed the Proposed Denial of Petitions for Rulemaking to Change the RFS Point of Obligation on

November 10, 2016. More information can be found at https://www.

epa.gov/renewable-fuel-standard-program/response-petitions-re

consideration-rfs2-rule-change-point-obligation.

267a

sistent with this practice. We investigated this issue

using survey data collected by the Alliance of Automobile Manufacturers for 2011–2015 and determined

that the average ethanol content of all gasoline that

contained more than de minimis levels of ethanol was

9.80%.134 This estimate is based on the use of ASTM

test method D–5599, which measures only the alcohol

portion of the gasoline, not any denaturant that would

have been included with the ethanol before it was

blended into gasoline. Since the denaturant portion of

ethanol is typically about 2%, ethanol that is blended

into gasoline contains about 98% ethanol.135 When

blended into gasoline, therefore, the E98 would result

in a gasoline-ethanol blend containing about 9.8% pure

ethanol, or 10.0% denatured ethanol. Based on this

investigation, we have determined that it is appropriate to continue assuming that the denatured ethanol

content of E10 is 10%.

2. Biodiesel and Renewable Diesel

While the market constraints on ethanol supply are

readily identifiable, it is more difficult to identify and

assess the market components that may limit potential

growth in the use of all qualifying forms of biodiesel

and renewable diesel in 2017. Therefore, as discussed

in the introduction to Section V.B, after estimating the

supply of ethanol in 2017, and taking into account the

estimates of non-ethanol cellulosic biofuel supply discussed in Section III.D above and estimates of other

non-ethanol renewable fuel supply discussed in Section

IV.B.3, we considered whether the supply of total bio134

Under the rounding method required under 40 CFR 80.9,

ethanol concentrations of between 8.6% and 10.5% inclusive would

qualify for the 1psi waiver.

135

See definition of “renewable fuel” at 40 CFR 80.1401.

268a

diesel and renewable diesel would be adequate to satisfy a requirement of 19.28 billion gallons.

In Section V.A we described how use of the cellulosic

waiver authority to provide a volume reduction for total

renewable fuel that equals that provided for advanced

biofuels yields a volume of 19.28 billion gallons. In

addition to the ethanol volume discussed in Section

V.B.1.iv above, cellulosic biogas can also contribute to

this total volume of renewable fuel, as described more

fully in Section III.D. While other renewable fuels such

as naphtha, heating oil, butanol, and jet fuel can be

expected to continue growing over the next year, collectively, we expect them to contribute considerably less

than ethanol to the total volume of renewable fuel that

can be supplied in 2017. These were discussed in

Section IV.B.3. Based on these estimates of supply,

about 2.9 billion gallons of biodiesel and renewable

diesel would be needed in order to meet a total renewable fuel volume requirement of 19.28 billion gallons.

269a

TABLE V.B.3–1—DETERMINATION OF

VOLUME OF BIODIESEL AND RENEWABLE DIESEL

NEEDED IN 2017 TO ACHIEVE 19.28 BILLION

GALLONS OF RENEWABLE FUEL

[Million ethanol-equivalent gallons except as noted]

Total renewable fuel volume .................

Ethanol ..................................................

Non-ethanol cellulosic biofuel ...............

Other non-ethanol renewable fuelsa .....

Biodiesel and renewable diesel needed

(ethanol-equivalent volume/physical

volume) ..................................................

19,280

14,561

299

4,370/2,819

As discussed in the final rule establishing the RFS

standards for 2014–2016, there are several factors that

may, to varying degrees and at different times, limit

the growth of biodiesel and renewable diesel, including

local feedstock availability, production and import

capacity, and the ability to distribute, sell, and use

increasing volumes of biodiesel and renewable diesel.

We continue to believe that the supply of biodiesel and

renewable diesel as transportation fuel in the United

States, while growing, is not without limit.

In the proposed rule we discussed the current status

of each of a number of the factors that impact the

supply of biodiesel and renewable diesel used as transportation fuel in the United States. We received a number of comments on our assessment of these factors.

Some of these comments supported the proposed findings in the NPRM and agreed that EPA had sufficiently accounted for the factors that may constrain

the growth of biodiesel and renewable diesel in 2017,

Includes naphtha, heating oil, butanol, and jet fuel. See further discussion in Section IV.B.3.

270a

while others argued that EPA had overstated these

constraints and the degree to which they would limit

the supply of biodiesel and renewable diesel in 2017. As

stated in our proposed rule, we expect that the growth

in the supply of biodiesel and renewable diesel will

largely be driven by incremental developments across

the marketplace to steadily increase volumes. However, after a careful review of the information submitted as comments on our proposed rule, we believe

that the reasonably attainable supply of biodiesel and

renewable diesel in 2017 is higher than we had proposed.

Based on our assessment of the various factors which

affect the supply of biodiesel and renewable diesel, we

have determined that 2.9 billion gallons of biodiesel

and renewable diesel (including both advanced and

conventional biofuel) can be reasonably attained in

2017, up from the 2.5 billion gallons that was projected

for 2016. This volume is significantly higher than the

previously established BBD standard of 2.0 billion

gallons for 2017, as we believe additional volumes of

both conventional and advanced biodiesel and renewable diesel can be supplied to the United States in 2017

(see Section VI for further discussion of the BBD standard). The following sections discuss our expectations for

developments in key areas affecting the supply of biodiesel and renewable diesel in 2017.

i. Feedstock Availability

In previous years, the primary feedstocks used to

produce biodiesel and renewable diesel in the United

States have been vegetable oils (primarily soy, corn,

and canola oils) and waste fats, oils, and greases. We

anticipate that these feedstocks will continue to be the

primary feedstocks used to produce biodiesel and renewable diesel in 2017. Global supplies of these oils are

271a

significant, however they are expected to increase relatively slowly over time, as vegetable oil production

increases primarily with increases in crop yields and

the remaining untapped supply of recoverable waste

oils diminishes. Additional supplies of feedstocks could

be produced by increasing the planted acres of oilseed

crops (soy, canola, etc.), but with the exception of palm

oil most vegetable oils are produced as a co-product of

the production of animal feed and increased demand for

vegetable oil is unlikely to result in a significant increase

in oilseed crop planting absent growing demand for the

animal feed. While some have suggested that industries that compete with the biodiesel and renewable

diesel industry for renewable oil feedstocks will turn

to alternative feedstock sources, resulting in greater

feedstock availability for biodiesel and renewable

diesel producers, such a shift in renewable oil feedstock

use would not result in an increase in the total available supply of renewable oil feedstocks as those volumes

will have to be backfilled. As a result, this would not

alter the fundamental feedstock supply dynamics for

biodiesel and renewable diesel production.

We anticipate that there will be a modest increase

in the available supply of feedstocks that can be used

to produce biodiesel and renewable diesel in 2017. Oil

crop yield increases over the next few years are expected

to be relatively modest, and significant increases in

the planted acres of oil crops are expected to be limited

by competition for arable land from other higher value

crops and demand for the animal feed co-products produced by most oilseed crops.136 The recovery of corn oil

136

Because most oilseed crops are grown primarily to provide

livestock feed, the planted acres of these crops are expected to

increase in response to demand for livestock feed rather than

demand for renewable vegetable oils.

272a

from distillers grains and the recovery of waste oils are

already widespread practices, limiting the potential

for growth from these sectors compared to what has

been able to occur over recent years as these new markets were being tapped. In light of this, we do not

believe that the availability of biodiesel and renewable

diesel feedstocks is without limit. It is also possible

that biodiesel production at some individual facilities,

especially those built to take advantage of low-cost,

locally available feedstocks, may be limited by their

access to affordable feedstocks in 2017, rather than

their facility capacity, even if the global supply of feedstocks is sufficient to enable additional production.

As discussed in further detail in Section IV.B.2, the

availability of qualifying advanced biodiesel and renewable diesel feedstocks may also be limited (even if the

total supply of feedstocks is sufficient), and large

increases in advanced biodiesel and renewable diesel

demand could lead to significant feedstock substitution rather than increased production of advanced feedstocks. Unreasonably high demand for biodiesel and

renewable diesel could also cause undesirable market

disruptions. Large increases in the available supply of

biodiesel and renewable diesel in future years will

likely depend on the development and use of new, highyielding feedstocks, such as algal oils or alternative

oilseed crops. Based on currently available information,

we believe that the availability of feedstocks (including

both feedstocks that can be used to produce advanced

and conventional biodiesel and renewable diesel) is

unlikely to significantly limit the supply of total biodiesel and renewable diesel used for transportation

fuel in the United States in 2017, when considering

the standards we are establishing in this rule. This

is largely the case because we believe that other constraints, discussed below, will likely constrain the distri-

273a

bution and use of biodiesel and renewable diesel before

the feedstock limits have been reached.

ii Biodiesel and Renewable Diesel Production Capacity

The capacity for all registered domestic biodiesel production facilities is approximately 3.5 billion gallons.137

The capacity for all registered domestic renewable

diesel production facilities is approximately 0.7 billion

gallons.138 Active production capacity is lower, however, as a number of registered facilities were idle in

2015 and 2016. The capacity for all domestic biodiesel

and renewable diesel production facilities that generated RINs in 2015 or 2016 is approximately 3.1 billion

gallons.139 While idled production facilities may be

brought online, doing so would likely require sufficient

time to re-staff the production facilities, make any necessary repairs or upgrades to the facility, and source

the required feedstocks. Additionally, there are many

factors that may limit biodiesel or renewable diesel

production at any given facility to a volume lower than

the facility capacity.140 As with feedstock availability,

we do not expect that production capacity at registered

facilities will limit the supply of biodiesel/renewable

diesel for use as transportation fuel in the United

States in 2017. Foreign registered biodiesel and renewable diesel facilities represent a significant volume of

137

‘‘Biodiesel and Renewable Diesel Registered Capacity

(October 2016)”, Memorandum from Dallas Burkholder to EPA

Docket EPA–HQ–OAR–2016–0004.

138

Ibid.

139

Ibid.

140

Due to the relatively low capital cost of biodiesel production

facilities, many facilities were built with excess production capacity that has never been used.

274a

additional potential production that could be made

available to markets in the United States. While the

total registered production capacity of foreign biodiesel

and renewable diesel is significant, supply of biodiesel

and renewable diesel from these facilities in 2017 may

be impacted by the capacity to import these fuels,

discussed in the following section.

iii Biodiesel and Renewable

Import Capacity

Diesel

Another important market component in assessing

biodiesel and renewable diesel supply is the potential

for imported volumes and the diversion of domestically

produced biodiesel and renewable diesel exports to

domestic uses. In addition to the approximately 560

million gallons imported into the U.S. in 2015, there

were about 90 million gallons exported from the United

States to overseas markets. One commenter used biodiesel import data from January 2012 through April

2016 to estimate that, based on the highest annual volume of biodiesel imports in the 55 cities that reported

biodiesel imports during this time period, the United

States current import capacity for biodiesel at these

cities is approximately 659 million gallons.141 Actual

import capacity is likely to exceed this volume, as this

estimate relied solely on historic import volumes, rather

than an assessment of the capacity of the infrastructure that could be used to import biodiesel at these 55

cities. It is also likely that under the right circumstances

141

See comments from Renewable Energy Group, Inc. (EPA–

HQ–OAR–2016–0004–3477). REG used data from the Energy

Information Agency in their assessment, and therefore did not capture renewable diesel imports. The total import capacity of biodiesel and renewable diesel therefore likely exceeds the volumes

estimated here.

275a

there are additional locations through which biodiesel

could be imported.

Given the right incentives, it may be possible to

increase net biodiesel and renewable diesel imports,

either by redirecting a portion of the biodiesel currently

consumed in foreign countries to be exported to the

U.S. and/or by reducing the volume of biodiesel exported from the United States. However, the amount of

biodiesel and renewable diesel that can be imported

into the United States is difficult to predict, as the

incentives to import biodiesel and renewable diesel to

the U.S. are a function not only of the RFS and other

U.S. policies and economic drivers, but also those in

the other countries around the world. These policies

and economic drivers are not fixed, and change on a

continuing basis. Over the years there has been significant variation in both the imports and exports of biodiesel and renewable diesel as a result of varying

policies and relative economic conditions (See Figure

V.B.2.iii–1 below). Increasing biodiesel and renewable

diesel imports significantly beyond the 659 million gallons estimated above would require a clear signal to the

parties involved that increasing imports will be economically advantageous and the potential re-negotiations

of existing contracts. It may also require upgrades and

expansions a U.S. import terminals. It is possible, but

uncertain, whether higher RFS standards could provide

such a signal. Also, to the degree that higher volumes

of imported biodiesel or renewable diesel to the United

States come at the expense of consumption in the rest of

the world, the environmental benefits of this increased

volume are expected to be modest.142 In this final rule

we have no projected biodiesel and renewable diesel

142

See Section IV.B.2 for a further discussion of this issue.

276a

imports separately from domestically produced biodiesel

and renewable diesel, since these fuels are subject to

the same potential limitation (e.g., feedstock availability, distribution and use constraints, etc.).143 We do

believe, however that the standards in this final rule

will result in an increase in biodiesel and renewable diesel imports consistent with the general trend observed

in previous years, and our projection of the supply of

these fuels in 2017 includes this expected increase.

Figure V.B.2.iii-1 1—

Biodiesel and Renewable Diesel

Imports and Exports (2012-2015)a

Import data reported through the EMTS system. Export data

sourced from EIA (http://www.eia.gov/dnav/pet/pet_move_expc_

a_EPOORDB_EEX_mbbl_a.htm)

143

As discussed in Section IV.B.2, we expect an increase of

approximately 100 million gallons of advanced biodiesel, advanced

renewable diesel, and/or feedstocks that can be used to produce

these fuels. We are also projecting an increase of 100 million gallons

of conventional biodiesel and renewable diesel. Historically the

majority of this fuel has been imported (see Table IV.B.2–2), and

we expect this will again be the case in 2017.

277a

iv. Biodiesel and Renewable Diesel Distribution Capacity

While biodiesel and renewable diesel are similar in

that they are both diesel fuel replacements produced

from the same types of feedstocks, there are significant

differences in their fuel properties that result in differences in the way the two fuels are distributed and consumed. Renewable diesel is a pure hydrocarbon fuel

that is nearly indistinguishable from petroleum-based

diesel. As a result, it can generally use the existing distribution infrastructure for petroleum diesel and there

are no significant constraints on its growth with respect

to distribution capacity. Biodiesel, in contrast, is an

oxygenated fuel rather than a pure hydrocarbon. It

historically has not been distributed through most

pipelines due to contamination concerns with jet fuel,

and may require specialized storage facilities, additives,

or blending with petroleum diesel to prevent the fuel

from gelling in cold temperatures. In the past few

years, however, a limited number of pipelines that do

not carry jet fuel have begun shipping biodiesel

blends.144 Recent changes to the ASTM jet fuel specifications allowing up to 50 ppm biodiesel,145 as well as

experience gained in isolating jet fuel from biodiesel in

pipelines may open new opportunities for distributing

biodiesel blends by pipeline in future years. A number

of studies have investigated the impacts of cold temperatures on storage, blending, distribution, and use of

144

See NBB comments on the Proposed Rule (EPA–HQ–OAR–

2016–0004–2904).

145

While the ASTM specification generally limits biodiesel

contamination in jet fuel to 50 ppm, up to 100 ppm biodiesel may

be allowed on an “emergency basis.” Subcommittee J intends to

consider a ballot to increase the limit of biodiesel in jet fuel to 100

ppm (See ASTM D1655).

278a

biodiesel, along with potential mitigation strategies.146

147 148

Information provided by the National Biodiesel

Board, as well as comments on our proposed rule, indicate that some retailers offer biodiesel blend levels that

differ in the summer and winter to account for these

cold temperature impacts.149 150 While cold temperatures can cause problems with the distribution and use

of biodiesel, the experiences of states such as Minnesota

and Illinois, where biodiesel is used year-round despite

cold winter weather, demonstrates that these challenges can be overcome with the proper handling of

biodiesel.151 152

The infrastructure needed to store and distribute biodiesel has generally been built in response to the local

demand for biodiesel. In some cases, the infrastructure

must be expanded to bring biodiesel to new markets

146

“Biodiesel Cloud Point and Cold Weather Issues,” NC State

University & A&T State University Cooperative Extension,

December 9, 2010.

147

“Biodiesel Cold Weather Blending Study,” Cold Flow Blending Consortium.

148

“Petroleum Diesel Fuel and Biodiesel Technical Cold

Weather Issues,” Minnesota Department of Agriculture, Report

to Legislature, February 15, 2009.

149

http://biodiesel.org/using-biodiesel/finding-biodiesel/re

tail-locations/biodiesel-retailer-listings.

150

See comment from CountryMark on the proposed rule (EPA–

HQ–OAR–2016–0004–1826).

151

Biodiesel is used year-round in Minnesota and Illinois in

large part due to state mandates and tax credits respectively, in

addition to the incentives provided by the RFS program.

152

“Report to the Legislature Annual Report on Biodiesel,”

Kevin Hennessy, Minnesota Department of Agriculture. January

15, 2016. Available online <https://www.leg.state.mn.us/docs/

2016/mandated/ 160162.pdf>.

279a

and additional infrastructure may also be needed to

increase the supply of biodiesel in markets where it is

already being sold. In other cases, sufficient infrastructure exists to increase the local supply of biodiesel and

biodiesel blends using existing infrastructure.

Another factor potentially constraining the supply of

biodiesel is the number of terminals and bulk plants

that currently distribute biodiesel. A study conducted

on behalf of the NBB used OPIS data to calculate that

biodiesel is currently offered at fuel terminals in 369

of the 563 cities (approximately 66%) that have terminals providing gasoline, diesel and/or biodiesel.153 In

addition to these terminals, biodiesel is often distributed from bulk plants or directly from biodiesel production facilities. At present, the Web site Biodiesel.org

lists over 600 distribution facilities reported as selling

biodiesel either in pure form or blended form, the majority of which are bulk plants.154 155 Biodiesel production

facilities also serve as important distribution centers

for biodiesel. According to a survey conducted by NBB,

30% of the biodiesel produced at facilities that responded

153

See Attachment 6 of the comments submitted by the

National Biodiesel Board (EPA–HQ–OAR–2016–0004–2904).

The report lists 453 cities with terminals that offer gasoline and

diesel, 369 that offer biodiesel or biodiesel blends, and 259 that

offer both petroleum diesel and biodiesel.

154

List of biodiesel distributers from Biodiesel.org Web site

(http://biodiesel.org/using-biodiesel/finding-biodiesel/locatedistributors-in-the-us/distributors-map). Accessed 10/8/15. This

list does not include terminals that distribute biodiesel or biodiesel blends.

155

Bulk plants are much smaller than major gasoline and

diesel distribution terminals, and generally receive diesel and

biodiesel shipped by trucks from major terminals.

280a

to the survey is sold directly to retailers.156 Direct sales

to retail stations provide a significant opportunity for

biodiesel producers to access local markets without

first transporting biodiesel to a terminal or bulk plant

for further distribution.

While there are a large number of biodiesel distribution points in the United States, including terminals,

bulk plants, and biodiesel production facilities, the

majority of these distribution points appear to be concentrated in the Midwest and most of the population

centers of the country. These same areas consume the

majority of the diesel fuel in the United States, and

thus have the greatest potential markets for biodiesel.

For the biodiesel market to continue to expand, it must

either increase the volume of biodiesel sold in markets

where it is already being sold, or expand into markets

that currently do not have access to biodiesel. Either

of these methods for expanding the biodiesel market

will likely require additional infrastructure. Transportation of the biodiesel from production facilities to retail

fuel stations, whether directly or through terminals

and bulk plants, will also need to be expanded for volumes to continue to grow. This will likely require additional trucks and/or rail cars,157 as biodiesel and biodiesel blends are currently generally not transported

in common carrier pipelines. If recent changes to the

ASTM specifications for jet fuel (discussed above) allow

156

See Attachment 6 of the comments submitted by the

National Biodiesel Board (EPA–HQ–OAR–2016–0004–2904).

157

Biodiesel can also be transported by barge, however we expect

that a limited number of biodiesel production facilities have access

to barge or ocean transportation. Survey data collected by NBB

indicates that only 7% of biodiesel is currently transported by

barge (see NBB comments on the proposed rule, attachment 6;

EPA–HQ–OAR–2016–0004–2904).

281a

for greater volumes of biodiesel blends to be shipped

by pipeline this would be a potentially significant

change, as it would likely allow for biodiesel distribution at terminals that currently do not have access to

biodiesel blends and could significantly reduce the cost

of distributing biodiesel. Distributing biodiesel via truck

or rail results in high fuel transportation costs (relative to petroleum derived diesel, which is generally delivered to terminals via pipelines), which may impact the

viability of adding biodiesel distribution capacity at a

number of existing terminals or bulk plants. It is likely

that until and unless significant volumes of biodiesel

blends are transported by pipeline, increasing the biodiesel market will require greater investment per volume of biodiesel supplied than in the past, as the new

biodiesel distribution facilities will generally have access

to smaller markets than the existing facilities, or will

face competition as they seek to expand into areas

already supplied by existing distribution facilities.

The net result is that the expansion of the distribution infrastructure required to transport biodiesel to

distribution points and retail stations and store it at

these locations will be necessary, whether biodiesel

consumption is increased through additional consumption in existing markets, expansion to new markets, or

some combination of the two. While this is not an insurmountable challenge, it will require time and investment, and may limit the potential for the rapid expansion of the biodiesel supply. In previous years the

expansion of biodiesel distribution and storage has

largely been enabled by high volume diesel retailers,

such as truck stops and travel centers. We believe this

is likely to be the case in the near future as well, however the rate of increase of biodiesel and renewable

diesel at these locations may slow as many are already

282a

supplying significant volumes of biodiesel and renewable diesel.

The distribution of biodiesel and biodiesel blends is

an area in which the biodiesel industry has made steady

progress over time, and we anticipate that this progress

can and will continue into the future, particularly with

the ongoing incentive for biodiesel growth provided by

the RFS standards. This is especially true to the

degree that excess biodiesel transportation infrastructure (trucks, rail cars, barges, etc.) and storage capacity currently exist. Low oil prices, however, may present

a challenge to the expansion of biodiesel distribution

infrastructure, since the profitability of such projects

in current market conditions is largely dependent on

government support such as the biodiesel blenders tax

credit and RFS RIN value.158 Since some investors

view such government supports as inherently uncertain

they may be hesitant to invest in new infrastructure

to enable additional biodiesel distribution at a time

when diesel prices are low. As with many of these potential supply constraints, increasing biodiesel storage

and distribution capacity will require time and investment, potentially limiting the potential growth in 2017

and future years.

v. Biodiesel and Renewable Diesel Retail

Infrastructure Capacity

For renewable diesel, we do not expect that refueling

infrastructure (e.g., refueling stations selling renewable

diesel blends) will be a significant limiting factor in

2017 due to its similarity to petroleum-based diesel and

the relatively small volumes expected to be supplied in

the United States. The situation is different, however,

158

See comments from NATSO (EPA–HQ–OAR–2016–0004–

1830).

283a

for biodiesel. Biodiesel is typically distributed to retail

stations in blended form with diesel fuel as blends

varying from B2 up to B20, and in some narrow cases

at levels exceeding B20. Biodiesel blends up to and

including B20 can be sold using existing retail infrastructure, and generally do not require any upgrades

or modifications at the retail level. Small retailers of

diesel fuel, however, generally have only a single storage

tank for diesel fuel, and can therefore generally only

offer a single biodiesel blend. We expect that many of

the retailers in this situation will be hesitant to offer

biodiesel blends above B5, as doing so would mean

only selling a fuel that is not recommended for use by

some vehicle and engine manufacturers (see following

section for a further discussion of potential engine warranty issues).

Large diesel fuel retailers, such as truck stops and

travel centers may have sufficient tankage to offer

multiple blends of diesel fuel and/or biodiesel, should

they choose to do so. Some of these large retailers have

biodiesel blending infrastructure at their retail facilities, allowing them greater control over the blends of

biodiesel sold at their stations. This is

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