# Regulation of Fuels and Fuel Additives: 2011 Renewable Fuel Standards > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2010-30296 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** December 9, 2010 - **Citation:** 75 FR 76790 ## Text ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 80 [EPA-HQ-OAR-2010-0133; FRL-9234-6] RIN 2060-AQ16 Regulation of Fuels and Fuel Additives: 2011 Renewable Fuel Standards AGENCY: Environmental Protection Agency (EPA). ACTION: Final rule. SUMMARY: The Environmental Protection Agency is required to set the renewable fuel standards each November for the following year based on gasoline and diesel projections from the Energy Information Administration (EIA). Additionally, EPA is required to set the cellulosic biofuel standard each year based on the volume projected to be available during the following year, if the projected volume is less than the applicable volume provided in the statute. These cellulosic biofuel volume projections are to be based in part on EIA projections as well as assessments of production capability from industry. This action establishes annual percentage standards under Clean Air Act section 211(o) for cellulosic biofuel, biomass-based diesel, advanced biofuel, and renewable fuels that apply to all gasoline and diesel produced or imported in calendar year 2011. We have determined that the applicable volume of cellulosic biofuel on which the percentage standard should be based is 6.0 million ethanol-equivalent gallons. We believe that available volumes of cellulosic biofuel could be significantly higher in 2012. This action also finalizes two changes to the Renewable Fuel Standard program regulations: modifications to the delayed RINs provision which provides a temporary and limited means for certain renewable fuel producers to generate RINs after they have produced and sold renewable fuel, and a new process for parties to petition EPA to authorize use of an aggregate approach to compliance with the renewable biomass provision for foreign feedstocks akin to that applicable to the U.S. Finally, this action makes two administrative announcements, one regarding the price for cellulosic biofuel waiver credits for 2011, and another regarding the status of the aggregate compliance provision for domestic crops. DATES: This final rule is effective on December 9, 2010. ADDRESSES: EPA has established a docket for this action under Docket ID No. EPA-HQ-OAR-2010-0133. All documents in the docket are listed on the www.regulations.gov website. Although listed in the index, some information is not publicly available, e.g., CBI or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, will be publicly available only in hard copy. Publicly available docket materials are available either electronically through www.regulations.gov or in hard copy at the Air and Radiation Docket and Information Center, EPA/DC, EPA West, Room 3334, 1301 Constitution Ave., NW., Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Public Reading Room is (202) 566-1744, and the telephone number for the Air Docket is (202) 566-1742. FOR FURTHER INFORMATION CONTACT: Julia MacAllister, Office of Transportation and Air Quality, Assessment and Standards Division, Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor, MI 48105; Telephone number: 734-214-4131; Fax number: 734-214-4816; E-mail address: macallister.julia@epa.gov, or Assessment and Standards Division Hotline telephone number: (734) 214-4636; E-mail address: asdinfo@epa.gov. SUPPLEMENTARY INFORMATION: I. General Information A. Does this action apply to me? 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 and biodiesel. Potentially regulated categories include: Category NAICS 1 codes SIC 2 codes Examples of potentially regulated entities Industry 324110 2911 Petroleum Refineries. Industry 325193 2869 Ethyl alcohol manufacturing. Industry 325199 2869 Other basic organic chemical manufacturing. Industry 424690 5169 Chemical and allied products merchant wholesalers. Industry 424710 5171 Petroleum bulk stations and terminals. Industry 424720 5172 Petroleum and petroleum products merchant wholesalers. Industry 454319 5989 Other fuel dealers. 1 North American Industry Classification System (NAICS). 2 Standard Industrial Classification (SIC) system code. This table is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be regulated by this final action. This table lists the types of entities that EPA is now aware could potentially be regulated by this action. Other types of entities not listed in the table could also be regulated. To determine whether your activities will be regulated by this action, you should carefully examine the applicability criteria in 40 CFR part 80. If you have any questions regarding the applicability of this action to a particular entity, consult the person listed in the preceding section. Outline of This Preamble I. Executive Summary A. Statutory Requirements for Renewable Fuel Volumes B. Assessment of 2011 Cellulosic Biofuel Production C. Advanced Biofuel and Total Renewable Fuel D. Final Percentage Standards E. 2011 Price for Cellulosic Biofuel Waiver Credits F. Assessment of the Aggregate Compliance Approach II. Volume Production and Import Potential for 2011 A. Cellulosic Biofuel 1. Domestic Cellulosic Biofuel 2. Imports of Cellulosic Biofuel 3. Projections From the Energy Information Administration 4. Overall 2011 Volume Projections 5. Projections of Cellulosic Biofuel for 2012 B. Advanced Biofuel and Total Renewable Fuel C. Biomass-Based Diesel III. Percentage Standards for 2011 A. Background B. Calculation of Standards 1. How are the standards calculated? 2. Small Refineries and Small Refiners IV. Cellulosic Biofuel Technology Assessment A. What pathways are currently valid for the production of cellulosic biofuel? B. Cellulosic Feedstocks C. Emerging Technologies 1. Biochemical a. Feedstock Handling b. Biomass Pretreatment c. Hydrolysis i. Acid Hydrolysis ii. Enzymatic Hydrolysis d. Fuel Production e. Fuel Separation f. Process Variations g. Current Status of Biochemical Conversion Technology h. Path to Commercialization 2. Thermochemical a. Ethanol Based on a Thermochemical Platform b. Diesel and Naphtha Production Based on a Thermochemical Platform 3. Hybrid Thermochemical/Biochemical Processes a. Biochemical Step Following Thermochemical Step b. Concurrent Biochemical and Thermochemical Steps 4. Pyrolysis and Depolymerization a. Pyrolysis Diesel Fuel and Gasoline b. Catalytic Depolymerization 5. Catalytic Reforming of Sugars to Gasoline V. Changes to RFS Regulations A. Delayed RIN Generation for New Pathways B. Aggregate Compliance Approach for Renewable Biomass From Foreign Countries 1. Criteria and Considerations 2. Applicability of the Aggregate Approach 3. Data Sources 4. Petition Submission 5. Petition Process VI. Annual Administrative Announcements A. 2011 Price for Cellulosic Biofuel Waiver Credits B. Assessment of the Domestic Aggregate Compliance Approach VII. Comments Outside the Scope of This Rulemaking VIII. Public Participation IX. Statutory and Executive Order Reviews A. Executive Order 12866: Regulatory Planning and Review B. Paperwork Reduction Act C. Regulatory Flexibility Act D. Unfunded Mandates Reform Act E. Executive Order 13132: Federalism F. Executive Order 13175: Consultation and Coordination With Indian Tribal Governments G. Executive Order 13045: Protection of Children From Environmental Health Risks and Safety Risks H. Executive Order 13211: Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use I. National Technology Transfer Advancement Act J. Executive Order 12898: Federal Actions To Address Environmental Justice in Minority Populations and Low-Income Populations K. Congressional Review Act X. Statutory Authority I. Executive Summary EPA issued comprehensive regulations in 2007 to implement the Renewable Fuel Standard (RFS1) program in Section 211(o) of the Clean Air Act, as required by 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 revised regulatory requirements (RFS2) on March 26, 2010. 1 In general, the transition from the RFS1 requirements of EPAct to the RFS2 requirements of EISA occurred on July 1, 2010. 1 75 FR 14670. EPA is required to determine and publish the applicable annual percentage standards for cellulosic biofuel, biomass-based diesel, advanced biofuel and total renewable fuel for each compliance year by November 30 of the previous year. The determination of the applicable cellulosic biofuel standard under RFS2 requires that EPA first project the 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 required volume used to set the annual cellulosic biofuel percentage standard to the projected available volume. If we lower the applicable cellulosic biofuel volume, we must also determine whether the advanced biofuel and/or total renewable fuel volumes should be reduced by the same or a lesser amount. We provided our volume projections and proposed percentage standards for 2011 in a Notice of Proposed Rulemaking (NPRM) on July 20, 2010 (75 FR 42238). Today's action provides our final projection of cellulosic biofuel production for 2011, and final percentage standards for all four categories of renewable fuel for compliance year 2011. The final 2011 standards have been based upon statutory requirements, comments received in response to the NPRM, the estimate of projected gasoline, diesel, and biofuel volumes that the EIA provided to EPA on October 20, 2010, and other relevant information. Today's rule does not include an assessment of the impacts of the standards we are finalizing for 2011. All of the impacts of the RFS2 program associated with the applicable volumes of biofuel specified in the statute were addressed in the RFS2 final rule published on March 26, 2010. Today's notice also finalizes two changes to the general RFS2 program regulations. The first change modifies a regulatory provision for “delayed RINs” that we implemented through a previous action on September 28, 2010. 2 This provision provides a temporary and limited means for certain renewable fuel producers to generate RINs after they have produced and sold renewable fuel. In today's action we are modifying this regulatory provision to be more broadly applicable as described more fully in Section V.A. The second regulatory provision we are finalizing today establishes a petition process and criteria for EPA to use in determining whether to authorize the use of an aggregate approach to verify that feedstocks from foreign countries meet the definition of renewable biomass that would be akin to that applicable to producers using crops and crop residue grown in the United States. Further discussion of these provisions can be found in Section V.B. 2 75 FR 59622. Finally, in today's rulemaking we are announcing the price for cellulosic biofuel waiver credits, and are also announcing the results of our annual assessment of the aggregate compliance approach for U.S. crops and crop residue. These announcements are provided in Section VI. A. Statutory Requirements for Renewable Fuel Volumes The volumes of renewable fuel that must be used under the RFS2 program each year (absent an adjustment or waiver by EPA) are specified in CAA 211(o)(2)(B). These volumes for 2011 are shown in Table I.A-1. Table I.A-1—Required Volumes in the Clean Air Act for 2011 [Billion gal] Actual volume Ethanol equivalent volume Cellulosic biofuel a 0.25 0.25 Biomass-based diesel 0.80 1.20 Advanced biofuel 1.35 1.35 Renewable fuel 13.95 13.95 a This value assumes that all cellulosic biofuel would be ethanol. If any portion of the renewable fuel used to meet the cellulosic biofuel volume mandate has a volumetric energy content greater than that for ethanol, this value will be lower. By November 30 of each year, the EPA is required under CAA 211(o)(3)(B) to determine and publish in the Federal Register percentage standards for the following year that will ensure that the applicable volumes of renewable fuel are used. These standards are to be based in part on transportation fuel (i.e. gasoline and diesel) volume estimates provided by the Energy Information Administration (EIA). The calculation of the percentage standards is based on the formulas in 40 CFR 80.1405(c) which express the required volumes of renewable fuel as a volume percentage of gasoline and diesel sold or introduced into commerce in the 48 contiguous states plus Hawaii. The statute requires the EPA to determine whether the projected volume of cellulosic biofuel production for the following year is less than the minimum applicable volume shown in Table I.A-1. If this is the case, then the standard for cellulosic biofuel must be based upon the projected available volume rather than the applicable volume in the statute. In addition, if EPA reduces the applicable volume of cellulosic biofuel below the level specified in the statute, the Act also indicates that we may reduce the applicable volume of advanced biofuels and total renewable fuel by the same or a lesser volume. B. Assessment of 2011 Cellulosic Biofuel Production To estimate the projected available volume of cellulosic biofuel in the U.S. in 2011, we researched potential production sources by company and facility. This included sources that were still in the planning stages, those that were under construction, and those that are already producing some volume of cellulosic ethanol, cellulosic diesel, or some other type of cellulosic biofuel. We considered all pilot and demonstration plants as well as commercial plants. From this universe of potential cellulosic biofuel sources we identified the subset that had a possibility of producing some volume of qualifying cellulosic biofuel for use as transportation fuel in 2011. Further analysis and investigation allowed us to determine which ones were actually in a position to produce and make available any commercial volumes of cellulosic biofuel in 2011. In this process we also considered factors such as the current and expected state of funding, the status of the technology and contracts for feedstocks or product sales, and progress towards construction and production goals. This assessment formed the basis of our projection for potentially available 2011 volumes. In our assessment we evaluated both domestic and foreign sources of cellulosic biofuel. We determined that five U.S. facilities have the potential to make volumes of cellulosic biofuel commercially available for transportation use in the U.S. in 2011. We also identified three international facilities, two in Canada and one in Germany, that we expect will produce cellulosic biofuel in 2011. While these facilities may also be able to produce cellulosic volume in 2011, we determined that they are unlikely to make the fuel available to the U.S. market. Based on our assessment for this rulemaking, we are lowering the applicable volume of cellulosic biofuel for 2011 from the statutory volume of 250 million gallons to 6.0 million ethanol-equivalent gallons. This volume is the basis for the percentage standard we are setting for cellulosic biofuel in 2011. As with any projections of future production there is some uncertainty associated with these volumes. These uncertainties in our 2011 cellulosic volume projection are discussed in more detail in Section II.A. Nevertheless, we believe that 6.0 million ethanol-equivalent gallons represents a reasonable projection of potential 2011 cellulosic production volume for use in setting the standard. EPA is currently aware of more than 20 facilities representing over 300 million gallons of production that are targeting commercial production of cellulosic biofuels in 2012. As a result, although the cellulosic biofuel standard we are setting for 2011 is considerably less than the applicable volumes established in EISA, EPA believes there is reason for optimism when looking at the plans for the cellulosic biofuel industry in 2012 and beyond. C. Advanced Biofuel and Total Renewable Fuel As described in Section I.A above, the statute indicates that we may reduce the applicable volume of advanced biofuel and total renewable fuel if we determine that the projected volume of cellulosic biofuel production for 2011 falls short of the statutory volume of 250 million gallons. Since we are setting the cellulosic biofuel standard significantly below the statutory volume of 250 million gallons, we also needed to evaluate whether we should lower the required volumes for advanced biofuel and total renewable fuel. We first considered whether it appears likely that the required biomass-based diesel volume of 0.8 billion gallons can be met with existing biodiesel production potential in 2011, as biodiesel is currently the predominant form of biomass-based diesel. As discussed in Section II.C, we believe that the 0.8 billion gallon standard can indeed be met. Since biodiesel has an Equivalence Value of 1.5, 0.8 billion physical gallons of biodiesel would provide 1.20 billion ethanol-equivalent gallons that can be counted towards the advanced biofuel standard of 1.35 billion gallons. Of the remaining 0.15 billion gallons (150 million gallons), 6.0 million gallons will be met with cellulosic biofuel. Based on our analysis as described in Section II.B, we believe that there are sufficient sources of other advanced biofuel, such as additional biodiesel, renewable diesel, or imported sugarcane ethanol, such that the standard for advanced biofuel can remain at the statutory level of 1.35 billion gallons. We have also determined that there is sufficient qualifying domestic corn ethanol production capacity to meet the balance of the total renewable fuel standard that is not satisfied with advanced biofuel. Therefore, in today's final rule neither the 2011 volumes for advanced biofuel nor total renewable fuel are being lowered below the volumes specified in the statute. D. Final Percentage Standards The renewable fuel standards are expressed as a volume percentage, and are used by each refiner, blender or importer to determine their renewable fuel volume obligations. The applicable percentages are set so that if each regulated party meets the percentages, and if EIA projections of gasoline and diesel use are accurate, then the amount of renewable fuel, cellulosic biofuel, biomass-based diesel, and advanced biofuel used will meet the applicable volumes required on a nationwide basis. To calculate the percentage standard for cellulosic biofuel for 2011, we have used the volume of 6.0 million ethanol-equivalent gallons (representing 6.6 million physical gallons). We are also specifying that the applicable volumes for biomass-based diesel, advanced biofuel, and total renewable fuel for 2011 will be those specified in the statute. These volumes are shown in Table I.D-1. Table I.D-1—Final Volumes for 2011 Actual volume Ethanol equivalent volume Cellulosic biofuel 6.6 mill gal 6.0 mill gal. Biomass-based diesel 0.80 bill gal 1.20 bill gal. Advanced biofuel 1.35 bill gal 1.35 bill gal. Renewable fuel 13.95 bill gal 13.95 bill gal. Four separate standards are required under the RFS2 program, corresponding to the four separate volume requirements shown in Table I.D-1. The specific formulas we use to calculate the renewable fuel percentage standards are contained in the regulations at § 80.1405 and repeated in Section III.B.1. The percentage standards represent the ratio of renewable fuel volume to non-renewable gasoline and diesel volume. The projected volumes of gasoline and diesel used to calculate the standards are provided by EIA. Because small refiners and small refineries are also regulated parties beginning in 2011 3 , there is no small refiner/refinery volume adjustment to the 2011 standard as there was for the 2010 standard. Thus, the increase in the percentage standards relative to 2010 appears smaller than would otherwise be the case, since more obligated parties will be participating in the program. The final standards for 2011 are shown in Table I.D-2. Detailed calculations can be found in Section III. 3 The Department of Energy concluded that there is no reason to believe that any small refinery would be disproportionately harmed by inclusion in the RFS2 program for 2011 and beyond. See DOE report “EPACT 2005 Section 1501 Small Refineries Exemption Study” (January 2009). We will revisit extensions to the exemption for small refineries if DOE revises their study and provides a different conclusion, or we determine that an individual small refinery has demonstrated that it will suffer a disproportionate economic hardship under the RFS program. Table I.D-2—Final Percentage Standards for 2011 Percent Cellulosic biofuel 0.003 Biomass-based diesel 0.69 Advanced biofuel 0.78 Renewable fuel 8.01 E. 2011 Price for Cellulosic Biofuel Waiver Credits Since we are reducing the required volume of cellulosic biofuel for 2011 below the applicable volume specified in the statute, EPA is required to offer biofuel waiver credits to obligated parties that can be purchased in lieu of acquiring cellulosic biofuel RINs. These waiver credits are not allowed to be traded or banked for future use, and are only allowed to be used to meet the 2011 cellulosic biofuel standard. Moreover, unlike cellulosic biofuel RINs, waiver credits may not be used to meet either the advanced biofuel standard or the total renewable fuel standard. For the 2011 compliance period, we are making cellulosic biofuel waiver credits available to obligated parties for end-of-year compliance should they need them at a price of $1.13 per credit. Further discussion is provided in Section VI.A. F. Assessment of the Aggregate Compliance Approach As part of the RFS2 regulations, EPA established an aggregate compliance approach for renewable fuel producers who use planted crops and crop residue from U.S. agricultural land. This compliance approach relieved such producers (and importers of such fuel) of the individual recordkeeping and reporting requirements otherwise required of producers and importers to verify that feedstocks used in the production of RIN-qualifying renewable fuel meet the definition of renewable biomass. EPA determined that 402 million acres of U.S. agricultural land was available in 2007 (the year of EISA enactment) for production of crops and crop residue that would meet the definition of renewable biomass, and determined that as long as this total number of acres is not exceeded, it is unlikely that new land has been devoted to crop production based on historical trends and economic considerations. We indicated that we would conduct an annual evaluation of total U.S. acreage that is cropland, pastureland, or conservation reserve program land, and that if the value exceed 402 million acres, producers using domestically-grown crops or crop residue to produce renewable fuel would be subject to individual recordkeeping and reporting to verify that their feedstocks meet the definition of renewable biomass. The RFS2 regulations provide that EPA will make a finding concerning whether the 2007 baseline amount of U.S. agricultural land has been exceeded in a given year and will publish this finding in the Federal Register by November 30 of the same year. Based on data provided by the USDA, we have estimated that U.S. agricultural land reached 398 million acres in 2010, and thus did not exceed the 2007 baseline acreage. We also stated in the preamble to the final RFS2 rule that if, at any point, EPA finds that the total agricultural land is greater than 397 million acres, EPA will conduct further investigations to evaluate validity of the domestic aggregate compliance approach. The total acreage estimate of 398 million acres exceeds the trigger point for further investigation, therefore EPA, with the help of USDA, will conduct further investigations into this matter. Additional discussion on this matter can be found in Section VI.B of this preamble. II. Volume Production and Import Potential for 2011 In order to project production volumes of cellulosic biofuel in 2011 for use in setting the percentage standards, we collected information on individual facilities that have the potential to produce qualifying cellulosic biofuel volumes for consumption as transportation fuel, heating oil, or jet fuel in the U.S. in 2011. We also evaluated the production and import potential for biomass-based diesels, advanced biofuels, and other conventional renewable fuels such as corn-ethanol. This section describes the volumes that we believe could potentially be produced or imported in 2011. As with any projections of future production there is some uncertainty associated with these volumes. Many of the uncertainties associated with our projected volumes are also discussed in this section. Section III describes the derivation of the percentage standards that will apply to obligated parties in 2011. The 2011 volume projections in today's final rule are based on information from a wide spectrum of sources. For instance, EPA received input on our assessment of 2011 production and import volumes from other government organizations including the Department of Energy (DOE), Energy Information Administration (EIA), and United States Department of Agriculture (USDA). The EIA projections of gasoline, diesel, biomass-based diesel, and cellulosic biofuel provided to EPA on October 20, 2010 were particularly germane. These EIA projections are discussed in more detail in Section II.A.3. We also received a number of comments related to our proposed volume projections and the associated percentage standards. With regard to the proposed cellulosic biofuel projections, most commenters agreed that the proposed range of 5—17.1 million gallons (6.5—25.5 million ethanol-equivalent gallons) was appropriate, but no commenter suggested a specific volume for 2011 or a clear methodology for determining the appropriate volume. However, several commenters provided qualitative assessments. For instance, refiners suggested that the low end of the range would be more appropriate as it would minimize the possibility that obligated parties would be unable to procure sufficient cellulosic biofuel RINs to meet their obligations. They further stated that the cellulosic biofuel volume used to set the 2011 standard should be based on existing production volumes rather than a projection of potential volume in 2011. In contrast, several proponents of the advanced biofuels industry stated that the cellulosic biofuel standard should be set as high as possible in order to establish the market demand that investors seek before funding cellulosic biofuel projects. They argued that the cellulosic biofuels industry is unlikely to grow without support in the form of a high cellulosic biofuel standard. Since commenters did not provide their own quantitative assessments of projected cellulosic biofuel volumes for us to consider, we based our assessment of the production capabilities of planned and existing biofuel production facilities on projections provided by EIA as well as data provided by other government agencies and our own contact with many of these companies. In directing EPA to project cellulosic biofuel production for purposes of setting the annual cellulosic biofuel standard, Congress did not specify what degree of certainty should be reflected in the projections. We believe that the cellulosic biofuel standard should provide an incentive for the industry to grow according to the goals that Congress established through EISA. However, we also believe that the cellulosic biofuel standard that we set should be within the range of what can be attained based on projected domestic production and import potential. Any estimate we use to set the cellulosic biofuel standard for 2011 will have some uncertainty in terms of actual attainment, and the level of such uncertainty generally rises with the volume mandate. Our intention is to balance such uncertainty with the objective of providing an incentive for growth in the industry. To this end, we explored the 2011 volumes for individual companies as projected by EIA to determine not only what volumes might be anticipated, but more importantly what volumes were potentially attainable. Our final projected available volume of cellulosic biofuel for 2011 reflects these considerations. Nevertheless, in the event that the biofuel industry ultimately fails to provide sufficient volumes to meet the 2011 standard for cellulosic biofuel, obligated parties can purchase waiver credits from the EPA under the provisions of § 80.1456. The price for such waiver credits is being established in today's action in Section VI.A. In addition to the sources described above, we had intended to use information provided through the Production Outlook Reports required under § 80.1449 for all registered renewable fuel producers and importers. These reports were due to the Agency by September 1, 2010. While these reports were informative for the companies that did submit them, most potential cellulosic biofuel producers had not yet registered under the RFS program and therefore were not required to submit Production Outlook Reports. Moreover, only a small percentage of the reports were both complete and correct upon initial submission, and about one-fourth of all registered producers and importers failed to submit a report. These issues are likely the result of this being the first time that such reports were due and remedial actions are expected to lead to a more complete set of valid reports later in 2010. However, the Production Outlook Reports were of limited value for development of the biofuel volume projections that we used to set the standards for 2011. In our analysis, we have focused on biofuel production as required by Section 211(o)(7)(D)(i) of the Clean Air Act. We have not considered the demand for biofuels as a factor in determining the appropriate volume of cellulosic biofuel to require in 2011. However, we note that the volumes of cellulosic biofuel that we proposed and the required volume we are finalizing today are very small in terms of total demand for biofuels, and are thus unlikely to impact issues related to demand for biofuels such as infrastructure for distributing or consuming biofuels. A. Cellulosic Biofuel The task of projecting the volume of cellulosic biofuels that could be produced in 2011 is challenging. Announcements of new projects, changes in project plans, project delays, and cancellations occur with great regularity. Biofuel producers face not only the challenge of the scale-up of innovative, first-of-a-kind technology, but also the challenge of securing funding in a difficult economy. In order to project cellulosic biofuel production volumes for 2011, EPA has tracked the progress of over 100 cellulosic biofuel production facilities. From this large group of over 100 production facilities we identified 35 that had planned to begin cellulosic biofuel production by early 2012. From this smaller list of facilities we used publically available information, as well as information provided by DOE and USDA, to determine which facilities were the most likely candidates to produce cellulosic biofuel and make it commercially available in 2011. Each of these companies was then contacted to provide the most up to date information possible on their current cellulosic biofuel production plans for 2011. Our estimate of the projected available cellulosic biofuel volume for 2011 is based on the information we received in conversations with these companies as well as our own assessment of the potential for these facilities to produce cellulosic biofuel in the volumes indicated. Throughout this process EPA engaged in discussions with EIA to share information and insights into potential cellulosic biofuel production in 2011. For more details on EIA's cellulosic biofuel projections for 2011 and a discussion of the differences between the projections made by EPA and EIA see Section II.A.3. A brief description of each of the companies we believe has the potential to produce cellulosic biofuel and make it commercially available can be found below. A more in-depth discussion of the technologies used to produce cellulosic biofuels can be found in Section IV. Based on this information, EPA projects that 6.6 million gallons of cellulosic biofuel (corresponding to 6.0 million ethanol-equivalent RINs) could be produced and made available in 2011. This is the number we used as the basis for the percentage standard for 2011. The rest of this section describes the analyses that we used as the basis for this projected available production volume. 1. Domestic Cellulosic Biofuel Based on our assessment of the cellulosic biofuel industry, we believe that there are four companies in the United States with the potential to produce cellulosic alcohol and make it commercially available in 2011. These companies are DuPont Danisco, Fiberight, KL Energy Corporation, and Range Fuels. EPA also believes that a fifth company, KiOR, will be in a position to produce some cellulosic diesel fuel in 2011. This section will provide a brief description of each of these companies and our assessment of their potential fuel production in 2011 based on information we have acquired to date. DuPont Danisco Cellulosic Ethanol (DDCE) began start up operations at a small demonstration facility in Vonore, Tennessee in early 2010. This facility has a maximum production capacity of 250,000 gallons of ethanol per year and uses an enzymatic hydrolysis process to convert corn cobs into ethanol. DDCE has indicated that they could produce up to 150,000 gallons of ethanol in 2011 from the Vonore facility. Fiberight is a company planning to convert MSW to ethanol. Fiberight purchased a small corn ethanol plant in Blairstown, IA and has modified it to produce ethanol from cellulosic biomass. They use an enzymatic hydrolysis process to convert the cellulosic waste materials to simple sugars and then to ethanol. Fiberight plans to initially use a waste cellulose stream from a paper recycling facility as their primary feedstock, and eventually complement that with a sorted MSW stream. Fiberight started producing ethanol in the summer of 2010 and plans to ramp up to full production capacity by late 2011. Fiberight has provided month-by-month production targets for 2011 to EPA. Based on these targets their projected production potential for 2011 is 2.8 million gallons of cellulosic ethanol. While there is still some uncertainty as to whether their supply of waste cellulose from paper recycling meets the regulatory definition of renewable biomass, fuel from such feedstock would only account for about one-fifth of the total ethanol expected to be produced by Fiberight in 2011. Moreover, Fiberight's choice of feedstock for ethanol production could change depending on whether waste cellulose from paper recycling is determined to meet the regulatory definition of renewable biomass. For the purposes of projecting potentially available cellulosic volume for 2011, therefore, we have included in our estimates the portion that could be produced from waste cellulose from paper recycling. The third company that EPA is aware of with the potential to produce cellulosic ethanol in 2011 is KL Energy Corporation. KL Energy has a demonstration facility in Upton, Wyoming that uses an enzymatic hydrolysis process to convert wood chips and wood waste to ethanol and has just announced a partnership with Petrobras for the construction of additional facilities. The demonstration facility has a maximum annual production volume of 1.5 million gallons and has been operational since the fall of 2007. Since KL Energy completed construction of this facility they have been gradually ramping up production and gathering information to optimize this and future ethanol production facilities. While production levels from this facility have so far been below capacity, KL has informed EPA that they intend to produce up to 400,000 gallons of cellulosic ethanol from their Upton, WY facility in 2011. A fourth company that EPA expects will produce cellulosic biofuel in 2011 is Range Fuels. Range has a facility in Soperton, Georgia capable of processing 125 dry tons of feedstock per day. This facility completed commissioning in the second quarter of 2010 and began producing cellulosic methanol in the third quarter of 2010. Range initially plans to use wood chips as their feedstock, but will also investigate using different types of woody biomass and herbaceous energy crops. In Phase I of this project, Range will predominantly use a commercial methanol catalyst, but they plan to produce some ethanol using a proprietary mixed alcohol catalyst. No approved pathway currently exists under the RFS program for the generation of RINs for methanol, and the opportunities for using methanol in the transportation fuel market are limited. However, Range does plan on adding capabilities in Phase II that will increase the relative production volume of ethanol versus methanol. Moreover, EPA is evaluating possible RIN-generating pathways for cellulosic methanol, including the potential for cellulosic methanol used in the production of biodiesel to qualify for the generation of cellulosic biofuel RINs. At this time EPA projects that Range Fuels will produce 0.1 million gallons of ethanol and 2.9 million gallons of methanol from this facility in 2011. Given a methanol equivalence value of 0.75, this fuel represents 2.3 million ethanol equivalent gallons. Based the potential for Range to produce larger proportions of ethanol, and the possibility that RIN-generating pathways for cellulosic methanol could be identified or approved we are projecting production of 2.3 million gallons of RIN-generating cellulosic biofuel by Range Fuels in 2011. The only company that EPA is aware of that may be a producer of cellulosic diesel in 2011 is KiOR. KiOR has developed a catalytic pyrolysis technology capable of converting cellulosic biomass directly to a bio-crude with a low oxygen content. KiOR currently has a small pilot facility capable of producing 10-15 barrels of bio-crude per day in Houston, Texas. In order for this fuel to be used as a transportation fuel it would have to go through further refining. This could either be done at the KiOR facility if the necessary equipment is installed, or at an existing refinery. While KiOR is not currently producing a finished transportation fuel, this bio-oil could be upgraded and be eligible for RIN generation under the RFS program. EPA projects that this facility can produce 0.2 million gallons of fuel, representing 0.3 million RINs in 2011. In the proposed rule we also discussed two other potential cellulosic diesel producers, Bell BioEnergy and Cello Energy. Since the publication of the proposed rule the project that Bell BioEnergy had been working on that EPA had identified as a potential source of cellulosic biofuel has been terminated. They are currently exploring other options for locations for their first commercial facility, as well as potential sources of funding. While we are not counting on any volume from Bell BioEnergy for the 2011 projected available volume, it is feasible that they could produce cellulosic diesel or jet fuel in 2011 if they are able to identify a suitable location for their facility and secure the necessary funding in the near future. The other cellulosic diesel company discussed in the proposed rule is Cello Energy. Cello has a structurally complete facility in Bay Minette, Alabama with an annual production capacity of 20 million gallons of diesel per year. While their facility is structurally complete, they have experienced feedstock preparation and handling issues that need to be resolved before they will be able to again attempt start up and production. Litigation related to contract issues has also provided a set-back likely delaying any potential production from Cello's facility. On October 20, 2010 Cello Energy filed for Chapter 11 bankruptcy, therefore no volume from this facility has been included in our projected cellulosic biofuel volume for 2011. We are currently unaware of any companies in the United States planning on producing cellulosic biofuel other than ethanol, methanol, and diesel and making it commercially available in 2011. EPA is currently tracking the efforts of 10 companies that plan to produce fuels such as butanol, gasoline, jet fuel, dimethyl ether (DME), and others. Many of these companies have reported that they are still developing their technologies and waiting for funding, and that they are not expecting to make any cellulosic fuel commercially available until 2012 at the earliest. There are several companies with small demonstration facilities who intend to produce biofuels from cellulosic feedstocks, but are currently optimizing their technology with sugar or starch feedstocks. EPA anticipates that in the future this may be a significant source of cellulosic biofuel, however we have not counted these potential volumes in our projections for 2011. 2. Imports of Cellulosic Biofuel In addition to the companies located in the United States, EPA is also aware of three companies located in other countries with the potential for cellulosic biofuel production in 2011. If this fuel is produced with renewable biomass and imported into the United States for use in transportation fuel, jet fuel, or heating oil, it would be eligible to participate in the RFS2 program. However, for the reasons described below, we have not included any imported cellulosic biofuel in our projections of available U.S. volume for 2011. Iogen uses a steam explosion pre-treatment process followed by enzymatic hydrolysis to produce cellulosic ethanol from wheat, oat, and barley straw. They have a demonstration facility with an annual production capacity of 500,000 gallons of ethanol located in Ontario, Canada. This facility has been operational and producing small volumes of ethanol since 2004. So far all of the ethanol produced by this facility has been used locally and in racing and other promotional events. In conversations with EPA Iogen has indicated that they do not intend to export any fuel to the United States from this facility in 2011. Another Canadian company with the potential to produce cellulosic ethanol in 2011 is Enerkem. Enerkem plans to use a thermo-chemical process to gasify separated MSW and other waste products and then use a catalyst to convert the synthesis (syn) gas into methanol and ethanol. Enerkem finished construction on a 1.3 million gallon per year facility in Westbury, Quebec in June 2010 and plans to begin producing methanol and ethanol later in 2010. They are also planning a 10 million gallon per year facility in Edmonton, Alberta, however production from this facility is not expected until 2012. Enerkem has informed EPA that they plan to market their products locally, and do not intend any exports to the United States. A third international company that may produce commercial volumes of cellulosic biofuel in 2011 is Choren. Choren has completed construction of a facility in Freiberg, Germany with a production capacity of 3.9 million gallons of diesel fuel. This facility used a thermochemical process to convert biomass to syngas and then catalytically converts the syngas to diesel fuel. The facility is currently undergoing commissioning and it is unclear when they will begin commercial production. Additionally, there is likely to be strong local demand for the fuel. Due to these factors, EPA is not projecting that any fuel produced by Choren will be imported into the U.S. in 2011. While these facilities appear to be the most likely sources of imported cellulosic biofuel, it is possible that cellulosic biofuels produced by other foreign companies may be imported into the United States. One strong candidate as a potential source of cellulosic biofuel imports is Brazil, due to its established ethanol industry and history of importing ethanol into the United States. EPA is aware of several companies planning commercial scale production of cellulosic biofuel in Brazil. It is unlikely these projects will be completed in time to supply cellulosic biofuel to the United States in 2011; however they may be a significant source of cellulosic biofuel imports in future years. 3. Projections From the Energy Information Administration Section 211(o)(3)(A) of the Clean Air Act requires EIA to “* * * provide to the Administrator of the Environmental Protection Agency an estimate, with respect to the following calendar year, of the volumes of transportation fuel, biomass-based diesel, and cellulosic biofuel projected to be sold or introduced into commerce in the United States.” EIA provided these estimates to us on October 20, 2010. 4 With regard to cellulosic biofuel, the EIA estimated that the available volume in 2011 would be 3.94 mill gallons based on their assessment of the utilization of production capacity. A summary of the plants they considered is shown below in Table II.A.3-1. 4 Letter from Richard Newell, EIA Administrator to Lisa Jackson, EPA Administrator October 20, 2010. Table II.A.3-1—EIA's Projected Cellulosic Biofuel Plant Production Estimates for 2011 Company name Location Feedstock Fuel Capacity (MGY) Facility status Expected utilization (Percent) 2011 Production (MG) DuPont Danisco Vonore, TN Corn cobs, then switchgrass Ethanol 0.25 Online 10 0.03 Fiberight Blairstown, IA MSW Ethanol 6.0 Online 46 2.76 KL Energy Upton, WY Wood Ethanol 1.5 Online 10 0.15 Range Soperton, GA Wood Waste Methanol, Ethanol 4 Online 25 1.0 Total 3.94 While EIA's projected cellulosic biofuel production estimate for 2011 is, with the exception of KiOR, based on an evaluation of the same companies that EPA evaluated, the production volume assumed by EIA for each company is lower in all cases. We believe that the difference reflects EIA's intention to estimate volumes that each company has a high certainty of reaching in 2011. As described in Section II.A above, we have projected the volume of cellulosic biofuel that we believe is attainable given the issues that each company faces, while recognizing that there is some uncertainty in the projected volumes. We believe that many or all of the uncertainties associated with the potential volume production at each company can be resolved in a positive direction. We have considered EIA's projection of cellulosic biofuel production for 2011 in the context of setting the 2011 cellulosic biofuel standard, and we believe that it represents a volume that the industry is unlikely to fall below. However, we believe that it is appropriate to set the applicable volume at a level that provides an incentive for developing cellulosic biofuel facilities to come on line as expeditiously as possible, and to provide reasonable assurance that there will be a market for their product if they do. Moreover, we also believe that CAA 211(o)(7)(D) is best interpreted to vest the authority for making the projection with EPA, since it provides that the projection is “determined by the Administrator based on the estimate provided [by EIA].” If Congress intended that EPA simply adopt EIA's projection without an independent evaluation, it would not have specified that the projection is “determined” by EPA. Although the statute provides that our determination must be “based on the estimate provided” by EIA, we believe that our consideration of EIA's estimate in deriving our own projection satisfies this statutory requirement. For the reasons described above, we believe that EPA's projection takes into account uncertainties in a manner that best furthers the objectives of the statute. 4. Overall 2011 Volume Projections The information EPA has gathered on the potential cellulosic biofuel producers in 2011, summarized above, allows us to project the potential production volume of each facility in 2011. After the appropriate equivalence value has been applied to the volumes from these facilities, the overall projected ethanol-equivalent volume of cellulosic biofuel for 2011 can be totaled. This information is summarized in Table II.A.4-1 below. Table II.A.4-1—Projected Potential Volume of Cellulosic Biofuel Production in 2011 Company name Location Feedstock Fuel Capacity (MGY) Facility status Projected potential volume (MG) Ethanol equivalent gallons (MG) DuPont Danisco Vonore, TN Corn cobs, then switchgrass Ethanol 0.25 Online 0.15 0.15 Fiberight Blairstown, IA MSW Ethanol 6 Online 2.8 2.8 KL Energy Upton, WY Wood Ethanol 1.5 Online 0.4 0.4 KiOR Houston, TX Wood Waste Diesel 0.2 Online 0.2 0.3 Range Soperton, GA Wood Waste Methanol, Ethanol 4 Online 3.0 2.3 Total 6.6 6.0 While the production volumes in Table II.A.4-1 have some uncertainty, we believe that a total volume of 6.0 million gallons is attainable. By basing the 2011 cellulosic biofuel standard on the attainable volumes rather than discounting projected volumes to account for uncertainty, we aim to avoid the undesirable scenario in which cellulosic biofuel production exceeds the mandated volume. Such a scenario would result in weak demand for cellulosic biofuels and RINs. Additionally, while obligated parties are able to purchase cellulosic biofuel waivers credits in the event that production of cellulosic biofuel is insufficient to meet the 2011 standard, no mechanism exists for this standard to be raised should cellulosic biofuel production exceed the 2011 standard. The intent of Congress in establishing the RFS program through EISA was to provide a reliable market for renewable fuels and in doing so to spur growth in the cellulosic biofuels industry. EPA believes the projected available volume finalized in this rule best reflects these intentions. Three commenters (Abengoa, Growth Energy, and Unica) supported the range of 6.5-25.5 million gallons that EPA proposed in the NPRM. The Biotechnology Industry Organization and Dupont Danisco Cellulosic Ethanol commented that the EPA's proposed range was a reasonable estimate, but encouraged EPA to consider ways the RFS program can serve a risk mitigation function for the cellulosic biofuel industry. Two commenters, American Petroleum Institute and National Petrochemical & Refiners Association, suggested that EPA consider only companies that have demonstrated, proven production records when setting the cellulosic standard for the following year. The Low Carbon Synthetic Fuels Association suggested EPA set the standard high enough so that any cellulosic biofuel that might be produced in 2011 in the U.S. or internationally would be included in the volume projections. They suggest that this would mean using the high end of the proposed volume, or even some volume above the proposed range. Based on our assessment of the potential production capabilities of individual companies as described above, EPA is finalizing the cellulosic biofuel standard for 2011 at 6.0 million ethanol-equivalent gallons of cellulosic biofuel. This number represents the volume of RIN-generating cellulosic biofuel that we believe can be made available for use as transportation fuel, heating oil, or jet fuel in 2011. It incorporates some reductions from the annual production capacity of each facility based on when fuel production can begin and assumptions regarding a ramp-up period to full production. We believe that a production volume of 6.0 mill gal is attainable despite the uncertainties, since none of the possible impediments to attaining this volume appear insurmountable. Moreover, by setting the standard for cellulosic biofuel based on the volumes that are attainable, we are providing greater incentives for producers to overcome uncertainties and greater opportunities for funding based on an established demand. There are also a variety of factors that could lead to production volumes greater than those listed in Table II.A.4-1 and make up for potential shortfalls elsewhere. For instance: • For each of the facilities listed, with the exception of KiOR, we are projecting that their production will be some volume less than the capacity of their facility. It is possible, however, that these companies could produce a greater volume of fuel than they are currently anticipating or has been projected by EPA. • It is possible that companies that are currently targeting 2012 for commercial production may produce cellulosic biofuel ahead of schedule and generate RINs in 2011. None of this volume was included in our projection for 2011. • A high demand for cellulosic biofuels may be sufficient to cause companies to import fuel into the United States, even if they currently have no plans to do so. As described in Section II.A.2 above, there are several foreign producers that are either producing cellulosic biofuel now, or could potentially produce some cellulosic biofuel volume in 2011. Finally, we note that if the actual volume of cellulosic biofuel RINs that are available in 2011 falls short of the 6.0 million gallon RINs used to derive the 2011 cellulosic biofuel standard, obligated parties have other recourses: • Purchase cellulosic biofuel waiver credits from the EPA (see further discussion in Section VI.A). • Carry over a deficit from 2011 into 2012 according to § 80.1427(b). 5. Projections of Cellulosic Biofuel for 2012 In addition to the companies discussed above, EPA also assessed the production capabilities of many other companies to determine their ability to produce cellulosic ethanol in 2011. Many of these companies had at some point planned to produce cellulosic ethanol at commercial scale by 2011, but due to a variety of factors have had their plans delayed. Despite these delays, the outlook for 2012 and later years still looks promising. Although the cellulosic biofuel standard we are setting for 2011 is considerably below the applicable volumes established in EISA, EPA believes there is reason for optimism when looking at the plans for the cellulosic biofuel industry in 2012 and beyond. EPA is currently aware of more than 20 facilities representing over 300 million gallons of production that are targeting commercial production of cellulosic biofuels in 2012. Many companies, including Abengoa, AE Biofuels, BlueFire Ethanol, Coskata, Fulcrum, POET, and Vercipia, are intending to begin bringing large scale facilities online, with physical capacities of between 10 and 100 million gallons of cellulosic biofuel per year. There is also hope within the industry that as these first-of-a-kind technologies prove commercially viable that new financing opportunities will open up for both new facilities and facility expansion alike. This could lead to rapid growth in the cellulosic biofuel industry as many companies, in addition to those mentioned above, have announced project plans that have been put on hold until funding or project partners can be found. B. Advanced Biofuel and Total Renewable Fuel Under CAA 211(o)(7)(D)(i), EPA has the discretion to reduce the applicable volumes of advanced biofuel and total renewable fuel in the event that the projected volume of cellulosic biofuel production is determined to be below the applicable volume specified in the statute. As described in Section II.A above, we are indeed projecting the volume of cellulosic biofuel production for 2011 at significantly below the statutory applicable volume of 250 million gallons. Therefore, we must consider whether and to what degree to lower the advanced biofuel and total renewable fuel applicable volumes for 2011. As described in the NPRM, because cellulosic biofuel is used to satisfy both the cellulosic biofuel standard and the advanced biofuel standard, it is possible that a required volume of cellulosic biofuel for a given year that is less than the volume specified in the statute could lead to a situation where there is insufficient volume of advanced biofuels to satisfy the applicable volume of advanced biofuel volume set forth in the statute. However, it is also possible that other advanced biofuels, such biomass-based diesel, sugarcane ethanol, or other biofuels, may be available in sufficient volumes to make up for the shortfall in cellulosic biofuel. We believe that it would be consistent with the energy security and greenhouse gas reduction goals of EISA to use the applicable volume of advanced biofuel set forth in the statute to derive the advanced biofuel standard if there are sufficient volumes of advanced biofuels available, even if those volumes do not include the amount of cellulosic biofuel that Congress may have desired. If we were to maintain the advanced biofuel, biomass-based diesel, and total renewable fuel volume requirements at the levels specified in the statute, while also lowering the cellulosic biofuel standard to 6.0 million gallons, then 1,206 million gallons of the 1,350 million gallon advanced biofuel mandate would be satisfied automatically through the satisfaction of the cellulosic and biomass based diesel standards. An additional 144 million ethanol-equivalent gallons of additional advanced biofuels would be needed. See Table II.B-1. Table II.B-1—Projected Fuel Mix if Only Cellulosic Biofuel Volume is Adjusted in 2011 [mill gallons] Ethanol-equivalent volume Physical volume Total renewable fuel 13,950 13,500-13,549 Conventional renewable fuel a 12,600 12,600 Total advanced biofuel 1,350 903-951 Cellulosic biofuel 6.0 6.6 Biomass-based diesel 1,200 800 Other advanced biofuel b 144 c 96-144 a Predominantly corn-starch ethanol. b Rounded to nearest million gallons for simplicity. c Physical volume is a range because other advanced biofuel may be ethanol, biodiesel, or some combination of the two. The most likely sources of additional advanced biofuel would be imported sugarcane ethanol and biodiesel. To determine if there are likely to be sufficient volumes of these biofuels to meet the need for 144 million gallons of other advanced biofuel, we examined historical data on ethanol imports and EIA projections for 2011. For instance, as shown in Table II.B-2 below, recent annual import volumes of ethanol were higher than what would be needed in 2011. Table II.B-2—Historical Imports of Ethanol (mill gallons) 5 2007 439 2008 530 2009 194 Brazilian imports have made up a sizeable portion of total ethanol imported into the U.S. in the past, and these volumes were predominantly produced from sugarcane. These historical import volumes demonstrate that Brazil has significant export potential under the appropriate economic circumstances. However, as shown above, ethanol import volumes decreased significantly in 2009. Moreover, they have dropped to nearly zero in the first half of 2010 according to EIA's Short Term Energy Outlook. Some have speculated that this decline in imports is related to the cessation of the duty drawback that became effective on October 1, 2008, and to changes in world sugar prices. 6 However, Brazil is second worldwide in the production of ethanol, reaching about 6.5 billion gallons in 2008. 7 Thus, by establishing an increased U.S. demand for 144 million gallons of other advanced biofuel in 2011, we believe it may once again be economical for Brazilian producers to export at least this volume of sugarcane ethanol to the U.S. Moreover, California's Low Carbon Fuel Standard goes into effect in 2011, and may compel some refiners to import additional volumes of sugarcane ethanol from Brazil into California. These same volumes could count towards the federal RFS2 program as well. 5 “Monthly U.S. Imports of Fuel Ethanol,” EIA, released 4/8/2010. 6 Lundell, Drake, “Brazilian Ethanol Export Surge to End; U.S. Customs Loophole Closed Oct. 1,” Ethanol and Biodiesel News, Issue 45, November 4, 2008. 7 Renewable Fuels Association (RFA), “2008 World Fuel Ethanol Production,” http://www.ethanolrfa.org/pages/statistics#E, March 31, 2009. We also examined the potential for excess biodiesel to help meet the need for 144 million gallons of advanced biofuel. The applicable volume of biomass-based diesel established in the statute for 2011 is 800 million gallons (which corresponds to 1,200 ethanol equivalent gallons). As discussed more fully in Section II.C below, we believe that the biodiesel industry has the potential for producing significant volumes above 800 million gallons if demand for such volume exists. Finally, there are also other potential sources of advanced biofuels that could contribute to compliance with the advanced biofuels standard in 2011, such as diesel fuel additives made from waste cooking oil or restaurant grease. Given all of these potential sources, we believe that there are likely to be sufficient volumes of advanced biofuels such that the advanced biofuel standard need not be lowered below the 1.35 billion gallon level specified in the Act. Thus, we are not reducing the applicable volume of advanced biofuel for 2011. If we were reducing the applicable volume of advanced biofuel for 2011, it would follow that there could be a shortfall of RINs capable of satisfying the general renewable fuel volume requirements. However, we are not doing so, and thus there is no need to lower the applicable volume of total renewable fuel below the statutory volume of 13.95 billion gallons. In response to the NPRM, biodiesel producers, advanced biofuel producers, and UNICA (representing importers of sugarcane ethanol) supported our proposal to maintain the applicable volume of advanced biofuel at 1.35 bill gallons for 2011. They generally agreed that there exists sufficient potential sources of advanced biofuel to make up for the reduction of the applicable volume of cellulosic biofuel for 2011, and that the very existence of a demand for this volume will lead these sources to provide sufficient volume to meet that demand. Other commenters, such as refiners and proponents of corn-ethanol, opposed our proposal for leaving the 2011 applicable volume of advanced biofuel at 1.35 bill gallons on the grounds that other sources of advanced biofuel sufficient to make up for the reduction in the applicable volume of cellulosic biofuel were too uncertain. We disagree with the suggestion that volumes of other advanced biofuels are too uncertain and that the applicable volume of advanced biofuel should be lowered. As described above, we believe that there are sufficient potential sources of other advanced biofuel to make up for the reduction in the applicable volume of cellulosic biofuel. Moreover, our authority to lower the advanced biofuel and/or total renewable fuel applicable volumes is discretionary, and we believe that actions to lower these volumes should only be taken if it appears that insufficient volumes of qualifying biofuel can be made available, based on such circumstances as insufficient production capacity, insufficient feedstocks, competing markets, constrained infrastructure, or the like. Since this is not the case for 2011, we do not believe that the advanced biofuel applicable volume of 1.35 bill gallons or the total renewable fuel applicable volume of 13.95 billion gallons should be reduced. Although refiners and proponents of corn-ethanol agreed on the treatment of advanced biofuel for 2011, they differed in their views of how the total renewable fuel standard should be treated. Refiners stated that the advanced biofuel standard and the total renewable fuel standard should be lowered in concert and by the same amount. Proponents of corn-ethanol, on the other hand, stated that the total renewable fuel standard of 13.95 bill gal should be maintained while the advanced biofuel standard should be lowered to reflect the projected shortfall. They argued that excess volumes of corn-ethanol were more certain than excess volumes of advanced biofuel, and that their suggested approach would effectively result in a demand for corn-ethanol above 12.6 billion gallons (see Table II.B-1). They further argued that this approach would generate more GHG reductions than if the advanced biofuel and total renewable fuel standards were lowered in concert. One commenter explicitly opposed any changes to the advanced biofuel and total renewable fuel standards that would increase the demand for corn-ethanol under RFS2 above 12.6 billion gallons (see Table II.B-1). We agree that there is sufficient corn-ethanol production capacity and feedstocks to produce more than 12.6 bill gallons in 2011. Indeed EIA projects that corn-ethanol production in 2010 will exceed 13 billion gallons. 8 However, as described above, we disagree with the suggestion that there is insufficient volume of advanced biofuels to justify maintaining the advanced biofuel applicable volume at the level specified in the statute. Moreover, since there is no need to waive any portion of the advanced biofuel applicable volume, there is likewise no need to consider the possibility of corn ethanol making up for a shortfall in advanced biofuel volumes. As a result, the demand for corn ethanol will not be greater as a result of today's action than it would be if all applicable volumes as specified in the statute were used in deriving the 2011 standards. 8 EIA STEO, September 2010, Table 8. C. Biomass-Based Diesel While the statutory requirement that we project volumes of cellulosic biofuel for next year does not explicitly apply to biomass-based diesel, we must, as discussed above, determine whether the required volumes of advanced biofuel and/or total renewable fuel should be reduced at the same time that we reduce the required volume of cellulosic biofuel. The amount of biomass-based diesel that we project can be available directly affects our consideration of adjustments to the volumetric requirements for advanced biofuel and total renewable fuel discussed above in Section II.B. Although there are a variety of potential fuel types that can qualify as biomass-based diesel, biodiesel is by far the predominant type. To project biodiesel production volumes for 2011, we examined historical and recent production and export rates as well as the production potential of the industry. As shown in Table II.C-1, domestic production of biodiesel in 2007-2009 has ranged from 490 to 678 million gallons. Table II.C-1—Historical Biodiesel Production, Net Exports, and Consumption (Million Gallons) [ Source: EIA Monthly Energy Review, August 2010] Domestic production Net exports Domestic consumption 2007 490 132 358 2008 678 362 316 2009 505 189 315 The variations in production and net exports appear to be correlated to availability of the U.S. tax subsidy that was effective from 2004 to 2009, “splash-and-dash” activities, and European Union (EU) action to impose duties on exported U.S. biodiesel. In splash-and-dash, biodiesel producers took advantage of the U.S. tax credit for biodiesel even though the biodiesel was not consumed in the U.S., instead exporting the biodiesel to Europe. As can be seen in Figure II.C-1, the EU took action beginning in March 2009 to apply duties/tariffs to biodiesel from the U.S. Exports of biodiesel from the U.S., as well as domestic production volumes, immediately fell following this EU action. Production also fell following the expiration of the biodiesel tax credit at the end of 2009. ER09DE10.000 Although biodiesel production appears to have been significantly affected by both the EU tariff on biodiesel from the U.S. and the expiration of the biodiesel tax credit, the fact that the U.S. biodiesel industry has produced higher volumes when it was economic for it to do so suggests that the industry may have the capability to produce greater volumes in the future under the appropriate circumstances. According to information from the biodiesel industry, only 52 biodiesel facilities with a production capacity totalling 600 million gallons have been idled. The total biodiesel production capacity at facilities that are still operating is 2.4 billion gallons. 9 Ramping up production will require some time and potentially some reinvestment, but based on feedback from industry we nevertheless believe that it can occur in time to meet a production goal of 800 million gallons. 9 Plant List from Biodiesel Magazine ( http://www.biodieselmagazine.com/plant-list.jsp .) In response to the NPRM, some commenters suggested that the 2011 volume requirement for biomass-based diesel should be lowered because the biodiesel industry is expected to produce insufficient volumes in 2010 to meet the 2009/2010 biomass-based diesel standard based on an applicable volume of 1.15 billion gallons. This, they argued, demonstrates that the biodiesel industry cannot be expected to meet demand of 800 million gallons in 2011. However, for the first five months of 2010, the average production rate was about 32 million gallons per month. 10 If this production rate continued through the rest of 2010, the total annual production of biodiesel would be approximately 380 million gallons. As described in EPA's Question and Answer document, 11 EPA estimated that the 1.15 bill gal standard for biomass-based diesel in 2010 would generate a demand for about 345 mill gallons of qualifying biodiesel and renewable diesel in 2010. The remaining portion of the 1.15 bill gal standard would be met with previous-year RINs. Thus, an annual production volume of 380 million gallons should be sufficient to enable obligated parties to meet the 2010 biomass-based diesel standard if exports are kept to a minimum. In fact net exports of biodiesel have gone down every year since 2008, due in part to fewer cost-effective opportunities for sale of biodiesel in Europe. 10 EIA Monthly Energy Review for August 2010, Table 10.4. 11 See question 6.7 in EPA's “Questions and Answers on Changes to the Renewable Fuel Standard Program (RFS2)”, http://www.epa.gov/otaq/fuels/renewablefuels/compliancehelp/rfs2-aq.htm#6. Moreover, we do not believe that the activities of the biodiesel industry in 2009 and 2010 are necessarily an appropriate indicator of its potential for 2011. A regulatory mandate for biomass-based diesel did not exist in 2009, and the mandate for biomass-based diesel in 2010 was a unique circumstance that allowed a significant number of 2008 and 2009 biodiesel RINs to be used for compliance in 2010. Current biodiesel production rates actually suggest that the industry is positioned to put idled capacity into production when demand for greater volumes exist. For instance, despite the expiration of the biodiesel tax credit at the end of 2009, monthly domestic consumption of biodiesel was actually higher in the first 5 months of 2010 than it was during the same period in 2009. One possible reason for this is that 2010 was the first year that the biomass-based diesel standard was in effect. Moreover, for the three years prior to 2010, the monthly average production in the second half of the year was higher than in the first half of the year. Thus, although the annual production total for 2010 would be projected to be 380 mill gal based on monthly production rates between January and May, it could be 500 million gallons or more by year's end if production rates increase in the second half of the year as they have done in the past. An increase in monthly biodiesel production rates later in 2010 would also be consistent with the fact that obligated parties are not required to demonstrate compliance with the 2010 biomass-based diesel standard until February 28, 2011. Thus, the presence of a requirement for biomass-based diesel in 2010 seems to be providing the incentive for greater consumption of biodiesel, which in turn is encouraging higher production volumes. In addition to current production rates, the biodiesel industry's production potential also supports a finding that it can more than satisfy the applicable volume of biomass based diesel specified in the statute for 2011. In July of 2010, over 1.8 billion gallons of production capacity had been registered under the RFS2 program. 12 As of September 2010, the aggregate production capacity of biodiesel plants in the U.S. was estimated at 2.6 billion gallons per year across approximately 170 facilities. 13 Indications from the biodiesel industry are that idled facilities can be brought back into production with a relatively short leadtime. Imports of biodiesel from foreign countries also has the potential to increase the volume available for consumption in the U.S. 12 Comments from National Biodiesel Board on the July 20, 2010 NPRM. Submitted to docket EPA-HQ-OAR-2010-0133 on August 19, 2010. 13 Figures taken from National Biodiesel Board's Member Plant List as of September 13, 2010. http://biodiesel.org/buyingbiodiesel/plants/showall.aspx. Finally, we believe that there will be sufficient sources of qualifying renewable biomass to more than meet the needs of the biodiesel industry in 2011. The largest sources of feedstock for biodiesel in 2011 are expected to be soy oil, canola oil, rendered fats, and potentially some corn oil extracted during production of fuel ethanol, as this technology continues to proliferate. Moreover, comments we received from a large rendering company after the May 2009 RFS2 proposed rule suggest that there will be adequate fats and greases feedstocks to supply biofuels production as well as other historical uses. 14 14 See Federal Register v.74 n.99 p.24903. Comments are available in docket EPA-HQ-OAR-2005-0161. In order to meet a 2011 biomass-based diesel volume requirement of 800 million gallons to be consumed in the United States, approximately 725 million gal of biodiesel would need to be consumed. This value accounts for the production of 75 million gallons of renewable diesel at one renewable diesel facility in Geismar, Louisiana, set to begin operations by 2011. 15 Assuming net exports continue at a rate equivalent to that in the first five months of 2010, biodiesel production in the U.S. would need to total approximately 835 million gal in 2011. Based on the modeling used by EIA to project volumes for its Short-Term Energy Outlook, EIA projects that the 800 mill gallon mandate would be binding, and that this level of consumption would be unlikely to occur in the absence of a mandate. However, the biodiesel industry has demonstrated that it is capable of meeting historic demand for biodiesel, and is in a position to produce significantly more than it has in recent years. 15 Project status updates are available via the Syntroleum Web site, http://dynamicfuelsllc.com/wp-news/. Based on our review of current biodiesel production rates, the production potential of the biodiesel industry, and the availability of qualifying feedstocks, we believe that substantially more than the 800 million gallons needed to satisfy the biomass based diesel standard can be produced in 2011. Today's rule therefore includes a final biomass-based diesel standard that, as proposed, is based on the 800 million gallon applicable volume specified in the Act. We also believe that the excess production capacity can be utilized to help satisfy the 2011 advanced biofuel standard we are finalizing today. In response to the NPRM, several parties supported our proposal to set the 2011 standard based on the 800 million gallon applicable volume specified in the Act. One party requested that we raise the biomass-based diesel standard for 2011 above the 800 million gallon statutory mandate based on the significantly higher production capacity in the industry. However, the statute specifies the applicable volumes of biomass based diesel that we are to use in setting the annual standards through 2012. We do not have the authority to raise the applicable volume above the level specified in the statute for 2011. Another commenter requested that the standard for biomass-based diesel should be tied to the biodiesel tax credit and projections of likely consumption in 2011 assuming no mandate. We disagree. Demand for biomass-based diesel will be a function of the RFS standard we set for 2011. The authority provided under CAA 211(o)(7)(A) to waive any portion of the statutory biomass-based diesel volume mandate is limited to cases in which we determine that the mandate would severely harm the economy or environment, or that there is inadequate domestic supply. Under CAA 211(o)(7)(E) we may also order a reduction in required use of biomass based diesel if we find that there is a significant renewable feedstock disruption or other market circumstances that would make the price of biomass-based diesel fuel increase significantly. No commenter has suggested that any of these conditions exist. The expiration of the biodiesel tax credit is, by itself, an insufficient basis for a waiver, and we do not have the authority to waive a portion of the standard based on projections of what demand would be in the absence of a mandate. III. Percentage Standards for 2011 A. Background The renewable fuel standards are expressed as a volume percentage, and are used by each obligated party to determine their renewable volume obligations (RVO). Since there are four separate standards under the RFS2 program, there are likewise four separate RVOs applicable to each obligated party. Each standard applies to the sum of all gasoline and diesel produced or imported. The applicable percentage standards are set so that if each regulated party meets the percentages, then the amount of renewable fuel, cellulosic biofuel, biomass-based diesel, and advanced biofuel used will meet the volumes required on a nationwide basis. As discussed in Section II.A.4, the cellulosic biofuel volume requirement for 2011 is 6.6 million gallons (6.0 million ethanol equivalent gallons). This volume is used as the basis for setting the percentage standard for cellulosic biofuel for 2011. We have also decided that the advanced biofuel and total renewable fuel volumes will not be reduced below the volumes set forth in the statute. The 2011 volumes used to determine the four percentage standards are shown in Table III.A-1. Table III.A-1—Volume Requirements for 2011 Actual volume Ethanol equivalent volume Cellulosic biofuel 6.6 mill gal 6.0 mill gal. Biomass-based diesel 0.80 bill gal 1.20 bill gal. Advanced biofuel 1.35 bill gal 1.35 bill gal. Renewable fuel 13.95 bill gal 13.95 bill gal. B. Calculation of Standards 1. How Are the Standards Calculated? The following formulas are used to calculate the four percentage standards applicable to producers and importers of gasoline and diesel ( see § 80.1405): ER09DE10.001 Where: Std CB,i = The cellulosic biofuel standard for year i, in percent. Std BBD,i = The biomass-based diesel standard (ethanol-equivalent basis) for year i, in percent. Std AB,i = The advanced biofuel standard for year i, in percent. Std RF,i = The renewable fuel standard for year i, in percent. RFV CB,i = Annual volume of cellulosic biofuel required by section 211(o) of the Clean Air Act for year i, in gallons. RFV BBD,i = Annual volume of biomass-based diesel required by section 211(o) of the Clean Air Act for year i, in gallons. RFV AB,i = Annual volume of advanced biofuel required by section 211(o) of the Clean Air Act for year i, in gallons. RFV RF,i = Annual volume of renewable fuel required by section 211(o) of the Clean Air Act for year i, in gallons. G i = Amount of gasoline projected to be used in the 48 contiguous states and Hawaii, in year i, in gallons. D i = Amount of diesel projected to be used in the 48 contiguous states and Hawaii, in year i, in gallons. RG i = Amount of renewable fuel blended into gasoline that is projected to be consumed in the 48 contiguous states and Hawaii, in year i, in gallons. RD i = Amount of renewable fuel blended into diesel that is projected to be consumed in the 48 contiguous states and Hawaii, in year i, in gallons. GS i = Amount of gasoline projected to be used in Alaska or a U.S. territory in year i if the state or territory opts-in, in gallons. RGS i = Amount of renewable fuel blended into gasoline that is projected to be consumed in Alaska or a U.S. territory in year i if the state or territory opts-in, in gallons. DS i = Amount of diesel projected to be used in Alaska or a U.S. territory in year i if the state or territory opts-in, in gallons. RDS i = Amount of renewable fuel blended into diesel that is projected to be consumed in Alaska or a U.S. territory in year i if the state or territory opts-in, in gallons. GE i = The amount of gasoline projected to be produced by exempt small refineries and small refiners in year i, in gallons, in any year they are exempt per §§ 80.1441 and 80.1442, respectively. For 2011, this value is zero. See further discussion in Section III.B.2 below. DE i = The amount of diesel projected to be produced by exempt small refineries and small refiners in year i, in gallons, in any year they are exempt per §§ 80.1441 and 80.1442, respectively. For 2011, this value is zero. See further discussion in Section III.B.2 below. The four separate renewable fuel standards for 2011 are based in part on the 49-state gasoline and diesel consumption volumes projected by EIA. The projected volumes of gasoline, ethanol, and biodiesel used to calculate the final percentage standards are provided by the EIA's Short-Term Energy Outlook (STEO), while the projected volume of transportation diesel used to calculate the final percentage standards is provided by the most recent Annual Energy Outlook (AEO). In the proposal, we used the March 2010 issue of STEO and the Early Release version of AEO2010. For this final rule, we have used the volumes of transportation fuel provided by EIA under CAA 211(o)(3)(A) in a letter dated October 20, 2010. 16 This letter aggregates volume projections from several EIA sources including the most recently available versions of STEO and AEO. Gasoline and diesel volumes are adjusted in the formulas to account for renewable fuel contained in the STEO and AEO projections. Beginning in 2011, gasoline and diesel volumes produced by small refineries and small refiners will generally no longer be exempt, and thus there is no adjustment to the gasoline and diesel volumes in today's final rule to account for such an exemption. However, as discussed more fully in Section III.B.2 below, depending upon the results of a Congressionally-mandated DOE study, it is possible that the exemption for some small refineries could be extended. In addition, we may extend the exemption for individual small refineries on a case-by-case basis if they demonstrate disproportionate economic hardship. If any small refinery exemptions for 2011 are approved after this final rulemaking, the parties in question would be exempt but we would not intend to modify the applicable percentage standards and announce new standards for 2011. EPA believes the Act is best interpreted to require issuance of a single annual standard in November that is applicable in the following calendar year, thereby providing advance notice and certainty to obligated parties regarding their regulatory requirements. Periodic revisions to the standards to reflect waivers issued to small refineries or refiners would be inconsistent with the statutory text, and would introduce an undesirable level of uncertainty for obligated parties. 16 Letter from Richard Newell, EIA Administrator to Lisa Jackson, EPA Administrator. As described in the March 26, 2010 RFS2 final rule, the standards are expressed in terms of energy-equivalent gallons of renewable fuel, with the cellulosic biofuel, advanced biofuel, and total renewable fuel standards based on ethanol equivalence and the biomass-based diesel standard based on biodiesel equivalence. However, all RIN generation is based on ethanol-equivalence. More specifically, the RFS2 regulations provide that production or import of a gallon of biodiesel will lead to the generation of 1.5 RINs. In order to ensure that demand for 0.8 billion physical gallons of biomass-based diesel will be created in 2011, the calculation of the biomass-based diesel standard provides that the required volume be multiplied by 1.5 under the assumption that biodiesel will predominate the biomass-based diesel market. The net result is that a physical gallon of biodiesel will be worth 1.0 gallons toward the biomass-based diesel standard, but worth 1.5 gallons toward the other standards. The levels of the percentage standards would be reduced if Alaska or a U.S. territory chooses to participate in the RFS2 program, as gasoline and diesel produced in or imported into that state or territory would then be subject to the standard. Neither Alaska nor any U.S. territory has chosen to participate in the RFS2 program at this time, and thus the value of the related terms in the calculation of the standards is zero. Note that the equation's terms for projected volumes of gasoline and diesel use include gasoline and diesel that has been blended with renewable fuel. In the equation, the total renewable fuel volume is subtracted from the total gasoline and diesel volume to get total non-renewable gasoline and diesel volumes (because the gasoline and diesel volumes provided by EIA include renewable fuel use), The values of the equation variables for 2011 are shown in Table III.B.1-1. 17 Terms not included in this table have a value of zero. 17 To determine the 49-state values for gasoline and diesel, the amounts of these fuels used in Alaska is subtracted from the totals provided by DOE. The Alaska fractions are determined from the most recent (2008) EIA State Energy Data, Transportation Sector Energy Consumption Estimates. The gasoline and distillate fuel oil fractions are approximately 0.2% and 0.7%, respectively. Ethanol use in Alaska is estimated at 5% of its gasoline consumption (based on the same State data), and biodiesel use is assumed to be zero. Table III.B.1-1—Values for Terms in Calculation of the Standards (Bill Gal) Term Value RFV CB,2011 0.006 RFV BBD,2011 0.80 RFV AB,2011 1.35 RFV RF,2011 13.95 G 2011 139.07 D 2011 49.21 RG 2011 13.45 RD 2011 0.71 Using the volumes shown in Table III.B.1-1, we have calculated the percentage standards for 2011 as shown in Table III.B.1-2. Table III.B.1-2—Percentage Standards for 2011 Percent Cellulosic biofuel 0.003 Biomass-based diesel 0.69 Advanced biofuel 0.78 Renewable fuel 8.01 2. Small Refineries and Small Refiners In CAA section 211(o)(9), enacted as part of EPAct, Congress provided a temporary exemption to small refineries (those refineries with a crude throughput of no more than 75,000 barrels of crude per day) through December 31, 2010. In RFS1, we exercised our discretion under section 211(o)(3)(B) and extended this temporary exemption to the few remaining small refiners that met the Small Business Administration's (SBA) definition of a small business (1,500 employees or less company-wide) but did not meet the statutory small refinery definition as noted above. Because EISA did not alter the small refinery exemption in any way, the RFS2 program regulations exempt gasoline and diesel produced by small refineries and small refiners in 2010 from the renewable fuels standard (unless the exemption was waived). See 40 CFR § 80.1441. Under the RFS program, Congress has provided two ways that small refineries can receive an extension of the temporary exemption beyond 2010. One is based on the results of a study conducted by the Department of Energy (DOE) to determine if small refineries would face a disproportionate economic hardship under the RFS program. The other is based on EPA evaluation of claims of disproportionate economic hardship, the DOE study, and other economic factors on a case-by-case basis in response to small refinery petitions. In January 2009, DOE issued a Small Refineries Exemption Study which did not find that small refineries would face a disproportionate economic hardship under the RFS program. The conclusions were based in part on the expected robust availability of RINs; DOE further noted that, if the RIN market were to change, individual refineries still have a statutory right to apply for relief on a case-by-case basis. Subsequently, the Senate Appropriations Committee “directed [DOE] to reopen and reassess the Small Refineries Exemption Study by June 30, 2010,” listing a number of factors that the Committee intended DOE to consider in the revised study. The Final Conference Report to the Energy & Water Development Appropriations Act added that the conferees “support the study requested by the Senate on RFS and expect the Department to undertake the requested economic review.” DOE was directed to complete a reassessment and issue a revised report by June 30, 2010. A revised study had not been issued at the time of the RFS2 final rulemaking, or at the time of this writing. We have received three petitions from small refineries requesting an extension of their exemption from the RFS2 requirements. In evaluating these petitions, EISA requires that EPA “* * * consider the findings of the [DOE] study * * * and other economic factors.” Although the DOE study issued in January 2009 would satisfy the statutory requirement that we consider the DOE study before acting, we believe that our evaluation of these three petitions will be better informed if we consider the findings of the forthcoming revised DOE study. Since the revised study is not yet available, we have assumed that all small refineries and small refiners will be subject to the RFS2 standards in 2011 for the purposes of calculating those standards. If, subsequent to announcing the 2011 standards, we make a determination that one or more hardship petitions should be approved, we do not intend to revise the 2011 standards applicable to other obligated parties to require that they make up for volumes that will not be attained by the exempt refineries. We received only three comments on the treatment of small refineries in the RFS2 program, and all supported the inclusion of small refineries and small refiners as obligated parties beginning in 2011. API additionally requested that any consideration of extending the exemption for any small refinery into 2011 also take into account the impact that such an action would have on other refineries, specifically with regard to the ethanol blendwall. However, we do not believe that the extension of any small refinery exemptions into 2011 will have a significant impact on the ethanol blendwall. Since the total volume of renewable fuel required under RFS2 is the same regardless of whether any small refineries are exempt or not, such exemptions will have no impact on the relative volumes of ethanol and gasoline in the nationwide transportation fuels market. Thus, the timing of the onset of the nationwide blendwall will not be affected by any small refinery exemptions. We do recognize that any exemption for a small refinery will result in a proportionally higher percentage standard for remaining obligated parties, and that this will affect the degree to which individual obligated parties can acquire sufficient RINs for compliance through blending ethanol into gasoline that they produce. This may be of particular concern to obligated parties whose gasoline production volume is higher than the volume of gasoline that they market, since such parties may have fewer opportunities to blend renewable fuels into their own gasoline and diesel. In such cases, obligated parties also have the option of marketing E85 for use in FFVs, extending their operations to include more gasoline marketing, or purchasing RINs on the open market. IV. Cellulosic Biofuel Technology Assessment In projecting the volumes of cellulosic biofuel for 2011, we conducted a technical assessment of the production technologies that are under consideration by the broad universe of companies we investigated. Many of these companies are still in the research phase, resolving outstanding issues with specific technologies, and/or in the design phase to implement those technologies for the production of commercial-scale volumes of cellulosic biofuel. A subset of the companies we investigated have moved beyond the research and design phase and are actively preparing for production. This smaller group of companies formed the basis for our projection of potential 2011 volumes of cellulosic biofuel. This section discusses the full range of cellulosic biofuel technologies being considered among producers, with reference to those individual companies that are focusing on each technology and those we project will be most likely to use those technologies to produce cellulosic biofuel in 2011. A. What pathways are currently valid for the production of cellulosic biofuel? In determining the appropriate volume of cellulosic biofuel on which to base the percentage standard for 2011, it is important to consider the ability of the biofuel to generate cellulosic RINs under the RFS2 program. As of this writing, there are three valid pathways available as shown in Table IV.A-1 below. Table IV.A-1—Cellulosic Biofuel Pathways for Use in Generating RINs Fuel type Feedstock Production process requirements D-Code Ethanol Cellulosic Biomass from crop residue, slash, pre-commercial thinnings and tree residue, annual covercrops, switchgrass, and miscanthus; cellulosic components of separated yard waste; cellulosic components of separated food waste; and cellulosic components of separated MSW Any 3 (cellulosic biofuel). Cellulosic Diesel, Jet Fuel and Heating Oil Cellulosic Biomass from crop residue, slash, pre-commercial thinnings and tree residue, annual covercrops, switchgrass, and miscanthus; cellulosic components of separated yard waste; cellulosic components of separated food waste; and cellulosic components of separated MSW Any 7 (cellulosic diesel). Cellulosic Naphtha Cellulosic Biomass from crop residue, slash, pre-commercial thinnings and tree residue, annual covercrops, switchgrass, and miscanthus; cellulosic components of separated yard waste; cellulosic components of separated food waste; and cellulosic components of separated MSW Fischer-Tropsch process 3 (cellulosic biofuel). Of the five facilities that we currently believe could contribute to the volume of commercially available cellulosic biofuel in 2011, four would produce alcohols from cellulosic biomass and one would produce diesel from cellulosic biomass. None of the facilities we have evaluated would produce cellulosic naphtha through a Fischer-Tropsch process. In 2011 the primary biofuel Range fuels has indicated will be produced from their facility is methanol. While there is currently no pathway for cellulosic methanol to generate RINs, Range has engaged EPA in discussion regarding the addition of a pathway for cellulosic methanol. Two of the facilities shown in Table II.A.4-1, KL Energy and Range Fuels, intend to use wood as the primary feedstock. The only types of wood that are currently allowed as a valid feedstock are those derived from various types of waste. If either of these two companies choose to use trees from a tree plantation instead of qualifying waste wood, its pathway would not fall into the any of the pathways currently listed in Table 1 to § 80.1426. However, as described more fully in Section V.A, we are currently evaluating the lifecycle GHG impacts of biofuel made from pulpwood, including wood from tree plantations. If such a pathway is determined to meet the 60% GHG threshold required for cellulosic biofuel, it will be added to Table 1 to § 80.1426 and producers can then make use of it to generate cellulosic RINs. As described in Section II.A, Range Fuels will begin making predominantly methanol, and no approved pathway currently exists under the RFS program to generate RINs for methanol. However, Range has been in discussions with EPA concerning a petition under § 80.1416 for the generation of RINs for methanol made from woody biomass as well as the generation of cellulosic RINs for the portion of biodiesel made from cellulosic methanol. These pathways are similar to pathways we have modeled in the past. For the purposes of projecting cellulosic volumes for 2011, we believe that the methanol from Range Fuels has the potential for being approved for generation of cellulosic RINs and is therefore appropriate for being included in the volumes that we believe are potentially attainable in 2011. B. Cellulosic Feedstocks Cellulosic biofuel technologies are different from other biofuel technologies because they convert the cellulose and other very difficult to convert compounds into biofuels. Unlike grain feedstocks where the major carbohydrate is starch (very simply combined sugars), lignocellulosic biomass is composed mainly of cellulose (40-60%) and hemicellulose (20-40%). 18 Cellulose and hemicellulose are made up of sugars linked together in long chains called polysaccharides. Once hydrolyzed, they can be fermented into ethanol. The remainder of cellulosic feedstocks consists primarily of lignin, a complex polymer which serves as a stiffening and hydrophobic (water-repelling) agent in cell walls. Currently, lignin cannot be fermented into ethanol, but could be burned as a by-product to generate electricity. Thermochemical, pyrolysis and depolymerization processing, however, can convert some or even most of the lignin, in addition to the cellulosic and hemicellulose, into biofuels. 18 DOE. “Biomass Program: ABC's of Biofuels”. Accessed at: http://www1.eere.energy.gov/biomass/abcs_biofuels.html#content. C. Emerging Technologies When evaluating the array of biofuel technologies which could produce one or more fuels from cellulosic feedstocks that could qualify under RFS2, we found that it is helpful to organize them into fuel technology categories. Organizing them into categories eases the task of understanding the technologies, and also simplifies our evaluation of these technologies because similar technologies likely have similar cost and lifecycle impacts. The simplest organization is by the fuel produced. However, we frequently found that additional subdivisions were also helpful. Table IV.C-1 provides a list of technologies, the fuels produced, and a list of many of the companies which we learned are pursuing the technology (or something very similar to the technology listed in the category). EPA is currently tracking the progress of more than 100 cellulosic biofuel projects, many of which are not listed in the following table. The inclusion of a specific company in the table or technical discussion that follows should not be interpreted as an endorsement of the listed company. The cellulosic biofuel industry continues to progress at a rapid pace and many companies not listed in this assessment may still produce significant volumes of cellulosic fuel in future years. Table IV.C-1—List of Technology Categories, the Fuels Produced Through Each Type of Technology, and the Companies Pursuing Them Technology category Technology Fuels produced Companies Biochemical Enzymatic Hydrolysis Ethanol Abengoa, AE Fuels, DuPont Danisco, Florida Crystals, Gevo, Poet, ICM, Iogen, BPI, Energy, Fiberight, KL Energy. Acid Hydrolysis Ethanol Agresti, Arkenol, Blue Fire, Pencor, Pangen, Raven Biofuels. Dilute Acid, Steam Explosion of Cellulose Ethanol Verenium, BP, Central Minnesota Ethanol Coop. Consolidated Bioprocessing (one step hydrolysis and fermentation) of Cellulose Ethanol Mascoma, Qteros. Conversion of Cellulose via carboxylic acid Ethanol, Gasoline, Jet Fuel, Diesel Fuel Terrabon, Swift Fuels. One step Conversion of Cellulose to distillate Diesel, Jet Fuel or Naphtha Bell Bioenergy, LS9. Thermochemical Thermochemical/Fischer Tropsch Diesel Fuel and Naphtha Choren, Flambeau River Biofuels, Baard, Clearfuels, Gulf Coast Energy, Rentech, TRI, Nature's Fuel. Thermochemical/Fischer Tropsch DME Chemrec, New Page. Thermochemical/Catalytic conversion of syngas to alcohols Ethanol Range Fuels, Pearson Technologies, Fulcrum Bioenergy, Enerkem, and Gulf Coast Energy. Hybrid Thermochemical w/Biochemical catalyst Ethanol Coskata, INEOS Bio, Lanzatech. Acid Hydrolysis of cellulose to intermediate; hydrogenation using Thermochemical syngas from non-cellulose fraction Ethanol, Other alcohols Zeachem. Depolymerization Catalytic Depolymerization of Cellulose Diesel, Jet Fuel or Naphtha Cello Energy, Covanta, Green Power. Pyrolysis of Cellulose Diesel, Jet Fuel, or Gasoline Envergent (UOP/Ensyn), Dynamotive, Petrobras, Univ. of Mass, KIOR. Other Catalytic Reforming of Sugars from Cellulose Gasoline Virent. Of the technologies listed above, many of them are considered to be “second generation” biofuels or new biofuel technologies capable of meeting either the advanced biofuel or cellulosic biofuel RFS standard. The following sections describe specific companies and the new biofuel technologies which the companies have developed or are developing. This summary is not meant to be a comprehensive list of all new biofuel technologies, but rather a description of some of the more prominent of the new biofuel technologies that serve to provide a sense of the technology categories listed above. The process technology summaries are based on information provided by the respective companies. EPA has not been able to confirm all of the information, statements, process conditions, and the process flow steps necessary for any of these processes and companies. 1. Biochemical Biochemical conversion refers to a broad grouping of processes that use biological organisms to convert cellulosic feedstocks into biofuels. While no two processes are identical, many of these processes follow a similar basic pathway to convert cellulosic materials to biofuel. The general process of most biochemical cellulosic biofuel processes consists of five main steps: Feedstock handling, pretreatment, hydrolysis, fermentation/fuel conversion, and distillation/separation. The feedstock handling step reduces the particle size of the incoming feedstock and removes any contaminants that may negatively impact the rest of the process. In the pretreatment step the structure of the lignin and hemicellulose is disrupted, usually using some combination of heat, pressure, acid, or base, to allow for a more effective hydrolysis of the cellulosic material to simple sugars. In the hydrolysis stage the cellulose and any remaining hemicellulose is converted into simple sugars, usually using an enzyme or strong acid. In the fermentation or fuel conversion step, the simple sugars are converted to the desired fuel by a biological organism. In the final step the fuel that is produced is separated from the water and other byproducts by distillation or some other means. A basic diagram of the biochemical conversion process can be found in Figure IV.C.1-1 below. BILLING CODE 6560-50-P ER09DE10.002 19 Image From: http://www.afdc.energy.gov/afdc/ethanol/production_cellulosic.html . BILLING CODE 6560-50-C While this diagram shows the production of ethanol from cellulosic biomass, it is possible to use the same process to produce other fuels or specialty chemicals using different biological organisms. The following sections will discuss each of these steps in greater detail, some of the variations to this general process, and some of the advantages and disadvantages of the biochemical process of producing biofuel from cellulosic materials as compared to other fuel production processes. Three of the five companies that EPA believes may produce cellulosic biofuel in 2011 plan to use a biochemical process to produce biofuels. All three of these companies, Dupont Danisco Cellulosic Ethanol, Fiberight, and KL energy, all plan to use an enzymatic hydrolysis. One of the biggest appeals of the biochemical pathway is the relatively low capital costs of these projects compared to other cellulosic biofuel facilities. Biochemical projects are also less dependent on economies of scale for profitability, making smaller and less capital intensive commercial facilities more feasible. a. Feedstock Handling The first step of the biochemical conversion process is to insure that the biomass stream can be utilized by the rest of the conversion process. This most often takes the form of size reduction, either by grinding or chipping as appropriate for the type of biomass. While this is a relatively simple process it is essential to allow the following steps of the process to function as designed. It is also a potentially energy intensive process. It may be possible for biofuel producers to purchase cellulosic material that is already of the appropriate size, however we believe that in the near term this is unlikely and most biofuel producers will have to invest in equipment to reduce the size of the material they receive as needed for their process. In coming years, as the market for cellulosic materials expands, purchasing feedstock that has already been ground or chipped may be possible and cost effective, as these processes increase the density of this material and may reduce transportation costs. While this may provide financial benefits for the cellulosic biofuel producer, it will not impact the lifecycle green house gas emissions of the process. In addition to size reduction, steps must also be taken to remove any material from the feedstock that might be detrimental to the fuel production process. Contaminants in the feedstock, such as dirt, rocks, plastics, metals, and other non-biogenic materials, would at best travel through the fuel production process unchanged, resulting in reduced fuel production capacity. Depending on the type of contaminant they may also be converted to undesired byproducts that must be separated from the fuel. They could also be toxic to the biological organisms being used to convert the sugars to fuel, necessitating a shut down and restart of the plant. Any of these scenarios would result in a significant cost to the fuel producer. Feedstocks such as agricultural residues, wood chips, or herbaceous or woody energy crops are likely to contain far fewer contaminants than more heterogeneous feedstocks such as municipal solid waste (MSW). b. Biomass Pretreatment The purpose of the biomass pretreatment stage is to disrupt the structure of the cellulosic biomass to allow for the hydrolysis of the cellulose and hemicellulose into simple sugars. The ideal pretreatment stage would allow for a high conversion of the cellulose and hemicellulose to simple sugars, minimize the degradation of these sugars to undesired forms that reduce fuel yields and inhibit fermentation, not require especially large or expensive reaction vessels, and be a relatively robust and simple process. No single biomass pretreatment method has yet been discovered that meets all of these goals, but rather a variety of options are being used by various cellulosic fuel producers, each with their own strengths and weaknesses. Dilute acid pretreatment and alkaline pretreatment are two methods currently being used that attack the hemicellulose and lignin portions of the cellulosic biomass respectively. Other methods, such as steam explosion and ammonia fiber expansion, seek to use high temperature and pressure, followed by rapid decompression to disrupt the structure of the cellulosic biomass and allow for a more efficient hydrolysis of the cellulose and hemicellulose to simple sugars. Each of these methods is discussed in more detail in a technical memo that has been added to the docket. 20 The cost and characteristics of the cellulosic feedstock being processed is likely to have a significant impact on the pretreatment process that is used. 20 Wyborny, Lester. “In-Depth Assessment of Advanced Biofuels Technologies.” Memo to the docket, November 17, 2010. c. Hydrolysis In the hydrolysis step the cellulose and any remaining hemicellulose are converted to simple sugars. There are two main methods of hydrolysis: acid hydrolysis and enzymatic hydrolysis. Acid hydrolysis is the oldest technology for the conversion of cellulosic feedstock to ethanol and can only be used following an acid pretreatment process. An alternative method is to use a combination of enzymes to perform the hydrolysis after the biomass has been pretreated. This process is potentially more effective at hydrolyzing pretreated biomass but in the past has not been economically feasible due to the prohibitively high cost of the enzymes. The falling cost of these enzymes in recent years has made the production of cellulosic biofuels using enzymatic hydrolysis possible. The lignin is largely unaffected by the hydrolysis and fuel production steps but is carried through these processes until it is separated out in the fuel separation step and burned for process energy or sold as a co-product. i. Acid Hydrolysis Acid hydrolysis is a technique that has been used for over 100 years to convert cellulosic feedstocks into fuels. In the acid hydrolysis process the lignin and cellulose portions of the feedstock that remain after the hemicellulose has been dissolved, hydrolyzed, and separated during the dilute acid pretreatment process is treated with a second acid stream. This second acid treatment uses a less concentrated acid than the pretreatment stage but at a higher temperature, as high as 215 °C. This treatment hydrolyzes the cellulose into glucose and other six-carbon sugars that are then fed to biological organisms to produce the desired fuel. It is necessary to hydrolyze the hemicellulose and cellulose in two separate steps to prevent the conversion of the pentose sugars that result from the hydrolysis of the hemicellulose from being further converted into furfural and other chemicals. This would not only reduce the total production of sugars from the cellulosic feedstock, but also inhibit the production of fuel from the sugars in later stages of the process. The acidic solution containing the sugars produced as a result of the hydrolysis reaction must also be treated so that this stream can be fed to the biological organisms that will convert these sugars into fuel. In order to operate an acid hydrolysis process cost effectively the acid must be recovered, not simply neutralized. Methods currently being used to recover this acid include membrane separation and continuous ion exchange. The advantages of using an acid hydrolysis are that this process is well understood and capable of producing high sugar yields from a wide variety of feedstocks. Capital costs are high however, as materials compatible with the acidic streams must be extensively utilized. The high temperatures necessary for acid hydrolysis also result in considerable energy costs. ii. Enzymatic Hydrolysis The enzymatic hydrolysis process uses enzymes, rather than acids, to hydrolyze the cellulose and any remaining hemicellulose from the pretreatment process. This process is much more versatile than the acid hydrolysis and can be used in combination with any of the pretreatment processes described above, provided that the structure of the lignocellulosic feedstock has been disrupted enough to allow the enzymes to easily access the hemicellulose and cellulose. After the feedstock has gone through pretreatment a cocktail of cellulose enzymes is added. These enzymes can be produced by the cellulosic biofuel producer or purchased from enzyme producers such as Novozymes, Genencor, and others. The exact mixture of enzymes used in the enzymatic hydrolysis stage can vary greatly depending on which of the pretreatment stages is used as well as the composition of the feedstock. The main advantages of the enzymatic hydrolysis process are a result of the mild operating conditions. Because no acid is used, special materials are not required for the reaction vessels. Enzymatic hydrolysis is carried out at relatively low temperatures, usually around 50° C, and atmospheric pressure and therefore has low energy requirements. These conditions also result in less undesired reactions that would reduce the production of sugars and potentially inhibit fuel production. Enzymatic hydrolysis works best with a uniform feedstock, such as agricultural residues or energy crops, where the concentration and combination of enzymes can be optimized for maximum sugar production. If the composition of the feedstock varies daily, as can be the case with fuel producers utilizing MSW or other waste streams, or even seasonally, it will be more difficult to ensure that the correct enzyme cocktail is being used to carry out the hydrolysis as efficiently as possible. The main hurdle to using an enzymatic hydrolysis has been and continues to be the costs of the enzymes. Recent advances by companies that produce enzymes for the hydrolysis of cellulosic materials have resulted in a drastic cost reduction of these enzymes. If, as many researchers and cellulosic biofuel producers expect, the cost of these enzymes continues to fall it is likely that enzymatic hydrolysis will be a lower cost option than acid hydrolysis. d. Fuel Production After the cellulosic biomass has been hydrolyzed to simple sugars, this sugar solution is converted to fuel by biological organisms. In some biochemical fuel production processes the sugars produced from the fermentation of the hemicellulose, which are mainly five-carbon sugars, are converted to fuel in a separate reactor and with a different set of organisms than the sugars produced from the cellulose hydrolysis, which are mainly six-carbon sugars. Others processes, however, produce fuel from the five and six-carbon sugars in the same reaction vessel. A wide range of biological organisms can be used to convert the simple sugars into fuel. These include yeasts, bacteria, and other microbes, some of which are naturally occurring and others that have been genetically modified. The ideal biological organism converts both five and six-carbon sugars to fuel with a high efficiency, is able to tolerate a range of conditions, and is adaptable to process sugar streams of varying compositions that may result from variations in feedstock. Many cellulosic biofuel producers have their own proprietary organism or organisms optimized to produce the desired fuel from their unique combination of feedstock, pretreatment and hydrolysis processes, and fuel conversion conditions. Other cellulosic fuel producers license these organisms from biotechnology companies who specialize in their discovery and production. The different biological organisms being considered for cellulosic biofuel production are capable of producing many different types of fuels. Most cellulosic biofuel producers are working with organisms that produce ethanol. In many ways this is the simplest fuel to produce from lignocellulosic biomass as the production of ethanol from simple sugars is a well understood process. Others intend to produce butanol or other alcohols that have higher energy content. Butanol has the potential to be blended into gasoline in greater concentrations than ethanol and therefore has a potentially greater market as well as value due to its higher energy content. Yields for butanol, however, are currently lower per ton of feedstock than ethanol. Other cellulosic biofuel producers intend to produce hydrocarbon fuels very similar to gasoline, diesel, and jet fuel. These fuels command a higher price than alcohols, have a greater energy density, and can potentially be blended into conventional gasoline and diesel for use in any conventional vehicles without strict blending limits. They could also be transported by existing pipelines and utilize the same infrastructure as the petroleum industry. Some of the processes being researched by fuel producers result in a single compound, such as iso-octane, that would need to be blended into petroleum gasoline in order to be used as transportation fuel, while others produce a range of hydrocarbons very similar to those found in gasoline or diesel fuel refined from petroleum and could potentially be used in conventional vehicles without blending. The yields of fuel produced by these organisms through biochemical processes are currently significantly lower than those processes that produce ethanol and other alcohols. e. Fuel Separation In the fuel separation stage the fuel produced is separated from the water, lignin, any un-reacted hemicellulose and cellulose, and any other compounds remaining after the fuel production stage. The complexity of this stage is highly dependent on the type of fuel produced. For processes producing hydrocarbon fuels this stage can be as simple as a settling tank, where the hydrocarbons are allowed to float to the top and are removed. Recovering the ethanol is a much more difficult task. To recover the ethanol, a distillation process, nearly identical to that used in the grain ethanol industry, is used. The ethanol solution is first separated from the solids before being sent to a distillation column called a beer column. The overheads of the beer column are fed to a second distillation column, called a rectifier for further separation. The rectifier produces a stream with an ethanol content of approximately 96%. A molecular sieve unit is then used to dehydrate this stream to produce fuel grade ethanol with purity greater than 99.5%. Gasoline, natural gasoline, or some other approved denaturant is then added to the ethanol before the fuel is stored. After the fuel has been recovered the remaining lignin and solids are dried and either burned on site to provide process heat and electricity or sold as a byproduct of the fuel production process. The waste water is either recycled or sent to a water treatment facility. The distillation of ethanol is a very energy intensive process and new technologies, such as membrane separation, are being developed that could potentially reduce the energy intensity, and thus the cost, of the ethanol dehydration process. f. Process Variations While the process described above outlines the general biochemical process used by many cellulosic biofuel producers, there are several prominent variations being pursued. These variations usually seek to simplify the biochemical fuel production process by combining several steps into a single step or using other means to reduce the capital or operating costs of the process. Simultaneous Saccharification and Fermentation (SSF), Simultaneous Saccharification and Co-Fermentation (SSCF), Consolidated Bio-Processing (CBP), and Single Step Fuel Production are all production methods being developed by various biofuel production companies to combine two or more of the steps outlined above. These process variations are discussed in more detail in the aforementioned technical memo to the docket. These modifications are usually enabled by a proprietary technology or biological organism that makes these changes possible. g. Current Status of Biochemical Conversion Technology The biochemical cellulosic fuel production industry is currently transitio [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2010-30296. Public record. Not legal advice.