2014 Standards for the Renewable Fuel Standard Program

Federal RegisterNov 29, 2013

Ask Donna

What actually matters in this document.

Text

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2013-0479; FRL-9900-90-OAR]

RIN 2060-AR76

2014 Standards for the Renewable Fuel Standard Program

AGENCY:

Environmental Protection Agency (EPA).

ACTION:

Proposed rule.

SUMMARY:

Under section 211(o) of the Clean Air Act, the Environmental Protection Agency is required to set the renewable fuel percentage standards each November for the following year. Today's action proposes the annual percentage standards for cellulosic biofuel, biomass-based diesel, advanced biofuel, and renewable fuels that would apply to all motor vehicle gasoline and diesel produced or imported in the year 2014. For cellulosic biofuel, the statute specifies that EPA is to project the volume of production and must base the cellulosic biofuel standard on projected available volume if it is less than the applicable volume set forth in the Act. Today EPA is proposing a cellulosic biofuel volume for 2014 that is below the applicable volume specified in the Act. The statute also provides EPA the discretion to adjust the volumes of advanced biofuel and total renewable fuel under certain conditions. Relying on its Clean Air Act waiver authorities, EPA is proposing to adjust the applicable volumes of advanced biofuel and total renewable fuel to address projected availability of qualifying renewable fuels and limitations in the volume of ethanol that can be consumed in gasoline given practical constraints on the supply of higher ethanol blends to the vehicles that can use them and other limits on ethanol blend levels in gasoline. These adjustments are intended to put the program on a manageable trajectory while supporting growth in renewable fuels over time. Finally, the statute requires EPA to determine the applicable volume of biomass-based diesel to be used in setting annual percentage standards under the renewable fuel standard program for years after 2012. EPA is proposing the applicable volume of biomass-based diesel that would apply in 2014 and 2015. EPA is requesting comment on a variety of alternative approaches and on a range of inputs and methodologies relevant for setting the applicable standards.

DATES:

Comments must be received on or before January 28, 2014.

Hearing:

We intend to hold a hearing. Details of the location and date will be provided in a separate notice.

ADDRESSES:

Submit your comments, identified by Docket ID No. EPA-HQ-OAR-2013-0479, by one of the following methods:

•

www.regulations.gov:

Follow the on-line instructions for submitting comments.

• Email:

a-and-r-docket@epa.gov.

• Mail: Air and Radiation Docket and Information Center, Environmental Protection Agency, Mailcode: 2822T, 1200 Pennsylvania Ave. NW., Washington, DC 20460.

• Hand Delivery: EPA Docket Center, EPA West Building, Room 3334, 1301 Constitution Ave. NW., Washington, DC 20460. Such deliveries are only accepted during the Docket's normal hours of operation, and special arrangements should be made for deliveries of boxed information.

Instructions:

Direct your comments to Docket ID No. EPA-HQ-OAR-2013-0479. EPA's policy is that all comments received will be included in the public docket without change and may be made available online at www.regulations.gov, including any personal information provided, unless the comment includes information claimed to be Confidential Business Information (CBI) or other information whose disclosure is restricted by statute. Do not submit information that you consider to be CBI or otherwise protected through www.regulations.gov or email. The

www.regulations.gov

Web site is an “anonymous access” system, which means EPA will not know your identity or contact information unless you provide it in the body of your comment. If you send an email comment directly to EPA without going through www.regulations.gov your email address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the Internet. If you submit an electronic comment, EPA recommends that you include your name and other contact information in the body of your comment and with any disk or CD-ROM you submit. If EPA cannot read your comment due to technical difficulties and cannot contact you for clarification, EPA may not be able to consider your comment. Electronic files should avoid the use of special characters, any form of encryption, and be free of any defects or viruses. For additional information about EPA's public docket visit the EPA Docket Center homepage at

http://www.epa.gov/epahome/dockets.htm.

For additional instructions on submitting comments, go to Section I.B of the

SUPPLEMENTARY INFORMATION

section of this document.

Docket:

All documents in the docket are listed in the www.regulations.gov index. Although listed in the index, some information is not publicly available, e.g., CBI or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, will be publicly available only in hard copy. Publicly available docket materials are available either electronically in

www.regulations.gov

or in hard copy at the Air and Radiation Docket and Information Center, EPA/DC, EPA West, Room 3334, 1301 Constitution Ave. NW., Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Public Reading Room is (202) 566-1744, and the telephone number for the Air Docket is (202) 566-1742.

FOR FURTHER INFORMATION CONTACT:

Julia MacAllister, Office of Transportation and Air Quality, Assessment and Standards Division, Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor MI 48105; Telephone number: 734-214-4131; Fax number: 734-214-4816; Email address:

macallister.julia@epa.gov,

or the public information line for the Office of Transportation and Air Quality; telephone number (734) 214-4333; Email address

OTAQ@epa.gov.

SUPPLEMENTARY INFORMATION:

I. General Information

A. Does this action apply to me?

Entities potentially affected by this proposed rule are those involved with the production, distribution, and sale of transportation fuels, including gasoline and diesel fuel or renewable fuels such as ethanol and biodiesel. Potentially regulated categories include:

Category

NAICS

Codes

SIC

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.

North American Industry Classification System (NAICS).

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 proposed action. This table lists the types of entities that EPA is now aware could potentially be regulated by this proposed action. Other types of entities not listed in the table could also be regulated. To determine whether your activities would be regulated by this proposed action, you should carefully examine the applicability criteria in 40 CFR part 80. If you have any questions regarding the applicability of this proposed action to a particular entity, consult the person listed in the preceding section.

B. What should I consider as I prepare my comments for EPA?

1. Submitting CBI

Do not submit confidential business information (CBI) to EPA through

www.regulations.gov

or email. Clearly mark the part or all of the information that you claim to be CBI. For CBI information in a disk or CD ROM that you mail to EPA, mark the outside of the disk or CD ROM as CBI and then identify electronically within the disk or CD ROM the specific information that is claimed as CBI. In addition to one complete version of the comment that includes information claimed as CBI, a copy of the comment that does not contain the information claimed as CBI must be submitted for inclusion in the public docket. Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR part 2.

2. Tips for Preparing Your Comments

When submitting comments, remember to:

• Identify the rulemaking by docket number and other identifying information (subject heading,

Federal Register

date and page number).

• Follow directions—The agency may ask you to respond to specific questions or organize comments by referencing a Code of Federal Regulations (CFR) part or section number.

• Explain why you agree or disagree, suggest alternatives, and substitute language for your requested changes.

• Describe any assumptions and provide any technical information and/or data that you used.

• If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced.

• Provide specific examples to illustrate your concerns, and suggest alternatives.

• Explain your views as clearly as possible, avoiding the use of profanity or personal threats.

• Make sure to submit your comments by the comment period deadline identified.

Outline of this preamble

I. Executive Summary

A. Purpose of This Action

B. Summary of Major Provisions in This Notice

1. Cellulosic Biofuel Volume for 2014

2. Biomass-Based Diesel Requirement in 2014 and 2015

3. Advanced Biofuel and Total Renewable Fuel in 2014

4. Proposed Annual Percentage Standards for 2014

C. Volume Requirements for 2015 and Beyond

II. Proposed Cellulosic Biofuel Volume for 2014

A. Statutory Requirements

B. Cellulosic Biofuel Volume Assessment for 2014

1. Potential Domestic Producers with Approved Pathways

2. Potential Domestic Producers without Existing Pathways

3. Potential Foreign Sources of Cellulosic Biofuel

4. Summary of Volume Projections for Individual Companies

C. Proposed Cellulosic Biofuel Volume for 2014

D. Rescission of the 2011 Cellulosic Biofuel Standards

III. Proposed National Volume Requirement for Biomass-Based Diesel in 2014 and 2015

A. Statutory Requirements

B. Compliance with 2013 Volume Requirement of 1.28 Billion Gallons

C. Determination of Applicable Volume for 2014 and 2015

IV. Proposed National Volume Requirements for Advanced Biofuel and Total Renewable Fuel for 2014

A. Statutory Authorities for Reducing Volumes to Address Biofuel Availability and the Ethanol Blendwall

1. Cellulosic Waiver Authority

2. General Waiver Authority

3. Combining Authorities for Reductions in Advanced Biofuel and Total Renewable Fuel

B. Determination of Reductions in Total Renewable Fuel

1. Estimating Ethanol Volumes that Could Reasonably Be Consumed

a. Projected Composition of 2014 Gasoline Supply

b. Assessment of E85 Consumption

c. Proposed Projection of E85 Consumption in 2014

d. Estimating Total Ethanol Consumption in 2014

2. Estimating Availability of Non-Ethanol Renewable Fuel Volumes

a. Non-Ethanol Cellulosic Biofuel

b. Biomass-Based Diesel

c. Non-Ethanol Advanced Biofuel

d. Non-Ethanol Non-Advanced Renewable Fuel

3. Treatment of Carryover RINs in 2014

4. Proposed Range for the Volume Requirement for Total Renewable Fuel

C. Determination of Reductions in Advanced Biofuel

1. Available Volumes of Advanced Biofuel in 2014

a. Cellulosic biofuel

b. Biomass-Based Diesel

c. Domestic Production of Other Advanced Biofuel

d. Imported Sugarcane Ethanol

e. Summary

2. Options for Determining Appropriate Reductions in Advanced Biofuel

a. Option 1: Advanced Biofuel Availability

b. Option 2: Full Reduction in Cellulosic Biofuel

c. Option 3: Availability, Growth, and Limits on Ethanol Consumption

D. Summary of Proposed Volume Requirements for 2014

E. Volume Requirements for 2015 and Beyond

V. Proposed Percentage Standards for 2014

A. Background

B. Calculation of Standards

1. How Are the Standards Calculated?

2. Small Refineries and Small Refiners

3. Proposed Standards

VI. Public Participation

A. How Do I Submit Comments?

B. How Should I Submit CBI to the Agency?

VII. Statutory and Executive Order Reviews

A. Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review

B. Paperwork Reduction Act

C. Regulatory Flexibility Act

D. Unfunded Mandates Reform Act

E. Executive Order 13132: Federalism

F. Executive Order 13175: Consultation and Coordination with Indian Tribal Governments

G. Executive Order 13045: Protection of Children from Environmental Health Risks and Safety Risks

H. Executive Order 13211: Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use

I. National Technology Transfer and Advancement Act

J. Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations

VIII. Statutory Authority

I. Executive Summary

The Renewable Fuel Standard (RFS) program began in 2006 pursuant to the requirements in Clean Air Act (CAA) section 211(o) which was added through the Energy Policy Act of 2005 (EPAct). The statutory requirements for the RFS program were subsequently modified through the Energy Independence and Security Act of 2007 (EISA), resulting in the publication of major revisions to the regulatory requirements on March 26, 2010.

75 FR 14670.

The national volumes of renewable fuel to be used under the RFS program each year (absent an adjustment or waiver by EPA) are specified in CAA section 211(o)(2). The volumes for 2014 are shown in Table I-1. Note that cellulosic biofuel and biomass-based diesel categories are nested within advanced biofuel, which is itself nested within the renewable fuel category.

Table I-1—Required Applicable Volumes in Billion Gallons (bill gal) in the Clean Air Act for 2014

Cellulosic biofuel

1.75

Biomass-based diesel

≥1.0

Advanced biofuel

3.75

Renewable fuel

18.15

Ethanol-equivalent volume.

Actual volume. The ethanol-equivalent volume would be 1.5 if biodiesel is used to meet this requirement.

Under the RFS program, EPA is required to determine and publish annual percentage standards for each compliance year by November 30 of the previous year. The percentage standards are calculated so as to ensure use in transportation fuel of the national “applicable volumes” of four types of biofuel (cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuel) that are either set forth in the Clean Air Act or established by EPA in accordance with the Act's requirements. The percentage standards are used by obligated parties (generally, producers and importers of transportation fuel) to calculate their individual compliance obligations. The percentage standards are applied to the volume of non-renewable transportation fuel that each obligated party produces or imports during the specified calendar year to determine the volumes of renewable fuel that must be used as transportation fuel, heating oil, or jet fuel.

As required by statute, we are proposing to establish the volume for cellulosic biofuel based on projected availability of such fuel—which is below the statutory target for 2014. In addition, we have evaluated the availability of qualifying renewable fuels and factors that in some cases limit supplying those fuels to the vehicles and equipment that can consume them, including the set of factors referred to as the ethanol blendwall. Based on this evaluation we believe that adjustments to the volumes of advanced biofuel and total renewable fuel required under the statute are warranted for 2014 due to an inadequate domestic supply of these fuels (see Section IV.A for further detail). We are also proposing to maintain the same volume for biomass-based diesel for 2014 and 2015 as was adopted for 2013. The volumes that we are proposing for 2014, as well as the ranges on which we are seeking comment, are shown below. With the exception of the volume requirement for cellulosic biofuel, the proposed volumes correspond to the preferred approach described in today's proposal, but we discuss and are seeking comment on alternative approaches as well.

Table I-2—Proposed 2014 Volume Requirements

Proposed volume

Projected range

Cellulosic biofuel

17 mill gal.

8-30 mill gal.

Biomass-based diesel

1.28 bill gal.

Advanced biofuel

2.20 bill gal

2.00-2.51 bill gal.

Renewable fuel

15.21 bill gal

15.00-15.52 bill gal.

All volumes are ethanol-equivalent, except for biomass-based diesel which is actual.

EPA is requesting comment on alternative approaches and higher volumes.

Section II contains a detailed discussion of the basis for our proposed volume of cellulosic biofuel for 2014, Section III contains a detailed discussion of the basis for our proposed volume of biomass-based diesel for 2014 and 2015, and Section IV contains a detailed discussion of the basis for our proposed volumes, as well as alternative potential approaches on which we are requesting comment, for advanced biofuel and total renewable fuel for 2014.

In developing this proposal, we have been cognizant that Congress anticipated and intended the RFS program to promote substantial, sustained growth in biofuel production and consumption—beyond the levels that have been achieved to date. Although current gasoline demand and forecasts of future gasoline demand have decreased since EISA's enactment in 2007, EPA continues to support the objective of continued growth in renewable fuel production and consumption, as well as the central policy goals underlying the RFS program: reductions in greenhouse gas emissions, enhanced energy security, economic development, and technological innovation. The approach reflected in today's proposal is consistent with those objectives and is intended to put the RFS program on a manageable trajectory while supporting continued growth in renewable fuels over time. As emphasized throughout the proposal, we are seeking comment and information on a variety of alternative approaches as well as ranges of inputs and methodologies relevant to setting these standards, and look forward to engagement with stakeholders on all aspects of the proposal.

A. Purpose of this action

EPA is today proposing annual volume requirements for obligated parties for cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuel for 2014. Table I.A-1 lists the statutory provisions and associated criteria relevant to determining the national applicable volumes used to set the applicable standards in today's proposed rule.

Table I.A-1—Statutory Provisions for Determination of Applicable Volumes

Applicable volumes

Clean Air Act reference

Criteria provided in statute for determination of

applicable volume

Cellulosic biofuel in 2014

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

Required volume must be lesser of volume specified in CAA 211(o)(2)(B)(i)(III) or EPA's projected volume.

Biomass-based diesel in 2014 and 2015

211(o)(2)(B)(ii) and (v)

Required volume for years after 2012 must be at least 1.0 bil gal, and must be based on a review of implementation of the program and an analysis of several factors.

Advanced biofuel in 2014

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

If applicable volume of cellulosic biofuel is reduced to the projected volume, EPA may reduce advanced biofuel and total renewable fuel by the same or lesser volume. No criteria specified.

211(o)(7)(A)

EPA may waive any portion of the statutory volume requirements if implementation of those requirements would severely harm the economy or environment of a State, region, or the United States, or there is an inadequate domestic supply.

Total renewable fuel in 2014

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

If applicable volume of cellulosic biofuel is reduced to the projected volume, EPA may reduce advanced biofuel and total renewable fuel by the same or lesser volume. No criteria specified.

211(o)(7)(A)

Under the statute, EPA must annually determine the projected volume of cellulosic biofuel production for the following year. If the projected volume of cellulosic biofuel production is less than the applicable volume specified in section 211(o)(2)(B)(i)(III) of the statute, EPA must lower the applicable volume used to set the annual cellulosic biofuel percentage standard to the projected volume of production available during the year. In today's proposed rule, we present our analysis of cellulosic biofuel production and projected volume for 2014. This analysis is based on our evaluation of individual producers' production plans and progress to date following discussions with cellulosic biofuel producers, the Energy Information Administration (EIA), the Department of Agriculture (USDA), and the Department of Energy (DOE), and includes an assessment of the probabilities associated with production schedules from each of these producers.

While CAA section 211(o)(2)(B) specifies the volumes of biomass-based diesel to be used in the RFS program through year 2012, it directs the EPA to establish the applicable volume of biomass-based diesel for years after 2012. The statute also lists the factors that must be considered in this determination. In today's action we are proposing volume requirements for biomass-based diesel for both 2014 and 2015.

There are two different authorities in the statute that permit EPA to reduce volumes of advanced biofuel and total renewable fuel below the volumes specified in the statute. When we lower the applicable volume of cellulosic biofuel below the volume specified in CAA 211(o)(2)(B)(i)(III), we also have the authority to reduce the applicable volumes of advanced biofuel and total renewable fuel by the same or a lesser amount. We can also reduce the applicable volumes of advanced biofuel or total renewable fuel under the general waiver authority provided at CAA 211(o)(7)(A) under certain conditions. Today's proposal uses a combination of these two authorities to reduce volumes of both advanced biofuel and total renewable fuel to address two important realities:

• Limitations in the volume of ethanol that can be consumed in gasoline given practical constraints on the supply of higher ethanol blends to the vehicles that can use them and other limits on ethanol blend levels in gasoline—a set of factors commonly referred to as the ethanol “blendwall”

• Limitations in the ability of the industry to produce sufficient volumes of qualifying renewable fuel.

As described in detail in Section IV, today's action lays out a framework for determining the applicable volume requirements that addresses these two realities. We are proposing to use this framework to establish the volume requirements in 2014. As described in more detail in Section IV.E, we believe that this framework would also be appropriate for later years, subject to adjustments made in the course of the rulemaking process and taking into account the specific facts about the availability of renewable fuels at the time of the final rulemaking.

In today's proposed rule we have also provided the annual percentage standards (shown in Section I.B.4 below) that would apply to all producers and importers of gasoline and diesel in 2014. The percentage standards, which establish the legal requirement for the obligated parties, are based on the 2014 applicable volumes that we project for the four types of renewable fuel and a projection of volumes of gasoline and diesel consumption in 2014 from the Energy Information Administration (EIA).

B. Summary of Major Provisions in This Notice

1. Cellulosic Biofuel Volume for 2014

The cellulosic biofuel industry continues to transition from research and development (R&D) and pilot scale to commercial scale facilities, leading to

significant increases in production capacity. RIN generation from the first commercial scale cellulosic biofuel facility began in March 2013.

A second facility began producing fuel in July 2013 with several others expected to follow in 2014. Based on information we have collected from these companies and discussions with EIA, we have identified five companies we expect to produce cellulosic biofuel in 2014. There are an additional three companies that may be in a position to produce cellulosic biofuel if additional pathways are approved by EPA. Each of the relevant facilities is listed in Table I.B.1-1 along with our estimate of their projected 2014 volume. Based on the information we have received from these companies, our conversations with other government agencies, and EPA's own engineering judgment we are projecting that 8-30 million ethanol-equivalent gallons of cellulosic biofuel will be available in 2014. This range does not account for the estimate that EIA is required to provide to EPA containing estimates of the volume of cellulosic biofuel projected to be sold or introduced into commerce in 2014. The projected range also does not include any volume from facilities that could use pathways which have not yet been approved. If production volumes from these facilities were included, we would project a production range of 53-83 million ethanol-equivalent gallons.

A RIN is unique number generated by the producer and assigned to each gallon of a qualifying renewable fuel under the RFS program, and is used by refiners and importers to demonstrate compliance with the volume requirements under the program.

As part of estimating the volume of cellulosic biofuel that would be made available in the U.S. in 2014, we researched all potential production sources by company and facility. This included sources that were still in the planning stages, those that were under construction, and those that are already producing some volume of cellulosic ethanol, cellulosic diesel, or some other type of cellulosic biofuel. Facilities primarily focused on research and development were not the focus of our assessment as production from these facilities represents very small volumes of cellulosic biofuel, and these facilities typically have not generated RINs for the fuel they have already produced. From this universe of potential cellulosic biofuel sources, we identified the subset that is expected to produce commercial volumes of qualifying cellulosic biofuel for use in 2014. To arrive at a projected volume for each facility, we developed company specific projections based on discussions with cellulosic biofuel producers, EIA, USDA, and DOE, and on factors such as the current and expected state of funding, the status of the technology utilized, progress towards construction and production goals, and other significant factors that could potentially impact fuel production or the ability of the produced fuel to qualify for cellulosic biofuel Renewable Identification Numbers (RINs) in 2014. Further discussion of these factors can be found in Section II.B.

In our assessment we focused on domestic sources of cellulosic biofuel. At the time of this proposed rule no internationally-based cellulosic biofuel production facilities have registered under the RFS program and therefore no volume from international producers has been included in our projections for 2014.

Table I.B.1-1—Projected Available Cellulosic Biofuel Plant Volumes in Million Gallons (mill gal) for 2014

Company

Location

Fuel type

Annual production

capacity

First production

Projected 2014 available volume

Companies With Approved Pathways

Abengoa

Hugoton, KS

Ethanol

1Q 2014

0-18

DuPont

Nevada, IA

Ethanol

2H 2014

0-2

INEOS Bio

Vero Beach, FL

Ethanol

3Q 2013

2-5

KiOR

Columbus, MS

Gasoline and Diesel

March 2013

0-9

Poet

Emmetsburg, IA

Ethanol

1H 2014

0-6

Total for companies with approved pathways

8-30

Other Potential Cellulosic Biofuel Producers

CNG/LNG Producers

Various

CNG/LNG

Various

35-54

Edeniq

Various

Ethanol

Various

1H 2014

0-7

Ensyn

Stanley, WI

Heating Oil

2007

0-5

Total for both companies with approved pathways and those with proposed pathways

53-83

Facilities are generally designed to process a given quantity of feedstock and volume capacities may vary depending on yield assumptions.

Volumes listed in million ethanol-equivalent gallons.

Start-up dates for these facilities are projections.

Total volumes are the result of Monte Carlo simulations rather than the sum of the low and high end of the range of projected available volume for each company. See Section II.C for more detail.

In projecting the actual volume of cellulosic biofuel that will be available for use in 2014, we have taken into account variation in expected start-up times, along with the facility production capacities, company production plans, the progress made in 2013, expected production distribution and a variety of other factors. We used this information

to determine the most likely production ranges for each of the individual companies and a production probability distribution within the range. We then used a Monte Carlo simulation to aggregate the individual ranges into a production projection for the cellulosic biofuel industry as a whole in 2014. We believe this method results in a projected production range that better represents our expectations for cellulosic biofuel production in 2014 than simply adding the low and high end of the production ranges from each of the individual companies. Section II discusses in greater detail our projections of cellulosic biofuel in 2014 and the companies we expect to produce this volume.

In response to a recent court decision, we are also proposing to rescind the cellulosic biofuel standards for 2011. In January 2013, the United States Court of Appeals for the District of Columbia Circuit issued a decision interpreting the statutory requirements for EPA's cellulosic biofuel projections, in the context of considering a challenge to the 2012 cellulosic biofuel standard. The Court found that in establishing the applicable volume of cellulosic biofuel for 2012, EPA had used a methodology in which “the risk of overestimation [was] set deliberately to outweigh the risk of underestimation.” The Court held EPA's action to be inconsistent with the statute because EPA had failed to apply a “neutral methodology” aimed at providing a prediction of “what will actually happen,” as required by the statute. As a result of this ruling, the Court vacated the 2012 cellulosic biofuel standard. See

API v.

EPA,

706 F.3d 474 (D.C. Cir. 2013). EPA later removed the 2012 cellulosic biofuel requirement from the regulations.

Since we used essentially the same methodology to develop the 2011 cellulosic biofuel standard as we did to develop the 2012 standard, we believe it would be appropriate to rescind the 2011 cellulosic biofuel standard as well and accordingly are proposing to do so in today's action. The money paid by obligated parties to purchase cellulosic waiver credits to comply with the 2011 cellulosic biofuel standard would be refunded if this action is finalized.

78 FR 49794 (August 15, 2013).

In 2011 obligated parties purchased 4,248,388 cellulosic biofuel waiver credits at a price of $1.13 per gallon-RIN for a total cost of $4,800,678.

2. Biomass-Based Diesel Requirement in 2014 and 2015

While section 211(o)(2)(B) specifies the volumes of biomass-based diesel through year 2012, it directs the EPA to establish the applicable volume of biomass-based diesel for years after 2012. Moreover, the statute requires that we finalize these biomass-based diesel volume requirements no later than 14 months before the first year for which that volume requirement will apply. We did not propose a volume requirement for biomass-based diesel in the February 7, 2013 Notice of Proposed Rulemaking because at that time we were still evaluating the potential market impacts of current production levels. In order to provide sufficient time for this evaluation, as well as the other analyses we are required to conduct, we delayed our proposal for the 2014 volume requirement for biomass-based diesel.

In today's action we are proposing to maintain the applicable volume of 1.28 bill gallons for biomass-based diesel for both 2014 and 2015. As required by the statute when setting biomass-based diesel volume requirements for years after 2012, our proposal is based on a consideration of the factors specified in the statute, including biodiesel production, consumption, infrastructure, climate change, energy security, the agricultural sector, air quality, and others. Section III provides additional discussion of our assessment of the proposed volume of 1.28 bill gal of biomass-based diesel.

3. Advanced Biofuel and Total Renewable Fuel in 2014

Since the RFS2 program began in 2010, EPA has considered reductions in advanced biofuel and total renewable fuel authorized under the cellulosic waiver provisions of 211(o)(7)(D)(i). In the past we have focused primarily on the availability of advanced biofuels in determining whether reductions in the required volume of cellulosic biofuel should be accompanied by reductions in the required volumes of advanced biofuel and total renewable fuel. The total volume of renewable fuel in the form of ethanol that could reasonably be available and supplied to vehicles as either E10 or higher ethanol blends given various constraints, was not a limiting factor for years prior to 2014. However, for 2014 and later years, the total volume of ethanol that can be consumed, and the total volume of non-ethanol renewable fuels that could reasonably be available, are together expected to be less than the volume requirements established in EISA for advanced biofuel and total renewable fuel. Therefore, we are proposing reductions in the volume requirements for these categories of renewable fuel to address these concerns.

We evaluated three potential approaches for reducing the applicable volume requirements for advanced biofuel and total renewable fuel. Each of these approaches would require use of a combination of the cellulosic and general waiver authorities at 211(o)(7)(D)(i) and 211(o)(7)(A), respectively, to address supply concerns associated with the blendwall. The three approaches differ primarily with regard to how the advanced biofuel requirement would be adjusted using these authorities. The first approach would lower the statutory volumes for advanced biofuels only to the extent that additional volumes are not projected to be available; the general waiver authority would be used to ensure that the total volume of renewable fuel would address supply concerns associated with the blendwall. The second approach would make reductions in advanced biofuel and total renewable fuel that are equal to the proposed reductions in cellulosic biofuel and would use the general waiver authority to make further reductions to the total renewable fuel requirement necessary to address the blendwall.

The third approach that we evaluated, and the one that we are proposing today, includes both a consideration of the capability of the relevant industries to make qualifying renewable fuels available, either through domestic production or importation, and also the capability of the relevant industries to ensure that those renewable fuels are used as transportation fuel, heating oil, or jet fuel.

The use of renewable fuels includes a consideration of the infrastructure available for distributing, blending, and dispensing renewable fuels, as well as appropriate vehicles in the fleet that can consume various renewable fuels, such as flex-fuel vehicles (FFVs). Our proposed framework for addressing both availability of qualifying renewable fuels and constraints on their consumption would make use of a combination of the cellulosic waiver authority at 211(o)(7)(D)(i) and the general waiver authority at 211(o)(7)(A). As described in detail in Section IV.A.2, we interpret the term “inadequate domestic supply” as it is used under the general waiver authority to include consideration of factors that affect consumption of renewable fuel. We believe the framework being proposed today best approximates the multiple goals that Congress intended in the RFS

program, and we would intend this framework to apply not just to 2014, but to later years as well. However, we are soliciting comment on alternative approaches as well. We discuss the proposed framework and the alternative approaches in Section IV.

While the fuels that are subject to the percentage standards are currently only non-renewable gasoline and diesel, renewable fuels that are valid for compliance with the standards include those used as transportation fuel, heating oil, or jet fuel.

We believe that our proposed framework for determining appropriate volumes of total renewable fuel and advanced biofuel would simultaneously address the ethanol blendwall and limitations in availability of qualifying renewable fuels. For total renewable fuel, we would project the volume of ethanol that could reasonably be consumed as E10 and higher ethanol blends, and would add to that the volume of all non-ethanol renewable fuels that could reasonably be expected to be available. For advanced biofuel, we would sum the ethanol-equivalent volumes of the cellulosic biofuel requirement, the biomass-based diesel requirement, and the additional non-ethanol advanced biofuels that could reasonably be expected to be available and be consumed. In this process we have projected ranges that encompass the most likely outcomes, and we propose several approaches to determining the most likely value for the final rule.

4. Proposed Annual Percentage Standards for 2014

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 for the coming year prove to be accurate, then the amount of renewable fuel, cellulosic biofuel, biomass-based diesel, and advanced biofuel actually used will meet the volumes required on a nationwide basis.

Four separate percentage standards are required under the RFS program, corresponding to the four separate volume requirements shown in Table I-1. The specific formulas we use in calculating the renewable fuel percentage standards are contained in the regulations at 40 CFR § 80.1405 and repeated in Section V.B.1. The percentage standards represent the ratio of renewable fuel volume to projected non-renewable gasoline and diesel volume. The projected volume of transportation gasoline and diesel used to calculate the standards in today's proposed rule was derived from EIA projections. The proposed standards for 2014 are shown in Table I.B.4-2. Detailed calculations can be found in Section V, including the projected 2014 gasoline and diesel volumes used.

Table I.B.4-2—Proposed Percentage Standards for 2014

Cellulosic biofuel

0.010%

Biomass-based diesel

1.16%

Advanced biofuel

1.33%

Renewable fuel

9.20%

C. Volume Requirements for 2015 and Beyond

As highlighted above, EPA continues to support the objective—reflected in the statute—of continued growth in renewable fuel production and consumption, as well as the central goals of the RFS program: enhanced energy security and reductions in greenhouse gas emissions. We also recognize that issues concerning the availability of qualifying fuels and the consumption of ethanol will continue to be relevant in 2015 and beyond, particularly in light of projections that overall gasoline demand will continue to decline while the statutory volumes for renewable fuel volumes continue to increase. Our objective in this rulemaking is to develop a general approach for determining appropriate volume requirements that can be applied not only in 2014, but also for 2015 and beyond. As we consider comments received in response to this NPRM, our intent is to develop an approach that puts the RFS program on a manageable trajectory while supporting continued growth in renewable fuels over time. The proposed approach described in today's NPRM can and will account for new and improved data and changes in circumstances over time, including the substantial efforts underway to increase the volume of biofuel produced and consumed in the United States. Many companies, often supported by various government programs, are continuing to invest in efforts ranging from research and development to the construction of commercial scale facilities resulting in the ongoing growth of next generation biofuels. Similar efforts on the part of both public and private sectors are growing the infrastructure to enable expansion in the use of gasoline fuel blends containing greater than 10 percent ethanol. Under the right circumstances, there is substantial potential for continued growth in the use of ethanol and next generation biofuels, both in the near term and into the future. As both ethanol and non-ethanol renewable fuel volumes grow, the proposed methodology set forth in today's proposed rule will incorporate this growth into the development of the standards for the following year, providing an ongoing incentive for growth of biofuels. We recognize that a number of challenges must be overcome to fully realize the potential that exists for increased production and consumption of renewable fuels in the United States. We also recognize that while the RFS program is a central element of our domestic biofuels policy, a range of other tools, programs, and actions have the potential to play an important complementary role. We request information and ideas on what actions could be taken by the variety of industry and other private stakeholders, as well by the government, to help overcome these challenges, continue to foster innovation, and minimize the need for adjustments in the statutory renewable fuel volume requirements in the future.

II. Proposed Cellulosic Biofuel Volume for 2014

In order to project the volume of cellulosic biofuel production in 2014 for use in setting the applicable percentage standard, we considered information we received from EIA and information we collected from individual facilities that have the potential to produce qualifying volumes for consumption as transportation fuel, heating oil, or jet fuel in the U.S. in 2014. This section describes the volumes that we project will be produced or imported in 2014 as well as some of the uncertainties associated with those volumes.

In the past several years the cellulosic biofuel industry has continued to progress. The first cellulosic biofuel RINs under the current RFS regulations were produced in 2012 at two small demonstration scale facilities. During 2013, the first commercial scale cellulosic biofuel facilities have successfully completed commissioning and began fuel production, and several more large scale commercial production facilities are expected to begin fuel production in 2014. Projected costs for the production of cellulosic biofuels continues to fall as a result of ongoing technology development and operating experience gained from many research and development and demonstration-scale facilities across the country. These important advances include higher biofuel yields per ton of feedstock as well as lower enzyme and catalyst costs. As a result of these advances, the projected capital costs and energy costs to produce a gallon of cellulosic biofuel have decreased. New feedstock supply chains, which will be necessary to provide the raw materials for

anticipated commercial facilities, have been established, and in several cases companies have signed contracts to obtain significant quantities of feedstocks for their first commercial facilities. EPA has also approved new pathways to increase the variety of fuels for which cellulosic RINs can be generated and the feedstocks from which these fuels can be produced. These factors have combined to continue to reduce the perceived technical, financial, and regulatory risks associated with the cellulosic biofuel industry and place the cellulosic biofuel industry on firm ground for future growth.

Although the cellulosic biofuel industry faces many challenges and RIN-generating cellulosic biofuel production continues to be limited, the industry is growing incrementally, both in the United States and around the world.

New facilities projected to be brought online in the United States in 2014 would increase the production capacity of the cellulosic industry by approximately 600 percent. The following section discusses the companies the EPA reviewed in the process of projecting cellulosic biofuel production for use as a transportation fuel in the United States in 2014. Information on these companies forms the basis for our projection that the volume of cellulosic biofuel produced in 2014 is likely to be in the range of 8-30 million gallons. EPA will continue to monitor the progress of these facilities, as well as any others of which we become aware that have the potential for cellulosic biofuel production in 2014, in order to have the most up to date information possible to set the cellulosic biofuel standard in the final rule.

As of July 31, 2013, 215,044 RINs that can be used to fulfill the cellulosic biofuel standard (D3 and D7 RINS) have been generated.

A. Statutory Requirements

The volumes of renewable fuel to be used under the RFS program each year (absent an adjustment or waiver by EPA) are specified in CAA 211(o)(2). For 2014, the statute specifies a cellulosic biofuel volume requirement of 1.75 billion gallons. The statute requires that if EPA determines, based on EIA's estimate, that the projected volume of cellulosic biofuel production for the following year is less than the applicable volume EPA is to reduce the applicable volume of cellulosic biofuel to the projected volume available during that calendar year.

In addition, if EPA reduces the required volume of cellulosic biofuel below the level specified in the statute, the Act also indicates that we may reduce the applicable volumes of advanced biofuels and total renewable fuel by the same or a lesser volume. Our consideration of the 2014 volume requirements for advanced biofuels and total renewable fuel is presented in Section IV.

B. Cellulosic Biofuel Volume Assessment for 2014

In order to project cellulosic biofuel production for 2014, we have tracked the progress of several dozen potential cellulosic biofuel production facilities. As for the 2013 annual volumes, we have focused on facilities with the potential to produce commercial volumes of cellulosic biofuel rather than small R&D or pilot scale facilities as the larger commercial scale facilities are much more likely to generate RINs for the fuel they produce and the volumes they produce will have a far greater impact on the cellulosic biofuel standard for 2014. From this list of facilities we used publically available information, as well as information provided by DOE, EIA, and USDA, to make a preliminary determination of which facilities are the most likely candidates to produce cellulosic biofuel and generate cellulosic biofuel RINs in 2014. Each of these companies was investigated further in order to determine the current status of its facilities and its likely cellulosic biofuel production and RIN generation volumes for the coming years. Information such as the funding status of these facilities, current status of the production technologies, announced construction and production ramp-up periods, and annual fuel production targets were all considered when we spoke with representatives of each company to discuss cellulosic biofuel target production levels for 2014. Throughout this process EPA has been in contact with EIA to discuss relevant information.

For each company included in our 2014 volume projections EPA has established a range of potential production volume such that it is possible, but highly unlikely, that the actual production will be above or below the range.

The low end of the range for each company is designed to represent the volume of fuel EPA believes each company is likely to produce if they are unable to begin fuel production on their expected start-up date and/or experience challenges that result in reduced production volumes or a longer than expected ramp-up period. Experience to date with cellulosic biofuel production facilities is that historically they have been unable to achieve announced start-up dates and production volumes in their first few years of expected production. To project a low end of the range of production volumes, therefore, we must consider the likely minimum volume of fuel new facilities are likely to produce if they experience similar delays and setbacks. The low end of the range for any facilities that have not yet begun producing cellulosic biofuel is set at zero in our assessment. This reflects the uncertainties related to these facilities' start-up dates, the possibility that any remaining construction and commissioning timelines may be delayed, and the possibility that initial fuel volumes are likely to be small.

For the purposes of the Monte Carlo simulation, discussed in more detail later, this range will be treated as representing the 90% confidence interval.

If a facility has already begun production any uncertainty related to its start-up date is no longer relevant and the remaining uncertainty primarily relates to the facility's ability to achieve steady state production and target yields as it progresses towards production rates that reflect the facility's nameplate capacity. For these facilities, production history is a significant factor in establishing the low end of the projected production range. It is important to note that the low end of the range does not represent a worst-case scenario. The worst-case scenario for any of these facilities is zero, as it is always possible that extreme circumstances or natural disasters may result in extended delays, project cancellation, or liquidation. While not denying this possibility for any of the facilities included in our projections, several have made sufficient progress that we believe a non-zero value for the low end of the range is appropriate. For these facilities we believe it is highly unlikely that the production volume will fail to exceed the low end of their projected production range in 2014. Further discussion on the basis for the low end of the projected production range for each facility is included in the company descriptions in the following sections.

To determine the high end of the range of expected production volumes for each company we considered a variety of factors, including company history, expected start-up date and ramp-up period, facility capacity, and others mentioned above. As a starting point, EPA calculated a production volume using the expected start-up date and facility capacity assuming our best-case scenario benchmark of a six-month straight-line ramp-up period. Any production volumes that exceeded this

volume were not considered to be credible, even for the high end of the range of expected production volumes. If the production estimate EPA received from a company was lower than the volume calculated using the methodology above, EPA used the company production targets instead. In some cases these volumes were discounted further based on the history of these companies or EPA's engineering judgment. More information on the process used to project the high end of the range of expected production volumes for each company can be found below. This process is similar to the process used in the 2013 standards Notice of Proposed Rulemaking (NPRM) to calculate the expected production for each company.

We believe our range of projected production volumes for each company represents the range of what is likely to actually happen for each company. A brief description can be found below for each of the companies we believe will produce cellulosic biofuel and make it commercially available in 2014. We will continue to gather more information to help inform our decision regarding the cellulosic biofuel volume to be required for 2014 in the final rule. In the sections that follow, we first discuss domestic cellulosic biofuel production facilities with an approved RIN generating pathway, followed by facilities with pathways that have been proposed or are currently being evaluated by EPA, and finally foreign cellulosic biofuel producers.

EPA has determined a range of potential production volumes for each company rather than a single value as a range better reflects the uncertainty associated with the production from each company. Additionally, there are a large number of companies that EPA must assess and aggregate to produce a single national volume covering the entire cellulosic biofuel industry. We believe that our projected production volume for the cellulosic biofuel industry as a whole is more accurate if it is done in such a way as to reflect the uncertainty associated with each of the companies that contribute to the projection. As discussed in more detail in Section II.C below, EPA is using a Monte Carlo simulation as a tool to combine our production projections for each individual company to determine a reasonable range of cellulosic biofuel production in 2014 for the entire industry in a way that reflects the uncertainty across the full suite of facilities. This projected range provides a basis for public comment and helps to inform our ultimate decision on the single value for the final rule that best represents the projected volume of cellulosic that will be available in 2014. Alternative methods to combine our production projections are discussed further in Section IV.

1. Potential Domestic Producers with Approved Pathways

The companies and facilities discussed in this section all have the potential to produce cellulosic biofuel for use as transportation fuel, heating oil, or jet fuel in the United States in 2014. Both INEOS Bio and KiOR began producing cellulosic biofuel at commercial-scale in 2013. The remaining seven are in various stages of construction. All seven of these facilities project the successful completion of construction of commercial scale facilities and initial fuel production in 2014. The strong financial incentive provided by the cellulosic RINs, combined with the fact that all these facilities are located in the United States and intend to use approved pathways, give us a high degree of confidence that any fuel they produce will also generate corresponding cellulosic biofuel RINs.

In 2012, approximately 20,000 gallons of cellulosic biofuel produced in the US was exported to Brazil to be used for promotional purposes. We believe the circumstances surrounding this export of cellulosic biofuel were unique, including significant investment in the company that produced the fuel by Petrobras, and are unlikely to be repeated by the companies included in future years.

In order to generate RINs, each of these companies must register under the RFS program and comply with all applicable recordkeeping and reporting requirements. This includes using an approved RIN-generating pathway and verifying that their feedstocks meet the definition of renewable biomass.

Abengoa

Abengoa, a large international biofuels company, has developed an enzymatic hydrolysis technology to convert corn stover and other agricultural waste feedstocks into ethanol. After successfully testing and refining their technology at a pilot scale facility in York, Nebraska as well as in a demonstration-scale facility in Salamanca, Spain, Abengoa is now working towards the completion of their first commercial scale cellulosic ethanol facility in Hugoton, Kansas. After successfully proving their technology at commercial scale in Hugoton, Abengoa currently plans to construct additional similar cellulosic ethanol production facilities, either on greenfield sites or co-locating these new facilities with their currently existing starch ethanol facilities around the United States.

Abengoa has contracts in place to provide the majority of feedstocks necessary for the Hugoton facility for the next 10 years and successfully completed their first biomass harvest in the fall of 2011. Construction at this facility, which began in September 2011, is expected to take approximately two years and be completed in the fourth quarter of 2013. All of the major process equipment for this project has been purchased and all of the required permits for construction have been approved. Abengoa's Hugoton facility is being partially funded by a $132 million Department of Energy (DOE) loan guarantee.

When completed, the Hugoton plant will be capable of processing 700 dry tons of corn stover per day, with an expected annual ethanol production capacity of approximately 24 million gallons. Abengoa plans to begin producing fuel at the facility in January 2014, shortly after completing construction in late 2013, and to be producing fuel at rates near the nameplate capacity by the end of the second quarter of 2014. They are currently projecting 17-20 million gallons of cellulosic ethanol production from this facility in 2014.

This range of volumes is consistent with the 18 million gallons EPA would project if we assume production starts on January 1, 2014 and use the six-month ramp-up period as a benchmark best case scenario for new cellulosic biofuel production facilities. To date construction at the Abengoa facility has proceeded as expected and EPA has no reason to believe this facility is less likely to achieve their production targets than any other new first-of-a-kind cellulosic biofuel facility. EPA is therefore using 18 million gallons of cellulosic ethanol as the high end of the projected production range from Abengoa in todays proposed rule. For the low end of the production range, EPA is projecting a volume of 0 gallons, consistent with our projections for all facilities that have not yet begun producing commercial volumes of cellulosic biofuel. This significantly reduced volume reflects the fact that no commercial scale cellulosic biofuel facility has yet been able to achieve its target date for the first production of fuel. Any delay in the start-up date of this facility would have a significant negative impact on production in 2014 and may result in production being delayed until 2015.

Email from Chris Standlee, Executive Vice President of Institutional Affairs, Abengoa to Dallas Burkholder, US EPA. Received June 26, 2013.

Cool Planet Biofuels

Cool Planet Biofuels has developed a process to convert a variety of forms of cellulosic biomass into a renewable gasoline product. Their process uses pressure and heat to convert the cellulosic biomass to a hydrocarbon stream in a biomass fractionator which is then upgraded using proprietary catalysts into a renewable gasoline product. Cool Planet Biofuels plans to deploy relatively small scale production units capable of producing 10 million gallons of fuel per year that can be located near readily available sources of cellulosic biomass. In December 2012 Cool Planet Biofuels began producing fuel from their 400,000 gallon per year demonstration scale facility that is currently being used for testing purposes.

Cool Planet Biofuels plans to begin producing fuel at their first commercial scale unit, with a nameplate capacity of 10 million gallons per year by the end of 2014. The location of this facility has not yet been announced, and it is unclear whether Cool Planet Biofuels has raised sufficient funds for the construction of this facility. Cool Planet Biofuels claims that the very short construction time they anticipate for their facility relative to cellulosic biofuel production facilities of similar size, which generally take at least two years to build, is made possible by their use of very little novel equipment. The majority of the facility is composed of units already used in commercial operation in other applications that will be purchased from vendors and assembled by Cool Planet Biofuels. The facility will be constructed on cargo container skids and then transported to the fuel production site.

EPA believes that it may be possible for Cool Planet Biofuels to produce cellulosic biofuel from their first commercial scale production facility in 2014, but any production from this facility is highly uncertain. Historically the construction of cellulosic biofuel production facilities has taken multiple years, with delays to the initial construction schedules common. Cool Planet's unique construction plan may allow for a reduced construction timeframe; however we do not believe it would be appropriate to rely on this in projecting available volumes of cellulosic biofuel in 2014. We have therefore not included any volume from Cool Planet Biofuels in our projection of the potentially available volume of cellulosic biofuel in 2014 in today's proposal.

DuPont

DuPont has developed an enzymatic process to convert corn stover into cellulosic ethanol. DuPont has invested hundreds of millions of dollars to develop this technology and since 2009 has operated a small demonstration scale facility in Vonore, Tennessee. In addition to developing technology for converting cellulosic biomass to ethanol, DuPont has been working with corn producers, equipment manufacturers, and Iowa State University to develop expertise in the collection, transportation, and storage of the biomass feedstock for their cellulosic ethanol facilities. On March 29, 2013 DuPont signed an agreement with USDA to promote the sustainable harvesting of feedstocks for cellulosic biofuel facilities.

On November 30, 2012 DuPont began the construction of their first commercial scale cellulosic ethanol facility in Nevada, Iowa. When completed, this facility will have a nameplate production capacity of 30 million gallons of cellulosic ethanol per year. DuPont currently plans to achieve mechanical completion at this facility in June 2014 and to begin production in the second half of 2014. They are currently projecting the production of approximately 3 million gallons of cellulosic ethanol from this facility in 2014; however they acknowledge that even slight delays in their expected construction timeline could have significant impacts on their fuel production in 2014. Using EPA's best-case benchmark of a six month straight-line ramp-up period assuming a production startup date of October 1, 2014 would result in an expected production of approximately 2 million gallons in 2014. Due to the start-up date that is late in the year, however, even a relatively minor delay in the construction and commissioning timeline or unforeseen challenges in start-up would result in no production from this facility in 2014. We have projected a range or 0-2 million gallons of cellulosic biofuel from DuPont's Nevada, Iowa facility in 2014.

Fiberight

Fiberight uses an enzymatic hydrolysis process to convert the biogenic portion of separated municipal solid waste (MSW) and other waste feedstocks into ethanol. They have successfully completed five years of development work on their technology at their small pilot plant in Lawrenceville, Virginia. In 2009 Fiberight purchased an idled corn ethanol plant in Blairstown, Iowa with the intention of making modifications to this facility to allow for the production of 6 million gallons of cellulosic ethanol per year from separated MSW and industrial waste streams. These modifications were scheduled to be completed in 2011, but difficulties in securing funding have resulted in construction at this facility being delayed. In January 2012 Fiberight was offered a $25 million loan guarantee from USDA. Closing on this loan would provide substantially all of the remaining funds required for Fiberight to complete the required modifications at their Blairstown facility. Additional construction will be required at this facility before the production of cellulosic biofuel can begin, and the company expects that this construction will take approximately 6 months to complete. Additionally, Fiberight's waste separation plan for this facility was approved in June 2012 allowing Fiberight to generate RINs for the cellulosic ethanol they produce using separated MSW as a feedstock. Because of the uncertainty surrounding Fiberight's funding status, the lack of progress towards the completion of the modifications at their Blairstown, Iowa facility, and their history of production delays EPA is not including any volume from Fiberight in today's proposal.

INEOS Bio

INEOS Bio has developed a process for producing cellulosic ethanol by first gasifying cellulosic feedstocks into a synthesis gas (syngas) and then using naturally occurring bacteria to ferment the syngas into ethanol. In January 2011, USDA announced a $75 million loan guarantee for the construction of INEOS Bio's first commercial facility to be built in Vero Beach, Florida. This loan was closed in August 2011. This was in addition to the grant of up to $50 million INEOS Bio received from DOE in December 2009. At full capacity, this facility will be capable of producing 8 million gallons of cellulosic biofuel as well as 6 megawatts (gross) of renewable electricity from a variety of feedstocks including food and yard waste, agricultural residues, slash and pre-commercial thinnings, and tree residues from tree plantations.

The facility also plans to use a limited quantity of separated MSW as a feedstock after initial start-up.

Both slash and pre-commercial thinnings and tree residue from tree plantations must come from non-federal forestland to qualify as a feedstock in the RFS program. Additionally slash and pre-commercial thinnings must come from land that is not ecologically sensitive forest land.

On February 9, 2011, INEOS Bio broke ground on this facility. INEOS Bio

completed construction on this facility in June 2012 and began full commissioning of the facility. In August 2012 INEOS Bio received approval from EPA for their yard waste separation plan and successfully registered their Vero Beach, FL facility under the RFS program. In October 2012 the facility began producing renewable electricity. INEOS Bio entered the start-up phase of cellulosic ethanol production in November 2012. During this phase the facility was not run continually, as facility modifications continued to be made; however, a small volume of cellulosic ethanol was successfully produced. On July 31, 2013, INEOS Bio announced they had begun producing cellulosic ethanol at commercial scale from their Vero Beach facility. INEOS Bio currently projects cellulosic ethanol production at this facility to be 4-5 million gallons in 2013. As this volume is less than what would be projected using our best-case ramp-up benchmark we believe it is an appropriate volume to represent the upper end of INEOS Bio's potential production range for 2014.

There is, however, significant uncertainty in the ability of this facility to achieve these production volumes in 2014. The facility has not yet reached production rates consistent with its projected production volume, and production ramp-up could take longer than expected. INEOS Bio also experienced several setbacks to production related to weather-caused power losses at the facility. While they are working to protect against these issues in the future by enabling the facility to operate in a self-sustaining mode, the possibility of future interruption due to serious weather events will still exist. For this proposed rule we are projecting a production range of 2-5 million gallons of cellulosic ethanol from INEOS Bio's Vero Beach facility in 2014. The low end of the range accounts for the possibility of both an extended ramp-up period and interruptions to production continuing into 2014.

KiOR

KiOR is working to commercialize a technology capable of converting biomass to a biocrude using a process they call Biomass Fluid Catalytic Cracking (BFCC). BFCC uses a catalyst developed by KiOR in a process similar to Fluid Catalytic Cracking currently used in the petroleum industry. The first stage of this process produces a renewable crude oil which is then upgraded to produce primarily gasoline, diesel, and jet fuel as well as a small quantity of fuel oil, all of which are nearly identical to those produced from petroleum.

KiOR's first commercial scale facility is located in Columbus, Mississippi and is capable of producing approximately 11 million gallons of gasoline, diesel, and jet fuel per year. Construction on this facility began in May 2011 and was completed in September 2012. This facility is funded, in large part, with funds acquired through private equity raises and supplemented by KiOR's $150 million IPO in June 2011. On March 17, 2013 KiOR generated their first cellulosic biofuel RINs from this facility. KiOR initially announced that they expected the start-up period at their Columbus facility to last 9-12 months, during which time they estimate fuel production will average 30%-50% of the facility capacity and production rates at or near nameplate capacity following. On August 8, 2013 KiOR reduced its production targets for 2013 from 3-5 million gallons to 1-2 million gallons. KiOR has feedstock supply agreements in place to supply all of the required feedstock for their Columbus facility with slash and pre-commercial thinning. They also have off-take agreements with several companies for all of the fuel that will be produced.

In today's proposal we are projecting a production range of 0-9 million ethanol-equivalent gallons in 2014 from KiOR's Columbus, MS facility. The high end of our proposed production projection (5.5 million actual gallons or 9 million ethanol-equivalent gallons) has been calculated assuming this facility produces at an average rate of 50% of nameplate capacity throughout 2014. We believe this reduced volume is appropriate given the low production volumes KiOR has achieved to date and KiOR's statements, in an August 8, 2013 conference call discussing their second quarter performance, that they had not yet begun focusing on increasing the efficiency and yields of the facility. The low end of the range (0 million gallons) reflects uncertainty surrounding KiOR's future production levels.

LanzaTech

LanzaTech has developed a process for the production of ethanol from feedstock streams that contain carbon monoxide. The LanzaTech process can utilize industrial waste gas streams or syngas produced from the gasification of agricultural residues, woody biomass, or other cellulosic feedstocks.

These gas streams are dispersed into a liquid medium where they are converted into ethanol or other chemicals by LanzaTech's proprietary microbes. LanzaTech is currently using this technology at two demonstration scale facilities in China, producing ethanol from waste gasses at steel mills in partnership with Baosteel and Capital Steel.

RIN generation would be limited to fuels produced using approved sources of biomass such as agricultural residue, tree residue from a tree plantation, or slash and pre-commercial thinnings. LanzaTech would be required to meet all recordkeeping and reporting requirements to demonstrate the feedstock is renewable biomass sourced from land that meets all of the land use requirements of the RFS program.

On January 3, 2012 LanzaTech purchased the former Range Fuels facility in Soperton, Georgia. LanzaTech is currently in the process of assessing the equipment in place at this facility. After making any necessary modifications to the existing gasifiers they plan to install units to allow for the production of ethanol from syngas produced from the gasification of local woody biomass. LanzaTech believes the current production capacity of the gasifiers when used in combination with their ethanol producing microbes is approximately 4-6 million gallons per year, with the potential for further expansion to allow for the production of 20-30 million gallons per year at this site. At this point, however, LanzaTech is not projecting initial ethanol production from this facility until late 2014 or early 2015. EPA has therefore not included any volume from LanzaTech in our cellulosic biofuel projections in this proposed rule.

Poet

Poet has developed an enzymatic hydrolysis process to convert cellulosic biomass into ethanol. Poet has been investing in the development of cellulosic ethanol technology for more than a decade and began producing small volumes of cellulosic ethanol at pilot scale at their plant in Scotland, South Dakota in late 2008. In January 2012, Poet formed a joint venture with Royal DSM of the Netherlands, called Poet-DSM Advanced Biofuels, to commercialize and license their cellulosic ethanol technology.

The joint venture's first commercial scale facility, called Project LIBERTY, will be located in Emmetsburg, Iowa. This facility is designed to process 770 dry tons of corn cobs, leaves, husks, and some stalk per day into cellulosic ethanol. The facility is projected to have an annual production of approximately 25 million gallons per year. In anticipation of the start-up of this facility, Poet constructed a 22-acre biomass storage facility and had its first

commercial harvest in 2010, collecting 56,000 tons of biomass.

Site prep work for Project LIBERTY began in the summer of 2011, and vertical construction of the facility began in the spring of 2012. Poet was awarded a $105 million loan guarantee offer for this project from DOE in July 2011, but with the joint venture it decided to proceed without the loan guarantee. This project is expected to be completed in the first half of 2014 and will be followed by a commissioning period before the plant begins cellulosic ethanol production. Poet currently projects that production from Project LIBERTY will be between 7 and 12 million gallons of cellulosic ethanol in 2014. Using the six month best-case ramp-up period with production beginning on July 1, 2014 would result in a volume projection of 6 million gallons from this facility. In today's proposed rule, EPA is therefore setting the high end of Poet's projected production range at 6 million gallons of cellulosic ethanol. The low end of the projected production range for Poet's Project LIBERTY is 0 gallons in 2014. This number reflects the fact that any significant delay in the start-up date or difficulties encountered in the commissioning or start-up phases of production are likely to result in little to no production from this facility in 2014. While EPA has no reason to believe this facility will be any more prone to these types of challenges than any other commercial scale cellulosic biofuel production facility, our experience suggests that these types of delays are common and should be considered when projecting the low end of the range for production volume in 2014.

Sweetwater Energy

Sweetwater Energy has also developed a technology for converting cellulosic biomass, primarily agricultural residues and woody biomass, to cellulosic sugars. Sweetwater Energy uses a modular approach, building relatively small facilities near the source of feedstock and transporting the sugars they produce to a larger facility to be converted into renewable fuels or chemicals. They currently have two arrangements in place with corn ethanol facilities in the United States to provide cellulosic sugars in sufficient quantity for the production of 3.6 million gallons of cellulosic ethanol from each of these facilities. Both of Sweetwater Energy's cellulosic sugar production modules are scheduled to begin production in the summer of 2014. If both these facilities begin producing sugars that are converted to cellulosic biofuel on July 1, 2014, our best case scenario benchmark six month straight-line ramp-up period would project a volume of 2 million ethanol-equivalent gallons. At this time, however, cellulosic RINs would not be able to be generated for any fuel produced using Sweetwater Energy's cellulosic sugars since the existing RFS registration regulations were not designed to allow the subdivision of processes between multiple facilities. Until this is resolved, fuel production processes of this type will not be able to generate RINs. We therefore have not included any volume from Sweetwater Energy in our projections of cellulosic biofuel for 2014.

Ensyn

Ensyn has developed a technology called Rapid Thermal Processing (RTP) that uses heat to thermally crack carbon based feedstocks into a liquid bio-oil product they call renewable fuel oil (RFO). This conversion takes place in less than two seconds and is similar to the fluid catalytic cracking (FCC) process used in many refineries. Ensyn is currently using this technology in two commercial facilities located in Wisconsin and Ontario, Canada to produce renewable chemicals, food additives, and heating oil. They estimate that they have up to 3 million gallons of additional capacity at these two facilities that could be utilized if the fuel were eligible to generate RINs under the RFS program as home heating oil. This facility has a history of consistent production and we therefore believe this projection of 3 mill gal, or 5 million ethanol-equivalent gallons, is an appropriate number to use as the high end of the projected range.

Until recently the RFS regulations required that to qualify as “heating oil” for which RINs may be generated the fuel must be #1 diesel fuel, #2 diesel fuel, or any non-petroleum diesel blend that is sold for use in furnaces, boilers, and similar applications and which is commonly or commercially known or sold as heating oil, fuel oil, and similar trade names, and that is not jet fuel, kerosene, or motor vehicle, nonroad, locomotive or marine diesel fuel (MVNRLM). On October 22, 2013, EPA finalized a rule to amend this definition to include:

A fuel oil that is used to heat interior spaces of homes or buildings to control ambient climate for human comfort. The fuel oil must be liquid at 60 degrees Fahrenheit and 1 atmosphere of pressure, and contain no more than 2.5% mass solids.

78 FR 62462.

This amendment allows the RFO produced by Ensyn to qualify for RINs if it were used to heat buildings where people live, work, recreate, or conduct other activities and it meets the other required components of the proposed definition. However, even if the fuel produced using the RTP process meets the new definition, Ensyn still faces several challenges to generating cellulosic biofuel RINs. Ensyn must still secure approved sources of renewable feedstock for their existing production facilities, increase production at these facilities, and find customers willing to make the modifications necessary to use Ensyn's RFO as home heating oil. Any of these steps could result in delays in the increased production or qualifying use of RFO until 2015. For this proposal EPA is projecting a range of production of 0-3 million gallons (0-5 million ethanol-equivalent gallons) from Ensyn's facilities in 2014. This volume has not been included in EPA's primary projection of cellulosic biofuel projection for 2014 due to the outstanding issues mentioned above, but has been considered in our projection of all potentially available cellulosic biofuel, including companies without existing pathways for generating cellulosic biofuel RINs. In light of the recent amendments to the home heating oil definition, EPA will review this projection and make adjustments as necessary in the final rule.

2. Potential Domestic Producers without Existing Pathways

In addition to the facilities discussed above, there are a number of companies with the potential to produce cellulosic biofuel from domestic facilities in 2014 from pathways that have not been approved for RIN generation by EPA. Some of these pathways were addressed in a notice of proposed rulemaking published by EPA on June 14, 2013, while others are currently being evaluated by EPA. As the companies discussed in this section do not yet have approved RIN generating pathways for the fuels they plan to produce, there is additional uncertainty regarding RIN production from them in 2014.

Nevertheless, if the pathways are approved by EPA these facilities represent a significant potential source of cellulosic biofuel. The ranges projected for each company reflect only the uncertainty associated with

production volumes, assuming pathway approval occurs.

EPA will decide whether or not to include any volume from these pathways based on the status of these pathways and the progress made by the companies towards commercial cellulosic biofuel production at the time of the final rule.

At the time of this proposal, EPA has finalized changes to the home heating oil definition but has not yet completed our determination of whether or not the fuels discussed in this section meet all of the requirements to generate cellulosic biofuel RINs.

In projecting potential production volumes EPA has assumed that the pathways are all approved as of January 1, 2014. Approval subsequent to that date would reduce potential volumes, depending on the producer at issue.

Compressed Natural Gas (CNG) and Liquified Natural Gas (LNG) Producers

One of the new pathways proposed by EPA for the production of cellulosic biofuel is for the production of CNG or LNG from landfill biogas if used as a transportation fuel. The production potential for this type of cellulosic biofuel is very large with many landfills currently capturing biogas. The use of CNG and LNG as a transportation fuel in 2014 is expected to be approximately 700 million ethanol-equivalent gallons.

To generate RINs for landfill biogas, however, companies must be able to demonstrate that any fuel for which they generate RINs is used as transportation fuel. This can be done by fueling vehicles with CNG/LNG onsite or through contractual mechanisms.

EIA Annual Energy Outlook 2013. Transportation Sector Energy Use by Mode and Type, Reference case.

In this proposed rule, we are projecting a production range of 35-54 million ethanol-equivalent gallons from landfill biogas in 2014. The high end of the range represents the actual peak capacity of all of the facilities that produced advanced RINs from landfill biogas while the low end represents the current production rate of advanced biofuel from landfill biogas. In the case of CNG and LNG from landfill biogas, we believe a different methodology for projecting the high end of the production range is appropriate as the uncertainties surrounding RIN generation are significantly different. The only change at issue in the proposal to approve this pathway for the generation of cellulosic biofuel RINs is a change in the type of RIN that is generated, allowing for the generation of cellulosic biofuel instead of advanced biofuel RINs based on new information of the composition of the feedstock. In this case production facilities already exist and are already capturing landfill biogas at or near their registered capacities. Similarly, the amount of CNG and LNG currently being used as transportation fuel far exceeds the combined production capacity of all of the registered facilities. RIN generation is therefore limited by the companies' ability to demonstrate the use of the biogas as a transportation fuel.

As part of the registration process for the generation of advanced biofuel RINs, each of these facilities submitted documentation that included contracts with parties capable of using CNG/LNG as transportation fuel who had access to the same common carrier pipeline network as the biofuel producers.

See CFR 80.1426 for requirements for generating RINs from biogas

We believe the sum of the actual peak capacities of all of the facilities that produced advanced biofuel RINs from landfill biogas in 2013 is an appropriate volume to use for the high end of the projected production range. It is also the case, however, that these facilities would appear to have the capability to realize value from advanced RIN production if they were to produce at their facility capacity and are not currently doing so. There may be additional factors that EPA is unaware of at this time that is limiting production. To account for this, we are setting the low end of the range for the production of cellulosic RINs from CNG/LNG produced from landfills equal to 35 million gallons, the current production rate when projected over a full year.

Edeniq

Edeniq has developed a proprietary process that would allow corn ethanol producers to generate cellulosic ethanol from corn kernel fiber at the producers' existing production facilities. Their process involves the addition of the Cellunator

, a proprietary milling technology designed to increase the uniformity of the feedstock particles, along with a unique combination of enzymes to convert the cellulosic material in the corn kernel into sugars and ultimately cellulosic ethanol. Edeniq claims that their technology would not only allow corn ethanol producers to produce cellulosic ethanol from low value feedstock already present in their facility, but also would increase the yields of ethanol produced from starch by 2-4%. Several commercial plants are currently using the Cellunator technology to increase their yields of ethanol from starch. Edeniq has been testing their technology, including both the Cellunator and the additional enzymes, at a demonstration scale facility in Visalia, California since June 2012 and announced in May 2013 that they had successfully completed a trial run at this facility with a continuous run time of greater than 1000 hours.

Several plants are evaluating Edeniq's proprietary system to produce cellulosic ethanol from corn kernel fiber. These evaluations have included commercial scale trials. If the pathway for the production of cellulosic ethanol from corn kernel fiber is approved, these facilities would be in position to begin generating cellulosic RINs shortly after approval. Other facilities currently using the Cellunator would only have to make minor modifications to their operations, including the addition of Edeniq's suite of enzymes to produce cellulosic ethanol. Edeniq currently projects approximately 7 million gallons of cellulosic ethanol production using their technology in 2014 and has provided EPA with detailed information on the expected production volumes and dates of initial cellulosic ethanol production for facilities expected to utilize their technology. In today's proposed rule, we have included a projected production volume of 0-7 million gallons. The low end of this range reflects the fact that Edeniq's technology has not yet been used to generate commercial scale volumes of cellulosic biofuel. The high end of the range reflects Edeniq's own projections, which EPA has reviewed and believes are reasonable given the nature of Edeniq's technology, the deals they currently have in place, and their experience with the installation and operation of the various components of their technology. This volume is also dependent on the finalization of EPA's proposed rule clarifying that the definition of crop residue includes corn kernel fiber.

3. Potential Foreign Sources of Cellulosic Biofuel

In addition to the potential sources of cellulosic biofuel located in the United States discussed above there are several foreign cellulosic biofuel companies that may produce cellulosic biofuel in 2014. All of these facilities utilize fuel production pathways that have been approved by EPA for cellulosic RIN generation provided eligible sources of renewable feedstock are used. These companies would therefore be eligible to register these facilities under the RFS program and generate RINs for any fuel imported into the United States. Currently, however, none of these facilities have successfully completed the registration process for the RFS program. Further, demand for the cellulosic biofuels they produce is expected to be high in local markets. Production volumes from these foreign facilities have therefore not been included in our projection of potentially available volume for 2014. EPA plans to

continue to monitor the progress of these foreign facilities and may include volumes from these facilities should their plans change in the future.

Beta Renewables

Beta Renewables has developed a biochemical technology to convert cellulosic biomass into cellulosic sugars, which can then be used in the production of fuels or chemicals. Their first commercial scale facility was built in Crescentino, Italy and began producing cellulosic ethanol in commercial quantities in June 2013. This facility uses Arundo donax and wheat straw as feedstocks and has an annual production capacity of 20 million gallons of ethanol per year. Ethanol produced at this facility would be eligible to generate cellulosic RINs if Beta Renewables registers its facility and imports the cellulosic ethanol into the United States for use as a transportation fuel. Beta Renewables is also planning to build a cellulosic ethanol production facility in North Carolina. This facility is not expected to begin ethanol production in 2014, however, and has therefore not been included in our projection of available volume for 2014.

Enerkem

Enerkem plans to use a thermochemical process to produce syngas from MSW and other waste materials and then catalytically convert the syngas to methanol. The methanol can then be sold directly or upgraded to ethanol or other chemical products. Their first commercial scale facility in Edmonton, Alberta, Canada is scheduled to complete construction and begin producing methanol in 2013 with ethanol production following in 2014. At full capacity this facility will be capable of producing 10 million gallons of cellulosic ethanol per year. Despite their relative close proximity to the United States, Enerkem has indicated to EPA that they do not intend to export cellulosic biofuel into the United States from their Edmonton facility.

GranBio

GranBio began construction on its first commercial cellulosic ethanol production facility in São Miguel dos Campos, Brazil in December 2012. It is largely funded by a 300.3 million Reais loan from BNDES, Brazil's national social and economic development bank. This facility, which will use technology licensed from Beta Renewables, will have a nameplate capacity of 22 million gallons of ethanol per year and is scheduled to be completed in the first half of 2014. The feedstock for this facility will be excess bagasse not currently used to provide process heat or electricity at sugarcane ethanol production facilities.

Raizen

Raizen, a joint venture between Royal Dutch Shell and Cosan SA, is planning to build a 10.5 million gallon per year cellulosic ethanol plant attached to their Costa Pinto sugarcane mill in Piracicaba, Brazil. This facility will use a biochemical conversion technology developed by Iogen and Codexis to convert sugarcane bagasse to ethanol. The facility is currently scheduled to complete construction in the second half of 2014 and if successful will be the first of up to 8 cellulosic ethanol production facilities built by Raizen in Brazil.

4. Summary of Volume Projections for Individual Companies

The information we have gathered on cellulosic biofuel producers, described above, allows us to project a range of production volumes for each facility in 2014. As in 2013, we have once again focused on commercial scale cellulosic biofuel production facilities. This focus is appropriate, as the volume of cellulosic biofuel produced from R&D and pilot scale facilities is quite small in relation to that expected from the commercial scale facilities for which we have projected volumes in 2014 and historically R&D and demonstration scale facilities have not generated RINs for any fuel they have produced.

In 2014 as many as twelve domestic cellulosic biofuel production facilities have the potential to produce fuel at commercial scale. Each of these facilities is discussed above, and the projected available volumes for each are summarized in Table II.B.4-1 below. Two of the companies that have the potential to produce cellulosic biofuel in 2014, INEOS Bio and KiOR, are currently producing cellulosic biofuel. The production of RIN generating fuel from the remaining 10 facilities is more uncertain as these facilities have either yet to complete construction or do not currently have a valid pathway for generating cellulosic RINs.

We have also identified four foreign facilities with the potential to produce cellulosic ethanol in 2014. At this point we do not believe any of these facilities are likely to export any of the fuel they produce to the United States. We will continue to monitor the status of these facilities and may include volume from them in our final rule if appropriate. We ask for comment on this analysis and are especially interested in data that would support cellulosic volume estimates.

Table II.B.4-1—Projected Available Cellulosic Biofuel for 2014

Company name

Location

Feedstock

Fuel

Design

capacity

(MGY)

First production

2014 Projected available volume

(ethanol-

equivalent)

Domestic Facilities; Approved Pathways

Abengoa

Hugoton, KS

Corn Stover

Ethanol

1st Quarter 2014

0-18

CoolPlanet Biofuels

TBD

Gasoline

2nd Half 2014

DuPont

Nevada, IA

Corn Stover

Ethanol

2nd Half 2014

0-2

Fiberight

Blairstown, IA

MSW

Ethanol

Unknown

INEOS Bio

Vero Beach, FL

Vegetative Waste

Ethanol

3rd Quarter 2013

2-5

KiOR

Columbus, MS

Wood Waste

Gasoline and Diesel

1st Quarter 2013

0-5.5

(0-9)

LanzaTech

Soperton, GA

Wood Waste

Ethanol

1st Half 2015

Poet

Emmetsburg, IA

Corn Stover

Ethanol

1st Half 2014

0-6

Sweetwater Energy

Various

Ag. Residue

Ethanol

1st Half 2014

Domestic Facilities; All Potential Producers

Ensyn

Stanley, WI

Wood Waste

Heating Oil

2007

0-3

(0-5)

CNG/LNG Producers

Various

Biogas from Landfills

CNG/LNG

Various

N/A

35-54

Edeniq

Various

Corn Kernel Fiber

Ethanol

Various

1st Half 2014

0-7

Foreign Facilities

Beta Renewables

Crescentino, Italy

Wheat straw, Arundo Donax

Ethanol

2Q 2013

Enerkem

Edmonton, Alberta

Separated MSW

Methanol, Ethanol

1st Half 2014

GranBio

São Miguel dos Campos, Brazil

Bagasse

Ethanol

1st Half 2014

Raizen

Piracicaba, Brazil

Bagasse

Ethanol

10.5

2nd Half 2014

Facilities are generally designed to process a given quantity of feedstock and volume capacities may vary depending on yield assumptions.

C. Proposed Cellulosic Biofuel Volume for 2014

As discussed in the preceding sections we have used information from a variety of sources, including EIA, USDA, and the companies themselves, to determine a projected range of production of cellulosic biofuel for each company in 2014. These volumes are summarized in Table II.B.4-1 above. These volumes form the basis for our projection of cellulosic biofuel production in 2014. We do not believe, however, that a simple summation of the low end and high end of the projected production volumes for each company would result in an appropriate projected range of production volumes across the cellulosic biofuel industry. It is highly unlikely that every company will produce at or near the low end, or conversely the high end, of its range of projected production volumes. It is also the case that the production expectations within the projected ranges differ for facilities in different stages. The uncertainties associated with cellulosic biofuel production vary in both type and degree among facilities that have already begun production, those that are currently in or will soon be approaching the commissioning of their facilities, and those that are still undergoing significant construction operations.

EPA is using a Monte Carlo simulation to account for the need to aggregate across several ranges, with different producers having different production probability distributions across their expected production range. As discussed above, the high and the low end of each range represents values such that it is possible but highly unlikely that volumes would be higher or lower than this range. EPA will therefore treat these individual ranges as representing the 90% confidence interval of a distribution of possible volumes. In other words, the low end of the range for a producer would represent the 5th percentile and the high end of the range would represent the 95th percentile. This approach is consistent with EPA's judgment that, while the ranges shown in Table II.B.4-1 are intended to encompass the vast majority of possible volumes, there remains a small possibility that volumes outside of those ranges are possible. We believe it is reasonable to treat these values as a 90% confidence interval for purposes of the Monte Carlo analysis, though we request comment on treating them as a different confidence interval such as 80% or 95%.

For the purposes of the Monte Carlo analysis, EPA must also identify an uncertainty distribution for production for each facility. These distributions reflect our expectation for the most likely distribution of production volumes within the projected range when taking into account the many different uncertainties associated with the production volume from each facility. While each facility faces its own set of unique circumstances and challenges in producing cellulosic biofuels at commercial scale, many can be grouped into one of several general categories, the impact of which will vary with the progress achieved at that facility to date. One source of uncertainty in the projected production volume of a new cellulosic biofuel facility is related to the completion of the construction and commissioning phases of the facility. This includes uncertainty in the construction schedules, modifications to the design during the construction or commissioning phase, challenges encountered in scaling up the technology to commercial scale, unexpected delays or repairs due to weather events, or any of a number of other reasons. Delays of this type will result in a later than expected start-up date which may result in significantly decreased production volumes in 2014 or the start of production being delayed until 2015. The uncertainty related to delays in the completion of the construction of a facility decreases the closer the project is to completion, and is entirely irrelevant to facilities that have already begun production.

A second source of uncertainty is that associated with the ramp-up phase of new facilities. Lower than expected product yields, feedstock supply and handling challenges, contamination of chemical or biological catalysts, and a number of other issues can cause reduced production during the ramp-up phase and/or a longer than expected ramp-up period before reaching production levels that correspond to the nameplate capacity of the facility. Facilities that face these types of challenges during the ramp-up phase of production are very likely to still achieve some level of production, but that level may vary depending on the severity and duration of the challenges they face. The closer a facility is to achieving production rates that correspond to the nameplate capacity of the facility, the less likely they are to see

reductions in their expected production due to challenges in the ramp-up phase.

A third source of uncertainty is the ability of the facility to maintain consistent production at or near nameplate capacity after the ramp-up phase has been successfully completed. A number of factors including, but not limited to feedstock supply interruption, significant issues with feedstock quality, loss of power or other essential utilities at the facility, and interruptions in production due to accidents, operator error, or weather events could cause fuel production at a facility to decrease or cease altogether. While the uncertainty associated with these issues is never completely absent, it does decrease over time if a facility is able to consistently achieve production levels at or near nameplate capacity with few or no interruptions to production.

The degree to which these three sources of uncertainty impact expected production of cellulosic biofuel in 2014 varies greatly with the progress achieved by the facility to date. To represent this uncertainty for facilities expected to begin operations in different timeframes, we used three different standardized uncertainty distributions. The three standard curves that represent the expected production distributions from cellulosic biofuel production facilities are shown in Figure II.C-1 below. We request comment on how well these three curves represent the expected production distributions of the various cellulosic biofuel producers discussed above or if other curves may be more appropriate.

EP29NO13.000

As described more fully in Section IV.B.4, we believe that these three standardized distributions provide a mechanism for representing the regions within each projected volume range where the greatest likelihood of reasonably achievable volumes lie.

Facilities that have already begun producing cellulosic biofuel in 2012 or earlier and have at least a full year of production history do not face uncertainty associated with delays in the construction and commissioning of the facility. They may, however, face some uncertainty in their ramp-up schedule relative to the progress they have achieved to date, as well as the risk of unexpected shutdown or slowdown faced by all facilities. For facilities facing these uncertainties we expect that the most likely production volume is towards the middle of the range, with decreasing production probabilities as the high and low ends of the production ranges are approached. A normal curve is appropriate for this expected production distribution. In 2014, however, there are no commercial scale cellulosic biofuel production facilities that meet these criteria.

Facilities that began producing cellulosic biofuel in 2013 no longer face uncertainty due to potential delays in the completion of construction and the commissioning of the facility. There is, however, uncertainty regarding these facilities ramp-up schedules which can have a significant impact on the production volumes from these facilities. We believe that the expected production of these facilities would be best represented by a right-skewed or Weibull curve, with the most likely production volume near, but not at, the low end of the range and the production probabilities gradually towards the high end of the range.

Facilities not expected to begin producing cellulosic biofuel until 2014 face uncertainty associated with a delay in the completion in the construction and commissioning of the facility. Given this uncertainty, we believe that the most likely production volume is at the

low end of the range with decreasing probability as the high end of the range is approached. To represent this asymmetrical uncertainty, we believe a half-normal curve is a reasonable representation of the expected production distribution from these facilities.

The type of uncertainty distribution used to represent the expected production within the projected range for each company is shown in Table II.C-1.

Table II.C-1—Standard Distributions Used To Project Cellulosic Biofuel Production in 2014

Company

Distribution curve

5th Percentile volume

(mill ethanol-equivalent gal)

95th Percentile volume

(mill ethanol-equivalent gal)

Abengoa

Half-Normal

DuPont

Half-Normal

INEOS Bio

Right-Skewed

KiOR

Right-Skewed

Poet

Half-Normal

CNG/LNG Producers

Normal

Edeniq

Half-Normal

Ensyn

Normal

To aggregate the production distributions for each of the companies into a single distribution representing cellulosic biofuel production across the entire industry, we performed two Monte Carlo simulations in which each of the distributions was randomly sampled in an iterative fashion. Each of the distributions was sampled 3000 times and the results of all the iterations were then summed to produce a distribution for cellulosic biofuel. For the uncertainty distributions where the low end of the projected range was zero it was possible for the Monte Carlo simulation to select a negative volume for these companies.

Whenever negative volumes were selected in the Monte Carlo simulations these negative volumes were reset to zero.

Because the low end of each range represents the 5th percentile, negative volumes are selected approximately 5% of the time when the low end of the range is zero.

We generated two separate aggregate distributions to represent total cellulosic biofuel using the Monte Carlo process. Given the uncertainty surrounding the timing and approval of the proposed RIN-generating pathways that would be used by CNG/LNG producers, Edeniq, and Ensyn, the first aggregate distribution only included volumes from those facilities using RIN-generating pathways that have already been approved. The result of this Monte Carlo simulation forms the basis for the range of cellulosic biofuel production included in this proposal.

EP29NO13.001

The second Monte Carlo simulation included volumes from all eight facilities for which we have projected a range of volumes in 2014. The results of this simulation would be more representative of the volume of cellulosic biofuel included in our final rule in the event that the proposed RIN-generating pathways discussed above are approved for RIN generation before the 2014 applicable volumes are finalized.

EP29NO13.002

In today's NPRM we are proposing a volume for the 2014 cellulosic biofuel standard of 8—30 million ethanol-equivalent gallons. This volume is expected to be comprised of 5—26 million gallons of ethanol and 0—9 million ethanol-equivalent gallons of cellulosic hydrocarbons.

The proposed range is derived from the 90% confidence interval of the Monte Carlo simulation that includes all the companies we expect to produce commercial volumes of cellulosic biofuel in 2014 using pathways in the current RFS regulations. As discussed in Section II.B, many factors have been taken into consideration in developing the individual company projections, such as the information from EIA, the current status of project funding, the status of the production facility, anticipated construction timelines, the anticipated start-up date and ramp-up schedule, feedstock supply, and many others. We have also used distribution curves weighted towards the low end of the expected production range for each company to account for the fact that previous projections of cellulosic biofuel production have exceeded actual production. We believe the range of volumes proposed (8—30 million ethanol-equivalent gallons) resulting from the Monte Carlo simulation is a reasonable representation of expected production in 2014 across the industry.

These volumes are also the result of our Monte Carlo simulation. Similar to the individual company production projections, the low and high ends of the ranges cannot be simply added together to calculate the high and low ends of our total cellulosic biofuel production projection in 2014. Cellulosic hydrocarbons include both cellulosic gasoline and cellulosic diesel.

Our proposed range reflects EPA's best estimate of the range of cellulosic biofuel volumes that will actually be produced in 2014. In the final rule EPA will determine a single volume that represents EPA's best estimate of the volume that will actually be produced in 2014.

EPA invites comment on the best approach to determine a single value from a range developed using the approach described above. For example, EPA could use the mean (average value), median (50th percentile), or mode (the volume that occurs most frequently). It may also be reasonable to use a value representing higher or lower values in the distribution, such as the 25th or 75th percentile if there is reason to believe these would provide a more accurate projection of actual production in 2014.

We have determined the volumes represented by each of these methods and presented the values in Tables II.C-2 and II.C-3 below.

See

API

EPA,

706 F.3d 474 (D.C. Cir. 2013).

This could be the case if there was reason to believe there was a systematic bias such that the ranges tended to over or under estimate the actual production volumes.

Table II.C-2—Potential Approaches to Determining the Final Cellulosic Biofuel Requirement (Approved Pathways Only)

[million ethanol-equivalent gallons]

Mean

50th percentile

Mode

25th percentile

75th percentile

All volumes are ethanol-equivalent gallons

Table II.C-3—Potential Approaches to Determining the Final Cellulosic Biofuel Requirement (All Potential Cellulosic Biofuel Producers)

[million ethanol-equivalent gallons]

Mean

50th percentile

Mode

25th percentile

75th percentile

All volumes are ethanol-equivalent gallons

In today's NPRM, we are proposing to use the mean value for the final volume requirement for cellulosic because we believe it best represents a neutral aim at the volumes that could reasonably be supplied. However, we request comment on whether one of the alternative values shown in Table II.C-2 would be more appropriate as the basis for the required volume of cellulosic biofuel in the final rule.

It is important to note that the final cellulosic biofuel standard for 2014 may be set at a volume outside the proposed range of 8-30 million ethanol-equivalent gallons. If EPA finalizes the pathways discussed in the recent proposed rulemaking

before the applicable volume of cellulosic biofuel for 2014 is finalized, volumes of fuel from companies intending to utilize these pathways may be included in our projected available volume for 2014 as discussed above. Foreign producers of cellulosic biofuel who inform EPA of their intent to export the fuel they produce to the United States may also be included. Finally, a variety of factors may affect our production projections for the companies considered in this proposal, including unexpected project modifications or cancellations or the inclusion of volumes of cellulosic biofuel from sources other than those listed above.

78 FR 36042 (June 14, 2013).

We will continue to monitor the progress of the cellulosic biofuel industry, in particular the progress of the companies which form the basis of our proposed 2014 volume projection. We expect that for the final rule there will be greater certainty on the appropriate volume of fuel that we can reasonably expect to be produced and made commercially available in 2014. We request comment on our analysis and estimates.

Since EPA is proposing to reduce the applicable volume of cellulosic biofuel under section 211(o)(7)(D), EPA will be required to make available cellulosic biofuel credits. EPA will set the price for the cellulosic biofuel credits in the final rule, using the same approach to applying the criteria in section 211(o)(7)(D)(ii) that was used in setting the price for cellulosic biofuel credits for 2013. See 78 FR 49794.

D. Rescission of the 2011 Cellulosic Biofuel Standards

On January 25, 2013, the United States Court of Appeals for the District of Columbia Circuit issued its decision concerning a challenge to the 2012 cellulosic biofuel standard. The Court found that in establishing the applicable volume of cellulosic biofuel for 2012, EPA had used a methodology in which “the risk of overestimation [was] set deliberately to outweigh the risk of underestimation.” The Court held EPA's action to be inconsistent with the statute because EPA had failed to apply a “neutral methodology” aimed at providing a prediction of “what will actually happen,” as required by the statute. As a result of this ruling, the Court vacated the 2012 cellulosic biofuel standard, and we removed the 2012 requirement from the regulations in a previous action. Industry had also challenged the 2011 cellulosic biofuel standard by, first, filing a petition for reconsideration of that standard, and then seeking judicial review of our denial of the petition for reconsideration. This matter was still pending at the time of the DC Circuit's ruling on the 2012 cellulosic biofuel standard. Since we used essentially the same methodology to develop the 2011 cellulosic biofuel standard as we did to develop the 2012 standard, we requested, and the Court granted, a partial voluntary remand to enable us to reconsider our denial of the petition for reconsideration of the 2011 cellulosic biofuel standard. Given the Court's ruling that the methodology EPA used in developing the 2012 cellulosic biofuel standard was flawed, we have decided to grant reconsideration of the 2011 cellulosic biofuel standard, and are today proposing to rescind the 2011 cellulosic biofuel standard. If this proposal is finalized, the money paid by obligated parties to purchase cellulosic waiver credits to comply with the 2011 cellulosic biofuel standard would be refunded.

III. Proposed National Volume Requirement for Biomass-Based Diesel in 2014 and 2015

EPA set the national volume requirement for biomass-based diesel for 2013 at 1.28 bill gal of biomass-based diesel.

This national volume is then used to determine the applicable percentage standard that determines the specific renewable volume obligations for refiners and importers. Subsequently, EPA received two Petitions for Reconsideration requesting that EPA reconsider the final rule setting the 2013 biomass-based diesel volume requirement at 1.28 bill gal.

After review and consideration of the issues raised by petitioners, EPA denied both petitions.

77 FR 59458 (September 27, 2012).

Letter dated November 20, 2012 to Honorable Lisa Jackson from Richard Moskowitz, American Fuel & Petrochemical Manufacturers, “Re: Petition for Reconsideration—Docket No. EPA-HQ-OAR-2010-0133. Letter dated November 26, 2012 to Honorable Lisa Jackson from Robert L. Greco, III, American Petroleum Institute, “Re: Request for Reconsideration of EPA's Final Rulemaking ‘2013 biomass-Based Diesel Renewable Fuel Volume.’ ”

78 FR 49411, August 14, 2013.

In today's action we are proposing an applicable volume of 1.28 bill gal biomass-based diesel for 2014 and 2015. In proposing the 2015 applicable volume of biomass-based diesel, we are not at this time proposing the percentage standards that would apply to obligated parties in 2015. The percentage standards for 2015 will be proposed in a subsequent rulemaking as required by the statute once the requisite gasoline and diesel fuel volumes for 2015 are determined.

A. Statutory Requirements

Section 211(o)(2)(B)(i) of the Clean Air Act specifies the applicable volumes of renewable fuel on which the annual percentage standards must be based, unless the applicable volumes are waived or adjusted by EPA in accordance with the Act.

Applicable volumes are provided in the statute for years through 2022 for cellulosic biofuel, advanced biofuel, and total renewable fuel. For biomass-based diesel, applicable volumes are provided through 2012. For years after those specified in the statute (i.e. 2013+ for biomass-based diesel and 2023+ for all others), EPA is required under 211(o)(2)(B)(ii) to determine the applicable volume, in coordination with the Secretary of Energy and the Secretary of Agriculture, based on a review of the implementation of the program during calendar years for which the statute specifies the applicable volumes and on analysis of the following factors:

For example, EPA may waive a given standard in whole or in part following the provisions at CAA 211(o)(7).

• The impact of the production and use of renewable fuels on the environment, including on air quality, climate change, conversion of wetlands, ecosystems, wildlife habitat, water quality, and water supply;

• The impact of renewable fuels on the energy security of the United States;

• The expected annual rate of future commercial production of renewable

fuels, including advanced biofuels in each category (cellulosic biofuel and biomass-based diesel);

• The impact of renewable fuels on the infrastructure of the United States, including deliverability of materials, goods, and products other than renewable fuel, and the sufficiency of infrastructure to deliver and use renewable fuel;

• The impact of the use of renewable fuels on the cost to consumers of transportation fuel and on the cost to transport goods; and

• The impact of the use of renewable fuels on other factors, including job creation, the price and supply of agricultural commodities, rural economic development, and food prices.

The statute also specifies that the applicable volume of biomass-based diesel cannot be less than the applicable volume for calendar year 2012, which is 1.0 bill gallons. The statute does not, however, establish any other numeric criteria or overarching goals for EPA to achieve in setting the applicable volumes in years after those specifically set forth in the provision.

Finally, the statute also specifies the timeframe within which these volumes must be promulgated: the applicable volumes must be established no later than 14 months before the first year for which such applicable volume will apply. We did not propose a 2014 volume for biomass-based diesel in the February 7, 2013 NPRM because at that time we were still evaluating the potential market impacts of current production levels. In order to provide sufficient time for this evaluation, we delayed our proposal for the 2014 volume requirement for biomass-based diesel. Consequently, today we are proposing volume requirements for both 2014 and 2015.

B. Compliance With 2013 Volume Requirement of 1.28 Billion Gallons

In making a determination regarding the volume requirement for biomass-based diesel to propose for 2014 and 2015, we first investigated the recent historical and current circumstances in the biodiesel market. According to data collected through the EPA-Moderated Transaction System (EMTS) production of biodiesel in 2012 exceeded 1.14 bill gal.

This demonstrates that the industry was able to meet the applicable 2012 volume requirement of 1 bill gal. It also provides evidence that the industry will meet the 1.28 bill gal requirement in 2013. Additional volumes above 1.28 bill gal are possible in 2013, and may be used to help meet the advanced biofuel standard. Indeed current production rates in the biodiesel industry for the first seven months of 2013 were 25% above monthly production rates for the same time period in 2012 and are consistent with a total production volume of at least 1.6 bill gal for 2013.

Fuels and Fuel Additives 2012 EMTS Data,

http://www.epa.gov/otaq/fuels/rfsdata/2012emts.htm

(last accessed September 16, 2013).

Fuels and Fuel Additives 2013 EMTS Data,

http://www.epa.gov/otaq/fuels/rfsdata/2013emts.htm

(last accessed September 16, 2013).

While annual production volume has been increasing, a review of EIA's Monthly Biodiesel Production Reports

since 2009 indicates that there has been some variability both in monthly production volume and in the number of facilities producing that volume. For example, there were significant biodiesel facility closures during the 2009 and 2010 calendar years. Since that time the overall number of biodiesel facilities in operation has stabilized and overall capacity in the biodiesel industry has remained stable from 2009-2012 at more than 2 bill gal. It is also clear that overall industry-wide utilization rates have increased during this time period from 25% in 2009 to approximately 46% in both 2011 and 2012. Thus it is clear that total production capacity at facilities already operating is above 1.28 bill gal. There are also indications that new or idle facilities have begun production in response to the 1.28 bill gal mandate for 2013. Specifically, EIA's monthly reports indicate that nine additional producers have become operational in the U.S. since the rule for 2013 biomass-based diesel was finalized.

The latest EIA monthly biodiesel report, available for July 2013, indicates that U.S. production was 128 million gallons in July, and came from 111 biodiesel plants in 38 states with total operating capacity of 2.1 bill gal per year.

As described in Section IV.B.2.b, total biodiesel production by the end of 2013 could be as high as 1.7 bill gal, and the facilities contributing to this production collectively have a capacity of well over 2 bill gal.

The U.S. Energy Information Administration as part of it responsibilities under section 1508 of the 2005 Energy Policy Act, amended its ICR and has begun collecting and publishing biodiesel production information on a monthly basis including production of biodiesel in a given month, the number of plants operating and contributing to the monthly total volume by state, and their total operating capacity for the year. U.S. Energy Information Administration/Monthly Biodiesel Production Report, Form EIA-22m Monthly Biodiesel Production Survey. U.S. Energy Information Administration, Monthly Biodiesel Production Report, For 2012 data collected showed that 2012 production was 969 mil gallons, which was up from production 967 million gallons during 2011.

EIA data indicates that in December 2011, after the close of the comment period, 103 biodiesel plants existed with an operating capacity of 2.1 bill gal per year. In March 2012, 104 biodiesel plants were operational and the report indicates that for the first quarter of 2012 production was up 78% over the first quarter of 2011. As EPA finalized the 2013 volume mandates in September 2012 there were 105 biodiesel producers operating in the U.S. By late November 2012 that number had increased to 112.

http://www.eia.gov/biofuels/biodiesel/production/

(last accessed September 16, 2013).

Further discussion of the factors we must consider in the context of the biomass-based diesel volume of 1.28 bill gallons for 2013 is contained in both the final rule adopting this level for 2013

and in EPA's denial of two petitions requesting the Agency reconsider the 2013 biomass-based diesel final rule.

As discussed in that final rule, the assessment of these factors supported a volume of 1.28 bill gallons for 2013. As we would expect that the impacts of 1.28 bill gal in 2014 and 2015 would not be materially different, we are not repeating the discussion of those analyses here. However, we specifically request data and analyses suggesting that the factors we considered in 2013 have changed significantly for 2014 or 2015.

77 FR 59458 (September 27, 2012).

78 FR 49411, August 14, 2013.

C. Determination of Applicable Volume for 2014 and 2015

The biodiesel industry has clearly demonstrated that it can produce the volumes of biomass-based diesel up to the minimum required by the statute, and that 1.28 bill gal of biodiesel is readily attainable. We have no real concerns that a level of 1.28 bill gal will be achieved effectively in 2013, and that once it is met this level of production and consumption can also be achieved in years after 2013. Production costs associated with 1.28 bill gal of biodiesel could be affected by various factors, including the expiration of the biodiesel tax credit and projected lower soy oil prices.

EPA's evaluation of the applicable volume that we should set for biomass-based diesel takes into account the context of the larger advanced biofuel and total renewable fuel volume requirements. The biomass-based diesel standard is a subset of both the advanced biofuel and total renewable fuel standards, and biomass-based diesel volumes can be used to meet all three standards. As discussed in Section IV below, we are proposing to reduce the applicable volumes of advanced biofuel and total renewable fuel. The reductions are designed to address several factors that affect achievement of

the volume goals that Congress established in the statute for these categories of renewable fuel. These factors include limitations in production or importation of the necessary volumes, and factors that limit supplying those volumes to the vehicles that can consume them. These same factors impact our consideration of the biomass-based diesel volume requirement for 2014. For example, EPA considers the availability of feedstocks for production of biodiesel.

More importantly, the production and use of biomass-based diesel can be supported by both the need to comply with the required volume for biomass-based diesel as well as the need to comply with the required volume for advanced biofuel or even the volume for total renewable fuel. This provides EPA additional flexibility in considering the appropriate national volume to set for the biomass-based diesel volume requirement, as this requirement is not the only mechanism in the RFS program that can support production and use of biomass-based diesel. For example, while the applicable volume that EPA sets for biomass-based diesel will ensure that at least that volume of biomass-based diesel would be produced and used, the advanced biofuel standard provides an alternative potential source of support for production and use of additional volumes of biomass-based diesel. It does this because obligated parties have discretion whether to choose biomass-based diesel or another advanced biofuel to satisfy their advanced biofuel obligation, and because the diesel pool can accommodate considerably more than 1.28 bill gal of biodiesel. EPA believes there is value in providing obligated parties increased flexibility in how they meet their required volume obligations in 2014. As discussed in Section IV, EPA is reducing the statutory volumes of advanced biofuel and total renewable fuel based on concerns of inadequate domestic supply of these renewable fuels. Providing obligated parties additional flexibility to address future supply circumstances is of increased importance under these circumstances.

In setting the applicable volume for biomass-based diesel for 2013, EPA discussed various impacts of requiring volumes of biomass-based diesel in light of the relevant factors to be considered under CAA section 211(o)(2)(B)(ii).

We believe this analysis continues to be appropriate, and supports the proposed applicable volume of biomass-based diesel for 2014. In considering all of these factors, we see no need to reduce the minimum biomass-based diesel volume requirement from 2013 levels. We have a high degree of confidence that this volume of 1.28 bill gal could be achieved effectively without any real risk of production or supply problems.

77 FR 59458 (September 27, 2012), especially Sections IV and V of the preamble.

At the same time, as discussed above, the volume requirement for biomass-based diesel is nested within the advance biofuel standards that we are proposing to reduce in 2014. We believe that volumes of biomass-based diesel above 1.28 bill gal can, and likely will, be produced in 2014 to meet the requirements of the advanced biofuel standard, though the degree to which this occurs will also depend on whether the biodiesel tax subsidy is extended beyond December 31, 2013. We do not expect that there would be a significant difference between additional volumes of biomass-based diesel above 1.28 bill gal and other advanced biofuels, as far as the overall impact of those fuels in terms of the factors we are required to consider under section 211(o)(2)(B)(ii). Any such differences would also be hard to quantify. At the same time, providing obligated parties the discretion to choose the method to comply with their advanced biofuel volume requirement most appropriate for their circumstances is likely to reflect the most effective or efficient way to achieve the advanced biofuel volume requirements given the market circumstances present in 2014. In addition, as noted above, providing obligated parties additional flexibility to address the 2014 supply circumstances is of increased importance under the circumstances surrounding supply and consumption as discussed in Section IV. Therefore we are not proposing to increase the volume of biomass-based diesel that will be required in 2014 and 2015.

While the statute requires EPA to establish the applicable volume of cellulosic biofuel at projected production levels, this is not the case with respect to the applicable volume of biomass-based diesel. For biomass based-diesel, EPA may set the applicable volume at any level above 1 bill gal after consideration of the factors set forth in the statute and consultation with the Departments of Agriculture and Energy.

We invite comment on any different approaches that might be appropriate for balancing the factors noted above, including requiring an increase in the minimum volume of biomass-based diesel above 1.28 bill gal in both 2014 and 2015. As discussed above, volumes above 1.28 bill gal should be available, whether to meet a minimum biomass-based diesel requirement or the advanced biofuel requirement. Requiring a minimum volume of biomass-based diesel greater than 1.28 bill gal would place less emphasis on the benefits of preserving flexibility in how the required volume of advanced biofuel is achieved, and more emphasis on production of biomass-based diesel, without specific regard to the existence of a tax subsidy or to potential supplies of carryover biomass-based diesel RINs generated in 2013. We invite comment on all aspects of this issue, including information related to the statutory factors that we must consider as described in Section III.A. We also invite comment on the extent to which carryover biomass-based diesel RINs from 2013 would affect production levels of biomass-based diesel or other advanced biofuels in 2014, whether to meet the 1.28 bill gal biomass-based diesel volume or to achieve higher levels as a part of achieving the advanced biofuel requirement. We also seek comment on how EPA should take such information on biomass-based diesel carryover RINs into account when setting these volume requirements and the degree to which those carryover RINs support the goal of maintaining flexibility in how obligated parties meet the advanced biofuel mandate.

In the overall context of the RFS program, the level of the biomass-based diesel applicable volume can be seen as the minimum amount of biomass-based diesel that is required, recognizing that additional volumes of biomass-based diesel may be used, along with other advanced biofuels, to satisfy the volume requirements for advanced biofuel and total renewable fuel. Having considered the statutory factors, in the context of proposing the volume requirements for advanced biofuel and total renewable fuel, we believe the minimum required volume of biomass-based diesel should be set at the same level as 2013. This approach would also recognize that volumes of biomass-based diesel could be produced and consumed above the required volume level, and that obligated parties could well choose to use more biomass-based diesel than is required to satisfy their volume obligations for advanced and total renewable fuel. A volume requirement of 1.28 bill gal for biomass-based diesel in 2014 and 2015 would provide an assured minimum volume level for biomass-based diesel while also providing a clear opportunity for greater growth as part of the advanced biofuel category. Greater use of biomass-based diesel would be a recognized compliance path for the advanced and total renewable fuel volume obligations being proposed today. The proposed levels of those standards provide a

significant opportunity for greater volumes of biomass-based diesel to be produced and used if the market chooses them. We request comment on this proposed approach to the biomass-based diesel volume requirement for 2014 and 2015.

IV. Proposed National Volume Requirements for Advanced Biofuel and Total Renewable Fuel for 2014

As described in Section I, the national volumes of renewable fuel to be used under the RFS program each year are specified in CAA 211(o)(2). For 2014, the applicable volume of advanced biofuel is 3.75 bill gal and the applicable volume of total renewable fuel is 18.15 bill gal. However, two statutory provisions authorize EPA to reduce these volumes. EPA may reduce these volumes if it reduces the applicable volume for cellulosic biofuel, or if the criteria are met under the general waiver authority.

We are proposing to exercise our discretion under these provisions to reduce the applicable volumes of advanced biofuel and total renewable fuel to address several factors that affect achievement of the volume goals that Congress established in the statute. These factors include limitations in production or importation of the necessary volumes, and factors that limit supplying those volumes to the vehicles that can consume them. Based on a detailed analysis of these limitations, we are proposing reductions in the statutory volumes of both advanced biofuel and total renewable fuel as shown below.

See CAA section 211(o)(7)(D) and (A).

Table IV-1—Proposed Volumes for 2014

[billion gallons]

Statutory

volume

Proposed volume

Range

Mean

Advanced biofuel

3.75

2.00-2.51

2.20

Total renewable fuel

18.15

15.00-15.52

15.21

We are proposing to use a combination of the cellulosic biofuel waiver authority and the general waiver authority to ensure that the proposed volumes are reasonably achievable given limitations in the volume of ethanol that can be practically consumed in motor vehicles considering constraints on the supply of higher ethanol blends to the vehicles that can use them and other limits on ethanol blend levels approved for use in motor vehicles and the volume of non-ethanol renewable fuels that we expect would be reasonably achievable. To accomplish this, we are proposing an approach involving the following three steps:

• First, we would determine the total volume of ethanol that can reasonably be supplied to and consumed in the transportation sector as both E10 and higher ethanol blends such as E85. We would then add to this the volume of all non-ethanol biofuels that we expect could be reasonably available for meeting all four of the applicable volume requirements (cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuel). This first step would determine the volume of renewable fuel that can adequately be produced and supplied to consumers in light of limitations on the consumption of ethanol (commonly referred to as the “ethanol blendwall”) and other relevant constraints, and would form the basis for the required volume of total renewable fuel as adjusted pursuant to EPA's waiver authorities.

• Second, we would determine the volumes of all sources of advanced biofuel that could be reasonably achieved to ensure that the required volume of advanced biofuel be set no higher than the volume that is projected to be reasonably available.

• Third, we would determine an appropriate volume of advanced biofuel at or below the projected available volume determined in the second step. This volume would include the required volume of cellulosic biofuels and biomass-based diesel, which are set separately, as well as any additional volumes of non-ethanol advanced biofuels projected to be reasonably achievable. This approach would account for the contribution of ethanol volumes in the advanced biofuel category to the supply concerns related to total renewable fuel, including considerations of both production and consumption. While ensuring that both advanced biofuel and non-advanced renewable fuels play a role in addressing the ethanol blendwall, it would also support Congress's goal in the RFS program of continued growth in the advanced biofuel category as reflected in the volume requirements established in the statute. As discussed in detail in Section IV.C.2, we have examined several alternative approaches to this third step, but we believe this approach best accommodates the objectives of the RFS program, while accounting for the limitations in the ability to produce and consume renewable fuels. We request comment, however, on alternative approaches and on all aspects of the framework discussed in this section.

We anticipate that the framework described in this section would apply not only to 2014, but to subsequent years as well. The specific estimates of volumes for each potential source of renewable fuel would be different in each future year, but the manner in which we aggregate those estimates to determine appropriate volume requirements would follow the overall approach described above. If circumstances differ substantially from those described here, or if further analysis suggests that our proposed approach is inadequate, we may consider the need for additional measures.

A. Statutory Authorities for Reducing Volumes To Address Biofuel Availability and the Ethanol Blendwall

In establishing the annual volume objectives in the statute, Congress intended that volumes of renewable fuel, advanced biofuel, and cellulosic biofuel increase every year through 2022, and that volumes of biomass-based diesel be at least equal to the statutory volume for 2012, while granting EPA discretion to increase the biomass-based diesel volume based on consideration of several specified factors. However, Congress recognized that circumstances could arise that might require a reduction in the volume objectives specified in the statute as evidenced by the different waiver provisions in CAA 211(o)(7). As described in more detail below, we

believe that limitations in production or importation of qualifying renewable fuels, and factors that limit supplying those volumes to the vehicles that can consume them, both constitute circumstances that warrant a waiver under section 211(o)(7) as discussed below. With regard to the ethanol blendwall, a decrease in total gasoline consumption since EISA was enacted in 2007, coupled with limitations in the number and geographic distribution of retail stations that offer higher ethanol blends such as E85 and the number of FFVs that have access to E85, as well as other market factors, combine to place significant restrictions on the volume of ethanol that can be supplied to and consumed in the transportation sector. Based on the types of renewable fuel that we project are likely to be available in 2014 and the volume that is likely to be non-ethanol, we believe that the ethanol blendwall represents a circumstance that warrants a reduction in the mandated volumes for 2014.

The statute provides two separate authorities that permit EPA to reduce volumes of advanced biofuel or total renewable fuel under certain conditions: The cellulosic waiver authority and the general waiver authority. Applying a combination of these two authorities is the most appropriate way to address limitations in production or importation of the necessary volumes, and factors that limit supplying those volumes to the vehicles that can consume them, including the ethanol blendwall. This section discusses both of these statutory authorities and the manner in which we believe they can be used together to set standards for 2014.

1. Cellulosic Waiver Authority

Under CAA section 211(o)(7)(D)(i), if EPA determines that the projected volume of cellulosic biofuel production for the following year is less than the applicable volume provided in the statute, then EPA must reduce the applicable volume of cellulosic biofuel to the projected volume available during that calendar year. Under such circumstances, EPA also has the discretion to reduce the applicable volumes of advanced biofuel and total renewable fuel by an amount not to exceed the reduction in cellulosic biofuel.

Section 211(o)(7)(D)(i) provides that “[f]or any calendar year in which the Administrator makes such a reduction, the Administrator may also reduce the applicable volume of renewable fuel and advanced biofuels requirement established under paragraph (2)(B) by the same or a lesser volume.” Thus Congress authorized EPA to reduce the volume of total renewable fuel and advanced biofuel. As EPA has discussed before, this indicates a clear Congressional intention that under this provision EPA may reduce both the total renewable and advanced biofuel volume together, not one or the other.

As described in the May 26, 2009 NPRM for the RFS regulations, we do not believe it would be appropriate to lower the advanced biofuel standard but not the total renewable standard, as doing so would allow conventional biofuels to effectively be used to meet the standards that Congress specifically set for advanced biofuels.

EPA interprets this provision as authorizing EPA to reduce both total renewable fuel and advanced biofuel, by the same amounts, if EPA reduces the volume of cellulosic biofuel. Using this authority the reductions in total renewable fuel and advanced biofuel can be up to but no more than the amount of reduction in the cellulosic biofuel volume. Further discussion of this provision can be found in the final rule establishing the 2013 RFS standards.

See 74 FR 24914-15

78 FR 49794, August 15, 2013.

The statute does not provide any explicit criteria that must be met or factors that must be considered when making a determination as to whether and to what degree to reduce the advanced biofuel and total renewable fuel applicable volumes based on a reduction in cellulosic biofuel volumes under CAA section 211(o)(7)(D)(i). EPA can consider the criteria described in sections 211(o)(2)(B)(ii) and 211(o)(7)(A) in determining appropriate reductions in advanced biofuel and total renewable fuel under the cellulosic waiver authority at section 211(o)(7)(D)(ii), or any other factors that may be relevant. However, EPA must provide a reasoned explanation for any decision to reduce the advanced biofuel and total renewable fuel volume requirements under the cellulosic biofuel waiver authority.

2. General Waiver Authority

CAA 211(o)(7)(A) provides that EPA, in consultation with the Secretary of Agriculture (USDA) and the Secretary of Energy (DOE), may waive the applicable volume requirements of the Act in whole or in part based on a petition by one or more States, by any person subject to the requirements of the Act, or by the EPA Administrator on her own motion. Such a waiver must be based on a determination by the Administrator, after public notice and opportunity for comment, that:

• Implementation of the requirement would severely harm the economy or the environment of a State, a region, or the United States; or

• There is an inadequate domestic supply.

In today's NPRM, we are proposing to use the general waiver authority to waive the applicable volume requirements based on the statute's authorization for the Administrator to act on her own motion. We have initiated discussions with both USDA and DOE on the proposed approach to determining the applicable volume requirements that is described in this section.

Because this provision provides EPA the discretion to waive the volume requirements of the Act “in whole or in part,” we interpret this section as granting authority to waive any or all of the four applicable volume requirements in appropriate circumstances. Thus, for example, unlike the cellulosic waiver authority, a reduction in total renewable fuel pursuant to the general waiver authority would not automatically result in the same reduction in advanced biofuel, and would not be limited by the reduction in cellulosic biofuel.

EPA has not previously interpreted or applied the waiver provision in CAA section 211(o)(7)(A)(ii) related to “inadequate domestic supply.”

As explained in greater detail below, we believe that this ambiguous provision is reasonably and best interpreted to encompass the full range of constraints that could result in an inadequate supply of renewable fuel to the ultimate consumers, including fuel infrastructure and other constraints. This would include, for instance, factors affecting the ability to produce or import qualifying renewable fuels as well as factors affecting the ability to distribute, blend, dispense, and consume those renewable fuels.

EPA has applied the waiver provision in section 211(o)(7)(A)(i) related to severe harm to the economy. See 77 FR 70752 (November 27, 2012), 73 FR 47168 (August 13, 2008).

The waiver provision at CAA 211(o)(7)(A)(ii) is ambiguous in several respects. First, it does not specify what the general term “supply” refers to. The common understanding of this term is an amount of a resource or product that is available for use by the person or place at issue.

Hence the evaluation of

the supply of renewable fuel, a product, is best understood in terms of the person or place using the product. In the RFS program, various parties interact across several industries to drive the ultimate use of renewable fuel by consumers of transportation fuel. For example, supplying renewable fuel to obligated parties and terminal blenders is one part of this process, while supplying renewable fuel to the ultimate consumer as part of transportation fuel is a different and later aspect of this process. This is clearly the case with respect to the renewable fuels ethanol and biodiesel, which are typically supplied to the obligated parties and terminals as a neat fuel, but in almost all cases are supplied to the consumer as a blend with conventional fuel (ethanol and gasoline or biodiesel and diesel). The waiver provision does not specify what product is at issue (for example, neat renewable fuel or blended renewable fuel with transportation fuel) or the person or place at issue (for example, obligated party or ultimate consumer), in determining whether there is an “inadequate domestic supply.”

For example, see

http://oxforddictionaries.com/us/definition/american_english/supply

(a stock of a resource from which a person or place can be provided with the necessary amount of that resource: “

here were fears that the drought would limit the exhibition's water

supply.”);

http://www.macmillandictionary.com/us/dictionary/american/supply

(“

A limited oil supply has made gas prices rise.” and “Aquarium fish need a constant supply of oxygen.”

The waiver provision also does not specify what factors are relevant in determining the adequacy of the supply. Adequacy of the supply would logically be seen in terms of the parties who use the supply of renewable fuel. Adequacy of supply could affect various parties, including obligated parties, terminal operators, and consumers. Adequacy of supply with respect to the consumer might well involve consideration of factors different from those involved when considering adequacy of supply to the obligated parties. We believe that interpreting this waiver provision as authorizing EPA to consider the adequacy of supply of renewable fuel to all of the relevant parties, including the adequacy of supply to the ultimate consumer of transportation fuel, is consistent with the common understanding of the terms used in this waiver provision, especially in the context of a fuel program that is aimed at increasing the use of renewable fuel by consumers. In our view, this is the most reasonable and appropriate construction of this ambiguous language in light of the overall policy goals of the RFS program.

EPA has reviewed other fuel related provisions of the Clean Air Act with somewhat similar waiver provisions, and they highlight both the ambiguity of the RFS general waiver provision and the reasonableness of applying it broadly to include adequacy of supply to the ultimate consumer of transportation fuel. For example, CAA section 211(k)(6)(A)(ii) allows EPA to defer application of reformulated gasoline (RFG) requirements in a state that opts in to the RFG program if EPA determines that “there is insufficient domestic capacity to produce reformulated gasoline.” A related RFG waiver provision concerning the application of RFG requirements in the Ozone Transport Region, section 211(k)(6)(B)(i) and (iii), provides for a waiver of RFG requirements based on “insufficient capacity to supply reformulated gasoline.” For these RFG waiver provisions, Congress more clearly and explicitly indicated that the capacity to supply RFG could include consideration of factors beyond those concerning the capacity to produce RFG. In the language of the RFS general waiver provision, in comparison, Congress used a single, broader and clearly ambiguous phrase—“inadequate domestic supply”—without elaboration or clarification as to whether it refers solely to production capacity or also includes additional factors relevant to the ability to supply the fuel to various persons such as the ultimate consumer. As in the RFG provision, however, the adequacy of supply referred to in the RFS general waiver provision can logically—and we believe should—be read to include factors beyond capacity to produce that impact the ability of consumers to use the fuel as a transportation fuel.

CAA section 211(c)(4)(C)(ii) provides EPA with waiver authority to address “extreme and unusual fuel or fuel additive supply circumstances . . . which prevent the distribution of an adequate supply of the fuel or fuel additive to consumers.” The supply circumstances must be the result of a natural disaster, an Act of God, a pipeline or refinery equipment failure or another event that could not reasonably have been foreseen, and granting the waiver must be “in the public interest.” In this case, Congress clearly specified that the adequacy of the supply is judged in terms of the availability of the fuel for use by the ultimate consumer, and includes consideration of the ability to distribute the required fuel or fuel additive to the ultimate consumer. Although the RFS waiver provision does not contain any such explicit clarification from Congress, its broad and ambiguous wording provides EPA the discretion to reasonably interpret the scope of the RFS waiver provision. EPA's interpretation of the RFS waiver provision is consistent with the view, expressed more explicitly in the section 211(c) waiver, that the adequacy of the supply of a fuel or fuel additive can reasonably be judged in terms of availability for use by the consumer, and can include consideration of the capacity to distribute the product to the ultimate consumer.

CAA section 211(m)(3)(C) allows EPA to delay the effective date of oxygenated gasoline requirements for certain carbon monoxide nonattainment areas if EPA finds “an inadequate domestic supply of, or distribution capacity for, oxygenated gasoline . . . or fuel additives” needed to make oxygenated gasoline. Here, Congress chose to expressly differentiate between “domestic supply” and “distribution capacity,” indicating that each of these elements was to be considered separately. This would indicate that the term inadequate supply, although ambiguous for the reasons discussed above, could in appropriate circumstances be read as more limited in scope. In contrast to the RFS waiver provision, the section 211(m) waiver provision includes additional text that makes clear that EPA's authority includes consideration of distribution capacity—reducing the ambiguity inherent in using just the general phrase “inadequate domestic supply.” Presumably this avoids a situation where ambiguity would result in an overly narrow administrative interpretation. The oxygenated gasoline waiver provision is also instructive in that it clarifies that it applies separately to both finished oxygenated fuel and to oxygenated fuel blending components. That is, there could be an adequate supply of the oxygenate, such as ethanol, but not an adequate supply of the blended fuel which is sold to the consumer. The RFS waiver provision employs the phrase “inadequate domestic supply” without further specification or clarification, thus providing EPA the discretion to determine whether the adequacy of the supply of renewable fuel can reasonably be judged in terms of availability for use by the ultimate consumer, including consideration of the capacity to distribute the product to the ultimate consumer. In contrast to the section 211(m) waiver provision, Congress arguably did not mandate that the RFS waiver provision be interpreted as providing authority to address problems affecting the supply of renewable fuel to the ultimate consumer. However, the RFS waiver provision does provide EPA the discretion to adopt such an

interpretation, resulting in a policy approach consistent with that required by the less ambiguous section 211(m) waiver provision.

In CAA section 211(h)(5)(C)(ii), Congress authorized EPA to delay the effective date of certain changes to the federal requirements for Reid vapor pressure in summertime gasoline, if the changes would result in an “insufficient supply of gasoline” in the affected area. As with the RFS general waiver provision, Congress did not specify what considerations would warrant a determination of insufficient supply. EPA has not been called upon to apply this provision to date and has not interpreted it.

As the above review of various waiver provisions in Title II of the Clean Air Act makes clear, Congress has used the terms “supply” and “inadequate supply” in different waiver provisions. In the RFS general waiver provision, Congress spoke in general terms and did not address the scope of activities or persons or places that are the focus in determining the adequacy of supply. In other cases, Congress provided, to varying degrees, more explicit direction. Overall, the various waiver provisions lend support to the view that it is appropriate, where Congress has used just the ambiguous phrase “inadequate domestic supply” in the general waiver provision, to consider supply in terms of distribution and use by the ultimate consumer, and that the term “inadequate supply” of a fuel need not be read as referring to just the capacity to produce renewable fuel or the capacity to supply it to the obligated parties.

We are aware that prior to final adoption of the Energy Independence and Security Act of 2007, Congress had before it bills that would have provided for an EPA waiver in situations where there was “inadequate domestic supply or distribution capacity to meet the requirement.”

EPA is not aware of any conference or committee reports, or other legislative history, explaining why Congress ultimately enacted the language in EISA in lieu of this alternative formulation. There is no discussion, for example, of whether Congress did or did not want EPA to consider distribution capacity, whether Congress believed the phrase “inadequate domestic supply” was sufficiently broad that a reference to distribution capacity would be unnecessary or superfluous, or whether Congress considered the alternative language as too limiting, since it might suggest that other types of constraints on delivering renewable fuel to the ultimate consumer should not be considered for purposes of granting a waiver.

Given the lack of interpretive value typically given to a failure to adopt a legislative provision, and the lack of explanation in this case, we find the legislative history to be uninformative with regard to Congressional intent on this issue. It does not change the fact that the text adopted by Congress, whether viewed by itself or in the context of other fuel waiver provisions, is clearly ambiguous.

H.R. 6 and S. 606 as reported by Senate Envt. & Public Works in Senate Report 109-74.

There are, for example, legal constraints on the amount of certain renewable fuels that may be blended into transportation fuels.

We believe the term “inadequate domestic supply” should be interpreted to authorize EPA to consider the full range of constraints, including fuel infrastructure and other constraints, that could result in an inadequate supply of renewable fuels to consumers. Under this interpretation, we would not limit ourselves to consideration of the capacity to produce or import renewable fuels but would also consider practical and other constraints related to the fuel delivery infrastructure and their effect on the volume of qualifying renewable fuel that would be supplied to the ultimate consumer.

This interpretation is consistent with the provisions of section 211(o) and promotes Congress's purposes in establishing the RFS program, which are to ensure that certain volumes of renewable fuel are used by the ultimate consumer as a replacement for the use of fossil based transportation fuel.

The RFS program does not achieve the desired benefits unless renewable fuels are actually used to replace fossil based transportation fuels. For example, the greenhouse gas reductions and energy security benefits that Congress sought to promote through this program are realized only through the use by consumers of renewable fuels that reduce or replace fossil fuels present in tran

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.