# Renewable Fuel Standard Program: Standards for 2018 and Biomass-Based Diesel Volume for 2019 > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2017-14632 ## Record - **Collection:** Federal Register - **Document type:** Proposed Rule - **Published:** July 21, 2017 - **Citation:** 82 FR 34206 ## Text ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 80 [EPA-HQ-OAR-2017-0091; FRL-9964-86-OAR] RIN 2060-AT04 Renewable Fuel Standard Program: Standards for 2018 and Biomass-Based Diesel Volume for 2019 AGENCY: Environmental Protection Agency (EPA). ACTION: Proposed rule. SUMMARY: Under section 211 of the Clean Air Act, the Environmental Protection Agency (EPA) is required to set renewable fuel percentage standards every year. This action proposes the annual percentage standards for cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuel that apply to gasoline and diesel transportation fuel produced or imported in the year 2018. Relying on statutory waiver authority that is available when projected cellulosic biofuel production volumes are less than the applicable volume specified in the statute, the EPA is proposing volume requirements for cellulosic biofuel, advanced biofuel, and total renewable fuel that are below the statutory applicable volumes, and lower than the 2017 requirements. In this action, we are also proposing the applicable volume of biomass-based diesel for 2019. DATES: Comments must be received on or before August 31, 2017. EPA will announce the public hearing date and location for this proposal in a supplemental Federal Register document. ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-OAR-2017-0091, at http://www.regulations.gov. Follow the online instructions for submitting comments. Once submitted, comments cannot be edited or removed from Regulations.gov . The EPA may publish any comment received to its public docket. Do not submit electronically any information you consider to be Confidential Business Information (CBI) or other information whose disclosure is restricted by statute. Multimedia submissions (audio, video, etc.) must be accompanied by a written comment. The written comment is considered the official comment and should include discussion of all points you wish to make. The EPA will generally not consider comments or comment contents located outside of the primary submission ( i.e., on the web, cloud, or other file sharing system). For additional submission methods, the full EPA public comment policy, information about CBI or multimedia submissions, and general guidance on making effective comments, please visit https://www.epa.gov/dockets/commenting-epa-dockets. FOR FURTHER INFORMATION CONTACT: Julia MacAllister, Office of Transportation and Air Quality, Assessment and Standards Division, Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor, MI 48105; telephone number: 734-214-4131; email address: macallister.julia@epa.gov. SUPPLEMENTARY INFORMATION: Entities potentially affected by this 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, biodiesel, renewable diesel, and biogas. Potentially regulated categories include: Category NAICS 1 codes SIC 2 codes Examples of potentially regulated entities Industry 324110 2911 Petroleum Refineries. Industry 325193 2869 Ethyl alcohol manufacturing. Industry 325199 2869 Other basic organic chemical manufacturing. Industry 424690 5169 Chemical and allied products merchant wholesalers. Industry 424710 5171 Petroleum bulk stations and terminals. Industry 424720 5172 Petroleum and petroleum products merchant wholesalers. Industry 221210 4925 Manufactured gas production and distribution. Industry 454319 5989 Other fuel dealers. 1 North American Industry Classification System (NAICS). 2 Standard Industrial Classification (SIC) 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 entity 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 FOR FURTHER INFORMATION CONTACT section. Outline of this preamble I. Executive Summary A. Purpose of This Action B. Summary of Major Provisions in This Action 1. Approach To Setting Volume Requirements 2. Cellulosic Biofuel 3. Advanced Biofuel 4. Total Renewable Fuel 5. Biomass-Based Diesel 6. Annual Percentage Standards C. Statutory Requirement To Reset Volumes D. RIN Market Operation E. Biofuel Imports II. Authority and Need for Waiver of Statutory Applicable Volumes A. Statutory Authorities for Reducing Volume Targets 1. Cellulosic Waiver Authority 2. General Waiver Authority B. Treatment of Carryover RINs III. Cellulosic Biofuel Volume for 2018 A. Statutory Requirements B. Cellulosic Biofuel Industry Assessment 1. Potential Domestic Producers 2. Potential Foreign Sources of Cellulosic Biofuel 3. Summary of Volume Projections for Individual Companies C. Cellulosic Biofuel Volume for 2018 1. Liquid Cellulosic Biofuel 2. CNG/LNG Derived from Biogas 3. Total Cellulosic Biofuel in 2018 IV. Advanced Biofuel Volume for 2018 A. Volumetric Limitation on Use of the Cellulosic Waiver Authority B. Reasonably Attainable Volumes of Advanced Biofuel 1. Imported Sugarcane Ethanol 2. Biodiesel and Renewable Diesel 3. Other Advanced Biofuel 4. Total Advanced Biofuel C. Proposed Advanced Biofuel Volume Requirement for 2018 V. Total Renewable Fuel Volume for 2018 A. Volumetric Limitation on Use of the Cellulosic Waiver Authority B. Assessing Attainable Volumes 1. Ethanol a. Ethanol Concentration in the Gasoline Pool b. Assessment of E0 in the Gasoline Pool c. Ethanol Supply Volume for Assessment of Total Renewable Fuel 2. Biodiesel and Renewable Diesel 3. Total Renewable Fuel Supply C. Market Responses to the Advanced Biofuel and Total Renewable Fuel Volume Requirements D. Impacts of 2018 Standards on Costs 1. Illustrative Cost Savings Associated With Reducing Statutory Cellulosic Volumes 2. Illustrative Cost Analysis Using the 2017 Baseline VI. Biomass-Based Diesel Volume for 2019 A. Statutory Requirements B. Determination of Applicable Volume of Biomass-Based Diesel C. Consideration of Statutory Factors Set forth in CAA Section 211(o)(2)(B)(ii)(I)-(VI) for 2019 VII. Percentage Standards for 2018 A. Calculation of Percentage Standards B. Small Refineries and Small Refiners C. Proposed Standards VIII. Public Participation A. How do I submit comments? B. How should I submit CBI to the agency? IX. Statutory and Executive Order Reviews A. Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review B. Paperwork Reduction Act (PRA) C. Regulatory Flexibility Act (RFA) D. Unfunded Mandates Reform Act (UMRA) 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 (NTTAA) J. Executive Order 12898: Federal Actions To Address Environmental Justice in Minority Populations, and Low-Income Populations X. Statutory Authority I. Executive Summary The Renewable Fuel Standard (RFS) program began in 2006 pursuant to the requirements in Clean Air Act (CAA) section 211(o) that were added through the Energy Policy Act of 2005 (EPAct). The statutory requirements for the RFS program were subsequently modified through the Energy Independence and Security Act of 2007 (EISA), leading to the publication of major revisions to the regulatory requirements on March 26, 2010. 1 EISA's stated goals include moving the United States toward “greater energy independence and security [and] to increase the production of clean renewable fuels.” Today, nearly all of the approximately 143 billion gallons of gasoline used for transportation purposes contains 10 percent ethanol (E10), and on average diesel fuel contains approximately 4 percent biodiesel and/or renewable diesel. 1 75 FR 14670, March 26, 2010. The statute includes annual volume targets, and requires EPA to translate those volume targets (or alternative volume requirements established by EPA in accordance with statutory waiver authorities) into compliance obligations that obligated parties must meet every year. In this action, we are proposing the annual percentage standards for cellulosic biofuel, biomass-based diesel (BBD), advanced biofuel, and total renewable fuel that would apply to all gasoline and diesel produced or imported in 2018. We are also proposing the applicable volume of BBD for 2019. Real-world challenges, such as the slower-than-expected development of the cellulosic biofuel industry, have slowed progress towards meeting Congressional goals for renewable fuels, even as progress has been made in some areas. Those challenges have made the volume targets established by Congress for 2018 beyond reach for all fuel categories other than BBD, for which the statute specifies a minimum requirement of 1.0 billion gallons. After careful review of the information before us, for 2018 we propose to use the cellulosic waiver authority provision provided by Congress to reduce the volume requirement for cellulosic biofuel to the projected volume available in 2018, and establish volume requirements for advanced biofuel and total renewable fuel that are lower than the statutory targets, but nevertheless will ensure these renewable fuels will continue to play a critical role as a complement to our petroleum-based fuels. We are not proposing to provide volume reductions through use of the general waiver authority. 2 2 See 42 U.S.C. 7545(o)(7)(A)(i-ii). See also the discussion of the general waiver authority in Section II.A.2. below. We note that while we are proposing to reduce the required volume of all of the fuel categories other than BBD due to an anticipated shortfall in the production of cellulosic biofuel, the proposed BBD volume exceeds the statutory minimum and the proposed volumes of total renewable fuel, advanced biofuel and cellulosic biofuel would achieve the implied statutory volumes for conventional biofuel 3 and non-cellulosic advanced biofuel. 4 3 Throughout this proposed rule conventional biofuel refers to biofuel that qualifies as renewable fuel, but does not qualify as an advanced biofuel. RINs generated for conventional biofuels have a D code of 6. 4 Throughout this proposed rule non-cellulosic advanced biofuel refers to biofuel that qualifies as advanced biofuel, but does not qualify as cellulosic biofuel. RINs generated for non-cellulosic advanced biofuels have a D code of 4 or 5. The proposed volume requirements for 2018 are shown in Table I-1 below. Relative to the levels finalized in 2017, the proposed 2018 volume requirements for advanced biofuel and total renewable fuel are lower by 40 million gallons. For the first time EPA is proposing in 2018 to reduce the advanced biofuel and total renewable fuel volumes by the same amount as we would reduce the required volume of cellulosic biofuel. These reductions effectively preserve the implied statutory volumes for conventional renewable fuel and non-cellulosic advanced biofuels, rather than requiring additional volumes of non-cellulosic advanced biofuels to backfill for some of the shortfall in cellulosic biofuel, as EPA has done in previous years. We are proposing no increase, relative to the finalized 2018 levels, in the volume requirement for biomass-based diesel for 2019. Table I-1—Proposed Volume Requirements a 2018 2019 Cellulosic biofuel (million gallons) 238 n/a Biomass-based diesel (billion gallons) b 2.1 2.1 Advanced biofuel (billion gallons) 4.24 n/a Renewable fuel (billion gallons) 19.24 n/a a All values are ethanol-equivalent on an energy content basis, except for BBD which is biodiesel-equivalent. b The 2018 BBD volume requirement was established in the 2017 final rule (81 FR 89746, December 12, 2016). The Clean Air Act requires EPA to “reset” the statutory volume targets for future years when certain conditions are met. As discussed later in this Executive Summary, the Administrator has directed staff to begin technical analysis to inform a future reset rulemaking action. A. Purpose of This Action The national volume targets of renewable fuel that are intended to be achieved under the RFS program each year (absent an adjustment or waiver by EPA) are specified in CAA section 211(o)(2). The statutory volumes for 2018 are shown in Table I.A-1. The cellulosic biofuel and BBD categories are nested within the advanced biofuel category, which is itself nested within the total renewable fuel category. This means, for example, that each gallon of cellulosic biofuel or BBD that is used to satisfy the individual volume requirements for those fuel types can also be used to satisfy the requirements for advanced biofuel and total renewable fuel. Table I.A-1—Applicable 2018 Volumes Specified in the Clean Air Act [Billion gallons] a Cellulosic biofuel 7.0 Biomass-based diesel ≥1.0 Advanced biofuel 11.0 Renewable fuel 26.0 a All values are ethanol-equivalent on an energy content basis, except values for BBD which are given in actual gallons. Under the RFS program, EPA is required to determine and publish annual percentage standards for each compliance year. The percentage standards are calculated to ensure use in transportation fuel of the national “applicable volumes” of the four types of biofuel (cellulosic biofuel, BBD, advanced biofuel, and total renewable fuel) that are set forth in the statute or established by EPA in accordance with the Act's requirements. The percentage standards are used by obligated parties (generally, producers and importers of gasoline and diesel fuel) to calculate their individual compliance obligations. Each of the four percentage standards is applied to the volume of non-renewable gasoline and diesel that each obligated party produces or imports during the specified calendar year to determine their individual volume obligations with respect to the four renewable fuel types. The individual volume obligations determine the number of RINs of each renewable fuel type that each obligated party must acquire and retire to demonstrate compliance. EPA is proposing the annual applicable volume requirements for cellulosic biofuel, advanced biofuel, and total renewable fuel for 2018, and for BBD for 2019. 5 Table I.A-2 lists the statutory provisions and associated criteria relevant to determining the national applicable volumes used to set the percentage standards in this proposed rule. 5 The 2018 BBD volume requirement was established in the 2017 final rule. 6 CAA section 211(o)(7)(E) also authorizes EPA in consultation with other federal agencies to issue a temporary waiver of applicable volumes of BBD where there is a significant feedstock disruption or other market circumstance that would make the price of BBD fuel increase significantly. Table I.A-2—Statutory Provisions for Determination of Applicable Volumes Applicable volumes Clean air act reference Criteria provided in statute for determination of applicable volume Cellulosic biofuel 211(o)(7)(D)(i) Required volume must be lesser of volume specified in CAA 211(o)(2)(B)(i)(III) or EPA's projected volume. 211(o)(7)(A) EPA in consultation with other federal agencies may waive the statutory volume in whole or in part if implementation would severely harm the economy or environment of a State, region, or the United States, or if there is an inadequate domestic supply. Biomass-based diesel 6 211(o)(2)(B)(ii) and (v) Required volume for years after 2012 must be at least 1.0 billion gallons, and must be based on a review of implementation of the program, coordination with other federal agencies, and an analysis of specified factors. 211(o)(7)(A) EPA in consultation with other federal agencies may waive the statutory volume in whole or in part if implementation would severely harm the economy or environment of a State, region, or the United States, or if there is an inadequate domestic supply. Advanced biofuel 211(o)(7)(D)(i) If applicable volume of cellulosic biofuel is reduced below the statutory volume to the projected volume, EPA may reduce the advanced biofuel and total renewable fuel volumes in CAA 211(o)(2)(B)(i)(I) and (II) by the same or lesser volume. No criteria specified. 211(o)(7)(A) EPA in consultation with other federal agencies may waive the statutory volume in whole or in part if implementation would severely harm the economy or environment of a State, region, or the United States, or if there is an inadequate domestic supply. Total renewable fuel 211(o)(7)(D)(i) If applicable volume of cellulosic biofuel is reduced below the statutory volume to the projected volume, EPA may reduce the advanced biofuel and total renewable fuel volumes in CAA 211(o)(2)(B)(i)(I) and (II) by the same or lesser volume. No criteria specified. 211(o)(7)(A) EPA in consultation with other federal agencies may waive the statutory volume in whole or in part if implementation would severely harm the economy or environment of a State, region, or the United States, or if there is an inadequate domestic supply. As shown in Table I.A-2, the statutory authorities allowing EPA to modify or set the applicable volumes differ for the four categories of renewable fuel. Under the statute, EPA must annually determine the projected volume of cellulosic biofuel production for the following year. If the projected volume of cellulosic biofuel production is less than the applicable volume specified in section 211(o)(2)(B)(i)(III) of the statute, EPA must lower the applicable volume used to set the annual cellulosic biofuel percentage standard to the projected production volume. In Section III of this proposed rule, we present our analysis of cellulosic biofuel production and the proposed applicable volume for 2018. This analysis is based primarily on information reported to EPA through our Electronic Moderated Transaction System (EMTS) and an evaluation of producers' production plans and progress to date following discussions with cellulosic biofuel producers. With regard to BBD, CAA section 211(o)(2)(B) specifies the applicable volumes of BBD to be used in the RFS program only through year 2012. For subsequent years the statute sets a minimum volume of 1 billion gallons, and directs EPA, in coordination with the U.S. Departments of Agriculture (USDA) and Energy (DOE), to determine the required volume after review of implementation of the renewable fuels program and consideration of a number of factors. The BBD volume requirement must be established 14 months before the year in which it will apply. In the 2017 final rule we established the BBD volume for 2018. In Section VI of this preamble we discuss our assessment of statutory and other relevant factors and our proposed volume requirement for BBD for 2019, which has been developed in coordination with USDA and DOE. We are proposing an applicable volume of 2.1 billion gallons of BBD for use in deriving the BBD percentage standard in 2019. This volume is equal to the applicable volume of BBD established in a prior rulemaking for 2018, and would provide continued support to an industry that is a significant contributor to the pool of advanced biofuel while at the same time setting the volume requirement in a manner anticipated to provide continued incentive for the development of other types of advanced biofuel. Regarding advanced biofuel and total renewable fuel, Congress provided several mechanisms through which the statutory targets could be reduced if necessary. If we reduce the applicable volume of cellulosic biofuel below the volume specified in CAA section 211(o)(2)(B)(i)(III), we also have the authority to reduce the applicable volumes of advanced biofuel and total renewable fuel by the same or a lesser amount. We refer to this as the “cellulosic waiver authority.” We may also reduce the applicable volumes of any of the four renewable fuel types using the “general waiver authority” provided in CAA section 211(o)(7)(A) if EPA, in consultation with USDA and DOE, finds that implementation of the statutory volumes would severely harm the economy or environment of a State, region, or the United States, or if there is inadequate domestic supply. Sections II, IV, and V of this proposed rule describe our use of the cellulosic waiver authority alone to derive proposed volumes of advanced biofuel and total renewable fuel that are below the statutory target volumes, and our assessment that the resulting volumes can be met. We believe that reductions in the statutory targets for 2018 are necessary. However, in light of our review of available information, we are proposing to make those reductions under the cellulosic waiver authority alone and are not proposing any additional increment of reduction under the general waiver authority. Thus, the reductions proposed can be attributed to the significant shortfall in cellulosic biofuel production, as compared to the statutory targets. EPA, however, solicits comment on whether it would be appropriate to exercise the general waiver authority in the final rule, and will evaluate comments and updated data to consider whether such an approach is warranted. B. Summary of Major Provisions in This Action This section briefly summarizes the major provisions of this proposed rule. We are proposing applicable volume requirements and associated percentage standards for cellulosic biofuel, advanced biofuel, and total renewable fuel for 2018; for BBD we are proposing the percentage standard for 2018 and the applicable volume requirement for 2019. 1. Approach to Setting Volume Requirements The approach we have taken in this proposed rule to project cellulosic biofuel is modified from that presented in the 2017 final rule, as described in further detail below. The approach we have taken in this proposed rule of using the cellulosic waiver authority to reduce advanced biofuel and total renewable fuel is similar to that presented in the 2017 final rule, however, we are proposing to reduce the advanced biofuel and total renewable fuel volume requirements by the same amount as the cellulosic biofuel volume requirement. In previous years we have used the cellulosic waiver authority to reduce the advanced biofuel and total renewable fuel volume requirements by a lesser amount than the cellulosic biofuel volume requirement to allow reasonably attainable volumes of advanced biofuels to partially backfill for missing cellulosic biofuel volumes. In this rule we are proposing to reduce all three volume requirements by the same amount after considering the greenhouse gas (GHG), energy security benefits, and anticipated costs of advanced biofuels beyond the level proposed in this rule. Section II provides a general description of our approach to setting volume requirements in today's rule, including a review of the statutory waiver authorities and our consideration of carryover RINs. Section III provides our assessment of the 2018 cellulosic biofuel volume based on a projection of production that reflects a neutral aim at accuracy. Sections IV and V describe our assessments of advanced biofuel and total renewable fuel, respectively. Finally, Section VI provides our determination regarding the 2019 BBD volume requirement, and reflects an analysis of a set of factors stipulated in CAA section 211(o)(2)(B)(ii). 2. Cellulosic Biofuel In the past several years the cellulosic biofuel industry has continued to make progress towards increased commercial scale production. Cellulosic biofuel production reached record levels in 2016, driven largely by compressed natural gas (CNG) and liquefied natural gas (LNG) derived from biogas. Cellulosic ethanol, while produced in much smaller quantities than CNG/LNG derived from biogas, was produced consistently on a commercial scale in 2015. Cellulosic ethanol production levels increased from existing facilities in 2016, and significant work continues to be done to enable the production of cellulosic ethanol at new facilities, as well as to increase production volumes at existing facilities in 2017 and beyond. In this rule we are proposing a cellulosic biofuel volume requirement of 238 million ethanol-equivalent gallons for 2018 based on Renewable Identification Number (RIN) generation data available to EPA through EMTS, the information we have received regarding individual facilities' capacities, production start dates and biofuel production plans, a review of cellulosic biofuel production relative to EPA's projections in previous annual rules, input from other government agencies, and EPA's own engineering judgment. We expect to update all of this information for the final rule, and to take into account the Energy Information Administration's (EIA) projection of cellulosic biofuel availability, which should be available in October 2017. As part of estimating the volume of liquid cellulosic biofuel that will be made available in the U.S. in 2018, we considered all potential production sources by company and facility. This included facilities still in the commissioning or start-up phases, as well as facilities already producing some volume of cellulosic biofuel. 7 From this universe of potential liquid cellulosic biofuel sources, we identified the subset that is expected to produce commercial volumes of qualifying liquid cellulosic biofuel for use as transportation fuel, heating oil, or jet fuel by the end of 2018. To arrive at projected volumes, we collected relevant information on each facility. We then developed projected production ranges based on factors such as the status of the technology being used, progress towards construction and production goals, facility registration status, production volumes achieved, and other significant factors that could potentially impact fuel production or the ability of the produced fuel to qualify for cellulosic biofuel RINs. We also used this information to group these companies based on production history and to select a value within the aggregated projected production ranges that we believe best represents the most likely production volume from each group of companies in 2018. 7 Facilities primarily focused on research and development (R&D) were not the focus of our assessment, as production from these facilities represents very small volumes of cellulosic biofuel, and these facilities typically have not generated RINs for the fuel they have produced. For 2018, EPA is proposing to use an industry wide, rather than a facility-by-facility approach to project the production of CNG/LNG derived from biogas. We believe this approach is appropriate due to the mature state of this technology and the large number of facilities that are registered to produce cellulosic biofuel RINs for these fuels. Further discussion on our projection of cellulosic biofuel production in 2018, including the factors considered and the way these factors were used to determine our proposed cellulosic biofuel projection, can be found in Section III. 3. Advanced Biofuel The conditions that compelled us to reduce the 2017 volume requirement for advanced biofuel below the statutory target remain relevant in 2018. As for 2017, we investigated the ability of volumes of non-cellulosic advanced biofuels to backfill unavailable volumes of cellulosic biofuel in 2018, through domestic production or import. We took into account the various constraints on the ability of the market to make advanced biofuels available, the ability of the standards we set to bring about market changes in the time available, the potential impacts associated with diverting biofuels and/or biofuel feedstocks from current use to the production of advanced biofuel used in the United States, and the potential impact of the expiration of the biodiesel tax credit. Based on these considerations, along with consideration of the estimated cost of the non-cellulosic advanced biofuels most likely to be used to backfill for the shortfall in cellulosic biofuel, we are proposing to make a determination that it would not be appropriate to set an advanced biofuel standard that would require the market to backfill a portion of the shortfall in cellulosic biofuel. We are proposing to exercise our cellulosic waiver authority to reduce the statutory applicable volume of advanced biofuel to a proposed volume requirement of 4.24 billion gallons for 2018. This proposed applicable volume for 2018 is 40 million gallons lower than the applicable volume for advanced biofuel for 2017. 4. Total Renewable Fuel Following our proposed determination of the appropriate volume reduction for advanced biofuel for 2018 using the cellulosic waiver authority, we calculated what the total renewable fuel volume would be if we provide the same level of reduction using the cellulosic waiver authority. The resulting volume would be 19.24 billion gallons. We then evaluated this total renewable fuel volume to determine if it is reasonably attainable given assessments of individual fuel types, including biodiesel, renewable diesel, ethanol (in the form of E10 or higher ethanol blends such as E15 or E85), and other renewable fuels. 8 Our proposed assessment indicates that a total renewable fuel volume of 19.24 billion gallons is reasonably attainable in 2018. We do not propose, therefore, to use the general waiver authority to further reduce the total renewable fuel volume requirement due to a finding of inadequate domestic supply. 8 As described further in Section V.B, EPA's total renewable fuel volume assessment is intended to identify whether domestic supply concerns are present that would require a more exacting analysis of the maximum reasonably achievable volumes, as EPA has previously done when using the general waiver authority based on a finding of inadequate domestic supply. Since EPA's proposed assessment indicates that the volumes associated with this proposed rule are reasonably attainable, we do not believe that supply concerns exist that would necessitate the more exacting analysis needed to identify the maximum reasonably achievable volumes. We note that this proposal includes an assessment of E0 (ethanol-free gasoline) use that marks a change in how we have addressed this issue in past standard-setting rulemaking actions. In previous years, stakeholders have provided comment to EPA concerning the amount of E0 that is used in the United States each year for transportation fuel, and how such information should be used in development of the annual volume requirements. EPA has reassessed this issue, and we have found that use of E0 in 2016 was higher than we had assumed in setting the 2016 standards. Our proposal for 2018 includes consideration of this fact (see Section V.B.1). 5. Biomass-Based Diesel In EISA, Congress specified increasing applicable volumes of BBD through 2012. Beyond 2012 Congress stipulated that EPA, in coordination with DOE and USDA, was to establish the BBD volume taking into consideration implementation of the program to date and various specified factors, providing that the required volume for BBD could not be less than 1.0 billion gallons. For 2013, EPA established an applicable volume of 1.28 billion gallons. For 2014 and 2015 we established the BBD volume requirement to reflect the actual volume for each of these years of 1.63 and 1.73 billion gallons. 9 For 2016 and 2017, we set the BBD volume requirements at 1.9 and 2.0 billion gallons respectively. Finally, for 2018 the BBD volume requirement was set a 2.1 billion gallons. 9 The 2015 BBD standard was based on actual data for the first 9 months of 2015 and on projections for the latter part of the year for which data on actual use was not available at the time. Given current and recent market conditions, the advanced biofuel volume requirement is driving the production and use of biodiesel and renewable diesel volumes over and above volumes required through the separate BBD standard, and we expect this to continue. For 2019, EPA continues to believe that it would still be appropriate to provide a floor above the statutory minimum of 1 billion gallons to provide a guaranteed level of support for the continued production and use of BBD. However, we also believe that the volume of biomass-based diesel supplied in previous years demonstrates that the advanced biofuel standard is capable of incentivizing additional supply of these fuels above the volume required by the biomass-based diesel standard. Thus, based on a review of the implementation of the program to date and all the factors required under the statute, and in coordination with USDA and DOE, we are proposing to maintain the applicable volume of BBD for 2019 at the same level finalized for 2018, 2.1 billion gallons. Maintaining the volume at this level will provide a guaranteed level of support to BBD producers, who will also be incentivized under the advanced and total standards to manufacture higher volumes of fuel. This approach leaves opportunity within the advanced biofuel mandate for investment in and growth in production of other, potentially less costly, types of advanced biofuel with comparable or potentially superior environmental or other attributes. 6. Annual Percentage Standards The renewable fuel standards are expressed as a volume percentage and are used by each producer and importer of fossil-based gasoline or diesel to determine their renewable fuel volume obligations. The percentage standards are set so that if each obligated party meets the standards, and if EIA projections of gasoline and diesel use for the coming year prove to be accurate, then the amount of renewable fuel, cellulosic biofuel, BBD, and advanced biofuel actually used will meet the applicable volumes used to derive the percentage standards. Four separate percentage standards are required under the RFS program, corresponding to the four separate renewable fuel categories shown in Table I.A-1. The specific formulas we use in calculating the renewable fuel percentage standards are contained in the regulations at 40 CFR 80.1405. The percentage standards represent the ratio of renewable fuel volume to projected non-renewable gasoline and diesel volume. The volume of transportation gasoline and diesel used to calculate the proposed percentage standards was derived from reports published by the EIA, and we intend to update this information for the final rule. The proposed percentage standards for 2018 are shown in Table I.B.6-1. Detailed calculations can be found in Section VII, including the projected gasoline and diesel volumes used. Table I.B.6-1—Proposed 2018 Percentage Standards Cellulosic biofuel 0.131 Biomass-based diesel 1.74 Advanced biofuel 2.34 Renewable fuel 10.62 C. Statutory Requirement To Reset Volumes The Clean Air Act requires EPA to “reset” the statutory volume targets for future years through 2022 if annual volume requirements are waived (reduced) beyond one of two specified thresholds: (1) At least 20 percent of the statutory volume target for 2 consecutive years; or (2) At least 50 percent of the statutory volume target for a single year. 10 10 CAA section 211(o)(7)(F). If either of these thresholds is reached, EPA is required to promulgate a rule within one year of the triggering waiver action that modifies the applicable volume targets for future years for the affected standard. However, the statute also indicates that 2016 is the first year to which any reset volume would apply. In light of these requirements, the Administrator has directed EPA staff to initiate the required technical analysis to inform a reset rule. When resetting the statutory targets, the EPA must comply with the processes, criteria, and standards set forth in CAA section 211(o)(2)(B)(ii). In addition to reviewing the implementation of the program during previous years and coordinating with the Secretary of Energy and the Secretary of Agriculture, the EPA must also analyze a number of factors: • 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 BBD); • 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. EPA is not undertaking the analysis of these factors in this rulemaking. We are not soliciting comments on the reset rulemaking process at this time, but we are including mention of it in this Executive Summary in recognition of the importance of, and widespread interest in, a potential “reset rule.” Any comments received related to a possible future reset rule will be deemed beyond the scope of this rulemaking. D. RIN Market Operation Some stakeholders have expressed concerns the current provisions related to RIN trading render the RFS program vulnerable to market manipulation. EPA takes such issues seriously. The RIN system was originally designed with an open trading market in order to maximize its liquidity and ensure a robust marketplace for RINs. However, EPA is interested in further assessing whether and how the current trading structure provides an opportunity for market manipulation. To that effect, EPA seeks comment and input on potential changes to the RIN trading system that might help address these concerns. EPA is not soliciting comment on any aspect of the current RFS regulatory program other than those specifically related to RIN trading, as mentioned above, and the proposed annual standards for 2018 and biomass-based diesel applicable volume for 2019. In particular, EPA is not re-opening for public comment in this rulemaking the current definition of “obligated party. ” 11 11 Separately, EPA has received a number of petitions seeking reconsideration of the definition of “obligated party,” and solicited public comment on its proposed resolution of those petitions. See 81 FR 83776 (November 22, 2016). Separate from evaluating the RIN trading options in the RFS program, the EPA is working with appropriate market regulators to analyze targeted concerns of some stakeholders. For example, the EPA has executed a memorandum of understanding with the Commodity Futures Trading Commission (CFTC) and welcomes CFTC involvement in evaluating RIN market concerns. In the meantime, EPA has continued to explore additional ways to increase program transparency in order to support the program and share data with all stakeholders. EPA already publishes RFS program data on our Web site, including data related to RIN generation, sales and holdings, and annual compliance. We are interested in providing more information, to the extent consistent with our obligations to protect confidential business information. EPA seeks comment on specific data elements and posting frequency that stakeholders believe would be useful to help with market transparency and liquidity. E. Biofuel Imports In establishing the RFS program, Congress sought to bolster energy security and independence by boosting the amount of renewable fuels used in the domestic transportation fuel pool. Indeed, EISA's stated goals include moving the United States toward “greater energy independence and security [and] to increase the production of clean renewable fuels.” 12 This is not simply a general goal, but is embedded in statutory provisions, as well: for example, one of the factors EPA is directed to consider in the context of establishing the biomass-based diesel standard for 2019 under CAA section 211(o)(2)(B)(ii) is the impact of renewable fuels on the energy security of the United States. 12 Energy Independence and Security Act of 2007. In recent years increasing volumes of renewable fuels have been imported and used by obligated parties to comply with their RFS obligations. For example, data from EPA's EMTS system show that in 2016, 46 million gallons of ethanol and 731 million gallons of advanced biodiesel and renewable diesel were imported into the United States. 13 Due to their origin outside the United States, imported renewable fuels may not have the same impact on energy independence as those produced domestically. Industry stakeholders have observed the trend of increasing imports, too. The United States Department of Commerce, in response to a petition filed by U.S. biodiesel interests, has instituted countervailing duty and antidumping duty investigations regarding alleged subsidized and dumped imports of biodiesel. 14 13 66 and 95 million gallons of ethanol were imported in 2014 and 2015 respectively. Of the 731 million gallons of advanced biodiesel and renewable diesel imported into the United States in 2016, 561 million gallons (which generated 842 million RINs) were advanced biodiesel and 170 million gallons (which generated 289 million RINs) were advanced renewable diesel. 259 and 382 million gallons of advanced biodiesel and renewable diesel were imported in 2014 and 2015 respectively. An additional 113 million gallons of conventional biodiesel (generating 170 million RINs) and 43 million gallons of conventional renewable diesel (generating 73 million RINs) were also imported in 2016. 52 and 180 million gallons of conventional biodiesel and renewable diesel were imported in 2014 and 2015 respectively. Imported biofuel represented a significant percentage of the RINs available for compliance with the total renewable fuel volume requirement (8%), and especially the advanced biofuel (29%) and BBD (29%) volume requirements in 2016. 14 See 82 FR 22155 (May 12, 2017). EPA is interested in stakeholder views on this topic and on what steps EPA might take to ensure energy independence and security. Furthermore, and in light of these considerations, EPA requests comment on whether or not to reduce the biomass-based diesel required volume below the level specified in this proposed rule for 2019. Finally, we request comment on whether and to what degree these considerations could support the use of the general waiver authority, inherent authority or other basis consistent with general construction of authority in the statute to reduce the required volume of advanced biofuel (with a corresponding reduction to the total renewable fuel requirement) below the level proposed for 2018. II. Authority and Need for Waiver of Statutory Applicable Volumes The statute provides the EPA with the authority to reduce volume requirements below the applicable volume targets specified in the statute under specific circumstances. This section discusses those authorities and our use of the cellulosic waiver authority alone to set 2018 volume requirements for cellulosic biofuel, advanced biofuel, and total renewable fuel that are below the statutory volume targets. Within this rulemaking action under CAA section 211(o)(3)(i), EPA is using its authority under CAA section 211(o)(7) to take an administrative action to reduce the required volumes of cellulosic biofuel, advanced biofuel, and total renewable fuel below the statutory volume targets. A. Statutory Authorities for Reducing Volume Targets In CAA section 211(o)(2), Congress specified increasing annual volume targets for total renewable fuel, advanced biofuel, and cellulosic biofuel for each year through 2022, and for BBD through 2012, and authorized EPA to set volume requirements for subsequent years in coordination with USDA and DOE, and after consideration of specified factors. However, Congress also recognized that under certain circumstances it would be appropriate for EPA to set volume requirements at a lower level than reflected in the statutory volume targets, and thus provided waiver provisions in CAA section 211(o)(7). 1. Cellulosic Waiver Authority Section 211(o)(7)(D)(i) of the CAA provides that if EPA determines that the projected volume of cellulosic biofuel production for a given year is less than the applicable volume specified in the statute, that EPA must reduce the applicable volume of cellulosic biofuel required to the projected production volume for that calendar year. In making this projection, EPA must take a “neutral aim at accuracy.” API v. EPA, 706 F.3d 474 (D.C. Cir. 2013). Pursuant to this provision, EPA has set the cellulosic biofuel requirement lower than the statutory volumes for each year since 2010. As described in Section III.D, the projected volume of cellulosic biofuel production for 2018 is less than the 7.0 billion gallon volume target in the statute. Therefore, for 2018, we are proposing to set the cellulosic biofuel volume requirement at a level lower than the statutory applicable volume, in accordance with this provision. CAA section 211(o)(7)(D)(i) also provides EPA with the authority to reduce the applicable volume of total renewable fuel and advanced biofuel in years where it reduces the applicable volume of cellulosic biofuel. The reduction must be less than or equal to the reduction in cellulosic biofuel. For 2018, we are also proposing to reduce applicable volumes of advanced biofuel and total renewable fuel under this authority. The cellulosic waiver authority is discussed in detail in the preamble to the 2017 final rule. See also, API v. EPA, 706 F.3d 474 (D.C. Cir. 2013) (requiring that EPA's cellulosic biofuel projections reflect a neutral aim at accuracy) and Monroe Energy v. EPA, 750 F.3d 909 (D.C. Cir. 2014) (affirming EPA's broad discretion under the cellulosic waiver authority to reduce volumes of advanced biofuel and total renewable fuel). EPA is proposing an equal reduction from the statutory volume targets for advanced biofuels and total renewable fuel, as was our approach in using the cellulosic waiver authority for the 2014-2017 standards. EPA's reasoning for an equal reduction is explained in the 2017 final rule. 15 We are proposing, as described in Section IV, that the applicable volume for advanced biofuels specified in the statute for 2018 cannot be achieved and we are proposing to exercise our cellulosic waiver authority to lower the applicable volume of advanced biofuel to a level that is both reasonably attainable and appropriate, and to provide an equal reduction in the applicable volume of total renewable fuel. In addition, we have determined that there is likely to be adequate supply to satisfy the total renewable fuel volume derived through applying an equal volume reduction as for advanced biofuel. Therefore, we are proposing that no further reductions of the total renewable fuel volume requirement are necessary to address supply concerns. The resulting volume requirements provide for an implied volume requirement for conventional biofuel equal to that envisioned by Congress for 2018. 15 81 FR 89752-89753, December 12, 2016. 2. General Waiver Authority Section 211(o)(7)(A) of the CAA provides that EPA, in consultation with the Secretary of Agriculture and the Secretary of Energy, may waive the applicable volumes specified in the Act in whole or in part based on a petition by one or more States, by any person subject to the requirements of the Act, or by the EPA Administrator on his own motion. Such a waiver must be based on a determination by the Administrator, after public notice and opportunity for comment that (1) implementation of the requirement would severely harm the economy or the environment of a State, a region or the United States, or (2) there is an inadequate domestic supply. Based on a preliminary evaluation of the availability of renewable fuel in the market, regarding which we seek public comment, EPA is not proposing to use the general waiver authority to further reduce volumes for 2018. However, EPA solicits comments on whether it is appropriate to exercise the general waiver authority and will evaluate comments and updated data in considering whether such an approach is warranted. B. Treatment of Carryover RINs Consistent with our approach in the 2013, 2014-16, and 2017 final rules, we have also considered the availability and role of carryover RINs in evaluating whether we should exercise our discretion to use the cellulosic waiver authority in setting the cellulosic, advanced, and total volume requirements for 2018. Neither the statute nor EPA regulations specify how or whether EPA should consider the availability of carryover RINs in exercising its cellulosic waiver authority. 16 As noted in the context of the rules establishing the 2014-16 and 2017 RFS standards, we believe that a bank of carryover RINs is extremely important in providing obligated parties compliance flexibility in the face of substantial uncertainties in the transportation fuel marketplace, and in providing a liquid and well-functioning RIN market upon which success of the entire program depends. 17 Carryover RINs provide flexibility in the face of a variety of circumstances that could limit the availability of RINs, including weather-related damage to renewable fuel feedstocks and other circumstances potentially affecting the production and distribution of renewable fuel. 18 On the other hand, carryover RINs can be used for compliance purposes, and in the context of the 2013 RFS rulemaking we noted that an abundance of carryover RINs available in that year, together with possible increases in renewable fuel production and import, justified maintaining the advanced and total renewable fuel volume requirements for that year at the levels specified in the statute. 19 16 CAA section 211(o)(5) requires that EPA establish a credit program as part of its RFS regulations, and that the credits be valid to show compliance for 12 months as of the date of generation. EPA implemented this requirement though the use of RINs, which can be used to demonstrate compliance for the year in which they are generated or the subsequent compliance year. Obligated parties can obtain more RINs than they need in a given compliance year, allowing them to “carry over” these excess RINs for use in the subsequent compliance year, although use of these carryover RINs is limited to 20% of the obligated party's renewable volume obligation. For the bank of carryover RINs to be preserved from one year to the next, individual carryover RINs are used for compliance before they expire and are essentially replaced with newer vintage RINs that are then held for use in the next year. For example, if the volume of the collective carryover RIN bank is to remain unchanged from 2016 to 2017, then all of the vintage 2016 carryover RINs must be used for compliance in 2017, or they will expire. However, the same volume of 2017 RINs can then be “banked” for use in the next year. 17 See 80 FR 77482-87 (December 14, 2015) and 81 FR 89754-55 (December 12, 2016). 18 See id., and 72 FR 23900 (May 1, 2007). 19 See 79 FR 49794 (August 15, 2013). An adequate RIN bank serves to make the RIN market liquid. Just as the economy as a whole functions best when individuals and businesses prudently plan for unforeseen events by maintaining inventories and reserve money accounts, we believe that the RFS program functions best when sufficient carryover RINs are held in reserve for potential use by the RIN holders themselves, or for possible sale to others that may not have established their own carryover RIN reserves. Were there to be no RINs in reserve, then even minor disruptions causing shortfalls in renewable fuel production or distribution, or higher than expected transportation fuel demand (requiring greater volumes of renewable fuel to comply with the percentage standards that apply to all volumes of transportation fuel, including the unexpected volumes) could lead to the need for a new waiver of the standards, undermining the market certainty so critical to the RFS program. However, a significant drawdown of the carryover RIN bank leading to a scarcity of RINs may stop the market from functioning in an efficient manner, even where the market overall could satisfy the standards. For all of these reasons, the collective carryover RIN bank provides a needed programmatic buffer that both facilitates individual compliance and provides for smooth overall functioning of the program. 20 20 Here we use the term “buffer” as shorthand reference to all of the benefits that are provided by a sufficient bank of carryover RINs. At the time of the 2017 final rule, we estimated that there would be at most 1.54 billion carryover RINs available for compliance with the 2017 standards and decided that carryover RINs should not be counted on to avoid or minimize the need to reduce the 2017 statutory volume targets. We also stated that we may or may not take a similar approach in future years, and that we would evaluate the issue on a case-by-case basis considering the facts present in future years. Since that time, obligated parties have submitted their compliance demonstrations for the 2015 and 2016 compliance years and we now estimate that there are now at most 2.06 billion carryover RINs available, 21 an increase of 520 million RINs from the previous estimate of 1.54 billion carryover RINs in the 2017 final rule. 22 The volume of carryover RINs currently available is approximately 11 percent of the proposed 2018 total renewable fuel volume standard, which is less than the 20 percent limit permitted by the regulations to be carried over for use in complying with the 2018 standards. 23 However, there remains considerable uncertainty surrounding this number since compliance demonstrations still need to be made for the 2017 RFS standards, and it is unclear at this time whether some portion of the currently available carryover RINs will be used for compliance prior to 2018. In addition, we note that there have been enforcement actions in past years that have resulted in the retirement of RINs to true up past compliance demonstrations. These enforcement actions have involved the generation and use of invalid RINs and the failure to retire RINs for exported renewable fuel. Future enforcement actions could have similar results, and require that obligated parties and/or renewable fuel exporters settle past enforcement-related obligations in addition to the annual standards, thereby potentially creating demand for RINs greater than can be accommodated through actual renewable fuel blending in 2018. Collectively, the result of satisfying RFS obligations in 2017 and settling enforcement-related accounts could be an effective reduction in the size of the collective bank of carryover RINs. Thus, we believe there is considerable uncertainty that a RIN bank as large as 11 percent of the proposed 2018 total renewable fuel standard will be available in 2018. 21 The calculations performed to estimate the number of carryover RINs currently available can be found in the memorandum, “Carryover RIN Bank Calculations for 2018 NPRM,” available in the docket. 22 This increase in the carryover RIN bank compared to that projected in the 2017 final rule is not due to an underestimate by EPA in the amount of gasoline, diesel fuel, or ethanol that was consumed in 2016, but rather is driven almost entirely by a combination of over-compliance by biodiesel producers facing an expiring biodiesel tax credit at the end of 2016 and approximately 390 million RINs that small refineries granted a hardship exemption for 2016 were not required to retire. 23 See § 80.1427(a)(5). Therefore, for the reasons noted above, and consistent with the approach we took in the 2014-2016 and 2017 final rules, we are proposing that, under current circumstances, an intentional drawdown of the carryover RIN bank should not be assumed in establishing the 2018 volume requirements. The current bank of carryover RINs will provide an important and necessary programmatic buffer that will both facilitate individual compliance and provide for smooth overall functioning of the program. Therefore, we are not proposing to set the renewable fuel volume requirements at levels that would envision a drawdown in the bank of carryover RINs. III. Cellulosic Biofuel Volume for 2018 In the past several years the cellulosic biofuel industry has continued to make progress towards increased commercial-scale production. Cellulosic biofuel production reached record levels in 2016, driven largely by CNG and LNG derived from biogas. 24 While multiple large cellulosic ethanol facilities struggled to achieve consistent commercial scale production, several facilities consistently produced cellulosic ethanol from corn kernel fiber at a smaller scale during 2016 and the first few months of 2017. This section describes our assessment of the volume of cellulosic biofuel that we project will be produced or imported into the United States in 2018, and some of the uncertainties associated with those volumes. 24 The majority of the cellulosic RINs generated for CNG/LNG are sourced from biogas from landfills, however the biogas may come from a variety of sources including municipal wastewater treatment facility digesters, agricultural digesters, separated MSW digesters, and the cellulosic components of biomass processed in other waste digesters. In order to project the volume of cellulosic biofuel production in 2018 we considered data reported to EPA through EMTS along with information we collected through meetings with representatives of facilities that have produced or have the potential to produce qualifying volumes of cellulosic biofuel for consumption as transportation fuel, heating oil, or jet fuel in the U.S. in 2018. Upon receipt of EIA's projection of cellulosic biofuel production for 2018, EPA will consider these estimates, together with updated information regarding the potential for contributions from individual facilities and groups of facilities, in determining the projected volume of cellulosic biofuel production in 2018 for the final rule. In this proposed rule we use the same general methodology as in the 2017 final rule to project the range of potential production volumes of liquid cellulosic biofuel, however we have adjusted the percentile values used to select a point estimate within a projected production range for each group of companies based on recent information, and with the objective of improving the accuracy of the projections. We use a new methodology to project the production of cellulosic biofuel RINs for CNG/LNG derived from biogas that reflects the mature status of this industry and the large number of facilities registered to generate cellulosic biofuel RINs from these fuels. These methodologies are described in more detail in Section III.C below. New cellulosic biofuel production facilities projected to be brought online in the United States over the next few years could increase the production capacity of the cellulosic industry. Operational experience gained at the first few commercial scale cellulosic biofuel production facilities could also lead to increased production of cellulosic biofuel from existing production facilities. Section B, below, discusses the companies the EPA reviewed in the process of projecting qualifying cellulosic biofuel production in the United States in 2018. Information on these companies forms the basis for our projection of 238 million ethanol-equivalent gallons of cellulosic biofuel produced for use as transportation fuel, heating oil, or jet fuel in the United States in 2018. A. Statutory Requirements The volumes of renewable fuel to be produced and used as transportation fuel under the RFS program each year (absent an adjustment or waiver by EPA) are specified in CAA section 211(o)(2). The volume of cellulosic biofuel specified in the statute for 2018 is 7 billion gallons. The statute provides that if EPA determines, based on EIA's estimate, that the projected volume of cellulosic biofuel production in a given year is less than the statutory volume, then EPA shall reduce the applicable volume of cellulosic biofuel to the projected volume available during that calendar year. 25 25 The United States Court of Appeals for the District of Columbia Circuit evaluated this requirement in API v. EPA 706 F.3d 474, 479-480 (D.C. Cir. 2013), in the context of a challenge to the 2012 cellulosic biofuel standard. The Court stated that in projecting potentially available volumes of cellulosic biofuel EPA must apply an “outcome-neutral methodology” aimed at providing a prediction of “what will actually happen.” 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, and we are required to make cellulosic waiver credits available. 26 Our consideration of the 2018 volume requirements for advanced biofuel and total renewable fuel is presented in Sections IV and V of this rule. 26 See § 80.1456. B. Cellulosic Biofuel Industry Assessment In order to project cellulosic biofuel production for 2018, we have tracked the progress of several dozen potential cellulosic biofuel production facilities. As we have done in previous years, we have focused on facilities with the potential to produce commercial-scale volumes of cellulosic biofuel rather than small R&D or pilot-scale facilities. 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 2018. 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. R&D and demonstration-scale facilities have also generally not generated RINs for the fuel they have produced in the past. Their focus is on developing and demonstrating the technology, not producing commercial volumes. RIN generation from R&D and pilot-scale facilities in previous years has not contributed significantly to the overall number of cellulosic RINs generated. 27 27 While a few small R&D and pilot scale facilities have registered as cellulosic RIN generators, total production from each of these facilities from 2010 through March 2017 has been less than 100,000 RINs. From this list of commercial-scale facilities we used information from EMTS, publically available information (including press releases and news reports), and information provided by representatives of potential cellulosic biofuel producers, to make a determination of which facilities are most likely to produce cellulosic biofuel and generate cellulosic biofuel RINs in 2018. 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 2018. Both in our discussions with representatives of individual companies and as part of our internal evaluation process we gathered and analyzed information including, but not limited to, the funding status of these facilities, current status of the production technologies, anticipated construction and production ramp-up periods, facility registration status, and annual fuel production and RIN generation targets. The methodology used by EPA to project cellulosic biofuel production in 2015-2017 has resulted in a total cellulosic biofuel production projection that was lower than the actual number of cellulosic RINs made available in 2015, 28 and higher than the actual number of RINs generated in 2016. 29 This methodology is most recently described in the 2017 final rule. 30 The fact that the projections in both years proved somewhat inaccurate, under-estimating the actual number of RINs made available one year and over-estimating the next, reflects the inherent difficulty with projecting cellulosic biofuel production. 28 EPA only projected cellulosic biofuel production for the final three months of 2015, since data on the availability of cellulosic biofuel RINs (D3+D7) for the first nine months of the year were available at the time the analyses were completed for the final rule. 29 EPA projected that 123 million and 230 million cellulosic RINs would be generated in 2015 and 2016, respectively. The number of available cellulosic RINs in these years (RINs generated minus RINs retired for non-compliance reasons) was 140 and 190 million RINs. See “Assessment of the Accuracy of Cellulosic Biofuel Production Projections in 2015 and 2016 (June 2016 Update)”, memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2017-0091 for more detail. 30 For a full description of this approach, see 81 FR 89746, 89755 (December 12, 2016). EPA's projections of liquid cellulosic biofuel, however, were higher than the actual volume of liquid cellulosic biofuel produced in both 2015 and 2016. We believe that new data warrants a change to the methodology for projecting liquid cellulosic biofuel in an effort to make the projections more accurate. We are therefore proposing to adjust the percentile values used to project liquid cellulosic biofuel production based on actual liquid cellulosic biofuel production in 2016. We believe that the use of this methodology, with the adjusted approach to developing the percentile values used to project production volumes for liquid cellulosic biofuels, results in a projection that reflects a neutral aim at accuracy since it accounts for expected growth in the near future, and does so in a way that directly reflects the accuracy of EPA's projections in the most recent year (2016) for which complete data is available. In previous years we used the same methodology for CNG/LNG derived from biogas as for liquid cellulosic biofuel, but with different percentile values reflecting the more established nature of the CNG/LNG industry relative to liquid cellulosic biofuel production. For 2018, EPA is proposing to use an industry wide approach, rather than an approach that projects volumes for individual companies or facilities, to project the production of CNG/LNG derived from biogas. This updated approach reflects the fact that this industry is far more mature than the liquid cellulosic biofuel industry, and that there are a large number of facilities registered to generate cellulosic biofuel RINs from biogas, rendering a facility-by-facility analysis difficult and of questionable need for purposes of accuracy. As described in Section V.C.2 below, EPA is instead proposing to use the rate of growth in the renewable CNG/LNG industry observed between the first five months of 2016 and the first five months of 2017, 31 together with actual data on total RINs generated for CNG/LNG in 2016, to estimate the production of CNG/LNG derived from biogas in 2018. 31 At the time of this proposal, EPA has RIN generation data for the first five months of 2017 (January-May). For the final rule we intend to review all available data with respect to cellulosic biofuel production in 2017 for the months for which data will be available. We will consider that information, together with comments received and updated information on the status of potential production facilities, to make any appropriate adjustments to the methodology and/or projected production volume in the final rule. The remainder of this Section discusses the companies and facilities EPA expects to be in a position to produce commercial-scale volumes of cellulosic biofuel by the end of 2018 and describes in more detail the methodology EPA is proposing to use to project cellulosic biofuel production in 2018 (including a review of cellulosic biofuel production and the accuracy of the projection methodology in previous years). This information forms the basis for the proposed applicable volume for cellulosic biofuel for 2018. 1. Potential Domestic Producers There are a number of companies and facilities 32 located in the United States that have either already begun producing cellulosic biofuel for use as transportation fuel, heating oil, or jet fuel at a commercial scale, or are anticipated to be in a position to do so at some time during 2018. The financial incentive provided by cellulosic biofuel RINs, 33 combined with the facts that to date nearly all cellulosic biofuel produced in the United States has been used domestically 34 and all the domestic facilities we have contacted in deriving our projections intend to produce fuel on a commercial scale for domestic consumption using approved pathways, gives us a high degree of confidence that cellulosic biofuel RINs will be generated for any fuel produced by commercial scale facilities. In order to generate RINs, each of these facilities must be registered under the RFS program and comply with all the regulatory requirements. This includes using an approved RIN-generating pathway and verifying that their feedstocks meet the definition of renewable biomass. Most of the companies and facilities considered in our assessment of potential cellulosic biofuel producers in 2018 have already successfully completed facility registration, and many have successfully generated RINs. 35 A brief description of each of the companies (or group of companies for cellulosic CNG/LNG producers) that EPA believes may produce commercial-scale volumes of RIN generating cellulosic biofuel by the end of 2018 can be found in a memorandum to the docket for this proposed rule. 36 General information on each of these companies or group of companies considered in our projection of the potentially available volume of cellulosic biofuel in 2018 is summarized in Table III.B.3-1 below. 32 The volume projection from CNG/LNG producers does not represent production from a single company or facility, but rather a group of facilities utilizing the same production technology. 33 According to data from Argus, the price for 2017 cellulosic biofuel RINs averaged $2.67 in 2017 (through March 2017). Alternatively, obligated parties can obtain a RIN value equivalent to a cellulosic biofuel RIN by purchasing an advanced (or biomass-based diesel) RIN and a cellulosic waiver credit. The price for 2017 advanced biofuel RINs averaged $0.94 in 2017 (through March 2017) while the price for a 2017 cellulosic waiver credit is $2.00. 34 The only known exception was a small volume of fuel produced at a demonstration scale facility exported to be used for promotional purposes. 35 All of the facilities listed in Table III.B.3-1 are registered to produced cellulosic (D3 or D7) RINs with the exception of several of the producers of CNG/LNG derived from biogas, many of the facilities projected to produce cellulosic ethanol using Edeniq's technology, and Ensyn's Port-Cartier, Quebec facility. 36 “Cellulosic Biofuel Producer Company Descriptions (May 2017)”, memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2017-0091. 2. Potential Foreign Sources of Cellulosic Biofuel In addition to the potential sources of cellulosic biofuel located in the United States, there are several foreign cellulosic biofuel companies that may produce cellulosic biofuel in 2018. These include facilities owned and operated by Beta Renewables, Enerkem, Ensyn, GranBio, and Raizen. All of these facilities use fuel production pathways that have been approved by EPA for cellulosic RIN generation provided eligible sources of renewable feedstock are used and other regulatory requirements are satisfied. These companies would therefore be eligible to register these facilities under the RFS program and generate RINs for any qualifying fuel imported into the United States. While these facilities may be able to generate RINs for any volumes of cellulosic biofuel they import into the United States, demand for the cellulosic biofuels they produce is expected to be high in their own local markets. EPA is charged with projecting the volume of cellulosic biofuel that will be produced or imported into the United States. For the purposes of this proposed rule we have considered all of the registered foreign facilities under the RFS program to be potential sources of cellulosic biofuel in 2018. We believe that due to the strong demand for cellulosic biofuel in local markets, the significant technical challenges associated with the operation of cellulosic biofuel facilities, and the time necessary for potential foreign cellulosic biofuel producers to register under the RFS program and arrange for the importation of cellulosic biofuel to the United States, cellulosic biofuel imports from foreign facilities not currently registered to generate cellulosic biofuel RINs are generally highly unlikely in 2018. For purposes of our 2018 cellulosic biofuel projection we have, with only one exception (described below) excluded from our proposal potential volumes from foreign cellulosic biofuel production facilities that are not currently registered under the RFS program. Two foreign facilities (Ensyn's Renfrew facility and the CNG/LNG facility Complexe Enviro Progressive Ltee) that have registered as cellulosic biofuel producers have already generated cellulosic biofuel RINs for fuel exported to the United States; projected volumes from each of these facilities are included in our projection of available volumes for 2018. Three additional foreign facilities (Gran Bio's Bioflex Agroindustrial S/A, Saint-Thomas Biomethane Plant, and Raizen's Costa Pinto) have registered as cellulosic biofuel producers, but have not yet generated any cellulosic RINs. EPA attempted to contact representatives from these facilities to inquire about their intentions to export cellulosic biofuel to the United States in 2018. In two cases (Gran Bio's Bioflex Agroindustrial S/A and Saint-Thomas Biomethane Plant), company representatives indicated they intended to export cellulosic biofuel to the United States, and EPA believes that there is sufficient reason to believe imports of cellulosic biofuel from these companies are likely. Finally, EPA has included projected volume from one foreign facility (Ensyn's Port-Cartier, Quebec facility) that is not currently registered to generate cellulosic biofuel RINs under the RFS program. We believe that it is appropriate to include volume from this facility in light of the facility's proximity to the United States, the proven technology used by the facility, the volumes of cellulosic biofuel exported to the United States by the company in previous years, and the company's stated intention to market all of the fuel produced at this facility to qualifying markets in the United States. All of the facilities included in EPA's cellulosic biofuel projection for 2018 are listed in Table III.B.3-1 below. 3. Summary of Volume Projections for Individual Companies General information on each of the cellulosic biofuel producers (or group of producers in the case of producers of CNG/LNG derived from biogas and facilities using Edeniq's technology) that factored into our projection of cellulosic biofuel production for 2018 is shown in Table III.B.3-1. This table includes both facilities that have already generated cellulosic RINs, as well as those that have not yet generated cellulosic RINs, but are projected to do so by the end of 2018. As discussed above, we have focused on commercial-scale cellulosic biofuel production facilities. Each of these facilities (or group of facilities) is discussed further in a memorandum to the docket. 37 In addition to the facilities (or groups of facilities) discussed in Table III.B.3-1 below, EPA is aware of two additional technologies that may be used to produce qualifying cellulosic biofuel in 2018. Multiple companies, in addition to Edeniq and Quad County Corn Processors, are working to commercialize technology to convert corn kernel fiber to cellulosic ethanol at existing corn ethanol facilities. At this point, however, none of these companies have successfully registered a facility to generate cellulosic RINs using their technology. 38 Several other companies are seeking to register to generate cellulosic biofuel RINs for anaerobic digesters that produce CNG/LNG from a variety of waste feedstocks. 39 If the outstanding technical issues related to these processes are resolved prior to the final rule, EPA anticipates including production projections from these technologies in our projection of cellulosic biofuel production for 2018. 37 “Cellulosic Biofuel Producer Company Descriptions (May 2017)”, memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2017-0091. 38 A significant issue that must be resolved to register a facility to produce cellulosic biofuel from corn kernel fiber at an existing ethanol production facility is the quantification of the volume of ethanol produced from cellulosic feedstocks rather than non-cellulosic feedstocks such as starch. Until these companies develop a methodology for quantifying cellulosic biofuel production that is approved by EPA we do not believe it is appropriate to include an estimate of cellulosic biofuel production from these facilities in our projection of cellulosic biofuel production in 2018. 39 These facilities must be able to quantify the volume of CNG/LNG produced from cellulosic feedstocks and the volume of CNG/LNG produced from non-cellulosic feedstocks. To date none of the quantification methodologies proposed by the companies interested in registering as cellulosic biofuel producers has been approved by EPA. While these companies may be able to register to generate advanced biofuel (D5) RINs, they cannot generate cellulosic (D3) RINs until this issue is resolved. Table III.B.3-1—Projected Producers of Cellulosic Biofuel by 2018 Company name Location Feedstock Fuel Facility capacity (million gallons per year) 40 Construction start date First production 41 CNG/LNG Producers 42 Various (US and Canada) Biogas CNG/LNG Various N/A August 2014. DuPont Nevada, IA Corn Stover Ethanol 30 November 2012 1Q 2017. Edeniq Various Corn Kernel Fiber Ethanol Various Various October 2016. Ensyn Renfrew, ON, Canada Wood Waste Heating Oil 3 N/A 2014. Ensyn Port-Cartier, QC, Canada Wood Waste Heating Oil 10.5 June 2016 April 2018. GranBio São Miguel dos Campos, Brazil Sugarcane bagasse Ethanol 21 Mid 2012 September 2014. Poet Emmetsburg, IA Corn Stover Ethanol 24 March 2012 4Q 2015. QCCP Galva, IA Corn Kernel Fiber Ethanol 4 Late 2013 October 2014. C. Cellulosic Biofuel Volume for 2018 40 The Facility Capacity is generally equal to the nameplate capacity provided to EPA by company representatives or found in publicly available information. If the facility has completed registration and the total permitted capacity is lower than the nameplate capacity then this lower volume is used as the facility capacity. For companies generating RINs for CNG/LNG derived from biogas the Facility Capacity is equal to the lower of the annualized rate of production of CNG/LNG from the facility at the time of facility registration or the sum of the volume of contracts in place for the sale of CNG/LNG for use as transportation fuel (reported as the actual peak capacity for these producers). 41 Where a quarter is listed for the first production date EPA has assumed production begins in the middle month of the quarter ( i.e., August for the 3rd quarter) for the purposes of projecting volumes. 42 For more information on these facilities see “June 2017 Assessment of Cellulosic Biofuel Production from Biogas (2018)”, memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2017-0091. 1. Liquid Cellulosic Biofuel For our 2018 liquid cellulosic biofuel projection, we use a modified version the same general methodology we used in establishing the cellulosic biofuel volume standards for 2015 (the final three months for which data were not available), 2016, and 2017. This methodology is briefly described here, and is described in detail in the 2017 annual rule. 43 We are proposing to use the same methodology to come up with the range of potential volumes for the different categories of facilities. However, we are proposing to adjust the percentile values used to project liquid cellulosic biofuel production from within the range of projected production values, based on an analysis of actual liquid cellulosic biofuel production in 2016. We believe an adjustment to our methodology is warranted, as EPA's estimates for liquid cellulosic biofuel exceeded actual production of liquid cellulosic biofuel in both 2015 and 2016, 44 and that this adjusted methodology will continue to improve the accuracy of the production projection that will further EPA's objective to project volumes with a “neutral aim at accuracy.” 43 See 81 FR 89755 (December 12, 2016) for additional detail. 44 EPA notes that once standards are set based on these projections, cellulosic biofuel RINs can be generated for either type of cellulosic biofuel. Cellulosic biofuel RINs generated for liquid biofuels and CNG/LNG derived from biogas can be used to satisfy an obligated party's cellulosic biofuel obligation. There are no separate standards for liquid and gaseous cellulosic biofuels. The projected ranges for liquid cellulosic biofuel production in 2016, along with the percentile values used to project a production volume within the calculated ranges and the actual number of cellulosic RINs generated in 2016 that are available for compliance, are shown in Table III.C.1-1 below. Table III.C.1-1— Projected and Actual Liquid Cellulosic Biofuel Production in 2016 [Million gallons] Low end of the range High end of the range Percentile Projected production Actual production 45 New Facilities 0 76 25th 19 1.06 Consistent Producers 46 2 5 50th 4 3.28 Since the actual production in 2016 was lower than projected production for both new facilities and consistent producers, it seems appropriate to adjust the percentiles downward for the purposes of making projections for 2018. To this end, EPA calculated the percentile values that would have resulted in accurate production projections in 2016 based on the actual number of cellulosic biofuel RINs generated for liquid cellulosic biofuels and available for compliance in 2016. These calculated percentile values are the 1st percentile for new facilities (replacing the 25th percentile used for 2016 and 2017) and the 43rd percentile for consistent producers (replacing the 50th percentile used for 2016 and 2017). In this rule EPA is proposing to use these updated percentile values to project the production of liquid cellulosic biofuel in 2018. We believe it is appropriate to use 2016 production data to calculate these percentile values as EPA first adopted the methodology for calculating expected production ranges used in this rule in the 2014-2016 final rule. While EPA also has projected production ranges for the final three months of 2015 as well as all of 2017, we do not have sufficient data to compare our projected volumes to actual production volumes over a full year for either of these years. For purposes of this proposal, therefore, we have selected 2016 data as the most representative source of data currently available for purposes of projecting what may occur in 2018. We anticipate that we will review these percentile values as additional data from 2017 become available, and update them as appropriate for the final rule. We request comment on methods that EPA could use to take into account available 2017 data for the final rule, notwithstanding the expected lack of data for the last few months of 2017. 45 Actual production is calculated by subtracting RINs retired for any reason other than compliance with the RFS standards from the total number of cellulosic RINs generated. 46 In the 2014-2016 Annual Rule EPA categorized Ensyn and Quad County Corn Processors as consistent cellulosic biofuel producers for 2016. All other companies were categorized as new facilities. This is in contrast to 2018, for which EPA has categorized additional facilities as consistent cellulosic biofuel producers. See below. EPA also considered whether it would be appropriate to modify other individual components of the past methodology for liquid cellulosic biofuel based on a narrow consideration of each factor, but we do not believe there is currently sufficient information to support these changes. Making the single proposed adjustment to the percentile values used in the methodology should, we believe, provide an appropriate adjustment to the methodology that reflects recent past experience. We acknowledge, however, that using the calculated percentile values from previous years to project liquid cellulosic biofuel production in future years does not eliminate the possibility that actual production will differ from our projections. This is especially true for the liquid cellulosic biofuel industry, which is currently in the early stages of commercialization. We will continue to evaluate the success of this methodology, including a consideration of the data on cellulosic biofuel production in 2017 available at the time of the final rule, and will consider adjusting the methodology if it appears warranted. If the methodology appears to be projecting volumes that are significantly higher or lower than actual production volumes for months in 2017 for which data is available (after taking into account the seasonality of RIN generation and the expected ramp-up of production volumes in the latter half of 2017) we may consider adjustments to the methodology used in the final rule, such as further adjusting the percentile values used to project liquid cellulosic biofuel production within the projected range for a group of companies, or creating new groupings of companies with similar types and levels of risk associated with cellulosic biofuel production. We request comment on our methodology and adjustments that could be made to increase the accuracy of the projection. Consistent with our approach for 2016 and 2017, to project liquid cellulosic biofuel production in 2018 we separated the list of potential producers of cellulosic biofuel into two groups according to whether or not the facilities have achieved consistent commercial-scale production and cellulosic biofuel RIN generation (See Table III.C.1-2 through Table III.C-.1-3). We next defined a range of likely production volumes for each group of potential cellulosic biofuel producers. The low end of the range for each group of producers reflects actual RIN generation data over the last 12 months for which data are available at the time our technical assessment was completed (April 2016-March 2017). For potential producers that have not yet generated any cellulosic RINs, the low end of the range is zero. For the high end of the range of production volumes for companies expected to produce liquid cellulosic biofuel we considered a variety of factors, including the expected start-up date and ramp-up period, 47 facility capacity, and fuel off-take agreements. The projected ranges for each of the companies considered in our 2018 cellulosic biofuel projection are shown in Tables III.C.1-2 and III.C.1-3 below. 48 47 As in our 2015-2017 projections, EPA calculated a high end of the range for each facility (or group of facilities) based on the expected start-up date and a six-month straight line ramp-up period. The high end of the range for each facility (or group of facilities) is equal to the value calculated by EPA using this methodology, or the number of RINs the producer expects to generate in 2018, whichever is lower. 48 More information on the data and methods EPA used to calculate each of the ranges in these tables can be found in “May 2017 Cellulosic Biofuel Individual Company Projections for 2018 (CBI)”, memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2017-0091. Table III.C.1-2—2018 Production Ranges for Liquid Cellulosic Biofuel Producers Without Consistent Commercial Scale Production [Million gallons] Low end of the range High end of the range DuPont 0 15 Edeniq (New Producers) 0 80 GranBio 0 5 Ensyn (Port-Cartier) 0 5 Aggregate Range 0 105 Table III.C.1-3—2018 Production Ranges for Liquid Cellulosic Biofuel Producers With Consistent Commercial Scale Production [Million gallons] Low end of the range High end of the range Edeniq (Active Facilities) a X 5 Ensyn a X 3 Poet a X 20 Quad County Corn Processors a X 3 Aggregate Range 3.9 31 a The low end of the range for each individual company is based on actual production volumes and is therefore withheld to protect information claimed to be confidential business information. After defining likely production ranges for each group of companies we used the percentile values described earlier in this section to project a production volume within the production ranges. We used the 1st and 43rd percentiles, respectively, for liquid cellulosic biofuel producers without and with a history of consistent cellulosic biofuel production and RIN generation. The resulting projections for liquid cellulosic biofuel in 2018 are shown in Table III.C.1-4 below. Table III.C.1-4—Projected Volume of Liquid Cellulosic Biofuel in 2018 [Million gallons] Low end of the range a High end of the range a Percentile Projected volume a Liquid Cellulosic Biofuel Producers; Producers without Consistent Commercial Scale Production 0 105 1st 1 Liquid Cellulosic Biofuel Producers; Producers with Consistent Commercial Scale Production 3.9 31 43rd 16 Total N/A N/A N/A 17 a Volumes rounded to the nearest million gallons. We believe our range of projected production volumes for each company (or group of companies for those using the Edeniq technology) reasonably represents the range of potential production volumes for each company, and that projecting overall production in 2018 in the manner described above results in a neutral estimate (neither biased to produce a projection that is either too high or too low) of likely liquid cellulosic biofuel production in 2018 (17 million gallons). 2. CNG/LNG Derived From Biogas For 2018, EPA is proposing to use a new methodology to project production of CNG/LNG derived from biogas used as transportation fuel. We believe a new methodology is warranted for purposes of this rule for two primary reasons: The over-projection of CNG/LNG derived from biogas in 2016 and, the relative maturity of the CNG/LNG industry relative to the liquid cellulosic biofuel industry. EPA's projection of the production of CNG/LNG derived from biogas in 2016 was 207 million ethanol-equivalent gallons. Actual production of cellulosic biofuel RINs for CNG/LNG derived from biogas that were available for compliance in 2016 was 185 million gallons, suggesting that the approach we took to projecting CNG/LNG derived from biogas in 2016 resulted in an overestimate by 22 million ethanol-equivalent gallons. More importantly, we believe that the technology and market for CNG/LNG derived from biogas used as transportation fuel is sufficiently mature that a facility-by-facility assessment of potential production is unnecessary, and is not the most appropriate method for projecting the production of these fuels in 2018 across the entire industry. EPA is proposing to use an industry-wide approach, rather than a projecting production from each specific facility or company, to project the 2018 production of CNG/LNG derived from biogas. EPA has calculated the observed year-over-year growth in the number of RINs generated for CNG/LNG derived from biogas based on data from the first five months of both 2016 and 2017. 49 These production volumes are shown in Table III.C.2-1 below. 49 At the time of this proposal, EPA has RIN generation data for the first five months of 2017 (January-May). Table III.C.2-1—Generation of Cellulosic Biofuel RINs for CNG/LNG Derived From Biogas [Million gallons] RIN generation (January 2016-May 2016) RIN generation (January 2017-May 2017) Year-over-year increase (Jan.-May 2016 to Jan.-May 2017) 62.91 68.75 9.3% Under the assumption that this growth rate based on five months of data is representative of the annual growth rate, EPA then applied this 9.3% growth rate to the total number of 2016 cellulosic RINs generated for CNG/LNG that were available for compliance (185.14 million) to project the production of cellulosic RINs from these fuels in 2017, and then repeated the calculation to arrive at a projection for 2018. This methodology results in a projection of 221.2 million gallons of CNG/LNG derived from biogas in 2018. 50 We believe that projecting the production of CNG/LNG derived from biogas in this manner appropriately takes into consideration the actual recent rate of growth of this industry, and that this growth rate accounts for both the potential for future growth and the challenges associated with increasing RIN generation from these fuels in future years. While this methodology may not be appropriate to use once the projected volume of CNG/LNG derived from biogas approaches the total volume of CNG/LNG that is used as transportation fuel, our projection for 2018 is well below the total volume of CNG/LNG that is currently used as transportation fuel. 51 For the final rule we intend to review the year-over-year increase with additional data and modify the year-over-year increase from 2016 to 2017 and the resulting projection of CNG/LNG derived from biogas in 2018 as appropriate. We request comment on the use of an industry-wide, rather than a facility-by-facility projection of the production of CNG/LNG derived from biogas, as well as possible adjustments to the methodology used in this proposed rule or alternative methodologies that could be used for this purpose. 50 To calculate this value, EPA multiplied the total number of 2016 RINs generated for CNG/LNG derived from biogas and available for compliance by 1.093 (representing a 9.3% year-over-year increase), and then multiplied the product by 1.093 a second time (to project the annual production volume in 2018, rather than 2017). The number 2016 of RINs generated for CNG/LNG derived from biogas and available for compliance (185.14) is based on EMTS data. 51 EPA projects that 580 million ethanol-equivalent gallons of CNG/LNG will be used as transportation fuel in 2018 based on EIA's April 2017 Short Term Energy Outlook (STEO). To calculate this estimate, EPA used the Natural Gas Vehicle Use from the STEO Custom Table Builder (0.12 billion cubic feet/day in 2018). This projection includes all CNG/LNG used as transportation fuel from both renewable and non-renewable sources. EIA does not project the amount of CNG/LNG from biogas used as transportation fuel. To convert billion cubic feet/day to ethanol-equivalent gallons EPA used conversion factors of 1020 BTU per cubic foot of natural gas and 77,000 BTU of natural gas per ethanol-equivalent gallon. 3. Total Cellulosic Biofuel in 2018 After projecting production of cellulosic biofuel from liquid cellulosic biofuel production facilities and producers of CNG/LNG derived from biogas, EPA combined these projections to project total cellulosic biofuel production for 2018. These projections are shown in Table III.C.3-1. Using the methodologies described in this section, we project that 238 million ethanol-equivalent gallons of cellulosic biofuel will be produced in 2018. We believe that projecting overall production in 2018 in the manner described above results in a neutral estimate (neither biased to produce a projection that is too high nor too low) of likely cellulosic biofuel production in 2018. Table III.C.3-1—Projected Volume of Cellulosic Biofuel in 2018 [Million gallons] Projected volume a Liquid Cellulosic Biofuel Producers; Producers without Consistent Commercial Scale Production 1 Liquid Cellulosic Biofuel Producers; Producers with Consistent Commercial Scale Production 16 CNG/LNG Derived from Biogas 221 Total 238 a Volumes rounded to the nearest million gallons. A brief overview of individual companies we believe will produce cellulosic biofuel and make it commercially available in 2018 can be found in a memorandum to the docket. 52 In the case of cellulosic biofuel produced from CNG/LNG and facilities using Edeniq's technology we have discussed the production potential from these facilities as a group rather than individually. 53 We request comment on the methodology used to project cellulosic biofuel production in 2018 54 potential adjustments to the methodology that may result in more accurate projections, the companies listed as potential cellulosic biofuel producers and the volume of cellulosic biofuel projected to be produced in 2018 (including potential volumes from additional produces of cellulosic biofuel from corn kernel fiber and anaerobic waste digesters as discussed in Section III.B.3). 52 “Cellulosic Biofuel Producer Company Descriptions (May 2017)”, memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2017-0091. 53 For individual company information see “May 2017 Cellulosic Biofuel Individual Company Projections for 2018 (CBI)”, memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2017-0091. 54 For a more complete description of the methodology used to calculate the likely production ranges for the liquid cellulosic biofuel producers see 81 FR 89758, December 12, 2016. IV. Advanced Biofuel Volume for 2018 The national volume targets for advanced biofuel to be used under the RFS program each year through 2022 are specified in CAA section 211(o)(2)(B)(i)(II). Congress set annual renewable fuel volume targets that envisioned growth at a pace that far exceeded historical growth and, for years after 2011, prioritized that growth as occurring principally in advanced biofuels (contrary to previous growth patterns where most growth was in conventional renewable fuel, principally corn-ethanol). Congressional intent is evident in the fact that the portion of the total renewable fuel volume target in the statutory volume tables that is not required to be advanced biofuel is 15 billion gallons for all years after 2014, while the advanced volumes, driven by growth in cellulosic volumes, continue to grow through 2022 to a total of 21 billion gallons. We have evaluated the capabilities of the market and are proposing to find that the 11.0 billion gallons specified in the statute for advanced biofuel cannot be reached in 2018. This is primarily due to the expected continued shortfall in cellulosic biofuel; production of this fuel type has consistently fallen short of the statutory targets by 95 percent or more, and as described in Section III, it will fall far short of the statutory target of 7.0 billion gallons again in 2018. In addition, although for the 2016 and 2017 standards we determined that the projected reasonably attainable supply of non-cellulosic advanced biofuel and other considerations justified establishing standards that include a partial backfill of the shortfall in cellulosic biofuel, for reasons described in this section we are not proposing such partial backfilling for 2018. In previous years when exercising the cellulosic waiver authority to determine the required volume of advanced biofuel, we have taken into account the availability of advanced biofuels, their energy security and GHG benefits, and the apparent intent of Congress as reflected in the statutory volumes tables to substantially increase the use of advanced biofuels over time, as well as factors such as increased costs associated with the use of advanced biofuels and the environmental and food competition concerns raised by some commenters. In considering these factors, in those years, we have concluded that it was appropriate to set the advanced biofuel standard in a manner that would allow the partial backfilling of missing cellulosic volumes with non-cellulosic advanced biofuels. For purposes of this NPRM we are focusing primarily on the availability of advanced biofuels, their GHG and energy security benefits, and the costs associated with increased advanced biofuel mandates to propose no such backfilling with non-cellulosic advanced biofuel volumes in 2018. In other words, we propose to reduce the statutory volume target for advanced biofuel by the same amount as our proposed reduction in cellulosic biofuel. This action takes into account the fact that the substantial growth in advanced biofuel volumes after 2015 that was anticipated by Congress, and reflected in the statutory tables, was to be driven primarily by increases in cellulosic biofuel as opposed to non-cellulosic advanced biofuels. In addition, we recognize that the proposed approach involves placing a greater reliance on cost considerations than we have in past rulemakings. We believe this proposed new approach to balancing relevant considerations and exercising our discretion under the cellulosic waiver authority is permissible under the statute, and consistent with the principles articulated in FCC v. Fox TV Stations, 556 U.S. 502, 514-15 (2009), regarding circumstances when an agency may appropriately depart from prior policy. We will, as in past years, consider comments on these factors, their appropriate balancing, and any other factors identified by commenters that are relevant to the exercise of our cellulosic waiver authority in finalizing this rule, and will consider making appropriate adjustments for the final rule. We note that the predominant non-cellulosic advanced biofuels available in the near term are advanced biodiesel and renewable diesel. We expect a decreasing rate of growth in the availability of feedstocks used to produce these fuel types. To the extent that higher advanced biofuel requirements cannot be satisfied through growth in the production of advanced biofuel feedstocks, they would instead be satisfied through a re-direction of advanced feedstocks from competing uses, leading to lower overall GHG emission benefits. There would also likely be market disruptions and increased burden associated with shifting feedstocks among the wide range of companies that are relying on them today and which have optimized their processes to accommodate them. Furthermore, the fact that the tax credit for biodiesel has not been renewed, and if renewed could be in the form of a producer's tax credit rather than a blender's tax credit, has resulted in added uncertainty regarding the potential for volumes to be made available to the United States at levels above the proposed volume. We believe that the factors and considerations noted above are all appropriately considered in our exercise of the broad discretion provided under the cellulosic waiver authority, and that a comprehensive consideration of these factors supports our proposed approach. 55 Some of the considerations discussed in this proposal are clearly related to the availability of non-cellulosic biofuels ( e.g., historic data on supply, expiration of the biodiesel blenders' tax credit, and anticipated decreasing growth in production of advanced feedstocks), while others clearly focus on the potential benefits and costs of requiring use of available volumes ( e.g., relative cost of advanced biofuels to the petroleum fuels they displace, GHG reduction benefits and energy security benefits). One important consideration does not fall neatly in these two categories—the likelihood that higher advanced biofuel standards would be satisfied by diversion of advanced feedstocks from other uses or diversion of foreign advanced biofuel from foreign markets, and the diminished benefits associated with such diversions. We believe, in the exercise of our discretion under the cellulosic waiver authority, and as discussed in more detail below, that it would not be appropriate to set the advanced biofuel volume requirement at a level that would lead to such diversions. Accordingly, we have factored this consideration into our assessment of available supplies. In other words, we first identify below volumes that we believe would be reasonably attainable in 2018 without these diversions, and then discuss whether or not other considerations, such as cost and GHG benefits, indicate that it would be appropriate to set the advanced biofuel volume requirement so as to require use of such reasonably attainable volumes to partially backfill for missing cellulosic volumes. If finalized, the net impact of today's proposal would be that the volume requirement for advanced biofuel for 2018 would be 40 million gallons less than the applicable volume used to derive the 2017 percentage standard. A. Volumetric Limitation on Use of the Cellulosic Waiver Authority As described in Section II.A, when making reductions in advanced biofuel and total renewable fuel under the cellulosic waiver authority, the statute limits those reductions to no more than the reduction in cellulosic biofuel. As described in Section III.D, we are proposing a 2018 applicable volume for cellulosic biofuel of 238 million gallons, representing a reduction of 6,762 million gallons from the statutory target of 7,000 million gallons. As a result, 6,762 million gallons is the maximum volume reduction for advanced biofuel and total renewable fuel that is permissible using the cellulosic waiver authority. 56 If we were to use the cellulosic waiver authority to this maximum extent, the resulting 2018 volumes would be 4.24 and 19.24 billion gallons for advanced biofuel and total renewable fuel, respectively, following standard rounding methods applied to the applicable volumes expressed in billion gallons with two decimal places, as done in previous annual standard-setting rulemakings. 56 If we determined it necessary to provide further reductions to address inadequate domestic supply or severe economic or environmental harm, such further reductions would only be possible using the general waiver authority. Table IV.A-1—Lowest Permissible Volume Requirements Using Only the Cellulosic Waiver Authority [Million gallons] Advanced biofuel Total renewable fuel Statutory target 11,000 26,000 Maximum reduction permitted under the cellulosic waiver authority 6,762 6,762 Lowest 2018 volume requirement permitted using only the cellulosic waiver authority 4,238 19,238 We are authorized under the cellulosic waiver authority to reduce the advanced biofuel and total renewable fuel volumes “by the same or a lesser” amount as the reduction in the cellulosic biofuel volume. Thus, we are not required to use the authority to its maximum extent. Indeed, in exercising the cellulosic waiver authority in setting standards for 2014-2017, we did not use the full extent of the authority. As discussed in Section II.A, EPA has broad discretion in using the cellulosic waiver authority in instances where its use is authorized under the statute, since Congress did not specify factors that EPA must consider in determining whether to use the authority or what appropriate volume reductions (within the range permitted by statute) should be. Thus, EPA could potentially set the 2018 advanced biofuel standard at a level that is designed to partially backfill for the shortfall in cellulosic biofuel. However, based on our consideration of the factors described in more detail below, we are proposing to use the full extent of the cellulosic waiver authority. The proposed advanced biofuel applicable volume is, therefore, 4.24 billion gallons. 57 57 We specify the volume requirements as billion gallons with two decimal places to be consistent with the volume targets as given in the statute. The only exception is for cellulosic biofuel which we specify in million gallons due to the substantial reduction from the statutory target. However, calculations are typically shown in million gallons for all four standards for clarity. B. Reasonably Attainable Volumes of Advanced Biofuel After use of the cellulosic waiver authority to reduce volumes of cellulosic biofuel, the statute does not specify conditions or any criteria or factors that EPA should consider in determining whether, and to what extent, to use the authority to reduce advanced biofuel and total renewable fuel. Thus, under the cellulosic waiver authority, Congress provided EPA with broad discretion to lower advanced biofuel and total renewable fuel applicable volumes in instances where it lowers the cellulosic biofuel requirement, as we are proposing to do in today's rule. In exercising this broad discretion, we need not require use of the maximum achievable volumes as would be the case if we were using the general waiver authority based on a finding of inadequate domestic supply, as we did for total renewable fuels in the 2014-2016 RFS standards rule. As noted above, a higher advanced biofuel volume requirement has a greater potential to increase the incentive for switching advanced biofuel feedstocks from existing uses to biofuel production. Such market reactions could cause disruptions and/or price increases in the non-biofuel markets that currently use these feedstocks. Increasing the required volumes of advanced biofuels without giving the market adequate time to adjust by increasing supplies could also result in diversion of advanced biofuels from foreign countries to the U.S. without increasing total global supply. Increasing the supply of advanced biofuels in this way (by shifting the end use of advanced feedstocks to biofuel production and satisfying the current markets for these advanced feedstocks with non-qualifying or petroleum based feedstocks or simply shifting advanced biodiesel or renewable diesel from foreign to domestic use) would likely not produce the additional GHG benefits that might otherwise be expected. We are proposing that we not set the advanced volume requirement at a level that would require such diversions. Our individual assessments of reasonably attainable volumes reflect this approach. That is, while we refer to them as “reasonably attainable” volumes for convenience, they represent those volumes that are not likely to lead to feedstock diversions. Greater volumes could likely be made available if feedstock diversions were not of concern. 1. Imported Sugarcane Ethanol The predominant available source of advanced biofuel other than cellulosic biofuel and BBD is imported sugarcane ethanol. For both the 2016 and 2017 standards, we used a volume of 200 million gallons of imported sugarcane ethanol for purposes of determining the reasonably attainable volume of advanced biofuel. In using this volume of sugarcane ethanol, we attempted to balance indications of lower potential imports from recent data with indications that higher volumes were possible based on older data. We also pointed to the high variability in ethanol import volumes in the past (including of Brazilian sugarcane ethanol, the predominant form of imported ethanol, and the only significant source of imported advanced ethanol), increasing gasoline consumption in Brazil, and variability in Brazilian production of sugar as reasons that it would be inappropriate to assume that sugarcane ethanol imports would reach the much higher levels suggested by some stakeholders. The data currently available on 2016 ethanol imports suggests that we overestimated the volume of sugarcane ethanol imports for that year. Despite the fact that the applicable standards for 2016 were set prior to the beginning of 2016, and despite suggestions from UNICA 58 that 2016 imports could reach as high as 2 billion gallons, total ethanol imports only reached 34 million gallons. The low observed 2016 volume indicates that an increase in the advanced biofuel standard does not necessarily result in an increase in imports of sugarcane ethanol, and also implies that even California's Low Carbon Fuel Standard (LCFS), which applies in addition to the RFS program, has not resulted in the large volumes of advanced ethanol imports that some stakeholders believed would occur. 58 UNICA is the Brazilian Sugarcane Industry Association. EP21JY17.001 While the low import levels of sugarcane ethanol in 2014 and 2015 could, at least in part, be attributed to the fact that the applicable RFS standards had not been set prior to the beginning of the compliance period, this was not true for 2016. The experience in 2016 suggests that 200 million gallons may be too high for the purposes of projecting reasonably attainable volumes of advanced biofuel for 2018. At the same time, higher import volumes than those which occurred in 2016 are clearly possible, and could potentially be achieved under the influence of a higher RFS standard. Taking all of these considerations into account, we propose to use 100 million gallons of imported sugarcane ethanol for the purposes of projecting reasonably attainable volumes of advanced biofuel for 2018. This level takes into account the lower than expected import volumes that occurred in 2016, but also the fact that higher volumes have occurred in past years. We recognize that there are factors that could result in lower import volumes of sugarcane ethanol in 2018 than 100 million gallons. These include weather and harvests in Brazil, world ethanol demand and prices, and constraints associated with the E10 blendwall in the U.S. Also, global sugar consumption has continued to increase steadily, while production has decreased. If the trend continues, Brazilian production of sugar could increase, with a concurrent reduction in production of ethanol. 59 On the other hand, the world average price of sugar is projected to remain relatively flat between 2016 and 2018, suggesting little change in sugar production and implying that ethanol production in Brazil might likewise remain unchanged. 60 In light of these and other considerations discussed above, we request comment on whether it would be appropriate to use a volume of imported sugarcane ethanol different than 100 million gallons in the final determination of the advanced biofuel volume requirement for 2018. 59 “Sugar—World Markets and Trade,” USDA, November 2016. 60 “Commodity Markets Outlook,” World Bank Group, January 2017. 2. Biodiesel and Renewable Diesel With regard to biodiesel and renewable diesel, there are many different factors that could potentially influence the total reasonably attainable volume of these fuels (including both advanced and non-advanced forms) used as transportation fuel or heating oil in the United States. 61 These factors could include the availability of qualifying biodiesel and renewable diesel feedstocks, the production capacity of biodiesel and renewable diesel facilities (both in the United States and internationally), the market's ability to distribute biodiesel, and diesel engine manufacturers' recommendations for biodiesel use in the engines they produce. The degree to which these and other factors may affect the total supply of biodiesel and renewable diesel in 2018, is discussed in Section V.B.2. 61 For a further discussion of the factors that influence the availability of biodiesel and renewable diesel see Section V.B.2 of the preamble and a further discussion of these factors from the 2017 final rule (81 FR 89781—89789, December 12, 2016). However, the primary considerations in our determination of the reasonably attainable volumes of advanced biodiesel and renewable diesel for 2018 are a review of the supply of advanced biodiesel and renewable diesel in previous years, the uncertain impact of the expiration of the biodiesel tax credit on biodiesel production and importation, the projected growth in production of advanced biodiesel and renewable diesel feedstocks in 2018, and consideration of the extent to which our decision in setting advanced biofuel requirements could influence the market. 62 A review of the volumes of advanced biodiesel and renewable diesel made available in previous years is especially useful in projecting the potential for growth in such fuels, since for these fuels there are a number of complex and inter-related factors (including the expiration of the biodiesel tax credit) that are likely to affect the total supply. We also believe the likely growth in production of feedstocks used to produce these fuels is an important factor to consider. This is because the maximum energy security and GHG reduction value associated with the growth in the use of advanced biofuels is obtained when that growth is associated with an increase in advanced feedstock production, rather than a switching of existing advanced feedstocks from other uses. Such feedstock switching could result in unintended negative consequences, such as market disruption in the renewable oils market, which could offset some of the anticipated benefits of the production and use of advanced biofuels. 62 Throughout this section we refer to advanced biodiesel and renewable diesel as well as advanced biodiesel and renewable diesel feedstocks. In this context, advanced biodiesel and renewable diesel refer to any biodiesel or renewable diesel for which RINs can be generated that satisfy an obligated party's advanced biofuel obligation ( i.e., D4 or D5 RINs). An advanced biodiesel or renewable feedstock refers to any of the biodiesel, renewable diesel, jet fuel, and heating oil feedstocks listed in Table 1 to § 80.1426 that can be used to produce fuel that qualifies for D4 or D5 RINs. These feedstocks include soy bean oil; oil from annual cover crops; oil from algae grown photosynthetically; biogenic waste oils/fats/greases; non-food grade corn oil; camelina sativa oil; and canola/rapeseed oil (See pathways F, G, and H of Table 1 to § 80.1426). The volume of advanced biodiesel and renewable diesel projected to be available based on a consideration of these factors is less than the total volume of biodiesel and renewable diesel we believe could be produced (based solely on an assessment of the available production capacity) or consumed (based on an assessment of the ability of the market to distribute and use biodiesel and renewable diesel). Production capacity and the ability for the market to distribute and use biodiesel and renewable diesel are therefore not constraining factors in our assessment of the reasonably attainable volume of advanced biodiesel and renewable diesel in 2018. Before considering the projected growth in the production of qualifying feedstocks that could be used to produce advanced biodiesel and renewable diesel, it is helpful to review the supply of biodiesel and renewable diesel to the United States in recent years. While historic data and trends alone are insufficient to project the volumes of biodiesel and renewable diesel that could be provided in future yea [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2017-14632. Public record. Not legal advice.