# Renewable Fuel Standard Program: Standards for 2019 and Biomass-Based Diesel Volume for 2020 > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2018-26566 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** December 11, 2018 - **Citation:** 83 FR 63704 ## Text ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 80 [EPA-HQ-OAR-2018-0167; FRL-9987-66-OAR] RIN 2060-AT93 Renewable Fuel Standard Program: Standards for 2019 and Biomass-Based Diesel Volume for 2020 AGENCY: Environmental Protection Agency (EPA). ACTION: Final 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 establishes 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 2019. Relying on statutory waiver authority that is available when the projected cellulosic biofuel production volume is less than the applicable volume specified in the statute, EPA is establishing volume requirements for cellulosic biofuel, advanced biofuel, and total renewable fuel that are below the statutory volume targets. We are also establishing the applicable volume of biomass-based diesel for 2020. DATES: This final rule is effective on February 11, 2019. ADDRESSES: The EPA has established a docket for this action under Docket ID No. EPA-HQ-OAR-2018-0167. All documents in the docket are listed on the https://www.regulations.gov website. Although listed in the index, some information is not publicly available, e.g., CBI or other information whose disclosure is restricted by statute. Certain other material is not available on the internet and will be publicly available only in hard copy form. Publicly available docket materials are available electronically through http://www.regulations.gov. FOR FURTHER INFORMATION CONTACT: Julia MacAllister, Office of Transportation and Air Quality, Assessment and Standards Division, Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor, MI 48105; telephone number: 734-214-4131; email address: macallister.julia@epa.gov. SUPPLEMENTARY INFORMATION: Entities potentially affected by this final rule are those involved with the production, distribution, and sale of transportation fuels, including gasoline and diesel fuel or renewable fuels such as ethanol, biodiesel, renewable diesel, and biogas. Potentially affected categories include: Category NAICS 1 codes SIC 2 codes Examples of potentially affected 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). This table is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be affected by this action. This table lists the types of entities that EPA is now aware could potentially be affected by this action. Other types of entities not listed in the table could also be affected. To determine whether your entity would be affected by this action, you should carefully examine the applicability criteria in 40 CFR part 80. If you have any questions regarding the applicability of this action to a particular entity, consult the person listed in the FOR FURTHER INFORMATION CONTACT section. Outline of This Preamble I. Executive Summary A. Summary of Major Provisions in This Action 1. Approach To Setting Volume Requirements 2. Cellulosic Biofuel 3. Advanced Biofuel 4. Total Renewable Fuel 5. 2020 Biomass-Based Diesel 6. Annual Percentage Standards B. RIN Market Operations 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 1. Carryover RIN Bank Size 2. EPA's Decision Regarding the Treatment of Carryover RINs III. Cellulosic Biofuel Volume for 2019 A. Statutory Requirements B. Cellulosic Biofuel Industry Assessment 1. Review of EPA's Projection of Cellulosic Biofuel in Previous Years 2. Potential Domestic Producers 3. Potential Foreign Sources of Cellulosic Biofuel 4. Summary of Volume Projections for Individual Companies C. Projection From the Energy Information Administration D. Cellulosic Biofuel Volume for 2019 1. Liquid Cellulosic Biofuel 2. CNG/LNG Derived From Biogas 3. Total Cellulosic Biofuel in 2019 IV. Advanced Biofuel and Total Renewable Fuel Volumes for 2019 A. Volumetric Limitation on Use of the Cellulosic Waiver Authority B. Attainable Volumes of Advanced Biofuel 1. Imported Sugarcane Ethanol 2. Other Advanced Biofuel 3. Biodiesel and Renewable Diesel C. Volume Requirement for Advanced Biofuel D. Volume Requirement for Total Renewable Fuel V. Impacts of 2019 Volumes on Costs A. Illustrative Costs Analysis of Exercising the Cellulosic Waiver Authority Compared to the 2019 Statutory Volumes Baseline B. Illustrative Costs of the 2019 Volumes Compared to the 2018 RFS Volumes Baseline VI. Biomass-Based Diesel Volume for 2020 A. Statutory Requirements B. Review of Implementation of the Program and the 2020 Applicable Volume of Biomass-Based Diesel C. Consideration of Statutory Factors Set Forth in CAA Section 211(o)(2)(B)(ii)(I)-(VI) for 2020 and Determination of the 2020 Biomass-Based Diesel Volume VII. Percentage Standards for 2019 A. Calculation of Percentage Standards B. Small Refineries and Small Refiners C. Final Standards VIII. Administrative Actions A. Assessment of the Domestic Aggregate Compliance Approach B. Assessment of the Canadian Aggregate Compliance Approach IX. Public Participation X. Statutory and Executive Order Reviews A. Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review B. Executive Order 13771: Reducing Regulations and Controlling Regulatory Costs C. Paperwork Reduction Act (PRA) D. Regulatory Flexibility Act (RFA) E. Unfunded Mandates Reform Act (UMRA) F. Executive Order 13132: Federalism G. Executive Order 13175: Consultation and Coordination With Indian Tribal Governments H. Executive Order 13045: Protection of Children From Environmental Health Risks and Safety Risks I. Executive Order 13211: Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use J. National Technology Transfer and Advancement Act (NTTAA) K. Executive Order 12898: Federal Actions To Address Environmental Justice in Minority Populations and Low-Income Populations L. Congressional Review Act (CRA) XI. 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. 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 (U.S.) toward “greater energy independence and security [and] increase[ing] the production of clean renewable fuels.” 2 1 75 FR 14670, March 26, 2010. 2 Public Law 110-140, 121 Stat. 1492 (2007). Hereinafter, “EISA.” 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 finalizing the applicable volumes for cellulosic biofuel, advanced biofuel, and total renewable fuel for 2019, and biomass-based diesel (BBD) for 2020. 3 We are also finalizing the annual percentage standards (also known as “percent standards”) for cellulosic biofuel, BBD, advanced biofuel, and total renewable fuel that would apply to all gasoline and diesel produced or imported in 2019. 4 3 The 2019 BBD volume requirement was established in the 2018 final rule. 4 For a list of the statutory provisions for the determination of applicable volumes, see the 2018 final rule (82 FR 58486, December 12, 2017; Table I.A-2). Today, nearly all gasoline used for transportation purposes contains 10 percent ethanol (E10), and on average diesel fuel contains nearly 5 percent biodiesel and/or renewable diesel. 5 However, the market has fallen well short of the statutory volumes for cellulosic biofuel, resulting in shortfalls in the advanced biofuel and total renewable fuel volumes. In this action, we are finalizing a volume requirement for cellulosic biofuel at the level we project to be available for 2019, along with an associated applicable percentage standard. For advanced biofuel and total renewable fuel, we are finalizing reductions under the “cellulosic waiver authority” that would result in advanced biofuel and total renewable fuel volume requirements that are lower than the statutory targets by the same magnitude as the reduction in the cellulosic biofuel reduction. This would effectively maintain the implied statutory volumes for non-cellulosic advanced biofuel and conventional biofuel. 6 5 Average biodiesel and/or renewable diesel blend percentages based on EIA's October 2018 Short Term Energy Outlook (STEO). 6 The statutory total renewable fuel, advanced biofuel and cellulosic biofuel requirements for 2019 are 28.0, 13.0 and 8.5 billion gallons respectively. This implies a conventional renewable fuel applicable volume (the difference between the total renewable fuel and advanced biofuel volumes, which can be satisfied by with conventional (D6) RINs) of 15.0 billion gallons, and a non-cellulosic advanced biofuel applicable volume (the difference between the advanced biofuel and cellulosic biofuel volumes, which can be satisfied with advanced (D5) RINs) of 4.5 billion gallons. The resulting final volume requirements for 2019 are shown in Table I-1 below. Relative to the levels finalized for 2018, the 2019 volume requirements for advanced biofuel and total renewable fuel would be higher by 630 million gallons. Approximately 130 million gallons of this increase would be due to the increase in the projected production of cellulosic biofuel in 2019 relative to 2018. The cellulosic biofuel volume is 37 million gallons greater than the proposed cellulosic biofuel volume for 2019. The advanced biofuel and total renewable fuel volumes are each 40 million gallons higher than the proposed volumes, as a result of an increased projection of cellulosic biofuel production in 2019 (see Section III for a further discussion of our cellulosic biofuel projection). We are also establishing the volume requirement for BBD for 2020 at 2.43 billion gallons. This volume is 330 million gallons higher than the volume for 2019. Table I-1—Final Volume Requirements a 2018 b 2019 Statutory volumes 2019 Proposed volumes 2019 Final volumes 2020 Final volumes Cellulosic biofuel (million gallons) 288 8,500 381 418 n/a Biomass-based diesel (billion gallons) 2.1 ≥1.0 N/A c 2.1 d 2.43 Advanced biofuel (billion gallons) 4.29 13.00 4.88 4.92 n/a Renewable fuel (billion gallons) 19.29 28.00 19.88 19.92 n/a a All values are ethanol-equivalent on an energy content basis, except for BBD which is biodiesel-equivalent. b The 2018 volume requirements for cellulosic biofuel, advanced biofuel, and renewable fuel were established in the 2018 final rule (82 FR 58486, December 12, 2017). The 2018 BBD volume requirement was established in the 2017 final rule (81 FR 89746, December 12, 2016). c The 2019 BBD volume requirement was established in the 2018 final rule (82 FR 58486, December 12, 2017). d EPA proposed 2.43 billion gallons of BBD in 2020 in the 2019 NPRM. A. Summary of Major Provisions in This Action This section briefly summarizes the major provisions of this final rule. We are finalizing applicable volume requirements and associated percentage standards for cellulosic biofuel, advanced biofuel, and total renewable fuel for 2019; for BBD we are finalizing the percentage standard for 2019 and the applicable volume requirement for 2020. 1. Approach to Setting Volume Requirements For advanced biofuel and total renewable fuel, we are finalizing reductions based on the “cellulosic waiver authority” that would result in advanced biofuel and total renewable fuel volume requirements that are lower than the statutory targets by the same magnitude as the reduction in the cellulosic biofuel applicable volume. This follows the same general approach as in the 2018 final rule. The volumes for cellulosic biofuel, advanced biofuel, and total renewable fuel exceed the required volumes for these fuel types in 2018. 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 Renewable Identification Numbers (RINs). Section III provides our assessment of the 2019 cellulosic biofuel volume, based on a projection of production that reflects a neutral aim at accuracy. Section IV describes our assessment of advanced biofuel and total renewable fuel. Finally, Section VI describes the 2020 BBD volume requirement, reflecting our analysis of a set of factors stipulated in CAA section 211(o)(2)(B)(ii). 2. Cellulosic Biofuel 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 this rule we are finalizing a cellulosic biofuel volume requirement of 418 million ethanol-equivalent gallons for 2019 based on our production projection. Our projection reflects consideration of the Energy Information Administration's (EIA) projection of cellulosic biofuel production in 2019; RIN generation data for past years and 2018 to date that is available to EPA through the EPA Moderated Transaction System (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; and EPA's own engineering judgment. To project cellulosic biofuel production for 2019 we used the same basic methodology as in our proposed rule, described further in the 2018 final rule. However, we have used updated data to derive percentile values used in our production projection for liquid cellulosic biofuels and to derive the year-over-year change in the rate of production of compressed natural gas and liquified natural gas (CNG/LNG) derived from biogas that is used in the projection for CNG/LNG. 3. Advanced Biofuel 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.” The conditions that caused us to reduce the 2018 volume requirement for advanced biofuel below the statutory target remain relevant in 2019. As for 2018, we investigated the projected availability of non-cellulosic advanced biofuels in 2019. 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 uses to the production of advanced biofuel used in the U.S., the fact that the biodiesel tax credit is currently not available for 2019, the tariffs on imports of biodiesel from Argentina and Indonesia, as well as the cost of advanced biofuels. Based on these considerations we are reducing the statutory volume target for advanced biofuel by the same amount as we are reducing the statutory volume target for cellulosic biofuel. This results in an advanced biofuel volume requirement for 2019 of 4.92 billion gallons, which is 630 million gallons higher than the advanced biofuel volume requirement for 2018. 4. Total Renewable Fuel We believe that the cellulosic waiver authority is best interpreted to require equal reductions in advanced biofuel and total renewable fuel. Consistent with our proposal, we are reducing total renewable fuel by the same as the reduction in advanced biofuel, such that the resulting implied volume requirement for conventional renewable fuel will be 15 billion gallons, the same as the implied volume requirement in the statute. 5. 2020 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 during calendar years specified in the table in CAA 211(o)(B) and various specified factors, provided 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. 7 For 2016 and 2017, we set the BBD volume requirements at 1.9 and 2.0 billion gallons respectively. Finally, for 2018 and 2019 the BBD volume requirement was set at 2.1 billion gallons. In this rule we are finalizing an increase to the BBD volume for 2020 to 2.43 billion gallons. 7 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. While EPA continues to believe it is appropriate to maintain the opportunity for other advanced biofuels to compete for market share, the vast majority of the advanced biofuel obligations in recent years have been satisfied with BBD. Thus, after a review of the implementation of the program to date and considering the statutory factors, we are establishing, in coordination with USDA and DOE, an applicable volume of BBD for 2020 of 2.43 billion gallons. 8 8 The final 330 million gallon increase for BBD would generate approximately 500 million RINs, due to the higher equivalence value of biodiesel (1.5 RINs/gallon) and renewable diesel (generally 1.7 RINs/gallon). 6. Annual Percentage Standards The renewable fuel standards are expressed as a volume percentage and are used by each refiner and importer of fossil-based gasoline or diesel to determine their renewable fuel volume obligations. 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 the national applicable volume of renewable fuel volume to the national projected non-renewable gasoline and diesel volume less any gasoline and diesel attributable to small refineries granted an exemption prior to the date that the standards are set. The volume of transportation gasoline and diesel used to calculate the percentage standards was based on projections provided by EIA as required under the statute. The final applicable percentage standards for 2019 are shown in Table I.B.6-1. Detailed calculations can be found in Section VII, including the projected gasoline and diesel volumes used. Table I.B.6-1—Final 2019 Percentage Standards Final percentage standards Cellulosic biofuel 0.230 Biomass-based diesel 1.73 Advanced biofuel 2.71 Renewable fuel 10.97 B. RIN Market Operations In the rulemaking notices proposing the 2018 and 2019 RFS volume requirements, we noted that various stakeholders had raised concerns regarding lack of transparency and potential manipulation in the RIN market. We asked for comment from the public on those issues, and received multiple suggestions from stakeholders in response. Since receiving those comments, we have continued to hold meetings with stakeholders on these topics, through which we have continued to hear various perspectives on RIN market operations and potential changes. A number of the comments received in response to the 2019 Notice of Proposed Rulemaking (NPRM) suggested increasing the amount of data related to the RIN market that EPA makes publicly available. In response to these comments, we have made additional information available through our public website. 9 The website publishes data on a number of items of interest to stakeholders, including the number of small refinery exemption petitions received, granted, and denied by year; the fuel volume exempted by year; weekly volume-weighted average RIN prices by D-code; 10 and weekly aggregated RIN transaction volumes by D-code. We intend to update these data regularly going forward. We believe this additional information will increase the transparency of the RIN market, and improve EPA's administration of the RFS program. 9 https://www.epa.gov/fuels-registration-reporting-and-compliance-help/public-data-renewable-fuel-standard . 10 Each RIN has a “D-code” that identifies the category of fuel (D3 for cellulosic biofuel, D7 for cellulosic diesel, D4 for biomass-based diesel, D5 for advanced biofuel, or D6 for conventional biofuel) for which the RIN was generated. We also received a number of comments on the potential impacts of changing the regulations related to who may purchase RINs, the duration for which RINs could be held, and other rules related to the buying, selling, or holding of RINs. On October 9, President Trump directed EPA to undertake a CAA rulemaking that would change certain elements of the RIN compliance system under the RFS program to improve both RIN market transparency and overall functioning of the RIN market. EPA is currently considering a number of regulatory reforms that could be included in the proposal, such as: Prohibiting entities other than obligated parties from purchasing separated RINs; requiring public disclosure when RIN holdings held by an individual actor exceed specified limits; limiting the length of time a non-obligated party can hold RINs; and changing the timelines that apply to obligated parties regarding when RINs must be retired for compliance purposes. We are not currently considering changing the point of obligation in the RFS program. 11 While we have determined that RIN market issues will be addressed separately and are not being considered as part of the present rulemaking, EPA will consider comments received on this topic on the proposed 2019 annual rule as we develop this separate action. 11 EPA previously considered, and ultimately denied, petitions for reconsideration of the point of obligation in the RFS program. See “Denial of Petitions for Rulemaking to Change the RFS Point of Obligation” EPA-420-R-17-008, November 2017. II. Authority and Need for Waiver of Statutory Applicable Volumes The CAA provides EPA with the authority to enact volume requirements below the applicable volume targets specified in the statute under specific circumstances. This section discusses those authorities. As described in the executive summary, we are finalizing the volume requirement for cellulosic biofuel at the level we project to be available for 2019, and an associated applicable percentage standard. For advanced biofuel and total renewable fuel, we are establishing volume requirements and associated applicable percent standards, based on use of the “cellulosic waiver authority” that would result in advanced biofuel and total renewable fuel volume requirements that are lower than the statutory targets by the same magnitude as the reduction in the cellulosic biofuel reduction. This would effectively maintain the implied statutory volumes for non-cellulosic advanced biofuel and conventional renewable fuel. 12 12 See supra n. 6. 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, then EPA must reduce the applicable volume of cellulosic biofuel required to the projected production volume for that calendar year. In making this projection, EPA may not “adopt a methodology in which the risk of overestimation is set deliberately to outweigh the risk of underestimation” but must make a projection that “takes neutral aim at accuracy.” API v. EPA, 706 F.3d 474, 479, 476 (D.C. Cir. 2013). Pursuant to this provision, EPA has set the cellulosic biofuel requirement lower than the statutory volume for each year since 2010. As described in Section III.D, the projected volume of cellulosic biofuel production for 2019 is less than the 8.5 billion gallon volume target in the statute. Therefore, for 2019, we are requiring a cellulosic biofuel volume 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 when it reduces the applicable volume of cellulosic biofuel under that provision. The reduction must be less than or equal to the reduction in cellulosic biofuel. For 2019, we are reducing the applicable volumes of advanced biofuel and total renewable fuel under this authority. EPA has used the cellulosic waiver authority to lower the cellulosic biofuel, advanced biofuel and total renewable fuel volumes every year since 2014. Further discussion of the cellulosic waiver authority, and EPA's interpretation of it, can be found in the preamble to the 2017 final rule. 13 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); 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); Americans for Clean Energy v. EPA (“ ACE ”), 864 F.3d 691 (D.C. Cir. 2017) (discussed below). 13 See 81 FR 89752-89753 (December 12, 2016). In ACE, the court evaluated EPA's use of the cellulosic waiver authority in the 2014-2016 annual rulemaking to reduce the advanced biofuel and total renewable fuel volumes for 2014, 2015, and 2016. There, EPA used the cellulosic waiver authority to reduce the advanced biofuel volume to a level that was reasonably attainable, and then provided a comparable reduction under this authority for total renewable fuel. 14 The Court of Appeals for the District of Columbia, relying on the analysis in Monroe Energy, reaffirmed that EPA enjoys “broad discretion” under the cellulosic waiver authority “to consider a variety of factors—including demand-side constraints in the advanced biofuels market.” 15 The Court noted that the only textual limitation on the use of the cellulosic waiver authority is that it cannot exceed the amount of the reduction in cellulosic biofuel. 16 The Court contrasted the general waiver authority under CAA section 211(o)(7)(A) and the biomass based diesel waiver authority under CAA section 211(o)(7)(E), which “detail the considerations and procedural steps that EPA must take before waiving fuel requirements,” with the cellulosic waiver authority, which identifies no factors regarding reductions in advanced and total renewable fuel other than the limitation that any such reductions may not exceed the reduction in cellulosic biofuel volumes. 17 The Court also concluded that the scope of EPA's discretionary authority to reduce advanced and total volumes is the same under the cellulosic waiver provision whether EPA is declining to exercise its authority to waive volumes, or choosing to do so. 18 14 See 80 FR 77433-34 (December 14, 2015). 15 ACE, 864 F.3d at 730. 16 Id. at 733. 17 Id. 18 Id. at 734. In this action we are using the cellulosic waiver authority to reduce the statutory volume targets for advanced biofuels and total renewable fuel by equal amounts, consistent with our long-held interpretation of this provision and our approach in setting the 2014-2018 standards. This approach considers the Congressional objectives reflected in the volume tables in the statute, and the environmental objectives that generally favor the use of advanced biofuels over non-advanced biofuels. See 81 FR 89752-89753 (December 12, 2016). See also 78 FR 49809-49810 (August 15, 2013); 80 FR 77434 (December 14, 2015). We are concluding, as described in Section IV, that it is appropriate for EPA to reduce the advanced biofuel volume under the cellulosic waiver authority by the same quantity as the reduction in cellulosic biofuel, and to provide an equal reduction under the cellulosic waiver authority in the applicable volume of total renewable fuel. We are taking this action both because we do not believe that the statutory volumes can be achieved, and because we do not believe that backfilling of the shortfall in cellulosic with advanced biofuel would be appropriate due to high costs, as well as other factors such as feedstock switching and/or diversion of foreign advanced biofuels. The volumes of advanced and total renewable fuel resulting from this exercise of the cellulosic waiver authority provide for an implied volume allowance for conventional renewable fuel of 15 billion gallons, and an implied volume allowance for non-cellulosic advanced biofuel of 4.5 billion gallons, equal to the implied statutory volumes for 2019. We also believe that the volume of renewable fuel made available after reductions using the cellulosic waiver authority is attainable, as discussed in Section IV. 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. EPA received comments suggesting that EPA should use the general waiver to further reduce volumes under findings of inadequate domestic supply, and/or severe harm to the economy or environment. Based on our review of the comments and updated data, and consistent with EPA's rationale and decisions in setting the 2018 standards, we decline to exercise our discretion to reduce volumes under the general waiver authority. Further discussion of these issues is found in the RTC document and a memorandum to the docket. 19 19 See “Endangered Species Act No Effect Finding and Determination of Severe Environmental Harm under the General Waiver Authority for the 2019 Final Rule” Memorandum from EPA Staff to EPA Docket EPA-HQ-OAR-2018-0167. B. Treatment of Carryover RINs Consistent with our approach in the final rules establishing the RFS standards for 2013 through 2018, we have also considered the availability and role of carryover RINs in evaluating whether we should exercise our discretion to use our waiver authorities in setting the volume requirements for 2019. Neither the statute nor EPA regulations specify how or whether EPA should consider the availability of carryover RINs in exercising the cellulosic waiver authority. 20 As noted in the context of the rules establishing the RFS standards for 2014 through 2018, 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. 21 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. 22 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 (2.666 billion RINs or approximately 16 percent of the total renewable fuel volume requirement for 2013), 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. 23 EPA's approach to the consideration of carryover RINs in exercising our cellulosic waiver authority was affirmed in Monroe Energy and ACE. 24 20 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 percent of the obligated party's renewable volume obligation (RVO). 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 2017 to 2018, then all of the vintage 2017 carryover RINs must be used for compliance in 2018, or they will expire. However, the same volume of 2018 RINs can then be “banked” for use in 2019. 21 See 80 FR 77482-87 (December 14, 2015), 81 FR 89754-55 (December 12, 2016), and 82 FR 58493-95 (December 12, 2017). 22 See 72 FR 23900 (May 1, 2007), 80 FR 77482-87 (December 14, 2015), 81 FR 89754-55 (December 12, 2016), and 82 FR 58493-95 (December 12, 2017). 23 See 78 FR 49794-95 (August 15, 2013). 24 Monroe Energy v. EPA, 750 F.3d 909 (D.C. Cir. 2014), ACE, 864 F.3d at 713. 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 or other shortfalls in renewable fuel production or distribution relative to petroleum fuel supply, 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. Moreover, a significant drawdown of the carryover RIN bank leading to a scarcity of RINs may stop the market from functioning in an efficient manner ( i.e., one in which there are a sufficient number of reasonably available RINs for obligated parties seeking to purchase them), 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. 25 25 Here we use the term “buffer” as shorthand reference to all of the benefits that are provided by a sufficient bank of carryover RINs. 1. Carryover RIN Bank Size At the time of the 2019 NPRM, we estimated that there were approximately 3.06 billion total carryover RINs available and proposed that carryover RINs should not be counted on to avoid or minimize the need to reduce the 2019 statutory volume targets. We also proposed that the 2019 volume should not be set at levels that would intentionally lead to a drawdown in the bank of carryover RINs ( e.g., volumes that were significantly beyond the market's ability to supply renewable fuels). 26 26 See 83 FR 32024 (July 10, 2018). Since that time, obligated parties have performed their attest engagements and submitted revised compliance reports for the 2017 compliance year and we now estimate that there are currently approximately 2.59 billion total carryover RINs available, 27 a decrease of 470 million RINs from the 3.06 billion total carryover RINs that were estimated to be available in the 2019 NPRM. 28 This decrease in the total carryover RIN bank compared to that projected in the 2019 NPRM results from various factors, including market factors, regulatory and enforcement actions, and judicial proceedings. This estimate also includes the millions of RINs that were not required to be retired by small refineries that were granted hardship exemptions in recent years, 29 along with the RINs that Philadelphia Energy Solutions Refining and Marketing, LLC (“PESRM”) was not required to retire as part of its bankruptcy settlement agreement. 30 This total volume of carryover RINs is approximately 13 percent of the total renewable fuel volume requirement that EPA is finalizing for 2019, which is less than the 20 percent maximum limit permitted by the regulations to be carried over for use in complying with the 2019 standards. 31 27 The calculations performed to estimate the number of carryover RINs currently available can be found in the memorandum, “Carryover RIN Bank Calculations for 2019 Final Rule,” available in the docket. 28 See “Carryover RIN Bank Calculations for 2019 NPRM,” Docket Item No. EPA-HQ-OAR-2018-0167-0043. 29 Information about the number of small refinery exemptions granted and the volume of RINs not required to be retired as a result of those exemptions can be found at https://www.epa.gov/fuels-registration-reporting-and-compliance-help/rfs-small-refinery-exemptions. 30 Per PESRM's bankruptcy filings, PESRM had an RVO of 467 million RINs for 2017 (including its deficit carryforward from 2016). Pursuant to the settlement agreement, which was based on the unique facts and circumstances present in this case, including the insolvency and risk of liquidation, PESRM agreed to retire 138 million RINs to meet its 2017 RVO and the portion of its 2018 RVO during the bankruptcy proceedings (approximately 97 million RINs). See docket for PES Holdings, LLC, 1:18bk10122, ECF Document Nos. 244 (proposed settlement agreement), 347 (United States' motion to approve proposed settlement agreement), 376 (order approving proposed settlement agreement), and 510 (Stipulation between the Debtors and the United States on behalf of the Environmental Protection Agency relating to Renewable Identification Number Retirement Deadlines under Consent Decree and Environmental Settlement Agreement) (Bankr. D. Del.). PESRM has emerged from bankruptcy and EPA does not anticipate further relief being granted under the RFS program. 31 See 40 CFR 80.1427(a)(5). The above discussion applies to total carryover RINs; we have also considered the available volume of advanced biofuel carryover RINs. At the time of the 2019 NPRM, we estimated that there were approximately 700 million advanced carryover RINs available. Since that time, obligated parties have performed their attest engagements and submitted revised compliance reports for the 2017 compliance year and we now estimate that there are currently approximately 600 million advanced carryover RINs available, 32 a decrease of 100 million RINs from the 700 million total carryover RINs that were estimated to be available in the 2019 NPRM. 33 This volume of advanced carryover RINs is approximately 12 percent of the advanced renewable fuel volume requirement that EPA is finalizing for 2019, which is less than the 20 percent maximum limit permitted by the regulations to be carried over for use in complying with the 2019 standards. 34 32 The calculations performed to estimate the number of carryover RINs currently available can be found in the memorandum, “Carryover RIN Bank Calculations for 2019 Final Rule,” available in the docket. 33 See “Carryover RIN Bank Calculations for 2019 NPRM,” Docket Item No. EPA-HQ-OAR-2018-0167-0043. 34 See 40 CFR 80.1427(a)(5). However, there remains considerable uncertainty surrounding the number of carryover RINs that will be available for use in 2019 for a number of reasons, including the potential impact of any future action to address the remand in ACE, the possibility of additional small refinery exemptions, and the impact of 2018 RFS compliance on the bank of carryover RINs. In addition, we note that there have been enforcement actions in past years that have resulted in the retirement of carryover RINs to make up for the generation and use of invalid RINs and/or 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 2019. In light of these uncertainties, the net result could be a bank of total carryover RINs larger or smaller than 13 percent of the 2019 total renewable fuel volume requirement, and a bank of advanced carryover RINs larger or smaller than 12 percent of the 2019 advanced biofuel volume requirement. 2. EPA's Decision Regarding the Treatment of Carryover RINs We have evaluated the volume of carryover RINs currently available and considered whether they would justify a reduced use of our cellulosic waiver authority in setting the 2019 volume requirements in order to intentionally draw down the carryover RIN bank. We also carefully considered the comments received, including comments on the role of carryover RINs under our waiver authorities and the policy implications of our decision. 35 For the reasons described throughout Section II.B, we do not believe we should intentionally draw down the bank of carryover RINs and limit the exercise of our cellulosic waiver authority. The current bank of carryover RINs provides an important and necessary programmatic buffer that will both facilitate individual compliance and provide for smooth overall functioning of the program. We believe that a balanced consideration of the possible role of carryover RINs in achieving the statutory volume objectives for advanced and total renewable fuels, versus maintaining an adequate bank of carryover RINs for important programmatic functions, is appropriate when EPA exercises its discretion under the cellulosic waiver authority, and that the statute does not specify the extent to which EPA should require a drawdown in the bank of carryover RINs when it exercises this authority. Therefore, for the reasons noted above and consistent with the approach we took in the final rules establishing the RFS standards for 2014 through 2018, we have decided to maintain our proposed approach and are making a determination to not set the 2019 volume requirements at levels that would envision an intentional drawdown in the bank of carryover RINs. We note that we may or may not take a similar approach in future years; we will assess the situation on a case-by-case basis going forward and take into account the size of the carryover RIN bank in the future and any lessons learned from implementing past rules. 35 In their comments on the 2019 NPRM, parties generally expressed two opposing points of view. Commenters representing obligated parties supported EPA's proposed decision to not assume a drawdown in the bank of carryover RINs in determining the appropriate volume requirements, reiterating the importance of maintaining the carryover RIN bank in order to provide obligated parties with necessary compliance flexibilities, better market trading liquidity, and a cushion against future program uncertainty. Commenters representing renewable fuel producers, however, stated that not accounting for carryover RINs goes against Congressional intent of the RFS program and deters investment in cellulosic and advanced biofuels. A full description of comments received, and our detailed responses to them, is available in the RTC document in the docket. III. Cellulosic Biofuel Volume for 2019 In the past several years, production of cellulosic biofuel has continued to increase. Cellulosic biofuel production reached record levels in 2017, driven largely by CNG and LNG derived from biogas. Production volumes through September 2018 suggest production in 2018 will exceed production volumes in 2017. 36 Production of liquid cellulosic biofuel has also increased in recent years, even as the total production of liquid cellulosic biofuels remains much smaller than the production volumes of CNG and LNG derived from biogas. This section describes our assessment of the volume of cellulosic biofuel that we project will be produced or imported into the U.S. in 2019, and some of the uncertainties associated with those volumes. 36 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 municipal solid waste (MSW) digesters, and the cellulosic components of biomass processed in other waste digesters. ER11DE18.000 In order to project the volume of cellulosic biofuel production in 2019, we considered EIA's projection of cellulosic biofuel production in 2019, the accuracy of the methodologies used to project cellulosic biofuel production in previous years, data reported to EPA through EMTS, and information we collected through meetings with representatives of facilities that have produced or have the potential to produce qualifying volumes of cellulosic biofuel in 2019 for consumption as transportation fuel, heating oil, or jet fuel in the U.S. There are two main elements to the cellulosic biofuel production projection: Liquid cellulosic biofuel and CNG/LNG derived from biogas. To project the range of potential production volumes of liquid cellulosic biofuel we used the same general methodology as the methodology used in the proposed rule, as well as the 2018 final rule. 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 updated information (through the end of September 2018) with the objective of improving the accuracy of the projections. To project the production of cellulosic biofuel RINs for CNG/LNG derived from biogas, we used the same general year-over-year growth rate methodology as in the 2019 proposed rule and 2018 final rule, with updated RIN generation data through September 2018. This methodology reflects the mature status of this industry, the large number of facilities registered to generate cellulosic biofuel RINs from these fuels, and EPA's continued attempts to refine its methodology to yield estimates that are as accurate as possible. This methodology is an improvement on the methodology that EPA used to project cellulosic biofuel production for CNG/LNG derived from biogas in the 2017 and previous years (see Section III.B below for a further discussion of the accuracy of EPA's methodology in previous years). The methodologies used to project the production of liquid cellulosic biofuels and cellulosic CNG/LNG derived from biogas are described in more detail in Sections III.D-1 and III.D-2 below. The balance of this section is organized as follows. Section III.A provides a brief description of the statutory requirements. Section III.B reviews the accuracy of EPA's projections in prior years, and also discusses the companies the EPA assessed in the process of projecting qualifying cellulosic biofuel production in the U.S. in 2018 in Section III.B. Section III.C discusses EIA's projection of cellulosic biofuel production for 2019 and how this projection compares to EPA's projection. Section III.D discusses the methodologies used by EPA to project cellulosic biofuel production in 2019 and the resulting projection of 381 million ethanol-equivalent gallons. A. Statutory Requirements CAA section 211(o)(2)(B)(i)(III) states the statutory volume targets for cellulosic biofuel. The volume of cellulosic biofuel specified in the statute for 2019 is 8.5 billion gallons. The statute provides that if EPA determines, based on a letter provided to the EPA by EIA, 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. 37 37 CAA section 211(o)(7)(D)(i). The U.S. 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.” Id. at 480, 479. EPA has consistently interpreted the term “projected volume of cellulosic biofuel production” in CAA section 211(o)(7)(D)(i) to include volumes of cellulosic biofuel likely to be made available in the U.S., including from both domestic production and imports (see 80 FR 77420 (December 14, 2015) and 81 FR 89746 (December 12, 2016)). We do not believe it would be reasonable to include in the projection all cellulosic biofuel produced throughout the world, regardless of likelihood of import to the U.S., since volumes that are not imported would not be available to obligated parties for compliance and including them in the projection would render the resulting volume requirement and percentage standards unachievable. In addition, if EPA reduces the required volume of cellulosic biofuel below the level specified in the statute, we may reduce the applicable volumes of advanced biofuels and total renewable fuel by the same or a lesser volume, 38 and we are also required to make cellulosic waiver credits available. 39 Our consideration of the 2019 volume requirements for advanced biofuel and total renewable fuel is presented in Section IV. 38 CAA section 211(o)(7)(D)(i). 39 See CAA section 211(o)(7)(D)(ii); 40 CFR 80.1456. B. Cellulosic Biofuel Industry Assessment In this section, we first explain our general approach to assessing facilities or groups of facilities (which we collectively refer to as “facilities”) that have the potential to produce cellulosic biofuel in 2019. We then review the accuracy of EPA's projections in prior years. Next, we discuss the criteria used to determine whether to include potential domestic and foreign sources of cellulosic biofuel in our projection for 2019. Finally, we provide a summary table of all facilities that we expect to produce cellulosic biofuel in 2019. In order to project cellulosic biofuel production for 2019 we have tracked the progress of a number of potential cellulosic biofuel production facilities, located both in the U.S. and in foreign countries. 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 research and development (R&D) or pilot-scale facilities. 40 We considered a number of factors, including EIA's projection of cellulosic biofuel production in 2019, information from EMTS, the registration status of potential biofuel production facilities as cellulosic biofuel producers in the RFS program, publicly available information (including press releases and news reports), and information provided by representatives of potential cellulosic biofuel producers, in making our projection of cellulosic biofuel production for 2019. As discussed in greater detail below, our projection of liquid cellulosic biofuel is based on a facility-by-facility assessment of each of the likely sources of cellulosic biofuel in 2019, while our projection of CNG/LNG derived from biogas is based on an industry wide assessment. To make a determination of which facilities are most likely to produce liquid cellulosic biofuel and generate cellulosic biofuel RINs in 2019, each potential producer of liquid cellulosic biofuel was investigated further to determine the current status of its facilities and its likely cellulosic biofuel production and RIN generation volumes for 2019. 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. 40 For a further discussion of EPA's decision to focus on commercial scale facilities, rather than R&D and pilot scale facilities, see the 2019 proposed rule (83 FR 32031, July 10, 2018). 1. Review of EPA's Projection of Cellulosic Biofuel in Previous Years As an initial matter, it is useful to review the accuracy of EPA's past cellulosic biofuel projections. The record of actual cellulosic biofuel production and EPA's projected production volumes from 2015-2018 are shown in Table III.B-1 below. These data indicate that EPA's projection was lower than the actual number of cellulosic RINs made available in 2015, 41 higher than the actual number of RINs made available in 2016 and 2017, and lower than the actual number of RINs projected to be made available in 2018. The fact that the projections made using this methodology have been somewhat inaccurate, under-estimating the actual number of RINs made available in 2015 and 2018, and over-estimating in 2016 and 2017, reflects the inherent difficulty with projecting cellulosic biofuel production. It also emphasizes the importance of continuing to make refinements to our projection methodology in order to make our projections more accurate. 41 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. Table III.B.1-1—Projected and Actual Cellulosic Biofuel Production (2015-2018); Million Gallons a Projected volume b Liquid cellulosic biofuel CNG/LNG derived from biogas Total cellulosic biofuel d Actual production volume c Liquid cellulosic biofuel CNG/LNG derived from biogas Total cellulosic biofuel d 2015 e 2 33 35 0.5 52.8 53.3 2016 23 207 230 4.1 186.2 190.3 2017 13 298 311 11.8 239.5 251.3 2018 f 14 274 288 14.0 309.0 323.0 a As noted in Section III.A. above, EPA has consistently interpreted the term “projected volume of cellulosic biofuel production” to include volumes of cellulosic biofuel likely to be made available in the U.S., including from both domestic production and imports. The volumes in this table therefore include both domestic production of cellulosic biofuel and imported cellulosic biofuel. b Projected volumes for 2015 and 2016 can be found in the 2014-2016 Final Rule (80 FR 77506, 77508, December 14, 2015); projected volumes for 2017 can be found in the 2017 Final Rule (81 FR 89760, December 12, 2016); projected volumes for 2018 can be found in the 2018 Final Rule (82 FR 58503, December 12, 2017). c Actual production volumes are the total number of RINs generated minus the number of RINs retired for reasons other than compliance with the annual standards, based on EMTS data. d Total cellulosic biofuel may not be precisely equal to the sum of liquid cellulosic biofuel and CNG/LNG derived from biogas due to rounding. e Projected and actual volumes for 2015 represent only the final 3 months of 2015 (October-December) as EPA used actual RIN generation data for the first 9 months of the year. f Actual production in 2018 is projected based on actual data from January-September 2018 and a projection of likely production for October-December 2018. EPA's projections of liquid cellulosic biofuel were higher than the actual volume of liquid cellulosic biofuel produced each year from 2015 to 2017. 42 As a result of these over-projections, and in an effort to take into account the most recent data available and make the liquid cellulosic biofuel projections more accurate, EPA adjusted our methodology in the 2018 final rule. 43 The adjustments to our methodology adopted in the 2018 final rule appear to have resulted in a projection that is very close to the volume of liquid cellulosic biofuel expected to be produced in 2018 based on data through September 2018. In this 2019 final rule we are again using percentile values based on actual production in previous years, relative to the projected volume of liquid cellulosic biofuel in these years (the approach first used in 2018). We have adjusted the percentile values to project liquid cellulosic biofuel production based on actual liquid cellulosic biofuel production in 2016 to 2018. Use of this updated data results in slightly different percentile values than we used to project production of liquid cellulosic biofuel in the 2019 proposed rule and the 2018 final rule. We believe that the use of the methodology (described in more detail in Section III.D.1 below), with the adjusted percentile values, results in a projection that reflects a neutral aim at accuracy since it accounts for expected growth in the near future by using historical data that is free of any subjective bias. 42 We note, however, that because the projected volume of liquid cellulosic biofuel in each year was very small relative to the total volume of cellulosic biofuel, these over-projections had a minimal impact on the accuracy of our projections of cellulosic biofuel for each of these years. 43 82 FR 58486 (December 12, 2017). We next turn to the projection of CNG/LNG derived from biogas. For 2018, EPA for the first time used 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. EPA used a facility-by-facility approach to project the production of CNG/LNG derived from biogas from 2015-2017. Notably this methodology resulted in significant over-estimates of CNG/LNG production in 2016 and 2017, leading EPA to develop the alternative industry wide projection methodology first used in 2018. This updated approach reflects the fact that this industry is far more mature than the liquid cellulosic biofuel industry, with a far greater number of potential producers of CNG/LNG derived from biogas. In such cases, industry-wide projection methods can be more accurate than a facility-by-facility approach, especially as macro market and economic factors become more influential on total production than the success or challenges at any single facility. The industry wide projection methodology slightly under-projected the production of CNG/LNG derived from biogas in 2018. However, the difference between the projected and actual production volume of these fuels was smaller than in 2017. As described in Section III.D.2 below, EPA is again projecting production of CNG/LNG derived from biogas using the industry wide approach. We calculate a year-over-year rate of growth in the renewable CNG/LNG industry by comparing RIN generation for CNG/LNG derived from biogas from October 2016-September 2017 to the RIN generation for these same fuels from October 2017-September 2018 (the most recent month for which data are available). We then apply this year-over-year growth rate to the total number of cellulosic RINs generated and available to be used for compliance with the annual standards in 2017 to estimate the production of CNG/LNG derived from biogas in 2019. 44 We have applied the growth rate to the number of available 2017 RINs generated for CNG/LNG derived from biogas as data from this year allows us to adequately account for not only RIN generation, but also for RINs retired for reasons other than compliance with the annual standards. While more recent RIN generation data is available, the retirement of RINs for reasons other than compliance with the annual standards generally lags RIN generation, sometimes by up to a year or more. 45 Should this methodology continue to under predict in the future as it did in 2018, then we may need to revisit the methodology, but with only 2018 to compare to it is premature to make any adjustments. 44 To project the volume of CNG/LNG derived from biogas in 2019 we multiply the number of 2017 RINs generated for these fuels and available to be used for compliance with the annual standards by the calculated growth rate to project production of these fuels in 2018, and then multiply the resulting number by the growth rate again to project the production of these fuels in 2019. 45 We note that we do not ignore this more recent data, but rather use it to calculate the year-over-year growth rate used to project the production of CNG/LNG derived from biogas in 2019. 2. Potential Domestic Producers There are several companies and facilities 46 located in the U.S. 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 2019. The financial incentive provided by cellulosic biofuel RINs, 47 combined with the fact that to date nearly all cellulosic biofuel produced in the U.S. has been used domestically 48 and all the domestic facilities we have contacted in deriving our projections intend to produce fuel on a commercial scale for domestic consumption and plan to use approved pathways, gives us a high degree of confidence that cellulosic biofuel RINs will be generated for any fuel produced by domestic commercial scale facilities. To generate RINs, each of these facilities must be registered with EPA 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 domestic companies and facilities considered in our assessment of potential cellulosic biofuel producers in 2019 have already successfully completed facility registration, and have successfully generated RINs. 49 A brief description of each of the domestic companies (or group of companies for cellulosic CNG/LNG producers and the facilities using Edeniq's technology) that EPA believes may produce commercial-scale volumes of RIN generating cellulosic biofuel by the end of 2019 can be found in a memorandum to the docket for this final rule. 50 General information on each of these companies or group of companies considered in our projection of the potentially available volume of cellulosic biofuel in 2019 is summarized in Table III.B.3-1 below. 46 The volume projection from CNG/LNG producers and facilities using Edeniq's production technology do not represent production from a single company or facility, but rather a group of facilities utilizing the same production technology. 47 According to data from Argus Media, the price for 2018 cellulosic biofuel RINs averaged $2.40 in 2018 (through September 2018). Alternatively, obligated parties can satisfy their cellulosic biofuel obligations by purchasing an advanced (or biomass-based diesel) RIN and a cellulosic waiver credit. The price for 2017 advanced biofuel RINs averaged $0.55 in through September 2018 while the price for a 2018 cellulosic waiver credit is $1.96 (EPA-420-B-17-036). 48 The only known exception was a small volume of fuel produced at a demonstration scale facility exported to be used for promotional purposes. 49 Most of the facilities listed in Table III.B.3-1 are registered to produce cellulosic (D3 or D7) RINs with the exception of several of the producers of CNG/LNG derived from biogas and Ensyn's Port-Cartier, Quebec facility. 50 “Cellulosic Biofuel Producer Company Descriptions (November 2018),” memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-2018-0167. 3. Potential Foreign Sources of Cellulosic Biofuel In addition to the potential sources of cellulosic biofuel located in the U.S., there are several foreign cellulosic biofuel companies that may produce cellulosic biofuel in 2019. 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 their facilities under the RFS program and generate RINs for any qualifying fuel imported into the U.S. While these facilities may be able to generate RINs for any volumes of cellulosic biofuel they import into the U.S., demand for the cellulosic biofuels they produce is expected to be high in their own local markets. EPA's projection of cellulosic biofuel production in 2019 includes cellulosic biofuel that is projected to be imported into the U.S. in 2019. For the purposes of this final rule we have considered all the registered foreign facilities under the RFS program to be potential sources of cellulosic biofuel in 2019. 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 U.S., cellulosic biofuel imports from foreign facilities not currently registered to generate cellulosic biofuel RINs are generally highly unlikely in 2019. For purposes of our 2019 cellulosic biofuel projection we have, with one exception (described below), excluded potential volumes from foreign cellulosic biofuel production facilities that are not currently registered under the RFS program. Cellulosic biofuel produced at three foreign facilities (Ensyn's Renfrew facility, GranBio's Brazilian facility, and Raizen's Brazilian facility) generated cellulosic biofuel RINs for fuel exported to the U.S. in 2017 and/or 2018; projected volumes from each of these facilities are included in our projection of available volumes for 2019. EPA has also included projected volume from two additional foreign facilities. One of these facilities has completed the registration process as a cellulosic biofuel producer (Enerkem's Canadian facility). The other facility (Ensyn's Port-Cartier, Quebec facility), while not yet registered as a cellulosic biofuel producer, is owned by a Ensyn, a company that has previously generated cellulosic biofuel RINs using the same technology at a different facility. We believe that it is appropriate to include volume from these facilities in light of their proximity to the U.S., the proven technology used by these facilities, the volumes of cellulosic biofuel exported to the U.S. by the company in previous years (in the case of Ensyn), and the company's stated intentions to market fuel produced at these facilities to qualifying markets in the U.S. All of the facilities included in EPA's cellulosic biofuel projection for 2019 are listed in Table III.B.3-1 below. 4. Summary of Volume Projections for Individual Companies General information on each of the cellulosic biofuel producers (or group of producers, for producers of CNG/LNG derived from biogas and producers of liquid cellulosic biofuel using Edeniq's technology) that factored into our projection of cellulosic biofuel production for 2019 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 2019. 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. 51 51 “Cellulosic Biofuel Producer Company Descriptions (November 2018),” memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-2018-0167. 52 The Facility Capacity is generally equal to the nameplate capacity provided to EPA by company representatives or found in publicly available information. Capacities are listed in physical gallons (rather than ethanol-equivalent gallons). 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). 53 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. 54 For more information on these facilities see “November 2018 Assessment of Cellulosic Biofuel Production from Biogas (2019),” memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-2018-0167. 55 The nameplate capacity of Enerkem's facility is 10 million gallons per year. However, we anticipate that a portion of their feedstock will be non-biogenic MSW. RINs cannot be generated for the portion of the fuel produced from non-biogenic feedstocks. We have taken this into account in our production projection for this facility (See “November 2018 Liquid Cellulosic Biofuel Projections for 2018 CBI”). 56 This date reflects the first production of ethanol from this facility. The facility began production of methanol in 2015. Table III.B.4-1—Projected Producers of Cellulosic Biofuel in 2019 Company name Location Feedstock Fuel Facility capacity (million gallons per year) 52 Construction start date First production 53 CNG/LNG Producers 54 Various Biogas CNG/LNG Various Various August 2014. Edeniq Various Corn Kernel Fiber Ethanol Various Various October 2016. Enerkem Edmonton, AL, Canada Separated MSW Ethanol 10 55 2012 September 2017. 56 Ensyn Renfrew, ON, Canada Wood Waste Heating Oil 3 2005 2014. Ensyn Port-Cartier, QC, Canada Wood Waste Heating Oil 10.5 June 2016 January 2018. GranBio São Miguel dos Campos, Brazil Sugarcane bagasse Ethanol 21 Mid 2012 September 2014. Poet-DSM Emmetsburg, IA Corn Stover Ethanol 20 March 2012 4Q 2015. QCCP/Syngenta Galva, IA Corn Kernel Fiber Ethanol 4 Late 2013 October 2014. Raizen Piracicaba City, Brazil Sugarcane bagasse Ethanol 11 January 2014 July 2015. C. Projection From the Energy Information Administration Section 211(o)(3)(A) of the CAA requires EIA to “provide to the Administrator of the Environmental Protection Agency an estimate, with respect to the following calendar year, of the volumes of transportation fuel, biomass-based diesel, and cellulosic biofuel projected to be sold or introduced into commerce in the United States.” EIA provided these estimates to EPA on October 12, 2018. 57 With regard to liquid cellulosic biofuel, the EIA estimated that the available volume in 2019 would be 10 million gallons. 57 “EIA letter to EPA with 2019 volume projections 10-12-18,” available in docket EPA-HQ-OAR-2018-0167. In its letter, EIA did not identify the facilities on which their estimate of liquid cellulosic biofuel production was based. EIA did, however, indicate in the letter that it only included domestic production of cellulosic ethanol in their projections. These projections, therefore, do not include cellulosic biofuel produced by foreign entities and imported into the U.S., nor estimates of cellulosic heating oil or CNG/LNG produced from biogas, which together represent approximately 98 percent of our projected cellulosic biofuel volume for 2019. When limiting the scope of our projection to the companies assessed by EIA, we note that our volume projections are equal. EPA projects approximately 10 million gallons of liquid cellulosic biofuel will be produced domestically in 2019, all of which is expected to be cellulosic ethanol. D. Cellulosic Biofuel Volume for 2019 1. Liquid Cellulosic Biofuel For our 2019 liquid cellulosic biofuel projection, we use the same general approach as we have in projecting these volumes in previous years. We begin by first categorizing potential liquid cellulosic biofuel producers in 2019 according to whether or not they have achieved consistent commercial scale production of cellulosic biofuel to date. We refer to these facilities as consistent producers and new producers, respectively. Next, we define a range of likely production volumes for 2019 for each group of companies. Finally, we use a percentile value to project from the established range a single projected production volume for each group of companies in 2019. As in 2018, we calculated percentile values for each group of companies based on the past performance of each group relative to our projected production ranges. This methodology is briefly described here, and is described in detail in memoranda to the docket. 58 58 “November 2018 Liquid Cellulosic Biofuel Projections for 2018 CBI” and “Calculating the Percentile Values Used to Project Liquid Cellulosic Biofuel Production for the 2019 FRM,” memorandums from Dallas Burkholder to EPA Docket EPA-HQ-OAR-2018-0167. We first separate the list of potential producers of cellulosic biofuel (listed in Table III.B.3-1) into two groups according to whether the facilities have achieved consistent commercial-scale production and cellulosic biofuel RIN generation. We next defined a range of likely production volumes for each group of potential cellulosic biofuel producers. For the final rule, we have updated the companies included in our projection, the categorization of these companies, and the low and high end of the potential production range for each company for 2019 based on updated information. 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 (October 2017-September 2018). 59 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, we considered a variety of factors, including the expected start-up date and ramp-up period, facility capacity, and the number of RINs the producer expects to generate in 2019. 60 The projected range for each group of companies is shown in Tables III.D.1-1 and III.D.1-2 below. 61 59 Consistent with previous years, we have considered whether there is reason to believe any of the facilities considered as potential cellulosic biofuel producers for 2019 is likely to produce a smaller volume of cellulosic biofuel in 2019 than in the previous 12 months for which data are available. At this time, EPA is not aware of any information that would indicate lower production in 2019 from any facility considered than in the previous 12 months for which data are available. 60 As in our 2015-2018 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 2019, whichever is lower. 61 More information on the data and methods EPA used to calculate each of the ranges in these tables in contained in “November 2018 Liquid Cellulosic Biofuel Projections for 2018 CBI” memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-2018-0167. We have not shown the projected ranges for each individual company. This is because the high end of the range for some of these companies are based on the company's production projections, which they consider confidential business information (CBI). Additionally, the low end of the range for facilities that have achieved consistent commercial scale production is based on actual RIN generation data in the most recent 12 months, with is also claimed as CBI. Table III.D.1-1—2019 Production Ranges for Liquid Cellulosic Biofuel Producers Without Consistent Commercial Scale Production [Million ethanol-equivalent gallons] Companies included Low end of the range High end of the range a Enerkem, Ensyn (Port Cartier facility) 0 10 a Rounded to the nearest million gallons. Table III.D.1-2—2019 Production Ranges for Liquid Cellulosic Biofuel Producers With Consistent Commercial Scale Production [Million ethanol-equivalent gallons] Companies included Low end of the range a High end of the range b Facilities using Edeniq's technology (registered facilities), Ensyn (Renfrew facility), Poet-DSM, GranBio, QCCP/Syngenta, Raizen 14 44 a Rounded to the nearest million gallons. After defining likely production ranges for each group of companies, we next determined the percentile values to use in projecting a production volume for each group of companies. In this final rule we have calculated the percentile values using actual production data from January 2016 through September 2018 (the last month for which actual data is available) and projected production data for the remaining months of 2018 (October—December 2018). This approach is consistent with the approach taken in the 2018 final rule. For each group of companies and for each year from 2016—2018, Table III.D.1-3 below shows the projected ranges for liquid cellulosic biofuel production (from the 2014-16, 2017, and 2018 final rules), actual production, and the percentile values that would have resulted in a projection equal to the actual production volume. Table III.D.1-3—Projected and Actual Liquid Cellulosic Biofuel Production in 2016-2018 [Million gallons] Low end of the range High end of the range Actual production 62 Actual percentile New Producers: 63 2016 0 76 1.06 1st 2017 0 33 8.79 27th 2018 0 47 4.16 9th Average a N/A N/A N/A 12th Consistent Producers: 64 2016 2 5 3.28 43rd 2017 3.5 7 3.02 −14th 2018 7 24 9.86 17th Average a N/A N/A N/A 15th a We have not averaged the low and high ends of the ranges, or actual production, as we believe it is more appropriate to average the actual percentiles from 2016-2018 rather than calculating a percentile value for 2016-2018 in aggregate. This approach gives equal weight to the accuracy of our projections from 2016-2018, rather than allowing the average percentiles calculated to be dominated by years with greater projected volumes. Based upon the above analysis, EPA has projected cellulosic biofuel production from new producers at the 12th percentile of the calculated range and from consistent producers at the 15th percentile. 65 These percentiles are calculated by averaging the percentiles that would have produced cellulosic biofuel projections equal to the volumes produced by each group of companies in 2016-2018. Prior to 2016, EPA used different methodologies to project available volumes of cellulosic biofuel, and thus believes it inappropriate to calculate percentile values based on projections from those years. 66 62 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. 63 Companies characterized as new producers in the 2014-2016, 2017, and 2018 final rules were as follows: Abengoa (2016), CoolPlanet (2016), DuPont (2016, 2017), Edeniq (2016, 2017), Enerkem (2018), Ensyn Port Cartier (2018), GranBio (2016, 2017), IneosBio (2016), and Poet (2016, 2017). 64 Companies characterized as consistent producers in the 2014-2016, 2017, and 2018 final rules were as follows: Edeniq Active Facilities (2018), Ensyn Renfrew (2016-2018), GranBio (2018), Poet (2018), and Quad County Corn Processors/Syngenta (2016-2018). 65 For more detail on the calculation of the percentile values used in this final rule see “Calculating the Percentile Values Used to Project Liquid Cellulosic Biofuel Production for 2018 and 2019,” available in EPA docket EPA-HQ-OAR-2018-0167. 66 EPA used a similar projection methodology for 2015 as in 2016-2018, however we only projected cellulosic biofuel production volume for the final 3 months of the year, as actual production data were available for the first 9 months. We do not believe it is appropriate to consider data from a year for which 9 months of the data were known at the time the projection was made in determining the percentile values used to project volume over a full year. EPA also considered whether or not to include the percentile value from 2016 in our calculation of the percentile value to use in projecting liquid cellulosic biofuel production in 2019. Including a larger number of years in our calculation of the percentile value for 2019 would result in a larger data set that is less susceptible to large fluctuations that result from unexpectedly high or low production volumes in any one year that may not be indicative of future production. However, including a larger number of years also necessarily requires including older data that may no longer reflect the likely production of liquid cellulosic biofuel in a future year, especially given the rapidly changing nature of this industry. We ultimately decided to include data from 2016 in calculating the percentile values to project liquid cellulosic biofuel production in 2019, determining that there was significant value in including this additional data. Even though the liquid cellulosic biofuel industry has changed since 2016, these changes are not so significant as to render this data obsolete. In determining the percentile values to use for 2019 we have also decided to weight the observed actual percentile values from 2016-2018 equally. While the percentile value from 2018 represents the most recent data available, it is also dependent on the performance of a relatively small number of companies in a single year, as well as a projection of the performance of these facilities during the final three months of 2018. Using data from multiple years, especially years in which we have complete production data, is likely more representative of the future performance of these groups of companies than data from any single year. Commenters generally supported EPA's use of updated data (data not available at the time of the proposed rule, but expected to be available for the final rule) in calculating the percentage standards for 2019. Several commenters objected to EPA's use of a single percentile value based on historical production performance for each group of companies. These commenters often described this approach as “backwards looking” and generally requested that EPA not discount facility's projected production at all, determine a unique percentile value for each facility based on facility specific factors, or return to the percentile values used in the 2016 and 2017 rules (25th percentile for new producers and 50th percentile for consistent producers). EPA disagrees with the commenters characterization of the projection methodology used in this final rule as “backwards looking.” As discussed above, and in more detail in a memorandum to the docket, 67 EPA has used data specific to 2019 in determining the high end of the potential production range for these facilities. While we acknowledge that we have relied on data from previous years in calculating the percentile value we use to select a volume within the potential production range for each group of companies, we believe that this approach is appropriate and consistent with EPA's direction to project cellulosic biofuel volumes with a neutral aim at accuracy. We do not believe that we have significant data or expertise to individually consider all of the potential variables associated with each individual facility and produce a reasonably accurate projection. Indeed, in the early years of the RFS program (2010-2013) EPA attempted this approach with very poor results. Similarly, using the 25th and 50th percentiles to project potential production produced overly optimistic projections in both 2016 (0.5 million gallons actual production versus 2 million gallons projected production) and 2017 (4.1 million actual, 12 million projected). By contrast, the approach used in the 2018 rule, which is also the approach used in this action, produced a much more precise estimate (14 million actual, 14 million projected). We believe the approach used today is likely to produce a more accurate projection of liquid cellulosic biofuel production. 68 This approach is therefore appropriate for projecting liquid cellulosic biofuel production in 2019. As this approach incorporates new data each year, we anticipate that we will be able to use it consistently in future years. However, as in previous years, EPA will continue to monitor the success of this approach going forward and will make adjustments to increase accuracy as necessary. 67 “November 2018 Liquid Cellulosic Biofuel Projections for 2018 CBI,” memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-2018-0167. 68 The comments discussed in this paragraph are discussed in additional detail in Section 3.2.1 of the RTC document. 69 Historically RIN generation for CNG/LNG derived from biogas has increased each year. It is possible, however, that RIN generation for these fuels in the most recent 12 months for which data are available could be lower than the preceding 12 months. We believe our methodology accounts for this possibility. In such a case, the calculated rate of growth would be negative. 70 Further detail on the data used to calculate each of these numbers in this table, as well as the projected volume of CNG/LNG derived from biogas used as transportation fuel in 2019 can be found in “November 2018 Assessment of Cellulosic Biofuel Production from Biogas (2019)” memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-2018-0167. Finally, we used these percentile values, together with the ranges determined for each group of companies discussed above, to project a volume for each group of companies in 2019. These calculations are summarized in Table III.D.1-4 below. Table III.D.1-4—Projected Volume of Liquid Cellulosic Biofuel in 2019 [Million ethanol-equivalent 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 10 12th 1 Liquid Cellulosic Biofuel Producers; Producers with Consistent Commercial Scale Production 14 44 15th 19 Total N/A N/A N/A 20 a Volumes rounded to the nearest million gallons. 2. CNG/LNG Derived From Biogas For 2019, EPA is using the same methodology as in the 2018 final rule, an industry wide projection based on a year-over-year growth rate, to project production of CNG/LNG derived from biogas used as transportation fuel. 69 For this final rule, EPA has calculated the year-over-year growth rate in CNG/LNG derived from biogas by comparing RIN generation from October 2017 to September 2018 (the most recent 12 months for which data are available) to RIN generation in the 12 months that immediately precede this time period (October 2016 to September 2017). These RIN generation volumes are shown in Table III.D.2-1 below. Table III.D.2-1—Generation of Cellulosic Biofuel RINs for CNG/LNG Derived From Biogas [Million gallons] 70 RIN generation (October 2016-September 2017) RIN generation (October 2017-September 2018) Year-over-year increase 216 278 29.0% EPA then applied this 29 percent year-over-year growth rate to the total number of 2017 cellulosic RINs generated and available for compliance for CNG/LNG. This methodology results in a projection of 399 million gallons of CNG/LNG derived from biogas in 2019. 71 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. This methodology may not be appropriate to use as the projected volume of CNG/LNG derived from biogas approaches the total volume of CNG/LNG that is used as transportation fuel, as RINs can be generated only for CNG/LNG used as transportation fuel. We do not believe that this is yet a constraint as our projection for 2019 is well below the total volume of CNG/LNG that is currently used as transportation fuel. 72 71 To calculate this value, EPA multiplied the number of 2017 RINs generated and available for compliance for CNG/LNG derived from biogas (239.5 million), by 1.290 (representing a 29 percent year-over-year increase) to project production of CNG/LNG in 2018, and multiplied this number (309 million RINs) by 1.290 again to project production of CNG/LNG in 2019. 72 EPA projects that 538 million ethanol-equivalent gallons of CNG/LNG will be used as transportation fuel in 2019 based on EIA's October 2018 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 2019). 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 946.5 British Thermal Units (BTU) per cubic foot of natural gas (lower heating value, per calculations using ASTM D1945 and D3588) and 77,000 BTU of natural gas per ethanol-equivalent gallon per 40 CFR 80.1415(b)(5). EPA has also reviewed data on potential producers of CNG/LNG derived from biogas that is used as transportation fuel. Compared to EPA, these potential producers projected greater total production of CNG/LNG derived from biogas in 2019 based on the capacity of such projects. Since producers of CNG/LNG derived from biogas have historically over-estimated their production of these fuels, it would not be appropriate to simply adopt the capacity of these projects as our projection of CNG/LNG derived from biogas for 2019. The fact that the industry projections exceed EPA's projected volume, however, indicates that the volume of these fuels projected for 2019 can be satisfied by a combination of projects currently producing CNG/LNG derived from biogas for these purposes and projects expected to product biogas by the end of 2019. A number of commenters requested that, in addition to projecting volume of CNG/LNG derived from biogas using a year-over-year growth rate, EPA project additional volume to account for new projects and those currently in development. We believe that the industry-wide projection methodology used in this final rule already adequately accounts for new facilities and those currently in development. The growth rate used to project the production of CNG/LNG derived from biogas in 2019 includes both increased production from existing facilities, as well as new facilities that began producing fuel in the last 12 months for which data are available. Thus, adding additional volume to account for new facilities would effectively be double counting production from new facilities. Other commenters suggested that the industry wide projection was inappropriate, and that EPA should return to a facility-by-facility assessment, as was used to project CNG/LNG derived from biogas in 2016 and 2017. We believe that the mature nature of the industry producing CNG/LNG derived from biogas lends itself well to an industry-wide projection methodology and that this methodology can be more accurate than a facility-by-facility approach, especially as macro market and economic factors have apparently become more influential on total production than the success or challenges at any single facility; especially as producers are vying for business relationships with the same pool of CNG/LNG fueled transportation fleets to enable them to generate RINs. We further note that the facility-by-facility approach used to project production of CNG/LNG produced from biogas in 2016 and 2017 significantly over-estimated production of these fuels. While our projection methodology uses a growth rate based on historical data it adequately anticipates higher production volumes in future years, including both increased production from existing facilities as well as production from new facilities. In this way it satisfies our charge to project future cellulosic biofuel production in a reasonable manner, and with neutrality, even though it does not consider all potential producers of these fuels on a facility-by-facility basis. 3. Total Cellulosic Biofuel in 2019 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 2019. These projections are shown in Table III.D.3-1. Using the methodologies described in this section, we project that 418 million ethanol-equivalent gallons of cellulosic biofuel will be produced in 2019. We believe that projecting overall production in 2019 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 2019. Table III.D.3-1—Projected Volume of Cellulosic Biofuel in 2019 [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 19 CNG/LNG Derived from Biogas 399 Total b 418 a Volumes rounded to the nearest million gallons. b Total projection of cellulosic biofuel appears less than the sum of the projected volume for each group of companies due to rounding. Further discussion of the companies expected to produce cellulosic biofuel and make it commercially available in 2019 can be found in a memorandum to the docket. 73 73 “Cellulosic Biofuel Producer Company Descriptions (November 2018),” memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-2018-0167. IV. Advanced Biofuel and Total Renewable Fuel Volumes for 2019 The national volume targets for advanced biofuel and total renewable fuel to be used under the RFS program each year through 2022 are specified in CAA section 211(o)(2)(B)(i)(I) and (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). Congressional intent is evident in the fact that the implied statutory volume requirement for conventional renewable fuel is 15 billion gallons for all years after 2014, while the advanced biofuel volume requirements, driven largely by growth in cellulosic biofuel, continue to grow each year through 2022 to a total of 21 billion gallons. Due to a shortfall in the availability of cellulosic and advanced biofuel, and consistent with our long-held interpretation of the cellulosic waiver authority as best interpreted and applied by providing equal reductions in advanced biofuel and total renewable fuel, we are reducing the statutory volume targets for both advanced biofuel and total renewable fuel for 2019 using the full extent of the cellulosic waiver authority. In this Section we discuss our use of the discretion afforded by the cellulosic waiver authority at CAA 211(o)(7)(D)(i) to reduce volumes of advanced biofuel and total renewable fuel. We first discuss our assessment of advanced biofuel and the considerations that have led us to conclude that the advanced biofuel volume target in the statute should be reduced by the full amount permitted under the cellulosic waiver authority. We then address total renewable fuel in the context of our interpretation, articulated in previous annual rulemakings, that advanced biofuel and total renewable fuel should be reduced by the same amount under the cellulosic waiver authority. We also address several comments we received in response to the July 10, 2018 proposal; the remaining comments are addressed in a separate RTC document. To begin, we have evaluated the capabilities of the market and are making a finding that the 13.0 billion gallons specified in the statute for advanced biofuel cannot be reached in 2019. 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, we project that it will fall far short of the statutory target of 8.5 billion gallons in 2019. For this and other reasons described in this section we are reducing the advanced biofuel statutory target by the full amount of the shortfall in cellulosic biofuel for 2019. In previous years when we have used the cellulosic waiver authority, we have determined the extent to which we should reduce advanced biofuel volumes by taking into account the availability of advanced biofuels, their energy security and greenhouse gas (GHG) impacts, the availability of carryover RINs, 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 increasing likelihood of adverse unintended impacts associated with use of advanced biofuel volumes achieved through diversion of foreign fuels or substitution of advanced feedstocks from other uses to biofuel production. Until the 2018 standards rule, the consideration of these factors led us to conclude 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. 74 For the 2018 standards, we placed a greater emphasis on cost considerations in the context of balancing the various considerations, ultimately concluding that partial backfilling with non-cellulosic advanced biofuels was not warranted and the applicable volume requirement for advanced biofuel should be based on the maximum reduction permitted under the cellulosic waiver authority. 74 For instance, see 81 FR 89750 (December 12, 2016). Although we continue to believe that the factors earlier considered in exercising the cellulosic waiver authority are relevant and appropriate, we project that there will be insufficient reasonably attainable volumes of non-cellulosic advanced biofuels in 2019 to allow any backfilling for missing volumes of cellulosic biofuel. 75 As a result of this projection, the high cost of advanced biofuels, and our consideration of carryover RINs, we are reducing the statutory volume target for advanced biofuel by the same amount as the reduction in cellulosic biofuel. This will result in the non-cellulosic component of the advanced biofuel volume requirement being equal to the implied statutory volume target of 4.5 billion gallons in 2019. 75 As described further below, “reasonably attainable” volumes are not merely those that can be attained given available biofuel production capacity and feedstocks, but also take into consideration factors such as costs and feedstock and/or fuel diversions that could create disruptions in other markets. Several stakeholders commented that it was inappropriate for EPA to change its policy with regard to backfilling of missing cellulosic biofuel with other advanced biofuel as it had done prior to 2018. However, in making such comments, stakeholders misinterpreted our approach in those years. While we permitted some backfilling, we did so only after considering such factors as described above. The approach we have taken for the 2019 volume requirements is no different than it was in previous years, though the outcome of that approach is different due to the different circumstances. We note that the predominant non-cellulosic advanced biofuels available in the near term are advanced biodiesel and renewable diesel. 76 We expect limited growth in the availability of feedstocks used to produce these fuel types, absent the diversion of these feedstocks from other uses. In addition, we expect diminishing incremental GHG benefits and higher per gallon costs as the required volumes of advanced biodiesel and renewable diesel increase. These outcomes are a result of the fact that the lowest cost and most easily available feedstocks are typically used first, and each additional increment of advanced biodiesel and renewable diesel requires the use of feedstocks that are generally incrementally more costly and/or more difficult to obtain. Moreover, 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 such feedstocks from competing uses. Products (other than qualifying advanced biofuels) that were formerly produced using these feedstocks are likely to be replaced by products produced using the lowest cost alternatives, likely derived from palm oil (for food and animal feed) or petroleum sources (non-edible consumer products). This in turn could increase the lifecycle GHG emissions associated with these incremental volumes of non-cellulosic advanced biofuel, since fuels produced from both palm oil and petroleum have higher estimated lifecycle GHG emissions than qualifying advanced biodiesel and renewable diesel. 77 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 use them. Higher advanced biofuel standards could also be satisfied by diversion of foreign advanced biofuel from foreign markets, and there would also be an increased likelihood of adverse unintended impacts associated with such diversions. Taking these considerations into account, we believe, as discussed in more detail below, that it is appropriate to exercise our discretion under the cellulosic waiver authority to set the advanced biofuel volume requirement at a level that would minimize such diversions. 76 While sugarcane ethanol, as well as a number of other fuel types, can also contribute to the supply of advanced biofuel, in recent years supply of these other advanced biofuels has been considerably lower than supply of advanced biodiesel or renewable diesel. See Table IV.B.3-1. 77 For instance, see the draft GHG assessment of palm oil biodiesel and renewable diesel at 77 FR 4300 (January 27, 2012). Furthermore, several other factors have added uncertainty regarding the volume of advanced biofuels that we project are attainable in 2019. The first is the fact that the tax credit for biodiesel has not been renewed for 2019. The second is the final determination by the Department of Commerce that tariffs should be imposed on biodiesel imports from Argentina and Indonesia, and the potential for those tariffs to increase. 78 79 Finally, China has recently imposed new tariffs on soybean imports. Each of these factors is discussed in more detail in Section IV.B.3 below. 78 “Affirmative Final Antidumping Duty Determinations on Biodiesel From Argentina and Indonesia,” available in docket EPA-HQ-OAR-2018-0167. 79 “US adds more duties on biodiesel from Argentina & Indonesia,” Reuters article available in docket EPA-HQ-OAR-2018-0167. We believe that the factors and considerations noted above are all appropriate to consider under the broad discretion provided under the cellulosic waiver authority, and that consideration of these factors supports our use of this authority. Many of the considerations discussed in this final rule are related to the availability of non-cellulosic advanced biofuels ( e.g., historic data on domestic supply, expiration of the biodiesel blenders' tax credit, potential imports of biodiesel in light of the Commerce Department's determination on tariffs on biodiesel imports from Argentina and Indonesia, potential imports of sugarcane ethanol, and anticipated decreasing growth in production of feedstocks for advanced biodiesel and renewable diesel), while others focus on the potential benefits and costs of requiring use of available volumes ( e.g., relative cost of advanced biofuels in comparison to the petroleum fuels they displace, GHG reduction benefits, and energy security benefits). As discussed in further detail in the following sections, our assessment of advanced biofuel suggests that achieving the implied statutory volume target for non-cellulosic advanced biofuel in 2019 (4.5 billion gallons) is attainable. While it may also be possible that a volume of non-cellulosic advanced biofuel greater than 4.5 billion gallons may be attainable, a volume equal to or higher than 4.5 billion gallons would likely result in the diversion of advanced feedstocks from other uses or diversion of advanced biofuels from foreign sources, and thus is not reasonably attainable. In that case, our assessment of other factors, such as cost and GHG impacts, indicate that while such higher volumes may be attainable, it would not be appropriate to set the advanced biofuel volume requirement so as to require use of such volumes to partially backfill for missing cellulosic volumes. The impact of our exercise of the cellulosic waiver authority is that after waiving the cellulosic biofuel volume down to the projected available level, and applying the same volume reduction to the statutory volume target for advanced biofuel, the resulting volume requirement for advanced biofuel for 2019 would be 630 million gallons more than the applicable volume used to derive the 2018 percentage standard. Furthermore, after applying the same reduction to the statutory volume target for total renewable fuel, the volume requirement for total renewable fuel would also be 630 million gallons more than the applicable volume used to derive the 2018 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 establishing a 2019 applicable volume for cellulosic biofuel of 418 million gallons, representing a reduction of 8,082 million gallons from the statutory target of 8,500 million gallons. As a result, 8,082 million gallons is the maximum volume reduction for advanced biofuel and total renewable fuel that is permissible using the cellulosic waiver authority. Use of the cellulosic waiver authority to this maximum extent would result in volumes of 4.92 and 19.92 billion gallons for advanced biofuel and total renewable fuel, respectively. Table IV.A-1—Lowest Permissible Volumes Using Only the Cellulosic Waiver Authority [Million gallons] Advanced biofuel Total renewable fuel Statutory target 13,000 28,000 Maximum reduction permitted under the cellulosic waiver authority 8,082 8,082 Lowest 2019 volume requirement permitted using only the cellulosic waiver authority 4,918 19,918 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. 80 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 to reduce advanced biofuel or total renewable fuel, nor what the appropriate volume reductions (within the range permitted by statute) should be. This broad discretion was affirmed in both Monroe and ACE. 81 Thus, we have the authority set the 2019 advanced biofuel volume requirement at a level that is designed to partially backfill for the shortfall in cellulosic biofuel. However, based on our consideration of a number of relevant factors, we are using the full extent of the cellulosic waiver authority in deriving volume requirements for 2019. 80 CAA section 211(o)(7)(D)(i). 81 See ACE, 864 F.3d at 730-35 (citing Monroe, 750 F.3d 909, 915-16). B. Attainable Volumes of Advanced Biofuel We have considered both attainable and reasonably attainable volumes of advanced biofuel to inform our exercise of the cellulosic waiver authority. As used in this rulemaking, both “reasonably attainable” and “attainable” are terms of art defined by EPA. 82 Volumes described as “reasonably attainable” are those that can be reached with minimal market disruptions, increased costs, and/or reduced GHG benefits, and with minimal diversion of advanced biofuels or advanced biofuel feedstocks from existing uses. We use this phrase in today's action in the same way that we used it in previous actions. Volumes described as “attainable,” in contrast, are those we believe can be reached, but would likely result in market disruption, higher costs, and/or reduced GHG benefits. Neither “reasonably attainable” nor “attainable” are meant to convey the “maximum achievable” level, which as we explained in the 2017 final rule, we do not consider to be an appropriate target under the cellulosic waiver authority. 83 Finally, we note that our assessments of the “reasonably attainable” and “attainable” volumes of non-cellulosic advanced biofuels are not intended to be as exacting as our projection of cellulosic biofuel production, described in Section III of this rule. 82 Our consideration of “reasonably attainable” volumes is not intended to imply that “attainable” volumes are unreasonable or otherwise inappropriate. As we explain in this section, we believe that an advanced biofuel volume of 4.92 billion gallons, although not reasonably attainable, is attainable, and that establishing such volume is an appropriate exercise of our cellulosic waiver authority. 83 81 FR 89762 (December 12, 2016). The maximum achievable volume may be relevant to our consideration of whether to exercise the general waiver authority on the basis of inadequate domestic supply. In 2019, we have determined that the after exercising our cellulosic waiver authority the advanced biofuel volume is achievable, and therefore further reductions using the general waiver authority on the basis of inadequate domestic supply are not necessary. As in prior rulemakings, we begin by considering what volumes of advanced biofuels are reasonably attainable. In ACE, the Court noted that in assessing what volumes are “reasonably attainable,” EPA had considered the availability of feedstocks, domestic production capacity, imports, and market capacity to produce, distribute, and consume renewable fuel. 84 These considerations include both demand-side and supply-side factors. 85 We are taking a similar approach for 2019, with the added consideration of the possibility that higher volume requirements would lead to “feedstock switching” or diversion of advanced biofuels from use in other countries. We also took these factors into account in setting the 2017 and 2018 volume requirements, and we continue to believe that they are appropriate considerations under the broad discretion provided by the cellulosic waiver authority. We are establishing the advanced biofuel volume requirement at a level that would seek to minimize such feedstock/fuel diversions within the discretion available under the cellulosic waiver authority. 84 See ACE, 864 F.3d at 735-36. 85 See id. at 730-35. Our individual assessments of reasonably attainable volumes of each type of advanced biofuel reflect this approach. As discussed in further detail in this section, we find that 100 million gallons of advanced ethanol, 60 million gallons of other advanced biofuels, and 2.61 billion gallons of advanced biodiesel and renewable diesel are reasonably attainable. Together with our projected volume of 418 million gallons of cellulosic biofuel, the sum of these volumes falls short of 4.92 billion gallons, which is the lowest advanced biofuel requirement that EPA can require under the cellulosic waiver authority. Therefore, we also have considered whether the market can nonetheless make available 4.92 billion gallons of advanced biofuel, notwithstanding likely feedstock/fuel diversions. That is, we assess whether 4.92 billion gallons is merely “attainable,” as opposed to reasonably attainable. In particular, we assess whether additional volumes of advanced biodiesel and renewable diesel are attainable. We conclude that 2.8 billion gallons of advanced biodiesel and renewable diesel are attainable, notwithstanding potential feedstock/fuel diversions. This quantity of advanced biodiesel and renewable diesel, together with the cellulosic biofuel, sugarcane ethanol, and other advanced biofuels described above, would enable the market to make available 4.92 billion gallons of advanced biofuels. 1. Imported Sugarcane Ethanol The predominant available source of advanced biofuel other than cellulosic biofuel and BBD is imported sugarcane ethanol. Imported sugarcane ethanol from Brazil is the predominant form of imported ethanol and the only significant source of imported advanced ethanol. In setting the 2018 standards, we estimated that 100 million gallons of imported sugarcane ethanol would be reasonably attainable. 86 This was a reduction from the 200 million gallons we had assumed for 2016 and 2017, and was based on a combination of data from 2016 and part of 2017 as well as an attempt to balance the lower-than-expected imports from recent data with indications that higher volumes were possible based on older data. We also noted the high variability in ethanol import volumes in the past (including of Brazilian sugarcane 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. 86 82 FR 58507 (December 12, 2017). Since the 2018 final rule, new data reveals a continued trend of low imports. At the time of the 2018 standards final rule, we had used available data from a portion of 2017 to estimate that import volumes of sugarcane ethanol were likely to fall significantly below the 200 million gallons we had assumed when we set the 2017 standards. Import data for all of 2017 is now available, and indicates that imports of sugarcane ethanol reached just 77 million gallons. Moreover, EIA data on monthly ethanol imports in 2018 through July indicate that no ethanol was imported. 87 87 However, EIA data on weekly imports of ethanol does indicate that some ethanol was imported in August and October of 2018, totaling 37 million gallons. This volume was not reflected in the monthly EIA data as of September 28, 2018. ER11DE18.001 While it is difficult to predict imports for 2019, we believe it would be reasonable not to increase the assumed volume above 100 million gallons for purposes of determining whether an advanced biofuel volume requirement of 4.92 billion gallons is reasonably attainable for 2019. Although the advanced biofuel volume requirement for 2019 is about 630 million gallons higher than that for 2018, creating some incentive for increases in imports, we note that an even larger increase in the required volume of advanced biofuel between 2016 and 2017 was accompanied by only a very small increase in imports of sugarcane ethanol, from 34 million gallons in 2016 to 77 million gallons in 2017. Moreover, the E10 blendwall and the fact that imported sugarcane ethanol typically costs more than corn ethanol create disincentives for increasing imports above the levels in recent years, though the difference in RIN values between conventional and advanced ethanol may offset the cost difference to some degree. 88 Even so, we do not believe it would be appropriate to reduce the volume of imported sugarcane ethanol below 100 million gallons for the purposes of determining the 2 [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%3A2018-26566. Public record. Not legal advice.