Renewable Fuel Standard Program: Standards for 2020 and Biomass-Based Diesel Volume for 2021, Response to the Remand of the 2016 Standards, and Other Changes

Federal RegisterJul 29, 2019

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2019-0136; FRL-9996-53-OAR]

RIN 2060-AU42

Renewable Fuel Standard Program: Standards for 2020 and Biomass-Based Diesel Volume for 2021, Response to the Remand of the 2016 Standards, and Other Changes

AGENCY:

Environmental Protection Agency (EPA).

ACTION:

Proposed rule.

SUMMARY:

Under section 211 of the Clean Air Act, the Environmental Protection Agency (EPA) is required to set renewable fuel percentage standards every year. This action proposes the annual percentage standards for cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuel that apply to gasoline and diesel transportation fuel produced or imported in the year 2020. 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 proposing volume requirements for cellulosic biofuel, advanced biofuel, and total renewable fuel that are below the statutory volume targets. We are also proposing the applicable volume of biomass-based diesel for 2021. This action also proposes to address the remand of the 2016 standard-setting rulemaking, as well as several regulatory changes to the Renewable Fuel Standard (RFS) program including new pathways, flexibilities for regulated parties, and clarifications of existing regulations.

DATES:

Comments.

Comments must be received on or before August 30, 2019.

Public hearing.

EPA will announce the public hearing date and location for this proposal in a supplemental

Federal Register

document.

ADDRESSES:

You may send your comments, identified by Docket ID No. EPA-HQ-OAR-2019-0136, by any of the following methods:

•

Federal eRulemaking Portal: http://www.regulations.gov

(our preferred method) Follow the online instructions for submitting comments.

•

Mail:

U.S. Environmental Protection Agency, EPA Docket Center, Office of Air and Radiation Docket, Mail Code 28221T, 1200 Pennsylvania Avenue NW, Washington, DC 20460.

•

Hand Delivery/Courier:

EPA Docket Center, WJC West Building, Room 3334, 1301 Constitution Avenue NW, Washington, DC 20004. The Docket Center's hours of operations are 8:30 a.m.-4:30 p.m., Monday-Friday (except Federal Holidays).

Instructions:

All submissions received must include the Docket ID No. for this rulemaking. Comments received may be posted without change to

https://www.regulations.gov,

including any personal information provided. For detailed instructions on sending comments and additional information on the rulemaking process, see the “Public Participation” information in Section X.

FOR FURTHER INFORMATION CONTACT:

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

macallister.julia@epa.gov.

SUPPLEMENTARY INFORMATION:

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

See also

API

EPA,

706 F.3d 474 (D.C. Cir. 2013) (requiring that EPA's cellulosic biofuel projections reflect a neutral aim at accuracy);

Monroe Energy

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

EPA

(“

ACE

”), 864 F.3d 691 (D.C. Cir. 2017) (same).

See 81 FR 89752-89753 (December 12, 2016).

In this action we are proposing to use the cellulosic waiver authority to reduce the statutory volume targets for advanced biofuel and total renewable fuel by equal amounts, consistent with our long-held interpretation of this provision and our approach in setting the 2014-2019 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 proposing, as described in Section IV, 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 biofuel 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 2020. As discussed in Section IV, we also believe that the resulting volume of advanced biofuel is attainable, and that the resulting volume of total renewable fuel can be made available by the market.

Advanced biofuels are required to have lifecycle GHG emissions that are at least 50% less than the baseline defined in EISA. Non-advanced biofuels are required to have lifecycle GHG emissions that are at least 20% less than the baseline defined in EISA unless the fuel producer meets the grandfathering provisions in 40 CFR 80.1403. Beginning in 2015, all growth in the volumes established by Congress come from advanced biofuels.

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.

At this time, we do not believe that the circumstances exist that would justify further reductions in the volumes using the general waiver authority.

B. Severability

The various portions of this rule are severable. Specifically, the following portions are severable from each other: the percentage standards for 2020 (described in Section VIII); the 2021 BBD volume requirement (Section VII); the supplemental total renewable fuel standard in response to the 2016 remand (Section V); and the regulatory amendments (Section IX). In addition, each of the regulatory amendments is severable from the other regulatory amendments. If any of the above portions is set aside by a reviewing court, we intend the remainder of this action to remain effective. For instance, if a reviewing court sets aside the supplemental total renewable fuel standard, we intend for the 2020 percentage standards, including the 2020 total renewable fuel standard, to go into effect.

C. Treatment of Carryover RINs

Consistent with our approach in the rules establishing the RFS standards for 2013 through 2019, we have also considered the availability and role of carryover RINs in setting the cellulosic biofuel, advanced biofuel, and total renewable fuel volume requirements for 2020. Neither the statute nor EPA regulations specify how or whether EPA should consider the availability of carryover RINs in exercising our statutory authorities.

As noted in the context of the rules establishing the RFS standards for 2014 through 2019, 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.

Carryover RINs provide flexibility in the face of a variety of unforeseeable circumstances that could limit the availability of RINs and reduce spikes in compliance costs, including weather-related damage to renewable fuel feedstocks and other circumstances potentially affecting the production and distribution of renewable fuel.

On the other hand, carryover RINs can be used for compliance purposes, and in the context of the 2013 RFS rulemaking we noted that an abundance of carryover RINs available in that year, together with possible increases in renewable fuel production and import, justified maintaining the advanced and total renewable fuel volume requirements for that year at the levels specified in the statute.

EPA's approach to the consideration of carryover RINs in exercising our cellulosic waiver authority was affirmed in

Monroe Energy

and

ACE

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 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 2018 to 2019, then all of the vintage 2018 carryover RINs must be used for compliance in 2019, or they will expire. However, the same volume of 2019 RINs can then be “banked” for use in 2020.

See 80 FR 77482-87 (December 14, 2015), 81 FR 89754-55 (December 12, 2016), 82 FR 58493-95 (December 12, 2017), and 83 FR 63708-10 (December 11, 2018).

See 72 FR 23900 (May 1, 2007), 80 FR 77482-87 (December 14, 2015), 81 FR 89754-55 (December 12, 2016), 82 FR 58493-95 (December 12, 2017) and 83 FR 63708-10 (December 11, 2018).

See 79 FR 49793-95 (August 15, 2013).

Monroe Energy

EPA,

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

ACE,

864 F.3d at 713.

An adequate carryover RIN bank serves to make the RIN market liquid wherein RINs are freely traded in an open market making them readily available and accessible to those who need them for compliance at prices established by that open market. 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 too few RINs in reserve, then even minor disruptions causing shortfalls in renewable fuel production or distribution, or higher than expected transportation fuel demand (requiring greater volumes of renewable fuel to comply with the percentage standards that apply to all volumes of transportation fuel, including the unexpected volumes) could lead to the need for a new waiver of the standards and higher compliance costs, 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 necessary programmatic buffer that both facilitates individual compliance and provides for smooth overall functioning of the program.

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

We estimate that there are currently approximately 2.19 billion total carryover RINs available, a decrease of 400 million RINs from the previous estimate of 2.59 billion total carryover RINs in the 2019 final rule.

At the time of the 2019 final rule, we determined that carryover RINs should not be counted on to avoid or minimize the need to reduce the 2019 statutory volume targets under the cellulosic waiver authority.

We also stated that we may or may not take a similar approach in future years, and that we would evaluate the issue on a case-by-case basis considering the facts in future years.

The calculations performed to estimate the number of carryover RINs currently available can be found in the memorandum, “Carryover RIN Bank Calculations for 2020 NPRM,” available in the docket.

See “Carryover RIN Bank Calculations for 2019 Final Rule,” available in docket EPA-HQ-OAR-2018-0167.

The 400 million RIN decrease in the total carryover RIN bank compared to that projected in the 2019 final rule results from various factors, including market factors and regulatory and enforcement actions. This estimate is also lower despite the fact that it includes the millions of RINs that were not required to be retired by small refineries that were granted hardship exemptions in recent years.

This total

volume of carryover RINs is approximately 11 percent of the total renewable fuel volume requirement that we are proposing for 2020, which is less than the 20 percent maximum limit permitted by the RFS regulations to be carried over for use in complying with the 2020 standards.

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

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, which are a subset of the 2.19 billion total carryover RINs. At the time of the 2019 final rule, we estimated that there were approximately 600 million advanced carryover RINs available. We now estimate that there are currently approximately 390 million advanced carryover RINs available, a decrease of 210 million RINs from the previous estimate in the 2019 final rule. This volume of advanced carryover RINs is approximately 8 percent of the advanced renewable fuel volume requirement that we are proposing for 2020, which is less than the 20 percent maximum limit permitted by the regulations to be carried over for use in complying with the 2020 standards.

However, there remains considerable uncertainty surrounding the ultimate size of the carryover RIN bank for several reasons, including the possibility of additional small refinery exemptions, and the impact of both 2018 and 2019 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 complying with the annual standards, thereby potentially creating demand for RINs greater than can be accommodated through actual renewable fuel blending in 2020. In light of these uncertainties, the net result could be a bank of total carryover RINs larger or smaller than 11 percent of the proposed 2020 total renewable fuel volume requirement, and a bank of advanced carryover RINs larger or smaller than 8 percent of the proposed 2020 advanced biofuel volume requirement.

2. EPA's Proposed Decision Regarding the Treatment of Carryover RINs

We have evaluated the volume of carryover RINs currently available and considered whether it would justify an intentional drawdown of the carryover RIN bank in setting the 2020 volume requirements. For the reasons described above, we do not believe this to be the case. The current bank of carryover RINs provides an important and necessary programmatic and cost spike 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 cellulosic biofuel, advanced biofuel, and total renewable fuel, versus maintaining an adequate bank of carryover RINs for important programmatic functions, is appropriate when EPA exercises its discretion under its statutory authorities, 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 its authorities. Therefore, for the reasons noted above and consistent with the approach we took in the rules establishing the RFS standards for 2014 through 2019, we are not proposing to set the 2020 volume requirements at levels that would envision an intentional drawdown in the bank of carryover RINs.

III. Cellulosic Biofuel Volume for 2020

In the past several years, production of cellulosic biofuel has continued to increase. Cellulosic biofuel production reached record levels in 2018, driven largely by CNG and LNG derived from biogas.

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 (see Figure III-1). This section describes our assessment of the volume of cellulosic biofuel that we project will be produced or imported into the U.S. in 2020, and some of the uncertainties associated with those volumes.

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.

EP29JY19.007

In order to project the volume of cellulosic biofuel production in 2020, we considered 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 2020. EIA's projection of cellulosic biofuel production in 2020, which is not yet available at the time of this proposed rule, will also inform our projection of cellulosic biofuel production in the final rule.

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 2018 and 2019 final rules. 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 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 2018 and 2019 final rules, with updated RIN generation data through March 2019. 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 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.C-1 and III.C-2.

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 EPA assessed in the process of projecting qualifying cellulosic biofuel production in the U.S. Section III.C discusses the methodologies used by EPA to project cellulosic biofuel production in 2020 and the resulting projection of 0.54 billion 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 2020 is 10.5 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.

CAA section 211(o)(7)(D)(i). The U.S. Court of Appeals for the District of Columbia Circuit evaluated this requirement in

API

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. The Court also determined that Congress did not require “slavish adherence by EPA to the EIA estimate” and that EPA could “read the phrase `based on' as requiring great respect but allowing deviation consistent with that respect.” 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, e.g.,

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 through the use of cellulosic biofuel RINs.

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,

and we are also required to make cellulosic waiver credits available.

Our consideration of the 2020 volume requirements for advanced

biofuel and total renewable fuel is presented in Section IV.

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

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 2020. 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 2020. Finally, we provide a summary table of all facilities that we expect to produce cellulosic biofuel in 2020.

In order to project cellulosic biofuel production for 2020 we have tracked the progress of a number of potential cellulosic biofuel production facilities, located both in the U.S. and in foreign countries. We considered a number of factors, including 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. As discussed in greater detail in Section III.C.1, our projection of liquid cellulosic biofuel is based on a facility-by-facility assessment of each of the likely sources of cellulosic biofuel in 2020, 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 2020. 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.

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. These data indicate that EPA's projection was lower than the actual number of cellulosic RINs made available in 2015,

higher than the actual number of RINs made available in 2016 and 2017, and lower than the actual number of RINs 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.

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

Projected volume

Liquid

cellulosic

biofuel

CNG/LNG

derived from biogas

Total cellulosic biofuel

Actual production volume

Liquid

cellulosic

biofuel

CNG/LNG

derived from biogas

Total cellulosic biofuel

2015

0.5

52.8

53.3

2016

207

230

4.1

186.2

190.3

2017

298

311

11.8

239.5

251.3

2018

274

288

10.6

303.9

314.4

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.

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).

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.

Total cellulosic biofuel may not be precisely equal to the sum of liquid cellulosic biofuel and CNG/LNG derived from biogas due to rounding.

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.

EPA's projections of liquid cellulosic biofuel were higher than the actual volume of liquid cellulosic biofuel produced each year from 2015 to 2018.

As a result of the over-projections in 2015-2016 (and the anticipated over-projection in 2017), 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.

The adjustments to our methodology adopted in the 2018 final rule appear to have resulted in a projection that is close to the volume of liquid cellulosic biofuel produced in 2018. In this proposed rule we are again applying the approach we first used in the 2018 final rule: Using percentile values based on actual production in previous years, relative to the projected volume of liquid cellulosic biofuel in these years. We have adjusted the percentile values to project liquid cellulosic biofuel production based on actual liquid cellulosic biofuel production in 2016 to

2018. We believe that the use of the methodology (described in more detail in Section III.D.1), 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.

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.

82 FR 58486 (December 12, 2017).

We next turn to the projection of CNG/LNG derived from biogas. For 2018 and 2019, EPA 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 the facility-by-facility 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 further described in Section III.C.2, 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 April 2017-March 2018 to the RIN generation for these same fuels from April 2018-March 2019 (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 2018 to estimate the production of CNG/LNG derived from biogas in 2020.

We have applied the growth rate to the number of available 2018 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.

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 data to compare to it is premature to make any adjustments. We request comment on potential adjustments to this methodology for the final rule, especially if RIN generation data suggests that this methodology is likely to significantly under or over project the production of CNG/LNG derived from biogas in 2019.

To project the volume of CNG/LNG derived from biogas in 2020, we multiply the number of 2018 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 2019 and then multiply the resulting number by the growth rate again to project the production of these fuels in 2020.

Although we do not apply the calculated growth rate to the most recent monthly data on the number of RINs generated for CNG/LNG derived from biogas that are available for compliance, we do use it to calculate the year-over-year growth rate used to project the production of CNG/LNG derived from biogas in 2020.

The production volumes of cellulosic biofuel in previous years also highlight that the production of CNG/LNG derived from biogas has been significantly higher than the production of liquid cellulosic biofuel in previous years. This is likely the result of a combination of several factors, including the mature state of the technology used to produce CNG/LNG derived from biogas relative to the technologies used to produce liquid cellulosic biofuel, the relatively low production cost of CNG/LNG derived from biogas (discussed in further detail in Section VI), and the high RIN value of cellulosic RINs relative to the fuel value of CNG/LNG derived from biogas. Unlike liquid cellulosic fuels which are generally dependent on a high RIN value to produce fuel economically, in some cases CNG/LNG derived from biogas can be produced at a cost that is competitive with fossil natural gas without account for any RIN value. Further, while the cellulosic RIN value, which averaged $2.25 per RIN in 2018, is high relative to the fuel value for all types of cellulosic biofuels it is extremely high in the case of CNG/LNG derived from biogas (approximately 9 times the value of the fuel in 2018).

These factors are unlikely to change in 2020. While we project production volumes of liquid cellulosic biofuel and CNG/LNG derived from biogas separately, the actual volume of each fuel type produced may be higher or lower than projected.

Average D3 RIN price in 2018 using EMTS data. To calculate the RIN value relative to the fuel value of CNG/LNG derived from biogas we converted the price of fossil natural gas in 2018 ($3.15 per MMBTU) from EIA's April 2019 STEO to the price per ethanol-equivalent gallon ($0.24 per 77,000 BTU) and compared this value to the average D3 RIN value in 2018 ($2.25).

2. Potential Domestic Producers

There are several companies and facilities

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 2020. The financial incentive provided by cellulosic biofuel RINs,

combined with the fact that to date nearly all cellulosic biofuel produced in the U.S. has been used domestically

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 all cellulosic biofuel 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.

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 2020 can be found in a memorandum to the docket for this final rule.

General information on each of these companies or group of companies considered in our projection of the potentially available volume of cellulosic biofuel in 2020 is summarized in Table III.B.4-1.

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.

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).

According to data from EMTS, the average price for a 2018 cellulosic biofuel RINs sold in 2018 was $2.25. Alternatively, obligated parties can satisfy their cellulosic biofuel obligations by purchasing an advanced (or biomass-based diesel) RIN and a cellulosic waiver credit. The average price for a 2018 advanced biofuel RINs sold in 2018 was $0.48 while the price for a 2018 cellulosic waiver credit is $1.96 (EPA-420-B-17-036).

The only known exception was a small volume of fuel produced at a demonstration scale facility exported to be used for promotional purposes.

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 Red Rock Biofuels.

“Cellulosic Biofuel Producer Company Descriptions (May 2019),” memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-2019-0136.

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 2020 includes cellulosic biofuel that is projected to be imported into the U.S. in 2020, including potential imports from all the registered foreign facilities under the RFS program. 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 2020. For purposes of our 2020 cellulosic biofuel projection we have 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 2020. EPA has also included projected volume from two additional foreign facilities. These two facilities (Enerkem's Canadian facility and Ensyn's Port-Cartier, Quebec facility) have both completed the registration process as cellulosic biofuel producers. 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 2020 are listed in Table III.B.4-1.

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 2020 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 2020. 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.

“Cellulosic Biofuel Producer Company Descriptions (May 2019),” memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-2019-0136.

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).

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.

For more information on these facilities see “May 2019 Assessment of Cellulosic Biofuel Production from Biogas (2020),” memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-2019-0136.

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 municipal solid waste (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 “May 2019 Liquid Cellulosic Biofuel Projections for 2020 CBI”).

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 2020

Company name

Location

Feedstock

Fuel

Facility

capacity

(million

gallons

per year)

Construction start date

First production

CNG/LNG Producers

Various

Biogas

CNG/LNG

Various

August 2014.

Edeniq

Various

Corn Kernel Fiber

Ethanol

Various

October 2016.

Enerkem

Edmonton, AL, Canada

Separated MSW

Ethanol

2012

September 2017.

Ensyn

Renfrew, ON, Canada

Wood Waste

Heating Oil

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

Mid 2012

September 2014.

Poet-DSM

Emmetsburg, IA

Corn Stover

Ethanol

March 2012

4Q 2015.

QCCP/Syngenta

Galva, IA

Corn Kernel Fiber

Ethanol

Late 2013

October 2014.

Red Rock Biofuels

Lakeview, OR

Wood Waste

Diesel, Jet Fuel, Naphtha

July 2018

2Q 2020.

Raizen

Piracicaba City, Brazil

Sugarcane bagasse

Ethanol

January 2014

July 2015.

C. Cellulosic Biofuel Volume for 2020

1. Liquid Cellulosic Biofuel

For our 2020 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 2020 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 2020 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 2020. As in the 2018 and 2019 final rules, 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.

“May 2019 Liquid Cellulosic Biofuel Projections for 2020 CBI” and “Calculating the Percentile Values Used to Project Liquid Cellulosic Biofuel Production for the 2020 NPRM,” memorandums from Dallas Burkholder to EPA Docket EPA-HQ-OAR-2019-0136.

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. The low end of the range for each group of producers reflects actual RIN generation data over the last 12 months for which data were available at the time our technical assessment was completed (April 2018-March 2019).

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 2020.

The projected range for each group of companies is shown in Tables III.C.1-1 and III.C.1-2.

Consistent with previous years, we have considered whether there is reason to believe any of the facilities considered as potential cellulosic biofuel producers for 2020 is likely to produce a smaller volume of cellulosic biofuel in 2020 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 2020 from any facility considered than in the previous 12 months for which data are available.

As in our 2015-2019 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 2020, whichever is lower.

More information on the data and methods EPA used to calculate each of the ranges in these tables in contained in “May 2019 Liquid Cellulosic Biofuel Projections for 2020 CBI” memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-2019-0136. 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, which is also claimed as CBI.

Table III.C.1-1—2020 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

Enerkem, Ensyn (Port Cartier facility), BioEnergy, Red Rock Biofuels

Rounded to the nearest million gallons.

Table III.C.1-2—2020 Production Ranges for Liquid Cellulosic Biofuel Producers With Consistent Commercial Scale Production

[Million ethanol-equivalent gallons]

Companies included

Low end of

the range

High end of

the range

Facilities using Edeniq's technology (registered facilities), Ensyn (Renfrew facility), Poet-DSM, GranBio, QCCP/Syngenta, Raizen

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 proposed rule we have calculated the

percentile values using actual production data from 2016 through 2018. The first full year in which EPA used the current methodology for developing the range potential production volumes for each company was 2016, while 2018 is the most recent year for which we have complete data.

For each group of companies and for each year from 2016-2018, Table III.C.1-3 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.C.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

Actual

percentile

New Producers

2016

1.06

1st.

2017

8.79

27th.

2018

2.87

6th.

Average

N/A

11th.

Consistent Producers

2016

3.28

43rd.

2017

3.5

3.02

−14th.

2018

7.74

4th.

Average

N/A

11th.

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

this analysis, EPA has projected cellulosic biofuel production from new producers at the 11th percentile of the calculated range and from consistent producers at the 11th percentile.

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.

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.

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).

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).

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 2020,” available in EPA docket EPA-HQ-OAR-2019-0136.

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.

We then 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 2020. These calculations are summarized in Table III.C.1-4.

Table III.C.1-4—Projected Volume of Liquid Cellulosic Biofuel in 2020

[Million ethanol-equivalent gallons]

Low end of

the range

High end of

the range

Percentile

Projected

volume

Liquid Cellulosic Biofuel Producers; Producers without Consistent Commercial Scale Production

11th

Liquid Cellulosic Biofuel Producers; Producers with Consistent Commercial Scale Production

11th

Total

N/A

Volumes rounded to the nearest million gallons.

2. CNG/LNG Derived From Biogas

For 2020, EPA is proposing to use the same industry wide projection approach as used for 2018 and 2019 based on a year-over-year growth rate to project production of CNG/LNG derived from biogas used as transportation fuel.

For this proposed rule, EPA calculated the year-over-year growth rate in CNG/LNG

derived from biogas by comparing RIN generation from April 2018 to March 2019 (the most recent 12 months for which data are available) to RIN generation in the 12 months that immediately precede this time period (April 2017 to March 2018). The growth rate calculated using this data is 31.4 percent.

These RIN generation volumes are shown in Table III.C.2-1.

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.

This growth rate is higher than the growth rates used to project CNG/LNG volumes in the 2019 final rule (29.0%, see 83 FR 63717, December 11, 2018) and the 2018 final rule (21.6%, see 82 FR 58502, December 12, 2017).

Table III.C.2-1—Generation of Cellulosic Biofuel RINs for CNG/LNG Derived From Biogas

[Million gallons]

RIN generation

(April 2017-March 2018)

RIN generation

(April 2018-March 2019)

Year-over-year

increase

(%)

247

325

31.4

EPA then

applied this 31.4 percent year-over-year growth rate to the total number of 2018 cellulosic RINs generated and available for compliance for CNG/LNG. This methodology results in a projection of 525 million gallons of CNG/LNG derived from biogas in 2020. In previous proposed rules (2017 through 2019) we applied this rate of growth to the volume of CNG/LNG derived from biogas projected to be produced in the preceding annual rule (

e.g.,

in the 2019 proposed rule we applied the calculated year-over-year rate of growth to the volume of CNG/LNG derived from biogas projected to be produced in the 2018 final rule). In this proposed rule we are instead applying the calculated year-over-year rate of growth to the volume of CNG/LNG actually supplied in 2018 (taking into account actual RIN generation as well as RINs retired for reasons other than compliance with the annual volume obligations) to provide an updated projection of the production of these fuels in 2019, and then applying the rate of growth to this updated 2019 projection to project the production of these fuels in 2020.

We note that this methodology (applying the calculated rate of growth to the last full year for which we have complete data) was also used in the 2018 and 2019 final rules. We are proposing to use this approach, with an updated rate of growth based on the most recent data available, in the 2020 final rule. By applying the rate of growth to the same baseline (use of qualifying CNG/LNG derived from biogas as transportation fuel) for the proposed and final rules we hope to avoid the potential for confusion that changing the baseline between the proposed rule and final rule may cause and to better enable stakeholders to comment on our proposed rule.

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 2020 can be found in “May 2019 Assessment of Cellulosic Biofuel Production from Biogas (2020)” memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-2019-0136.

To calculate this value, EPA multiplied the number of 2018 RINs generated and available for compliance for CNG/LNG derived from biogas (303.9 million), by 1.314 (representing a 31.4 percent year-over-year increase) to project production of CNG/LNG in 2019, and multiplied this number (399.3 million RINs) by 1.314 again to project production of CNG/LNG in 2020.

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 2020 is below the total volume of CNG/LNG that is currently used as transportation fuel.

EPA is aware of several estimates for the quantity of CNG/LNG that will be used as transportation fuel in 2020. As discussed in a paper prepared by Bates White for the Coalition for Renewable Gas (“Renewable Natural Gas Supply and Demand for Transportation.” Bates White Economic Consulting, April 5, 2019) these estimates range from nearly 600 million ethanol-equivalent gallons in 2020 (February 2019 STEO) to over 1.5 billion gallons (Fuels Institute—US Share). While there is considerable uncertainty about the quantity of CNG/LNG that will be used in transportation fuel in 2020, all of these projections are greater than the volume of qualifying CNG/LNG derived from biogas projected to be used in 2020. Thus, the volume of CNG/LNG used as transportation fuel would not appear to constrain the number of RINs generated for this fuel in 2020.

3. Total Cellulosic Biofuel in 2020

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 2020. These projections are shown in Table III.C.3-1. Using the methodologies described in this section, we project that 0.54 billion ethanol-equivalent gallons of cellulosic biofuel will be produced in 2020. We believe that projecting overall production in 2020 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.C.3-1—Projected Volume of Cellulosic Biofuel in 2020

Projected

volume

Liquid Cellulosic Biofuel Producers; Producers without Consistent Commercial Scale Production (million gallons)

Liquid Cellulosic Biofuel Producers; Producers with Consistent Commercial Scale Production (million gallons)

CNG/LNG Derived from Biogas (million gallons)

525

Total (billion gallons)

0.54

Unlike in previous years, we have rounded the projected volume of cellulosic biofuel to the nearest 10 million gallons. This is consistent with the volumes in the tables containing the statutory volume targets for cellulosic biofuel through 2022. While in previous years we have rounded the required cellulosic biofuel volume to the nearest million gallons, the projected volume of cellulosic biofuel has grown such that this level of precision is unnecessary, and likely unfounded. By rounding to the nearest 10 million gallons the total projected volume of cellulosic biofuel is affected in the most extreme case by only 5 million gallons, or approximately 1% of the total projected volume. The uncertainty in the projected volume of cellulosic biofuel is significantly higher than any error introduced by rounding the projected volume to the nearest 10 million gallons.

For the final rule we intend to update our projections with the most recent data available. We intend to use this additional information to update various elements of our projections including: Which potential liquid cellulosic biofuel producers are included in our projections, how to categorize each potential producer (whether they have achieved consistent commercial scale production), the aggregate projected production range for each group of facilities, the percentile values used to project a production volume within the range, and the year-over-year growth rate used to project production of CNG/LNG derived from biogas. We request comment on our projected volume of cellulosic biofuel production for 2020 (0.54 billion gallons), as well as the various aspects of the methodology used to project production of both liquid cellulosic biofuels and CNG/LNG derived from biogas.

IV. Advanced Biofuel and Total Renewable Fuel Volumes for 2020

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 projected shortfall in the availability of cellulosic biofuel, and consistent with our long-held interpretation of the cellulosic waiver authority as best interpreted to provide equal reductions to advanced biofuel and total renewable fuel volumes, we are proposing to reduce the statutory volume targets for both advanced biofuel and total renewable fuel for 2020 using the full extent of the cellulosic waiver authority. The remainder of this introduction summarizes our rationale for reducing advanced biofuel using the full extent of the cellulosic waiver authority, including the shortfall in reasonably attainable volumes of advanced biofuels and the high costs of advanced biofuel.

Section IV.A explains the volumetric limitation on our use of the cellulosic waiver authority to reduce advanced biofuel and total renewable fuel volumes. Section IV.B presents our technical analysis of the reasonably attainable and attainable volumes of advanced biofuel. Sections IV.C and IV.D further explain our decision to exercise the maximum discretion available under the cellulosic waiver authority to reduce advanced biofuel and total renewable fuel, respectively.

In the 2019 Final Rule we projected that additional volumes of soybean biodiesel would increase costs by $0.74-$1.23 per ethanol equivalent gallon and additional volumes of and sugarcane ethanol would increase costs by $0.39-$1.04 per ethanol equivalent gallon (83 FR 63734 December 11, 2018).

To begin, we have evaluated the capabilities of the market and are making a proposed finding that the 15.0 billion gallons specified in the statute for advanced biofuel cannot be reached in 2020. 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 10.5 billion gallons in 2020. For this and other reasons described in this section we are proposing to reduce the advanced biofuel statutory target by the full amount of the shortfall in cellulosic biofuel for 2020.

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 considering a number of different factors under the broad discretion which that authority provides, including:

• The availability of 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).

• The energy security and greenhouse gas (GHG) impacts of advanced biofuels.

• 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.

• 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.

Before the 2018 standards were set, 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.

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.

In the 2019 standards final rule, we again concluded that partial backfilling was not warranted, primarily due to a shortfall in reasonably attainable volumes of advanced biofuels, high costs, and an interest in preserving the existing carryover RIN bank.

For instance, see 81 FR 89750 (December 12, 2016).

See 82 FR 58504 (December 12, 2017).

See 83 FR 63719 (December 11, 2018).

These considerations in the 2019 standards final rule continue to apply to 2020. Again, we project that there will be insufficient reasonably attainable volumes of non-cellulosic advanced biofuels in 2020 to allow any backfilling for missing volumes of cellulosic biofuel.

As a result of this projection,

the high cost of advanced biofuels, and our consideration of carryover RINs, we are proposing to reduce the statutory volume target for advanced biofuel by the same amount as the reduction in cellulosic biofuel. This would 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 2020. This also equals the 2019 implied statutory volume target and final implied volume requirement for non-cellulosic advanced biofuel.

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.

The predominant non-cellulosic advanced biofuels available in the near term are advanced biodiesel and renewable diesel.

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 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 (for 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.

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 and other considerations into account, we believe that it would be 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.

While sugarcane ethanol, as well as a number of other fuel types, can also contribute to the supply of advanced biofuel, in recent years use of these other advanced biofuels has been considerably lower than use of advanced biodiesel or renewable diesel. See Table IV.B.3-1.

For instance, see the draft GHG assessment of palm oil biodiesel and renewable diesel at 77 FR 4300 (January 27, 2012). Our consideration of lifecycle GHG emissions in today's action is limited to the discretionary exercise of our cellulosic waiver authority. We are not reopening or soliciting comment on the draft GHG assessment of palm oil biodiesel and renewable diesel, and any comments on that assessment will be deemed beyond the scope.

We also considered whether this resulting volume of advanced biofuel is attainable, notwithstanding the likelihood of fuel and feedstock diversions and higher costs. Our assessment of advanced biofuel suggests that achieving the implied statutory volume target for non-cellulosic advanced biofuel in 2020 (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 emissions, 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.

Furthermore, several other factors have added uncertainty regarding the volume of advanced biofuels that we project are attainable in 2020, including tax credits and tariffs in both the U.S. and abroad which change unpredictably. As several of these factors primarily affect imports and exports of advanced biofuels they primarily impact the attainable volume of advanced biofuels rather than the reasonably attainable volume, which does not include increased volumes of imported biofuels relative to previous years. Each of these factors is discussed in more detail in Section IV.B.3.

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 2020 would be 120 million gallons more than the applicable volume used to derive the 2019 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 120 million gallons more than the applicable volume used to derive the 2019 percentage standard. These increases are entirely attributable to a 120 million gallon increase in the cellulosic biofuel volume; the implied non-cellulosic advanced biofuel and conventional renewable fuel volumes would remain the same as in 2019 (4.5 and 15 billion gallons, respectively).

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.C, we are proposing to establish a 2020 applicable volume for cellulosic biofuel of 540 million gallons, representing a reduction of 9,960 million gallons from the statutory target of 10,500 million gallons. As a result, 9,960 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 5.04 and 20.04 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

15,000

30,000

Maximum reduction permitted under the cellulosic waiver authority

9,960

Lowest 2020 volume requirement permitted using only the cellulosic waiver authority

5,040

20,040

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.

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

Thus, we have the authority set the 2020 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 proposing to use the full extent of the cellulosic waiver authority in deriving volume requirements for 2020.

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

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.

Volumes described as “reasonably attainable” are those that can be reached with minimal market disruptions, increased costs, reduced GHG benefits, and diversion of advanced biofuels or advanced biofuel feedstocks from existing uses. 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.

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.

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 5.04 billion gallons, although not reasonably attainable, is attainable, and that establishing such volume would be an appropriate exercise of our cellulosic waiver authority.

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. However, for 2020, we have determined that after exercising our cellulosic waiver authority to the full extent permitted, the resulting advanced biofuel volume is attainable. Therefore, further reductions using the general waiver authority on the basis of inadequate domestic supply would not be necessary.

The statute directs EPA to lower the cellulosic biofuel volume to the projected production level where that level falls short of the statutory volume. Under

API

EPA,

706 F.3d 474, 479-80 (D.C. Cir. 2013), we must project this production level with neutral aim at accuracy, that is, make a technical determination about the market's ability to produce cellulosic biofuels. By contrast, the discretionary portion of the cellulosic waiver authority does not explicitly require EPA to project the availability of advanced biofuels, but instead confers broad discretion on EPA. Moreover, while we have chosen to estimate reasonably attainable and attainable volumes of advanced biofuel, these volumes do not equate to projected production alone. Rather, in exercising the discretionary portion of the cellulosic waiver authority, we also consider a range of policy factors—such as costs, greenhouse gas emissions, energy security, market disruptions, etc., as described throughout this section.

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.

These considerations include both demand-side and supply-side factors.

We are proposing to take a similar approach for 2020, 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, 2018, and 2019 volume requirements, and we continue to believe that they are appropriate considerations under the broad discretion provided by the cellulosic waiver authority. We are proposing to establish 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.

See

ACE,

864 F.3d at 735-36.

See

. 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 60 million gallons of imported advanced ethanol, 60 million gallons of other advanced biofuels, and 2.78 billion gallons of advanced biodiesel and renewable diesel are reasonably attainable. Together with our projected volume of 540 million gallons of cellulosic biofuel, the sum of these volumes is 4.94 billion gallons, slightly less than the 5.04 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 5.04 billion gallons of advanced biofuel, notwithstanding likely feedstock/fuel diversions. That is, we assess whether 5.04 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 2.83 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 5.04 billion gallons of advanced biofuels.

1. Imported Sugarcane Ethanol

The predominant available source of advanced biofuel other than cellulosic biofuel and BBD has historically been 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 2019 standards, we estimated that 100 million gallons of imported sugarcane ethanol would be reasonably attainable.

This was based on a combination of data from recent years demonstrating relatively low import volumes and older data indicating that higher volumes were possible. 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.

83 FR 63704 (December 11, 2018).

At the time of the 2019 standards final rule, we used available data from a portion of 2018 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 2018 standards. Since the 2019 final rule, new data reveals a continued trend of low imports. Specifically, import data for all of 2018 is now available and indicates that imports of sugarcane ethanol reached just 44 million gallons.

EP29JY19.008

While it is difficult to predict imports for 2020, we believe that the most recent data suggests that it would be unreasonable to expect more than 100 million gallons of sugarcane ethanol imports in 2020. Moreover, the E10 blendwall, the existence of a recurring tax credit for biodiesel with which it competes within the advanced biofuel category, and the fact that imported sugarcane ethanol typically costs more than corn ethanol create disincentives for increasing imports above the levels in recent years.

As a result of these factors and the lower levels that have occurred in recent years, we believe it would be appropriate to reduce the expected volume of imported sugarcane ethanol below 100 million gallons. Imports of sugarcane ethanol appear to have stabilized in the 2014-2018 timeframe in comparison to previous years. The average for these years was 62 million gallons. Due to the difficulty in precisely projecting future import volumes as described further below, we believe that a rounded value of 60 million gallons would be more appropriate and thus we use 60 million gallons of imported sugarcane ethanol for the purposes of projecting reasonably attainable volumes of advanced biofuel for 2020. While we have not conducted an in-depth assessment of the volume of sugarcane ethanol that could be imported into the U.S. without diverting this fuel from other markets, we believe the volume of fuel imported in previous years is a reasonable way to project the reasonably attainable volume of sugarcane ethanol in 2020.

The difference between D5 and D6 RIN prices can also influence the relative attractiveness to consumers of advanced ethanol compared to conventional ethanol. However, there has been considerable variability in this particular RIN prices difference over the last few years.

We note that the future projection of imports of sugarcane ethanol is inherently imprecise and that actual imports in 2020 could be lower or higher than 60 million gallons. Factors that could affect import volumes include uncertainty in the Brazilian political climate, weather and harvests in Brazil, world ethanol demand and

prices, constraints associated with the E10 blendwall in the U.S., the status of the biodiesel tax credit, world demand for and prices of sugar, and the cost of sugarcane ethanol relative to that of corn ethanol. After considering these factors, and in light of the high degree of variability in historical imports of sugarcane ethanol, we believe that 60 million gallons is reasonably attainable for 2020.

Given the relatively small volumes of sugarcane ethanol we are projecting (approximately 1% of the advanced biofuel standard), even a significant deviation in its actual availability would likely have negligible impact on the market's ability to meet the advanced biofuel volumes.

2. Other Advanced Biofuel

In addition to cellulosic biofuel, imported sugarcane ethanol, and advanced biodiesel and renewable diesel, there are other advanced biofuels that can be counted in the determination of reasonably attainable volumes of advanced biofuel for 2020. These other advanced biofuels include non-cellulosic CNG, naphtha, heating oil, and domestically produced advanced ethanol. However, the supply of these fuels has been relatively low in the last several years.

Table IV.B.2-1—Historical Supply of Other Advanced Biofuels

[Million ethanol-equivalent gallons]

CNG/LNG

Heating oil

Naphtha

Domestic

ethanol

Total

2013

2014

2015

2016

2017

2018

Excludes consideration of D5 renewable diesel, as this category of renewable fuel is considered as part of BBD as discussed in Section IV.B.3.

The significant decrease after 2014 in CNG/LNG from biogas as advanced biofuel with a D code of 5 is due to the re-categorization in 2014 of landfill biogas from advanced (D code 5) to cellulosic (D code 3).

Subsequently, total supply of these other advanced biofuels has exhibited no consistent trend during 2015 to 2018. Based on this historical record, we believe that 60 million gallons is reasonably attainable in 2020.

As with sugarcane ethanol, we have not conducted an in-depth assessment of the volume of other advanced biofuels that could be made available to the U.S. without diverting this fuel from other markets. We believe the volume of fuel supplied in previous years is a reasonable way to project the reasonably attainable volume of sugarcane ethanol in 2020.

79 FR 42128 (July 18, 2014).

The imprecision in projecting volumes of other advanced biofuel has the same relative impact on our overall assessment of the attainability of advanced biofuel as our consideration of imports of sugarcane ethanol. Namely, even a significant deviation in the actual availability of other advanced biofuel would likely have negligible impact on the market's ability to meet the advanced biofuel volumes.

We recognize that the potential exists for additional volumes of advanced biofuel from sources such as jet fuel, liquefied petroleum gas (LPG), butanol, and liquefied natural gas (as distinct from CNG), as well as non-cellulosic CNG from biogas produced in digesters. However, since they have been produced, if at all, in only de minimis and sporadic amounts in the past, we do not have a reasonable basis for projecting substantial volumes from these sources in 2020.

No RIN-generating volumes of these other advanced biofuels were produced in 2018, and less than 1 million gallons total in prior years.

3. Biodiesel and Renewable Diesel

Having projected the production volume of cellulosic biofuel, and the reasonably attainable volumes of imported sugarcane ethanol and “other” advanced biofuels, we next assess the potential supply of advanced biodiesel and renewable diesel. First, we calculate the amount of advanced biodiesel and renewable diesel that would need to be supplied to meet the advanced requirement were we to exercise our maximum discretion under the cellulosic authority: 2.83 billion gallons. This calculation, shown in Table IV.B.3-1, helps inform the exercise of our waiver authorities. Second, we consider the historical supply of these fuels and the impact of the biodiesel tax policy on advanced biodiesel and renewable diesel use in the U.S. Next, we consider factors that could potentially limit the supply of these fuels including the production capacity of advanced biodiesel and renewable diesel production facilities, the ability for the market to distribute and use these fuels, the availability of feedstocks to produce these fuels, and fuel imports and exports. Based on our projection of the domestic growth in advanced biodiesel and renewable diesel feedstocks, we project a reasonably attainable volume of 2.75 billion gallons of advanced biodiesel and renewable diesel in 2020. Since this volume is lower than the 2.83 billion gallons we calculated would need to be supplied to meet the advanced requirement were we to exercise our maximum discretion under the cellulosic authority, we finally consider if additional supplies of advanced biodiesel and renewable diesel are attainable. Ultimately, we conclude that a volume of at least 2.83 billion gallons of advanced biodiesel and renewable diesel is attainable in 2020. We note that we have not attempted to determine the maximum attainable volume of these fuels. While the maximum attainable volume of advanced biodiesel and renewable diesel in 2020 is likely greater than 2.83 billion gallons we do not believe it would be appropriate to require a greater volume of these fuels due to the high cost and the increased likelihood of adverse unintended impacts associated with these fuels.

Calculating the volume of advanced biodiesel and renewable diesel that would be needed to meet the volume of advanced biofuel for 2020 is an important benchmark to help inform EPA's consideration of our waiver authorities. In situations where the reasonably attainable volume of biodiesel and renewable diesel exceeds the volume of these fuels that would be needed to meet the volume of advanced biofuel after reducing the advanced biofuel volume by the same amount as

the cellulosic biofuel volume, as was the case in 2017 and 2018, EPA may consider whether or not to allow additional volumes of these fuels to backfill for missing cellulosic biofuel volumes. In situations where the reasonably attainable volume of advanced biodiesel and renewable diesel is less than the volume of these fuels that would be needed to meet the volume of advanced biofuel after reducing the advanced biofuel volume by the same amount as the cellulosic biofuel volume, EPA may consider whether or not to use additional waiver authorities, to the extent available, to make further reductions to the advanced biofuel volume.

Table IV.B.3-1—Determination of Volume of Biodiesel and Renewable Diesel Needed in 2020 To Achieve 5.04 Billion Gallons of Advanced Biofuel

[Million ethanol-equivalent gallons except as noted]

Lowest 2020 advanced biofuel volume requirement permitted using under the cellulosic waiver authority

5,040

Cellulosic biofuel

540

Imported sugarcane ethanol

Other advanced

Calculated advanced biodiesel and renewable diesel needed (ethanol-equivalent gallons/physical gallons)

4,380/2,826

Having

calculated the volume of advanced biodiesel and renewable diesel that would need to be supplied to meet the volume of advanced biofuel for 2020 after reducing the advanced biofuel volume by the same amount as the cellulosic biofuel volume, EPA next projected the reasonably attainable volume of these fuels for 2020. With regard to advanced biodiesel and renewable diesel, there are many different factors that could potentially influence the reasonably attainable volume of these fuels used as transportation fuel or heating oil in the U.S. These factors include the availability of qualifying biodiesel and renewable diesel feedstocks, the production capacity of biodiesel and renewable diesel facilities (both in the U.S. and internationally), and the availability of imported volumes of these fuels.

A review of the volumes of advanced biodiesel and renewable diesel used in previous years is especially useful in projecting the potential for growth in the production and use of such fuels, since for these fuels there are a number of complex and inter-related factors beyond simply total production capacity (including the availability of advanced feedstocks, the expiration of the biodiesel tax credit, recent tariffs on biodiesel from Argentina and Indonesia, and other market-based factors) that are likely to affect the supply of advanced biodiesel and renewable diesel.

To calculate the volume of advanced biodiesel and renewable diesel that would generate the 4.38 billion RINs needed to meet the advanced biofuel volume EPA divided the 4.38 billion RINs by 1.55. 1.55 is the approximate average (weighted by the volume of these fuels expected to be produced in 2020) of the equivalence values for biodiesel (generally 1.5) and renewable diesel (generally 1.7).

Throughout this section we refer to advanced biodiesel and renewable diesel as well as advanced biodiesel and renewable diesel feedstocks. In this context, advanced biodiesel and renewable diesel refer to any biodiesel or renewable diesel for which RINs can be generated that satisfy an obligated party's advanced biofuel obligation (

i.e.,

D4 or D5 RINs). While cellulosic diesel (D7) also contributed towards an obligated party's advanced biofuel obligation, these fuels are discussed in Section III rather than in this section. An advanced biodiesel or renewable feedstock refers to any of the biodiesel, renewable diesel, jet fuel, and heating oil feedstocks listed in Table 1 to 40 CFR 80.1426 or in petition approvals issued pursuant to section 80.1416, that can be used to produce fuel that qualifies for D4 or D5 RINs. These feedstocks include, for example, soy bean oil; oil from annual cover crops; oil from algae grown photosynthetically; biogenic waste oils/fats/greases; non-food grade corn oil; camelina sativa oil; and canola/rapeseed oil (See pathways F, G, and H of Table 1 to section 80.1426).

In addition to a review of the volumes of advanced biodiesel and renewable diesel used in previous years, we believe the likely growth in production of feedstocks used to produce these fuels, as well as the total projected available volumes of these feedstocks, are important factors to consider. This is because while there are many factors that could potentially limit the production and availability of these fuels, the impacts of increasing production of advanced biodiesel and renewable diesel on factors such as costs, energy security, and GHG emissions are expected to vary depending on whether the feedstocks used to produce these fuels are sourced from waste sources or by-products of other industries (such as the production of livestock feed or ethanol production),

from the diversion of feedstocks from existing uses, or whether they drive increased oilseed production, or from the diversion of feedstocks from existing uses. The energy security and GHG reduction value associated with the growth in the use of advanced biofuels is greater when these fuels are produced from waste fats and oils or feedstocks that are byproducts of other industries (such as soybean oil from soybeans primarily grown as animal feed), rather than from materials that represent a switching of existing advanced feedstocks from other uses to renewable fuel production or the diversion of advanced biodiesel and renewable diesel from foreign markets. This is especially true if the parties that previously used the advanced biofuel or feedstocks replace these oils with low cost palm oil

or petroleum-derived products, as we believe would likely be the case in 2020.

In this case the global production of advanced biodiesel and renewable diesel would not increase, and the potential benefits associated with increasing the diversity of the supply of transportation fuel (energy security)

and the production of additional volumes of advanced biodiesel and renewable diesel (low GHG sources of transportation fuel) would be reduced.

Vegetable oils from oilseeds grown in the U.S. such as soybeans and canola are generally by-products or secondary products of the production of livestock feed. However, depending on the relative value of protein meal and vegetable oil, as well as the cost of production of oilseed crops, higher demand for vegetable oil can lead to increased planting of oilseed crops. Vegetable oil is the primary product of palm oil plantations, and demand for this oil is the primary driver for increased planting of palm oil plantations.

For instance, see the draft GHG assessment of palm oil biodiesel and renewable diesel at 77 FR 4300 (January 27, 2012).

We believe palm or petroleum-derived products would likely be used replace advanced biodiesel and renewable diesel diverted to the U.S. as these products are currently the lowest cost sources.

If qualifying vegetable oils that are diverted to produce biodiesel and renewable diesel in the U.S. are replaced with vegetable oil or petroleum products that would otherwise have been used in the transportation fuel pool there would be no increase in energy security. Conversely, if diverting vegetable oils to produce biodiesel and renewable diesel results in the increased production of vegetable oils or increased extraction of crude oil we would expect some energy security benefits.

a. Historical Supply of Biodiesel and Renewable Diesel

Before considering the projected growth in the production of qualifying feedstocks that could be used to produce advanced biodiesel and renewable diesel, as well as the total

volume of feedstocks that could be used to produce these fuels, it is helpful to review the volumes of biodiesel and renewable diesel that have been used in the U.S. in recent years. While historic data and trends alone are insufficient to project the volumes of biodiesel and renewable diesel that could be provided in future years, historic data can serve as a useful reference in considering future volumes. Past experience suggests that a high percentage of the biodiesel and renewable diesel used in the U.S. (from both domestic production and imports) qualifies as advanced biofuel.

In previous years, biodiesel and renewable diesel produced in the U.S. have been almost exclusively advanced biofuel.

Imports of advanced biodiesel increased through 2016, but were lower in 2017 and 2018, as seen in Table IV.B.2-1. Volumes of imported biodiesel and renewable diesel, which include both advanced and conventional biodiesel and renewable diesel, have varied significantly from year to year, as they are impacted both by domestic and foreign policies, as well as many economic factors.

From 2011 through 2018 approximately 96 percent of all biodiesel and renewable diesel supplied to the U.S. (including domestically produced and imported biodiesel and renewable diesel) qualified as advanced biodiesel and renewable diesel (14,214 million gallons of the 14,869 million gallons) according to EMTS data.

From 2011 through 2018 over 99.9 percent of all the domestically produced biodiesel and renewable diesel supplied to the U.S. qualified as advanced biodiesel and renewable diesel (12,268 million gallons of the 12,275 million gallons) according to EMTS data.

Table IV.B.3-2—Advanced (D4 and D5) Biodiesel and Renewable Diesel From 2011 to 2018

[Million gallons]

2011

2012

2013

2014

2015

2016

2017

2018

Domestic Biodiesel (Annual Change)

967 (N/A)

1,014 (+47)

1,377 (+363)

1,303 (−74)

1,253 (−50)

1,633 (+380)

1,573 (−60)

1,844 (+271)

Domestic Renewable Diesel (Annual Change)

62 (N/A)

23 (−39)

98 (+75)

156 (+58)

175 (+19)

226 (+51)

258 (+32)

306 (+48)

Imported Biodiesel (Annual Change)

44 (N/A)

40 (−4)

156 (+116)

130 (−26)

261 (+131)

562 (+301)

462 (−100)

173 (−289)

Imported Renewable Diesel (Annual Change)

0 (N/A)

28 (+28)

145 (+117)

129 (−16)

121 (−8)

170 (+49)

193 (+23)

185 (−8)

Exported Biodiesel and Renewable Diesel (Annual Change)

48 (N/A)

68 (+20)

83 (+15)

89 (+6)

96 (+7)

135 (+39)

171 (+36)

163 (−8)

Total

(Annual Change)

1,025 (N/A)

1,037 (+12)

1,693 (+656)

1,629 (−64)

1,714 (+85)

2,456 (+742)

2,315 (−141)

2,345 (+30)

All data from EMTS. EPA reviewed all advanced biodiesel and renewable diesel RINs retired for reasons other than demonstrating compliance with the RFS standards and subtracted these RINs from the RIN generation totals for each category in the table above to calculate the volume in each year.

RFS required volumes for these years were not established until December 2015.

Total is equal to domestic production of biodiesel and renewable plus imported biodiesel and renewable diesel minus exports.

Table IV.B.3-3—Conventional (D6) Biodiesel and Renewable Diesel From 2011 to 2018

[Million gallons]

2011

2012

2013

2014

2015

2016

2017

2018

Domestic Biodiesel (Annual Change)

0 (N/A)

0 (+0)

6 (+6)

1 (−5)

0 (+0)

Domestic Renewable Diesel (Annual Change)

0 (N/A)

0 (+0)

Imported Biodiesel (Annual Change)

0 (N/A)

0 (+0)

31 (+31)

52 (+21)

74 (+22)

113 (+39)

0 (−113)

0 (+0)

Imported Renewable Diesel (Annual Change)

0 (N/A)

0 (+0)

53 (+53)

0 (−53)

106 (+106)

43 (−63)

144 (+101)

33 (−111)

Exported Biodiesel and Renewable Diesel (Annual Change)

0 (N/A)

0 (+0)

1 (+1)

0 (−1)

0 (+0)

Total

(Annual Change)

0 (N/A)

0 (+0)

90 (+90)

53 (−37)

180 (+127)

155 (−25)

144 (−11)

33 (−111)

All data from EMTS. EPA reviewed all conventional biodiesel and renewable diesel RINs retired for reasons other than demonstrating compliance with the RFS standards and subtracted these RINs from the RIN generation totals for each category in the table above to calculate the volume in each year.

RFS required volumes for these years were not established until December 2015.

Total is equal to domestic production of biodiesel and renewable plus imported biodiesel and renewable diesel minus exports.

Since 2011, the year-over-year changes in the volume of advanced biodiesel and renewable diesel used in the U.S. have varied greatly, from a low of 141 million fewer gallons from 2016 to 2017 to a high of 742 million additional gallons from 2015 to 2016. These changes were likely influenced by multiple factors such as the cost of biodiesel feedstocks and petroleum diesel, the status of the biodiesel blenders tax credit, growth in marketing of biodiesel at high volume truck stops and centrally fueled fleet locations, demand for biodiesel and renewable diesel in other countries, biofuel policies in both the U.S. and foreign countries, and the volumes of renewable fuels (particularly advanced biofuels) required by the RFS. This historical information does not indicate that the maximum previously observed increase of 742 million gallons of advanced biodiesel and renewable diesel would be reasonable to expect in 2019 or 2020, nor does it indicate that the low (or negative) growth rates observed in other years would recur. Rather, these data illustrate both the magnitude of the changes in advanced biodiesel and renewable diesel in previous years and the significant variability in these changes.

The historic data indicates that the biodiesel tax policy in the U.S. can have a significant impact on the volume of biodiesel and renewable diesel used in the U.S. in any given year.

While the biodiesel blenders tax credit has applied in each year from 2010 to 2017, it has only been prospectively in effect during the calendar year in 2011, 2013, and 2016, while other years it has been applied retroactively. The biodiesel blenders tax credit expired at the end of 2009 and was re-instated in December 2010 to apply retroactively in 2010 and extend through the end of 2011. Similarly, after expiring at the end of 2011, 2013, and 2014 the tax credit was re-instated in January 2013 (for 2012 and 2013), December 2014 (for 2014), December 2015 (for 2015 and 2016), and February 2018 (for 2017). Each of the years in which the biodiesel blenders tax credit was in effect during the calendar year (2013 and 2016) resulted in significant increases in the volume of advanced biodiesel and renewable diesel used in the U.S. over the previous year (656 million gallons and 742 million gallons respectively). However, following these large increases in 2013 and 2016, there was little to no growth in the use of advanced biodiesel and renewable diesel in the following years: Only 21 million gallons from 2013 to 2015, negative 141 million gallons from 2016 to 2017, and 30 million gallons from 2017 to 2018. This decrease from 2016 to 2017 occurred even though the required volume of advanced biofuel increased from 3.61 in 2016 to 4.28 billion gallons in 2017. This pattern is likely the result of both accelerated production and/or importation of biodiesel and renewable diesel in the final few months of years during which the tax credit was available to take advantage of the expiring tax credit, as well as relatively lower volumes of biodiesel and renewable diesel production and import in 2014, 2015, and 2017 than would have occurred if the tax credit had been in place.

The availability of this tax credit also provides biodiesel and renewable diesel with a competitive advantage relative to other advanced biofuels that do not qualify for the tax credit.

The status of the tax credit does not impact our assessment of the reasonably attainable volume of advanced biodiesel and renewable diesel in 2020 as our assessment is primarily based on feedstock availability. The status of the tax credit may affect the maximum attainable volume of these fuels, but our assessment demonstrates that 2.83 billion gallons of advanced biodiesel and renewable diesel is attainable whether or not the tax credit is renewed prospectively (or retrospectively) for 2020.

We also acknowledge that EPA not finalizing the required volumes of renewable fuel under the RFS program for 2014 and 2015 until December 2015 likely affected the volume of advanced biodiesel and renewable diesel supplied in these years. Further, the preliminary tariffs on biodiesel imported from Argentina and Indonesia announced in August 2017 likely negatively affected the volume of biodiesel supplied in 2017 and 2018.

Another important factor highlighted by the historic data is the impact of the recently imposed tariffs imposed the U.S. on biodiesel imported from Argentina and Indonesia. In December 2017 the U.S. International Trade Commission adopted tariffs on biodiesel imported from Argentina and Indonesia.

According to data from EIA,

no biodiesel was imported from Argentina or Indonesia since September 2017, after a preliminary decision to impose tariffs on biodiesel imported from these countries was announced in August 2017. As a result of these tariffs, total imports of biodiesel into the U.S. were significantly lower in 2018 than they had been in 2016 and 2017. The decrease in imported biodiesel did not, however, result in a decrease in the volume of advanced biodiesel and renewable diesel supplied to the U.S. in 2018. Instead, higher domestic production of advanced biodiesel and renewable diesel, in combination with lower exported volumes of domestically produced biodiesel, resulted in an overall increase in the volume of advanced biodiesel and renewable diesel supplied in 2018.

“Biodiesel from Argentina and Indonesia Injures U.S. Industry, says USITC,” Available online at:

https://www.usitc.gov/press_room/news_release/2017/er1205ll876.htm.

See “EIA Biomass-Based Diesel Import Data” available in docket EPA-HQ-OAR-2019-0136.

The historical data suggests that the supply of advanced biodiesel and renewable diesel could potentially increase from the projected 2.35 billion gallons in 2018 to 2.83 billion gallons in 2020 (the projected volume needed to meet the advanced biofuel volume for 2020 after reducing the statutory advanced biofuel volume by the same amount as the cellulosic biofuel reduction). This would represent an average annual increase of approximately 240 million gallons from 2018 to 2020. These increases are very similar to the average increase in the volume of advanced biodiesel and renewable diesel used in the U.S. from 2011 through 2018 (190 million gallons per year) and significantly less than the highest annual increase during this time (742 million gallons from 2015 to 2016).

b. Assessment of Qualifying Feedstocks for Biodiesel and Renewable Diesel

After reviewing the historical volume of advanced biodiesel and renewable diesel used in the U.S. and considering the possible impact of the expiration of the biodiesel tax credit (discussed in Section IV.B.3.a), EPA next considers other factors that may impact the production, import, and use of advanced biodiesel and renewable diesel in 2020. The production capacity of registered advanced biodiesel and renewable diesel production facilities is highly unlikely to limit the production of these fuels, as the total production capacity for biodiesel and renewable diesel at registered facilities in the U.S. (4.1 billion gallons) exceeds the volume of these fuels that are projected to be needed to meet the advanced biofuel volume for 2020 after exercising the cellulosic waiver authority (2.83 billion gallons).

Significant registered production also exists internationally. Similarly, the ability for the market to distribute and use advanced biodiesel and renewable diesel appears unlikely constrain the growth of these fuels to a volume lower than 2.83 billion gallons. The investments required to distribute and use this volume of biodiesel and renewable diesel are expected to be manageable by the marketplace given the RIN value incentive, as this volume is less than 400 million gallons greater than the volume of biodiesel and renewable diesel produced, imported, and used in the U.S. in 2018.

The production capacity of the sub-set of biodiesel and renewable diesel producers that generated RINs in 2018 is approximately 2.9 billion gallons. See “Biodiesel and Renewable Diesel Registered Capacity (March 2019)” Memorandum from Dallas Burkholder to EPA Docket EPA-HQ-OAR-2019-0136.

Conversely, the availability of advanced feedstocks that can be used to produce advanced biodiesel and renewable diesel, as well as the availability of imported advanced biodiesel and renewable diesel, may be limited in 2020. We acknowledge that an increase in the required use of advanced biodiesel and renewable diesel could be realized through a diversion of advanced feedstocks from other uses, or a diversion of advanced biodiesel and renewable diesel from existing markets in other countries. Furthermore, the volume of advanced biodiesel and renewable diesel and their corresponding feedstocks projected to be produced globally exceeds the volume projected to be required in 2020 (2.83 billion gallons of advanced biodiesel and renewable diesel and the corresponding volume of advanced feedstocks) by a significant margin.

addition, actions unrelated to the RFS program, such as recent tariffs on soybeans exported to China, could result in increased supplies of domestic biodiesel feedstocks.

However, we expect that further increases in advanced biofuel and renewable fuel volumes would be increasingly likely to incur adverse unintended impacts.

The March 2019 WASDE projects production of vegetable oils in 2018/2019 in the World to be 203.93 million metric tons. This quantity of vegetable oil would be sufficient to produce approximately 58.3 billion gallons of biodiesel and renewable diesel. Global production of biodiesel is

projected to be 39.0 billion liters (10.3 billion gallons) in 2019 according to the July 2018 OECD-FAO Agricultural Outlook. Based on the projected production of biodiesel by country we estimate that approximately 85% of this biodiesel (all biodiesel except that produced in Columbia, Indonesia, Malaysia, and Thailand) could qualify as advanced biofuel if the feedstocks meet the definition of renewable biomass.

The potential impacts of this tariff on the availability of biodiesel feedstocks is discussed in our discussion of available vegetable oils in Section IV.B.3.c.

We perceive the net benefits to be lower both because of the potential disruption of the current biogenic fats, oils, and greases market, the associated cost impacts to other industries resulting from feedstock switching, and the potential adverse effect on lifecycle GHG emissions associated with feedstocks for biofuel production that would have been used for other purposes and which must then be backfilled with other feedstocks. Similarly, increasing the supply of biodiesel and renewable diesel to the U.S. by diverting fuel that would otherwise have been used in other countries results in higher lifecycle GHG emissions than if the supply of these fuels was increased by an increased collection of waste fats and oils or increased production of feedstocks that are byproducts of other industries, especially if this diversion results in increased consumption of petroleum fuels in the countries that would have otherwise consumed the biodiesel or renewable diesel. By focusing our assessment on the expected growth in the production of advanced feedstocks (rather than the total supply of these feedstocks in 2020, which would include feedstocks currently being used for non-biofuel purposes), we are attempting to minimize the incentives for the RFS program to increase the supply of advanced biodiesel and renewable diesel through feedstock switching or diverting biodiesel and renewable diesel from foreign markets to the U.S.

Advanced biodiesel and renewable diesel feedstocks include both waste oils, fats, and greases; and oils from planted crops. The projected growth in these feedstocks is expected to be modest relative to the volume of these feedstocks that are currently being used to produce biodiesel and renewable diesel. Most of the waste oils, fats, and greases that can be recovered economically are already being recovered and used in biodiesel and renewable diesel production or for other purposes. The availability of animal fats will likely increase with beef, pork, and poultry production. Most of the vegetable oil used to produce advanced biodiesel and renewable diesel that is sourced from planted crops comes from crops primarily grown for purposes other than providing feedstocks for biodiesel and renewable diesel, such as for livestock feed, with the oil that is used as feedstock for renewable fuel production a co-product or by-product.

This is true for soybeans and corn, which are the two largest sources of feedstock from planted crops used for biodiesel production in the U.S.

We do not believe that the increased demand for soybean oil or corn oil caused by a higher 2020 advanced biofuel standard would result in an increase in soybean or corn prices large enough to induce significant changes in agricultural activity.

However, we acknowledge that production of these feedstocks is likely to increase as crop yields, oil extraction rates, and demand for the primary products increase in 2020.

For example, corn oil is a co-product of corn grown primarily for feed or ethanol production, while soy and canola are primarily grown as livestock feed.

According to EIA data 7,542 million pounds of soy bean oil and 2,085 million pounds of corn oil were used to produce biodiesel in the U.S. in 2018. Other significant sources of feedstock were yellow grease (1,668 million pounds), canola oil (total volume withheld, but monthly data suggests greater than 700 million pounds), and white grease (618 million pounds). Numbers from EIA's April 2019 Monthly Biodiesel Production Report (With data for February 2019).

This position is supported by several commenters, including the South Dakota Soybean Association (EPA-HQ-OAR-2018-0167-0389), the International Council on Clean Transportation (EPA-HQ-OAR-2018-0167-0531), and the Union of Concerned Scientists (EPA-HQ-OAR-2018-0167-0535).

We believe the most reliable source for projecting the expected increase in vegetable oils in the U.S. is USDA's World Agricultural Supply and Demand Estimates (WASDE). At the time of our assessment for this proposed rule, the most current version of the WASDE report (February 2019) only projects domestic vegetable oil production through 2018/2019. Based on domestic vegetable oil production from 2010/2011 through 2018/2019 as reported by WASDE, the average annual increase in vegetable oil production in the U.S. was 0.34 million metric tons per year.

Assuming a similar increase in domestic vegetable oil production from 2018/2019 to 2019/2020, this additional quantity of vegetable oils could be used to produce approximately 97 million additional gallons of advanced biodiesel or renewable diesel in 2020 relative to 2018.

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According ot the February 2019 WASDE report, U.S. vegetable oil production in the 2018/2019 agricultural marketing year is projected to be 12.48 million metric tons. According to the January 2013 WASDE report, U.S. vegetable oil production in the 2010/2011 agricultural marketing year was 9.76 million metric tons.

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To calculate this volume, we have used a conversion of 7.7 pounds of feedstock per gallon of biodiesel or renewable diesel. This is based on the expected conversion of soybean oil (

http://extension.missouri.edu/p/G1990

), which is the largest source of feedstock used to produce advanced biodiesel and renewable diesel. Conversion rates for other types of vegetable oils used to produce biodiesel and renewable diesel are similar to those for soybean oil.

In the 2019 final rule we also noted that the WASDE projected a decrease in trade of both oilseeds and vegetable oils. This projected decrease in oilseed trade is likely due to tariffs enacted by China on soybean exports from the U.S. As noted in the 2019 final rule, the duration and ultimate impacts of these tariffs on total exports of U.S. soybeans are highly uncertain. As in the 2019 final rule, we did not include the potential biodiesel or renewable diesel that could theoretically be produced from the oilseeds and vegetable oil projected to remain in the U.S. due to reduced trade of these products in our projection of the reasonably attainable volumes. This is because any biodiesel and renewable diesel produced from soybeans previously exported to China are necessarily diverted from other uses (even if the reason for this diversion is the tariffs, rather than the RFS program), and biodiesel produced from these diverted feedstocks is therefore more likely to have the adverse unintended effects as previously discussed.

In addition to virgin vegetable oils, we also expect increasing volumes of distillers corn oil

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to be available for use in 2020. The WASDE report does not project distillers corn oil production, so EPA must use an alternative source to project the growth in the production of this feedstock. For this proposed rule we use results from the World Agricultural Economic and Environmental Services (WAEES) model to project the growth in the production of distillers corn oil.

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In assessing the

likely increase in the availability of distillers corn oil from 2019 to 2020, the authors of the WAEES model considered the effects of an increasing adoption rate of distillers corn oil extraction technologies at domestic ethanol production facilities, as well as increased corn oil extraction rates enabled by advances in this technology. The WAEES model projects that production of distillers corn oil will increase by approximately 120 million pounds from the 2018/2019 to the 2019/2020 agricultural marketing year. This quantity of feedstock could be used to produce approximately 15 million gallons of biodiesel or renewable diesel. We believe it is reasonable to use these estimates from the WAEES model for these purposes based on the projected increase in the use of corn oil extraction and corn oil yield increases.

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Distillers corn oil is non-food grade corn oil produced by ethanol production facilities.

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For the purposes of this rule, EPA relied on WAEES modeling results submitted as comments by the National Biodiesel Board on the 2019 proposed rule (Kruse, J., “Implications of an Alternative Advanced and Biomass Based Diesel Volume Obligation for Global Agriculture and Biofuels,” August 13, 2018, World Agricultural Economic and Environmental Services (WAEES)).

While much of the increase in advanced biodiesel and renewable diesel feedstocks produced in the U.S. from 2019 to 2020 is expected to come from virgin vegetable oils and distillers corn oil, increases in the supply of other sources of advanced biodiesel and renewable diesel feedstocks, such as biogenic waste oils, fats, and greases, may also occur. The WAEES model projects an increase of only 14 million gallons in the volume of biodiesel produced from feedstocks other than soybean oil, canola oil, and distillers corn oil from 2019 to 2020.

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Conversely, an assessment conducted by LMC in 2017 and submitted in comments on our 2018 proposed rule projected that the waste oil supply in the U.S. could increase by approximately 2.4 million metric tons from 2016 to 2022.

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This estimate represents a growth rate of approximately 0.4 billion tons per year, or enough feedstock to produce approximately 115 million gallons of biodiesel and renewable diesel per year. This estimate, however, only accounts for potential sources of feedstock and not for the economic viability of recovering waste oils.

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Kruse, J., “Implications of an Alternative Advanced and Biomass Based Diesel Volume Obligation for Global Agriculture and Biofuels,” August 13, 2018, World Agricultural Economic and Environmental Services.

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LMC International.

Global Waste Grease Supply.

August 2017 (EPA-HQ-OAR-2017-0091-3880).

In the proposal we are not simply using the results from the WAEES model to project increases in the use of biogenic waste fats, oils, and greases (FOG), but have conducted our own analysis. To project the likely increase in the use of biogenic FOG we used historical data to determine the increase in the use of these feedstocks to produce biodiesel and renewable diesel. From 2015-2017 biodiesel and renewable diesel produced from biogenic FOG increased by an average of 32 million gallons per year.

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This annual increase is higher than the increase in the use of these feedstocks projected by the WAEES model, but lower than the potential increase projected by LMC. We have included an additional 32 million gallons of advanced biodiesel and renewable diesel from FOG in our assessment of the reasonably attainable volume for 2020, consistent with the observed annual increase in advanced biodiesel and renewable diesel produced from these feedstocks in recent years.

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“Projections of FOG biodiesel and renewable diesel,” memorandum from David Korotney to EPA Docket, EPA-HQ-OAR-2019-0136.

In total, we expect that increases in feedstocks produced in the U.S. are sufficient to produce approximately 144 million more gallons of advanced biodiesel and renewable diesel in 2020 relative to 2019. This number includes 97 million gallons from increased vegetable oil production, 15 million gallons from increased corn oil production, and 32 million gallons from increased waste oil collection. This number does not include additional volumes related to decreases in exported volumes of soybeans or soybean oil to China as a result of tariffs. Decreased exports of soybeans and soybean oil represent feedstocks diverted from use in other countries, while any additional in the collection of waste oils is highly uncertain. Our projection also does not consider factors which could potentially decrease the availability of advanced biofuel feedstocks that could be used to produce biodiesel or renewable diesel, such as an increase in the volume of vegetable oils used in food markets or other non-biofuel industries. In our 2019 final rule, we determined that 2.61 billion gallons of advanced biodiesel and renewable diesel were reasonably attainable in 2019,

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therefore our projection of the reasonably attai

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