Renewable Fuel Standard (RFS) Program: RFS Annual Rules

Federal RegisterDec 21, 2021

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 80 and 1090

[EPA-HQ-OAR-2021-0324; FRL-8521-02-OAR]

RIN 2060-AV11

Renewable Fuel Standard (RFS) Program: RFS Annual Rules

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 standards every year to implement nationally applicable renewable fuel volume targets. This action proposes to modify the 2021 and 2022 statutory volume targets for cellulosic biofuel, advanced biofuel, and total renewable fuel, as well as to establish the 2022 volume target for biomass-based diesel. This action also proposes to modify the previously established cellulosic biofuel, advanced biofuel, and total renewable fuel volume requirements for 2020. In addition, this action proposes the 2020, 2021, and 2022 renewable fuel standards for all four of the above biofuel categories. Finally, 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 regulations for the use of biointermediates to produce qualifying renewable fuel, flexibilities for regulated parties, and clarifications of existing regulations.

DATES:

Comments.

Comments must be received on or before February 4, 2022.

Public hearing.

EPA announced information regarding the public hearing for this proposal in a

Federal Register

document published on December 10, 2021, at 86 FR 70426.

ADDRESSES:

Comments.

You may send your comments, identified by Docket ID No. EPA-HQ-OAR-2021-0324, by any of the following methods:

•

Federal eRulemaking Portal:

https://www.regulations.gov

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

•

Email:

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

Include Docket ID No. EPA-HQ-OAR-2021-0324 in the subject line of the message.

•

Mail:

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

•

Hand Delivery or Courier (by scheduled appointment only):

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 the full EPA public comment policy, information about confidential business information (CBI) or multimedia submissions, and general guidance on making effective comments, please visit

https://www.epa.gov/dockets/commenting-epa-dockets.

Out of an abundance of caution for members of the public and our staff, the EPA Docket Center and Reading Room are closed to the public, with limited exceptions, to reduce the risk of transmitting COVID-19. Our Docket Center staff will continue to provide remote customer service via email, phone, and webform. We encourage the public to submit comments via

https://www.regulations.gov

or email, as there may be a delay in processing mail and faxes. Hand deliveries and couriers may be received by scheduled appointment only. For further information on EPA Docket Center services and the current status, please visit us online at

https://www.epa.gov/dockets.

EPA continues to carefully and continuously monitor information from the Centers for Disease Control and Prevention (CDC), local area health departments, and our Federal partners so that we can respond rapidly as conditions change regarding COVID-19.

FOR FURTHER INFORMATION CONTACT:

Dallas Burkholder, Office of Transportation and Air Quality, Assessment and Standards Division, Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor, MI 48105; telephone number: 734-214-4766; email address:

RFS-Rulemakings@epa.gov.

Comments on this proposal should not be submitted to this email address, but rather through

https://www.regulations.gov

as discussed in the

ADDRESSES

section.

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, as well as renewable fuels such as ethanol, biodiesel, renewable diesel, and biogas. Potentially affected categories include:

Category

NAICS

codes

Examples of potentially affected entities

Industry

324110

Petroleum refineries.

Industry

325193

Ethyl alcohol manufacturing.

Industry

325199

Other basic organic chemical manufacturing.

Industry

424690

Chemical and allied products merchant wholesalers.

Industry

424710

Petroleum bulk stations and terminals.

Industry

424720

Petroleum and petroleum products merchant wholesalers.

Industry

221210

Manufactured gas production and distribution.

Industry

454319

Other fuel dealers.

North American Industry Classification System (NAICS).

This table is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be affected by this proposed action. This table lists the types of entities that EPA is now aware could potentially be affected by this proposed action. Other types of entities not listed in the table could also be affected. To determine whether your entity would be affected by this proposed action, you should carefully examine the applicability criteria in 40 CFR parts 80 and 1090. If you have any questions regarding the applicability of this proposed action to a particular entity, consult the person listed in the

FOR FURTHER INFORMATION CONTACT

section.

Outline of This Preamble

I. Executive Summary

A. Legal Authorities To Modify and Establish Renewable Fuel Volumes

B. 2020 Volumes

C. 2021 Volumes

D. 2022 Volumes

E. Response to the ACE Remand

F. Annual Percentage Standards

G. Biointermediates

H. Other Changes

I. Environmental Justice

J. Endangered Species Act

II. Legal Authorities To Reduce and Establish Volumes

A. Authorities To Modify Statutory Volumes Targets

B. Authority To Establish BBD Volumes

C. Considerations for Retroactive and Late Rulemaking

D. Considerations in Revisiting an Established RFS Standard

E. Applicability of Legal Authorities To Establish the Volume Requirements

F. Severability

III. Proposed Volumes

A. EPA's Assessment of the Statutory Factors for Each Component Category of Biofuel

B. Proposed Volumes for 2020

C. Proposed Volumes for 2021

D. Proposed Volumes for 2022

E. Proposed Biomass-Based Diesel Volume for 2022

F. Summary of the Proposed Volumes

G. Impacts of the Proposed Volumes

IV. Interactions Between the RFS Annual Volumes

A. Treatment of Carryover RINs

B. Ability for the RFS Volumes To Impact Renewable Fuel Supply

V. Response to

ACE

Remand

A. Reevaluating the 2014-2016 Annual Rule

B. Consideration of Approaches for Responding to the ACE Remand

C. Demonstrating Compliance With the 2022 Supplemental Standard

D. Authority and Consideration of the Benefits and Burdens

E. Calculating a Supplemental Percentage Standard for 2022

VI. Percentage Standards

A. Calculation of Percentage Standards

B. Small Refineries and Small Refiners

C. Modification of the 2020 Biomass-Based Diesel Percentage Standard

D. Proposed Standards

VII. Biointermediates

A. Background

B. Re-Proposal of Biointermediates Provisions Previously Proposed in REGS

C. Changes to the Biointermediates Provisions Previously Proposed in the REGS Rule

D. Other Considerations Related to Biointermediates

VIII. Amendments to Fuel Quality and RFS Regulations

A. BBD Conversion Factor for Percentage Standard

B. Changes to Registration for Baseline Volume

C. Changes to Attest Engagements for Parties Owning RINs (“RIN Owner Only”)

D. Public Access to Information

E. Clarifying the Definition of “Agricultural Digester”

F. Definition of “Produced from Renewable Biomass”

G. Estimating Landfill Emissions for Lifecycle GHG Analysis of Fuels Produced From Separated Municipal Solid Waste

H. Technical Corrections and Clarifications

IX. Statutory and Executive Order Reviews

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

B. Paperwork Reduction Act (PRA)

C. Regulatory Flexibility Act (RFA)

D. Unfunded Mandates Reform Act (UMRA)

E. Executive Order 13132: Federalism

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

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

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

I. National Technology Transfer and Advancement Act (NTTAA) and 1 CFR part 51

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

X. Statutory Authority

A red-line version of the regulatory language that incorporates the proposed changes in this action is available in the docket for this action.

I. Executive Summary

The Renewable Fuel Standard (RFS) program began in 2006 pursuant to the requirements of the Energy Policy Act of 2005 (EPAct), which were codified in Clean Air Act (CAA) section 211(o). The statutory requirements were subsequently amended by the Energy Independence and Security Act of 2007 (EISA). The statute sets forth annual, nationally applicable volume targets for each of the four categories of renewable fuel. It also directs EPA to modify or establish volume targets in certain circumstances. EPA must then translate the volume targets into compliance obligations that obligated parties must meet every year.

In this action we are proposing the applicable volumes for cellulosic biofuel, advanced biofuel, and total renewable fuel for 2021 and 2022, and the biomass-based diesel (BBD) applicable volume for 2022,

as well as to modify the applicable volumes that EPA previously established for cellulosic biofuel, advanced biofuel, and total renewable fuel for 2020.

2 3

We are also proposing the annual percentage standards (also known as “percent standards”) for cellulosic biofuel, BBD, advanced biofuel, and total renewable fuel that would apply to gasoline and diesel produced or imported by obligated parties in 2020, 2021, and 2022. In addition, we are also proposing to address the remand of the 2014-2016 annual rule by the D.C. Circuit Court of Appeals, in

Americans for Clean Energy

EPA,

864 F.3d 691 (2017) (hereafter “

ACE

”) by proposing a supplemental volume of 250 million gallons in 2022, and we intend to propose an additional supplemental volume of 250 million gallons for 2023 in a subsequent action.

The 2021 BBD volume requirement was established in the 2020 final rule. 85 FR 7016 (February 6, 2020).

85 FR 7016 (February 6, 2020).

As explained in Section II, we did not trigger the reset authority for BBD. Thus, we are not proposing to reset the previously finalized 2020 and 2021 BBD volumes. In addition, actual BBD use in both 2020 and 2021 is projected to exceed the previously finalized volumes, so we see no need to retroactively reconsider the BBD volumes in any event. As discussed in Section III.E, we are proposing to set the 2022 BBD volume pursuant our “set” authority under CAA section 211(o)(2)(B)(ii)).

Table I-1—Proposed Volume Requirements

[Billion RINs]

Category

2020

2021

2022

Cellulosic Biofuel

0.51

0.62

0.77

Biomass-Based Diesel

2.43

2.76

Advanced Biofuel

4.63

5.20

5.77

Total Renewable Fuel

17.13

18.52

20.77

Supplemental Standard

n/a

0.25

One Renewable Identification Number (RIN) is equivalent to one ethanol-equivalent gallon of renewable fuel. Throughout this preamble, RINs are generally used to describe total volumes in each of the four categories shown above, while gallons are generally used to describe volumes for individual types of biofuel such as ethanol, biodiesel, renewable diesel, etc. Exceptions include BBD, which is always given in physical volumes, and biogas and electricity, which are always given in RINs.

The BBD volumes are in physical gallons (rather than RINs).

Established in the 2019 RFS annual rule (83 FR 63704, December 11, 2018).

Established in the 2020 RFS annual rule (85 FR 7016, February 6, 2020).

Finally, we are proposing several regulatory changes to the RFS program, including regulations for the use of biointermediates to produce qualifying renewable fuel, flexibilities for regulated parties, and clarifications of existing regulations.

A. Legal Authorities To Modify and Establish Renewable Fuel Volumes

For the 2020, 2021, and 2022 cellulosic biofuel, advanced biofuel, and total renewable fuel volumes, EPA is fulfilling our statutory obligation to “reset” the statutory volumes in accordance with CAA section 211(o)(7)(F). This provision, entitled “Modification of Applicable Volumes,” provides that, if a waiver of any statutory volume target exceeds specified thresholds, EPA shall modify or “reset” the statutory volume targets for all years following the year that the threshold was exceeded. This obligation has been triggered by EPA actions waiving volumes in previous annual standard-setting rulemakings. Under this statutory provision, we are proposing new volume targets for cellulosic biofuel, advanced biofuel, and total renewable fuel for 2020, 2021, and 2022.

As we explain further in Section II, we are also independently justifying the 2020, 2021, and 2022 cellulosic biofuel volumes and the 2022 advanced biofuel and total renewable fuel volumes under the cellulosic waiver authority.

When resetting the statutory targets, EPA must comply with the processes, criteria, and standards set forth in CAA section 211(o)(2)(B)(ii). In addition to reviewing the implementation of the program during previous years and coordinating with the Secretary of Energy and the Secretary of Agriculture, EPA must also analyze several factors:

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

• The impact of renewable fuels on the energy security of the U.S.;

• The expected annual rate of future commercial production of renewable fuels, including advanced biofuels in each category (cellulosic biofuel and BBD);

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

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

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

With respect to the 2022 BBD volume, we are setting this volume under CAA section 211(o)(2)(B)(ii). The requirement to reset the statutory volume targets does not apply to BBD. However, CAA section 211(o)(2)(B)(ii) separately requires that EPA set the BBD volume for years including 2022 based on an analysis of the same statutory factors as the reset authority.

In addition to these statutory provisions, the D.C. Circuit has also established principles that EPA must follow when promulgating RFS rulemakings after the statutory deadline as well as retroactive RFS rulemakings.

Namely, EPA has authority to promulgate such RFS rules, but EPA must reasonably consider and mitigate the burdens on obligated parties. Several aspects of this rulemaking are either retroactive or will be finalized after the statutory deadline, or both. Therefore we consider this caselaw as required by the court. We further discuss all our legal authorities to modify or establish volumes in Section II.

See,

e.g., Americans for Clean Energy

EPA,

864 F.3d 691 (D.C. Cir. 2017);

Monroe Energy, LLC

EPA,

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

Nat'l Petrochemical & Refiners Ass'n

EPA,

630 F.3d 145, 154-58 (D.C. Cir. 2010).

B. 2020 Volumes

EPA established the applicable 2020 volume requirements and percentage standards in late 2019.

Since we promulgated those standards, several significant and unanticipated events occurred that affected the fuels markets in 2020. The two most prominent of these events were:

85 FR 7016 (February 6, 2020).

• The COVID-19 pandemic and the ensuing fall in transportation fuel demand, especially the disproportionate fall in gasoline demand relative to diesel demand, which significantly reduced the production and use of biofuels in 2020 below the volumes we anticipated could be achieved, and

• The potential that the volume of gasoline and diesel exempted from 2020 RFS obligations through small refinery exemption (SREs) will be far lower than projected in the 2020 final rule.

These events are expected to adversely affect the ability of obligated parties to comply with the applicable standards and to achieve the intended volumes in the 2020 final rule.

As a result, we are proposing to retroactively adjust the 2020 volumes and standards to reflect the actual volumes of renewable fuels and transportation fuel consumed in the U.S. As we discuss further in Sections III and IV, these revised volumes are supported by our analysis of the statutory factors that we must consider when resetting RFS volumes.

EPA extended the 2020 compliance deadline for obligated parties to January 31, 2022 (86 FR 17073, April 1, 2021). We have proposed to further extend that deadline in a separate action (86 FR 67419, November 26, 2021).

C. 2021 Volumes

We are proposing volumes for 2021 that are equal to our projection of the volume of cellulosic biofuel, advanced biofuel, and total renewable fuel that will be used in the U.S. in 2021. Much like our proposed volumes for 2015,

which were similarly retroactive and promulgated after the statutory

deadline, these volume projections are based on actual renewable fuel use for months in 2021 where data are available and projections of renewable fuel use for the remainder of the year. These volumes include both renewable fuel that is produced domestically as well as imported renewable fuel that is used in the U.S. As discussed in further detail in Sections III and IV of this proposal, we believe this approach for 2021 is appropriate based on our analysis of the statutory factors EPA must analyze when resetting the RFS volumes, including our finding that this retroactive rulemaking has limited ability to incentivize increased production and use of renewable fuel in 2021.

80 FR 33100 (June 10, 2015).

D. 2022 Volumes

The proposed volumes for 2022 are significantly higher than the proposed volumes for 2020 and 2021. As we discuss further in Sections III and IV, these volumes are based on our analysis of the statutory factors, including our assessment of the ability for the RFS program to incentivize increased production and use of renewable fuel in 2022, the statutory intent to support increasing production and use of renewable fuels, and the potential positive impacts of renewable fuels on several of the statutory factors such as climate change and energy security. The proposed volumes for 2022 also reflect the adverse impacts of biofuels on some statutory factors, including market and infrastructure constraints to the ability of RFS annual volume requirements to incentivize increased production and use of renewable fuel in the near term. These constraints include the commercial availability of cellulosic biofuel, the price and availability of feedstocks, and the availability of infrastructure to distribute higher level blends of ethanol.

E. Response to the ACE Remand

In 2015, EPA established the total renewable fuel standard for 2016. As part of that rule, we relied upon the general waiver authority under a finding of inadequate domestic supply to reduce the total renewable fuel volume target by 500 million gallons.

Several parties challenged that action, and in

ACE

the U.S. Court of Appeals for the D.C. Circuit vacated EPA's use of the general waiver authority, finding that such use exceeded EPA's authority under the CAA. Specifically, EPA had impermissibly considered demand-side factors in its assessment of inadequate domestic supply, rather than limiting that assessment to supply-side factors. The court remanded the rule back to EPA for further consideration.

See 80 FR 77420 (December 14, 2015); CAA section 211(o)(7)(A)(ii).

We now intend to restore the full 500 million gallons that we improperly waived in the 2016 rule but to do so over two years. Specifically, as we discuss further in Section V, we are proposing to add a supplemental volume obligation of 250 million gallons to the proposed 2022 standards. We also intend to propose an additional supplemental volume of 250 million gallons for 2023 in a subsequent action.

F. Annual Percentage Standards

The statute directs EPA to establish annual standards that translate the nationally applicable volume targets into compliance obligations on obligated parties. In this action, EPA is proposing annual standards for 2020, 2021, and 2022 for all four categories of renewable fuel. We are also proposing a supplemental standard to address the

ACE

remand, which will apply in the 2022 compliance year.

The renewable fuel standards are expressed as a volume percentage and are used by each refiner and importer of fossil-based gasoline or diesel to determine their renewable fuel volume obligations. The specific formulas we use in calculating the renewable fuel percentage standards are found in 40 CFR 80.1405. Four separate percentage standards are required under the RFS program, corresponding to the four separate renewable fuel categories shown in Table I-1. The proposed standards are shown in Table I.E-1. Details, including the projected gasoline and diesel volumes used, can be found in Section VI.

In the 2020 standards final rule, we modified the formulas used to calculate the percentage standards to account for a projection of exempt gasoline and diesel volumes produced by small refineries.

Subsequent to the promulgation of that rule, the Tenth Circuit Court of Appeals vacated three EPA SRE decisions as exceeding our statutory authority in

Renewable Fuels Association

EPA

(hereinafter

RFA

Most recently, the Supreme Court, in

HollyFrontier

Renewable Fuels Association

(hereinafter

HollyFrontier

), vacated one of the bases for the

RFA

decision, holding that small refineries need not have had continuous exemptions since the original statutory exemption, but did not opine on the other two holdings in

RFA

because those issues were not appealed to the Court. We continue to consider the impact of these decisions on our SRE policy, and it is still unclear at this time whether we will be granting SREs for 2020, 2021, or 2022, and if so, to what degree. Thus, we are proposing a range of exempted volumes of gasoline and diesel as a result of SREs in the calculation of the applicable percentage standards, ranging from zero to 8.19 billion gallons.

85 FR 7016 (February 6, 2020).

Renewable Fuels Ass'n

EPA,

948 F.3d 1206 (10th Cir. 2020),

rev'd in part sub nom., HollyFrontier Cheyenne Refining, LLC,

Renewable Fuels Ass'n,

114 S. Ct. 2172 (2021).

The resulting range in the proposed percentage standards is shown in Table I.F-1.

Table I.F-1—Proposed Percentage Standards

Category

2020

Low

(%)

High

(%)

2021

Low

(%)

High

(%)

2022

Low

(%)

High

(%)

Cellulosic Biofuel

0.32

0.34

0.36

0.38

0.44

0.46

Biomass-Based Diesel

2.37

2.50

2.19

2.30

2.42

2.54

Advanced Biofuel

2.91

3.07

3.03

3.18

3.27

3.42

Renewable Fuel

10.78

11.36

10.79

11.33

11.76

12.33

Supplemental Standard

n/a

0.14

0.15

Low values do not include any projected exempted gasoline and diesel volumes from SREs. High values include 8.19 billion gallons of projected exempted gasoline and diesel from SREs.

G. Biointermediates

Since the RFS2 program was finalized in 2010, we have been made increasingly aware of renewable fuel producers that would like to process fuel at more than one facility. Specifically, renewable fuel producers would like to first have a facility process renewable biomass into a proto-renewable fuel (or “biointermediate”) and then have a second, separate facility process that biointermediate into renewable fuel. In some cases, it may be preferable for economic or practical reasons for renewable biomass to be subjected to substantial pre-processing at one facility before being sent to a different facility where it is converted into renewable fuel. For example, renewable biomass may be converted into a biointermediate (such as a biocrude) at one facility that requires some additional processing at a different facility before it can be used as transportation fuel. These production methodologies have the potential to lower the cost of using cellulosic and other feedstocks for the production of renewable fuels by reducing capital costs for new facilities and/or the storage and transportation costs associated with feedstock handling—especially for cellulosic biomass. Thus, we believe that such technologies provide an opportunity for the future growth in production of the cellulosic biofuels required under the RFS program. Based on this potential for future growth, in 2016 we included in the proposed the Renewables Enhancement and Growth Support (REGS) rule provisions to allow for the production, transfer, and use of biointermediates to generate qualifying renewable fuel under the RFS program.

See 81 FR 80828 (November 16, 2016).

Due to the elapsed time since the proposed REGS rule and our continued consideration of how to most effectively allow biointermediates into the program, we are proposing anew provisions to allow for the use of biointermediates to produce qualifying renewable fuels. Consistent with what we previously proposed in the REGS rule, these provisions specify requirements that apply when renewable fuel is produced through sequential operations at more than one facility. These provisions center around the production, transfer, and use of biointermediates and the creation of new regulatory requirements related to registration, recordkeeping, and reporting for facilities producing or using a biointermediate for renewable fuel production. We are reproposing many of the proposed biointermediate provisions from the REGS rule without significant changes, making significant changes to some of the previously proposed provisions, and proposing some provisions for the first time here. We further discuss biointermediates in Section VII.

H. Other Changes

We have identified several areas where regulatory changes would assist EPA in implementing our fuel quality and RFS programs. These proposed regulatory changes include:

• Changing the BBD weighting factor from 1.50 to 1.55

• Changes to registration for baseline volumes

• Changes to attest engagements for parties owning Renewable Identification Numbers (RINs)

• Treatment of confidential business information

• Clarifying the definition of “agricultural digesters”

• Adding a definition of “produced from renewable biomass”

• Other minor changes and technical corrections

Each of these regulatory changes is discussed in greater detail in Section VIII. In Section VIII, we also seek comment on potential changes to our treatment of landfill emissions in our lifecycle greenhouse gas (GHG) analysis for fuels produced from separated municipal solid waste.

I. Environmental Justice

Executive Order 12898 (59 FR 7629, February 16, 1994) establishes Federal executive policy on environmental justice (“EJ”). It directs Federal agencies, to the greatest extent practicable and permitted by law, to make achieving EJ part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and low-income populations in the United States. EPA defines EJ as the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies.

Executive Order 14008 (86 FR 7619, February 1, 2021) also calls on Federal agencies to make achieving EJ part of their missions “by developing programs, policies, and activities to address the disproportionately high and adverse human health, environmental, climate-related and other cumulative impacts on disadvantaged communities, as well as the accompanying economic challenges of such impacts.” It also declares a policy “to secure environmental justice and spur economic opportunity for disadvantaged communities that have been historically marginalized and overburdened by pollution and under-investment in housing, transportation, water and wastewater infrastructure and health care.” EPA also released its “Technical Guidance for Assessing Environmental Justice in Regulatory Analysis” providing recommendations on conducting the highest quality analysis feasible, recognizing that data limitations, time and resource constraints, and analytic challenges will vary by media and regulatory context.

See,

e.g.,

“Environmental Justice.”

Epa.gov,

Environmental Protection Agency, 4 Mar. 2021,

https://www.epa.gov/environmentaljustice.

The definitions and criteria for “disproportionate impacts,” “difference,” and “differential” are contained in EPA's June 2016 guidance document “Technical Guidance for Assessing Environmental Justice in Regulatory Analysis.”

Epa.gov,

Environmental Protection Agency,

https://www.epa.gov/sites/production/files/2016-06/documents/ejtg_5_6_16_v5.1.pdf.

When assessing the potential for disproportionately high and adverse health or environmental impacts of regulatory actions on minority populations, low-income populations, tribes, and/or indigenous peoples, EPA strives to answer three broad questions: (1) Is there evidence of potential EJ concerns in the baseline (the state of the world absent the regulatory action)? Assessing the baseline will allow EPA to determine whether pre-existing disparities are associated with the pollutant(s) under consideration (

e.g.,

if the effects of the pollutant(s) are more concentrated in some population groups). (2) Is there evidence of potential EJ concerns for the regulatory option(s) under consideration? Specifically, how are the pollutant(s) and their effects distributed for the regulatory options under consideration? And, (3) do the regulatory option(s) under consideration exacerbate or mitigate EJ concerns relative to the baseline? It is not always possible to assess these questions in ways that produce quantitative results, though it may still be possible to describe them qualitatively.

EPA's 2016 Technical Guidance does not prescribe or recommend a specific approach or methodology for conducting an EJ analysis, though a key consideration is consistency with the assumptions underlying other parts of the regulatory analysis when evaluating

the baseline and regulatory options. Where applicable and practicable, the Agency endeavors to conduct such an analysis. Going forward, EPA is committed to conducting EJ analysis for rulemakings based on a framework similar to what is outlined in EPA's Technical Guidance, in addition to investigating ways to further weave EJ into the fabric of the rulemaking process.

In 2009, under the

Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act

(“Endangerment Finding”), the Administrator considered how climate change threatens the health and welfare of the U.S. population. As part of that consideration, he also considered risks to minority and low-income individuals and communities, finding that certain parts of the U.S. population may be especially vulnerable based on their characteristics or circumstances. These groups include economically and socially disadvantaged communities; individuals at vulnerable lifestages, such as the elderly, the very young, and pregnant or nursing women; those already in poor health or with comorbidities; the disabled; those experiencing homelessness, mental illness, or substance abuse; and/or Indigenous or minority populations dependent on one or limited resources for subsistence due to factors including but not limited to geography, access, and mobility.

Scientific assessment reports produced over the past decade by the U.S. Global Change Research Program (USGCRP),

15 16

the Intergovernmental Panel on Climate Change (IPCC),

17 18 19 20

and the National Academies of Science, Engineering, and Medicine

21 22

add more evidence that the impacts of climate change raise potential EJ concerns. These reports conclude that poorer or predominantly non-White communities can be especially vulnerable to climate change impacts because they tend to have limited adaptive capacities and are more dependent on climate-sensitive resources such as local water and food supplies, or have less access to social and information resources. Some communities of color, specifically populations defined jointly by ethnic/racial characteristics and geographic location, may be uniquely vulnerable to climate change health impacts in the United States. In particular, the 2016 scientific assessment on the

Impacts of Climate Change on Human Health

found with high confidence that vulnerabilities are place- and time-specific, lifestages and ages are linked to immediate and future health impacts, and social determinants of health are linked to greater extent and severity of climate change-related health impacts.

USGCRP, 2018:

Impacts, Risks, and Adaptation in the United States: Fourth National Climate Assessment, Volume II

[Reidmiller, D.R., C.W. Avery, D.R. Easterling, K.E. Kunkel, K.L.M. Lewis, T.K. Maycock, and B.C. Stewart (eds.)]. U.S. Global Change Research Program, Washington, DC, USA, 1515 pp. doi: 10.7930/NCA4.2018.

USGCRP, 2016: The Impacts of Climate Change on Human Health in the United States: A Scientific Assessment. Crimmins, A., J. Balbus, J.L. Gamble, C.B. Beard, J.E. Bell, D. Dodgen, R.J. Eisen, N. Fann, M.D. Hawkins, S.C. Herring, L. Jantarasami, D.M. Mills, S. Saha, M.C. Sarofim, J. Trtanj, and L. Ziska, Eds. U.S. Global Change Research Program, Washington, DC, 312 pp.

http://dx.doi.org/10.7930/J0R49NQX.

Oppenheimer, M., M. Campos, R.Warren, J. Birkmann, G. Luber, B. O'Neill, and K. Takahashi, 2014: Emergent risks and key vulnerabilities. In: Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part A: Global and Sectoral Aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Field, C.B., V.R. Barros, D.J. Dokken, K.J. Mach, M.D. Mastrandrea, T.E. Bilir, M. Chatterjee, K.L. Ebi, Y.O. Estrada, R.C. Genova, B. Girma, E.S. Kissel, A.N. Levy, S. MacCracken, P.R. Mastrandrea, and L.L.White (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA, pp. 1039-1099.

Porter, J.R., L. Xie, A.J. Challinor, K. Cochrane, S.M. Howden, M.M. Iqbal, D.B. Lobell, and M.I. Travasso, 2014: Food security and food production systems. In: Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part A: Global and Sectoral Aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Field, C.B., V.R. Barros, D.J. Dokken, K.J. Mach, M.D. Mastrandrea, T.E. Bilir, M. Chatterjee, K.L. Ebi, Y.O. Estrada, R.C. Genova, B. Girma, E.S. Kissel, A.N. Levy, S. MacCracken, P.R. Mastrandrea, and L.L. White (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA, pp. 485-533.

Smith, K.R., A. Woodward, D. Campbell-Lendrum, D.D. Chadee, Y. Honda, Q. Liu, J.M. Olwoch, B. Revich, and R. Sauerborn, 2014: Human health: Impacts, adaptation, and co-benefits. In: Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part A: Global and Sectoral Aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Field, C.B., V.R. Barros, D.J. Dokken, K.J. Mach, M.D. Mastrandrea, T.E. Bilir, M. Chatterjee, K.L. Ebi, Y.O. Estrada, R.C. Genova, B. Girma, E.S. Kissel, A.N. Levy, S. MacCracken, P.R. Mastrandrea, and L.L. White (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA, pp. 709-754.

IPCC, 2018: Global Warming of 1.5 °C. An IPCC Special Report on the impacts of global warming of 1.5 °C above pre-industrial levels and related global greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts to eradicate poverty [Masson-Delmotte, V., P. Zhai, H.-O. Pörtner, D. Roberts, J. Skea, P.R. Shukla, A. Pirani, W. Moufouma-Okia, C. Péan, R. Pidcock, S. Connors, J.B.R. Matthews, Y. Chen, X. Zhou, M.I. Gomis, E. Lonnoy, T. Maycock, M. Tignor, and T. Waterfield (eds.)]. In Press.

National Research Council. 2011. America's Climate Choices. Washington, DC: The National Academies Press.

https://doi.org/10.17226/12781.

National Academies of Sciences, Engineering, and Medicine. 2017. Communities in Action: Pathways to Health Equity. Washington, DC: The National Academies Press.

https://doi.org/10.17226/24624.

This proposed rule has the potential to reduce GHG emissions which would benefit all populations including minority populations, low-income populations, and indigenous populations. The manner in which the market responds to the provisions in this proposed rule could also have non-GHG impacts. For instance, replacing petroleum fuels with renewable fuels could have impacts on water, air, and hazardous waste exposure for communities living near either existing or new facilities that produce these fuels. Replacing petroleum fuels with renewable fuels could also impact feedstock supplies and land-use, which could impact a range of communities through their impacts on air, water, and soil quality, as well as water quantity. Impacts on water quality in particular could impact communities that rely on aquatic ecosystems for income or sustenance, including indigenous peoples. While replacing petroleum fuels with renewable fuels is projected to cause small increases in food and fuel prices, these price impacts also may disproportionately affect low-income populations who spend a larger portion of their income on food and fuel.

The extent to which such changes may be unevenly distributed spatially in ways that coincide with patterns of pre-existing exposure and vulnerabilities for minority populations, low income populations, and/or indigenous peoples is uncertain and would require predicting where these changes in production and land use change would occur at a fine spatial scale. EPA is taking comment on ways in which such effects could be better evaluated for future rulemakings. A more detailed discussion of potential EJ concerns as a result of this action can be found in Chapter 8 of the Draft Regulatory Impacts Analysis (DRIA), available in the docket for this action.

J. Endangered Species Act

Section 7(a)(2) of the Endangered Species Act (ESA), 16 U.S.C. 1536(a)(2), requires that Federal agencies such as EPA, along with the U.S. Fish and Wildlife Service (USFWS) and/or the National Marine Fisheries Service (NMFS) (collectively “the Services”), ensure that any action authorized, funded, or carried out by the agency is not likely to jeopardize the continued existence of any endangered or threatened species or result in the destruction or adverse modification of designated critical habitat for such species. Under relevant implementing regulations, consultation is required

only for actions that “may affect” listed species or designated critical habitat. 50 CFR 402.14. Consultation is not required where the action has no effect on such species or habitat. For several prior RFS annual standard-setting rules, EPA did not consult with the Services under section 7(a)(2).

On September 6, 2019, the United States Court of Appeals for the D.C. Circuit decided

American Fuel & Petrochemical Manufacturers

EPA,

937 F.3d 559 (2019), finding that EPA had failed to make an effects determination for ESA purposes with regard to the 2018 RFS rule and remanding the rule without vacatur to the Agency to make an appropriate effects determination.

See id.

at 598.

On July 16, 2021, the same court decided

Growth Energy

EPA,

5 F.4th 1 (2021), finding that EPA's determination that the 2019 RFS rule would have no effect on listed species or the designated critical habitat of such species was arbitrary and capricious and remanding the rule to the Agency without vacatur to comply with the ruling.

See id.

at 32.

In light of this case law pertaining to EPA's action in prior years and consistent with section 7(a)(2) of the ESA and relevant ESA implementing regulations at 50 CFR part 402, EPA intends to initiate consultation, as appropriate, with the Services regarding this proposed rule.

At this time, EPA is evaluating whether any federally listed threatened or endangered species or their critical habitat are likely to be adversely affected by the finalization of this rulemaking.

EPA also intends to respond to the court's remand of the 2018 and 2019 RFS rules in a separate proceeding. We are not revisiting our ESA obligations related to the 2018 or 2019 rules in this rulemaking; any comments received on those topics will be deemed beyond the scope of this rulemaking.

II. Legal Authorities To Reduce and Establish Volumes

The CAA provides EPA with several authorities to reduce or establish the applicable renewable fuel volumes. This section discusses the statutory authorities, additional factors we are considering due to the retroactivity or lateness of parts of this rulemaking, additional factors related to our reconsideration of the previously finalized standards for 2020, how we are applying our authorities to propose these volumes, as well as the severability of the various portions of this proposed rule.

A. Authorities To Modify Statutory Volumes Targets

In CAA section 211(o)(2), Congress specified increasing annual volume targets for total renewable fuel, advanced biofuel, and cellulosic biofuel for each year through 2022. However, Congress also recognized that under certain circumstances it would be appropriate for EPA to set different volume requirements than the statutory volume targets and thus provided waiver provisions in CAA section 211(o)(7). In this proposal, we are utilizing the cellulosic waiver authority under CAA section 211(o)(7)(D), and the reset authority under CAA section 211(o)(7)(F) to reduce volumes for 2020, 2021, and 2022. As discussed below, while we have previously sought comment on the use of general waiver authority to reduce volumes for 2020, the reductions proposed in this action are based on the use of our other authorities.

1. Cellulosic Waiver Authority.

Section 211(o)(7)(D)(i) of the CAA provides that if EPA determines that the projected volume of cellulosic biofuel production for a given year is less than the applicable volume specified in the statute, then EPA must reduce the applicable volume of cellulosic biofuel required to the projected volume available for that calendar year. In making this projection, EPA must take a “neutral aim at accuracy.”

API

EPA,

706 F.3d 474, 479 (D.C. Cir. 2013). Pursuant to this provision, EPA has set the cellulosic biofuel requirement lower than the statutory volume for each year since 2010.

CAA section 211(o)(7)(D)(i) also provides EPA with the authority to reduce the applicable volume of total renewable fuel and advanced biofuel in years when it reduces the applicable volume of cellulosic biofuel under that provision. The reduction must be less than or equal to the reduction in cellulosic biofuel. EPA has used this aspect of the cellulosic waiver authority to lower the advanced biofuel and total renewable fuel volumes every year since 2014. Further discussion of the cellulosic waiver authority, and EPA's interpretation of it, can be found in the preamble to the 2017 final rule.

See 81 FR 89752-89753 (December 12, 2016); 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, 915-16 (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, 730-735 (D.C. Cir. 2017) (same);

Alon Refining Krotz Spring, Inc.

EPA,

936 F.3d 628, 662-663 (D.C. Cir. 2019) (same);

American Fuel & Petrochemical Manufacturers

EPA,

937 F.3d 559, 577-78 (D.C. Cir. 2019) (same).

2. Reset Authority.

The CAA provides that EPA shall modify the statutorily prescribed RFS volumes once certain triggers are met. This section discusses the statutory requirements that trigger the use of this reset authority, describes the process and criteria for such use, and explains the impact of this modification on our other waiver authorities.

a. Conditions for Resetting Volume Targets

CAA section 211(o)(7)(F) sets forth EPA's authority to modify (or reset) the applicable volumes once certain triggers have been met. Specifically, EPA must reset the applicable volumes for a particular category of biofuel when, under CAA section 211(o)(7)(F)(i), we waive at least 20 percent of the applicable volume requirement for such category for two consecutive years, or, under CAA section 211(o)(7)(F)(ii), we waive at least 50 percent of such applicable volume requirement for a single year. With the promulgation of the 2019 annual standards, these conditions have been met for three categories of biofuel: Cellulosic biofuel, advanced biofuel, and total renewable fuel.

We describe below, for each category of biofuel, the specific annual rules that satisfied these conditions.

Because the statutory volumes for biomass-based diesel lapsed after 2012, the reset provision, which only applies to 2016 and subsequent years, does not apply to BBD.

The conditions for resetting cellulosic biofuel volumes were met by the 2010 annual standard, which reduced the applicable cellulosic biofuel volume by at least 50 percent triggering application of the reset authority under CAA section 211(o)(7)(F). In that rule, we waived the cellulosic applicable volume for the first time using the cellulosic waiver authority.

We set the cellulosic biofuel applicable volume at 6.5 million gallons for 2010.

This waiver resulted in an applicable volume that was 93.5 percent lower than the applicable volume requirement provided in the statute, 100 million, thus triggering the reset requirement under CAA section 211(o)(7)(F)(ii). However, the statute also provides that “no such modification in applicable volumes shall be made for any year before 2016.” CAA section 211(o)(7)(F). Therefore, although the trigger to modify the cellulosic biofuel volume target under the reset provision was met in 2010, the

statute did not require a change to the applicable volumes until 2016.

75 FR 14670 (March 26, 2010).

75 FR 14675.

The conditions for resetting advanced biofuel volumes were met by the 2014 and 2015 annual standards, which reduced the applicable advanced biofuel volume by at least 20 percent for two consecutive years. For the 2014 annual standard, we waived the advanced biofuel volume for the first time.

We set the advanced biofuel volume at 2.67 billion gallons.

This represented a reduction of 28.8 percent from the applicable volume requirement provided in the statute (3.75 billion). This reduction therefore triggered the first year of reductions of at least 20 percent under CAA section 211(o)(7)(F)(i). For the 2015 annual standard, we reduced the advanced biofuel applicable volume to 2.88 billion gallons.

This represented a reduction of 47.6 percent from the applicable volume requirement provided in the statute (5.5 billion). This represented the second consecutive year for which the Administrator waived volumes by at least 20 percent, thus triggering the modification of the advanced biofuel volume under CAA section 211(o)(7)(F)(i).

80 FR 77420 (December 14, 2015).

Id.

The conditions for resetting total renewable fuel volumes were met by the 2018 and 2019 annual standards, which reduced the applicable total renewable fuel volume by at least 20 percent for two consecutive years. For the 2018 annual standard, we reduced the total renewable fuel volume to 19.29 billion gallons.

This represented a reduction of 25.8 percent from the applicable volume requirement provided in the statute (26 billion). This reduction therefore triggered the first year of reductions of at least 20 percent under CAA section 211(o)(7)(F)(i). For the 2019 annual standard, we reduced the total renewable fuel applicable volume to 19.92 billion gallons.

This represented a reduction of 29 percent from the applicable volume requirement provided in the statute (28 billion). This represented the second consecutive year for which the Administrator waived volumes by at least 20 percent, thus triggering the modification of the total renewable fuel volume under CAA section 211(o)(7)(F)(i).

82 FR 58486 (December 12, 2017).

83 FR 63704 (December 11, 2018).

Although we are exercising the reset authority in this action for 2020-2022 volumes, we could have exercised the reset authority for the 2016-2019 cellulosic and advanced biofuel volumes as well. We do not, however, have authority to reset total renewable fuel volumes for those years. In any event, we are not proposing to revisit the 2016-2019 volumes in this rulemaking.

b. Factors That Must Be Analyzed

In resetting the statutory volumes, EPA must comply with the processes, criteria, and standards set forth in CAA section 211(o)(2)(B)(ii). That provision provides that the Administrator shall, in coordination with the Secretary of Energy and the Secretary of Agriculture, determine the applicable volumes of each biofuel category specified based on a review of implementation of the program during the calendar years specified in the table, and an analysis of the impact of:

• The production and use of renewable fuels on the environment;

• The impact of renewable fuels on the energy security of the U.S.;

• The expected annual rate of future commercial production of renewable fuels;

• The impact of renewable fuels on the infrastructure of the U.S.;

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

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

While the statute requires that EPA base its determination on an analysis of these factors, it does not establish any numeric criteria, require a specific type of analysis (such as quantitative analysis), or provide guidance on how EPA should weigh the various factors. Additionally, we are not aware of anything in the legislative history of EISA that addresses these issues. Thus, as the Act “does not state what weight should be accorded to the relevant factors,” it “give[s] EPA considerable discretion to weigh and balance the various factors required by statute.”

Nat'l Wildlife Fed'n

EPA,

286 F.3d 554, 570 (D.C. Cir. 2002); accord

Riverkeeper, Inc.

United States EPA,

358 F.3d 174, 195 (2d Cir. 2004);

BP Exploration & Oil, Inc.

EPA,

66 F.3d 784, 802 (6th Cir. 1995); see also Cal. by

Brown

Watt,

668 F.2d 1290, 1317 (D.C. Cir. 1981) (“A balancing of factors is not the same as treating all factors equally. The obligation instead is to look at all factors and then balance the results. The Act does not mandate any particular balance, but vests the Secretary with discretion to weigh the elements. . . .”).

Additionally, we also have authority to consider other factors, including implied authority to consider factors that inform our analysis of the statutory factors, as well as explicit authority to consider “the impact of the use of renewable fuels on other factors. . . .”

Accordingly, we have considered several other factors, including the intertwined nature of compliance with the 2020-2022 standards, the size of the carryover RIN bank,

how the retroactive nature of the 2020 and 2021 standards as compared to the prospective nature of the 2022 annual and supplemental standards affects the feasibility of compliance (Section IV),

the supply of qualifying renewable fuels to U.S. consumers (Section III),

soil quality (Chapter 3 of the DRIA),

and environmental justice (Section I of this preamble and Chapter 8 of the DRIA).

CAA section 211(o)(2)(B)(ii)(VI).

The first two factors inform our analysis of the statutory factor “review of the implementation of the program.” CAA section 211(o)(2)(B)(ii).

The third factor (how the standards affect the feasibility of compliance) also informs our analysis of the statutory factor “the expected annual rate of future commercial production of renewable fuels.” CAA section 211(o)(2)(B)(ii)(III).

The fourth factor (supply of renewable fuels) is based on our analysis of this same statutory factor as well as of downstream constraints on biofuel use, including the statutory factors relating to infrastructure and costs. CAA section 211(o)(2)(B)(ii)(IV)-(V).

Soil quality is closely tied to water quality and is also relevant to the impact of renewable fuels on the environment more generally.

Environmental justice involves consideration of the impact of renewable fuels on several factors, including environmental and cost factors. This and the other non-enumerated factors are also relevant under the statutory factor “the impact of the use of renewable fuels on other factors. . . .” CAA section 211(o)(2)(B)(ii)(VI).

c. Impact on other Statutory Authorities To Waive Volumes

Our proposed use of the reset authority in this action does not preclude our legal authority to waive volumes under the other waiver authorities. Nothing in the CAA suggests that once the volumes are reset they cannot be modified further, or that the reset authority cannot be used in conjunction with other waiver authorities such as the cellulosic waiver authority.

See

J.E.M. Ag Supply, Inc.

Pioneer Hi-Bred Intern., Inc.,

534 U.S. 124, 143-44 (2001) (holding that when two statutes are capable of coexistence and there is not clearly expressed legislative intent to the contrary, each should be regarded as effective).

3. 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 by his own initiative. Such a waiver must be based on a determination by the Administrator, after public notice and opportunity for comment that: (1)

Implementation of the requirement would severely harm the economy or the environment of a State, a region, or the United States; or (2) there is an inadequate domestic supply.

EPA received several requests for use of the general waiver authority for the 2020 standards from stakeholders concerned about the impacts on the fuels markets resulting from the COVID-19 pandemic. These included requests from the governors of multiple states based on their belief that the criteria for application of the general waiver authority were satisfied and that lowering the required volumes for 2020 was appropriate. We published a notice in the

Federal Register

seeking comment on these requests.

We are not proposing modifications to the 2020 volumes utilizing the general waiver authority in this action. In lieu of doing so, we are proposing to revise the 2020 volumes under our reset authority as discussed in Section III.B. Our proposal addresses many of the concerns raised in the general waiver petitions, including the shortfall in RIN generation in 2020, uncertainty regarding SREs following the Tenth Circuit's decision in

RFA,

and the hurdles those may present to obligated parties' compliance.

86 FR 5182 (January 19, 2021). Comments on these requests are available in the docket for that notice, EPA-HQ-OAR-2020-0322. We have recently received an additional request to waive volumes using the general waiver authority from the Governor of Montana, available in the docket for this action.

B. Authority To Establish BBD Volumes

EPA has established the biomass-based diesel requirement under CAA section 211(o)(2)(B)(ii) since 2013 because the statute only provided BBD volumes through 2012. Thus, EPA is proposing an applicable volume for BBD for 2022 under this authority, which we term the “set” authority.

As discussed in prior annual rulemakings, EPA is to determine the applicable volume of BBD, in coordination with the Secretary of Energy and the Secretary of Agriculture, based on an analysis of the same statutory factors enumerated above for “resetting” volumes for the other fuel categories.

The statute also requires that the BBD volume be set at or greater than the 1.0 billion gallon volume requirement for 2012 in the statute, but does not provide any other numerical criteria that EPA is to consider.

The applicable volume for BBD for 2021 was established in the 2020 annual rulemaking. 85 FR 7016 (February 6, 2020).

85 FR 7016, 7047-7048 (February 6, 2020).

C. Considerations for Retroactive and Late Rulemaking

In this rulemaking, we are proposing several late or retroactive standards. EPA has in the past also missed statutory deadlines for promulgating RFS annual standards. In those cases, the D.C. Circuit found that EPA retains authority to promulgate annual standards for the years in question, so long as EPA exercises this authority reasonably.

In doing so, EPA must balance the burden on obligated parties of a retroactive standard with the broader goal of the RFS program to increase renewable fuel use.

Even if the rule does not operate retroactively, but is promulgated after the statutory deadline, EPA must consider and mitigate the burdens on obligated parties associated with a delayed rulemaking.

In upholding EPA's retroactive standards for 2014 and 2015 in

ACE,

the court considered several specific factors, including the availability of RINs for compliance, the amount of lead time and adequate notice for obligated parties, and the availability of compliance flexibilities. Additionally, the court separately addressed rulemakings that were late (

i.e.,

those issued after the statutory deadline) but were nonetheless not retroactive, emphasizing in that context the amount of lead time and adequate notice for obligated parties.

Americans for Clean Energy

EPA,

864 F.3d 691, 720 (D.C. Cir. 2017) (

ACE

);

Monroe Energy, LLC

EPA,

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

Nat'l Petrochemical & Refiners Ass'n

EPA,

630 F.3d 145, 154-58 (D.C. Cir. 2010) (

NPRA

NPRA,

at 154-58 (D.C. Cir. 2010).

ACE,

864 F.3d 691, 718 (D.C. Cir. 2017).

Id.

at 721.

In this rulemaking, we are proposing to exercise our reset authority after the statutory deadline of December 11, 2019 (which is one year after the promulgation of the 2019 final rule, which triggered the reset obligation for total renewable fuel).

We are also proposing to exercise our set authority for the 2022 BBD volume after the statutory deadline of October 31, 2020. We are also promulgating the 2020 and 2021 standards after their statutory deadlines of November 30, 2019 and 2020 respectively.

These standards are retroactive and apply to gasoline and diesel produced or imported in 2020 and 2021. We discuss in detail the considerations for late or retroactive rulemaking for each of these requirements further in Section III.

This was the deadline for resetting total renewable fuel volumes. The deadline for resetting advanced and cellulosic volumes passed earlier.

These are also the deadlines for exercising the cellulosic waiver authority for those years, which we will also miss.

In addition, in responding to the

ACE

remand of the 2016 annual rule, EPA is proposing a supplemental standard for 2022.

We are proposing this supplemental standard after the statutory deadline for the 2016 standards (November 30, 2015). However, the proposed supplemental standard would prospectively apply to gasoline and diesel produced or imported in 2022. We further discuss our response to the

ACE

remand in Section V.

We also intend to propose a supplemental standard for 2023 in a subsequent action.

We acknowledge that the final rule will issued after November 30, 2021, thus rendering the 2022 and supplemental standards late and retroactive.

Nonetheless, we are issuing this proposal in advance of 2022, and we anticipate that the final rule will apply mostly, if not entirely, prospectively to 2022. Thus, we believe the rule will be able to incent increased renewable fuel demand in that year consistent with the analysis in this proposal.

As discussed in Section V, the supplemental standard in response to the

ACE

remand is already late.

D. Considerations in Revisiting an Established RFS Standard

We are proposing to revise the previously finalized 2020 standards in this rulemaking. We generally have authority to reconsider and revise previously finalized RFS standards.

In addition, the D.C. Circuit has held that EPA has authority to promulgate RFS standards retroactively. CAA section 211(o)(7) generally authorizes EPA to adjust the volume requirements based on appropriate considerations as well. In this action we are proposing to revise the 2020 standards in response to several unanticipated and exceptional events that have occurred since the promulgation of the standards and that have had direct and significant impacts on the fuels market and the ability of obligated parties to comply. We discuss these events and our rationale for revising the 2020 standards further in Section III.B.

Nonetheless, we believe that we generally should not revisit past RFS standards. Doing so carries inherent costs for regulatory certainty and may unduly disrupt market expectations created by previously promulgated standards. Moreover, in the 2020 final rule itself, we expressly stated that we did not intend to revisit that rulemaking and subsequently adjust the standards. See Response to Comments at 173, EPA-HQ-OAR-2019-0136.

EPA also received two petitions from AFPM and API in early 2020 seeking reconsideration of the 2020 annual rule under CAA section 307(d)(7)(B) in light of the

RFA

decision and its

impact on EPA's projections of SREs in calculating the percentage standards. These petitions are available in the docket. See AFPM,

Petition for Administrative Reconsideration of Renewable Fuel Standard Program: Standards for 2020 and Biomass-Based Diesel Volume for 2021 and Other Changes, 85 FR 7016 (Feb. 6, 2020)

(Mar. 24, 2020); API,

Petition for Reconsideration of the RFS 2020 Rule, EPA-HQ-OAR-2019-0136

(April 6, 2020). We are not at this time determining whether these petitions met the standards for reconsideration under CAA section 307(d)(7)(B). Nonetheless, for the reasons described in this document, we believe it is appropriate to reconsider the 2020 RFS standards, and we are providing the procedural process (

i.e.,

a CAA section 307(d) rulemaking to reconsider the 2020 RFS standards) requested in the petitions.

E. Applicability of Legal Authorities To Establish the Volume Requirements

EPA is proposing to reduce the applicable statutory volumes for 2020, 2021 and 2022 utilizing both the cellulosic waiver and reset authorities. As described in Chapter 4 of the DRIA, the projected volumes of cellulosic biofuel production for 2020, 2021, and 2022 are all significantly less than the volume targets in the statute. Therefore, the cellulosic waiver authority requires EPA to lower the cellulosic biofuel volume for each year to the projected volumes available in each year. We are proposing to do so in this action. Additionally, we propose to find that these volumes are also appropriate under our reset authority.

For advanced biofuel and total renewable fuel, we are proposing, under the reset authority alone, volumes equal to the projected actual volumes of such fuels available in 2020 and 2021. We recognize that this exceeds our maximum discretion under the cellulosic waiver authority; however, as we explain further in Section III, we do not believe that the lowest volumes permissible under the cellulosic waiver authority are appropriate based upon our consideration of the reset factors.

For 2022, we are proposing, under both the cellulosic waiver authority and the reset authority, advanced biofuel and total renewable fuel volumes equal to the implied statutory volumes. This represents the maximum permitted reduction under the cellulosic waiver authority.

We also believe these volumes are appropriate under the reset authority.

Under the cellulosic waiver authority, when EPA reduces the volume of cellulosic biofuel, EPA may reduce the advanced biofuel and total renewable fuel volumes by the same or a lesser amount.

This is also consistent with our authority to apply equal reductions to the volumes of advanced biofuel and total renewable fuel under the cellulosic waiver. CAA(o)(7)(D)(i), see also 85 FR 7016, 7047-7048 (February 6, 2020).

In Sections III and IV and Chapter 2 of the DRIA, we set forth our policy and technical rationale for the proposed 2020, 2021, and 2022 volumes for cellulosic biofuel, advanced biofuel, and total renewable fuel. Our analysis is framed in terms of the statutory factors that the reset authority requires us to consider, along with the considerations for retroactive and late rules identified by the D.C. Circuit.

Since this analysis subsumes our policy and technical rationale for exercising the cellulosic waiver authority as well, we are not providing a separate analysis for the application of the cellulosic waiver authority.

Further detail on our analysis of the statutory factors is found in the DRIA.

We believe that subsuming the analysis for the application of the cellulosic waiver authority into the analysis for the application of the reset authority is appropriate for three reasons. First, with respect to the cellulosic biofuel volume for each year, the cellulosic waiver authority requires EPA to lower that volume to the projected volume available. This quantity is also a relevant consideration under the reset authority, and, accordingly, we have considered it in that context. See,

e.g.,

CAA section 211(o)(2)(B)(ii)(III) (“the expected annual rate of future commercial production of renewable fuels”). Second, with respect to advanced biofuel and total renewable fuel, the cellulosic waiver authority does not specify any factors for EPA to consider (besides limiting the maximum quantity of reductions to the reduction in the cellulosic biofuel volume), and thus provides EPA broad discretion to consider relevant factors, including the factors we are considering in this proposal under the reset authority.

Third, given the significant overlap between the analyses used for the cellulosic waiver and reset authorities, we do not believe that two sets of analyses would provide significant additional value, but would be redundant for both EPA and the public.

In past annual rules, we considered many of the same factors as we do in this proposal, albeit under the guise of different terminology, such as “reasonably attainable” and “attainable” volumes. See Section IV of the 2020 final rule at 85 FR 7016. For instance, in that rule, just as in this rule, we considered feedstock availability, advanced biofuel production and distribution capacity, environmental impacts, and costs. We acknowledge that the analytical framework has shifted somewhat given the focus on the statutory reset factors. For instance, in the 2020 final rule, unlike in this proposed rule, we did not explicitly consider the impacts of renewable fuels on job creation or rural economic development. Nonetheless, we believe those statutory factors (along with all the other factors we are considering under the reset authority) are ones that EPA may consider under the discretion we have under the cellulosic waiver authority. Congress's specification of those factors in the reset authority further suggests that they are permissible considerations for determining volumes generally, including in exercising the cellulosic waiver. This approach presents a shift in EPA's policy for the cellulosic waiver that we explicitly recognize and adopt as reasonable for the reasons described in this proposal. See

FCC

Fox Television Stations, Inc.,

556 U.S. 502, 515 (2009). Ultimately, we note that the 2020, 2021, and 2022 total renewable fuel, advanced biofuel, and cellulosic biofuel volumes are all independently justified by the reset authority. Thus, any defect in our exercise of the cellulosic waiver authority is harmless so long as we have properly exercised the reset authority.

We are also proposing a BBD volume for 2022 of 2.76 billion gallons under CAA section 211(o)(2)(B)(ii). Our policy and technical rationale for this volume is also set forth in Section III and Chapter 10 of the DRIA.

F. Severability

The following portions of this rulemaking are mutually severable from each other: (1) The volumes and percentage standards for 2020, 2021, and 2022; (2) The 2022 supplemental volume and standard; (3) The proposed provisions for biointermediates (discussed in Section VII); and (4) The regulatory amendments discussed in Section VIII. Each of the regulatory amendments in Section VIII is also severable from all 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 2022 supplemental volume and standard, we intend the remaining 2020-2022 volumes and percentage standards, biointermediates provisions, and other regulatory amendments, to remain effective.

III. Proposed Volumes

We are proposing 2020, 2021, and 2022 cellulosic biofuel, advanced biofuel, and total renewable fuel volumes under our reset authority.

We are proposing the 2022 biomass-based diesel (BBD) volume under our set authority. As required by both the reset and set authorities, we have analyzed the statutory factors under CAA section 211(o)(2)(B)(ii). We have also coordinated with the Secretary of Energy and the Secretary of Agriculture, including through the interagency review process, and their input is reflected in this proposal.

As we explained in Section II.D, some of the volumes we are proposing in this action are also independently justified under the cellulosic waiver authority, but the policy and technical analysis for our exercise of the cellulosic waiver is subsumed under our analysis of the reset factors.

In Section III.A, we summarize our analyses as they apply to each of three component categories of biofuel: Cellulosic biofuel, non-cellulosic

advanced biofuel, and conventional renewable fuel.

In Sections III.B through F, we describe our proposed volumes for 2020, 2021, and 2022, along with our supporting assessment of the statutory factors. In Section III.G, we summarize the fuel costs and energy security benefits of the proposed volumes. In Section IV, we further discuss the relationship between the volume requirements for all three years as part of our review of the implementation of the program. Our preamble discussion provides a high-level, narrative summary of the statutory factors, focusing on the factors that we deem most appropriate. A more detailed discussion of all the statutory factors is set forth in the DRIA.

Cellulosic biofuel corresponds directly to the statutory biofuel category. Cellulosic biofuel plus non-cellulosic advanced biofuel constitute the statutory advanced biofuel category. Finally, advanced biofuel plus conventional renewable fuel constitute the statutory total renewable fuel category. See CAA section 211(o)(2)(B)(i)(I)-(IV).

A. EPA's Assessment of the Statutory Factors for Each Component Category of Biofuel

1. Cellulosic Biofuel

In EISA, Congress established escalating targets for cellulosic biofuel, reaching 16 billion gallons in 2022. After 2015, 84 percent of the growth in statutory volume of total renewable fuel was intended to come from cellulosic biofuel.

This indicates that Congress intended the RFS program to provide a significant incentive for cellulosic biofuels and that the focus for years after 2015 was to be on cellulosic. Consistent with this intent, our assessment of the statutory factors suggests that cellulosic biofuels have multiple benefits, including the potential for very low lifecycle GHG emissions that meet or exceed the 60 percent GHG reduction threshold for cellulosic biofuel. Many of these benefits stem from the fact that nearly all of the feedstocks projected to be used to produce cellulosic biofuel through 2022 are either waste materials (as in the case of compressed natural gas and liquified natural gas (CNG/LNG) derived from biogas) or residues (in the cases of cellulosic ethanol from corn kernel fiber and corn stover, as well as cellulosic diesel and heating oil from mill residue). The use of many of the feedstocks currently being used to produce cellulosic biofuel are not expected to cause significant land use changes that might lead to adverse environmental impacts.

From 2015 through 2022 the statutory target for cellulosic biofuel increases by 13.0 billion gallons, from 3.0 billion gallons to 16.0 billion gallons. During this same time period the statutory target for total renewable fuel increases by 15.5 billion gallons, from 20.5 billion gallons to 36.0 billion gallons. Thus, cellulosic biofuel was expected to account for 84% (13.0 billion gallons/15.5 billion gallons) of the total renewable fuel increase.

Despite these similarities, there are also significant differences between liquid cellulosic biofuels and CNG/LNG derived from biogas. None of the cellulosic biofuel feedstocks expected to be used to produce liquid cellulosic biofuels through 2022 are specifically produced to be used as feedstocks for cellulosic biofuel production. Many of these feedstocks (including agricultural residues, mill residue, and separated municipal solid waste (MSW)) have limited uses in other markets.

Because of this, using these feedstocks to produce liquid cellulosic biofuel is not expected to have significant adverse impacts related to several of the statutory factors, including the conversion of wetlands, ecosystems and wildlife habitat, soil and water quality, the price and supply of agricultural commodities, and food prices. Notwithstanding these benefits, the cost of producing liquid cellulosic biofuel is high. These high costs are generally the result of low yields (

e.g.,

gallons of fuel per ton of feedstocks) and the high capital costs of liquid cellulosic biofuel production facilities. In the near term (through 2022), the production of these fuels is likely to be dependent on relatively high cellulosic RIN prices (in addition to state level programs such as California's low carbon fuel standard (LCFS)) to be economically competitive with petroleum-based fuels.

One potential exception is corn kernel fiber. Corn kernel fiber is a component of distillers grains, which is currently sold as animal feed. Depending on the type of animal to which the distillers grain is fed, corn kernel fiber removed from the distillers grain through conversion to cellulosic biofuel may need to be replaced with additional feed.

CNG/LNG derived from biogas, like liquid cellulosic biofuel, is generally produced from waste materials or residues (

e.g.,

through biogas collection from landfills, municipal wastewater treatment facility digesters, agricultural digesters, and separated MSW digesters) and thus is not expected to affect the conversion of wetlands, ecosystems and wildlife habitat, soil and water quality, the price and supply of agricultural commodities, and food prices. However, in contrast to the feedstocks generally used to produce liquid cellulosic biofuels, significant quantities of biogas from these sources are currently used to produce electricity, while smaller quantities are injected into natural gas pipelines. In some situations, such as at larger landfills, CNG/LNG derived from biogas may also be able to be produced at a price comparable to fossil natural gas. Despite this relatively low cost of production, the combination of the high cellulosic biofuel RIN price and the significant volume potential for CNG/LNG derived from biogas used as transportation fuel could have a relatively significant impact (about $0.01 per gallon) on the price of gasoline and diesel.

See Chapter 5.1.2.2 of the DRIA for a further discussion of the expected impact of RINs generated for CNG/LNG derived from biogas on the transportation fuel market.

2. Non-Cellulosic Advanced Biofuel

The volume targets established by Congress also anticipated significant growth in advanced biofuel beyond what is needed to satisfy the cellulosic standard. The statutory target for advanced biofuel in 2022 (21 billion gallons) allowed for up to 5 billion gallons of non-cellulosic advanced biofuel to be used towards the advanced biofuel volume target. In practice the vast majority of non-cellulosic advanced biofuel in the RFS program has been biomass-based diesel, with relatively small volumes of sugarcane ethanol and other advanced biofuels. Some of the statutory factors assessed by EPA suggest that the targets for non-cellulosic advanced biofuel established by Congress, or even higher volumes, are still appropriate. Notably, all advanced biofuels have the potential to provide significant GHG reductions as they are required to achieve at least 50 percent GHG reductions relative to the petroleum fuels they displace. Some types of advanced fuels, such as biodiesel and renewable diesel produced from fats, oils, and greases, provide even greater reductions than the 50 percent threshold. This summary focuses on the impacts of advanced biodiesel and renewable diesel.

Advanced biodiesel and renewable diesel together comprise 95 percent or more of the total supply of non-cellulosic advanced biofuel over the last several years, and is expected to supply all of increase in advanced biofuel through 2022. High domestic production capacity and availability of imports indicate that volumes of non-cellulosic advanced biofuel in 2021 and 2022 may meet or even exceed the implied statutory targets. Similarly, the feedstocks used to make advanced biodiesel and renewable diesel (such as soy oil, canola oil, and corn oil, as well as waste oils such as white grease, yellow grease, trap grease, poultry fat, and tallow) currently exist in sufficient quantities globally to supply these increasing volumes. These feedstocks

have many existing uses that may require replacement with other suitable substitutes, but there is also potential for ongoing growth in the production of many of these feedstocks. Higher volume requirements for non-cellulosic advanced biofuel may also have energy security benefits, increase domestic employment in the biofuels industry, and increase income for biofuel feedstock producers.

However, some of the factors assessed would support lower volumes of advanced biofuel. For instance, as described in Chapter 9 of the DRIA, the cost of biodiesel and renewable diesel is significantly higher than petroleum-based diesel fuel and is expected to remain so over the next several years. Even if biodiesel and renewable diesel blends are priced similarly to petroleum diesel at the pump after accounting for the relevant Federal and state incentives (including the RIN value), society as a whole nevertheless bears their full costs. Moreover, the fact that sufficient feedstocks exist to produce increasing quantities of advanced biodiesel and renewable diesel does not mean that those feedstocks are readily available or could be diverted to biofuel production without adverse consequences. As described in Chapter 5 of the DRIA, we expect only limited quantities of fats, oils, and greases and distillers corn oil to be available for increased biodiesel and renewable diesel production in future years. We expect that the primary feedstock available to biodiesel and renewable diesel producers in significant quantities through 2022 will be soybean oil and other vegetable oils whose primary markets are for food. Increased demand for soybean oil could lead to diversion of feedstocks from food and other current uses in addition to further incentivizing increased soybean crushing and soybean production. Increased soybean production in the U.S. and abroad in turn could result in greater conversion of wetlands, adverse impacts on ecosystems and wildlife habitat, adverse impacts negative impacts on water quality and supply, and increased prices for agricultural commodities and food prices. We request comment on the impacts of advanced biofuel production on the statutory factors, including impacts on wetlands, ecosystems, and wildlife habitat.

3. Conventional Renewable Fuel

As with non-cellulosic advanced biofuel, some of the statutory factors assessed for conventional renewable fuel favor the implied statutory volume (15 billion gallons) or higher volumes, while other factors favor lower volumes. While conventional renewable fuels are generally required by EISA to achieve 20 percent GHG reductions relative to the petroleum fuels they displace, some conventional biofuel facilities exceed this threshold. Notably, EPA has developed an expedited petition process for ethanol production facilities using more efficient process technologies.

The statute, however, also contains grandfathering provisions exempting any facility that had begun construction on or before December 19, 2007, from this requirement, so not all producers of conventional renewable fuels meet or are required to meet the 20 percent GHG reduction threshold.

EPA has developed an “Efficient Producer Petition Process,” which encourages adoption of efficiency improvements in new ethanol facilities by expediting petition review and approval. Existing EPA estimates for corn starch ethanol produced in 2022 using a dry mill process and natural gas fired process heat range from a 42 percent to a 17 percent reduction over baseline gasoline, depending on the technologies used at the production facility.

See CAA section 211(o)(2)(A)(i).

The vast majority of conventional renewable fuel that has been supplied to the U.S. is corn ethanol. Domestic production capacity for corn ethanol exceeds 16 billion gallons. Production of corn-ethanol in the U.S. reached a peak of 16.1 billion gallons in 2018.

Higher volumes of conventional renewable fuel could result in more domestic jobs in the biofuels industry. At the same time, there are also significant volumes of palm biodiesel and renewable diesel that are produced internationally that could qualify as conventional renewable fuel under the grandfathering provisions of the RFS program. In the past, small volumes of grandfathered biodiesel and renewable diesel have been supplied to the U.S.

Energy Information Administration (EIA) Monthly Energy Review.

Use of grandfathered biodiesel and renewable diesel reached a maximum of 157 million gallons in 2016. Since 2018 use of grandfathered biodiesel and renewable diesel has been very small (less than 1 million gallons each year). See Chapter 1.6 of the DRIA.

However, some of the analyses we conducted support lower volumes of conventional renewable fuel. As with soy biodiesel, increased corn production in the U.S. could result in greater conversion of wetlands, adverse impacts on ecosystems and wildlife habitat, adverse impacts negative impacts on water quality and supply, and increased prices for agricultural commodities and food prices. Furthermore, constraints on ethanol use may also support lower implied volume requirements for conventional biofuel. The market has not achieved 15 billion gallons of actual use of conventional renewable fuel in any year in which the RFS standards were based on it. This was due to various factors, including limitations on ethanol use above the E10 blendwall, strong export markets for domestically produced ethanol, the effect of exempted small refinery volumes in depressing the effective RFS standards, and use of advanced biodiesel and renewable diesel, buoyed by its tax subsidy and other incentive programs, to meet the implied conventional portion of the total renewable fuel requirement.

While the use of ethanol as E10 has been, and continues to be, economical for refiners and blenders, the use of E10 alone has not been sufficient to achieve the 15 billion gallons of ethanol use due to declining gasoline demand. The RFS program has had limited success in helping to increase the use of higher ethanol blends, and growth in the nationwide average gasoline ethanol concentration has virtually stagnated as the market reached the E10 blendwall. While the use of higher ethanol blends has increased since 2011, that growth has been small compared to prior growth in the use of E10 and in the use of non-ethanol biofuels. We do not anticipate that growth in the use of higher ethanol blends through 2022 will increase rapidly enough to result in significantly greater volumes of ethanol consumption in the U.S., even with the incentives created by the RFS program standards and other governmental efforts such as Department of Agriculture's (USDA's) Blender Infrastructure Program and Higher Blends Infrastructure Incentive Program. Moreover, exporting ethanol to be blended with gasoline abroad has been more profitable in recent years than selling greater volumes of E15 or E85 domestically. We expect these trends in exports to continue given international demand for ethanol.

In addition, total demand for gasoline was lower in 2020 and is expected to remain lower in 2021 and 2022 relative to the volume of gasoline consumed in 2017-2019 according to EIA's May 2021 Short Term Energy Outlook (STEO), which will limit the volume of ethanol used as E10.

Most notably, the COVID-19 pandemic caused a significant fall in gasoline demand and sales of E10 starting in 2020. We would

expect, therefore, that even maintaining the implied 15 billion gallon statutory volume target for conventional renewable fuel going forward would require that volumes of biodiesel and renewable diesel, the least costly alternative source, increase to compensate for the reduction in ethanol use.

The May 2021 STEO estimates gasoline consumption of 8.03 million barrels per day (123.5 billion gallons) in 2020, projects 8.70 million barrels per day (133.3 billion gallons) in 2021, and projects 8.92 million barrels per day (136.8 billion gallons) in 2022. The STEO reported gasoline consumption in 2017-2019 at 9.31-9.33 million barrels per day (142.7-143.0 billion gallons) annually.

If biodiesel and/or renewable diesel were able to be supplied in sufficient quantities to enable a conventional renewable fuel requirement at 15 billion gallons to be met despite lower ethanol consumption, there could still be other potentially adverse impacts. We project that much of this biodiesel and renewable diesel would be imported. Further, these fuels could be sourced from grandfathered facilities that may not achieve the desired GHG reductions. If imported biodiesel and renewable diesel were to increase, we would expect either an increase in the use of petroleum fuels from countries that previously used these fuels, or, alternatively, an expansion of palm oil production to produce biodiesel and renewable diesel, likely resulting in additional foreign land being converted to cropland for the production of palm oil. There would likely be both adverse wildlife impacts and higher GHG emissions of such international land use changes that would be associated with a higher implied conventional volume mandate satisfied by grandfathered biodiesel and renewable diesel.

At the same time, we do not believe that setting volumes such that the implied conventional renewable fuel volume is below the E10 blendwall would be appropriate either. Under such a scenario, imports of biodiesel and renewable diesel to meet the demand provided by the implied conventional renewable fuel volume would cease altogether which would have some benefits for domestic energy independence and may have some environmental benefits as well insofar as those imports are produced from palm oil. However, impacts on domestic ethanol production would be small as E10 would continue to be used regardless. There would most likely be some decrease in the small amounts of higher ethanol blends used, but the use of E10 would be essentially unchanged, and since ethanol blended as E10 dominates the total volume of ethanol consumed, the overall ethanol volume would be minimally affected. Thus, we expect that setting the implied volume for conventional renewable fuel below the E10 blendwall would have little impact on domestic biofuel production or use.

B. Proposed Volumes for 2020

We are proposing to revise previously finalized 2020 total renewable fuel, advanced biofuel, and cellulosic biofuel volumes to equal the volume of such fuels actually used in the U.S. in 2020.

As we discuss in Section VI, we are also proposing to make corresponding adjustments to the percent standards applicable to obligated parties.

We also call such volumes the volumes that are actually consumed or actually supplied. In this context, we are using the term “supply” distinct from the statutory term “inadequate domestic supply” in CAA section 211(o)(7)(A)(ii).

As discussed in Section VI, the adjustments to the percentage standards would also include changes to the non-renewable gasoline and diesel volumes to reflect actual 2020 consumption.

Since 2020 has already passed, this rulemaking has no ability to affect actual production, imports, and use of renewable fuel in 2020. The impact of the rule on each of the statutory factors is similarly limited. In contrast, were we to revise the 2020 volumes to be greater than the volume of renewable fuel that was supplied or were we to simply leave the original volumes from the 2020 final rule in place, we would expect some combination of potentially disruptive outcomes: (1) A reduction in the quantity of carryover RINs; (2) obligated parties carrying deficits into 2021; and/or (3) obligated parties being out of compliance with their RFS obligations.

While this approach could have the effect of prospectively increasing demand for renewable fuels in 2022, simply establishing higher volumes for 2022 is expected to have the same effect on renewable fuel producers with a much lower risk of market disruptions that could result from maintaining volume obligations for 2020. As we explain in Section IV.B, we are proposing to revise the 2020 volume obligations to forestall potential disruptions in the fuels market that would impair the ongoing implementation of the RFS program.

See Section IV.A for a discussion of carryover RINs.

We acknowledge that this proposal to reconsider and revise the already finalized 2020 standards will be finalized after the November 30, 2019, statutory deadline for the 2020 standards and can operate only retroactively.

We generally do not think it is appropriate to reconsider and revise previously finalized RFS standards. Nonetheless, we are proposing to do so because critical and unanticipated events have occurred affecting fuels markets and RFS compliance. First, we anticipate a significant and unprecedented shortfall in renewable fuel use in 2020 relative to the volumes that we required in the 2020 final rule. This is largely due to the COVID-19 pandemic, which caused an unforeseen and drastic fall in transportation fuel demand generally and in biofuel demand more specifically.

85 FR 7016 (February 6, 2020). In addition, the 2020 BBD volume was established in the 2019 final rule. 83 FR 63704.

In general, under the RFS program, a shortfall in gasoline and diesel fuel consumption relative to the projected volumes results in a corresponding decrease in the volume of renewable fuel required. This self-adjusting nature of the program is a function of the fact that the RFS standards are applied as a percentage to an obligated party's gasoline and diesel fuel production; the obligation to acquire RINs for compliance rises and falls along with gasoline and diesel fuel production volume. Further, historical deviations between the volumes of gasoline and diesel actually used relative to their projected volumes have been relatively small. As a result, we have historically not adjusted the RFS standards after they have been established to account for updated gasoline and diesel consumption levels. This is consistent with our general policy of not reconsidering and revising previously finalized RFS standards.

However, the situation in 2020 was different. As explained further in Section IV.B, the shortfalls in 2020 were both significantly larger than in any previous year and disproportionately affected gasoline more than diesel fuel. This is important because on average finished gasoline contains more renewable content than finished diesel. The vast majority of gasoline contains at least 10% ethanol, mostly in the form of E10, whereas the average concentration of renewables in diesel falls far short of that. Thus, while the decrease in transportation fuel demand in 2020 proportionally decreased the required renewable fuel volume, the decrease in the demand for renewable fuel was greater given the greater drop in gasoline versus diesel demand.

Further, even with the lesser impact on diesel fuel consumption, we still observed a shortfall in the use of biodiesel and renewable diesel relative to our projections in the 2020 final rule. That is to say, the projections in the 2020 final rule overestimated the use of biodiesel and renewable diesel, even if we adjust those projections by the shortfall in diesel demand.

Second, when we promulgated the 2020 volume requirements, we did so while projecting for the first time that we would be granting a large number of SREs for 2020. The 2020 final rule

reallocated the projected exempted volumes onto the remaining obligated parties, thereby significantly increasing the obligations on those parties. As we explain in Section VI.B, there continues to be substantial uncertainty regarding whether we will grant or deny the many SRE petitions for 2020 in the wake of the Tenth Circuit's decision in

RFA

and the Supreme Court's reversal of one of the bases for the Tenth Circuit's decision in

HollyFrontier

Among the uncertainties are the impacts of the additional holdings in

RFA

that were not addressed on appeal to the Supreme Court. The significant impact of our earlier projection on the standards and the consequent impact on our SRE policy by the litigation in

RFA

and

HollyFrontier

suggest that reconsideration is warranted.

Renewable Fuels Ass'n

EPA,

948 F.3d 1206 (10th Cir. 2020),

rev'd in part sub nom., HollyFrontier Cheyenne Refining, LLC,

Renewable Fuels Ass'n,

114 S. Ct. 2172 (2021).

As noted in Section II.D, we have received petitions seeking reconsideration of the 2020 annual rule under CAA section 307(d)(7)(B).

The decrease in biofuel use, together with the potential impacts of SRE decisions, means that compliance with the original 2020 standards would likely result in a significant drawdown of the number of carryover RINs available for use in 2021, which could negatively impact the functionality of the RIN market that enables the successful implementation of the RFS program. A well-functioning RIN market is foundational for allowing obligated parties to comply with their RFS mandates, particularly for obligated parties that do not themselves produce or blend renewable fuels. As discussed in Section IV.A, the carryover RIN bank is already projected to drop from 3.48 billion RINs in 2019 to 1.85 billion RINs in 2020, following 2019 compliance. We project that the 2020 standards, if unmodified and SREs are not granted, would result in a significant drawdown of the total number of carryover RINs, to a volume (630 million RINs) that would represent less than 4 percent of the proposed 2021 and 2022 total renewable fuel standards.

The number of carryover cellulosic biofuel RINs would also be projected to decrease significantly, as we project that the number of cellulosic carryover RINs would be reduced to just 2.2 million RINs, which is less than 0.5 percent of the proposed 2021 and 2022 cellulosic biofuel volumes. Such a drastic reduction in the carryover RIN bank has the potential to reduce the liquidity of RINs and could negatively impact parties that do not currently have sufficient RINs to meet their 2020 obligation. This could make it difficult for some parties to acquire enough RINs to comply with their 2020 RFS obligations, as well as the 2021 and 2022 standards being proposed, and could cause those parties to carry forward deficits or to become non-compliant. This could lead to significant negative impacts on the fuels market and the ongoing implementation of the RFS program, as discussed in Section IV.B.

See Section VI of “Carryover RIN Bank Calculations for 2020-2022 Proposed Rule,” available in the docket for this action.

These considerations also support our decision to retroactively reduce the 2020 volumes to those actually used. In doing so, we are relieving burdens on obligated parties, and in some cases, the potentially onerous burden of non-compliance with the RFS program and the possibility of penalty payments. This approach also ensures sufficient RINs for compliance. It also ensures the continued functioning of the carryover RIN bank, a necessary compliance flexibility for obligated parties. It also protects the ongoing implementation of the RFS program and facilitates the higher volumes proposed for 2022, as we discuss further in Section IV.B.

With regard to lead time, less lead time is needed for obligated parties given that we are reducing the stringency of their obligations, as opposed to increasing the stringency of their obligations. Nonetheless, we are providing significant lead time. We extended the 2020 compliance deadline for obligated parties to January 31, 2022, providing these parties with additional time to acquire RINs,

and have proposed to further extend that deadline in a separate action.

Had we not adjusted the compliance deadline, obligated parties would have needed to demonstrate compliance by March 31, 2021.

86 FR 17073 (April 1, 2021).

86 FR 67419 (November 26, 2021).

We recognize that retroactively adjusting the 2020 standards will disrupt market expectations created by the prior final rule, for instance on the part of biofuel producers who made investments or other parties who transacted biofuels or RINs, based on the higher standards originally finalized. As a general matter, these expectations may not rise to the level of reliance interests recognized by the courts.

Even if they do, however, we believe that revising the standards is nonetheless warranted based on the events and factors described above, which likely confounded market expectations in any event.

Monroe Energy, LLC

EPA,

750 F.3d 909, 919-20 (D.C. Cir. 2014).

As explained in Section II.A.2, the statutory deadline for resetting the total renewable fuel volume was in December 2019, or one year after the promulgation of the 2019 final rule. The statutory deadlines for resetting the advanced biofuel and cellulosic biofuel volumes occurred even earlier. Despite being late to meet our statutory obligations, we are proposing to exercise the reset authority for several reasons. First, doing so satisfies our statutory obligation to reset the statutory volumes. Second, we have already notified the public that we intended to exercise the reset authority.

This proposal is a key step in making good on that intent and meeting our statutory obligation. Third, the reset authority also provides EPA broad discretion to modify the renewable fuel volumes and to establish biofuel volume requirements at the volumes actually consumed. Such volumes for advanced biofuel and total renewable fuel could not be established under the cellulosic waiver authority, which was the legal basis for the original 2020 final rule.

Nonetheless, we believe that these are the appropriate volumes for the reasons explained above.

See 84 FR 36766 (July 29, 2019).

The cellulosic waiver authority limits reductions in the statutory total renewable fuel and advanced biofuel volumes to no more than the reduction in the cellulosic biofuel volume. In the 2020 final rule, we exercised the cellulosic waiver to the maximum extent, resulting in an implied conventional renewable fuel volume of 15 billion gallons and an implied non-cellulosic advanced biofuel volume of 4.5 billion gallons. However, the volumes of advanced biofuel and total renewable fuel actually supplied in 2020 fell short of these numbers.

The proposed revised 2020 volumes, along with the original volumes, are shown in Table III.B-1. The proposed revised 2020 percentage standards, along with the original percentage standards, are provided in Section VI.C.

Table III.B-1—Proposed Revised Volume Requirements for 2020

[Billion RINs]

Standard

Original

Revised

Cellulosic Biofuel

0.59

0.51

Biomass-Based Diesel

2.43

Advanced Biofuel

5.09

4.63

Total Renewable Fuel

20.09

17.13

Source: EMTS (EPA Moderated Transaction System). See “RIN supply as of 3-22-21”.

The BBD volume for 2020 is in physical gallons (rather than RINs) and was established in the 2019 final rule (83 FR 63704, December 11, 2018). We are not proposing to revise the 2020 BBD volume in this action.

We request comment on our proposed approach of reconsidering and revising the 2020 RFS volumes from those promulgated in the prior final rule. We also request comment on modifying 2020 volumes to the volumes of renewable fuel actually supplied in 2020. We further request comment on whether we should include the approximately 40 million cellulosic biofuel carryover RINs in the 2020 cellulosic biofuel volume requirement. We discuss this issue in detail in Section IV.A.3.

C. Proposed Volumes for 2021

We are proposing 2021 total renewable fuel, advanced biofuel, and cellulosic biofuel volumes at our projections of the volume of such fuels used in the U.S. this year. This is the same general approach as for 2020, with the difference that we do not yet have complete data for biofuel use in 2021, and therefore we are projecting biofuel use throughout the remainder of 2021.

Given that we are using the same basic approach as for 2020, the rationale for our 2021 volumes is similar to the rationale for our 2020 volumes. Below we present some of the key similarities and also note differences where they exist. As with 2020, due to the expected timing of the finalization of this rule, the ability for the rule to affect renewable fuel production, imports, and use in the U.S. in 2021 is limited. As such, the impact of the rule on each of the statutory factors is similarly limited. Also, as for 2020, we could also set volumes for 2021 that are greater or lesser than the volume of renewable fuel that is actually supplied in 2021, but we do not believe that doing so would be appropriate for similar reasons. EPA does, however, believe that the RFS program should drive increases in renewable fuel volumes over time. Given that we are setting volumes for 2020-2022 in this rule and the fact that retrospective volumes have limited ability to affect biofuel use, we believe that increases in volume requirements are more appropriate in 2022. That is when this rule applies prospectively and has the potential to affect actual biofuel use. We discuss this relationship between the three years further in Section IV.B.

As with 2020, the 2021 volumes both are late and would operate retroactively. Unlike for 2020, however, we are not modifying previously finalized standards for 2021. The lateness and retroactivity of the 2021 volumes are appropriate for similar reasons as for 2020. We believe that establishing the 2021 volumes at the volumes projected to be used properly balances the statutory goal of increasing renewable fuel use with mitigating burdens on obligated parties. It ensures that the obligated parties should have sufficient RINs to comply. In a separate action, we have proposed to extend the compliance and attest engagement dates for 2021, providing additional lead time, as well as compliance flexibilities for obligated parties including access to carryover RINs and carryforward deficits.

In addition, we note that this approach, of setting volumes at those actually used, is consistent with our approach in the 2014 and 2015 standards, which the D.C. Circuit upheld in

ACE.

86 FR 67419 (November 26, 2021).

As with the 2020 volumes, the 2021 volumes also depend upon a belated exercise of the reset authority. We believe using the reset authority is appropriate for similar reasons as 2020: We are statutorily obligated to reset 2021 volumes, we have previously informed the public that we intended to reset the volumes, and the reset authority gives us discretion to reduce the total renewable fuel volume beyond what we could establish under the cellulosic waiver. There is also an additional reason, which is that the statute indicates that when we reset the volumes, we must do so for all remaining years in the statutory volume tables, which extend through 2022. Thus, in resetting the 2020 volumes, we are obligated to reset the 2021 and 2022 volumes.

See CAA section 211(o)(7)(F) (“the Administrator shall promulgate a rule . . . that modifies the applicable volumes set forth in the table concerned for all years following the final year to which the waiver applies”).

The volumes of cellulosic biofuel, advanced biofuel, and total renewable fuel we are proposing for 2021 are shown in Table III.C-1. The biomass-based diesel volume for 2021 was previously established in the 2020 final rule and is included in Table III.C-1 for context. These volumes are based on the projected use of renewable fuels in the U.S., as discussed in greater detail in Chapter 5 of the DRIA.

Table III.C-1—Proposed RFS Volumes for 2021

[Billion RINs]

Category

Proposed

volume

Cellulosic Biofuel

0.62

Biomass-Based Diesel

2.43

Advanced Biofuel

5.20

Total Renewable Fuel

18.52

The BBD volume for 2021 is in physical gallons (rather than RINs) and was established in the 2020 final rule (85 FR 7016, February 6, 2020). We are not proposing to revise the 2021 BBD volume in this action.

In the final rule, we intend to consider additional data, including more recent data on renewable fuel production and use, and public comments, and update our projections accordingly. We request comment on both our proposed approach of establishing the RFS volumes for 2021 at the volume of renewable fuel projected to be supplied in 2021, as well as our projections of these volumes. We also request comment on whether or not to include volumes of cellulosic ethanol produced from corn kernel fiber in our projection of cellulosic biofuel production in 2021, as discussed in Chapter 5 of the DRIA.

D. Proposed Volumes for 2022

We are proposing 2022 total renewable fuel, advanced biofuel, and cellulosic biofuel volumes that represent growth compared to historical volumes and compared to the volumes proposed for 2020 and 2021. We are

proposing a 150 million gallon increase in the 2022 cellulosic biofuel volume over the proposed 2021 volume based on the expected continued growth in biogas use. We are also proposing the full implied statutory volumes for non-cellulosic advanced biofuel (

i.e.,

5 billion gallons, or 500 million gallons more than the proposed 2021 volume) and conventional renewable fuel (15 billion gallons).

We anticipate significant growth in the use of non-cellulosic advanced biofuels, especially in advanced renewable diesel.

While we expect that conventional ethanol use will fall short of the implied 15 billion gallon volume in 2022 by roughly 1.2 billion gallons, we project that greater volumes of biodiesel and renewable diesel could be produced and imported to offset this shortfall. We discuss the 2022 BBD volume separately in Section III.D.

The implied statutory volume for non-cellulosic advanced biofuel in 2022 (5 billion gallons) is the difference between the statutory volumes for advanced biofuel (21 billion gallons) and cellulosic biofuel (16 billion gallons) in 2022. Similarly, the implied statutory volume for conventional renewable fuel in 2022 (15 billion gallons) is the difference between the statutory volumes for total renewable fuel (36 billion gallons) and advanced biofuel (21 billion gallons) in 2022.

See Chapter 2 of the DRIA.

The proposed cellulosic biofuel volume for 2022 is equal to the projected available volume of cellulosic biofuel (see Chapter 5.1 of the DRIA). This volume represents the highest volume of cellulosic biofuel we can establish for 2022 given the cellulosic waiver provision, which requires EPA to reduce the statutory cellulosic volume to the projected volume available. While EPA does have the authority to establish a lower cellulosic volume under the reset authority, we do not believe this would be appropriate for 2022, as discussed below.

EPA's approach to the proposed cellulosic biofuel volume for 2022 seeks to realize the potential for GHG benefits associated with increased cellulosic biofuel production despite the relatively high costs (or in the case of CNG/LNG derived from biogas, the relatively high impact on the price of transportation fuel). Thus, while some of the statutory factors (such as the cost to consumers of transportation fuel) may suggest that a volume of cellulosic biofuel lower than the volume projected to be produced in 2022 would be appropriate, we have determined that these factors are outweighed by other factors (such as climate change).

The proposed advanced biofuel and total renewable fuel volumes strike a balance between numerous competing statutory factors. They reflect the potential for growth in the volume of renewable fuel produced and consumed in the U.S., and the energy security and potential climate change benefits that producing and consuming increasing volumes of qualifying renewable fuels provide. They also take into consideration the potential negative impacts of renewable fuels produced from crops such as corn or soybeans on environmental factors such as the conversion of wetlands, ecosystems, and wildlife habitat, water quality, and water supply.

We acknowledge that the implied conventional renewable fuel volume is higher than the volume of these fuels projected to be consumed in the U.S. in 2022. We believe this may incentivize the continued expansion of the infrastructure necessary to use higher level blends of ethanol, which remains the dominant form of conventional renewable fuel. In recent years, ethanol consumption beyond the E10 blendwall in the U.S. has been limited by infrastructure constraints (as well as other factors) to a volume significantly lower than the volume of ethanol produced in the U.S. and the total production capacity of the U.S. ethanol industry. If these infrastructure constraints are addressed, domestic ethanol consumption and ultimately domestic ethanol production could increase, and this could result in job creation, rural economic development, higher corn prices for farmers, and a greater supply of agricultural commodities. Alternatively, additional volumes of conventional biodiesel and renewable diesel could be supplied in 2022, including renewable fuels that are grandfathered under 40 CFR 80.1403 and are thus not required to meet the minimum 20 percent GHG reduction required for all qualifying renewable fuel. These fuels would most likely be produced in foreign facilities, which may cause additional environmental impacts and would not provide the same benefits to domestic job creation and rural economic development, but they could still provide energy security benefits.

Registered capacity to produce conventional biodiesel and renewable diesel exists at grandfathered facilities. Because grandfathered renewable fuels are not required to meet the GHG reduction thresholds, the GHG impacts of these fuels are highly uncertain.

At the same time, this higher volume requirement means that obligated parties will likely need to look to other sources of renewable fuel beyond corn ethanol to meet their compliance obligations for 2022. While we are proposing the non-cellulosic portion of the advanced biofuel standard at the full implied statutory volume of 5 billion gallons, our assessment of potential supply indicates that some additional volume will likely be used in 2022. This means that if, as expected, the market falls short of the implied volume of conventional renewable fuel in 2022, as has happened in several years in the past, excess volumes of advanced biofuel beyond what is needed to meet the advanced biofuel volume could be available to fulfill some portion of the shortfall. Finally, as discussed for in the context of the proposed volume requirements for 2020 and 2021, there may also be implications of the proposed 2022 volume requirements on the carryover RIN bank. While we are projecting that sufficient renewable diesel, both advanced and conventional, will be available to meet the proposed 2022 volume requirements, there is the potential that the market may fall short, in which case the existence of sufficient carryover RINs in the carryover RIN bank can still enable compliance. Specifically, obligated parties may use carryover RINs to help them comply with the proposed 2022 standards. See Section IV.A for a more detailed discussion of carryover RINs.

We acknowledge that in lieu of maintaining the implied statutory volumes of non-cellulosic advanced biofuel and conventional renewable fuel and relying on higher volumes of advanced biofuel to fulfill an expected shortfall in conventional biofuel, we could instead raise the advanced biofuel requirement and lower the conventional biofuel volume. However, we have chosen not to propose this. We expect that the impact on GHG emissions of the decision not to propose a higher advanced biofuel volume with a corresponding lower implied conventional biofuel volume will be minimal, given that additional volumes of advanced biofuels will likely be used to satisfy the conventional portion of the total renewable fuel requirement. Moreover, we believe that providing incentives for increased ethanol distribution and blending infrastructure through the higher implied volumes of conventional renewable fuel may result in the potential for greater renewable fuel consumption in future years.

We note that this approach of maintaining the statutory implied conventional and non-cellulosic advanced biofuel volumes is inherently consistent with the volumes Congress itself established in EISA. It is also consistent with EPA's policy in prior years, during which we have never established prospective volume requirements lower than the implied statutory volume targets, with a single

exception.

While we have discretion to deviate from this policy, we continue to believe that maintaining the implied statutory volumes strikes the proper balance based upon our consideration of the reset factors.

We prospectively established a volume for conventional renewable fuel for 2016 (14.5 billion gallons) that was lower than the statutory implied volume (15 billion gallons). In doing so, we exercised our “inadequate domestic supply” waiver authority based largely on the limited demand for ethanol in the United States. That decision that was subsequently set aside by the U.S. Court of Appeals for the District of Columbia Circuit in

ACE,

as exceeding our waiver authority.

We also acknowledge that we are already late in resetting the 2022 volumes. We nonetheless believe that this late exercise of our reset authority is appropriate for similar reasons as for 2020 and for 2021. Moreover, the proposed 2022 volumes are also independently justified under our cellulosic waiver authority.

The volumes of cellulosic biofuel, biomass-based diesel, advanced biofuel, and total renewable fuel we are proposing for 2022 are shown in Table III.D-1. We request comment on these proposed volumes. (The proposed BBD volume for 2022 is also included in Table III.D-1 for context, although we discuss it in Section III.E)

Table III.D-1—Proposed RFS Volumes for 2022

[Billion RINs]

Category

Proposed

volume

Cellulosic Biofuel

0.77

Biomass-Based Diesel

2.76

Advanced Biofuel

5.77

Total Renewable Fuel

20.77

The BBD volume for 2022 is in physical gallons (rather than RINs).

In particular, we request comment on our projection of cellulosic biofuel for 2022. As discussed in greater detail in Chapter 4 of the DRIA, our cellulosic biofuel projections for 2022 do not include any volume of cellulosic ethanol produced from corn kernel fiber from facilities that are not currently registered to generate cellulosic RINs due to outstanding issues. If these technical and regulatory issues are resolved, we project that as much as 210 million additional gallons of cellulosic biofuel could be produced from corn kernel fiber in 2022. Our projections also do not include any volumes that might result from our proposed biointermediate regulations, as we believe the impacts of that proposal will not occur until after 2022. We request comment on whether we should project additional cellulosic biofuel production from corn kernel fiber or biointermediates in 2022, and, if so, the volume we should project.

E. Proposed Biomass-Based Diesel Volume for 2022

As described above, we are proposing an increase of 500 million gallons in the non-cellulosic advanced biofuel volume for 2022. Consistent with this, we are also proposing to increase the BBD volume requirement by the same energy-equivalent amount (330 million physical gallons) to 2.76 billion gallons.

As in recent years, we believe that excess volumes of BBD (above 2.76 billion gallons) will be used in 2022 to satisfy the advanced standard. Historically, the BBD standard has not independently driven the use of BBD in the market. This is due to the nested nature of the standards and the competitiveness of BBD relative to other advanced biofuels. Instead, the advanced biofuel standard, and occasionally the total renewable fuel standard, have driven the use of BBD in the market. We believe this trend will continue in 2022, and that the 2022 advanced standard, and potentially the total renewable fuel standard, will drive the use of BBD in the market in 2022.

At the same time, we think it is important to maintain space for other advanced biofuels to participate in the RFS program. Although the BBD industry has matured over the past decade, the production of other advanced biofuels continues to be relatively low and uncertain. Maintaining this space for other advanced biofuels can facilitate in the long-term increased commercialization and use of other advanced biofuels, which may have superior environmental benefits and lower costs relative to BBD. Conversely, we do not think increasing the size of this space is necessary for 2022 given that only small quantities of these other advanced biofuels have been used in recent years relative to the space we have already provided.

The proposed BBD volume for 2022 is consistent with our policy in previous annual rules, where we also set the BBD volume consistent with the change, if any, in the advanced volume. In the 2019 final rule, we set the 2020 BBD volume at 2.43 billion gallons. This was an increase from the prior year's BBD volume by the same energy-equivalent amount (330 million physical gallons) as the increase in the 2019 non-cellulosic advanced biofuel volume (500 million ethanol-equivalent gallons). By contrast, in the 2020 final rule, when the 2020 non-cellulosic advanced biofuel volume did not change, we also maintained the 2021 BBD volume at 2.43 billion gallons. In both rules, we preserved a significant space for other advanced biofuels to compete, approximately equal to 850 million RINs (approximately equal to 566 million physical gallons). In reality, only 334 million ethanol-equivalent gallons of other advanced biofuel was consumed in 2020.

We acknowledge that in proposing the 2022 BBD volume in this action, we are proposing a late BBD volume. CAA section 211(o)(2)(B)(ii) provides that EPA shall determine the applicable volume 14 months prior to the year for which the standard will apply. That deadline has already passed. However, we do anticipate establishing the 2022 BBD standard ahead of the 2022 compliance year. The D.C. Circuit in

ACE

has affirmed EPA's ability to promulgate late BBD standards as long as those standards are reasonable.

In evaluating the reasonableness of EPA's standards, the Court suggested that EPA must “consider[ ] various ways to minimize the hardship caused to obligated parties.”

In this action, we are providing obligated parties with notice of the potential 2022 BBD volume requirement well in advance of the 2022 compliance deadline. Additionally, we are proposing a volume requirement that is consistent with our treatment of the BBD volume requirement in the past,

i.e.,

increasing the BBD volume requirement in accordance with increases in the implied statutory non-cellulosic advanced volume. Further, as in this case of previous annual rules, we continue to believe that it will be the advanced biofuel standard for 2022 that will drive the use of BBD in the market, and thus, the BBD standard we propose to establish is unlikely to result in additional burdens on obligated parties. Finally, we solicit comment on whether we should instead maintain the BBD standard for 2022 at 2.43 billion gallons. This would increase the space allowed for other advanced biofuels, as we are proposing to increase the advanced biofuel volume for 2022 by 500 million gallons over the proposed 2021 volume.

ACE

at 721.

Id.

(quoting

Monroe Energy, LLC

EPA,

750 F.3d 909, 920 (D.C. Cir. 2014)).

F. Summary of the Proposed Volumes

The proposed volumes for 2020, 2021, and 2022 are summarized in Table III.F-1. We request comment on these volumes (excepting the 2020 and 2021 BBD volumes, which were set in the 2019 and 2020 final rules, respectively), as well as any data or analysis that

would support alternative volumes for these years.

Table III.F-1—Proposed RFS Volumes for 2020, 2021, and 2022

[Billion RINs]

Category

2020

2021

2022

Cellulosic Biofuel

0.51

0.62

0.77

Biomass-Based Diesel

2.43

2.76

Advanced Biofuel

4.63

5.20

5.77

Total Renewable Fuel

17.13

18.52

20.77

The BBD volumes are in physical gallons (rather than RINs).

The BBD volume for 2020 was established in the 2019 final rule (83 FR 63704, December 11, 2018).

The BBD volume for 2021 was established in the 2020 final rule (85 FR 7016, February 6, 2020).

G. Impacts of the Proposed Volumes

As explained in Chapter 2.2 of the DRIA, we have used a baseline of the volumes actually supplied in 2020 to assess the impacts of this proposed rule, and thus the proposed 2020 volumes have no costs or benefits. We therefore focus on the projected impacts of the 2021 and 2022 volumes.

We recognize that there are other possible baselines that could be used as a point of comparison, and that the choice of baseline significantly influences our impact analyses. A potential alternative baseline that might be informative would be the volumes of renewable fuels that would be used each year from 2020-2022 in the absence of RFS obligations. While we have not used this alternative baseline in this rule, Chapter 2.2 of the DRIA contains a brief description of what such a baseline might look like. We request comment on the volumes of renewable fuel and feedstock use that would occur in these years in the absence of the RFS obligations.

The values for both 2021 and 2022 are calculated relative to the actual volumes of renewable fuel used in 2020. The 2022 values therefore reflect the incremental volumes for both 2021 and 2022.

For two of the statutory factors (fuel costs and energy security benefits) we were able to quantify and monetize the expected impacts of this proposed rule.

Information and specifics on how fuel costs are calculated are presented in Chapter 9 of the DRIA, while energy security benefits are discussed in Chapter 4 of the DRIA. A summary of the fuel costs and energy security benefits are shown in Table III.G-1 and Table III.G-2. Other factors, such as job creation and the price and supply of agricultural commodities, are quantified but have not been monetized. Further information and the quantified impacts of this proposed rule on these factors can be found in the DRIA. We were not able to quantify many of the impacts of this rulemaking, including impacts on many of the statutory factors such as the environmental impacts and rural economic development.

Due to the uncertainty related to the GHG emission impacts of this proposed rule (discussed in further detail in Chapter 3.2 of the RIA) we have not included a quantified projection of the GHG emission impacts of this proposal. However, to provide perspective regarding the scope of the potential benefits, Chapter 3.2.2 of the RIA illustrates the potential GHG benefits associated with the proposed volumes in this rule using the lifecycle GHG values calculated in the 2010 RFS final rule and other prior actions.

Table III.G-1—Fuel Costs of the Proposed Volumes

[2020 and nominal year dollars, millions]

Year

Undiscounted

Discounted

Rate: 7%

Rate: 3%

2021

278

2022

Excluding Supplemental Volumes

2,158

2,017

2,095

Including Supplemental Volumes

2,302

2,151

2,235

These costs represent the costs of producing and using biofuels relative to the petroleum fuels they displace. They do not include other factors, such as the potential impacts on soil and water quality or potential GHG reduction benefits.

Table III.G-2—Energy Security Benefits of the Proposed Volumes

[2020 dollars, millions]

Year

Undiscounted

Discounted

Rate: 7%

Rate: 3%

2021

2022

Excluding Supplemental Volumes

151

141

147

Including Supplemental Volumes

162

151

157

Regardless of whether or not we were able to quantify or monetize the impact of this proposed rule on each of the statutory factors, consideration of these factors is still required by the statute. We believe that the proposed standards

in this rulemaking are appropriate under our reset authority when we balance all of the relevant factors described throughout this preamble and the DRIA. We request comment generally on how costs and benefits quantified in this proposed rule are calculated and accounted for, as well as methods to quantify and monetize additional statutory factors.

IV. Interactions Between the RFS Annual Volumes

In resetting the volumes, EPA must review the implementation of the program. In conducting this review, we have assessed the carryover RIN bank

and carryforward deficits, which are two important compliance mechanisms. Specifically, the RFS regulations contain provisions that allow an obligated party to satisfy their RFS obligations for a given year by using up to 20 percent of RINs generated in the previous year.

Similarly, the RFS regulations also allow an obligated party to carry forward a compliance deficit from one year to the next, provided the party meets their full RFS obligations in the following year.

These provisions operate such that any excess RINs generated in one year, or any RIN deficits, can impact the market for RINs and renewable fuels in the next year. As such, compliance with the RFS standards for one year is inherently intertwined with compliance for the prior year. This section discusses the projected volume of carryover RINs (net of carryforward deficits) that will be available for use towards compliance with the 2020, 2021, and 2022 RFS obligations. We also evaluate whether we should intentionally set the 2020, 2021, and 2022 volumes at levels that would intentionally reduce the size of the carryover RIN bank, and we propose that this would not be appropriate.

CAA section 211(o)(5) requires that EPA establish a credit program as part of its RFS regulations, and that the credits be valid for obligated parties to show compliance for 12 months as of the date of generation. EPA implemented this requirement through the use of RINs, which are generated for the production of qualifying renewable fuels. Obligated parties can comply by blending renewable fuels themselves, or by purchasing the RINs that represent the renewable fuels from other parties that perform the blending. There are different “D” codes representing the different RFS standards that the various renewable fuels can be used to comply with. (

e.g.,

D3 represents cellulosic biofuel that can be used to comply with the cellulosic biofuel standard.) RINs 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 our regulations limit the use of these carryover RINs 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, vintage 2020 carryover RINs must be used for compliance in 2021, or they will expire. However, vintage 2021 RINs can then be “banked” for use in 2022.

40 CFR 80.1427(a)(5).

40 CFR 80.1427(b).

In addition, in reviewing the implementation of the program, we recognize the difference between the ability of retroactive versus prospective volume requirements to affect renewable fuel use. As we explained in Section II, we anticipate that the 2020 and 2021 standards will be largely retrospective, while the 2022 standards will be prospective. In this section, we explain that we do not expect the retroactive 2020 and 2021 standards to significantly affect renewable fuel use in 2020 and 2021, respectively, but we do expect the prospective 2022 standards to significantly affect renewable fuel use in 2022. Given this dynamic, we generally believe that higher renewable fuel volumes should occur in 2022 as opposed to 2020 or 2021.

We further discuss our review of the implementation of the program throughout the preamble and DRIA, especially in Chapter 1 of the DRIA.

A. Treatment of Carryover RINs

Consistent with our approach in recent annual rules, we have also considered the availability and role of carryover RINs in setting the volume requirements for 2020, 2021, and 2022. In general, we have authority to consider the size of the carryover RIN bank in deciding whether and to what extent to exercise any of our discretionary waiver authorities.

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

Monroe Energy

and

ACE

These discretionary waiver authorities include the reset and set authorities, CAA section 211(o)(7)(F) and 211(o)(2)(B)(ii) (both of which allow EPA to establish RFS volumes based upon a “review of the implementation of the program”), discretionary portion of the cellulosic waiver authority, CAA section 211(o)(7)(D)(i) (“the Administrator may also reduce the applicable volume of renewable fuel and advanced biofuels requirement”), the general waiver authority, CAA section 211(o)(7)(A) (“The Administrator . . . may waive the requirements”), and the BBD waiver authority with regard to the extent of the reduction in the BBD volume, CAA section 211(o)(7)(E)(ii) (“the Administrator . . . shall issue an order to reduce . . . the quantity of biomass-based diesel . . . by an appropriate quantity”).

Monroe Energy

EPA,

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

ACE,

864 F.3d at 713.

As noted in past RFS annual rules, carryover RINs are a foundational element of the design and implementation of the RFS program.

A bank of carryover RINs is extremely important in providing a liquid and well-functioning RIN market upon which success of the entire program depends, and in providing obligated parties compliance flexibility in the face of substantial uncertainties in the transportation fuel marketplace.

Carryover RINs enable parties “long” on RINs to trade them to those “short” on RINs instead of forcing all obligated parties to comply through physical blending. Carryover RINs also 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.

See,

e.g.,

72 FR 23904 (May 1, 2007).

See 80 FR 77482-87 (December 14, 2015), 81 FR 89754-55 (December 12, 2016), 82 FR 58493-95 (December 12, 2017), 83 FR 63708-10 (December 11, 2018), 85 FR 7016 (February 6, 2020).

Just as the economy as a whole is able to function efficiently when individuals and businesses prudently plan for unforeseen events by maintaining inventories and reserve money accounts, we believe that the RFS program is able to function 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 result in deficits and/or noncompliance by parties without RIN reserves. Because carryover RINs are individually and unequally held by market participants, a small RIN bank may negatively impact the RIN market, even where the market overall could satisfy the standards. Consequently, were market disruptions to occur with an insufficient carryover RIN bank, it could force the need for a new waiver of the standards, undermining the market certainty so critical to the RFS program. For all of these reasons, the collective carryover RIN bank provides a necessary programmatic buffer that both facilitates individual compliance, provides for smooth overall functioning of the program to the benefit of all market

participants, and is consistent with the statutory provision allowing for the generation and use of credits. We anticipate that the carryover RIN bank will serve this very purpose for compliance with the 2019 standards, when actual biofuel use in that year is expected to have fallen short of the RFS standards.

EPA extended the 2019 compliance deadline for small refineries to November 30, 2021. See 86 FR 17073 (April 1, 2021). We have proposed to further extend that deadline in a separate action (86 FR 67419, November 26, 2021).

EPA can also rely on the availability of carryover RINs to support ambitious volumes that may not be able to be met with renewable fuel production and use in that year, 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.

100

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

1. Carryover RIN Bank Size

We project a significant drawdown in the number of carryover RINs as a result of compliance with the 2019 standards. After compliance with the 2019 RFS standards, we project that there will be approximately 1.85 billion total carryover RINs available, a decrease of 1.62 billion RINs from the previous estimate of 3.48 billion total carryover RINs in the 2020 final rule.

101

Since we are proposing to set both the 2020 and 2021 volume requirements at the actual volume of renewable fuel produced in those years, we project that 1.85 billion total carryover RINs would be available for compliance with the 2022 standards as well.

101

The calculations performed to estimate the size of the carryover RIN bank can be found in the memorandum, “Carryover RIN Bank Calculations for 2020-2022 Proposed Rule,” available in the docket for this action.

However, there remains considerable uncertainty surrounding the ultimate number of carryover RINs that will be available for compliance with the 2020, 2021, and 2022 standards for several reasons, including the possibility of SREs and the fact that compliance with the 2019 standards has not yet occurred for all parties. Furthermore, as discussed in Section V, our proposed response to the remand of the 2016 rulemaking may reduce the total number of carryover RINs by up to 250 million RINs in 2022 (and up to another 250 million RINs in 2023). Finally, 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 or renewable fuel exporters settle past enforcement-related obligations in addition to complying with the annual standards. In light of these uncertainties, the net result could be a total carryover RIN bank larger or smaller than 1.85 billion RINs.

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

We evaluated the volume of carryover RINs projected to be available and considered whether we should intentionally draw down the carryover RIN bank in setting the 2020, 2021, and 2022 volume requirements. We do not believe that would be appropriate. As described above, 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 volumes 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. Furthermore, as noted earlier, after compliance with the 2019 standards, we project that there will be a significant drawdown in the number of carryover RINs. The advanced biofuel and total renewable fuel standards we are proposing for 2022, moreover, are significantly higher than the volume of renewable fuel used in previous years, as well as the volume of renewable fuel expected to be used in 2020 and 2021. As we explain further in Sections III and V, it may be challenging for the market to satisfy the 2022 annual standards and the 2022 supplemental standard entirely with renewable fuel use in 2022. Given this, the projected shortfall in RIN generation in 2019, and the uneven holding of carryover RINs among obligated parties, we expect that further increasing the standards with the intent to draw down the carryover RIN bank would lead to significant deficit carryovers and potential non-compliance by some obligated parties that own relatively few or no carryover RINs. We do not believe this is an appropriate outcome. Therefore, consistent with the approach we have taken in previous annual rules, we are not proposing to set the 2020, 2021, and 2022 volume requirements at levels that would intentionally draw down in the bank of carryover RINs.

As noted above, it is possible the size of the RIN bank may be different than our projection. Regardless, however, we do not believe an intentional drawdown of the carryover RIN bank would be appropriate for many of the reasons stated above. The carryover RIN bank would continue to be an important compliance flexibility for obligated parties. Moreover, the standards we are proposing for 2022, along with the 2022 supplemental standard, are forward leaning and if the projected growth in renewable fuel volumes do not materialize would lead to a drawdown of the carryover RIN bank.

3. Consideration of Cellulosic Carryover RINs

In comments on the 2020 proposed rule and supplemental proposal, several parties suggested that EPA prospectively establish the cellulosic biofuel volume at the volume projected to be supplied plus the volume of available carryover RINs from the prior year.

102

That is, these parties argued that EPA should set the cellulosic biofuel volume at a level that would intentionally eliminate the entire cellulosic carryover RIN bank. Because EPA established volumes solely under the cellulosic waiver authority that year, those parties focused their arguments on a legal interpretation of that provision, asserting that it required or allowed EPA to include, in its projection of the available volume, cellulosic carryover RINs that are projected to be available for compliance.

102

For example, see comments from the Coalition for Renewable Natural Gas (EPA-HQ-OAR-2019-0136-0723) and AJW and Iogen (EPA-HQ-OAR-2019-0136-0467).

Section 211(o)(7)(D)(i) of the CAA requires EPA to set the applicable volume of cellulosic biofuel at the “projected volume available during [the] calendar year.” EPA has consistently interpreted the statutory phrase “projected volume available” to refer to the volume of qualifying cellulosic biofuel projected to be produced or imported and available for use as transportation fuel in the U.S. in that year. This is equivalent to the projected number of cellulosic RINs generated in the year that are available for obligated parties to use for compliance. Since we first exercised the cellulosic waiver authority in the 2010 annual rule, we have never included carryover cellulosic RINs in this projection.

Parties that requested that EPA include carryover RINs in our projection of the available volume of cellulosic biofuel generally argued that despite the

continued rapid growth in cellulosic biofuel volumes, excess carryover cellulosic RINs in 2018 and 2019 resulted in low cellulosic RIN prices, which in turn may have negatively affected investment in cellulosic biofuel production. They further claimed that by including carryover RINs in the projected volume available, EPA would ensure that there was a strong market for cellulosic biofuel and cellulosic biofuel RINs in years when cellulosic biofuel production exceeded the number of cellulosic biofuel RINs needed by obligated parties for compliance. Commenters stated that this increased market certainty would result in increased investment in cellulosic biofuel production and ultimately increased cellulosic biofuel production. One commenter suggested that in conjunction with adding projected carryover RINs to the projected production volume of cellulosic biofuel when establishing the cellulosic biofuel volume, EPA could also subtract any projected deficits to account for years when cellulosic biofuel production falls short of EPA's projected production volume.

103

See comment from AJW and Iogen (Docket Item No. EPA-HQ-OAR-2019-0136-0467).

In our response to these comments in the 2020 final rule,

104

we disagreed with parties who claimed that the statutory language of the cellulosic waiver authority requires EPA to include carryover RINs in establishing the required volume of cellulosic biofuel. The statutory term “projected volume available” does not directly address the topic of carryover RINs. Indeed, the cellulosic waiver provision, CAA section 211(o)(7)(D)(i), does not mention carryover RINs at all, or otherwise refer to the statutory basis for such RINs, CAA section 211(o)(5). Thus, we believe there are multiple reasonable interpretations of this ambiguous statutory provision, including both the interpretation put forward by the stakeholders as well as the interpretation adopted by EPA in previous years.

104

See Section 3.3 of the Response to Comments document for the 2020 final rule (EPA-420-R-19-018, December 2019).

We further stated that the interpretation EPA adopted in previous years struck an appropriate balance between the interests of the cellulosic producers, those obligated to purchase and use cellulosic biofuels and cellulosic biofuel RINs, and consumers; and best ensured the ongoing smooth implementation of the RFS program.

105

Finally, since the 2020 proposed rule did not raise the possibility of including cellulosic carryover RINs in the projected volume available, we did not think it would be appropriate to make such a change without first giving all stakeholders an opportunity to comment.

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See

Chevron USA, Inc.

Natural Resources Defense Council, Inc.,

467 U.S. 837 (1984).

We are now providing stakeholders notice and opportunity for comment in this proposal on whether to include cellulosic carryover RINs as part of the projected volume available. With respect to the volumes in this rule, were we to include cellulosic carryover RINs, it would increase the 2020 cellulosic biofuel volume by 40 million gallons over the currently proposed volume.

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It would not affect the 2021 and 2022 cellulosic biofuel volumes, since we are establishing the cellulosic biofuel volumes based on actual supply for 2020 and 2021, and therefore at this time we do not project that excess RINs will be generated for carryover into 2021 or 2022.

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The calculations performed to estimate the number of cellulosic carryover RINs can be found in the memorandum, “Carryover RIN Bank Calculations for 2020-2022 Proposed Rule,” available in the docket for this action.

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We acknowledge of course that our projections of the available volume of cellulosic biofuel are inherently uncertain, and that there may be more or fewer cellulosic RINs generated in 2020 and 2021 than what we project. However, at the time of this rule, we have done our best to take neutral aim at accuracy of the projected volume available.

While we acknowledge that some aspects of the cellulosic category (such as the cellulosic waiver authority and the cellulosic waiver credits)

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are unique, at this time we believe the benefits of carryover RINs, discussed in Section IV.A, also apply to cellulosic carryover RINs. Adding carryover RINs to the volume projected to be produced would effectively guarantee that the demand for these RINs was always equal to the overall market supply and would likely result in cellulosic RIN prices at or near the price of an advanced biofuel RIN plus the price of a cellulosic waiver credit in future years. While raising prices would increase revenue for cellulosic biofuel producers, it may also increase the price of cellulosic biofuel. These higher prices would be passed on to consumers, who ultimately bear these costs.

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Cellulosic waiver credits may be purchased from EPA by obligated parties in years when EPA uses the cellulosic waiver authority to reduce the statutory volumes of cellulosic biofuel. Regulations related to cellulosic waiver credits can be found in 40 CFR 80.1456.

We also note that the legal arguments made by the previous commenters, while still relevant, are less so in the context of this rulemaking. The prior comments focused on an interpretation of the cellulosic waiver authority. In this rulemaking, however, we are concurrently exercising both our cellulosic waiver and reset authorities. Under the reset authority, we have broad discretion to establish volumes, including cellulosic biofuel volumes lower than the volume required under the cellulosic waiver. Thus, regardless of whether the prior commenters are correct about EPA's legal authority under the cellulosic waiver, we have legal authority under reset to establish volumes at actual supply, excluding any carryover RINs. At the same time, however, the cellulosic waiver authority establishes the ceiling for cellulosic biofuel volumes. If we agree with the commenters that the cellulosic waiver mandates or allows volumes at supply plus carryover RINs, then we may establish cellulosic biofuel volumes up to that level. Thus, although the legal framework has changed somewhat since the comments were submitted, their arguments remain relevant, and EPA is soliciting comment on this issue.

B. Ability for the RFS Volumes To Impact Renewable Fuel Supply

In developing the proposed volume requirements, we considered the timing of this action and its ability to impact renewable fuel production, imports, and use. Since only prospective requirements have a significant chance of affecting actual renewable fuel use, we are proposing to require higher volumes for 2022. Imposing higher volumes for 2020 or 2021, in contrast, would have no effect on demand for fuels in those years. By contrast, retroactively requiring volumes higher than what the market has actually supplied could create market disruption and thus interfere with program implementation without advancing program goals. Setting 2020 and 2021 volumes at those actually supplied reflects the fact that we are acting retroactively, while in requiring higher volumes for 2022 we are setting prospective obligations.

With respect to 2020, that year has already passed, so our retroactive revision of the RFS volumes cannot affect the production or use of renewable fuels in 2020 or consequently the statutory reset factors (

e.g.,

the impacts of the use of renewable fuels on cost, the environment, and so forth). Any actual market effects will be felt after the rule is promulgated and mediated through the carryover RIN bank.

With respect to 2021, there will not be sufficient time for the market to respond to the volumes that we finalize for 2021. The market may also respond in a more limited fashion to this proposed rule.

Regardless, any impact on the production, import, and use of renewable fuel in 2021 is likely to be limited, and therefore the ability for this rule to affect the statutory factors is likewise limited.

The situation for 2022, however, is different. The RFS standards for 2022 will be in place throughout 2022 and should be able to affect market decisions for renewable fuel production, import, and use in 2022, albeit still within the bounds of the lead time available. Similarly, the ability for this action to affect the statutory factors in 2022 will be significantly greater than in 2021 or 2020. Thus, we believe that increased renewable fuel requirements should be imposed in 2022, when this rule has a much greater chance of actually increasing renewable fuel use and production, as opposed to 2020 or 2021.

Conversely, there are also disadvantages to requiring higher volumes for 2020 and 2021 retroactively, or similarly, to maintaining the 2020 standards in the original final rule. Notably, such higher volumes would cause some combination of a drawdown of the carryover RIN bank, carryforward deficits, or non-compliance by obligated parties. While we have previously found an intentional drawdown of the carryover RIN bank to be appropriate in one case, we do not think that this is appropriate in this situation for reasons we describe below. We also do not think that intentionally relying on or effectively compelling carryforward deficits or intentionally causing non-compliance is generally appropriate.

Given the drastic shortfall in renewable fuel use relative to what we projected in the 2020 final rule as discussed in Section III.B, compliance with the original 2020 standards would likely result in a significant drawdown in the number of carryover RINs available for use in 2021 and 2022. As discussed in Section IV.A.1, we currently project that as a result of compliance with the 2019 RFS standards, the number of carryover RINs available for compliance with the 2020 standards will be approximately 1.85 billion RINs, a considerable drop from the 3.48 billion total carryover RINs we projected in the 2020 final rule. We expect that as a result of revising the 2020 standards to equal the actual volume of renewable fuels consumed, the number of carryover RINs available for compliance with the 2021 and 2022 standards will remain at 1.85 billion RINs. Were we not to modify the 2020 standards, we anticipate that the total number of carryover RINs available for compliance with the 2021 and 2022 standards would decrease dramatically to 630 million RINs, or less than 4 percent of the proposed 2021 and 2022 total renewable fuel standards.

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This would be the lowest quantity of carryover RINs available since EPA began projecting the size of the carryover RIN bank in 2013, and the relatively small carryover RIN bank could increase the risk of disruptions in the RIN trading market. A number of obligated parties would also likely have to carry deficits into 2022, fail to comply with the 2021 total renewable fuel standard if they had already carried a deficit forward from 2020, or similarly fail to comply with the 2022 total renewable fuel standard.

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The calculations performed to project the number of carryover RINs that would be available if we did not revise the 2020 standards can be found in the memorandum, “Carryover RIN Bank Calculations for 2020-2022 Proposed Rule,” available in the docket for this action.

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The regulations at 40 CFR 80.1427(b) allows obligated parties to only carry forward a deficit if they did not carry forward a deficit from the previous calendar year; thus, an obligated party that carries forward a deficit from 2020 into 2021 may not carry forward a deficit from 2021 into 2022.

If these compliance difficulties occur, we believe that the harms would not just be felt by directly affected obligated parties but also extend to the entire fuels market and the RFS program. Notably, if insufficient RINs are available to obligated parties to meet their compliance obligations, that could negatively impact the regulatory and market certainty critical to the investments needed to increase renewable fuel volumes in 2022 and into the future. This could in turn diminish the expected future rate of production of renewable fuels, impair the development of infrastructure to distribute and use increased volumes of such fuels, and reduce the expected energy security, job creation, and rural economic benefits associated with higher renewable fuel use and production. Reduced business certainty could also deter the commercialization of novel advanced biofuels, which have the potential for lower costs and superior environmental benefits.

Retroactively reducing the 2020 volumes mitigates these concerns. Specifically, our proposal to reduce the 2020 volumes to those

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