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[Federal Register Volume 77, Number 228 (Tuesday, November 27, 2012)]
[Notices]
[Pages 70752-70776]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-28586]

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ENVIRONMENTAL PROTECTION AGENCY

[FRL-9754-4]

Notice of Decision Regarding Requests for a Waiver of the 
Renewable Fuel Standard

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice.

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SUMMARY: The Governors of several States requested that EPA waive the 
national volume requirements for the renewable fuel standard program 
(RFS or RFS program), pursuant to section 211(o)(7) of the Clean Air 
Act (the Act), based on the effects of the drought on feedstocks used 
to produce renewable fuel in 2012-2013. Several other parties submitted 
similar requests. Based on a thorough review of the record in this 
case, EPA finds that the evidence and information does not support a 
determination that implementation of the RFS program during the 2012-
2013 time period would severely harm the economy of a State, a region, 
or the United States. EPA is therefore denying the requests for a 
waiver.

DATES: Petitions for review must be filed by January 28, 2013.

ADDRESSES: EPA has established a docket for this action under Docket ID 
No. EPA-HQ-OAR-2012-0632. All documents and public comment in the 
docket are listed on the www.regulations.gov Web site. Publicly 
available docket materials are available either electronically through 
www.regulations.gov or in hard copy at the Air and Radiation Docket in 
EPA Headquarters Library, EPA West Building, Room 3334, 1301 
Constitution Ave. NW., Washington, DC. The Public Reading Room is open 
from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal 
holidays. The telephone number for the Reading Room is (202) 566-1744. 
The Air and Radiation Docket and Information Center's Web site is 
http://www.epa.gov/oar/docket.html. The electronic mail (email) address 
for the Air and Radiation Docket is: a-and-r-Docket@epa.gov, the 
telephone number is (202) 566-1742, and the Fax number is (202) 566-
9744.

FOR FURTHER INFORMATION CONTACT: Dallas Burkholder, Office of 
Transportation and Air Quality, Environmental Protection Agency, 
National Vehicle and Fuel Emissions Laboratory, 2565 Plymouth Road, MI 
48105; telephone number: (734) 214-4766; fax number (734) (214-4050; 
email address: burkholder.dallas@epa.gov.

[[Page 70753]]

SUPPLEMENTARY INFORMATION: 

I. Executive Summary

    Governors from several States have requested a waiver of the 
national volume requirements for the renewable fuel standard program 
(RFS or RFS program). Broadly summarized, the States requesting a 
waiver (requesting States) assert that the RFS program is having a 
negative impact on their respective State economies based on this 
period of severe drought conditions by diverting corn from other 
markets to production of ethanol to meet volumes required under the 
RFS, leading to increased corn prices and resultant negative impacts on 
the livestock industry and food prices. Other parties requested a 
waiver on similar grounds. On August 30, 2012, EPA published a Federal 
Register notice inviting public comment on the waiver requests and 
other matters relevant to EPA's consideration of those requests.
    In determining whether these waiver requests should be granted or 
denied, our decision is based on the relevant criteria for a waiver set 
forth in CAA Section 211(o)(7)--whether implementation of the RFS 
volume requirements would severely harm the economy of a State, a 
region or the United States. In making its determination, EPA took into 
consideration all comments submitted as well as an analysis of relevant 
impacts of the drought on the crops that would be used as feedstock in 
the production of renewable fuel during the 2012/2013 corn marketing 
year (September 2012 through August 2013). EPA analyzed the impacts 
with and without a waiver, utilizing an updated version of an Iowa 
State University (ISU) model that was used in response to a Texas 
waiver request in 2008 (discussed further below) when analyzing this 
year's waiver requests. This analysis identified the extent to which, 
if any, implementation of the RFS volume requirements would affect 
ethanol production and thereby the price of corn and other products 
over the relevant time period. EPA also considered other empirical data 
including historical and current Renewable Identification Number (RIN) 
credit prices and the available quantity of carryover RINs.\1\
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    \1\ A RIN is unique number generated by the producer and 
assigned to each gallon of a qualifying renewable fuel under the RFS 
program, and is used by refiners and importers to demonstrate 
compliance with the volume requirements under the program.
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    After weighing all of the evidence before it, EPA found that the 
evidence does not support a determination that implementation of the 
RFS over the time period in question would severely harm the economy of 
a State, region, or the United States, the high statutory threshold for 
a waiver. The body of information shows that it is very likely that the 
RFS volume requirements will have no impact on ethanol production 
volumes in the relevant time frame, and therefore will have no impact 
on corn, food, or fuel prices. In addition, the body of the evidence 
also indicates that even in the unlikely event that the RFS mandate 
would have an impact on the corn and other markets during the 2012-2013 
time frame, its nature and magnitude would not be characterized as 
severe. In the small percentage of modeled scenarios where a waiver of 
the RFS mandate would have any impact on the production of ethanol (11 
percent of the cases), the decrease in ethanol production is small and 
the resulting reduction in corn prices is projected to be limited (on 
average $0.58 per bushel of corn).\2\ These potential impacts from 
implementation of the RFS program would not be considered as meeting 
the high statutory threshold of severe harm to the economy set by the 
statute. It is worth emphasizing that the modeling shows that even this 
degree of impact is a very unlikely outcome. The most likely outcome is 
that implementation of the RFS program during this time frame would 
have no impact at all on ethanol production and corn prices.
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    \2\ On average, across the 500 cases considered in the ISU 
analysis, a small $0.07 cent per bushel reduction on corn prices 
would be expected in the case of a waiver.
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    EPA also received comment on issues related to, among other topics, 
the general impact of increased use of biofuels on the economy and 
global markets, on ethanol's characteristics as a transportation fuel, 
and on the RFS program in general. EPA recognizes that many parties, 
both those supporting the waiver and those opposing the waiver, have 
raised issues of significant concern to them and to others in the 
nation concerning the role of renewable fuels and the RFS program in 
our country. In particular, EPA recognizes comments that focus on the 
severity of the drought and its major impacts on multiple sectors 
across the country. Many commenters describe the dire economic impact 
that this year's drought has had on corn crops, corn prices and those 
industries that rely on corn as an input. EPA and its federal partners 
recognize the substantial negative economic impacts suffered as a 
result of this year's historic drought. The drought's impact on U.S 
corn and other crop production has been well documented and was 
reflected in increasing corn prices starting early this summer.\3\ Crop 
growing regions across the country were affected, and the impacts of 
reduced crop production are far-reaching.
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    \3\ See for example the World Agricultural Supply and Demand 
Estimates, select issues, prepared by the U.S. Department of 
Agriculture; http://www.usda.gov/oce/commodity/wasde.
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    However, as was the case in 2008, the issue directly before the 
Agency is limited given EPA's authority under section 211(o)(7)(A) of 
the Act. After considering all of the public comments, both those in 
support of a waiver and those against, and consulting with the 
Secretaries of Agriculture and Energy, EPA has determined that the 
waiver requests should be denied because the evidence does not support 
making a determination that implementation of the RFS volume 
requirements during this time period would severely harm the economy of 
a State, region, or the United States.
    It is important to note that this and other waiver decisions are 
based on current circumstances and market conditions. As indicated by 
EPA's modeling, the impact of the RFS volume requirements is highly 
dependent on the volumes at issue, the number of RINs carried over from 
prior years and the relevant market commodity prices, such as corn and 
crude oil prices, and other factors applicable during the time period 
analyzed.

II. Overview of the Renewable Fuel Standard (RFS) Program

    The Energy Policy Act of 2005 (EPAct) amended the Clean Air Act to 
establish a Renewable Fuel Standard (RFS) Program and gave EPA 
responsibility for implementing it. EPAct required EPA to issue 
regulations ensuring that gasoline sold in the U.S., on an annual 
average basis, contained a specified volume of ``renewable fuel.'' The 
Energy Independence and Security Act of 2007 (EISA) amended the RFS 
program by, among other things, extending the program to cover 
transportation fuel, not just gasoline, extending the years in which 
Congress specified the required volume of renewable fuels by ten years, 
and increasing the required volumes of renewable fuels. EISA set the 
2012 and 2013 RFS renewable fuel mandates as 15.2 billion gallons and 
16.55 billion gallons respectively, and the mandate rises to 36.0 
billion gallons by 2022. EISA also imposed additional requirements for 
the use of advanced biofuel, biomass-based diesel, and cellulosic 
biofuel, included within the

[[Page 70754]]

overall mandate of renewable fuel. As part of EISA, Congress required 
EPA to determine the life-cycle emissions of greenhouse gases 
associated with renewable fuels, and required a minimum level of 
greenhouse gas reduction to qualify as renewable fuel, advanced 
biofuel, cellulosic biofuel or biomass-based diesel. EPAct had the 
statutory goal of increasing the volume of renewable fuels that are 
required to be used in the transportation sector and Congress furthered 
that goal with the passage of EISA. In this context, implementation of 
EISA is aimed at reducing dependence on foreign sources of energy, 
increasing the domestic supply of energy, and reducing greenhouse gas 
emissions associated with the transportation sector.
    EPA published regulations for the RFS program as amended by EISA on 
March 26, 2010 (75 FR 14670), and the amended RFS program became 
effective starting July 1, 2010. Since that time more than 36 billion 
ethanol-equivalent gallons of renewable fuel have been produced under 
the RFS program.\4\ EPA has also continued to update the RFS 
regulations through rulemaking actions to establish specific required 
renewable fuel volumes and annual percentage standards, as well as to 
identify additional qualifying renewable fuel production pathways. New 
pathways to produce renewable fuel for the RFS program, such as 
biomass-based diesel produced from canola oil have been approved as 
qualifying renewable fuels under RFS, and several others, such as 
ethanol produced from grain sorghum, are currently under evaluation. As 
new biofuel, feedstock, and fuel production technologies approach 
commercialization EPA will continue to review potential renewable fuel 
pathways for inclusion in the RFS program.\5\
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    \4\ Data from EPA's Moderated Transaction System (EMTS) through 
September 2012. Retrieved November 8, 2012 from EMTS. See ``RIN 
Rollover'' memo in the docket for more information or http://www.epa.gov/otaq/fuels/rfsdata/index.htm.
    \5\ A renewable fuel ``pathway'' under the RFS program 
encompasses a feedstock, process, and fuel combination. For example, 
ethanol (fuel) produced through a dry-mill process (process) and 
derived from corn starch (feedstock).
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    In April 2008, EPA received a request from the Governor of the 
State of Texas for a fifty percent waiver of the national volume 
requirements for the RFS; we provide more detail on this request here 
due to the relevance of our response to that request to today's 
determination. Texas based its request on the assertion that the RFS 
mandate was having a negative impact on the economy of Texas, 
specifically in the form of increased corn prices negatively impacting 
the livestock industry and food prices. After considering all of the 
public comments, and consulting with the Secretaries of Agriculture and 
Energy, EPA denied the waiver request.\6\ In making this decision, and 
as discussed in more detail below, EPA interpreted the statutory 
provisions to require a determination based on the expected impact of 
the RFS program itself, a generally high degree of confidence that 
implementation of the RFS program would severely harm the economy of a 
State, region, or the United States, and a high threshold for the 
nature and degree of harm. After weighing all of the evidence before 
it, EPA determined that the evidence in 2008 did not support a finding 
that implementation of the RFS would severely harm the economy of a 
State, region, or the United States. First, the evidence indicated that 
the most likely result was that the RFS would have no impact on ethanol 
production volumes in the relevant time frame, and therefore no impact 
on corn, feed, food, or fuel prices. Second, EPA also determined that 
if the RFS volume requirements were to have an impact on the economy 
during the 2008/2009 corn marketing year, it would not be of the nature 
or magnitude that could be characterized as severe. As part of the 
determination, EPA also provided guidance on what types of information 
should be submitted in the case of future waiver requests under the 
same provision of the Act.
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    \6\ 73 FR 47168 (August 13, 2008).
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III. EPA's Administrative Process

    In this section we first provide background information concerning 
the waiver requests and EPA's public notice of, and solicitation of 
comment on those requests. We also address comments related to 
procedural issues concerning our consideration of the waiver requests.

1. Letters Seeking an RFS Waiver and EPA's Request for Comment

    Beginning in July 2012, EPA received a number of requests for it to 
exercise its authority under CAA 211(o)(7) to grant a waiver in whole 
or in part of the renewable fuel standard requirements. In addition, 
EPA received a number of petitions seeking the same or similar EPA 
action from a number of state Governors, including the Governors of 
Arkansas, North Carolina, New Mexico, Georgia, Texas, Virginia, 
Maryland, Delaware, Utah, and Wyoming. The Governor of Florida wrote in 
support of a waiver in an October 16, 2012 letter to the 
EPA.7 8 9
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    \7\ See, for example, the July 30, 2012 letter submitted by the 
National Pork Producers Council (NPPC), on behalf of several 
national regional livestock, poultry, and other organizations 
(``July 30 NPPC letter'') requesting a waiver, EPA-HQ-OAR-2012-0632-
0012.
    \8\ The Governors' letters requesting a waiver are available at 
docket number EPA-HQ-OAR-2012-0632.
    \9\ In an August 9, 2012 letter, the Governors of Delaware and 
Maryland jointly wrote in support of the July 30 NPPC letter. The 
Governor of Delaware subsequently wrote in a September 25 letter 
asking that the August 9 letter ``be formally considered a Petition 
for Waiver;'' mentioned in EPA-HQ-OAR-2012-0632-1969. The Governor 
of Maryland also submitted a subsequent letter dated October 11, 
2012 requesting a waiver, EPA-HQ-OAR-2012-0632-2259.
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    All of the letters from State Governors discussed above, as well as 
the many letters EPA received supporting the waiver requests or asking 
EPA to waive the RFS volume requirements, cite the negative impact of 
this year's severe drought conditions, and most discuss the effect the 
drought has had on corn and feed prices, and the subsequent impacts 
being felt by the livestock, poultry, and other sectors.\10\ Several of 
the letters claim that the RFS program significantly increases demand 
for corn, thereby increasing corn prices and harming those sectors that 
use corn as a production input, such as the livestock and poultry 
industries. Many of the letters claim that a waiver of the RFS volume 
requirements would alleviate some of that harm. Though not all of the 
letters specify a time period for the waiver, many of them request a 
waiver of the RFS volume requirements in 2012 and 2013. While the 
contents of the letters described above vary in detail, each letter 
either requests that the Administrator grant a waiver of required RFS 
volumes or expresses support for the granting of such a waiver.
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    \10\ This includes several letters EPA received from Members of 
Congress supporting a waiver, all of which are available in the 
docket.
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    On August 30, 2012, EPA published a Federal Register Notice 
providing notice of its receipt of the waiver petitions, letters of 
support for the waiver petitions, and requests that EPA grant a waiver 
and invited public input on those requests over a 30-day comment 
period.\11\ EPA stated in the Notice that any similar requests received 
by EPA after issuance of the Notice would be docketed and considered 
together with the requests already received (collectively, the ``waiver 
requests'').
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    \11\ 77 FR 52715 (August 30, 2012) (``August 30 Notice'').
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    EPA requested comment from the public on any matter that might be

[[Page 70755]]

relevant to EPA's review of and actions in response to the waiver 
requests, including but not limited to: (a) Whether compliance with the 
RFS would severely harm the economy of Arkansas, North Carolina, other 
States, a region, or the United States; (b) whether the relief 
requested will remedy the harm; (c) to what extent, if any, a waiver 
would change demand for ethanol and affect prices of corn, other 
feedstocks, feed, and food; (d) the amount of ethanol that is likely to 
be consumed in the U.S. during the relevant time period, based on its 
value to refiners for octane and other characteristics and other market 
conditions in the absence of the RFS volume requirements; and (e) if a 
waiver were appropriate, the amount of renewable fuel volume 
appropriate to waive, the date on which any waiver should commence and 
end, and to which compliance years it should apply.
    In response to requests for an extension of time for public 
comment, EPA extended the public comment period by 15 days to October 
11, 2012.\12\ EPA received in excess of 29,000 comments during the 
comment period; the majority of the comments were short statements 
generally in support of the requests for a waiver. EPA also received 
numerous comments from various trade organizations and businesses, 
Governors, Members of Congress and other elected officials, 
researchers, and environmental organizations either supporting or 
opposing a waiver. Many of the comments referenced various analyses 
which are discussed below. In addition, EPA received comments that 
either supported EPA's legal interpretation of section 211(o)(7) as 
described in the 2008 Texas waiver determination or suggested that 
different interpretations and applications were appropriate. EPA 
addresses these and other comments either in the discussion of our 
process, results and conclusions, or in section VI of this 
determination.
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    \12\ 77 FR 57566 (September 18, 2012).
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2. EPA's Treatment of Petitions for a Waiver, Letters in Support of 
Petitions for a Waiver, Letters Requesting That EPA Act on its Own 
Authority To Issue a Waiver

    Section 211(o)(7)(A) states, in relevant part, that ``The 
Administrator * * * may waive [the RFS requirements] in whole or in 
part on petition by one or more States, by any person subject to the 
requirements of this subsection, or by the Administrator on his own 
motion * * * (i) based on a determination * * * that implementation of 
the requirement would severely harm the economy or environment of a 
State, a region or the United States, or (ii) based on a determination 
* * * that there is an inadequate domestic supply.'' (Emphasis added). 
The statutory criteria that must be met to issue a waiver are the same 
regardless of whether EPA acts on its own motion or responds to a 
petition from a State or person subject to the RFS requirements. The 
only difference the statute draws between the Administrator acting on 
her own motion or in response to a petition submitted by the listed 
parties is the 90-day deadline for EPA action in the latter case, set 
by section 211(o)(7)(B). Therefore, EPA has given all waiver requests, 
whether received before or after the August 30 Notice, equal 
consideration. For the reasons described below, EPA is denying all of 
the waiver requests.
    EPA received comment that although EPA sought comment on all the 
waiver requests, the Administrator need only decide that one of the 
requests meets the statutory requirements of CAA section 211(o)(7) in 
order to exercise her authority to waive the requirements of CAA 
section 211(o)(2) in whole or in part. This commenter noted that while 
EPA may consider the entirety of information and comments submitted on 
the various waiver requests, it need not decide that all, or several, 
of the requests have sufficient basis in order to grant a waiver. The 
commenter suggests that the waiver provision requires the Administrator 
to make individualized decisions with respect to ``a State,'' or ``a 
region'' of the United States that may be the subject of an individual 
request. EPA has considered all of the information and analysis 
submitted by the petitioners and parties who requested a waiver, as 
well as that submitted in comments. We have considered all information 
before us, including an analysis developed by EPA, as discussed below. 
Our technical analysis is relevant to all of the individual waiver 
requests. Based on the entire record before it, EPA has determined that 
each of the petitions and requests should be denied. In this decision 
EPA addresses each of the requests and petitions it has received to 
date. Therefore, EPA does not find itself in the situation posited by 
the commenters where some of the individual petitions are determined to 
satisfy the criteria for a waiver and other petitions do not. Rather, 
EPA has determined that each of the petitions should be denied.

3. Other Comments Related to EPA's Administrative Process

    As mentioned above, as part of the 2008 waiver determination EPA 
provided guidance on what types of information and analysis should be 
submitted with future waiver requests. In response to this year's 
August 30 Notice, commenters argued that such guidance effectively 
established ``completeness criteria'' that petitioning States failed to 
meet, and that EPA failed to apply when initially evaluating the 
requesting letters.\13\ Commenters argue that had EPA applied such 
criteria, EPA ``would not have even sought comment on the state 
petitions submitted this year.'' \14\ Commenters further argued that 
because the petitions submitted in 2012 fail to meet the criteria put 
forth by EPA in 2008, EPA ``may not grant a waiver as the public has 
been deprived of the opportunity to comment on the basis for granting a 
waiver'' of the RFS.\15\
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    \13\ EPA-HQ-OAR-2012-0632-2357, EPA-HQ-OAR-2012-0632-2218.
    \14\ EPA-HQ-OAR-2012-0632-2218.
    \15\ EPA-HQ-OAR-2012-0632-2218.
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    EPA takes seriously its responsibility to evaluate whether 
circumstances warranting a waiver have arisen. EPA also recognizes the 
need to avoid the uncertainty to the renewable fuel and RIN markets 
that may be associated with unnecessarily frequent evaluations of 
whether issuing a waiver is appropriate. To help meet those objectives, 
EPA provided guidance in 2008 regarding expectations for future waiver 
requests, and today we repeat that such guidance should be followed in 
the future. At the same time, we explicitly stated in 2008 that the 
guidance provided ``is not a rule, and therefore is not binding on the 
public or EPA. Any final decision on the sufficiency and merit of a 
petition will be made upon review of a petition by EPA in consultation 
with USDA and DOE.'' We further stated that EPA would ``review a 
request for a waiver and first determine whether to proceed with public 
notice and comment.''
    EPA, in consultation with USDA and DOE, reviewed the waiver 
requests received in July and August. In light of the severe drought 
affecting much of the country, and the clearly expressed support for a 
waiver by a number of States, governmental representatives and industry 
trade groups, it was clearly appropriate to seek public comment on the 
requests before making a final decision. Such a step would be required 
before EPA could make a decision to grant a waiver, and it was clearly 
appropriate to do so in these circumstances involving severe drought

[[Page 70756]]

conditions before making a decision to either grant or deny a waiver. 
The many important public submissions in response to EPA's solicitation 
of comment have affirmed the importance of addressing the waiver issue 
in a prompt and transparent fashion.

IV. Key Interpretive Issues

    Section 211(o)(7) of the CAA provides that EPA may waive the 
mandated national RFS volume requirement in whole or in part based on a 
determination by the Administrator that: (i) ``implementation of the 
requirement would severely harm the economy or environment of a State, 
a region, or the United States,'' or (ii) ``that there is an inadequate 
domestic supply.'' The 2012 waiver requests are all based on claims of 
severe economic harm to states, regions and/or the country as a whole 
associated with implementation of the RFS requirements in light of the 
drought experienced in large agricultural production areas of the 
country this summer. Therefore, the relevant statutory provision 
authorizes a waiver if EPA determines that RFS implementation ``would 
severely harm the economy of a State, a region or the United States.''
    In the August 30 Notice, EPA sought public comment on its 
interpretation of this provision as discussed in the context of the 
2008 Texas waiver determination. EPA's responses to the comments 
received are set forth in section VI of this determination. For reasons 
more fully described in that section, EPA continues to interpret this 
statutory provision as it did in 2008. Thus, it would not be sufficient 
for EPA to determine that there is severe harm to the economy of a 
State, region or the United States; rather, EPA must determine that RFS 
implementation would severely harm the economy. Furthermore, EPA 
interprets the word ``would'' as requiring a generally high degree of 
confidence that implementation of the RFS program would severely harm 
the economy of a State a region, or the United States. EPA interprets 
``severely harm'' as specifying a high threshold for the nature and 
degree of harm. Although there are many factors that affect an economy, 
the RFS waiver provisions call for EPA to evaluate the impact of the 
RFS mandate itself. EPA does not evaluate the impact of the RFS volume 
requirements in isolation, but instead evaluates them in the context of 
all of the relevant circumstances, including in this case the impact of 
the drought. However the purpose of this analysis is to characterize 
the impact of the RFS mandate itself, within this context. Finally, 
because the statute specifies that EPA ``may'' grant a waiver if it 
determines that implementation of the RFS requirements would severely 
harm the economy of a State, a region or the United States, the statute 
provides EPA with discretion to decline to issue a waiver even if it 
finds that the severe harm test is satisfied. This discretion allows 
EPA to take into consideration the possible impacts of issuing a waiver 
that extend beyond the geographic confines of a particular State or 
region. EPA believes that such consideration is particularly 
appropriate in light of the statutory requirement that any RFS waiver 
be nationwide in scope.\16\ To the extent relevant to the waiver 
requests before it, EPA has applied this interpretation in reaching a 
decision on the waiver requests.
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    \16\ Section 211(o)(7) reads, in relevant part, that the 
``Administrator * * * may waive the [RFS] requirements * * * by 
reducing the national quantity of renewable fuel * * *''. Emphasis 
added.
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V. Technical Analysis

    To evaluate the impact that implementation of the RFS would have on 
the amount of ethanol produced and consumed over the relevant time 
period, and the resulting impacts, if any, on the agricultural and 
other industries, we applied the same analytical framework EPA used in 
evaluating the 2008 waiver request. We first assessed what impact 
implementation of the RFS program would have on ethanol production and 
consumption, and thus corn prices, by conducting our own analysis using 
a model developed by Iowa State University. We then evaluated the 
impacts such changes, if any, would have on a set of key factors, 
including corn prices, feed prices, food prices, and fuel prices. A 
number of commenters submitted analyses looking at similar issues, and 
we reviewed those studies as part of our overall evaluation. Throughout 
this section we also address various comments we received in response 
to the August 30 Notice.

1. Methodology

(a) Analytical Model
    To assess the impact of implementation of the RFS, EPA evaluated 
two scenarios: one in which no waiver is granted and another in which a 
waiver of the total renewable fuel mandate is granted, as discussed 
below. As we did in evaluating the 2008 Texas waiver request, EPA 
utilized an economic model developed by researchers at Iowa State 
University (ISU model). During development of the analytical framework 
used in 2008, EPA evaluated different models and modeling approaches, 
and we refer readers to that discussion for more detail.\17\
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    \17\ 73 FR 47173 (August 13, 2008).
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    EPA believes the ISU model continues to be the most appropriate 
choice for a number of reasons. First, as discussed in 2008, EPA 
believes it is critical to use a stochastic framework to capture a 
range of potential outcomes, rather than a point estimate, given 
potential variation in a number of critical variables associated with 
ethanol production (e.g., corn yields, gasoline prices). Second, the 
ISU model captures the interaction between agricultural markets and 
energy markets, and is able to examine the impacts of uncertainty in 
variables within both sectors. The ability of the ISU model to account 
for this variability across both sectors gives the model an advantage 
over other models that are locked into a single projected fuel price or 
corn crop estimate. Third, documentation for the ISU model is 
relatively straightforward and transparent compared to other options, 
and allows all interested parties to understand the assumptions that 
drive the results.\18\ Fourth, the ISU model was designed to be easily 
and regularly updated with the most recently available data, such as 
USDA's World Agricultural Supply and Demand Estimates (WASDE) and the 
Energy Information Administration's (EIA) Short Term Energy Outlook 
(STEO) reports, making it useful for analysis looking at fairly short 
time frames (e.g., within one year into the future).\19, 20\ Finally, 
we note that the ISU model has been used in analytical work conducted 
outside EPA; reports based on such work are and have been available in 
the public domain for review. We are using a model, in other words, 
that has been subjected to external scrutiny independent of our own 
analysis. By way of example, many commenters cited a non-EPA study that 
used the ISU model and same basic approach we adopt here to analyze 
potential impacts of a waiver in 2012.\21\ EPA is not aware

[[Page 70757]]

of any significant technical criticism of the ISU model itself.\22\
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    \18\ For a recent example of this documentation, see: Babcock, 
B. ``Updated Assessment of the Drought's Impacts on Crop Prices and 
Biofuel Production.'' (``Babcock-Iowa State.'') Center for 
Agricultural and Rural Development, CARD Policy Brief 12-PB 8, 
August 2012, available in the docket and at http://www.card.iastate.edu/policy_briefs/display.aspx?id=1169.
    \19\ http://www.usda.gov/oce/commodity/wasde/.
    \20\ http://www.eia.gov/forecasts/steo/.
    \21\ Babcock-Iowa State.
    \22\ The assumptions and inputs used within any model are of 
critical importance to modeled results, and we explain our selection 
of key inputs below.
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    The ISU model is a stochastic equilibrium model that projects, 
among other outputs, the prices of corn, ethanol and blended fuel given 
uncertainty in six variables: U.S. corn yields, U.S., Brazilian, and 
Argentinean soybean yields, U.S. wholesale gasoline prices, and 
Brazilian ethanol production.\23\ The analysis simulates 500 scenarios, 
and for each one the model independently picks a value for each 
exogenous factor (such as U.S. corn yield) by randomly selecting from a 
probability distribution curve for that factor. Since the probability 
of the specific value of a given corn yield is built into the 
distribution curve for corn yields, the greater the probability of a 
certain corn yield, the more likely it is that the model will pick that 
value for any scenario. The result is that the distribution of the 
random draws for each exogenous factor fairly reflects the probability 
of the various uncertain variables. For each of the 500 scenarios, the 
model projects ethanol production and the prices of corn, ethanol, and 
blended fuel based on the values picked for the exogenous factors for 
that run. As mentioned above, we ran the model with and without a 
waiver, modeling 500 different scenarios, to assess the impact of a 
waiver.
---------------------------------------------------------------------------

    \23\ These variables are called exogenous factors, or uncertain 
variables. The gasoline price put into the model is a ``petroleum 
only'' price, meaning that it represents a gallon of gasoline that 
contains no ethanol.
---------------------------------------------------------------------------

    For the results described below, EPA made modifications to the 
model in preparation for the current analysis. At EPA's request, ISU 
researchers updated their model with data from the October WASDE and 
STEO reports. After consultation with DOE, we also modified the demand 
curve for ethanol to reflect our understanding of flexibility in 
refinery markets over the next twelve months. A full description of the 
ethanol demand curve developed in consultation with DOE can be found in 
the docket.\24\ We discuss the issue of refiner flexibility more fully 
in Section V.1.d below. Further, as detailed in Section V.1.c below, 
the model utilizes EPA estimates regarding excess, or ``rollover'' 
RINs, that will be available for use for compliance purposes in the 
2012/2013 corn marketing year time period. The time period analyzed is 
discussed in Section V.1.b below. The estimates of rollover RINs are 
based on information submitted to EPA related to RIN generation. 
Additional details on the model changes and assumptions made for EPA's 
analysis are included in the docket.\25\
---------------------------------------------------------------------------

    \24\ See memo to the docket from the Department of Energy on 
ethanol demand for further information.
    \25\ See memos to the docket describing the ISU model 
(``Description of Iowa State University Stochastic Model'') and 
detailing EPA modeling results (``EPA Stochastic Modeling Results'') 
for more information.
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(b) Scope of Technical Analysis
    To analyze the impact of implementation of the RFS, our technical 
analysis focused on the volume of renewable fuel representing the 
difference in volume between the advanced biofuel requirement and the 
total renewable fuel requirement. This is the portion of the total 
volume requirement that is currently met almost exclusively with corn 
ethanol.\26\ EPA compared circumstances with and without a waiver to 
identify the impact properly associated with the use of corn ethanol in 
the implementation of the RFS program for the 2012/2013 corn marketing 
year.\27\
---------------------------------------------------------------------------

    \26\ Note that the RFS program does not require that this volume 
of renewable fuel be met through use of corn based ethanol; any 
other renewable fuel can also satisfy the requirement.
    \27\ While some of the requests for a waiver do discuss a 
``whole or partial'' waiver, our analysis focuses on a waiver of the 
full amount between the advanced biofuel requirement and the total 
renewable fuel requirement. Analyzing scenarios with and without the 
volume requirements in place helps evaluate the full impacts of the 
RFS program. Because we find that it is unlikely that the RFS 
requirements are having an impact in the time period analyzed, we do 
not address the question of a partial waiver. If waiving the entire 
volume requirement were to have no impact, then we would not expect 
waiving just a portion of the requirements to have an impact.
---------------------------------------------------------------------------

    We note that several of the States requested a waiver of RFS 
requirements ``in 2012 and 2013,'' although the various waiver requests 
were not always specific with respect to the time period for which the 
waiver was requested. EPA focused its technical analysis on the 2012/
2013 corn marketing year (which runs from September 1, 2012, to August 
31, 2013) for a number of reasons. All of the petitioners referenced 
the serious drought conditions as the underlying reason for waiving the 
RFS volume requirements. The drought primarily affects the 2012/2013 
corn marketing year, and the harm claimed by the requesters was the 
impact of taking corn from the reduced crop affected by the drought and 
using it to produce ethanol as a transportation fuel. The corn crop at 
issue is the 2012/2013 corn marketing year crop, and it is ethanol 
produced from this corn crop that was the overwhelming focus of the 
waiver requests. Focusing the technical analysis on the production of 
ethanol during this same 2012/2013 time period focused the analysis on 
the time period where implementation of the RFS volume requirements was 
claimed to be the source of the harm. In addition, focusing on the 
2012/2013 marketing year is consistent with the petitioners request to 
waive the RFS requirements ``in 2012 and 2013'' since it would cover 
portions of both calendar years. Finally, while other time periods are 
possible to analyze, data is often reported on a marketing year basis, 
and analysis of commodity markets is frequently done similarly. The 
WASDE data used in our analysis, as well as all other USDA projections 
of U.S. corn yields, production, and prices, are done within this same 
time frame.
    EPA received comment that a waiver granted for some or all of 2013 
might have impacts on market dynamics in the 2013/2014 corn marketing 
year, and that EPA is not limited to assessing only a one-year 
impact.\28\ Commenters state that a waiver granted for some or all of 
the 2013 RFS compliance year would make more RINS available for use in 
2014, when the RFS standards are higher, and that such a waiver would 
provide ``relief'' in 2013/2014. In considering the time frame used for 
this technical analysis, EPA recognizes that we have discretion in 
determining the appropriate time period to analyze. In this case, 
however, and as described above, we focus our analysis on the 2012/2013 
corn marketing years as that is the time period where the requesters 
claim that implementation of the RFS volume requirements would severely 
harm the economy. Evaluating whether implementation of the RFS volume 
requirements would severely harm the economy after the end of the 2012/
2013 corn marketing year would require a new set of assumptions 
regarding future crop yields, gasoline costs, refining market behavior, 
and other parameters, which can be projected but are less certain at 
this time.\29\ EPA believes that evaluating the potential impacts of 
implementation of the RFS volume requirements in 2013/2014 should take 
into account information on the 2013/2014 corn crop, as well as updates 
on other information used in the analysis. While it is possible to look 
over a longer time period, as some of the studies

[[Page 70758]]

submitted to EPA attempt to do,\30\ assessing impacts over a longer 
time period introduces an additional set of variables that increase the 
uncertainty of any analytical results.
---------------------------------------------------------------------------

    \28\ For example, see comments submitted by National Pork 
Producers Council, available at EPA-HQ-OAR-2012-0632-2209, stating 
that ``benefits of [a] waiver do not need to coincide with waiver 
period'' at 26.
    \29\ For example, using gasoline prices for longer-term 
projections necessarily involves a higher degree of uncertainty. The 
same goes for projections related to crop yields.
    \30\ See, for example, ``Renewable Fuel Standard Waiver Options 
during the Drought of 2012,'' Food and Agricultural Policy Research 
Institute, University of Missouri, Report 11-12, October 
12, (``FAPRI-Missouri''), available in the docket.
---------------------------------------------------------------------------

    To the extent parties believe that implementation of the RFS 
program would severely harm the economy in 2014 because of the 
production of renewable fuel from corn, then a future waiver request 
that focuses on the harm in that time period could present analysis and 
arguments addressing the impact of implementation of the RFS volume 
requirements during that time period. For example, the availability of 
rollover RINs in future time frames could be more limited, a fact which 
could impact the results of such an analysis. However as noted above 
assessing those issues now would involve a high degree of uncertainty. 
To the extent parties assert that implementation of the RFS volume 
requirements would severely harm the economy in 2014 because of market 
based limits on the volume of ethanol in gasoline (typically referred 
to as the blendwall, as blends greater than E10 or E15 may only be 
marketed to flexible fuel vehicles), then a future waiver request that 
focuses on this issue could present information and analysis addressing 
the relevant issues. However, it would be more appropriate to consider 
such issues in a future annual RFS rulemaking setting the volume 
requirements for years after 2013.
    In a related vein, EPA also received comments related to EPA's 
ability to renew a waiver beyond a one-year time frame.\31\ Other 
commenters suggested that EPA should grant a waiver for two years. The 
statute provides that a waiver granted under section 211(o)(7) of the 
Act ``shall terminate after 1 year, but may be renewed by the 
Administrator after consultation with the Secretary of Agriculture and 
the Secretary of Energy.'' EPA interprets this provision to mean that 
Congress intended the length of time for which a waiver should be 
granted to be one year, and that EPA may consider, in consultation with 
USDA and DOE, whether the period should be extended. Such consultation 
would be in the context of evaluating the economic impacts of the 
initial waiver as well as whether severe economic harm is still being 
caused by implementation of the RFS volume requirements. EPA does not 
need to decide now the scope of its authority for a renewal of a 
waiver, especially since EPA is denying the waiver requests that are 
before it. EPA clearly has authority to grant a waiver for a period of 
one year only, and any renewal would need to be the subject of a 
separate, if related, action.
---------------------------------------------------------------------------

    \31\ National Pork Producers Council comments at EPA-HQ-OAR-
2012-0632-2209.
---------------------------------------------------------------------------

    For these reasons, with respect to assessing the impact that 
implementation of the RFS will have on ethanol production levels, and 
to evaluating the impacts and potential degree of harm from 
implementation of the RFS on corn prices and other factors, EPA 
believes that it is appropriate in this case to focus its technical 
analysis on impacts that occur from the production of ethanol in the 
2012/2013 corn marketing year.
    EPA's technical analysis focuses on whether the RFS mandate has an 
effect on corn ethanol production and consumption over the 2012/2013 
marketing year. EPA recognizes that the drought affecting much of the 
nation during 2012 has affected not only corn yields, but also other 
crops used in the production of renewable fuels, most notably soybeans, 
which are used as a feedstock in biomass-based diesel (BBD) production. 
EPA also received comment arguing that a waiver should analyze impacts 
on all potential feedstocks and volume standards under RFS.\32\ EPA 
chose to focus our technical analysis on conventional ethanol, corn 
prices, and related impacts primarily because the requesting States and 
other parties as well as commenters focused the overwhelming majority 
of their discussion on ethanol production, corn price changes, and 
subsequent impacts from those increased corn prices on industries that 
use corn as an input (e.g., feed, livestock, and poultry industries). 
These parties assert that the RFS is creating demand for corn for use 
in production of transportation fuel, and that reducing that demand via 
a waiver would result in making additional corn available for other end 
uses and reduce prices of corn. Because the focus of the requesting 
parties is on corn and corn ethanol, we believe it is reasonable to 
similarly concentrate our technical analysis on the impacts of a waiver 
affecting the portion of the total renewable fuel mandate that is 
currently satisfied with conventional renewable fuel RINs, the majority 
of which represent corn-based ethanol.
---------------------------------------------------------------------------

    \32\ See, for example, comment from Chevron at EPA-HQ-OAR-2012-
0632-2306.
---------------------------------------------------------------------------

    At the same time, some of the requesting States mentioned the 
drought's impacts on soybean crops, and many of the requesting States 
requested a waiver of ``applicable volumes'' of renewable fuel.\33\ 
While EPA did not conduct its own technical analysis of these issues, 
EPA considered the technical analysis and other information submitted 
by commenters, and has determined that a waiver should not be granted 
for the RFS biomass-based diesel volumes. We discuss the biomass-based 
diesel and cellulosic volume requirements in section V.6.
---------------------------------------------------------------------------

    \33\ See, for example, the waiver request letter from the 
Governor of Utah, at EPA-HQ-OAR-2012-0632-2486, requesting a waiver 
``as to have the maximum impact on the price of corn and soybeans * 
* *''.
---------------------------------------------------------------------------

(c) Availability of Rollover RINs
    Under the RFS program, RINs are valid for compliance purposes for 
both the calendar year in which they are generated and the following 
calendar year. By regulation, the amount of an obligated party's 
Renewable Volume Obligation (RVO) that can be met using previous-year, 
or ``rollover,'' RINs is capped at 20 percent. EPA explained our 
interpretation of the relevant statutory provisions, and our reason for 
establishing a cap of 20 percent, in the 2007 RFS final rulemaking on 
RFS.\34\ For purposes of the current analysis, the number of rollover 
RINs available during the 2012/2013 marketing year affects the impact 
of implementation of the RFS volume requirements in 2013.
---------------------------------------------------------------------------

    \34\ 72 FR 23935 (May 1, 2007).
---------------------------------------------------------------------------

    The specific number of rollover RINs available for use in the 2012/
2013 marketing year is an input into EPA's stochastic modeling. To the 
extent that the number of rollover RINs is greater, the RFS 
requirements could be met with less production and blending of ethanol 
in 2013. The converse is the case if the number of rollover RINs is 
less. As discussed in Section V.1.d, we believe that refiners and 
importers, the parties obligated to comply with a renewable volume 
requirement, at least in many cases, have reasons other than the RFS 
program for choosing to rely on ethanol blending for compliance 
purposes. However, to the extent that the RFS program also creates such 
pressure, rollover RINs reduce it in a given time period by increasing 
compliance flexibility for obligated parties. It also provides more 
flexibility for renewable fuel producers. From the perspective of the 
ISU model, one rollover RIN is equivalent to one liquid gallon of 
ethanol: both equally satisfy the RFS requirements, and thus both are 
sources of ethanol to draw upon in the model.
    Based on the most current data available from the EPA Moderated 
Transaction System (EMTS), EPA

[[Page 70759]]

projects that obligated parties will collectively be able to roll over 
2 to 3 billion 2012 vintage RINs into the 2013 compliance period. EMTS 
currently reports that approximately 3.5 billion 2011 vintage D6 RINs 
are available for use towards 2012 compliance. As discussed above, no 
more than 20 percent of a given year's renewable fuel standard can be 
met with RINs from the previous year.\35\ That requirement is 15.2 
billion gallons in 2012, meaning that as many as 3.04 billion 2011 RINs 
can be carried over for 2012 compliance.\36\ Since these 2011 vintage 
RINs expire at the end of the 2012 compliance period, obligated parties 
have a strong incentive to use these RINs first, carrying over any 
excess 2012 RINs into the 2013 compliance period. Based on this 
incentive and supported by conversations with industry and governmental 
stakeholders, EPA believes that obligated parties will utilize the 
maximum possible amount of 2011 RINs (i.e., 3.04 billion RINs out of a 
total 3.46 billion RINs available) for 2012 compliance and not let them 
expire.
---------------------------------------------------------------------------

    \35\ 40 CFR 80.1427.
    \36\ 3.04 billion RINs is 20 percent of the total renewable fuel 
requirement for 2012 (i.e., 15.2 billion gallons).
---------------------------------------------------------------------------

    Based on total 2012 EMTS data available to date, we project for 
purposes of this analysis that D6 RIN rollover into the 2012/2013 
marketing year period will exceed 2.0 billion. Total D6 RIN generation 
for 2012 has already exceeded 10.8 billion gallons. Monthly generation 
of D6 (general renewable fuel) RINs was approximately 1.05 billion in 
October of 2012, only slightly lower than the 1.1 billion RINs 
generated in October of 2011 and just below average for 2012 as a 
whole.\37\ If monthly RIN generation holds constant at October levels 
for the rest of 2012, rollover of 2012 vintage RINs to 2013 would 
likely exceed 2.6 billion. If RIN generation increases in November and 
December of 2012, as it did in both 2010 and 2011, rollover RIN 
availability would likely exceed 2.7 billion and could potentially be 
even higher. Thus in all of these scenarios, it is expected that at 
least 2.0 billion rollover RINs will be available for the 2013 
compliance year. Further information on RIN rollover projections is 
also available in the docket.\38\
---------------------------------------------------------------------------

    \37\ Even if D6 RIN generation declines by 10 percent monthly in 
November and December of 2012, we expect that the number of 2012 
vintage D6 RINs available after obligated parties fulfill their 2012 
compliance obligations would still exceed 2 billion, and would 
likely exceed 2.5 billion. See ``RIN Rollover'' memo in the docket 
for more information.
    \38\ See ``RIN Rollover'' memo in the docket.
---------------------------------------------------------------------------

    Several studies prepared by non-EPA researchers observe, and we 
agree, that the availability of rollover RINs can significantly affect 
the potential impact of implementation of the RFS volume requirements. 
Some studies have suggested that, in scenarios where rollover RINs are 
relatively scarce, waiving the effective conventional renewable fuel 
volume requirement might lead to a significant decrease in corn prices. 
However, if significant numbers of rollover RINs (i.e., 2.0 billion or 
more) are available, these studies suggest that the effect of a waiver 
is significantly smaller.\39\
---------------------------------------------------------------------------

    \39\ See Babcock-Iowa State. See also Purdue University/Farm 
Foundation study,''Potential Impacts of a Partial Waiver of the 
Ethanol Blending Rules,'' EPA-HQ-OAR-2012-0632-0025.
---------------------------------------------------------------------------

    EPA recognizes that the estimate of rollover RIN availability used 
in the ISU model (and other models) can have a significant effect on 
the results of the modeling. For purposes of our analysis, EPA assumed 
that no more than 2.0 billion rollover RINs would be available for use 
in the 2012/2013 time period. As discussed above, current data suggest 
that RIN rollover is likely to be higher or even significantly higher 
than this. We believe 2.0 billion rollover RINs is a conservative 
analytical assumption.
    Historically refiners and blenders have blended more ethanol than 
required due to its favorable economics, leading to the large carryover 
RIN balance discussed above. EPA received comment suggesting that even 
if the blending economics were not favorable for ethanol, refiners and 
blenders might look forward to future obligations and purposefully 
over-comply with the RFS requirements in 2013 to increase their 
``bank'' of relatively low-cost RINs that could be carried into 2014, 
in case they anticipate RIN prices to be higher then. If such behavior 
were to take place, ethanol production in the 2012/2013 corn marketing 
year would be higher than the level projected in the ISU modeling 
results. The implication is that the waiver could have a slightly 
larger impact on ethanol production and corn prices than what is 
projected in the ISU modeling results. If this type of over-complying 
behavior were to take place, we would expect demand for ethanol to be 
right at the E10 blend wall limit in 2012 and 2013. However, the 
empirical data does not support the theory that obligated parties are 
over-complying to the maximum extent that they can bank RINs today, 
since there is still a small but significant gap between the volumes of 
ethanol consumption our modeling projects for next year and the 
estimated E10 blend wall. Even if parties were to engage in over-
compliance for banking purposes in 2013, their desire to do so would 
likely be limited by their ability to blend ethanol into low level 
blends (i.e., E10). Therefore, we do not believe that this type of 
behavior would have any appreciable effect on our analysis for this 
waiver decision.
(d) Flexibility in the Refining Sector
    In assessing the impact of implementing the RFS volume requirements 
in the 2012/2013 time frame on ethanol production, a key consideration 
is the economic incentives for refiners to use ethanol during that time 
frame as well as the ability of refiners and fuel blenders to reduce, 
over that one-year timeframe, the quantity of ethanol currently being 
blended into the gasoline pool. As ethanol production and availability 
in the U.S. has increased over the past 10 years, the economics of 
blending ethanol into gasoline have been such that many refiners have 
transitioned from producing primarily finished gasoline to producing 
primarily blendstocks for oxygenate blending (BOBs) which require the 
addition of ethanol in order to meet the specifications of finished 
gasoline. However, assuming refiners wanted for business reasons to 
reduce the quantity of ethanol blended into the gasoline pool, refiners 
would have to seek alternative high octane blend stocks or 
significantly adjust refinery operations to make up for the volume and 
octane increase they currently receive from ethanol. Logistical 
challenges to the refined product distribution system would also have 
to be overcome in parallel with the necessary refinery operation 
changes.\40\
---------------------------------------------------------------------------

    \40\ See Department of Energy memo on ethanol demand, available 
in the docket, for further information. See also EPA memo, 
``Economics of Ethanol Blending and Refining Sector Flexibilities,'' 
available in the docket.
---------------------------------------------------------------------------

    As mentioned, currently most refiners produce a sub-octane 
unfinished gasoline lacking oxygenates called blendstocks for oxygenate 
blending (BOBs). These BOBs are transported through fuel pipelines or 
other modes to petroleum product terminals where they are then blended 
with ethanol and become finished gasoline. Since ethanol is generally 
not produced near large refineries and may absorb water and impurities 
that normally reside in petroleum product pipelines, a separate ethanol 
distribution system has been established to distribute and ultimately 
blend ethanol into BOBs at terminals to produce the finished fuel.

[[Page 70760]]

    One reason refiners choose to blend ethanol into gasoline is for 
purposes of boosting gasoline octane levels. Ethanol has an octane 
value of 115 (R+M/2) while finished gasoline's pump octane value ranges 
from 87-93.\41\ Ethanol also has a value as a gasoline extender when 
blended into the gasoline pool. Other properties of ethanol, such as 
its volatility and low sulfur and benzene content, influence its value 
to refiners. Each refiner is expected to make decisions about ethanol 
blending independently, in light of the value they place on these 
factors and the complexity and uniqueness of each refinery. Where the 
blending of ethanol is profitable to refiners we expect that they would 
continue to blend ethanol into the gasoline pool even in the absence of 
a renewable fuel requirement.\42\
---------------------------------------------------------------------------

    \41\ Octane rating or octane number is a standard measure of the 
performance of a motor or aviation fuel. The higher the octane 
number, the more compression the fuel can withstand before 
detonating.
    \42\ EPA acknowledges that the blending economics for ethanol 
are significantly different for E10 and E85. Our ethanol demand 
curve takes these differences into consideration, resulting in large 
drop in the ethanol to gasoline price ratio at the volume of ethanol 
that corresponds to the E10 blendwall.
---------------------------------------------------------------------------

    After consultation with DOE, review of comments, and analysis 
undertaken by EPA, we determined that, assuming refiners had an 
economic incentive to reduce ethanol blending, refiners have limited 
flexibility to make the necessary adjustments to reduce ethanol 
blending if a one year waiver of the RFS program were granted under 
projected scenarios for ethanol and gasoline prices. Our modeling 
inputs reflect this determination.\43\ At current ethanol and crude oil 
prices, the blending of ethanol into gasoline is an economically 
beneficial practice for refiners, and based on EIA forecasts this is 
expected to continue through at least 2013. However if that were to 
change and blending ethanol into gasoline was no longer an economically 
beneficial practice for refiners, we believe that the challenges at 
both the refinery level and in the refined product distribution system 
would be significant deterrents to reductions in ethanol blending in 
response to a one-year waiver. Studies conducted by independent 
organizations such as Morgan Stanley and Hart Energy, among others, 
support our assumption that refiners would be limited in their ability 
to reduce ethanol blending if a one year waiver of the RFS requirements 
is granted under current economic circumstances.\44\ For example, 
Morgan Stanley argues that there would be significant impediments to 
moving away from ethanol because it is widely available and is the 
least expensive source of octane/oxygenates for most refineries. 
Similarly, Hart Energy estimates that ethanol's octane value and the 
cost of partially replacing ethanol use will limit the economic 
attractiveness to refiners of using less ethanol even with a waiver. 
They conclude that because an RFS waiver cannot force a reduction in 
domestic ethanol usage or exports, a waiver would likely have a small, 
if any, effect on reducing corn prices based on the continued demand 
for ethanol under current market economics.
---------------------------------------------------------------------------

    \43\ We note that our analysis does take into account different 
fuels where appropriate, including imported ethanol derived from 
sugarcane.
    \44\ Morgan Stanley, ``Ethanol Demand a Function of Economics, 
Not RFS,'' August 7, 2012. Hart Energy Special Report, ``U.S.: RFS 
Waiver Unlikely to Affect Ethanol Use,'' October 12, 2012. Both 
analyses are available in the docket.
---------------------------------------------------------------------------

    EPA also received comments from the American Petroleum Institute, 
Chevron, and Marathon Petroleum Company stating that a one year waiver 
would be unlikely to result in a significant decrease in ethanol 
blending.\45\ Though we did receive some comment arguing that refiners 
could make operational changes quickly, commenters provided little 
evidence upon which to assess this claim. These comments are likely 
based on historical practices when splash blending of ethanol was much 
more prevalent and refining and distribution had not optimized toward 
the use of ethanol.
---------------------------------------------------------------------------

    \45\ Comments submitted by American Petroleum Institute, EPA-HQ-
OAR-2012-0632-2240, Chevron, EPA-HQ-OAR-2012-0632-2306, and Marathon 
Petroleum Company, EPA-HQ-OAR-2012-0632-1968.
---------------------------------------------------------------------------

    Several commenters cited the challenges that refiners would face in 
reducing the quantity of ethanol blended into the gasoline pool in the 
near term as justification for a longer-term waiver.\46\ These 
commenters stated that doing so would allow the refining industry 
sufficient time to address the operational and logistical challenges 
mentioned in the previous paragraphs and be necessary to result in 
reduced ethanol demand and consequent relief from high corn prices to 
affected industries. While we recognize that analyzing a longer period 
could affect the results of our modeling, EPA did not conduct such an 
analysis here for the reasons discussed above, including the high 
uncertainty involved in projecting relevant conditions further into the 
future. As such our technical analysis is based on the impacts of 
implementation and a potential waiver over a period of one year.
---------------------------------------------------------------------------

    \46\ See for example National Chicken Council comments, EPA-HQ-
OAR-2012-0632-1994 and Grocery Manufacturers Association comments, 
EPA-HQ-OAR-2012-0632-2341.
---------------------------------------------------------------------------

2. Projected Impact of Implementation of the Renewable Fuel Standard

    We ran the ISU model with the updates and inputs described above 
and here describe the outputs. The ISU model projects that the average 
expected amount of conventional ethanol produced in the United States 
during the 2012/2013 corn crop year without a waiver will be 12.48 
billion gallons. ISU's model predicts that for 89 percent of the 
simulated scenarios, waiving the RFS requirements would not change the 
overall level of corn ethanol production or overall U.S. ethanol 
consumption in 2012/2013 because in the event of a waiver the market 
would demand more ethanol than the RFS would require. For those 89 
percent of the scenarios, waiving the RFS requirements would therefore 
have no impact on ethanol use, corn prices, ethanol prices, or fuel 
prices. We refer to that model result as an 89 percent probability that 
the RFS will not be ``binding'' in the 2012/2013 marketing year. 
Conversely, in 11 percent of the simulated ISU model runs the RFS would 
be binding. In those 11 percent of the random draws, the resulting 
market demand for ethanol would be below the RFS requirement and, 
therefore, the RFS would require greater use of ethanol than the market 
would otherwise demand. The binding scenarios are generally those in 
which projected fuel prices and corn yields are both unrealistically 
low, with both gasoline prices and corn yields in 2012/2013 falling 
significantly below their current DOE and USDA projections.\47\ In 
those cases, the RFS would have an impact, albeit a limited or moderate 
one, on ethanol use and the food and fuel markets in the United States.
---------------------------------------------------------------------------

    \47\ Were we to use the November WASDE estimates, the percentage 
of time that the RFS requirements are projected to be not binding 
would be even higher, due to the increase in the lower end of the 
corn yield projections.
---------------------------------------------------------------------------

    The ISU model assumes corn ethanol would account for at most 13.6 
billion gallons of the RFS volume requirement during the 2012/2013 corn 
marketing year. Because the corn marketing year is split over two RFS 
compliance years, the 13.6 billion gallons is based on the fraction of 
the marketing year that would occur in the 2012 compliance year (one-
third) and the 2013 compliance year (two-thirds). EISA requires 15.2 
billion gallons of renewable fuels in 2012 and 16.55 billion gallons in 
2013; however, 2 billion gallons of the 2012 volume and 2.75 billion 
gallons of the 2013 volume

[[Page 70761]]

must be from advanced biofuels. While advanced biofuels, including 
biomass-based diesel, advanced ethanol, and cellulosic biofuels are 
included in the ISU model we focus our analysis on evaluating the 
effects of a waiver of the portion of the RFS volume requirement filled 
by corn ethanol (see Section V.1.b). The full results from this 
analysis are included in the docket. The modeling projects that 2.0 
billion gallons of rollover RINs from 2012 will be used to meet the 
13.6 billion gallons during this time period.
    Certain empirical data also support the projection that the RFS is 
unlikely to be binding in the 2012/2013 timeframe. For example, the 
price of tradable renewable identification number (RIN) credits remains 
relatively low: below five cents per gallon as of September 26, 2012. 
Refiners and importers verify their compliance with the RFS by 
collecting and retiring RINs, which are assigned to volumes of 
renewable fuel by their producers. Refiners and importers use RINs for 
an appropriate volume of renewable fuel to demonstrate compliance with 
their RFS volume requirement. Parties that exceed their RFS obligations 
for a compliance period can trade excess RINs to other parties that 
need them for compliance, or under certain conditions, can bank them 
for future compliance. When the RFS requirement is expected to be 
binding, we would expect the demand for RINs would increase and the 
supply of excess RINs to decrease, leading to an increase in RIN 
prices.
    Therefore, we expect the current RIN price reflects the market's 
current and near-term expectations about how binding the RFS is likely 
to be. Recent RIN prices represent a very small share of the price of a 
gallon of ethanol, suggesting that refiners and blenders expect the RFS 
is not likely to be binding in 2012 or 2013. It is possible that RIN 
prices have been depressed by market uncertainty generated by the 
recent waiver requests. However, the record high RIN price before these 
waiver requests was only approximately 6.5 cents per gallon. In this 
particular case, the empirical RIN price information corroborates the 
modeled impacts of the RFS.

3. Analysis of the Degree of Impact

    When evaluating the economic impacts of implementation of the RFS 
volume requirements, our analysis centered on four major areas: average 
U.S. corn prices, food prices, feed prices, and fuel prices. While 
there may be other areas of potential impact, we focused on these areas 
because they are expected to have the largest potential economic 
impacts in the U.S. Given the time available for this analysis, we have 
not looked at the interaction of these impacts in an integrated 
modeling system. However, we believe that looking at these indicators 
individually provides a useful framework for determining the impact of 
the RFS volume requirements.
    As discussed above, the body of information shows that it is very 
likely that the RFS volume requirements will have no impact on ethanol 
production volumes in the relevant time frame, and therefore no impact 
on corn, food, or fuel prices. In the unlikely event that the RFS 
program would have an impact on the corn and other markets during the 
2012-2013 timeframe, its nature and magnitude is described below. Our 
analysis considers the impact in three ways (1) when the RFS volume 
requirements are not binding (89% of the scenarios), (2) the average 
across all 500 scenarios, binding and not binding, (3) and the average 
across the binding scenarios (11%). As a bounding exercise, we also 
provide information on a ``worst case'' scenarios from within the 
binding scenarios (see Section V.3.e below).
(a) Corn Price Impacts
    Based on the ISU modeling results, the average expected impact of 
waiving the RFS requirements over all the potential outcomes would be a 
decrease in the price of corn by $0.07/bushel. This average result must 
be considered in context, however, since our analysis projects that it 
is highly likely that the RFS volume requirements are not binding, and 
that the impact on corn prices will be zero. There is only an 11% 
chance that the requirements will be binding. Because of this, we 
project that it is highly likely that the impact of waiving the RFS 
program is zero change in corn prices. However, in the subset of 
potential outcomes in which the RFS requirements are binding (11 
percent of the results), waiving the program would result in an average 
expected decrease in the price of corn of $0.58/bushel. This leads to a 
non-zero average impact across all 500 scenarios, even though the most 
likely result is still zero impact. Table V.3.a-1 presents the ISU 
scenarios.

                                  Table V.3.a-1--Range of Estimated Corn Prices
----------------------------------------------------------------------------------------------------------------
                                                          Iowa State mean    Iowa State when    Iowa State when
                                                              estimate      RFS does not bind      RFS binds
----------------------------------------------------------------------------------------------------------------
Mean Corn Prices with Mandate ($/bushel)...............              $8.02              $8.00              $8.15
Mean Corn Prices with Waiver ($/bushel)................              $7.95              $8.00              $7.57
Change in Corn Prices with Waiver ($/bushel)...........             -$0.07              $0.00             -$0.58
Percentage of Runs.....................................               100%                89%                11%
----------------------------------------------------------------------------------------------------------------

(b) Food Price Impacts
    In consultation with USDA, EPA estimated how these projected 
changes in corn prices would influence U.S. food prices. It is highly 
likely that the RFS volume requirements are not binding and there will 
be no impact on food prices. The results of the modeled corn price 
impacts discussed above appear to be modest for both the mean estimate 
and the subset of scenarios in which the RFS requirements are binding 
(see Table V.3.b-1). A $0.07/bushel decrease in corn prices would 
result in a 0.04% decrease in Food consumer price index (CPI) and a 
0.006% decrease in All Item CPI. A $0.58/bushel decrease in corn prices 
would result in a 0.35% change in Food CPI and a 0.049% change in All 
Item CPI. For the average household, a $0.07/bushel decrease in corn 
prices would result in a reduction of household expenditures on food 
equal to $2.59 in 2012/2013, while a $0.58/bushel decrease in corn 
prices would result in a savings of $22.68.
    Since people in the lowest income groups are more sensitive to 
changes in food prices, we also analyzed the impact of changes in food 
expenditures as a percentage of total consumer expenditures and as a 
percentage of income. The changes in food expenditures are relatively 
small compared to total consumer expenditures for both average and low 
income households. When comparing the changes in food expenditures 
relative to income, the impact on low

[[Page 70762]]

income households is larger than the impact on average households. 
Additional details on the methodology used to calculate the CPI and 
household expenditures are included in the docket.\48\

                Table V.3.b-1--Impacts on Food Prices, CPI Indicators, and Household Expenditures
----------------------------------------------------------------------------------------------------------------
                                                                                     ISU mean      ISU when RFS
                                                              Units                  estimate          binds
----------------------------------------------------------------------------------------------------------------
Change in Corn Prices with Waiver..............  $/bushel.......................          -$0.07          -$0.58
Change in Food CPI with Waiver.................  Percent........................           -0.04           -0.35
Change in All Item CPI with Waiver.............  Percent........................          -0.006          -0.049
Change in Annual Food Expenditures for Average   $..............................          -$2.59         -$22.68
 Household with Waiver.
Change in Annual Food Expenditures for Lowest    $..............................          -$1.42         -$12.46
 Quintile Household with Waiver.
Change in Food Expenditures as a Percentage of   Percent........................          -0.005          -0.047
 Consumer Expenditures for Average Household
 with Waiver.
Change in Annual Food Expenditures as a          Percent........................          -0.007          -0.061
 Percentage of Consumer Expenditures for Lowest
 Quintile Household with Waiver.
Change in Food Expenditures as a Percentage of   Percent........................          -0.005          -0.046
 Income After Taxes for Average Household with
 Waiver.
Change in Food Expenditures as a Percentage of   Percent........................         -0.0065          -0.057
 Income After Taxes for Lowest Quintile
 Household with Waiver.
----------------------------------------------------------------------------------------------------------------

(c) Feed Price Impacts
    Using WASDE projections (which assume the mandate is in place) for 
feed costs in 2012/2013, we estimated that U.S. feed prices are 
projected to be $318.45/ton, using a weighted average use of corn, 
sorghum, barley, oats, and soybean meal. In estimating the impact of a 
change in corn prices on feed costs, we used a simplifying assumption 
that the percentage change in corn prices is applied to all components 
of the feed grains components used in this analysis. Since the price of 
other feed grains tend to track the price of corn, we believe this 
simplifying assumption is a realistic estimate of how feed grains will 
track each other with changes in corn prices. It is highly likely that 
the RFS volume requirements are not binding, and there will be no 
impact on feed prices. We estimated the potential impact of granting 
the waiver on feed costs for the corn price scenarios described in the 
previous sections: the ISU mean estimate of a $0.07/bushel decrease in 
corn price and the subset of ISU scenarios in which the mandate is 
binding ($0.58/bushel decrease in corn price).
---------------------------------------------------------------------------

    \48\ See USDA memo on Food CPI and Food Expenditures in docket.

                                         Table V.3.c-1--U.S. Feed Prices
----------------------------------------------------------------------------------------------------------------
                                                      2009/10         2010/11         2011/12         2012/13
----------------------------------------------------------------------------------------------------------------
Feed Cost ($/ton) without Waiver................         $158.17         $212.93         $255.38         $318.45
Decrease in Feed Costs, $/ton ($0.07/bushel corn  ..............  ..............  ..............          -$1.88
 price change scenario).........................
Decrease in Feed Costs, $/ton ($0.58/bushel corn  ..............  ..............  ..............         -$16.50
 price change scenario).........................
----------------------------------------------------------------------------------------------------------------
Source: October 10, 2012 WASDE.
Note: Feed is equal to the weighted average sum of feed use of corn, sorghum, barley, and oats plus domestic use
  of soybean meal.

    Based on USDA's estimates for U.S. livestock feed costs and 
returns, we estimated the impact of a percentage change in feed costs 
per unit for poultry, hogs, fed cattle, cow-calfs, and milk production. 
Details on the methodology used to calculate feed impacts are included 
in the docket. Using USDA's production and slaughter estimates, we 
aggregated the potential feed cost impacts of a waiver for the U.S. and 
the States that requested a waiver. Table V.3.c-2 presents the 
estimated changes in total nationwide and statewide feed costs due to 
the corn price changes observed in our modeling, alongside 2011 
livestock revenue and GDP. As Tables V.3.c-3, V.3.c-4, and V.3.c-5 
show, in dollar terms, the largest sectors of the livestock industry 
that could potentially benefit from the waiver are the cattle and dairy 
industry. However, as a portion of total feed costs, the impacts are 
similar across livestock types. As stated above, it is highly likely 
that the RFS volume requirements are not binding and there will be no 
impact on feed prices. However, we present the potential impacts from 
the corn price changes noted above in order to illustrate what might 
happen under those circumstances.
    When considering impact of the implementation of the RFS volume 
requirements, EPA considered the impacts in both absolute terms and 
relative to the entity being affected, since impacts will be more 
meaningful for some states than others. Texas, for example, sees the 
largest dollar value feed impacts among states that requested a waiver. 
Our average projected corn price impact of $0.07/bushel represents a 
decrease of $35.2 million in total feed costs. However, this is only a 
0.6 percent decrease in total Texas feed costs, which is equivalent to 
approximately 0.2 to 0.4 percent of State livestock revenue. In the 11 
percent of cases where we modeled the RFS requirements as binding, we 
project that a waiver might decrease Texas feed costs by about $308.5 
million (a 2.0-3.8 percent decrease in feed costs).
    In a State like Arkansas, where livestock revenue represents about 
3.5 percent of state GDP (the largest proportion of any state that 
requested a waiver of the RFS mandate), the impact of the waiver might 
be expected to have a larger impact. However, here we see only a 0.5 
percent decrease in feed costs in the $0.07/bushel case, which is 
equivalent to only a 0.06 to 0.1 percent impact on State livestock 
revenue.

[[Page 70763]]

 Table V.3.c-2--2011 Gross Domestic Product, 2011 Livestock Revenue, and Projected Total Feed Costs and Estimated Decrease With RFS Waiver for Combined
                                 Cattle, Poultry, Pork, and Dairy Production in the U.S. and States Requesting a Waiver
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               Decrease in feed   Decrease in feed
                                                            Total feed costs   costs in million   costs in million      2011 State
                                                             without waiver    $ ($0.07/bushel    $ ($0.58/bushel   livestock revenue  2011 GDP (million
                                                              (million $)     corn price change  corn price change     (million $)             $)
                                                                                   scenario)          scenario)
--------------------------------------------------------------------------------------------------------------------------------------------------------
U.S......................................................          77,802.37            -451.93          -3,964.30            123,400         14,981,020
AR.......................................................             526.83              -2.84             -24.95              3,900            105,846
DE.......................................................             364.77              -1.88             -16.49                700             65,755
FL.......................................................             738.80              -4.31             -37.80              1,340            754,255
GA.......................................................           1,619.71              -8.69             -76.19              3,900            418,943
MD.......................................................             295.42              -1.66             -14.52              1,000            301,100
NM.......................................................           1,289.02              -7.61             -66.78              2,100             79,414
NC.......................................................           2,728.98             -15.32            -134.37              5,400            439,862
TX.......................................................           6,041.58             -35.17            -308.47             10,800          1,308,132
UT.......................................................             538.24              -3.18             -27.87                917            124,483
VA.......................................................           1,006.17              -5.63             -49.40              1,800            428,909
WY.......................................................              23.00              -0.14              -1.19                840             37,617
--------------------------------------------------------------------------------------------------------------------------------------------------------

    In addition to examining total feed costs in each state, we 
analyzed the impacts on the three main segments of the livestock 
industry: cattle and dairy, pork, and poultry and eggs. Here we present 
both the projected national-level impacts of a waiver and the impacts 
in selected States (chosen either because their livestock industry is 
large or because we observed a larger proportional impact on their 
market in cases where the mandate affects corn prices).
    As observed above, it is highly likely that the RFS volume 
requirements are not binding and there will be no impact on these 
industries. Our analysis suggests that implementation of the RFS 
program, when binding, has a proportionally greater impact on the 
cattle and dairy industries, and those industries would consequently 
see greater cost reductions from a waiver in those scenarios. National 
cattle and dairy feed costs would decrease by 0.6 percent with a 
waiver. Texas, New Mexico, and Florida see the largest cattle and dairy 
feed cost impacts of a waiver in total dollar value, while Delaware and 
Utah would, along with Florida and New Mexico, see the largest cattle 
and dairy feed impacts from a waiver as a proportion of their total 
revenue in this sector. These outcomes indicate that, if the RFS volume 
requirements were binding, these are the states where a waiver may have 
the most impact on economic activity related to cattle and dairy. We 
present the impacts on their sectors below in Table V.3.c-3. In the 
$0.07/bushel case, the impact of a waiver in all of these states is 
less than a 1 percent reduction in cattle and dairy feed costs. This 
reduction represents a change of approximately 0.35 percent of Texas 
livestock revenue and a change of approximately 0.38 percent for New 
Mexico and Florida. In Delaware, the state where the change in feed 
costs has the greatest proportional effect on the cattle and dairy 
industry (due to the small size of this sector in Delaware), this 
reduction in costs would be equivalent to a 0.5-0.8 percent increase in 
cattle and dairy revenue and an approximately 0.0002 percent increase 
in Delaware State GDP. Impacts in Delaware would increase to 4.5-7.1 
percent of cattle and dairy revenue in the $0.58/bushel scenario. A 
full comparison of these impacts to cattle and dairy revenues is 
available in the docket.\49\
---------------------------------------------------------------------------

    \49\ See memo on ``Livestock Impacts'' in docket.

  Table V.3.c-3--Total Feed Costs and Estimated Decrease With RFS Waiver for Cattle and Dairy Production in the
                       U.S. and Selected States Requesting a Waiver in Millions of Dollars
----------------------------------------------------------------------------------------------------------------
                                                                             Decrease in feed   Decrease in feed
                                                          Total feed costs   costs in million   costs in million
                                                           without waiver    $  ($0.07/bushel   $  ($0.58/bushel
                                                           (in million $)   corn price change  corn price change
                                                                                 scenario)          scenario)
----------------------------------------------------------------------------------------------------------------
U.S....................................................          49,518.32            -292.44          -2,565.30
TX.....................................................           5,114.25             -30.20            -264.94
NM.....................................................           1,288.82              -7.61             -66.77
FL.....................................................             533.78              -3.15             -27.65
UT.....................................................             482.60              -2.85             -25.00
DE.....................................................              27.75              -0.16              -1.44
----------------------------------------------------------------------------------------------------------------

[[Page 70764]]

    The proportional impact of a waiver on the national pork industry 
is projected to be about the same as cattle and dairy, approximately 
0.6 percent. Of the states that submitted waiver requests, we project 
that the combined pork industry of North Carolina and Virginia would 
benefit the most from a waiver if the RFS volume requirements were 
binding, followed by Texas and Arkansas.\50\ A $0.07/bushel decrease in 
corn prices is projected to reduce hog feed costs by just under $10 
million in North Carolina and Virginia. We project an average savings 
of $87.35 million in cases where the mandate is binding. Impacts on 
pork revenue and State GDP in Texas and Arkansas would be smaller in 
both absolute and proportional terms. Impacts in Florida and Delaware, 
where the impact on the pork sector is much smaller in absolute terms 
but represents a large percentage of total pork revenue, in the $0.07/
bushel case would represent less than 1 percent of their respective 
state livestock revenues and less than one thousandth of a percent of 
their State GDPs.
---------------------------------------------------------------------------

    \50\ The pork industries of North Carolina and Virginia are here 
analyzed together, owing to the fact that both are dominated by the 
operations of one company. Because of this, their pork feed costs 
and revenues are intertwined and are here examined together.

   Table V.3.c-4--Total Feed Costs and Estimated Decrease With RFS Waiver for Pork Production in the U.S. and
                                       Selected States Requesting a Waiver
----------------------------------------------------------------------------------------------------------------
                                                                             Decrease in feed   Decrease in feed
                                                          Total feed costs   costs in million   costs in million
                                                           without waiver    $  ($0.07/bushel   $  ($0.58/bushel
                                                           (in million $)   corn price change  corn price change
                                                                                 scenario)          scenario)
----------------------------------------------------------------------------------------------------------------
U.S....................................................          14,439.12             -85.27            -748.02
NC/VA..................................................           1,686.06              -9.96             -87.35
TX.....................................................              51.95              -0.31              -2.69
AR.....................................................              27.21              -0.16              -1.41
FL.....................................................               4.30              -0.03              -0.22
DE.....................................................               1.93              -0.01              -0.10
----------------------------------------------------------------------------------------------------------------

    The proportional impact of a waiver on the national poultry and egg 
industries is projected to be slightly smaller than those that might 
accrue to cattle and dairy and hogs, approximately 0.5 percent. The 
impacts of a waiver on the poultry industry are also the smallest of 
the three sectors in absolute terms. Of the states that submitted 
waiver requests, we project that Georgia's poultry industry would 
benefit the most from a waiver if the RFS volume requirements were 
binding, followed by North Carolina and Texas. A $0.07/bushel decrease 
in corn prices is projected to reduce Georgia poultry feed costs by 
6.74 million. We project feed cost savings of $59.11 million in cases 
where the mandate is binding. We project that poultry revenue impacts 
in North Carolina and Texas would be smaller in absolute terms but 
roughly equal proportional terms. Impacts in Utah and Florida would be 
equivalent to a larger portion of total poultry revenue, but would 
still only represent between 0.1 and 0.3 percent of revenue in the 
$0.07 per bushel case.

  Table V.3.c-5--Total Feed Costs and Estimated Decrease With RFS Waiver for Poultry and Egg Production in the
                                  U.S. and Selected States Requesting a Waiver
----------------------------------------------------------------------------------------------------------------
                                                                             Decrease in feed   Decrease in feed
                                                          Total feed costs   costs in million   costs in million
                                                           without waiver    $  ($0.07/bushel   $  ($0.58/bushel
                                                           (in million $)   corn price change  corn price change
                                                                                 scenario)          scenario)
----------------------------------------------------------------------------------------------------------------
U.S....................................................          13,844.94             -74.21            -650.98
GA.....................................................           1,290.01              -6.74             -59.11
NC.....................................................           1,136.26              -5.91             -51.86
TX.....................................................             875.37              -4.66             -40.83
FL.....................................................             200.72              -1.13              -9.92
UT.....................................................              51.48              -0.30              -2.65
----------------------------------------------------------------------------------------------------------------

    In their waiver requests, most States cited quantitative impacts on 
their agricultural sectors that are already realized or projected to 
occur due to the drought. EPA recognizes the significant impacts that 
the drought has had on state and national agricultural sectors. 
However, as we discuss above, the analytical task before us is to 
determine whether implementation of the RFS volume requirements 
themselves severely harm the economy. Most of the States that submitted 
waiver requests discuss the crucial role that corn prices play in the 
overall financial health of their livestock industries, but for the 
most part these States did not attempt to quantify in detail the impact 
of waiving the RFS on corn prices and the livestock industry. Various 
commenters in the livestock sector did provide analysis attempting to 
quantify the possible impact of a waiver on corn and soybean meal 
prices; these studies or the analyses such studies rely on are examined 
in Section V.4.b below.\51\
---------------------------------------------------------------------------

    \51\ See, for example analysis prepared for the North Carolina 
Poultry Federation at EPA-HQ-OAR-2012-0632-2429, and comments 
submitted by the Virginia Poultry Federation at EPA-HQ-OAR-2012-
0632-2066.
---------------------------------------------------------------------------

    In summary, our analysis suggests that it is very likely that the 
RFS volume requirements will have no impact at all on ethanol 
production volumes in the

[[Page 70765]]

relevant time frame, and therefore no impact on corn or feed prices. 
EPA looked, however, at what impacts on corn and feed prices might be 
in the unlikely event that the RFS mandate would have an impact on the 
corn and feed prices during the 2012/13 time frame. EPA assessed feed 
price impacts at the national level, State level, and at the individual 
sector level within eleven States. EPA believes that analyzing the feed 
price impacts on the nation, States, and individual sectors at the 
national and State levels is appropriate and provides further evidence 
upon which to base this decision, even considering the low probability 
that the RFS volume requirements will have an impact on ethanol 
production volume, and therefore corn and feed prices, in the relevant 
time frame. Given the low probability of the RFS having an impact in 
that time frame, and the estimated impact to state livestock sectors, 
EPA did not analyze any further geographical areas, as we consider the 
analysis above sufficient basis upon which to base our decision.
    EPA received comment that, during a period of drought, impacts 
attributable to the RFS, even if relatively small, could be enough to 
influence firm-level decisions regarding whether to continue operations 
or to shut down. Since our analysis indicates that the RFS is highly 
unlikely to have an impact on ethanol production, and therefore corn 
prices, in the time period of concern, and our analysis necessarily 
focuses on the level of an economy, as opposed to the firm-level, we 
did not conduct analysis assessing the incremental impact the RFS would 
have, if any, on individual firms.
(d) Fuel Price Impacts
    The ISU model also predicts changes in U.S. ethanol, gasoline, and 
blended fuel prices based on changes in ethanol production volumes. 
EPA's analysis indicates that it is highly likely that the RFS volume 
requirements are not binding and there will be no impact on fuel 
prices. The ISU modeling projects that the average impact across all 
modeled scenarios is that waiving the RFS mandate would decrease 
blended gasoline prices by 2/10 of one cent.\52\ Blended gasoline 
prices in the ISU model decrease slightly on average across all of the 
modeled scenarios because ethanol prices decline by roughly one cent 
with less ethanol demand, for the limited scenarios where the RFS 
volume requirements are binding. We note, however, that this estimate 
should be considered within the limitations of the ISU model. The ISU 
model is not a refinery or fuel system model, and does not consider 
responses in the fuel markets to a reduction in U.S. ethanol demand in 
any depth. We include an estimate here to examine the potential 
magnitude of changes on average across all of the modeled scenarios, 
but we note that these results are based on a fairly simplistic 
approach to estimating blended gasoline price impacts.
---------------------------------------------------------------------------

    \52\ As with the average impact on corn prices, this figure is 
potentially misleading, in the sense that it is a non-zero outcome 
even though the most likely impact is zero (see Section V.3.a 
above).

  Table V.3.d-1--Range of Estimated Ethanol and Blended Gasoline Prices
------------------------------------------------------------------------
                                                             ISU mean
                                            Units            estimate
------------------------------------------------------------------------
Mean Ethanol Price with Mandate...  $/gallon............           $2.90
Mean Ethanol Price with Waiver....  $/gallon............           $2.89
Mean U.S. Corn Ethanol Production   billion gallons.....           12.48
 with Mandate.
Mean U.S. Corn Ethanol Production   billion gallons.....           12.44
 with Waiver.
Blended Gasoline Price with         $/gallon............          $2.918
 Mandate.
Blended Gasoline Price with Waiver  $/gallon............          $2.916
Change in Blended Gasoline Price..  $/gallon............          $0.002
------------------------------------------------------------------------

    Given the limitations associated with our estimate on fuel price 
impacts, we present the projected average impact on fuel prices in 
Table V.3.d-1 as a sensitivity analysis. Were blended gasoline prices 
to change as the ISU model projects as a result of a waiver, this is 
the average impact we might expect to see. Based on these small 
predicted changes in blended gasoline prices, the overall impacts on 
the economy as it relates to fuel prices are also expected to be 
modest. It is highly likely that the RFS volume requirements are not 
binding and there will be no impact on fuel prices. Our analysis shows 
that a $0.002/gallon decrease in blended gasoline price for the Iowa 
State mean scenario would be expected to change the Energy CPI by 
0.029%. Details on the methodology for determining these impacts are 
included in the docket.\53\
---------------------------------------------------------------------------

    \53\ See Department of Energy memo on Energy CPI in docket.
---------------------------------------------------------------------------

    For the average household that owns a vehicle, the $0.002/gallon 
change in gasoline prices would result in a $1.98 decrease in annual 
gasoline expenditures in 2012/2013. When analyzing the impact of these 
changes on the lowest income groups, the absolute expenditures on 
gasoline are lower than for the average household, due to the fact that 
this segment of the population tends to drive fewer miles on average.

      Table V.3.d-2--Impacts on Energy CPI and Gasoline Expenditures for Average and Low Income Households
----------------------------------------------------------------------------------------------------------------
                                                Units              ISU mean estimate      ISU when mandate binds
----------------------------------------------------------------------------------------------------------------
Change in Blended Fuel Price with      $/gallon...............  -$0.002................  -$0.016
 Waiver.
Change in Energy CPI with Waiver.....  Percent................  -0.029%................  -0.225%
Change in Annual Expenditures on       $......................  -$1.98.................  -$17.40
 Gasoline for Average Households with
 Vehicles.
Change in Annual Expenditures on       $......................  -$1.20.................  -$10.49
 Gasoline for Lowest Quintile
 Households with Vehicles.
Change in Gasoline Expenditures on     Percent................  -0.004%................  -0.035%
 Gasoline as a Percentage of Consumer
 Expenditures for Average Households
 with Vehicles.

[[Page 70766]]

 
Change in Gasoline Expenditures as a   Percent................  -0.005%................  -0.048%
 Percentage of Consumer Expenditures
 for Lowest Quintile Households with
 Vehicles.
Change in Gasoline Expenditures as a   Percent................  -0.003%................  -0.028%
 Percentage of Income After Taxes for
 Average Households with Vehicles.
Change in Gasoline Expenditures as a   Percent................  -0.012%................  -0.104%
 Percentage of Income After Taxes for
 Lowest Quintile Households with
 Vehicles.
----------------------------------------------------------------------------------------------------------------

    Some commenters argued to the contrary, claiming that waiving the 
RFS would significantly impact the price of fuel. They argue that if 
less ethanol is blended into gasoline as a result of a waiver, then the 
demand for petroleum-based gasoline would increase, putting an upward 
pressure on the world price of oil. In turn, the increase in petroleum 
prices would boost overall blended fuel prices. For example, a recent 
2012 study by authors at Louisiana State University found that ``* * * 
every billion gallons of increase in ethanol production decreases 
gasoline price as much as $0.06 cents''.\54\ Other studies such as Du 
and Hayes from Iowa State University have suggested that increases in 
ethanol production over the last decade have reduced overall blended 
fuel prices.\55\ Thus, a waiver which reduced the use of ethanol would 
have the effect of raising blended fuel prices. We note that there is 
disagreement about the extent of these impacts (see, for example, 
Knittel and Smith and others).\56\ In any case, the Du and Hays and 
Knittel and Smith studies do not address the specific case at hand, the 
fuel price impacts of a waiver of the RFS mandate.
---------------------------------------------------------------------------

    \54\ Marzoughi H. and Kennedy, P. Lynn, ``The Impact of Ethanol 
Production on the U.S. Gasoline Market'', Paper presented at the 
Southern Agricultural Economics Association Annual Meeting, 
February, 2012, available in the docket or at http://EconPapers.repec.org/RePEc:ags:saea12:119752.
    \55\ Xiaodong Du, Dermot J. Hayes, ``The Impact of Ethanol 
Production on U.S. and Regional Gasoline Markets: An Update to 
2012,'' Center for Agricultural and Rural Development, Iowa State 
University, May 2012, available in the docket or at http://www.card.iastate.edu/publications/synopsis.aspx?id=1166.
    \56\ Christopher R. Knittel and Aaron Smith, ``Ethanol 
Production and Gasoline Prices: A Spurious Correlation,'' July 12, 
2012, available in the docket or at at http://web.mit.edu/knittel/www/papers/knittelsmith_latest.pdf.
---------------------------------------------------------------------------

    As mentioned above, our analysis indicates that it is highly likely 
that waiving the RFS mandate would have no impact on ethanol volumes. 
The ISU modeling predicts that the average impact across all modeled 
scenarios is that waiving the mandate would decrease ethanol demand by 
only 40 million gallons, and in 89 percent of the modeled cases the 
mandate is not binding. As a simplifying assumption, the ISU model does 
not take into account any potential impacts on the global oil markets, 
which we believe is a reasonable assumption in this situation given the 
small change in ethanol volumes that are projected in this analysis. 
Even in the 11 percent of the cases where the mandate was binding, 
changes in world oil market would be so small as not to change the 
overall conclusions of the study.
(e) Worst Case Scenario
    As a bounding exercise, we also considered a ``worst case'' 
scenario that could occur if both corn yields and gasoline prices were 
at the low ends of the probability distributions used in our modeling. 
This worst case example considered the 1 percent of scenarios (five out 
of five hundred) where a waiver could have the largest potential 
impacts on corn prices. In this worst case scenario, the impact of 
waiving the mandate could decrease corn prices by $1.86/bushel, with a 
correspondingly larger impact on livestock, food, and fuel prices. It 
is highly unlikely that the combination of extremely low corn yields 
(approximately 116 bushels per acre) and wholesale gasoline prices 
(approximately $1.96/gallon) would occur simultaneously during the 
2012/2013 corn marketing year. However, we have included more 
information on this worst case scenario in the docket for illustrative 
purposes.

4. Overview and Discussion of External Analyses

    Comments submitted to EPA referenced or included a number of 
analyses and studies examining the impact of a potential waiver of RFS 
standards. These include studies from: Hart Energy, Irwin and Good 
(University of Illinois),\57\ Carter, Smith, and Abu-Sneneh (University 
of California-Davis),\58\ Purdue University and the Farm Foundation 
(Purdue/Farm Foundation), FAPRI-University of Missouri (FAPRI-
Missouri), Babcock-Iowa State, Edgeworth Economics,\59\ the Energy 
Policy Research Foundation, Inc. (EPRINC),\60\ Cardno-ENTRIX,\61\ Dr. 
Thomas Elam of FarmEcon LLC,\62\ and the Department of Environment, 
Food, and Rural Affairs of the United Kingdom government (DEFRA).\63\ 
Some of the studies focus more on fuel market impacts, while other 
studies concentrate specifically on U.S. agricultural sector impacts. 
Multiple alterative assumptions and options are explored across the 
different sets of analyses of a waiver of the RFS2 volume requirements 
making comparison of results challenging. Only a few of the studies are 
based on a fully integrated view that directly attempts to link 
detailed agricultural commodity markets with fuel market assessments to 
assess the impact of implementation of

[[Page 70767]]

the RFS volume requirements and a waiver's impacts.
---------------------------------------------------------------------------

    \57\ Irwin, S. and Good, D., ``Ethanol--Does the RFS Matter?'' 
August 2, 2012, available in the docket or at 
www.farmdocdaily.illinois.edu/2012/08/ethanoldoes_the_rfs_matter.html.
    \58\ Comment submitted by Carter, Smith and Abu-Sneneh, EPA-HQ-
OAR-2012-0632-2245.
    \59\ Edgeworth Economics, ``The Impact of a Waiver of the RFS 
Mandate on Food/Feed Prices and the Ethanol Industry,'' October 10, 
2012, submitted in comments from Growth Energy, EPA-HQ-OAR-2012-
0632-2357.
    \60\ Energy Policy Research Institute Foundation Inc., 
``Ethanol's Lost Promise,'' EPA-HQ-OAR-2012-0632-2231.
    \61\ Urbanchuk, J., Cardno-ENTRIX, ``Impact of Waiving the 
Renewable Fuel Standard on Total Net Feed Costs,'' September 2012, 
submitted with comments from Renewable Fuels Association, EPA-HQ-
OAR-2012-0632-2218.
    \62\ Elam, T., FarmEcon LLC, ``Ethanol RFS and 2012 Drought 
Impact on Virginia Agriculture'', August, 2012, and ``Ethanol RFS 
and 2012 Drought Impact on North Carolina Agriculture and 
Consumers'', September, 2012. Submitted with comments by the North 
Carolina Poultry Federation at EPA-HQ-OAR-2012-0632-2429, and 
comments submitted by the Virginia Poultry Federation at EPA-HQ-OAR-
2012-0632-2066.
    \63\ Durham, C., Davies, G., and Bhattacharyya, T., ``Can 
Biofuels Policy Work For Food Security? An Analytical Paper for 
Discussion,'' June 2012, available in the docket.
---------------------------------------------------------------------------

(a) Fuel Market Studies
    Fuel market studies that focus on the impacts of an RFS waiver look 
at the economics of blended ethanol. Irwin and Good (University of 
Illinois) suggest that a waiver is likely to have little impact on the 
liquid fuel supply system. Their analysis rests on their observation 
that ethanol is currently the least expensive octane enhancer 
available, and that the current liquid fuel supply system in the U.S. 
has closely integrated ethanol use as a component to the finished 
gasoline supply. Alteration of ethanol's utilization would take time 
and require reallocation of infrastructure. Irwin and Good argue that 
even if a waiver is granted, only a combination of relatively high 
ethanol prices and low wholesale gasoline prices would change current 
gasoline and ethanol supply patterns. They estimate that gasoline 
prices would have to fall to roughly $69/barrel (West Texas 
Intermediate crude) before a shift would occur. Alternatively, corn 
prices, which are the key determinate of the price of ethanol, would 
have to rise on a sustained basis to over $10/bushel.
    Carter, Smith, and Abu-Sneneh (University of California-Davis) 
present analysis using two different assumptions--one in which ethanol 
is priced in terms of its energy content, and one in which ethanol is 
priced on a volumetric basis. They suggest that the former is more 
likely, and that motorists realize the energy penalty associated with 
ethanol, but consumers do not have a choice but to accept the 
associated energy loss. If motor gasoline is valued for its energy 
content, they conclude that ultimately the RFS mandate is ``severely 
harming'' motorists. Their analysis suggests that, at current market 
prices, octane enhancement alternatives to ethanol would arise in the 
medium to long term without the RFS mandate if blended gasoline were 
valued based on energy content. They conclude that, if the mandate were 
eliminated, lower demand for ethanol would result in lower average corn 
prices by up to $0.87/bushel.\64\ They estimate the ``harm'' from the 
conventional fuel RFS requirement to be roughly $2.9-$5.9 billion 
annually, which they claim could be higher if all the costs associated 
with the use of ethanol are accounted for. There are several 
limitations of their analysis, however. The authors acknowledge that 
their conclusions do not incorporate all of the costs of reduced 
ethanol usage. For example, many oil refiners move their products 
through common pipelines. Refiners need to coordinate with other users 
of the pipeline to ensure that a uniform product enters the pool. The 
coordination costs of lower ethanol usage are not estimated. 
Furthermore, this study does not provide sufficient data or analysis 
upon which we can evaluate their assertion that consumers are currently 
aware or modify behaviors in response to the energy penalty associated 
with ethanol. Despite the paper's conclusion that the RFS requirements 
should be waived, it is important to point out that their second 
scenarios supports our assessment that there would be ``no market 
response'' to a waiver if finished gasoline is priced on a volumetric 
basis. We discuss the basis for our ethanol demand assumptions above, 
and we did not see evidence presented in this study to change our 
reasoning with respect to how ethanol is priced.
---------------------------------------------------------------------------

    \64\ This result refers to removal of the RFS, not from a one-
year waiver of the RFS requirements.
---------------------------------------------------------------------------

    A study published by EPRINC, while not attempting to quantify the 
impact of a waiver on corn prices, states that a long term waiver would 
likely reduce corn prices and ``could free over 18 millions of acres of 
existing farm land for the production of crops to meet market needs for 
food, livestock feed, exports, or fuel.'' \65\ This study acknowledges, 
however, that a near term waiver (6 months to 1 year) would have little 
to no effect on corn demand for ethanol production.\66\ In concluding 
that the RFS mandate increases corn costs by $0.87/bushel, Carter, 
Smith, and Abu-Sneneh (University of California-Davis) cite the EPRINC 
study when discussing the ability of refiners to decrease ethanol 
blending in the gasoline pool in the medium to long term. The studies 
here discuss the ability of refiners to decrease ethanol blending over 
the medium to long term, but they do not discuss whether the economics 
of ethanol and gasoline production would be such that there would be an 
economic incentive to do so. As discussed above, whether refiners would 
move away from ethanol blending if they had the opportunity to do so is 
influenced by a variety of factors, including economic ones. Examining 
the impacts of a medium to long term waiver is a significant 
distinction between these two studies and the analysis performed by 
EPA. EPA's authority is limited to granting a one year waiver, with 
potential for extending the waiver, a fact specifically noted by 
EPRINC.\67\ For a further discussion of this issue see Section VI.7(b).
---------------------------------------------------------------------------

    \65\ EPA-HQ-OAR-2012-0632-2231.
    \66\ EPA-HQ-OAR-2012-0632-2231.
    \67\ EPA-HQ-OAR-2012-0632-2231.
---------------------------------------------------------------------------

    As discussed above, based upon a review of multiple external 
analyses including the studies cited above, consultation with DOE, and 
review of comments that we received, and given the circumstances and 
scenarios examined in our analysis, we believe that it would be highly 
unlikely that refiners and blenders would seek to replace ethanol in 
the time frame analyzed (i.e., one year) even if the RFS requirement 
were reduced or waived over the 2012/2013 corn marketing year. Ethanol 
blending is an economically beneficial option for refiners at this 
time, given the price of ethanol and the cost of production of finished 
gasoline. That is not expected to change during the time period at 
issue. In addition, even if it were economically advantageous to do so, 
previous investments that have been made to configure the fuel supply 
production and distribution systems (e.g., blending terminals) to 
incorporate ethanol are costs that have already been expended, and any 
change in utilization of these investments could take time and require 
reallocation of infrastructure. In addition, options or opportunities 
to make infrastructure changes may be technically and economically 
limited in the short term. Refiners are unlikely to make the changes to 
allow for reduced ethanol blending, such as modifying refining 
operations to produce higher octane blendstocks and draining storage 
tanks, if they do not believe these changes will be economically 
beneficial in the medium to long term, though this could differ in a 
scenario differing from that analyzed here with respect to oil prices, 
rollover RINs, and other key parameters. Fuel supply investments also 
tend to involve large capital expenditures. Fuel contractual 
obligations may be set over extended periods of time and could be 
difficult to alter in the short run (e.g., six months to a year). Also, 
the costs of using ethanol replacements, in terms of using different 
octane additives or even different sources of finished gasoline, 
including imports of finished gasoline to the U.S., would likely be 
significant in the near term.\68\
---------------------------------------------------------------------------

    \68\ See Morgan Stanley, August 7, 2012.
---------------------------------------------------------------------------

    Further, assuming that U.S. agricultural markets return to pre-
drought conditions in the following years (e.g., 2013/14 and beyond) 
and the blending of ethanol into the gasoline pool continues to be a 
profitable practice, it would not appear to be in a

[[Page 70768]]

refiner's economic interest to make changes in the fuel supply system. 
This would especially be the case if EPA were to not renew a waiver 
after one year, since refiners would need to quickly undo all of the 
changes they had just made in order to comply with the RFS in 2014. 
Carter, Smith, and Abu-Sneneh acknowledge the costs of switching back 
and forth to different levels of ethanol usage between 2013 and 2014 
could be high.
    EPA further received comment that the RFS is saturating the ethanol 
market in the U.S.; commenters point to the large corn ethanol exports 
in 2011 as evidence that blending ethanol into gasoline in the U.S. is 
not a profitable practice.\69\ We do not agree that the significant 
corn ethanol exports in 2011 indicate that blending ethanol into 
gasoline was not profitable in the U.S. and driven by the RFS. In 2011 
the blending of ethanol into gasoline exceeded the RFS mandates by a 
wide margin. The most likely reason for this is that refiners and 
blenders found the blending of ethanol to be a profitable practice. Low 
prices for corn ethanol RINs appear to support this. We believe the 
large volume of exported ethanol in 2011 is yet more evidence that, at 
least in 2011, ethanol production was the highest value use for corn. 
RINs for ethanol that is exported outside the U.S. must be retired when 
the fuel is exported; we therefore believe it is highly unlikely that 
the RFS program encouraged this practice and that converting corn into 
ethanol for export was simply more profitable than selling it into the 
food or feed markets.
---------------------------------------------------------------------------

    \69\ National Chicken Council comments, EPA-HQ-OAR-2012-0632-
1994.
---------------------------------------------------------------------------

    Comments also cited work done by EPRINC that shows that increased 
ethanol blending has not lead to decreased crude oil imports, but only 
to changes in the end uses of the crude oil as evidence that waiving 
the RFS would lead directly to reduced corn ethanol production.\70\ 
They cite the EPRINC study concluding that any decrease in ethanol 
blending could be made up for with additional gasoline from existing 
refineries without additional crude oil imports, but rather through 
shifting of refined crude oil products. While this may be the case we 
note that any increased gasoline production would correspond in a 
decrease in other refined products, most likely diesel fuel as noted in 
the EPRINC study. We believe that if these changes were profitable 
refiners would already be looking to minimize ethanol blending, which 
has not been the case in the past several years. We also note that the 
EPRINC study also states that a short term waiver would have little 
effect on corn demand for the production of ethanol.
---------------------------------------------------------------------------

    \70\ EPA-HQ-OAR-2012-0632-1994.
---------------------------------------------------------------------------

(b) Agricultural Market Studies
    Several studies focus on the agricultural sector impacts of a 
possible waiver of the RFS volume requirements. A number of these 
studies provide quantitative estimates of impacts of a waiver on corn 
prices and feed prices. Where commenters provided estimates of impacts 
to a State or a particular industry sector, such estimates were 
frequently based on results from the studies discussed below.\71\ In 
many cases, the studies below present a range of estimates for impacts, 
and commenters cited estimates from both the low and, more frequently, 
the high ends of those ranges. In general, these agricultural sector 
studies are directionally consistent with EPA's analysis using the ISU 
model. In fact, the range of estimates provided in the Purdue/Farm 
Foundation study (described in more detail below), bracket the results 
that we present on the average impacts of a waiver and the impacts when 
the mandate is binding. Similarly, all of the referenced studies cite 
the importance of the same key assumptions that we have discussed 
previously, namely the amount of carryover RINs that are available and 
the degree of flexibility available to the refining industry over a one 
year period. As discussed further below, EPA believes that our 
technical analysis uses the most up-to-date data on available RINs and 
takes into account important information on refiner flexibility that 
these other studies treat only qualitatively or not at all.
---------------------------------------------------------------------------

    \71\ Comments submitted by, for example, the Virginia Poultry 
Federation and the North Carolina Poultry Federation included 
studies by FarmEcon LLC (Elam), which examined changes in feed 
prices and effects on revenue if corn prices were to decrease, due 
to a waiver, by $1.14 per bushel. The estimate of a $1.14 decrease 
is from the Purdue/Farm Foundation study. It is the difference in 
corn prices between a case with 13.8 billion gallons of corn ethanol 
production and a case with 10.8 billion gallons of production. For 
reasons discussed elsewhere (see, for example, sections V.1.e and 
V.2), we believe that ethanol production in the event of a waiver is 
unlikely to decline by 3 billion gallons. We also project that corn 
ethanol production in 2012/13 without a waiver is most likely to be 
around 12.48 billion gallons (see Section V.2), less than the 
projection used by FarmEcon LLC. See, for example analysis prepared 
for the North Carolina Poultry Federation at EPA-HQ-OAR-2012-0632-
2429, and comments submitted by the Virginia Poultry Federation at 
EPA-HQ-OAR-2012-0632-2066.
---------------------------------------------------------------------------

    FAPRI--Missouri finds that ethanol production falls by roughly 160 
million gallons from eliminating the ``conventional gap'' which they 
define as ``the maximum amount of conventional (corn starch) ethanol 
that can be counted towards the mandate''. Less corn is needed to 
produce ethanol and, as a result, average corn prices decrease by 
roughly $0.04 cents per bushel. Lower average corn prices means lower 
feed costs for livestock producers, though the lower corn prices are 
partially offset by higher soybean meal and distillers grain prices. 
These feed price changes lead to an increase in net returns to meat 
production and, as a result, meat production increases and meat prices 
decrease. The FAPRI-Missouri results, like the EPA results presented 
above, predict a fairly modest impact on corn prices from a waiver of 
the 2013 conventional mandate.\72\
---------------------------------------------------------------------------

    \72\ ``[R]educing the overall RFS has a small negative effect on 
the corn price in 2012/13 relative to the baseline because overall 
ethanol use and production are projected to be motivated mostly by 
crop and fuel market conditions in the current marketing year, not 
the RFS. Waiving the mandate, a minimum use requirement, has limited 
market impact if people were going to use almost as much as the 
mandate anyway.'' FAPRI-Missouri study at 1.
---------------------------------------------------------------------------

    Babcock-Iowa State looks at the impacts of a waiver of the 
conventional fuel component of the RFS requirements under two cases: a 
``full'' and a ``flexible'' mandate compared to a ``no mandate'' case. 
In the ``flexible'' mandate case, Babcock assumes that there are 2.4 
billion rollover RINs for the 2012/2013 corn-marketing year. Comparing 
the ``full'' and the ``flexible'' mandates, average corn prices 
decrease significantly, by $1.91 per bushel. As discussed in the 
Babcock paper, the ``full'' mandate is not a realistic scenario, since 
it assumes there will not be any carryover RINs available in 2013. 
Based on the empirical RIN data discussed above, EPA is confident that 
there will be a significant number of carryover RINs in 2013 unless 
ethanol production changes drastically in November and December of 
2012. Therefore, the ``full mandate'' results should only be considered 
as a bounding exercise. Comparing the ``flexible'' to the ``no'' 
mandate scenario, average corn prices decrease by roughly $0.58 per 
bushel across all runs--a decline of roughly 7.4 percent. By way of 
comparison, in the EPA analysis eliminating the RFS requirements would 
result in a decrease in average corn prices of roughly $0.07/bushel, on 
average across all runs.
    One of the key differences between Babcock's results and the 
results presented in EPA's analysis above is how responsive ethanol 
demand is to the relative prices of unblended gasoline and ethanol. 
Babcock assumes that

[[Page 70769]]

ethanol demand is more responsive to changes in prices, meaning his 
analysis assumes refiners and blenders have more flexibility to 
substitute away from ethanol in response to a waiver. In light of the 
limitations on refiner flexibility identified in Section V.1.d above, 
we believe that our assessment of refiner flexibility, performed in 
consultation with DOE, is a better reflection of current conditions. In 
addition, Babcock's analysis uses older WASDE data (which reflects 
larger uncertainties in corn yields) and older gasoline price data (in 
which the average gasoline price is lower than the October STEO).
    The Purdue/Farm Foundation study looks at different levels of 
drought (e.g., a weak, median and strong drought) and different 
combinations of ethanol blending levels, which could be achieved either 
with a waiver or the use of conventional RINs (e.g., 11.8, 10.4 and 
7.75 billions of gallons of ethanol). They conclude that if refiners 
and blenders have flexibility to reduce ethanol usage in the short 
term, use of prior blending RINs credits and/or a large waiver could 
reduce average corn prices by roughly $1.30/bushel of corn. 
Alternatively, a more modest waiver may reduce average corn prices by 
roughly $0.47/bushel of corn. As stated in the paper, results of the 
analysis are highly dependent upon how much flexibility is assumed to 
exist in the refining sector. Depending on the degree of refining and 
blending flexibility (and the severity of the drought), Purdue's 
``range of corn price impacts from a partial waiver is zero to $1.30/
bu.'' \73\ Their results therefore ``bracket'' the results projected by 
the ISU model.
---------------------------------------------------------------------------

    \73\ An updated version of this study is discussed below.
---------------------------------------------------------------------------

    Similar to the Babcock-Iowa State study, a large part of the 
difference in the agricultural sector impacts (e.g., commodity price 
impacts) between the Purdue/Farm Foundation study and EPA's analysis is 
due to the responsiveness of ethanol demand to the relative prices of 
unblended gasoline and ethanol. Our review of multiple external 
analyses including the studies cited above in Section V.1.d, 
consultation with DOE, and review of comments that we received, 
suggests that ethanol demand, particularly in the short-run (i.e., the 
one-year, the 2012/2013 corn marketing time frame of a possible waiver) 
would be relatively unresponsive. Even if the U.S. fuel system could 
adjust and reconfigure to use less ethanol in the 2012/2013 time frame, 
the economic circumstances of ethanol and gasoline production are such 
that there would continue to be an economic incentive to blend ethanol 
into gasoline, particularly if the expectation is that drought 
conditions will subside and corn production in the U.S. will return to 
more typical (e.g., pre-drought) levels as early as the 2013/2014 corn 
marketing year.
    For the reasons discussed above, we believe these external studies 
find potential impacts of the waiver that are similar in scope and 
direction as the analysis that EPA conducted. Whereas some of the 
external studies present a range of results from varying key 
assumptions, our analysis uses a stochastic approach to capture 
uncertainty in several key variables. Where a stochastic analysis was 
not possible (e.g., on the refinery flexibility issue our review of 
multiple external analyses including the studies cited above in Section 
V.1.d, consultation with DOE, and review of comments that we received, 
suggests that ethanol demand, particularly in the short-run (i.e., the 
one-year 2012/2013 corn marketing time frame of a possible waiver) 
would be relatively unresponsive. Other agricultural analysis primarily 
discussed this issue qualitatively.
    Edgeworth Economics undertakes a scenario analysis to estimate the 
impacts on various sectors of the U.S. economy of a waiver of the RFS 
volume requirements. Based upon their review of recent studies (e.g., 
Babcock-Iowa State, Purdue/Farm Foundation) of the impacts of a waiver, 
Edgeworth Economics uses a decrease in average corn prices of roughly 
$0.52/bushel to estimate these impacts. They estimate that a waiver 
would decrease feed costs across the U.S. by roughly $3.1-$4.7 billion 
in the 2012/2013 crop marketing year. The low end of the range is based 
upon an assumption that other feed prices would not track the price of 
corn. Alternatively, corn growers would see a loss of revenues of 
roughly $5.8 billion if feed costs track the price of corn. Ethanol 
producers, faced with a corresponding loss in demand of roughly 950 
million gallons of ethanol in the scenario, would see a decrease in 
revenues and co-product sales of roughly $2.9 billion. This finding 
with regards to corn prices and feed price impacts is consistent with 
our projection of the impact of the RFS program in the binding case. We 
project that, in cases where the conventional portion of the RFS 
requirements are binding, a waiver would reduce corn prices by $0.58/
bushel and feed prices by approximately $3.6 billion nationwide. 
However, as stated above, we only project this outcome in 11 percent of 
cases, which are premised on the unrealistic view that gasoline prices 
and corn yields in 2012/2013 both fall significantly below their 
current DOE and USDA projections. Edgeworth Economics' projections are 
plausible only to the extent this would occur. Further, because the 
Edgeworth study is premised upon an averaging of the Babcock and 
Purdue/Farm Foundation results, it shares the limitations of those 
findings as well.
    Cardno-ENTRIX evaluated two scenarios under a waiver: a ``low'' 
scenario in which ethanol production in 2013 is reduced by 500 million 
gallons, or 3.7 percent below 2012 levels, and a ``high'' scenario in 
which ethanol production in 2013 is reduced 1,425 million gallons or 
10.5 percent from 2012 levels. In both scenarios, biodiesel production 
is reduced by 500 million gallons, or 50 percent below 2012 levels of 
production. These scenarios are patterned off of the results of recent 
analyses of RFS waiver impacts by Babcock-Iowa State University and 
Purdue/Farm Foundation. The reduction in biodiesel volumes makes the 
scenarios somewhat different. As did Purdue/Farm Foundation, Cardno-
ENTRIX assumes that sufficient economic refiner flexibility exists to 
reach the volume of ethanol production assumed in each of their 
scenarios.
    In the ``low scenario'', average corn prices fall by $0.46/bushel 
and average soybean prices fall by $0.74/bushel. In the ``high 
scenario'', average corn prices fall by $0.48/bushel and average 
soybean prices fall by $0.96/bushel. As a response of demand shifts in 
the corn market (i.e., less ethanol, more feed and exports), corn price 
declines are roughly similar in the ``low'' and the ``high'' scenarios. 
The ``low'' scenario is comparable to our projected outcome if the RFS 
program is binding. In that case, we project that ethanol production 
would decrease by approximately 414 million gallons, with corn prices 
decreasing $0.58/bushel. Much of the difference is attributable to 
differences in key assumptions. The Babcock paper from which Cardno-
ENTRIX drew this estimate utilized earlier WASDE estimates and also 
used gasoline futures prices instead of STEO estimates. Inputs to that 
analysis also vary in terms of the economic value of ethanol to 
refiners, and under what circumstances refiners would shift away from 
ethanol. As discussed elsewhere in this decision in detail, our 
analysis with respect to the value of ethanol to refiners given current 
conditions led us to results that differ.
    In both scenarios, increases in DDGS and soybean meal prices offset 
declines in corn and soybean prices with

[[Page 70770]]

relatively minimal impacts on net feed ration costs. For example, in 
the ``low scenario'', there is a slight decrease in net feed costs for 
beef due to the relatively high share of feed costs for feeder cattle 
accounted for by corn grain. However, net feed costs for dairy cattle 
increase by more than four percent and net feed costs for swine, 
broilers and layers increase by less than one percent. Part of the 
reason for the livestock outcomes in this analysis is due to scenario 
design. A waiver that reduces biodiesel usage results in less soy meal 
production and increases feedstock costs. The reduction in soy meal 
offsets the livestock impacts of a waiver that only influences ethanol 
production.
    Studies performed by FarmEcon LLC attempted to quantify the 
potential impacts of a waiver on poultry, dairy and hog producers in 
North Carolina and Virginia. Both studies cite the Purdue/Farm 
Foundation study as their source for the key analytical input of 
commodity prices; other commenters cited the Purdue/Farm Foundation 
study as well when presenting quantitative impacts.\74\ In one of the 
studies, FarmEcon LLC uses a decrease in average corn prices of $1.14/
bushel from the Purdue/Farm Foundation large waiver scenario to look at 
feed costs impacts for the dairy, poultry and hog producers in North 
Carolina. The corn price changes estimated by Purdue/Farm Foundation 
are higher than the change in corn prices we anticipate to result from 
a waiver for reasons discussed above. Using a larger change in corn 
prices, FarmEcon LLC estimates larger feed market impacts than we 
anticipate.
---------------------------------------------------------------------------

    \74\ Quantitative analysis presented in comments by the National 
Chicken Council, for example, uses estimates from an updated version 
of the Purdue/Farm Foundation study, EPA-HQ-OAR-2012-0632-1994. At 
the request of the National Chicken Council, the authors of this 
study applied September WASDE data to the same methodology, 
providing new results. The National Chicken Council refers to a 
projected change in corn prices of $2.00/bushel as a result of a 
waiver. The authors of this study projected that change assuming 
that ethanol production dropped from 13.8 billion gallons without a 
waiver to 7.75 billion gallons with a waiver. As we detail in our 
discussion of Elam, we do not agree with the estimate that 13.8 
billion gallons of ethanol would be produced in 2013 with RFS 
requirements in place. Further, as we detail in our discussion of 
the Purdue/Farm Foundation study, the assumption that ethanol 
consumption by the refining sector could fall by roughly 6 billion 
gallons within the space of one year does not reflect our assessment 
of limits on refiner flexibility.
---------------------------------------------------------------------------

    We also note that this analysis does not consider the effects of a 
waiver on distillers grains prices. To the extent that a waiver would 
reduce corn ethanol production (as it would to at least some extent in 
all three scenarios examined above), it would also reduce the supply of 
distillers grains. This increased scarcity of distillers grains would 
likely increase their price; at best prices would remain stable. To the 
extent that a waiver would lead to increased distillers grain prices, 
the projected reductions in feed costs detailed above would be 
mitigated.
    Other studies submitted by commenters included work done by Babcock 
examining potential long-term impacts of the RFS program on the swine 
industry.\75\ We do not respond to this study here as it is analyzing a 
set of issues outside the scope of the current decision. The DEFRA 
analysis does not contain sufficient detail with respect to methodology 
or analytical parameters to enable an evaluation of its results in the 
context of the current waiver requests. For example, DEFRA assess 
illustrative scenarios where a price spike is simulated by reducing the 
U.S. corn area harvested by 40 percent while maintaining the U.S. 
renewable mandate and ethanol blenders' subsidy in 2011. Various 
scenarios are simulated which waive an increasing share of the U.S. 
renewable fuel requirement, all while maintaining the ethanol blenders' 
subsidy. DEFRA finds that the larger the share of the mandate waived, 
the larger the price increases that are offset. The DEFRA study does 
not analyze impacts of a potential waiver under current conditions 
(e.g., with projected corn yields for the 2012/13 corn marketing year, 
elimination of the blenders' subsidy), and instead examines more 
generic consequences of a waiver for average corn prices.
---------------------------------------------------------------------------

    \75\ ``Iowa State Analysis for 2015-2020/Analysis of Ethanol and 
Corn Market and the Impact on the Swine Industry,'' submitted in 
comments by the National Pork Producers Council, EPA-HQ-OAR-2012-
0632-2209.
---------------------------------------------------------------------------

5. Summary of the Technical Analysis

    For the 2012/2013 corn marketing year, our analysis shows that it 
is very likely that the RFS volume requirements will have no impact on 
ethanol production volumes in the relevant time frame, and therefore no 
impact on corn, food, or fuel prices. In addition the body of the 
evidence also indicates that even in the unlikely event that the RFS 
requirements would have an impact on the corn and other markets during 
the 2012-2013 timeframe, it would have at most a limited impact on the 
food, feed, and fuel markets. The nature and magnitude of these 
projected impacts, which are not likely to occur, would not be 
characterized as severe. After reviewing the analysis and information 
submitted by commenters, including that discussed above, EPA continues 
to believe that the results of its modeling are the most reliable 
indicator of the likelihood that implementation of the RFS volume 
requirements will have an impact on the economy, and in the unlikely 
case that it would have an impact, the nature and magnitude of such 
impact.

6. Waiver Requests Related to Implementation of the RFS Biomass-Based 
Diesel and Advanced Biofuel Volume Requirements

    EPA received several comments addressing issues related to a waiver 
of the biomass-based diesel (BBD) volume requirements. In general, the 
comments provided relatively little information or analysis on the 
relevant issues.
    While few analyses and comments examined the issue of a BBD waiver, 
those that did focused on the impact on livestock and feed prices. The 
key price impact here is that of soybean meal, since this is the 
primary soy product fed to livestock. We are aware of two quantitative 
studies that projected price impacts on soybeans and soybean meal as a 
result of a possible BBD waiver, Babcock-Iowa State and Cardno-
ENTRIX.\76\ Babcock projects that a waiver of the BBD requirements 
might reduce soybean prices by $0.61 per bushel or about 3.5 percent 
(assuming that rollover RINs are available), but would also increase 
soybean meal prices by $22.00 per ton or about 4.2 percent. Cardno-
ENTRIX finds, under an assumed 500 million gallon decrease in the BBD 
requirements, that soybean prices would decrease by $0.74 per bushel or 
4.5 percent, while soybean meal prices would increase by $32.96 per ton 
or about 6.7 percent. Because most livestock are fed soybean meal, not 
whole soybeans, these projections would mean that a waiver of the BBD 
volumes would very likely increase feed costs.\77\ This would mean that 
waiving the BBD requirements would likely exacerbate the impacts that 
the drought has had on feed prices. It is likely that waiving any 
portion of the BBD requirements would cause more economic harm than it 
would alleviate in food and feed markets. Given this,

[[Page 70771]]

and in light of the fact that the few commenters who asked us to 
consider a biodiesel waiver focused on the impacts on livestock costs, 
we do not believe that an EPA analysis similar to our examination of 
corn ethanol is merited. In addition, EPA concludes that the evidence 
does not support a determination that implementation of the RFS BBD 
volume requirements would severely harm the economy and a waiver would 
therefore not be appropriate.
---------------------------------------------------------------------------

    \76\ Most of the studies examined in this determination, 
including those by Purdue/Farm Foundation, Irwin and Good, and 
Edgeworth Economics (all discussed elsewhere in this notice), focus 
only on the impacts of corn ethanol. FAPRI-Missouri provides 
estimated impacts of a biodiesel waiver on soybean prices, but does 
not provide estimated impacts for key soybean products (i.e., 
soybean meal). For this reason, this paper's estimates for soybeans 
are of limited usefulness in the context of feed costs.
    \77\ EPA received comment on this topic from various soybean-
related parties, including, for example, the Illinois Soybean 
Association and Minnesota Soybean Processors (CITE).
---------------------------------------------------------------------------

    Similarly, we have not conducted a technical analysis of the 
potential impacts of waiving the advanced renewable fuel standard, 
since a majority of the advanced standard is expected to be met with 
biomass-based diesel in the 2012/2013 corn marketing year. Finally, we 
have not analyzed the impacts of waiving the cellulosic renewable fuel 
standard in 2012/2013, since we did not receive any specific 
information or rationale concerning a possible justification for 
waiving the cellulosic volumes. In addition, the cellulosic volume 
requirement for 2013 is likely to be relatively small and production 
volumes unlikely to be affected by the drought due to their sources of 
feedstock.

VI. Other Issues

    EPA received comment on several areas of concern in addition to the 
economic impact of implementation of the RFS volume requirements. 
Comments addressed, among other things, overall U.S. policy on biofuels 
and the RFS; the environmental impacts of renewable fuels in general 
and the RFS program in particular; the impact of granting a waiver on 
the future of ethanol production in the U.S.; the characteristics, 
favorable or otherwise, of ethanol as a transportation fuel; and EPA's 
interpretation of section 211(o)(7) of the Act. Although this section 
summarizes and provides general responses to some of the more the more 
frequently raised comments that are unrelated to the economic impact of 
implementing the RFS, EPA notes that these issues generally were not 
relevant to EPA's consideration of the current waiver request. While 
EPA has broad discretion to consider such issues in determining whether 
or not to grant a waiver if it finds that implementation of the RFS 
would severely harm the economy of a State, region or the U.S., these 
issues are not relevant to EPA's decision where, as here, EPA is 
denying the waiver requests because the evidence and information does 
not support a determination that the statutory criteria for granting a 
waiver are satisfied.

1. Impacts on Corn Prices From Increasing Renewable Fuel Production

    EPA received many comments discussing the impact of increasing 
renewable fuel production over time on crop and feed prices, and on the 
economic consequences of increasing prices on various sectors, 
including the livestock, poultry, dairy, various food-related 
industries, and segments of the population.\78\ Multiple commenters 
argued that the rise of corn prices over the past several years has 
coincided with and is in substantial part a result of the increasing 
renewable fuel volumes required under the RFS program. Commenters state 
that the consequences of this dynamic include tighter global corn 
supplies, a more volatile commodity market, and higher costs for 
various sectors of the economy as the prices of a key input, corn, have 
risen. A number of the requesting States and many commenters state that 
higher corn prices caused in part by increased demand from the RFS 
program have had significant negative effects on the livestock, 
poultry, and dairy industries due to the rising costs of feed. Other 
commenters focus on the link between higher prices for corn or other 
food commodities and increased prices of food for consumers. Some of 
these comments cite analysis conducted by various individuals or 
organizations estimating the portion of the increase in corn prices 
over a period of time that is attributable to increased renewable fuel 
use, or the impact of rising corn prices on consumer food items.
---------------------------------------------------------------------------

    \78\ Examples include petitions and/or comments submitted by 
various requesting States and by individuals and organizations 
associated with the livestock, poultry, and dairy industries.
---------------------------------------------------------------------------

    EPA acknowledges the linkages between corn prices, feed prices, 
costs to the livestock, poultry, and dairy industries, as well as 
impacts on food prices; the analysis presented above explicitly 
examines these connections. At the same time, and as many commenters 
also point out, the market price of corn is influenced by a variety of 
factors, including among other things macroeconomic factors like oil 
prices, international demand for coarse grains, crop production in 
different corn-growing countries, fertilizer costs, and weather 
conditions that affect crop production levels. As many of the 
requesting State letters point out, and as we discuss in the Executive 
Summary, this year's severe drought has had a significant impact on the 
recent increase in corn prices.\79\
---------------------------------------------------------------------------

    \79\ See, for example, August 13, 2012 letter from the Governor 
of Arkansas, EPA-HQ-OAR-2012-002. ``Virtually all of Arkansas is 
suffering from severe, extreme, or exceptional drought conditions. 
The declining outlook for this year's corn crop and accelerating 
prices for corn and other grains are having a severe economic impact 
on the State.''
---------------------------------------------------------------------------

    As mentioned above we fully recognize the toll this year's drought 
has taken on multiple sectors of the economy, and we have reviewed 
comments submitted to us in detail. While we generally agree that the 
issues raised by commenters are important considerations, as discussed 
previously, the issue before EPA is a narrow one--whether 
implementation of the RFS volume requirements over the time period at 
issue would severely harm the economy. The historical impacts of 
overall production and use of biofuels in the U.S. is not the relevant 
issue for purposes of determining whether implementing the RFS would 
severely harm the economy of a State, region or the U.S. over the time 
period of concern.

2. Overall U.S. Policy on Renewable Fuels

    EPA also received comments from various individuals and 
organizations critical of the broader RFS program and policies that 
promote renewable fuels in general. Some commenters raise the potential 
negative environmental consequences of renewable fuels, including 
impacts on wildlife habitat due to renewable fuel policy, and the 
potential for increased greenhouse gas emissions from land use changes 
connected to renewable fuel policy.\80\ Others focus on the impacts 
that the RFS and other renewable fuel policies can have on 
international commodity markets, effects of price changes in developing 
countries, volatility in agricultural prices, and effects on domestic 
consumers, and argue that a waiver of RFS requirements would help to 
begin addressing such negative impacts. Some commenters either cited or 
submitted a study by Dr. Thomas Elam of FarmEcon LLC presenting a 
fairly comprehensive assessment of the RFS program, its impact on the 
agricultural sector, fuel markets, and global commodity markets, and 
proposals for statutory modifications.\81\
---------------------------------------------------------------------------

    \80\ See for example comment submitted by Bullock et al., EPA-
HQ-OAR-2012-0635-1707.
    \81\ See Dr. Thomas Elam, FarmEcon LLC, ``The RFS, Fuel and Food 
Prices, and the Need for Statutory Flexibility,'' July 16, 2012, 
submitted with comments from the National Chicken Council, EPA-HQ-
OAR-2012-0632-1994.
---------------------------------------------------------------------------

    EPA considers these important topics and has reviewed such comments 
in detail. However, the question before us is fairly narrow. EPA 
received requests for a waiver under a specific provision of law and 
our decision in response to those requests is necessarily based on our 
authority under that provision. EPA

[[Page 70772]]

has no authority to grant the waiver requests under this provision 
unless it determines that implementation of the RFS volume requirements 
would severely harm the economy of a State, region, or the United 
States. The evidence before EPA does not support such a determination, 
and EPA therefore is denying the waiver requests. With respect to the 
environmental impacts of increased renewable fuel use, the waiver 
requests are not based on a claim of severe harm to the environment. 
Outside the context of a waiver, EPA is required to address 
environmental concerns in various ways, including through analysis of 
lifecycle greenhouse gas emissions associated with different renewable 
fuels and fuel pathways. EPA's lifecycle analysis of such emissions is 
discussed at length in our March 26, 2010 final RFS rulemaking (75 FR 
14670). A separate provision of EISA 2007 (the section 204 report to 
Congress) requires EPA to assess other potential impacts of biofuel 
use.\82\ EPA also considers those kinds of factors when setting 
national volume requirements for the years not specified by Congress, 
under section 211(o)(2)(B)(ii).
---------------------------------------------------------------------------

    \82\ The first triennial Report to Congress is available at 
http://oaspub.epa.gov/eims/eimscomm.getfile?p_download_id=506091.
---------------------------------------------------------------------------

3. RFS Programmatic Issues

    Comments submitted by organizations representing the oil refining 
sector suggested that either eliminating or increasing the 20 percent 
cap on previous-year RINs that can be used for compliance under Sec.  
80.1427(a)(5) would increase the flexibility available to obligated 
parties in the event of a market disruption.\83\ As mentioned above, 
EPA described its rationale for setting the cap at 20 percent in the 
May 1, 2007 final RFS rulemaking.\84\ The cap is a reasoned way to 
implement the statutory requirements that credits in the RFS program 
have a duration of only 12 months. We continue to believe that the 20 
percent cap strikes an appropriate balance between allowing flexibility 
to address market disruptions while providing biofuel producers with a 
degree of certainty with respect to demand. Therefore, EPA is not 
considering modifying the cap level at this time.
---------------------------------------------------------------------------

    \83\ See for example, comments submitted by the American 
Petroleum Institute, EPA-HQ-OAR-2012-0632-2240.
    \84\ 72 FR at 23934-5.
---------------------------------------------------------------------------

4. Characteristics of Ethanol as a Transportation Fuel

    EPA received multiple comments describing what commenters view as 
unfavorable characteristics of ethanol as a transportation fuel; most 
of these comments focused on either ethanol blended into gasoline at 
the 10 percent or 15 percent level (E10 or E15). Commenters discussed 
the lower energy density of ethanol relative to gasoline and concerns 
with the use of E15 in certain engine types. While EPA appreciates the 
importance of such topics, they are beyond the scope of this 
determination and we do not address them here.

5. The Future of the Renewable Fuel Industry

    Many commenters raised concerns regarding the impact that granting 
a waiver could have on the renewable fuel industry and the future of 
renewable fuel production. Such commenters, especially those associated 
with the renewable fuel sector, pointed out that granting a waiver 
would increase uncertainty in the marketplace, reduce investment, and 
hinder progress towards the policy goals of EISA 2007. EPA also 
received numerous comments related to the potential negative economic 
impacts of a waiver on renewable fuel producers and various related 
supporting industries, including impacts on jobs. EPA recognizes that 
were a waiver to be granted, the impacts would not be constrained to 
those industries that utilize corn as a feed input (e.g., livestock or 
dairy sectors), and that impacts would also affect other sectors of the 
economy, including in the agriculture and renewable fuel production 
sectors. EPA has reviewed comments on this topic and will continue to 
monitor the status of the U.S. biofuels industry, but in light of 
today's decision does not address these comments in detail here.

6. The Ethanol ``Blendwall''

    Comments from oil refiners and associated trade organizations, as 
well as others, discuss potential impacts to fuel market dynamics as 
the level of ethanol in blended gasoline approaches the ``E10 
blendwall.'' \85\ The term blendwall generally refers to the market 
based limits on the volume of ethanol in gasoline, as ethanol-gasoline 
blends greater than E10 or E15 (depending on the model year of the 
vehicle) may only be marketed to flexible fuel vehicles. Commenters 
note that volumes of ethanol required by the RFS in the near future 
exceed the volume that can be consumed as E10. Commenters state that 
once ethanol in gasoline hits this E10 saturation point, blending 
additional ethanol into gasoline will not be a viable strategy to 
comply with RFS-required volumes.
---------------------------------------------------------------------------

    \85\ See for example comments submitted by the American Fuel and 
Petrochemical Manufacturing Association, EPA-HQ-OAR-2012-0632-1939.
---------------------------------------------------------------------------

    In their letters requesting an RFS waiver, the requesting States do 
not focus on issues that might be posed by the blendwall, though some 
commenters in the livestock and poultry industry raise this topic as an 
issue of concern. In addition, while some commenters pointed to 
analysis related to blendwall impacts, it was not a focus of the 
majority of comments, and the amount of data and analysis submitted on 
the blendwall, its impacts on the overall fuel market, and the 
relationship between a waiver and blendwall impacts in different years 
was relatively small. The blendwall issue is not relevant to the 
analysis undertaken as part of this determination, as EPA's technical 
analysis indicates that for the 2012/2013 corn year, in light of the 
volume requirements in RFS and the amount of rollover RINs, that the 
market is expected to cause production of more ethanol than is needed 
to comply with the RFS volume requirements. However we believe it may 
be instructive to discuss the general topic briefly here.
    In establishing the RFS program, Congress created a framework to 
increase the amount of renewable fuel used in the domestic 
transportation sector over time. It gradually increases from 4.0 
billion gallons in 2006 to 36.0 billion gallons in 2022. Congress 
charged EPA with implementation of the program, and directed the Agency 
to assign the obligation to use renewable fuels to ``refineries, 
blenders, distributors and importers as appropriate'' to ensure that 
the annual national statutory volumes were met. EPA subsequently 
promulgated the implementing regulations for the RFS program first in 
2007 in response to the Energy Policy Act of 2005 and then again in 
2010 in response to the Energy Independence and Security Act. Under 
these regulations refiners and importers are required to ensure that 
the volumes of renewable fuel required under the Act are actually 
consumed.
    The RFS program establishes volume requirements for each obligated 
party, but it is neutral with respect to the type or form of renewable 
fuel used to meet the volume requirements, as long as the fuels are 
used to replace or reduce the quantity of fossil fuel present in a 
transportation fuel, heating oil or jet fuel; meet the required life-
cycle greenhouse gas (GHG) performance standards; and are made from 
qualifying renewable biomass.
    Ethanol has been the dominant domestic renewable fuel for several

[[Page 70773]]

years, and during development of the law and regulations stakeholders 
in the fuel sector reasonably expected that ethanol would play a 
significant role in fulfilling the RFS volume requirements. As pointed 
out by commenters, E10 is approaching the point at which it saturates 
the gasoline market. As a result, if obligated parties choose to 
achieve their required RFS volumes using ethanol they should work with 
their partners in the vehicle and fuel market to overcome any market 
limitations on increasing the volume of ethanol that is used. 
Stakeholders in the refining sector have been aware of the E10 
blendwall since passage of EISA in December of 2007.
    As the market has approached the E10 blendwall, the ethanol 
industry has worked to support the introduction of E15 into the market, 
and domestic auto manufacturers have increased production of vehicles 
capable of running on even higher ethanol blends. Over ten million 
flex-fuel vehicles (FFVs) are now in the existing fleet. FFVs currently 
consume E85 only about 0.4% of the time, but were they to be regularly 
fueled on E85, such vehicles would be capable of consuming billions of 
additional gallons of ethanol. The affected industries have had and 
continue to have the ability to achieve widespread adoption of E85 
through working with partners in the retail and terminal infrastructure 
sectors to increase the number of stations that offer E85 or other 
intermediate ethanol blends and improve the pricing structure relative 
to E10.\86\ As noted above, however, other fuel options are available 
to meet RFS requirements.
---------------------------------------------------------------------------

    \86\ The number of retail service stations that offer E85 has 
grown at a rate of only 350 stations per year since 2007. As of 
today, the total number of retail stations offering E85 is only 
about 3000, so that only one out of every 50 retail fuel stations 
offers E85.
---------------------------------------------------------------------------

7. Legal Interpretation of 211(o)(7)

(a) Implementation of the RFS Itself Must Severely Harm the Economy
    The statute authorizes a waiver where ``implementation of the 
requirement would severely harm the economy.'' In the 2008 waiver 
determination, EPA concluded the straightforward meaning of this 
provision is that implementation of the RFS program itself must be the 
cause of the severe harm. We found that the language provided by 
Congress does not support the interpretation that EPA would be 
authorized to grant a waiver if it found that implementation of the 
program would significantly contribute to severe harm. EPA noted 
several instances in section 211 and other sections of the Clean Air 
Act where Congress authorized EPA action based on the contribution made 
by a factor or activity, and worded the statute to clearly indicate 
this intention. We cited as an example section 211(c)(1) of the Act 
which authorizes EPA to control or prohibit a fuel or fuel additive 
where it ``causes or contributes'' to air or water pollution that may 
reasonably be anticipated to endanger public health or welfare. EPA 
also cited to various waiver provisions where Congress clearly used 
language indicating that a waiver could be based on a determination 
that there is a contribution to an adverse result or a similar lesser 
degree of casual link to the adverse result. Section 211(f)(4), for 
example, allows EPA to waive a certain prohibition on fuels and fuel 
additives upon a determination that they will not ``cause or 
contribute'' to a specified harm. Other examples are presented in the 
2008 waiver determination.
    In response to the August 30, 2012 Notice, one commenter argued 
that the concept of ``cause or contribute to'' arises in the Clean Air 
Act under a set of contexts that pertain to ``public health, 
environmental quality, safety,'' but do not relate to the concept of 
economic harm. In interpreting the language of 211(o)(7) by examining 
other instances where Congress utilizes the concept of contribution 
under section 211, commenters assert, EPA unnecessarily limited itself 
to an overly stringent reading of the RFS waiver provision.\87\
---------------------------------------------------------------------------

    \87\ American Petroleum Institute, EPA-HQ-OAR-2012-0632-2240
---------------------------------------------------------------------------

    EPA disagrees with this argument. Had Congress intended to 
authorize EPA to grant a waiver where RFS implementation is merely a 
contributing factor to severe economic harm, it could clearly have done 
so by using statutory language similar to that found in the statutory 
provisions cited by the commenter.
    Another commenter argued that EPA's interpretation renders the 
provision impossible to meet and essentially prejudges the issue. They 
noted that implementation of the RFS requirements must always occur 
within the context of an existing economy and fact situation, so that 
it is inappropriate to interpret the waiver provision as requiring that 
implementation of the RFS alone would cause severe economic harm. They 
state that the statute does not require the Administrator to ignore the 
worst drought in 50 years, its effects on corn stocks, and the price 
effects of the interaction of the RFS with the drought-induced supply 
shock. The commenter misinterprets EPA's position. EPA agrees that 
implementation of the RFS must necessarily occur within the context of 
existing market conditions, and that it is necessary and appropriate 
for EPA to consider the effect of RFS implementation in the context of 
those existing conditions. That is why for today's determination EPA 
has modeled the impact of RFS implementation in the current economic 
environment, including the context of the current drought and its 
impacts on corn yields and corn prices. Nor does EPA believe that its 
interpretation renders the provision impossible to meet. In Section V 
we discuss a number of key parameters and inputs used in our modeled 
analysis; these include availability of rollover RINs, gasoline prices, 
and corn yields, among others. Changes in one or several of these 
variables could lead to analytical results that could provide support 
for a finding that implementation of the RFS is severely harming the 
economy--but our analysis does not support such a finding for the time 
period and scenario analyzed here.
(b) There Must Be a Generally High Degree of Confidence That There Will 
Be Severe Harm as a Result of the Implementation of RFS
    The waiver provision indicates that EPA must find that 
implementation of the RFS ``would'' severely harm the economy. We 
previously interpreted this as indicating that there must be a 
generally high degree of confidence that severe harm would occur from 
implementation of the RFS, and we continue to believe this 
interpretation is appropriate. In the 2008 waiver determination we 
noted that Congress specifically provided for a lesser degree of 
confidence in a related waiver provision, section 211(o)(8). That 
provision applies for just the first year of the RFS program, and 
provides for a waiver of the 2006 requirements based on a study by the 
Secretary of Energy of whether the program ``will likely result in 
significant adverse impacts on consumers in 2006.'' (Emphasis 
supplied). The term ``likely'' generally means that something is at 
least probable, and EPA believes that the term ``would'' in section 
211(o)(7)(A) means Congress intended to require a greater degree of 
confidence under the waiver provision at issue here.
    We also noted in 2008 EPA's belief that generally requiring a high 
degree of confidence that implementation of the RFS would severely harm 
an economy would appropriately implement Congress' intent for yearly 
growth in the

[[Page 70774]]

use of renewable fuels, evidenced by the 2005 and 2007 requirements for 
such growth. In addition, it would limit waivers to circumstances where 
a waiver would be expected to provide effective relief from harm. If 
there is generally high confidence that implementation of the RFS 
program would cause harm, then a waiver should provide effective relief 
from that harm. However in situations where there is not such a high 
degree of confidence, a waiver might be ineffectual and unnecessarily 
disrupt the expected growth in use of renewable fuels.
    In our prior Texas waiver determination we found support for our 
interpretation of this waiver provision in an analogous approach taken 
by EPA in applying former section 211(k)(2)(B), the provision for 
waiver of the oxygen content requirement for RFG. In that provision, 
Congress provided that EPA ``may'' waive the oxygen content requirement 
upon a determination that compliance with this requirement ``would'' 
prevent or interfere with attainment of a NAAQS. EPA interpreted this 
as calling for the waiver applicant to ``clearly demonstrate'' 
interference before a waiver would be granted. This interpretation was 
upheld in Davis v. EPA, 348 F.3d 772, 779-780 (9th Cir. 2003).
    In response to the August 30, 2012 Notice, one commenter argued 
that EPA erred in finding support for its interpretation of the term 
``would'' in Section 211(o)(7) by reference to the less stringent 
``will likely result'' statutory test set forth in 211(o)(8) for a 
waiver of the renewable fuel requirements in 2006. The commenter 
suggests that the fact situation in 2006 was different in that it was 
the first year of the RFS program, and that relatively smaller 
renewable fuel volumes were involved. While EPA agrees that the fact 
situation in 2006 was different than in subsequent years of RFS 
implementation, that fact does not render EPA's analysis of the 
different statutory terms unreasonable. No doubt because the fact 
situation was different in 2006 than in subsequent years of RFS 
implementation, Congress established a different, and less stringent, 
test to justify an RFS waiver in that year than in subsequent years. It 
is entirely reasonable for EPA to conclude that Congress intended a 
higher degree of certainty of harm in 211(o)(7) than in 211(o)(8) in 
light of the different statutory terms used in those sections. 
Therefore, EPA believes the ``would severely harm'' test in 211(o)7) 
requires a higher degree of certainty of harm than the ``will likely 
result'' test in 211(o)(8).
(c) ``Severely Harm'' Indicates That Congress Set a High Threshold for 
Grant of a Waiver
    In 2008, EPA discussed the level or threshold of harm necessary to 
satisfy the ``severely harm'' phrase found in section 211(o)(7). EPA 
continues to agree with the interpretation from the 2008 waiver 
determination, where we stated that while the statute does not define 
the term ``severely harm,'' the straightforward meaning of this phrase 
indicates that Congress set a high threshold for issuance of a waiver. 
In the 2008 determination we discussed our rationale for this reading, 
pointing to the difference between the criteria for a waiver under 
section 211(o)(7)(A) and the criteria for a waiver during the first 
year of the RFS program. In section 211(o)(8)(A) Congress provided for 
a waiver based on an assessment of whether implementation of the RFS in 
2006 would result in ``significant adverse impacts'' on consumers. A 
waiver under section 211(o)(7)(A), however, requires that 
implementation ``severely harm'' the economy, which is clearly a much 
higher threshold than ``significant adverse impacts.'' We also 
considered the use of the term ``severe'' in CAA section 181(a). Ozone 
nonattainment areas are classified according to their degree of 
impairment, along a continuum of marginal, moderate, serious, severe or 
extreme ozone nonattainment areas. Thus, in section 181, ``severe'' 
indicates a level of harm that is greater than marginal, moderate, or 
serious, though less than extreme. We previously stated our belief that 
the term ``severe'' should be similarly interpreted for purposes of 
section 211(o)(7)(A), as indicating a point that is quite far along a 
continuum of harm, though short of extreme. In response to the August 
30, 2012 Notice, one commenter, addressing this comparison, wrote, 
``EPA suggested in the Texas waiver decision that it needed to 
interpret `severe' within CAA section 211 in the same manner as CAA 
section 181(a). EPA is under no such mandate.'' \88\ EPA agrees that we 
are under no such mandate, and disagrees with the commenter's 
characterization of our decision in 2008. EPA is not required to 
interpret the term ``severe'' in section 211in the same manner as 
section 181(a), but as we wrote in the 2008 determination, it is 
``instructive'' to do so. EPA continues to believe this is the case.
---------------------------------------------------------------------------

    \88\ National Pork Producers Council comments, EPA-HQ-OAR-2012-
0632-2209.
---------------------------------------------------------------------------

    As in 2008, and after reviewing comments submitted this year, EPA 
finds that we do not need to interpret this provision in any greater 
detail for purposes of acting on any of the waiver requests, as the 
circumstances in this case do not demonstrate the kind of harm from RFS 
implementation that would be characterized as severe. In addition, as 
described in section V, EPA has determined that it is highly likely 
that implementation of the RFS in 2012 and 2013 will have no impact on 
the use of renewable fuel in the United States. Thus, implementation of 
the RFS could not be seen as severely harming the economy, regardless 
of EPA's interpretation of the term.
(d) Harm to the Economy
    Under EPA's prior Texas waiver determination EPA considered the 
meaning of the term ``economy'' in section 211(o)(7)(A)(2). Although 
Texas had argued that the term should be interpreted such that a 
showing of severe harm to one sector of the economy, e.g., the 
livestock industry, is sufficient under the statute, others argued that 
there must be a showing of severe harm to the entire economy of a 
State, region or the United States, including all sectors. EPA stated 
its belief that it would be unreasonable to base a waiver determination 
solely on consideration of impacts of the RFS program to one sector of 
an economy, without also considering the impacts of the RFS program on 
other sectors of the economy or on other kinds of impact. It is 
possible that one sector of the economy could be severely harmed, and 
another greatly benefited from the RFS program; or the sector that is 
harmed may make up a quite small part of the overall economy. EPA 
stated its belief that in the context of any RFS waiver request we 
should responsibly review and analyze the economic information that is 
reasonably available regarding the full impacts of the RFS program and 
a possible waiver, including detrimental and beneficial impacts, before 
determining that a waiver of the program is warranted. In addition, we 
examined the language in the statute providing that EPA ``may'' waive 
the RFS volume requirement after finding that implementation of the RFS 
program would severely harm the economy. As such, we determined that a 
broad consideration of economic and other impacts could be undertaken 
whether or not EPA adopted the more limited interpretation of the term 
``economy'' advanced by Texas. For example, if EPA examined the full 
impacts on an economy, EPA would determine whether RFS implementation 
would severely harm the overall economy of a State, region, or the U.S. 
However, if

[[Page 70775]]

EPA adopted the more limited interpretation, and then found severe harm 
to a sector of the economy, EPA would still evaluate the overall 
impacts on the economy and other factors before exercising its 
discretion under the ``may'' clause to grant or deny the waiver 
request. Some commenters argued in response to the August 30 notice 
that EPA's interpretation in the 2008 Texas waiver decision was 
incorrect, because nothing in the statute allows EPA to broadly 
consider possible economic benefits as well as harm to various sectors 
of the economy. The commenter failed to acknowledge that EPA is not 
required to issue a waiver when severe economic harm to a state, region 
or the United States is demonstrated. The statute provides that EPA 
``may'' do so in that situation. EPA continues to believe that in 
exercising its discretion under the statute to grant or deny a waiver 
request, it would be reasonable for EPA to consider all impacts 
associated with RFS implementation. In its Texas waiver determination 
EPA found that it did not need to resolve the issue of whether a waiver 
could be granted based solely on a demonstration of harm to one sector 
of the economy, since the circumstances in that case did not warrant a 
waiver under either interpretation. Similarly, despite the comments EPA 
received on this interpretative issue within the current waiver 
requests, we find that EPA does not need to resolve this issue of 
interpretation since the circumstances in this case do not warrant a 
waiver under either interpretation.

VII. Decision

    EPA recognizes that severe drought has taken a large toll on many 
States and sectors of the economy, and further acknowledges that many 
parties, both those supporting a waiver and those opposing a waiver, 
have raised issues of great concern to them and to others in the nation 
concerning the use of biofuels. However the issue before the Agency in 
this case is a much more limited one, as described below. Based on a 
thorough review of the record in this case, and applying the evidence 
to the statutory criteria, EPA finds that the evidence does not support 
granting a waiver.
    EPA is authorized to grant a waiver request if EPA determines that 
implementation of the RFS requirements would severely harm the economy 
of a State, region, or the United States. As discussed above, this 
calls for a determination that implementation of the RFS itself would 
severely harm the economy; it is not enough that implementation would 
contribute to such harm. Today's determination has two basic parts. The 
first part addresses whether there is a generally high degree of 
confidence that harm would occur from implementation of the RFS. The 
second part considers whether such harm, if it were to occur, is 
``severe'', indicating a high threshold for the nature and degree of 
harm that would support issuance of a waiver, a point that is quite far 
along a continuum of harm, though short of extreme. Based on a thorough 
review of the record in this case, and applying the evidence to the 
statutory criteria, EPA finds that the evidence does not support 
granting a waiver.
    First, regarding the degree of confidence that implementation of 
the RFS program during the time period at issue would harm the economy, 
after weighing all of the evidence before it the evidence does not 
support a finding that implementation of the RFS would harm the economy 
of a State, region, or the United States. All parties agree that any 
claimed economic harm would derive from the increased production of 
ethanol associated with implementation of the RFS, and any associated 
increase in the price of corn. However the weight of the evidence shows 
that it is very likely that the RFS volume requirements will have no 
impact on ethanol production volumes in the relevant time frame, and 
therefore no impact on corn, food, or fuel prices. The ISU modeling 
projects that waiving the RFS would have no impact at all on the use of 
ethanol in 89% of the scenarios modeled. The availability of rollover 
RINs, the beneficial economics of producing ethanol gasoline blends, 
the generally low level of flexibility of refiners to shift from 
ethanol over a one-year period, and the low price currently in the 
market for renewable fuel RINs all support the conclusion that waiving 
the RFS program would not be expected to have any effect on the 
production of ethanol. In other words, demand for ethanol would remain 
high with and without the RFS volume requirements for the time period 
at issue. As discussed in section V, the evidence submitted to support 
the view that a waiver would have a large effect on ethanol use is less 
credible because of concerns about the validity of key assumptions that 
underpin those analyses. After considering all of the evidence and 
information and weighing it appropriately, EPA believes that it is very 
likely that implementation of the RFS volume requirements will have no 
impact on ethanol production volumes in the relevant time frame. The 
analysis also indicates that it is unlikely that implementation of the 
RFS would cause any degree of harm to the economy. Though EPA fully 
recognizes the harmful impact to the economy from the 2012 drought, the 
evidence before the agency does not support a finding that 
implementation of the RFS would likely or even probably cause harm to 
the economy over the 2012/2013 time period and certainly the evidence 
does not reach the generally high degree of confidence required for 
issuance of a waiver under section 211(o)(7)(A).
    Second, the Agency examined the evidence to evaluate the potential 
impact of implementation of the RFS program on corn prices and the 
impacts of such corn prices on various sectors of the economy and the 
overall economy, both within the requesting States and for the entire 
United States. In the ISU modeling, a range of scenarios were modeled, 
with the model projecting ethanol use, corn price and fuel price. The 
modeling indicates that for 89% of the scenarios implementation of the 
RFS volume requirements would have no impact on ethanol use or corn 
price, with only 11% of the scenarios indicating a change in ethanol 
use and a corresponding change in corn price. EPA determined that the 
average change in corn price over all of the scenarios was $0.07 per 
bushel of corn. The average change in corn price over the 11% of 
scenarios where a waiver would have an effect was $0.58 per bushel of 
corn. As discussed in section V, a price change in corn of this 
magnitude would have only a moderate impact on livestock costs and food 
prices. It would also be accompanied by a small change in fuel costs. 
For the reasons discussed above, EPA believes the weight of the 
evidence supports the view that it is highly likely there will be no 
impact on ethanol use or corn prices from implementation of the RFS 
program over the time period at issue, and if an impact were to occur, 
it would likely be on average $0.58 per bushel of corn. EPA believes 
this range of potential price increases for corn, even without 
considering the accompanying impact on fuel prices, would not support a 
determination of severe harm to the economy, whether considering the 
various livestock industries of the requesting States, livestock 
industry of the nation, the economies of the requesting States, or the 
economy of the United States. In this case, EPA does not need to 
determine exactly what nature or degree of harm would amount to severe 
harm, as the evidence in this case clearly does not meet the statutory 
criterion of severe harm to an economy.

[[Page 70776]]

    In conclusion, EPA finds that the evidence and information in this 
case does not support a determination that implementation of the RFS 
requirements during the time period at issue would severely harm the 
economy of a State, a region, or the United States.

    Dated: November 16, 2012.
Lisa P. Jackson,
Administrator.
[FR Doc. 2012-28586 Filed 11-26-12; 8:45 am]
BILLING CODE 6560-50-P
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