MEMORANDUM

Subject: Calculation of ethanol export estimates for 2014

From: David Korotney , U.S. EPA, Office of Transportation and Air Quality

To: EPA Air Docket EPA

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In the June 10, 2015 Notice of Proposed Rulemaking (NPRM) for the RFS standards that would apply in 2014, 2015, and 2016, we estimated the supply of 2014 RINs that would be available for compliance with the applicable standards. 1 Available RINs would include those that were generated for renewable fuel produced or impor ted in 2014 as recorded in the EPA

- Moderated Transaction System (EMTS), minus any RINs that have been retired for reasons other than compliance by obligated parties with 2014 RFS percentage standards or would be expected to be retired to cover exports of r enewable fuels. However, we explained that the total number of RINs that would be expected to be retired to cover exports of renewable fuel in 2014 will only be recorded in EMTS after the compliance demonstration deadline for 2014 has passed. Since the

c ompliance deadline for all 2014 RIN exports ha d not yet passed, we proposed estimat ing likely RIN retirements for renewable exports using renewable fu el export information from EIA.

Ethanol export data reported by EIA is derived from surveys collected by the Census Bureau. These surveys distinguish between ethanol that is denatured and ethanol that is undenatured , with approximately 450 million gallons being described as denatured and approximately 350 million gallons being described as undenatured for 2014

. In the NPRM we treated both categories of

ethanol as having been part of total 2014 supply (i.e., as having generated RINs)

. T hus we

calculated available RINs for 2014 by subtracting the exported volumes represented by both categories from the amo unt of RINs generated for domestic production or import s in 2014

. We

based this approach on the expectation that ethanol producers had an incentive to denature all ethanol for tax purposes, and thus would only sell undenatured ethanol if it was contractua lly designated for export. Given that most ethanol producers are located far from the coasts, we believed it was unlikely that ethanol producers were engaged in direct export of any significant quantity of undenatured ethanol , and as a result we treated t he Census Bureau survey data as being reliable for the total volume of exported ethanol but unreliable with respect to whether exported batches were denatured or undenatured.

At the public hearing on the proposed rule on June 25, 2015 , public commenters indicated that they believe d it was an error to treat the reported amounts of undenatured ethanol as being part of the 2014 supply of RINs. 2 Based on a preliminary consultation with EIA , we believe that the Census Bureau survey data is likely to be more r eliable than we previously believed with regards

1 See discussion at 80 FR 33121

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2 See hearing transcript (docket reference EPA

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- 41 (testimony of Rhett Adams that 386 million gallons of undenatured ethanol should not have been deducted from total because they did not

gen erate RINs and thus will not retire RINs); see also hearing transcript (docket reference EPA

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- 1043) at 35

- 36 (similar testimony from Geoff Cooper).to whether exported batches were denatured or undenatured . This will be one of the issues on

which we will consult EIA prior to the issuance of the final rulemaking.

.

E thanol that is exported in undenatu red form would not have generated RINs 3 , and thus should not have been subtracted from the total number of RINs generated for fuel ethanol in 2014 for purposes of calculating the available supply of RINs for 2014 in the proposal

. EPA intends to

account fo r this and other information on the available supply of 2014 RINs in the determin ation

of the appropriate volume requirements in the final rulemaking.

3 See 40 CFR 80.1401, definition of "Renewable Fuel"