OnLocation, Inc.

Energy Systems Consulting

Memo 

To: EPA-HQ-OAR-2005-0161

From: OnLocation, Inc.

Date: January 12, 2010

Re: RFS2 Modeling Analysis Documentation

___________________________________________________________

At the request of EPA, OnLocation has prepared an analysis of the impact of the renewable fuel 

standard (RFS2) requirements using a version of the Energy Information Administration’s 

National Energy Modeling System (NEMS) called EPA-NEMS.

1

Two main scenarios were 

constructed in order to examine the overall impact of renewable fuel requirements, imports of 

petroleum for energy security analysis, and the monetary benefits associated with reduced 

petroleum imports under the RFS2 rule. These scenarios included:

 A Reference Case with renewable fuel volumes similar to the AEO2007 Reference Case

 A Control Case with the EISA renewable fuel volume requirements

The construction of these cases will be discussed in detail below, but first an overall 

introduction to EPA-NEMS is provided as background.

EPA-NEMS Introduction

EPA-NEMS is an integrated energy modeling system that simulates the behavior of energy 

markets and their interactions within the U.S. economy by explicitly representing the economic 

decision-making involved in the production, conversion, and consumption of energy products. 

EPA-NEMS is designed as a modular system. Four end-use demand modules represent fuel 

consumption in the residential, commercial, transportation, and industrial sectors, subject to 

delivered fuel prices, macroeconomic influences, and technology characteristics. The primary 

fuel supply and conversion modules compute the levels of domestic production, imports, 

transportation costs, and fuel prices that are needed to meet domestic and export demands for 

energy, taking into account resource base characteristics, industry infrastructure and 

technology, and world market conditions. The modules interact to solve for the economic 

supply and demand balance for each fuel. Because of the modular design, each sector can be 

represented with the methodology and the level of detail that is appropriate for that sector.

The production of biofuels is represented in the petroleum market module (PMM), while 

demands for biofuel and competing petroleum products are projected by the transportation 

model. The PMM or refinery model includes several types of biofuel production including corn 

ethanol, cellulosic ethanol, virgin and non-virgin biodiesel, and biomass-to-liquids (using a 

biomass gasification process). Each of these is represented by capital investment costs, 

operating costs, energy requirements, and by-product credits. Ethanol can be used in blending 

 

1

This version is called EPA-NEMS to make it clear that EPA, rather than EIA, conducted this analysis and that the 

modifications and data changes in the model are the responsibility of EPA and OnLocation, Inc.
Memo to EPA re: EISA Modeling Analysis

OnLocation, Inc. / Energy Systems Consulting

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with motor gasoline or as E85. The model structure allows for minimum requirements to be set 

for biodiesel, cellulosic biofuels, advanced biofuels and total biofuels similar to the tiers set by 

EISA. 

EPA Reference Case

The first step was the creation of an EPA Reference case to represent conditions before the 

passage of the EISA biofuels requirements. EPA had started their analysis using the biofuels 

projections from the Annual Energy Outlook 2007 (AEO2007), so we needed to modify the more 

current AEO2009-ARRA2version of the NEMS model to replicate the AEO2007 biofuels levels. 

This required a few modifications, as described below, in addition to removing the EISA 

renewable fuel standard (RFS) from the AEO2009-ARRA case. 

The AEO2009-ARRA allows greater blending of ethanol (up to 10% in most regions and gasoline 

types) than did the AEO2007, so the maximum blending share was reduced for the EPA 

Reference case. At the same time, the AEO2009-ARRA includes the EISA CAFE standards which 

reduce the growth in demand for motor fuels and hence the potential for blended ethanol in the 

long term. To match the AEO2007 blending, the blending share is assumed to increase over 

time. The ethanol import tariff is assumed to remain in place as it was in the AEO2007, unlike 

in the AEO2009-ARRA where it is assumed to expire. The sales of flex-fuel vehicles in the EPANEMS Transportation Market Model are adjusted downward to reduce the total E85 demand 

and hence the total ethanol demand. The price of imported biodiesel is raised and certain 

biodiesel feedstocks are restricted in order to better match total biodiesel consumption and 

composition. In addition, the ethanol import curves from Brazil are adjusted so that the ethanol 

import projections match and cellulosic imports from Brazil are eliminated. Exports of ethanol 

are eliminated because that option was not included in the AEO2007. Similarly, biomass-toliquids (BTL) gasification and “green diesel” technologies were eliminated since these did not 

exist in the AEO2007. The resulting EPA Reference Case matched the AEO2007 biofuels fairly 

well, especially in the EISA target year 2022. 

 

2

Source: U.S. Department of Energy, Energy Information Administration, “An Updated Annual Energy Outlook 

2009 Reference Case Reflecting Provisions of the American Recovery and Reinvestment Act and Recent Changes in 

the Economic Outlook”, Report No. SR/OIAF/2009-03, April 2009.
Memo to EPA re: EISA Modeling Analysis

OnLocation, Inc. / Energy Systems Consulting

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Figure 1

EPA Control Case

The goal of this case was a full implementation of the EISA biofuels requirements within the 

EPA-NEMS model. EISA requires 36 billion gallons of biofuels by 2022, with 21 billion gallons 

from advanced biofuels, of which 16 must be from cellulosic and 1 billion gallons from biodiesel. 

EIA’s AEO2009-ARRA assumes that cellulosic ethanol and biomass-to-liquids (BTL) gasification 

technologies are not sufficiently mature to provide the required ramp-up in the cellulosic fuels, 

and therefore a waiver is issued which reduces the cellulosic and total biofuels requirements. 

For the EPA-NEMS reference case, we modified several assumptions regarding ethanol and BTL 

production so that the EISA volumes could be met in the projection. The ramp up of cellulosic 

ethanol and BTL production was allowed to be faster in the EPA Control Case than in the 

AEO2009-ARRA. In addition, the following changes were made in our attempt to match the 

EPA Control Case biofuel levels:

1. Advanced ethanol was eliminated as an option.

2. Cellulosic ethanol imports from Brazil and Canada were eliminated.

3. Palm oil imports for biodiesel production were eliminated.

4. The BTL RFS credit multiplier was increased from 1.5x to 1.7x.

5. The ethanol import tariff and subsidies were maintained throughout the planning years.

6. Corn ethanol production was limited to 15 billion gallons per year.

The resulting biofuel production volumes are given in the following table and the RFS credits for 

the various biofuels are shown in the graph below.3

 

3 We note here that the RFS credit volumes are larger than the actual production volumes because the various 

advanced biofuels are scored relative to corn ethanol and have credit multipliers that are greater than one.
Memo to EPA re: EISA Modeling Analysis

OnLocation, Inc. / Energy Systems Consulting

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Reference Case Control Case

2012 2017 2022 2012 2017 2022

Biofuels (Billion 

Gallons/Year)

 Corn Ethanol 10.6 12.1 12.7 14.5 15.0 15.0

 Cellulosic Ethanol 0.1 0.2 0.2 0.1 0.6 5.3

 Imported Ethanol 0.1 0.4 0.5 0.0 2.7 2.6

 Biodiesel 0.3 0.4 0.4 1.0 2.0 2.0

 BTL 0.0 0.0 0.0 0.1 1.6 6.9

Total Biofuels 11.1 13.1 13.8 15.7 21.9 31.8

Figure 2

Impact of the RFS2 Rule on U.S. Fuel Import Expenditures

The EISA biofuel requirements had the effect of reducing the imports of crude oil as well as 

refined petroleum products by approximately 0.9 million barrels per day in oil equivalent terms

in 2022 as can be seen in Figure 3.

4

 

4 The conversion factor 5.8 mmbtu/bbl was used to convert the BTUs of the various liquid fuels into barrels of oil 

equivalent. 
Memo to EPA re: EISA Modeling Analysis

OnLocation, Inc. / Energy Systems Consulting

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Figure 3

Expenditures on net petroleum imports were reduced by $41.5 billion (2007$) between the EPA 

Reference and Control cases in 2022. Similarly, expenditures on net liquid fuel imports

including imported ethanol were reduced by $37.2 billion (2007$) between the EPA Reference 

and Control cases in 2022. As can be seen in Figure 4, the increased use of renewable fuels in 

2022 as required by EISA serves to reduce the volume of petroleum imports to the U.S. by 9.5

percent as well as the net expenditures on those imports by 9.1 percent.
Memo to EPA re: EISA Modeling Analysis

OnLocation, Inc. / Energy Systems Consulting

Page 6 of 6

Figure 4