EO12866_RFS standards 2060

- AR43 NPRM FRN_ 20130123 .docx

*** Interagency Working Comments on draft rule under E.O. 12866 and EO 13563 Review

- Revised Version

- Do Not Cite, Quote, or Release During Review . Subject to further policy

review. ***

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA

- HQ

- OAR

- 2012

- 0546; FRL

- 9678

- 8]

RIN 2060

- AR43

Regulation of Fuels and Fuel Additives: 2013 Renewable Fuel Standards

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

SUMMARY: Under section 211(o) of the Clean Air Act, the Environmental Protection Agency is required to set the renewable fuel standards each November for the following year. In general

the st andards are designed to ensure that the applicable volumes of renewable fuel specified in the statute are used. However, the statue specifies that EPA is to project the volume of cellulosic biofuel production for the upcoming year and must base the cellul osic biofuel standard on that projected volume if it is less than the applicable volume set forth in the Act. EPA is today proposing a projected cellulosic biofuel volume for 2013 that is below the applicable volume specified in the Act. EPA is proposing that the applicable volumes of advanced biofuel and total renewable fuel would remain at the statutory levels for 2013. Finally, t oday's action also proposes annual percentage standards for cellulosic biofuel, biomass

- based diesel, advanced biofuel, and renewable fuels that would apply to all gasoline and diesel produced or imported in year 2013.

DATES: Comments must be received on or before [ insert date 45 days after date of publication in the Federal Register ]. A request for a public hearing must b e received by
[ insert date 15 days after date of publication in the Federal Register ]

.

ADDRESSES: Submit your comments, identified by

Docket ID No. EPA

- HQ

- OAR

- 2012

- 0546, by one of the following methods:

• www.regulations.gov : Follow the on

- line instructions for submitting comments.

• Email: a

- and

- r

- docket@epa.gov

.

• Mail: Air and Radiation Docket and Information Center, Environmental Protection Agency, Mailcode: 2822T, 1 200 Pennsylvania Ave., NW., Washington, DC 20460.

• Hand Delivery: EPA Docket Center, EPA West Building, Room 3334, 1301 Constitution Ave., NW., Washington, DC 20460. Such deliveries are only accepted during the Docket’s normal hours of operation, and spe cial arrangements should be made for

deliveries of boxed information.

Instructions: Direct your comments to Docket ID No. EPA

- HQ

- OAR

- 2012

- 0546. EPA's policy is that all comments received will be included in the public docket without change and may be

made available online at www.regulations.gov, including any personal information provided, unless the comment includes information claimed to be Confidential Business Information (CBI)*** E.O. 12866 Review

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Page 2 of 58 or other information whose disclosure is restricted by statute. Do not sub mit information that you consider to be CBI or otherwise protected through www.regulations.gov or e

- mail. The www.regulations.gov website is an “anonymous access” system, which means EPA will not know your identity or contact information unless you provid e it in the body of your comment. If you send an e

- mail comment directly to EPA without going through www.regulations.gov your

e

- mail address will be automatically captured and included as part of the comment that is placed in the public docket and made a vailable on the Internet. If you submit an electronic comment, EPA recommends that you include your name and other contact information in the body of your comment and with any disk or CD

- ROM you submit. If EPA cannot read your comment due to

technical di fficulties and cannot contact you for clarification, EPA may not be able to consider your comment. Electronic files should avoid the use of special characters, any form of encryption, and be free of any defects or viruses. For additional information abou t EPA’s public docket visit the EPA Docket Center homepage at http://www.epa.gov/epahome/dockets.htm. For additional instructions on submitting comments, go to Section I.B of the SUPPLEMENTARY

INFORMATION section of this document.

Docket: All documents in the docket are listed in the www.regulations.gov index. Although listed in the index, some information is not publicly available, e.g., CBI or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted mater ial, will be publicly available only in hard copy. Publicly available docket materials are available either electronically in www.regulations.gov or in hard copy at the Air and Radiation Docket and Information Center, EPA/DC, EPA West, Room 3334, 1301 Con stitution 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 Public Reading Room is (202) 566

- 1744, and the telephone number for the Air Doc ket is (202) 566

- 1742.

FOR FURTHER INFORMATION CONTACT: Julia MacAllister , Office of Transportation and Air Quality, Assessment and Standards Division, Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor MI 48105 ; Telephone number: 734

- 214

- 4131 ; Fax number: 734

- 214

- 4816 ; E

- mail address: macallister.julia@epa.gov, or the public information line for the Office of Transportation and Air Quality; telephone number (734) 214

- 4333; E

- mail address OTAQ@epa.gov.

SUPPLEMENTARY INFORMATION:

I. General Information

A. Does this Action Apply to Me?

Entities potentially affected by this proposed rule are those involved with the production, distribution, and sale of transportation fuels, including gasoline and diesel fuel or renewable

fuels s uch as ethanol and biodiesel. Potentially regulated categories include:*** E.O. 12866 Review

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Page 3 of 58 Category NAICS 1

Codes SIC 2

Codes Examples of Potentially Regulated Entities

Industry Industry Industry Industry Industry Industry

Industry 324110

325193

325199

424690

424710

424720

454319 2911

2869

2869

5169

5171

5172

5989 Petroleum Refineries Ethyl alcohol manufacturing Other basic organic chemical manufacturing Chemical and allied products merchant wholesalers

Petroleum bulk stations and terminals Petroleum and petroleum p roducts merchant

wholesalers

Other fuel dealers

1 North American Industry Classification System (NAICS)

2 Standard Industrial Classification (SIC) system code.

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

B

. What Should I Consider as I Prepare My Comments for EPA?

1. Submitting CBI

Do not submit confidential business information (CBI) to EPA through www.regulations.gov or e

- mail. Clearly mark the part or all of the information that you claim to be CBI. For CBI information in a disk or CD ROM that you mail to EPA, mark the outside of

the disk or CD ROM as CBI and then identify electronically within the disk or CD ROM the specific information that is claimed as CBI. In addition to one complete version of the comment that includes information claimed as CBI, a copy of the comment that does not contain the

infor mation claimed as CBI must be submitted for inclusion in the public docket. Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR part 2.

2. Tips for Preparing Your Comments

When submitting comments, remember to:

• Identify the rulemaking by docket number and other identifying information (subject heading, Federal Register date and page number).

• Follow directions

- The agency may ask you to respond to specific questions or organize comments by refere ncing a Code of Federal Regulations (CFR) part or section number.

• Explain why you agree or disagree, suggest alternatives, and substitute language for your requested changes.

• Describe any assumptions and provide any technical information and/or data th at you
used.*** E.O. 12866 Review

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Page 4 of 58 • If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced.

• Provide specific examples to illustrate your concerns, and suggest alternatives.

• Explain your vie ws as clearly as possible, avoiding the use of profanity or personal

threats.

• Make sure to submit your comments by the comment period deadline identified.

Outline of this preamble

I. Executive Summary

................................ ................................ ................................ ................ 6

A. Purpose of This Proposed Action

................................ ................................ ....................... 7

B. Summary of Major Provisions in This Notice

................................ ................................ .... 8

1. Cellulosic Biofuel Volume for 2013

................................ ................................ ............... 8

2. Advanced Biofuel and Total Renewable Fuel in 2013

................................ ................... 9

3. Proposed S tandards for 2013

................................ ................................ ........................ 11

4. Biomass

- Based Diesel for 2014

................................ ................................ .................... 12

5. Administrative Actions

................................ ................................ ................................ . 12

C. Impacts of Proposed Actions

................................ ................................ ............................ 13

II. Projection of Cellulosic Volume for 2013

................................ ................................ ............ 15

A. Statutory Requirements

................................ ................................ ................................ ..... 16

B. Status of the Cellulosic Biofuel Industry

................................ ................................ .......... 16

C. Cellulosic Bio fuel Volume Assessment for 2013

................................ ............................. 20

1. Cellulosic Biofuel Facilities Considered in the 2012 Projections

................................ 21

2. Facilities not Included in 2012 Projections

................................ ................................ ... 24

3. Other Potential Sources of Domestic Cellulos ic Biofuel

................................ .............. 26

4. Imports of Cellulosic Biofuel

................................ ................................ ........................ 26

5. Projections from the Energy Information Administration

................................ ............ 27

D. Proposed Cellulosic Biofuel Volume for 2013

................................ ................................ . 32

III. Assessment of Advanced Biofuel and Total Renewable Fuel for 2013

............................... 33

A. Statutory Requirements

................................ ................................ ................................ ..... 33

B. Assessment of Available Volumes of Advanced Biofuel

................................ ................. 35

1. Biodiesel

................................ ................................ ................................ ....................... 36

2. Domestic Production of Other Advanced Biofuel

................................ ........................ 37

3. Imported Sugarcane Ethanol

................................ ................................ ......................... 40

C. Proposed Volume Requirements for Advanced Biofuel and Total Renewable Fuel in

2013

................................ ................................ ................................ ................................ ........... 43

D. Consideration of the Ethanol Blendwall

................................ ................................ ........... 44

IV. Proposed Percentage Standards for 2013

................................ ................................ ......... 46

A. Background

................................ ................................ ................................ ....................... 46

B. Calculation of Standards

................................ ................................ ................................ ... 46

1. How Are the Standards Calculated?

................................ ................................ ............. 46

2. Small Refineries and Small Refiners

................................ ................................ ............ 49

3. Proposed Standards

................................ ................................ ................................ ....... 50

V. Public Participation

................................ ................................ ................................ ............... 52

A. How Do I Submit Comments?

................................ ................................ .......................... 52 Deleted: 34

Deleted: 49

Deleted: 51

Deleted: 51*** E.O. 12866 Review

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Page 5 of 58 B. How Should I Submit CBI to the Agency?

................................ ................................ ....... 52

VI. Statutory and Executive Order Reviews

................................ ................................ ........... 54

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

................................ ................................ ........ 54

B. Paperwork Reduction Act

................................ ................................ ................................ . 54

C. Regulatory Flexibility Act

................................ ................................ ................................ 54

D. Unfunded Mandates Reform Act

................................ ................................ ...................... 55

E. Executive Order 13132: Federalism

................................ ................................ ................. 55

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

56

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

................................ ................................ ................................ .............................. 56

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

................................ ................................ ......................... 56

I. National Technology Transfer and Advancement Act

................................ ..................... 56

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

- Income Populations

................................ ................................ ............... 57

VII. Statutory Authority

................................ ................................ ................................ ........... 58 Deleted: 51

Deleted: 53

Deleted: 53

Deleted: 53

Deleted: 53

Deleted: 54

Deleted: 54

Deleted: 55

Deleted: 55

Deleted: 55

Deleted: 55

Deleted: 56

Deleted: 57*** E.O. 12866 Review

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Page 6 of 58 I. Executive Summary

The Renewable Fuel Sta ndard (RFS) program began in 2006 pursuant to the requirements in Clean Air Act (CAA) section 211(o) which were added through the Energy Policy Act of 2005 (EPAct). The statutory requirements for the RFS program were subsequently modified through

the Ener gy Independence and Security Act of 2007 (EISA), resulting in the promulgation of major revisions to the regulatory requirements on March 26, 2010 1

.

The volumes of renewable fuel to be used under the RFS program each year (absent an adjustment or waive r by EPA) are specified in CAA 211(o)(2). The volumes for 2013 are shown

in Table I

- 1.

Table I

- 1

Required Applicable Volumes in the Clean Air Act for 2013 (bill gal)

Cellulosic biofuel 1.0 a

Biomass

- based diesel ≥1.0 b

Advanced biofuel 2.75 a

Renewable fuel 16.55 a

a Ethanol

- equivalent volume

b Actual volume

. The ethanol

- equivalent volume would be 1.5 if biodiesel is used to meet this requirement

.

Under the RFS program, EPA is required to determine and publish annual percentage

standards for each compliance year by November 30 of the previous year. The percentage standards are used by obligated parties to calculate their individual compliance obligations. The percentage standards are applied to the volume of gasoline and/or diesel fuel that each obligated party produces or imports during the specified calendar year to determine the volumes of renewable fuel that they must cause to be used as transportation fuel, heating oil, or jet fuel. The percentage standards are calculated so as to ensure use in transportation fuel of the “applicable volumes” of four types of biofuel (cellulosic biofuel, biomass

- based diesel, advanced biofuel, and total renewable fuel) that are either set forth in the Clean Air Act or established by EPA in

accordance with the Act’s requirements.

The cellulosic biofuel industry is transitioning from research and development (R&D) and pilot

- scale to commercial scale facilities, leading to increases in production capacity. Construction has begun on several facilities with multiple facilities having progressed to the

start

- up phase . Based on detailed information from production companies and a consideration of various potential uncertainties, we are projecting that 14 million ethanol

- equivalent gallons of

cellulosic b iofuel will be available in 2013.

We have evaluated the types of advanced biofuels that can be produced or imported in

2013 . Our preliminary determination is that there should be sufficient volumes to meet the statutory applicable volume of 2.75 billion gallons . As a result, we are proposing to use that

volume to calculate the advanced biofuel standard for 2013 . Combined with the availability of conventional biofuels such as corn ethanol, we have preliminarily determined that there should

1 75 FR 14670*** E.O. 12866 Review

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Page 7 of 58 be sufficient total renewable fuels available in 2013 to meet the statutory applicable volume of 16.55 billion gallons. Therefore, we are not proposing to reduce the advanced biofuel and total renewable fuel applicable volumes below the levels specified in the statute

. However, as

described in Section III. C , there is some uncertainty in the projected availability of advanced biofuel in 2013. Therefore, we are requesting comment on the possibility of reducing the required volume of advanced biofuel and total renewable fuel in 2013 to reflect this uncertainty

.

A. Purpose of This Proposed Action

EPA is today proposing volume requirements for cellulosic biofuel, advanced biofuel,

and total renewable fuel for 2013. Table I.A

- 1 lists the statutory provisions and associ ated criteria relevant to determining the applicable volumes in today’s proposal. We are also proposing percentage standards for all four categories of renewable fuel for 2013.

Table I.A

- 1 Statutory Provisions for Determination of Proposed Applicable V olumes Applicable volumes Clean Air Act

reference Criteria provided in statute for determination

of applicable volume

Cellulosic biofuel in

2013 211(o)(7)(D)(i) Required volume must be lesser of volume specified in CAA 211(o)(2)(B)(i)(III) or

EPA’s projected volume.

Advanced biofuel in

2013 211(o)(7)(D)(i) If applicable volume of cellulosic biofuel is reduced to the projected volume, EPA may reduce advanced biofuel by the same or lesser volume. No other criteria specified.

Total renewable fuel in

2013 211(o)(7)(D)(i) If applicable volume of cellulosic biofuel is reduced to the projected volume, EPA may reduce total renewable fuel by the same or lesser volume. No other criteria specified.

EPA must annually determine the projected volume of cellulosic biofuel production for the following year. If the projected volume of cellulosic biofuel production is less than the applicable volume specified in section 211(o)(2)(B)(i)(III) of the statute, EPA must lower the applicable volume used to set the annual cellulosic biofuel percentage standard to the projected volume of production. In today's proposal, we present our analysis of cellulosic biofuel production and proposed projected volume for 2013 . The analyses that led to the proposed 2013 applicable volume requirement were based on our evaluation of EIA’s projection for 2013 as

well as individual producers’ production plans and progress to date. For the final rule, we will

also consider comment s received in response to this notice of proposed rulemaking and other

information that becomes available.

When we lower the applicable volume of cellulosic biofuel below the volume specified in CAA 211(o)(2)(B)(i)(III), we also have the authority to red uce the applicable volumes of*** E.O. 12866 Review

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Page 8 of 58 advanced biofuel and total renewable fuel by the same or a lesser amount. Today's proposal includes our consideration of the 2013 volume requirements for these biofuels.

Based on the applicable volumes for cellulosic biofue l, biomass

- based diesel, advanced biofuel, and total renewable fuel presented in today's proposal, we have calculated proposed percentage standards (shown in Section I.B.3 below) that would apply to all producers and importers of gasoline and diesel in 201 3. The proposed percentage standards are based on a projection of volumes of gasoline and diesel consumption in 2013 from the Energy Information Administration (EIA).

B. Summary of Major Provisions in This Notice

1. Cellulosic Biofuel Volume for 201 3

The cellulosic biofuel industry in the United States continues to make significant advances in its progress towards large scale commercial production. Ongoing research and development work has resulted in increasing product yields, while at the same t ime lowering enzyme and catalyst costs. New supply chains have been developed, and several companies have reached contract agreements to provide the necessary feedstock for large scale cellulosic biofuel production facilities. Companies are continuing to invest significant sums of money to further refine cellulosic biofuel production technology and to construct the first commercial

scale facilities. From 2007 through the second quarter of 2011 over $2.4 billion was invested in advanced biofuel production companies by venture capitalists alone. 2 For more information on the current status of the cellulosic biofuel industry in the United States and the advances being made, see Section II.B.

2013 is also expected to be a year of transition for the cellulos ic biofuel industry, as many companies are shifting their focus from technology development to commercialization. This transition began in 2012 with commercial production facilities from INEOS Bio and KiOR completing construction and scheduled to begin producing fuel in the first quarter of 2013. Abengoa, one of the largest producers of ethanol in the United States, is planning to begin producing cellulosic ethanol at commercial scale by the end of 2013. Several others companies, including DuPont and P oet, expect to be constructing their first commercial scale facilities in 2013, with the intention of beginning production in 2014. If these facilities are able to operate as anticipated, the uncertainty associated with commercial

- scale cellulosic biofuel production will decrease, and the expansion of the industry could be rapid.

As part of our effort to estimate the volume of cellulosic biofuel that can be made available in the U.S. in 2013, we researched all potential production sources by company and

f acility. This included sources that were still in the planning stages, those that were under construction, and those that are already producing some volume of cellulosic ethanol, cellulosic diesel, or some other type of cellulosic biofuel. Facilities pri marily focused on research and

2 Solecki M, Rickey D, Epstein B. Advanced Biofuel Market Report 2011: Meeting the California LCFS. Environmental Entrepreneurs. August 22, 2011.

< http://www.e2.org/ext/do c/E2%20Advanced%20Biofuel%20Mkt%20Report%202011.pdf >.*** E.O. 12866 Review

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Page 9 of 58 development were not the focus of our assessment as production fr o m these facilities represents very small volumes of cellulosic biofuel, and these facilities typically have not generated RINs for the fuel they have already p roduced. From this universe of potential cellulosic biofuel sources we identified the subset that had a possibility of producing commercial volumes of qualifying cellulosic biofuel for use as transportation fuel in 2013. To arrive at a proposed projected volume for each facility , we took into consideration EIA’s company specific projections and factors such as the current and expected state of funding, the status of the technology utilized, progress towards construction and production goals, and other sig nificant factors that could potentially impact fuel production or the ability of the produced fuel to generate cellulosic Renewable Identification Numbers (RINs) in 2013. Further discussion of

these factors can be found in Section II.B.

In our assessment we focused on domestic sources of cellulosic biofuel. At the time of

this proposal no internationally

- based cellulosic biofuel production facilities have registered under the RFS program and therefore no volume from international produce rs has been included in our projections for 2013 . Of the domestic sources, we estimated that up to four facilities may produce commercial

- scale volumes of cellulosic biofuel available for transportation use in the

U.S. in 2013. Two of these four faciliti es have made sufficient progress to lead us to believe that commercial scale production from these two facilities will occur, and we have therefore included production from them in our projected available volume for 2013. All four facilities are listed in

Table I.B.1

- 1 along with our estimate of the projected 2013 volume for each.

Table I.B.1

- 1 Projected Available Cellulosic Biofuel Plant Volumes for 2013

Company Location Fuel type Capacity (million gallons per year) First

Production (projected) Projected available

volume a

Abengoa Hugoton, KS Ethanol 2 4 4 Q 2013 0 Fiberight Blairstown, IA Ethanol 6 4Q 2013 0

INEOS Bio Vero Beach, FL Ethanol 8 1 Q 201 3 6

KiOR Columbus, MS Gasoline and

Diesel 11 1Q 201 3 8

Total 49 14

a Volumes listed in million ethanol

- equivalent gallons

The EIA projections, variation in expected start

- up times, along with the facility production capacities, company production plans, and a variety of other factors have all been taken into account in projecting the available volume of cellulosic biofuel. For more detailed info rmation on our projections of available cellulosic biofuel in 2013 and the companies we expect to produce this volume see Section II.

2. Advanced Biofuel and Total Renewable Fuel in 2013

The statute indicates that we may reduce the applicable volume o f advanced biofuel and total renewable fuel specified in the statute for 2013 if we determine that the projected volume of cellulosic biofuel production for 2013 falls short of the statutory volume of 1.0 billion gallons.*** E.O. 12866 Review

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Page 10 of 58 As shown in Table I.B.1

- 1, we have proposed a finding that this is the case. Therefore, we have also evaluated whether to propose lowering the applicable volumes for advanced biofuel and

total renewable fuel. T he statute provides no explicit criteria or direction for making this

determination . W e have focused our evaluation on the availability of renewable fuels that would qualify as advanced biofuel

. The CAA specifies an applicable volume of 2.75 billion gallons of

advanced biofuel for 2013. To determine whether to lower this volum e, we considered the sources that are expected to satisfy any advanced biofuel mandate including : cellulosic biofuel,

biomass

- based diesel, other domestically

- produced advanced biofuels, and imported sugarcane

ethanol.

As described in Section II, we proj ect that 14 mill gallons of cellulosic biofuel will be

available in 2013

. This volume would fulfill 0.014 bill gal of the 2.75 bill gal advanced biofuel requirement.

We have finalized a volume of 1.28 bill gal for 2013 biomass

- based diesel in a separate

action , and we expect that the vast majority of this requirement will be fulfilled with biodiesel

. Since biodiesel has an Equivalence Value of 1.5, 1.28 billion physical gallons of biodiesel would provide 1.92 billion ethanol

- equivalent gallons that coul d be counted towards the advanced biofuel standard of 2.75 billion gallons.

As described in more detail in Section III, we have projected that domestic advanced biofuels are expected to grow steadily through 2013, and would include renewable diesel that does not qualify to be biomass

- based diesel , heating oil, biogas used as CNG , and ethanol . We are projecting that about 150 mill gal of domestic advanced biofuels is likely to be available in 2013, which would fulfill 0.15 bill gal of the 2.75 bill g al advanced biofuel requirement.

After taking into account cellulosic biofuel, biomass

- based diesel, and domestic advanced biofuels, 666 mill gal of imported sugarcane ethanol would be needed to fulfill the advanced biofuel requirement of 2.75 bill gal. As described in Section III, there is reason to believe that this volume can be exported from Brazil to the U.S. in 2013 given Brazilian production and consumption projections. However, we note that there is some uncertainty in the volumes of

Brazilian s ugarcane ethanol that could be imported into the U.S. in 2013 . This uncertainty arises

from the possibility of poor sugarcane crop yields in the next harvest as occurred during the previous harvest , and the interplay between these yields and Brazilian dem and for ethanol, world sugar prices, and international demand for biofuels. While most projections indicate that Brazilian sugarcane crop yields will be significantly better in the coming harvest in comparison to the previous harvest, and that as a result s ufficient sugarcane ethanol could be produced and exported to the U.S. to help meet the need for 2.75 bill gal advanced biofuel, we nevertheless request comment on whether the advanced biofuel requirement should be reduced to account for this uncertainty

.

We also note that in both 2011 and 2012 there was significant two

- way trade in ethanol

between the United States and Brazil. According to current EIA data, in 2011 the U.S. imported 101 million gallons of sugarcane ethanol from Brazil and exported 396 million gallons of corn

based ethanol to Brazil. Total fuel ethanol exports in 2011 were 1.2 billion gallons, and total exports through October 2012 were 646 million gallons. Deleted: ; in general we believe that the energy security and environmental goals of the statute are best served by maintaining the applicable volumes set forth in the Act if sufficient volumes appear to be reasonably available. Comment [A1]: 1/22 /2013

– Can EPA provide further support for this statement? Concern is the lack of analysis. Alternatively, can EPA solicit further information or data to support its contention regarding the GHG and energy security tradeoffs of maintaining a standard th at would require significant imports of advanced biofuel?

Comment [A2]: Since OMB has deleted the text that appears to be the subject of their comment, it's not clear that there is any need for any additional

edits.*** E.O. 12866 Review

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Page 11 of 58 Finally, we believe there will be sufficient volumes of conventional renew able fuel including corn

- ethanol , combined with advanced biofuel, to satisfy the 16.55 billion gallon applicable volume of total renewable fuel specified in the Act. For instance, corn

- ethanol production capacity in 2012 was 14.9 bill gal

, compared to the 13.8 bill gal needed to meet the RFS requirements in 2013

. 4 W e are not proposing to reduce the advanced biofuel volume requirement of 2.75 bill gal, nor the total renewable fuel volume requirement of 16.55 bill gal

. H owever, we are taking comment on lowering the advanced biofuel and total renewable volumes due to various uncertainties. For example, we currently project that 666 mill gal of sugarcane ethanol would need to be imported in order to meet the advanced biofuel volume . However, the

recent reinstatement of the biodiesel tax credit introduced uncertainty around those projections

, since it affects the amount of biodiesel that may be produced above the required 1.28 bill gal . In addition, the potential for increased domestic demand in Brazil i f the 25% biofuel blending requirement is reinstated also introduces uncertainty around the projections. We seek input on

these and other such factors that are relevant to how the advanced bio fuel volume requirement

would be met.

3. Proposed Standards for 2013

The renewable fuel standards are expressed as a volume percentage and are used by each refiner, blender or importer to determine their renewable fuel volume obligations. The applicable percentages are set so that if each regulated party meets the percenta ges, and if EIA projections of gasoline and diesel use for the coming year are accurate, then the amount of renewable fuel, cellulosic biofuel, biomass

- based diesel, and advanced biofuel actually used will meet the volumes required on a nationwide basis.

To calculate the percentage standards for 2013, we have used the proposed projected

volume of 14 million ethanol

- equivalent gallons of cellulosic biofuel and the volume of biomass

based diesel of 1.28 bill gal that we have finalized in a separate action . The applicable volumes used in this proposal for advanced biofuel and total renewable fuel for 2013 are those specified

in the statute. These volumes are shown in Table I.B.3

- 1.

Table I.B.3

- 1 Proposed Volumes Used to Determine the Proposed 2013 Perce ntage Standards a

Cellulosic biofuel 14 mill gal

Biomass

- based diesel 1.28 bill gal

Advanced biofuel 2.75 bill gal

Renewable fuel 16.55 bill gal

a All volumes are ethanol

- equivalent, except for biomass

- based diesel which is

actual.

Four separate standards are required under the RFS program, corresponding to the four separate volume requirements shown in Table I.B.3

- 1. The specific formulas we use to calculate

4 "2012 Ethan ol Industry Outlook," Renewable Fuels Association, http://ethanolrfa.3cdn.net/d4ad995ffb7ae8fbfe_1vm62ypzd.pdf Deleted: 13.7

Deleted: just less t han

Deleted:

, 3 and we are projecting that there will be sufficient volumes of imported sugarcane ethanol despite some uncertainties. Since there appears to be adequate supply,

Deleted:

Deleted: gal

Deleted: l; h

Deleted: significant volumes Comment [A3]: 1/24/2013

Deleted: advanced

Deleted: applicable volume

Deleted: lowered, we would

Deleted: lower the applicable

Deleted: of total renewable fuel by a corresponding amount.

Comment [A4]: 1/22/2013 Suggestions.

Deleted: " U.S. Fuel Ethanol Plant Production Capacity ," EIA, May 30, 2012.

Deleted:

Deleted: http://www.eia.gov/petroleum/ethanolcap acity/index.cfm*** E.O. 12866 Review

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Page 12 of 58 the renewable fuel percentage standards are contained in the regulations a t §80.1405 and repeated in Section IV.B.1. The percentage standards represent the ratio of renewable fuel volume to projected non

- renewable gasoline and diesel volume. The projected volume of transportation gasoline and diesel used to calculate the stand ards in today's proposed rule was derived from EIA projections. 5 At this time EPA has not approved any small refinery or small refiner exemptions for 2013, and thus no adjustment has been made to the proposed standards to account for such exemptions. The proposed standards for 2013 are shown in Table I.B.3

- 2.

Detailed calculations can be found in Section IV , including the projected 2013 gasoline and

diesel volumes used

.

Table I.B.3

- 2 Proposed Percentage Standards for 2013

Cellulosic biofuel 0. 0 0 8 %

Biomass

- based diesel 1.1 2 %

Advanced biofuel 1.6 0 %

Renewable fuel 9.63 %

4. Biomass

- Based Diesel for 2014

While Clean Air Act section 211(o)(2)(B) specifies the volumes of biomass

- based diesel through year 2012, it directs the EPA to establish the applicable volume of biomass

- based diesel for years after 2012 no later than 14 months before the first year for w hich the applicable volume will apply. EPA proposed an applicable volume of biomass

- based diesel for 2013 on July 1, 2011, and issued a final rule establishing that applicable volume on September 27, 2012 6

.

Under 211(o)(2)(B)(ii) EPA, in coordination with the Secretary of Energy and the Secretary of Agriculture, is to establish the applicable volume for biomass based diesel in 2014 based on a review of implementation of the program in prior years and analysis of a number of factors, including biodiesel production capacity, consumption, and infrastructure capabilities, as well as impacts on emissions, costs, energy security, and other factors. While the industry produce d around 1. 15 bill physical gallons in 2012, we are still evaluating the potential market impacts of this production level. In order to provide sufficient time for this evaluation, as well as the other analyses we are required to conduct, we are not proposing an applicable volume of

biomass

- based diesel for 2014 in today's NPRM. Instead, we will issue a separate proposal at a

later date.

5. Administrative Actions

By November 30 of each year we are required to make several administrative

announcements which facilitate program im plementation in the following calendar year. These announcements include the cellulosic biofuel waiver credit price and the status of the aggregate

5 Letter, Adam Sieminski, Administrator, U.S. Energy Information Administration, to Lisa P. Jackson, Administrator, U.S. EPA, October 18, 2012.

6 77 FR 59458 Deleted: is currently on track to

Deleted: a total annual volume of

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Page 13 of 58 compliance approach to land

- use restrictions under the definition of renewable biomass for both

the U.S. an d Canada . Since we did not make these announcements for 2013 by November 30 of 2012, we are here presenting our assessments of these administrative actions. We will provide

the final announcements for these administrative actions when we finalize the sta ndards being proposed in today's action.

In the event that we reduce the required volume of cellulosic biofuel for 201 3 below the applicable volume specified in the statute, EPA is required to offer biofuel waiver credits to obligated parties that can be purchased in lieu of acq uiring cellulosic biofuel RINs. These

waiver credits are not allowed to be traded or banked for future use, are only allowed to be used

to meet the 201 3 cellulosic biofuel standard, and cannot be applied to deficits carried over f rom 201 2

. M oreover, unlike cellulosic biofuel RINs, waiver credits may not be used to meet either

the advanced biofuel standard or the total renewable fuel standard. For the 201 3 compliance period, we estimate that cellulosic biofuel waiver credits could be made available to obligated parties for end

- of

- year compliance should they need them at a price of $ 0. 42 per credit.

As part of the RFS2 regulations, EPA established an aggregate compliance approach for renewable fuel producers who use planted crops and crop residue from U.S. agricultural land.

This compliance approach relieved such producers (and importers of such fuel) of the individual recordkeeping and reporting requirements otherwise required of producers and importers to verify that feed stocks used in the production of RIN

- qualifying renewable fuel meet the

definition of renewable biomass. EPA determined that 402 million acres of U.S. agricultural

land was available in 2007 (the year of EISA enactment) for production of crops and crop

re sidue that would meet the definition of renewable biomass, and determined that as long as this

total number of acres is not exceeded, it is unlikely that new land has been devoted to crop production based on historical trends and economic considerations. We indicated that we would

conduct an annual evaluation of total U.S. acreage that is cropland, pastureland, or conservation reserve program land, and that if the value exceed 402 million acres, producers using domestically grown crops or crop residue to produce renewable fuel would be subject to individual recordkeeping and reporting to verify that their feedstocks meet the definition of

renewable biomass. Based on data provided by the USDA, we have estimated that U.S. agricultural land reached 384 milli on acres in 201 2 , and thus did not exceed the 2007 baseline

acreage.

On September 29, 2011, EPA approved the use of an aggregate compliance approach to

renewable biomass verification for planted crops and crop residue grown in Canada. The

Government o f Canada utilized several types of land use data to demonstrate that the land

included in their 124 million acre baseline is cropland, pastureland or land equivalent to U.S.

Conservation Reserve Program land that was cleared or cultivated prior to December 19, 2007, and was actively managed or fallow and nonforested on that date (and is therefore RFS2 qualifying land). The total agricultural land in Canada in 201 2 is estimated at 121 million acres. The total acreage estimate of 121 million acres does no t exceed the trigger point for further investigation.

C. Impacts of Proposed Actions*** E.O. 12866 Review

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Page 14 of 58 Analyses for the March 26, 2010 RFS2 final rule indicated the GHG benefits from cellulosic biofuels compared to the petroleum

- based fuels they displace could likely range well above the 60 percent threshold. Therefore, EPA expects that the increase in cel lulosic biofuel use that EPA has projected for 2013 over prior year production levels would have directionally beneficial GHG emissions impacts.

For advanced biofuel and total renewable fuel, we are not proposing to reduce the applicable volumes below th e volumes required in the statute. All of the impacts of the biofuel volumes specified in the statute were addressed in the RFS2 final rule published on March 26, 2010. Today's rulemaking simply proposes the standards for 2013 advanced biofuel and total renewable fuel whose impacts were previously analyzed. Nevertheless, we recognize that the combination of imports of sugarcane ethanol from Brazil into the U.S. and exports of corn

ethanol from the U.S. to Brazil that may occur as a result of the advanced biofuel volume requirement engenders additional transport related emissions

. Deleted:

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Page 15 of 58 II. Projection of Cellulosic Volume for 2013

In order to project the available production volume of cellulosic biofuel in 2013 for use in setting the percentage standard, we considered the EIA projections and collected information on individual facilities that have the potential to produce qualifying volumes for consumption as transportation fuel, heating oil, or jet fuel in the U.S. in 2013. This section describes the volumes that could be produced or imported in 2013 as well as some of the uncertainties associated with

those volumes.

In the pas t several years the cellulosic biofuel industry has made many significant advances. The production cost of cellulosic biofuels continues to fall as a result of ongoing technology development and operating experience gained from many research and developme nt
and demonstration

- scale facilities across the country. These important advances include higher biofuel yields per ton of feedstock as well as lower enzyme and catalyst costs. As a result of these yield increases, the projected capital costs and energy costs to produce a gallon of cellulosic biofuel have decreased. New feedstock supply chains, which will be necessary to provide the raw materials for anticipated commercial facilities, have been established, and in several cases companies have signed con tracts to obtain significant quantities of feedstocks for their first commercial facilities. These developments, along with the increased availability of project financing, have resulted in the construction of new commercial

- scale cellulosic biofuel produ ction facilities. Two commercial

- scale facilities are both structurally complete and currently in the start

- up phase of operations. S everal additional facilities are planning

construction in 2013 and start

- up in 2014. If these first facilities are succe ssful and operate as designed it will significantly decrease the perceived risk associated with similar future facilities and could potentially lead to the rapid deployment of cellulosic biofuel production facilities

around the United States.

Despite sign ificant advances in cellulosic biofuel production technology in recent years,

RIN

- generating cellulosic biofuel production in 2010 and 2011 was zero despite our projections that the industry was positioned to produce about 6 million gallons in each of thos e years. 7 In 2010 the majority of the cellulosic biofuel shortfall was met through the use of RINs generated under the RFS1 regulations , and since there were excess RFS1 cellulosic RINs many carried over into the following year

. T he remaining cellulosic biofuel requirements in 2011 were met through the purchase of cellulosic biofuel waiver credits. 8 A discussion of the reasons for this disparity between our projections and subsequent production is provided in Section II.B below.

7 In the first half of 2010 when the RFS1 program was still effective, some cellulosic biomass ethanol was produced and the RINs generated were valid for demonstrating compliance with t he 2010 and 2011 RFS2 cellulosic biofuel standards. However, the RFS1 cellulosic biomass ethanol that was produced was not made from cellulosic feedstocks, but rather was categorized as cellulosic because it was produced in plants using waste materials to displace 90% or more of fossil fuel use under the then

- effective definition of cellulosic biomass ethanol in CAA Section 211(o)(1)(A). See also 40 CFR §80.1101(a)(2).

8 4,248,338 cellulosic waiver credits were purchased for 2011 compliance according to the EMTS website (information retrieved from the website on December 11, 2012) at a cost of $1.13 per credit. The ethanol

- equivalent volume of cellulosic biofuel projected for 2011 and used to calculate the percentage standard for that year was 6.0

millio n gallons.*** E.O. 12866 Review

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Page 16 of 58 In 2012 the first cellulosic RINs were generated under the RFS2 regulations. However, cellulosic biofuel production once again fell far short of our projections in 2012 9

. For 2012 compliance we expect that many refiners will once again purchase cellulosi c biofuel waiver credits to fulfill their cellulosic biofuel requirements. These credits are priced at $0.78 for 2012 compliance.

A. Statutory Requirements

The volumes of renewable fuel to be used under the RFS program each year (absent an adjustme nt or waiver by EPA) are specified in CAA 211(o)(2). For 2013, the statute specifies a cellulosic biofuel applicable volume requirement of 1.0 bill gal. The statute requires that if EPA determines that the projected volume of cellulosic biofuel productio n for the following year is less than the applicable volume shown in Table II.A

- 1, then EPA is to reduce the applicable volume of cellulosic biofuel to the projected volume available during that calendar year.

In addition, if EPA reduces the required v olume of cellulosic biofuel below the level specified in the statute, the Act also indicates that we may reduce the applicable volumes of advanced biofuels and total renewable fuel by the same or a lesser volume. Our consideration of the 2013 volume requi rements for advanced biofuels and total renewable fuel is presented in

Section III.

B. Status of the Cellulosic Biofuel Industry

As in previous years, cellulosic biofuel production in the United States in 2011 was

limited to small

- scale research and development, pilot, and demonstration

- scale facilities. Companies such as Abengoa, BP, Coskata, DuPont Danisco, KL Energy, KiOR, Poet, and others successfully operated small

- scale facilities in 2011. Several of these facilities, including all that were part of our 2012 volume projections, are discussed in more detail in Section II.C below.

While there were numerous small

- scale faciliti es producing cellulosic biofuel in 2011, the total volume of fuel produced was very small. Because of the R&D nature of these small facilities they are neither designed to produce fuel for commercial sale nor required to report the small

volumes of fuel t hey produced. No RINs were generated for volumes that were produced in 2011, despite all of the companies included in the 2011 projections expressing interest and/or intent in doing so. Although EPA has not attempted to accurately assess production volum es, based on generally available information we believe that total production in the United States in 2011 was likely less than one million gallons of cellulosic biofuel across the industry.

Each of the companies included in our 2011 projections for cellu losic biofuel production had different reasons for not generating cellulosic RINs in 2011. DuPont had concerns about their ability to retain the R&D status of their Vonore, TN facility if they generated RINs and sold the cellulosic ethanol they produced f rom this facility. Fiberight was unable to secure the funding required to complete the modifications to their facility to allow for cellulosic ethanol

9 On December 31, 2012 EPA also received a request for a waiver of the 2012 cellulosic biofuel volume requirement

from the American Fuel and Petrochemical Manufacturers.*** E.O. 12866 Review

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Page 17 of 58 production. KL Energy finalized an agreement with Petrobras in the second half of 2010 and changed the direction of their facility to focus on using bagasse as a primary feedstock. Finally, after completing initial production of cellulosic ethanol Range Fuels shut down operations in January 2011 and eventually declared bankruptcy.

While cellulosic biof

uel production in the United States remains limited, the industry continues to make significant progress towards producing cellulosic biofuel at prices competitive with petroleum fuels. From 2007 through the second quarter of 2011 venture capitalists inve sted over $2.4 billion in advanced biofuel companies in North America 10 . Recent advancements in enzyme and catalyst technologies are allowing cellulosic biofuel producers to achieve greater yields of biofuel per ton of feedstock. These advancements have l ed to lower operational costs as they have driven down the cost for feedstock, energy, and other important inputs on a per gallon basis. For example, the estimated cost of producing cellulosic ethanol using an enzymatic hydrolysis process in 2007 was $4

- $ 8 per gallon

. 11 By 2012 the estimated cost of cellulosic ethanol production using the same process had fallen to $2

- $3.50 per gallon 12

. The U.S. Department of Energy similarly reports that advancements in cellulosic ethanol technology have

resulted in a de crease in modeled costs from approximately $4 per gallon (minimum ethanol selling price) in 200 7 to approximately $2 .50 per gallon in 201 1

. 13 The same technological advances have also lowered the capital costs of cellulosic biofuel production facilities per gallon of annual fuel production, as more gallons of biofuel can be produced at a facility without additional equipment or increased feeds tock requirements.

As cellulosic biofuel producers gain experience and continue to progress towards

commercial

- scale biofuel production, it is reasonable to expect that the production costs and capital costs will continue to decline. This is a pattern s hown by many new technologies, including renewable and emerging energy technologies. One example which has several similarities to the cellulosic biofuel industry is the experience with the dry mill corn ethanol industry. From 1983, the year in which the first commercial volumes of dry mill ethanol were produced, to 2005 the processing cost of corn ethanol decreased by 45%, while the capital costs of a dry mill ethanol facility decreased by 88%. 14 Many of the drivers for this cost reduction, such as highe r ethanol yields, reduced enzyme costs, and better fermentation technologies 15 are also expected to be factors in the lower cellulosic biofuel costs expected in the future. While the cost reduction percentages observed in the dry mill corn ethanol industry are not directly

10 Solecki M, Rickey D, Epstein B. Advanced Biofuel Market Report 2011: Me eting the California LCFS. Environmental Entrepreneurs. August 22, 2011. Available Online

< http://www.e2.org/ext/doc/E2%20Advanced%20Biofuel%20Mkt%20Report%202011. pdf >.

11 Nielsen, Peder Holk. “The Path to Commercialization of Cellulosic Ethanol

– A Brighter Future.” PowerPoint Presentation. Conference Call. February 22, 2012. Available Online

< http://www.novozymes.com/en/investor/events

- presentations/Documents/Cellic3_conf_call_220212.pdf >.

12 IBID

13 Department of Energy. Biomass Multi

- Year Program Plan. April 2012. DOE/EE

- 0702. Available Online

< http://www1.eere.energy.gov/biomass/pdfs/mypp_april_2012.pdf >.

14 Hettinga WG, Junginger HM, Dekker SC, Hoogwijk M, McAloon AJ, Hicks KB. Understanding the reducti ons in US corn ethanol production costs: An experience curve approach. Energy Policy 37 (2009): 190

- 203. Available Online <http://ddr.nal.usda.gov/bitstream/10113/22550/1/IND44146988.pdf>.

15 IBID*** E.O. 12866 Review

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Page 18 of 58 applicable to the cellulosic biofuel industry, the trend of decreasing production and capital costs over time is expected to hold true.

Another area where significant progress has been made is that of feedstock supply for

commercial

- sca le cellulosic biofuel production facilities. This issue has often been raised as a factor that could hinder the development of the cellulosic biofuel industry as many of the proposed facilities rely on feedstocks, such as agricultural residues or energy c rops, for which supply chains have not previously existed. BP Biofuels has begun work to establish energy crop plantations to provide the necessary feedstock for their first two commercial

- scale production facilities. Over the past several years both Abe ngoa and Poet have been reaching out to farmers in the regions surrounding their first commercial

- scale facilities to ensure the availability of the necessary feedstock. Because corn cobs and stover are only seasonally available, using them as

a feedstock for a cellulosic biofuel production facility would require significant feedstock storage facilities. In the last two years Abengoa and Poet completed construction of large

- scale feedstock storage facilities to ensure adequate supply to their cellulosic b iofuel production facilities throughout the year. Both companies successfully completed fall biomass harvests in 2011 and have contracted with local farmers to provide feedstock for their cellulosic ethanol facilities. This supply chain will not only pro vide feedstock for their first commercial

- scale facilities, but also a model that can be re

- created at future production facilities.

Several cellulosic biofuel producers are planning to use slash, forest thinnings, and forest product residue or the cellu losic portions of yard waste as feedstock. This material has many qualities that make it desirable as a cellulosic biofuel feedstock. It is generally inexpensive and is readily available in some regions of the United States. It is also available year ro und rather than seasonally, significantly reducing the need for large

- scale feedstock storage facilities. Securing a sufficient quantity of this feedstock for a commercial

- scale facility, however, can be challenging. In the summer of 2011 KiOR announced it had signed a feedstock agreement with Catchlight Energy to provide all the necessary slash, forest thinning, and forest product residue

for their first commercial

- scale facility. While KiOR plans to transition to planted trees for future facilities, Ki OR now has secured sufficient feedstock such that they can produce cellulosic biofuel and cellulosic RINs using an existing pathway at their first commercial

- scale facility. INEOS Bio also has a long term agreement with Indian River County to provide vege tative waste which will serve as the feedstock for their first facility.

Another appealing feedstock for cellulosic biofuel production is separated municipal solid waste (MSW). MSW is already being collected and transported to a centralized facility, is consistently available throughout the year, and can be obtained for a very low, or even negative cost. MSW often contains contaminants, however, that may make it challenging to process for some cellulosic biofuel technologies. EPA also requires that was te separation plans be submitted and approved prior to any company generating RINs using separated MSW as a feedstock. In

June 2012 EPA approved the first waste separation plan under the RFS program for Fiberight’s facility in Blairstown, Iowa.

Signific ant progress has also been made by some companies towards funding the

construction of their first commercial

- scale facilities. In the early years of the cellulosic biofuel industry several small start

- up companies announced plans to build large commercial

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Page 19 of 58 facilities that were scheduled to begin production in the past few years. The construction of many of these facilities was dependent on the companies raising additional funding, either from venture capitalists, government grants, or loans backed by government guarantees. So far few of the companies that made these early announcements have been able to successfully raise the necessary funds and begin construction. Securing this funding proved difficult, and when it did not materialize the projects were delayed or cancelled.

The funding profiles of the companies included in our proposed volume for 2013, as well as for many of the companies targeting production in 2014, are markedly different. Many of these projects have already received, and in se veral cases have closed on loan guarantees and

grants offered by DOE or USDA. Other companies have filed for and successfully executed IPOs. Several cellulosic ethanol projects are being self

- financed by large companies such as Abengoa, BP, and Poet with significant experience in the biofuel, petrochemical, and specialty chemical markets. This solid financial backing has allowed these companies to proceed with

construction. Both of the facilities included in our proposed volume for 2013 have already

com pleted the construction of their first commercial production facilities. There is therefore far less uncertainty as to likely production from these two facilities than has been present for most of EPA’s earlier projections. The next section provides addi tional details on the funding and construction status of the projects included in our projected cellulosic biofuel production

volumes for 2013.

If these first commercial

- scale cellulosic biofuel production facilities are successful, the potential exists for a rapid expansion of the industry in subsequent years. Having successful

commercial

- scale facilities would not only provide useful information to help maximize the efficiency of future facilities, but would also significantly decrease the technology and scale

- up risks associated with cellulosic biofuel production facilities and could lead to increased access to project funding. Fiberight and ZeaChem both plan to build larger

- scale facilities (~25 mill gal per year) as soon as they are able to raise t he necessary funds. INEOS Bio plans to expand production by building additional units near sources of inexpensive feedstock ranging in size from 8 to 50 million gallons of ethanol per year. They are currently exploring expansion possibilities in the Unit ed States and internationally. KiOR has plans for a second commercial

scale facility to be built in Natchez, MS, that will be approximately three times larger (~30 mill gal per year) than their Columbus, MS, plant and plans to break ground at their second facility after their first is fully operational. Abengoa currently anticipates construction of additional cellulosic ethanol facilities at multiple locations, likely including co

- locating with some of their existing starch facilities in the US. Poet has a similar expansion strategy to build cellulosic ethanol plants at their grain ethanol facilities, license their technology for use at other grain ethanol facilities, and build cellulosic ethanol facilities that use feedstocks such as rice straw, rice

hul ls, woody biomass, or energy crops as a feedstock. Poet’s goal is to be involved in the production of 3.5 billion gallons of cellulosic ethanol per year by 2022. Several other companies, such as BP, DuPont, and Enerkem are also targeting 2014 for the sta rt

- up of cellulosic biofuel production facilities and would likely look to build additional facilities relatively quickly if successful. While many of these expansion plans are still in the early stages and are subject to change, they do point to the pote ntial for cellulosic biofuel production to increase rapidly in future years.*** E.O. 12866 Review

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Page 20 of 58 C. Cellulosic Biofuel Volume Assessment for 2013

In 2011 no cellulosic biofuel RINs were generated, though some small volumes were produced. Announcements of new projects and project funding, changes in project plans, project delays, and cancellations occur red . Biofuel producers faced not only the challenge of the scale

up of innovative, first

- of

- a

- kind technology, but also the challenge of securing funding in a

difficult econ omy. While the cellulosic biofuel producer tax credit has been extended through 2013, the short

- term nature of this incentive and legal challenges to the RFS volumes have caused some technology developers and investors to question the long term RIN value of

cellulosic biofuels

. The resulting uncertainty may have had an impact on cellulosic biofuel production in 2011 and 2012

.

Despite these challenges, there are several factors indicating that significant volumes of cellulosic biofuel can be produced in 2013. Commercial

- scale cellulosic biofuel projects from

INEOS Bio and KiOR are structurally complete and expected to begin fue l production in the first quarter of 2013 and achieve production rates at or near their nameplate capacities by the end of

2013. Another commercial

- scale facilit y backed by Abengoa, a large compan y with significant experience in biofuel production , is als o scheduled to begin producing cellulosic biofuel in 2013. These facilities are indicative of a shift across the cellulosic biofuel industry from small

- scale R&D and demonstration facilities operated by small start

- up companies to large commercial

scale f acilities backed by large companies, many of which have substantial experience in related

industries.

In order to project cellulosic biofuel production for 2013, we have tracked the progress of more than 100 biofuel production facilities. From this list of facilities we used publically available information, as well as information provided by DOE and USDA , to make a preliminary determination of which facilities are the most likely candidates to produce cellulosic biofuel and generate cellulosic biofuel RINs in 2013. Each of these companies was investigated

further in order to determine the current status of their facilities and their likely cellulosic biofuel production and RIN generation volumes for the coming years. Information such as the funding status of these facilities, current status of the production technologies, announced construction and produ ction rampup periods, and annual fuel production targets were all considered when we met with senior level representatives of each company to discuss cellulosic biofuel target production levels for 2013. Our projection of the cellulosic biofuel production in 2013 is based on the individual production targets that emerged from these discussions , as well as the estimate

we received from EIA

. A brief description can be found below for each of the companies we believe will produce cellulosic biofuel and make it commercially available in 2013. We will continue to gather more information to help inform our decision regarding the final cellulosic biofuel volume to be required for 2013.

In the sections that follow, we first discuss the cellulosic production fac ilities that were part of our volume projections for the 2012 compliance year and the progress that they have made. Then we present our consideration of additional facilities that we believe will also produce cellulosic biofuel in 2013.*** E.O. 12866 Review

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Page 21 of 58 1. Cellulosic B iofuel Facilities Considered in the 2012 Projections

In the January 9, 2012, final rule that established the required 2012 cellulosic biofuel volume, we identified six production facilities that we projected would produce cellulosic biofuel

and make that fuel commercially available in 2012. Four of these production facilities are currently structurally complete, one is currently under construction, and one is planning to retrofit an existing corn ethanol plant with construction beginning in the first half of 201 3

. Six

active facilities have completed the registration process for the RFS program, and are currently able to generate cellulosic RINs. The current status of each of these facilities, including target production levels for each facility in 2013, is discussed below.

API

American Process Inc. (API) is developing a project in Alpena, Michigan capable of producing up to 900,000 gallons of cellulosic ethanol per year from woody biomass. This facility will use a technology developed by API called GreenPower+TM. This technology extracts the hemicellulose portion of woody biomass using hot water and hydrolyzes it into sugars. These sugars are then converted to ethanol or other alcohols, while the remaining portion of the woody biomass, containing mo stly cellulose and lignin, is processed into wood paneling at

a co

- located facility. At future, larger

- scale facilities API anticipates burning the residual biomass in a boiler to produce renewable steam and electricity as well as cellulosic biofuel.

I n January 2010 API received a grant from DOE for up to $18 million for the construction of their demonstration facility. Construction of the Alpena, Michigan facility began

in March 2011 and API began commissioning operations at their facility in the summ er of 2012.

P roduction start

- up is expected to begin in 2013.

Fiberight

Fiberight uses an enzymatic hydrolysis process to convert the biogenic portion of separated MSW and other waste feedstocks into ethanol. They have successfully completed five

years of development work on their technology at their small pilot plant in Lawrenceville, Virginia. In 2009 Fiberight purchased an idled corn ethanol plant in Blairstown, Iowa with the intention of making modifications to this facility to allow for the production of 6 million gallons of cellulosic ethanol per year from separated MSW and indust rial waste streams. These modifications were scheduled to be completed in 2011, but difficulties in securing funding have resulted in construction at this facility being delayed. In January 2012 Fiberight was offered a $25 million loan guarantee from USD A. Closing on this loan would provide substantially all of the remaining funds required for Fiberight to complete the required modifications at their Blairstown facility. Construction is expected to begin in early spring 2013 and the company expects that it will take approximately 6 months to complete. Additionally, Fiberight ’s waste separation plan for this facility was approved in J u ne 2012 allowing Fiberight to generate RINs

for the cellulosic ethanol they produce using separated MSW as a feedstock. Fiberight is also currently developing a second commercial

- scale project based on their MSW “hub and spoke” Deleted: This facility is currently in the process of being upgraded to an integrated demonstration plant with initial production of cellulosic ethanol expected

in Octo ber 2012.*** E.O. 12866 Review

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Page 22 of 58 concept. They anticipate that this facility will begin fuel production in 2014 and will produce approximately 25 million gallo ns of cellulosic ethanol per year when fully built out.

INEOS Bio

INEOS Bio has developed a process for producing cellulosic ethanol by first gasifying cellulosic feedstocks into a syngas and then using naturally occurring bacteria to ferment the

syngas into ethanol. In January 2011 USDA announced a $75 million loan guarantee for the construction of INEOS Bio’s first commercial facility to be built in Vero Beach, Florida. This loan was closed in August 2011. This was in addition to the grant of up to $ 50 million INEOS

Bio received from DOE in December 2009. At full capacity , this facility will be capable of producing 8 million gallons of cellulosic biofuel as well as 6 megawatts (gross) of renewable electricity from a variety of feedstocks including ya rd, agricultural, and wood waste. The facility

also plans to use a limited quantity of separated MSW as a feedstock after initial start

- up

.

On February 9, 2011, INEOS Bio broke ground on this facility. INEOS Bio complete d construction on this facility i n Ju ne 2012 and began full commissioning of the facility

. In August 2012 INEOS Bio received approval from EPA for their yard waste separation plan and successfully registered their Vero Beach, FL facility under the RFS program. In October 2012

the facili ty began producing renewable electricity. INEOS Bio entered the start

- up phase of

cellulosic ethanol production in November 2012. During this phase the facility was not run continually as facility modifications continued to be made, however a small volum e of cellulosic ethanol was successfully produced. INEOS Bio has reported that they plan to be producing cellulosic ethanol at levels near the facility’s capacity of 8 million gallons per year throughout

2013

. This reported schedule represents a very agg ressive ramp

- up period. Due to the many challenges of starting up a first

- of

- a

- kind facility and the history of production delays in the cellulosic biofuel industry, EPA believes a more conservative projection is appropriate. For this proposal we project 6 million gallons of cellulosic ethanol from INEOS Bio in 2013. This volume is consistent with what would be expected from this facility assuming a six month straight

- line ramp

- up period beginning in January 2013. EPA requests comment on the projected

a vailable volume from INEOS Bio’s facility in 2013, as well as these assumptions for the appropriate ramp

- up period for cellulosic biofuel facilities and expectations for production during this ramp

- up phase. EPA will monitor INEOS Bio’s production output in the time between this proposal and the final rule and will consider that information, together with public comments received in making a final projection. INEOS Bio is also exploring several opportunities for additional cellulosic biofuel production fa cilities, both in the United States and internationally. INEOS Bio is targeting sources of inexpensive feedstock , primarily waste materials, and see s a market for plants with production capacities ranging from 8 to 50 million gallons per year.

KiOR

KiOR is working to commercialize a technology capable of converting biomass to a biocrude using a process they call Biomass Fluid Catalytic Cracking (BFCC). BFCC uses a catalyst developed by KiOR in a process similar to Fluid Catalytic Cracking currently used in the petroleum industry. The first stage of this process produces a renewable crude oil which is then*** E.O. 12866 Review

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Page 23 of 58 upgraded to produce primarily gasoline, diesel, and jet fuel as well as a small quantity of fuel oil, all of which are nearly identical to those produced from petroleum.

KiOR’s first commercial

- scale facility is located in Columbus, Mississippi and is c apable of producing approximately 11 million gallons of gasoline, diesel, and jet fuel per year. Construction on this facility began in May 2011 and was completed in September 2012 . KiOR ’s Columbus facility is currently in the start

- up phase. They have produced biocrude from cellulosic feedstocks that is in line with their specifications for upgrading to finished transportation fuels. C ellulosic biofuel RINs from this facility are expected in the first quarter of

201 3 . This facility is funded, in large part, with funds acquired through private equity raises and supplemented by KiOR’s $150 million IPO in June 2011. KiOR’s current expectations at their Columbus facility are for a start

- up 16 period lasting 9

- 12 months during which they estimate fuel produc tion will be at 30%

- 50% of the facility capacity after which they plan to approach full production rates at the facility. KiOR has feedstock supply agreements in place to supply all of the required feedstock for their Columbus facility with slash and pre

- commercial thinning. They

also have off

- take agreements with several companies for all of the fuel that will be produced. KiOR has also announced plans to begin work on their second commercial

- scale biofuel production facility in Natchez, Mississippi upo n the successful start

- up of their first facility. It is unlikely this second facility will begin production of biofuel in 2013. For 2013 our proposed production projection is for 5 million gallons ( 8 million ethanol

- equivalent gallons) of cellulosic

bio fuel from KiOR’s Columbus facility. This volume is calculated assuming KiOR will produce at 30% of the facility capacity for the first nine months of 2013 (consistent with a 12 month line

out period beginning in October 2012) followed by three months of p roduction at the nameplate capacity of the facility. 17 These numbers are relatively conservative estimates based on the low end of KiOR’s production guidance. EPA believes this is an appropriate approach for this proposal

. We will continue to monitor KiO R’s production volume in the period between this proposal and the final rule and will use this information, together with the public comments we receive in preparing an updated projection for the final rule.

Blue Sugars

Blue Sugars, formerly KL Energy

, has developed a process to convert cellulose and hemicellulose into sugars and ethanol using a combined chemical/thermal

- mechanical pretreatment process followed by enzymatic hydrolysis, co

- fermentation of C5 and C6 sugars,

and distillation to fuel

- grade ethanol. This production process is versatile enough to allow for a wide variety of cellulosic feedstocks to be used, including woody biomass and herbaceous biomass such as sugarcane bagasse. In August 2010 Blue Sugars announced a joint development

agree ment with Petrobras America Inc. As part of the agreement Petrobras has invested $11 million to modify Blue Sugars’ 1.5 million gallons per year demonstration facility in Upton, Wyoming to allow it to process bagasse and other biomass feedstocks. The mod ifications to Blue Sugars’ facility were completed in the spring of 2011. In April 2012 Blue Sugars generated

16 In conversations with KiOR they refer to this as a “line

- out” period

17 EPA is not assuming that this facility will produce at a 30% rate throughout the entire start

- up period, but rather projects that cellulosic biofuel production, when averaged over the entire start

- up period, will be 30% of the production cap acity during that period. Production will likely be very small in the first few months and will ramp up to near full production capacity by the end of the start

- up period.*** E.O. 12866 Review

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Page 24 of 58 approximately 20,000 cellulosic biofuel RINs, the first such RINs generated under the RFS

program. Blue Sugars has indicated, however, that the cellulosic ethanol they produced was exported to Brazil for promotional efforts at the Rio +20 conference in Brazil

. These RINs would therefore have to be retired and will not be available to obligated parties to meet their cellulosic biofuel req uirements in 2012. The main purpose of the Upton, Wyoming facility is to

further refine Blue Sugars’ technology in preparation for their first commercial facilities which may be located in the Brazil or the United States.

ZeaChem

ZeaChem successfully co mpleted construction of the core components of their

demonstration

- scale facility in Boardman, Oregon, in January 2012, allowing for the production of ethyl acetate from sugars derived from cellulose and hemi

- cellulose. When fully operational, ZeaChem exp ects this facility will be capable of producing 250,000 gallons of cellulosic ethanol per year. ZeaChem’s production process uses a combination of biochemical and thermochemical technologies to produce ethanol and other renewable chemicals from cellulosic materials. The feedstock is first fractionated into two separate streams, one containing sugars derived from cellulose and hemicellulose and the other containing lignin. The sugars are fermented into an intermediate chemical, acetic acid, using a natural ly occurring acetogen. The acetic acid is then converted into ethyl acetate, which can then be hydrogenated into ethanol. The hydrogen necessary for this process is produced by gasifying the lignin stream from the cellulosic biomass.

Construction is cur

rently underway to add the front

- end operations, the conversion of cellulosic biomass to sugars, and the back

- end process, the upgrading of the chemicals produced to transportation fuel, to the existing core facility. Work is currently underway to add add itional process modules that will enable ZeaChem to convert the cellulosic ethanol to jet and diesel fuel beginning in 2013.

ZeaChem’s process is flexible and is capable of producing a wide range of renewable chemicals and fuels from many different feeds tocks. They plan to use both agricultural residues and wood waste at their demonstration facility and have contracts in place for these feedstocks, as well as purpose

- grown wood, at their first commercial

- scale facility. In January 2012

ZeaChem announced that they had received a $232.5 million conditional loan guarantee offer

from USDA for the construction of their first commercial

- scale facility, which will have a capacity of at least 25 million gallons per year. ZeaChem currently has agreements in plac e to provide all of the necessary feedstock for this facility. This facility, however, is not expected to begin producing cellulosic biofuel until late 2014 at the earliest.

2. Facilities not Included in 2012 Projections

In addition to the faciliti es that were included in our cellulosic biofuel volume projections for the 2012 compliance year, there is one additional facilit y that we believe will produce

volumes in 2013. Several other large production facilities are planning to begin production of

cellulosic biofuel in 2014.

Abengoa Comment [A5]: 1/22/2013

– The report does not mention why all 2012 cellulosic ethanol was exported (as reported in the January 2013 report by LMC International). It does not seem to be a technical issue (in the preamble is a statement that

EPA has not reached the blend wall), so why the exports?

Comment [A7]: Bluesugars has formed a partnership with Petrobras to develop cellulosic ethanol facilities in Brazil. Petrobras imported the cellulosic ethanol to use in promotional efforts at th e Rio+20 conference in Brazil. This was not a technical or economic decision, and we have no reason to believe cellulosic biofuel will be exported from the US in appreciable quantities in the future. Comment [A6]: 1/24/2013

- Suggestion*** E.O. 12866 Review

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Page 25 of 58 Abengoa, a large international biofuels company, is one of two new cellulosic biofuels producers expected to begin the production of cellulosic biofuels and RINs from a commercial

scale facility in 2013. Abengoa plans to use an enzymatic hydrolysis technology to convert corn stover and other agricultural waste feedstocks into ethanol. After successfully testing and refining their technology at a pilot

- scale facility in York, Nebraska as well as in a demonstration

scal e facility in Salamanca, Spain, Abengoa is now working towards the completion of their first

commercial

- scale cellulosic ethanol facility in Hugoton, Kansas. Abengoa has contracts in place to provide the majority of feedstocks necessary for this facility for the next 10 years and successfully completed their first biomass harvest in the fall of 2011. Construction at this facility, which began in September 2011, is expected to take 24 months and be completed in the fourth quarter of 2013. All of the major process equipment for this project has been purchased and all of the required permits for construction have been approved. Abengoa’s Hugoton facility is being partially funded by a $132 million Department of Energy (DOE) loan guarantee.

When completed, the Hugoton plant will be capable of processing 700 dry tons of corn stover per day, with an expected annual ethanol production capacity of approximately 24 million gallons. Abengoa plans to begin ramping up production at the facility shortly after comple ting construction in late 2013 and to be producing fuel at rates near the nameplate capacity in the second quarter of 2014 . After successfully proving their technology at commercial

- scale in Hugoton, Abengoa currently plans to construct additional similar cellulosic ethanol production facilities, either on greenfield sites or co

- locating these new facilities with their currently existing

starch ethanol facilities around the United States. While this facility could produce up to 1 million gallons of cellul osic ethanol in 2013 even a slight delay would result in no fuel being produced in 2013. Given the history of delays in the cellulosic biofuels industry we are not including any volume from Abengoa’s Hugoton, KS facility in our proposed projected availabl e volume for 2013.

Poet

Poet has also developed an enzymatic hydrolysis process to convert cellulosic biomass into ethanol. Poet has been investing in the development of cellulosic ethanol technology for more than a decade and began producing small volumes of cellulosic ethanol at pilot

- scale at their plant in Scotland, SD in late 2008. In January 2012, Poet formed a joint venture with Royal

DSM of the Netherlands called Poet

- DSM Advanced Biofuels to commercialize and license their cellulosic ethanol technology.

The joint ven ture’s first commercial

- scale facility, called Project LIBERTY, will be located in Emmetsburg, Iowa. This facility is designed to process 770 dry tons of corn cobs, leaves, husks, and some stalk per day into cellulosic ethanol. The facility is projected to have an annual production capacity beginning at approximately 20 million gallons per year, increasing over time to 25 million gallons per year. In anticipation of the start

- up of this facility, Poet

constructed a 22

- acre biomass storage facility and h ad its first commercial harvest in 2010, collecting 56,000 tons of biomass.*** E.O. 12866 Review

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Page 26 of 58 Site prep work for Project LIBERTY began in the summer of 2011, and vertical construction of the facility began in the spring of 2012. Poet was awarded a $ 105 million loan guarantee offer for this project from DOE in July 2011, but with the joint venture decided to proceed without the loan guarantee. This project is expected to be completed by the end of 2013

, however at this time EPA is not expecting any c ommercial cellulosic ethanol production from this facility until 2014 . After the completion of Project LIBERTY, Poet plans to build cellulosic ethanol facilities at all of their existing corn ethanol plants. They are also planning to license

their techno logy for use at other grain ethanol plants, as well as build additional plants that will process wheat straw, rice hulls, woody biomass or herbaceous energy crops. By 2022 Poet has a goal of producing 3.5 billion gallons of cellulosic ethanol per year.

O ther companies

There are several more companies planning to begin producing cellulosic biofuel from

commercial

- scale facilities in 2014. Companies such as BP, Coskata, DuPont, Enerkem, and several others are all currently targeting 2014 for the start

- up of their first commercial facilities. These facilities represent approximately 100 million gallons of additional cellulosic biofuel production capacity. As with the companies discussed above, most of these companies have already begun to develop plans fo r their successive facilities after the successful completion of their initial projects. While they will not contribute any volume in 2013, and have therefore not been included in our proposed volume, they are a further indication of the potential for the significant growth of the cellulosic biofuel industry in the United States in the near future.

3. Other Potential Sources of Domestic Cellulosic Biofuel

Each of the companies listed in the previous two sections is planning to generate

cellulosic bio fuel RINs using one of the valid RIN

- generating pathways listed in Table 1 to §80.1426. We are also aware of several companies who may be in a position to produce cellulosic biofuel in 2013 but intend to use a production pathway that is not currently appr oved for RIN generation. Pathways that are currently under evaluation by EPA include transportation fuels derived from landfill biogas such as CNG and cellulosic ethanol produced from corn kernel

fiber

. If these or other cellulosic biofuel pathways are approved by EPA, they may be used to generate cellulosic biofuel RINs in 2013. Because the date of any final determination on these pathways is uncertain , however, no volume of cellulosic fuel from these p athways has been included in our proposed 2013 cellulosic biofuel projection.

4. Imports of Cellulosic Biofuel

While domestically produced cellulosic biofuels are the most likely source of cellulosic biofuel available in the United States in 2013, impo rts of cellulosic biofuel produced in other countries may also generate RINs and participate in the RFS program. While the RFS program does provide a financial incentive for companies to import cellulosic biofuels into the United States, the combination o f local demand, financial incentives from other governments, and transportation costs for the cellulosic biofuel has resulted in no cellulosic biofuel being imported Deleted: is scheduled to begin*** E.O. 12866 Review

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Page 27 of 58 to the United States thus far. We believe this situation is likely to continue in the nea r future and has not included any cellulosic biofuel imports in our projections of available volume in 2013.

As in the United States, the production of cellulosic biofuels internationally is currently

limited to small

- scale research and development, pil ot, and demonstration facilities. This is likely to continue to be the case throughout 2013. Two notable exceptions are facilities built and operated by Beta Renewables and Enerkem. Beta Renewables complete d construction of their

first commercial

- scale facility located in Crescentino, Italy in the summer of 2012. T his facility

is designed to produce approximately 20 million gallons of cellulosic ethanol per year. Beta

Renewables uses an enzymatic hydrolysis process to produce ethanol from local agricul tural residues and herbaceous energy crops.

Enerkem is also in the process of building their first commercial

- scale facility in Edmonton, Alberta and plans to begin operations in early 2013. Enerkem’s facility will use a thermochemical process to produ ce syngas from MSW and then catalytically convert the syngas to methanol. The methanol can then be sold directly or upgraded to ethanol or other chemical products. At full capacity this facility will be capable of producing 10 million gallons of

cellulos ic ethanol per year. At this point, n either Beta Renewables nor Enerkem have registered their facilities under the RFS program, a necessary step that must be completed before these companies can generate RINs for any fuel they import into the United State s . Both are planning to locate additional plants in the United States in the future and are likely to generate RINs for production from domestic facilities in future years.

5

. Projections from the Energy Information Administration

Section 211(o)(3)(A) of the Clean Air Act requires EIA to "...provide to the Adminis

trator of the Environmental Protection Agency an estimate, with respect to the following calendar year, of the volumes of transportation fuel, biomass

- based diesel, and cellulosic biofuel projected to be sold or introduced into commerce in the United States." EIA provided these

estimates to us on October 1 8 , 201 2

. 18 With regard to cellulosic biofuel, the EIA estimated that

the available volume in 201 3 would be 9.6 million gal lons (13.1 million ethanol

- equivalent gallons)

. A summary of the commercial scale plants they considered and associated production

volumes is shown below in Table II. C

. 5

.

18 Letter from Adam Sieminski , EIA Administrator to Lisa Jackson, EPA Administrato r October 1 8 , 201 2

. Comment [A8]: 1/22/2013

- Throughout this section, there is confusio n over the year being

evaluated

-- sometimes the text refers to 2012 and other times to 2013. For example, the first paragraph

refers to a 2012 EIA cellulosic ethanol estimate of 9.6 million gallons. However, table II.B. uses

“2013” in the title.

Comment [A9]: The r eferences to 2012 are largely typos and have been corrected.

Deleted: 2012

Comment [A10]: 1/22/2013

- But in October, 2012 an EIA publication titled “Biofuels Issues and Trends” states that cellulosic ethanol production will be less than 0.5 million gallons by year end 2012.

The EI A estimate for cellulosic ethanol production/capacity in 2013 is reported at 9.6 million gallons compared to EPA’s estimate is 11 million gallons. EPA states that these numbers are “similar enough to support the volumes we are fina lizing.” In the EIA rep ort cited above, EIA projected a total capacity of 71 million gallons

. Does EPA know the

differences between the EIA number of 71 million gallons from the Biofuels trend report and the EIA number of 9.6 million gallons that they signed

- off on during the r

ule review?

Comment [A11]: The 9.6 million gallon projection is for 2013, not 2012, and has been projected.

With regards to the 71 million gallons in the biofuels issues and trends report, note that this is EIA’s projection of capacity

– not production. In this

num ber EIA included facilities under construction by Abengoa, Fiberight, and Poet. These three facilities

are discussed in the sections above. All of these facilities are planning to complete construction near the end of 2013 and are unlikely to produce muc h, if any, cellulosic volume. EPA and EIA are in agreement on this issue and the timing of these

facilities. The relevant number for this rule is projected production, not capacity. On this metric EPA’s estimate (14 million ethanol equivalent gallons) a nd EIA’s estimate (13.1 ethanol equivalent gallons) are very close.

### *** E.O. 12866 Review

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Page 28 of 58 Table II. C .5

Cellulosic Biofuel Plants Expected to Generate Biofuel RINs for 2013

Mechanical Completion Company Location Product Design Capacity EIA Forecast

Utilization Production

(Million Gallons) Ethanol

- Equivalent

Production (Million Gallons)

2012 INEOS Bio Vero Beach, FL Ethanol 8 50% 4.0 4.0

2012 KiOR Columbus, MS Liquids 11 50% 5.5 9.0

Various Various Pilot

Plants Various Ethanol 1 10% 0.1 0.1

Total Capacity and Production for 2013 20 48% 9.6 13.1*** E.O. 12866 Review

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Page 29 of 58 EIA’s projections of cellulosic biofuel production in 201 3 are very similar to EPA’s projections discussed above and summarized in Section II. C .6 below. The lists of companies that EIA and EPA expect to generate cellulosic biofuel RINS in 2013 are the same. There are, however, differences in the volumes of cellulosic biofuel expected to be produced at the production facilities listed. EPA has higher projections of cellulosic biofuel production for

INEOS Bio ( 6 million gallons vs. 4 million gallons) and lower projections for KiOR (8 million

ethanol

- equivalent gallons vs. 9 million ethanol equivalent gallons). These variations are a result of different methodologies used by EIA and EPA to project biofuel production in future years.

Both INEOS Bio and KiOR are structurally complete commercial scale facilities that plan to operate throughout 2013

. In their projections EIA has used a utilization rate of 50% for both of these facilities. Rather than use utilization rates to project production, EPA has estimated ramp

up schedules for the both INEOS Bio and KiOR. The ramp

- up schedules estimated for these facilities differ from each other and were developed based on information received from the companies and EPA’s knowledge of the production processes used by each company. We believe these different ramp

- up schedules, which correspond to different effective utilization rates, are appropriate due to the significant differences in the technologies used by INEOS Bio and KiOR to produce cellulosic biofuel. EPA and EI A both consider ed the timing of the anticipated start up of these facilities along with anticipated ramp

- up schedules in projecting volume production for 201 3

. As both facilities plan to start production at approximately the

same time

, the difference in t he effective utilization rates represented by EPA’s projected volumes for these companies is the result of anticipated ramp

- up schedules

. More information on the ramp

- up schedules used by EPA in our projected production volumes for INEOS Bio and

KiOR can be found in Section II. C .1 above.

While the cellulosic biofuel volume projections for 201 3 provided by EIA are not identical to those being finalized in this rule EPA believes that they are similar enough to support the volumes we are finalizing. Where d ifferences exist they are due to differences in the ramp

up schedules estimated by EPA and EIA for the two companies expected to produce cellulosic

biofuel in 2013. As discussed above, EPA believes the approach we have taken is appropriate. EPA has interpreted section CAA 211(o)(7)(D) as vesting the authority for making the projection with EPA, and is not re

- opening that interpretation for comment in today’s proposal. As described in past rulemakings, the statute provides that the projection is “determined by the Administrator based on the estimate provided [by EIA].” If Congress intended that EPA simply adopt EIA’s projection without an independent evaluation, it would not have specified that the projection is “determined by the [EPA] Admin istrator”. Although the statute provides that our determination must be “based on the estimate provided” by EIA, we interpret this statutory directive as being satisfied when we consider EIA’s estimate in deriving our own projection.

6

. Summary of Volume Projections

The information we have gathered on the potential cellulosic biofuel producers in 2013, described above, allows us to project volumes that are reasonably likely to be produced by each facility in 2013. For the purposes of this proposed rulemaking we have focused on commercial

scale cellulosic biofuel production facilities. We believe our focus on commercial

- scale facilities is appropriate as the industry transitions from small

- scale R&D and pilot facilities to large

- scale Deleted: 2012 Comment [A12]: 1/22/2013

- This statement is confusing because earlier it was said that no RINS were generated in 2012. Furthermore, EPA tracks RINs not EIA, so how could there be a difference?

Comment [A13]: Shou ld read 2013, not 2012.*** E.O. 12866 Review

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Page 30 of 58 commercial pr oduction. It is likely that several small

- scale facilities such as API, KL Energy, ZeaChem, and others will also produce some cellulosic biofuel in 2013. Indeed, EIA’s projection from such facilities was only 0.1 million gallons in 2013. This volume is quite small

in relation to that expected from the two commercial

- scale facilities for which we have projected volumes in 2013 (see Table II.C. 6

- 1 below )

. Additionally, while RINs may be generated for any cellulosic biofuel produced from these small R&D a nd pilot facilities, historically many have chosen not to do so for a variety of reasons. We are therefore not proposing to include a volume projection from these facilities. We invite comment on this issue.

In 2013 as many as four domestic cellulosic b iofuel production facilities have the potential to produce fuel at commercial scale . Each of these facilities is discussed above, and the facility production targets for each are summarized in Table II.C. 6

- 1 below. Two of the companies that have the pote ntial to produce cellulosic biofuel in 2013, Abengoa and Fiberight, are not planning on beginning fuel production until late in the year. Even a small delay in their expected production timeline could result in their failure to produce any cellulosic biof uel in 2013. For the purpose of this proposal, therefore, we are not projecting production from these

facilities in 2013 consistent with EIA

.

When added together, the total projected production volume from commercial

- scale production facilities in the United States in 2013 is 11 million gallons ( 14 million ethanol

equivalent gallons). This number represents the expected fuel production from each facility, taking into account the EIA estimates and the many factors described in detail above.

### *** E.O. 12866 Review

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Page 31 of 58 Table II.C. 6

- 1 Projected Available Cellulosic Biofuel for 2013

Company

Name Location Feedstock Fuel Design Capacity (MGY) First Production

(projected) 2013 Projected

Available Volume (MG) Abengoa Hugoton, KS Corn Stover Ethanol 24 4 th 

### Quarter 2013 0 Fiberight Blairstown, IA MSW Ethanol 6 4 th 

### Quarter 2013 0

INEOS Bio Vero Beach, FL Vegetative Waste Ethanol 8 1 st 

### Quarter 201 3 6

KiOR Columbus, MS Wood Waste Gasoline

and Diesel 11 1 st 

### Quarter 201 3 8

Various

Pilot/ Demo

Plants N/A N/A N/A N/A N/A 0

Total 49 14*** E.O. 12866 Review

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Page 32 of 58 D. Proposed Cellulosic Biofuel Volume for 2013

In today’s NPRM we are proposing a volume for the 2013 cellulosic biofuel standard that is based on production targets developed in consultation with the companies with the potential to produce cellulosic biofuel from commercial

- scale facilities in 2013. Many factors have been taken into consideration in developing these production targets, such as the current status of project funding, the status of the production facility, anticipated construction timelines, the anticipated start

- up date and ramp

- up schedule, feedstock supply , intent to generate RINs, and many others. We believe the sum of these individual projected available volumes ( 14 million

ethanol

- equivalent gallons) is a reasonable representation of likely production. Moreover, all of the companies included in our 2013 volume projections have invested a significant amount of time and resources developing their technologies at R&D and demonstration

- scale facilities p rior to the design and construction of their first commercial

- scale facilities. The projects have solid financial backing ; for example the INOES Bio project is backed by federal loan guarantees. By the time of our final rule the facilities owned by KiOR and INEOS Bio are scheduled to have already begun fuel production , making our 2013 projections more reliable than prior year projections

.

It is important to note that the final cellulosic biofuel standard for 2013 may be set at a

volume that differs fro m the proposed volume. This could happen for a variety of reasons, including unexpected project modifications or cancellations or the inclusion of volumes of cellulosic biofuel from sources other than those listed above. For example, the proposed project ed available volume of cellulosic biofuel in 2013 discussed above ( 14 million ethanol

equivalent gallons) does not include potential contributions from cellulosic ethanol produced from corn fiber or transportation fuels derived from landfill biogas such as CNG

. Together, these pathways could generate several tens of millions of gallons of ethanol

- equivalent renewable fuel. However, since it is uncertain when our evaluation of these pathways will be completed we have not included their volumes in our 2013 projection in this NPRM. If any of these pathways are approved prior to the final rule , additional volume from these sources may be added to the target production volumes listed in Table II.C.5

- 1 for the final rule.

We will continue to monitor the progr ess of the cellulosic biofuel industry, in particular the progress of the companies which form the basis of our 2013 volume projection. As time progresses and we are able to track whether or not the cellulosic biofuels producers are able to

meet the const ruction and ramp

- up schedules they have presented, and after consider ing public

comments we receive on this proposal, we will have a clearer idea of the appropriate volume of fuel that we can reasonably expect to be produced and made commercially available in 2013.*** E.O. 12866 Review

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Page 33 of 58 III. Assessment of Advanced Biofuel and Total Renewable Fuel for 2013

As described in Section I, the volumes of renewable fuel to be used under the RFS2 program each year (absent an adjustment or waiver by EPA) are specified in CAA 211(o)(2). For 2013, the applicable volume of advanced biofuel is 2.75 bill gal and the appli cable volume of total renewable fuel is 16.55 bill gal. However, the statute gives EPA the discretion to reduce these volume requirements in the event that the cellulosic biofuel volume requirement is reduced.

W hile we are not proposing to reduce the req uired volumes of advanced biofuel and total renewable fuel for 2013, we request comment on whether and to what extent a reduction is

warranted. W e have the discretion to reduce the advanced biofuel volume and the total

renewable requirement s for 2013 by up to the amount that the cellulosic biofuel volume requirement is reduced (986 mill gal in today's proposal). This section discusses our evaluation of these two volume requirements.

A. Statutory Requirements

According to CAA 211(o)(7 )(D)(i), if EPA determines that the projected volume of cellulosic biofuel production for the following year is less than the applicable volume provided in the statute, then EPA must reduce the applicable volume of cellulosic biofuel to the projected

volum e available during that calendar year. Under such circumstances, EPA also has the discretion to reduce the applicable volumes of advanced biofuel and total renewable fuel by an

amount not to exceed the reduction in cellulosic biofuel.

Section 211(o)(7 )(D)(i) provides that “For any calendar year in which the Administrator makes such a reduction, the Administrator may also reduce the applicable volume of renewable fuel and advanced biofuels requirement established under paragraph (2)(B) by the same or a lesser volume.” Thus Congress authorized EPA to reduce the volume of total renewable fuel “and” advanced biofuels. This indicates a clear Congressional intention that EPA may reduce both the total renewable and advanced biofuel volume together, not one o r the other.

This is consistent with the structure of the national volume standards, where the volume standards are nested and are not separate, unrelated standards. Congress established the advanced biofuel standard and its subsets as integral parts of the total renewable fuel standard. The volume requirements are interrelated and work together to achieve the goals of increasing the displacement of fossil fuel and increasing the use of fuels that reduce greenhouse gases. As

described in the NPRM fo r the RFS2 program, we do not believe it would be appropriate to lower the advanced biofuel standard but not the total renewable standard, as doing so would allow conventional biofuels to effectively be used to meet the standards that Congress specifically set for advanced biofuels. See 74 FR 24915. EPA interprets this provision as authorizing EPA to reduce both total renewable fuel and advanced biofuel, by the same amounts,

if EPA reduces the volume of cellulosic biofuel. The reductions in total renewab le fuel and advanced biofuel can be up to but no more than the amount of reduction in the cellulosic biofuel

volume. Comment [A14]: 1/22/2013

- suggestion*** E.O. 12866 Review

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Page 34 of 58 Since cellulosic biofuel is also used to satisfy the advanced biofuel standard and the total renewable fuel standard, any reductions in t he applicable volume of cellulosic biofuel will also affect the means through which obligated parties comply with these two other standards. Congress established the volume requirements for advanced biofuel and total renewable fuel in conjunction with the specified cellulosic biofuel volumes , as interrelated standards. Therefore i t
is appropriate to consider a possible reduction in the advanced biofuel and total renewable fuel applicable volumes when EPA reduces the cellulosic biofuel volume below the applicable

volume for cellulosic biofuel set forth in the statute.

In 2013 the applicable volu me of cellulosic biofuel specified in the statute represents more than a third of the advanced biofuel volume (1.0 bill gal out of 2.75 bill gal), a higher fraction than in any previous year. A substantial reduction in the applicable volume of cellulosic biofuel could potentially also have a substantial impact on the sufficiency of volumes to meet the advanced biofuel and total renewable fuel standards. As described in Section II.D above, we are indeed proposing a projected available volume of cellulosic biofuel for 2013 at significantly below the statutory applicable volume of 1.0 billion gallons. If we were to finalize a cellulosic biofuel applicable volume of 14 mill gallons for 2013, we would have the discretion to reduce

the advanced biofuel and tota l renewable fuel applicable volumes by up to 986 mill gallons (ethanol

- equivalent). Therefore, we believe that an investigation into the availability of

advanced biofuel and total renewable fuel is warranted.

The statute does not provide any explicit cr iteria that must be met or factors that must be considered when making a determination as to whether and to what degree to reduce the advanced biofuel and total renewable fuel applicable volumes when we have the discretion under CAA 211(o)(7)(D)(i) to do s o. However, in general we believe that it would not be consistent with the energy security 19 and greenhouse gas reduction goals of the statute to reduce the applicable volume of advanced biofuel set forth in the statute if there are sufficient volumes of

a dvanced biofuels available, even if those volumes do not include the amount of cellulosic biofuel that Congress may have desired.

Due to its relevance to RFS volume requirements, we note here that i n the summer of

2012 and in light of drought condition s affecting much of the country , Governors from several States and a number of organizations requested a waiver of the national volume requirements for the RFS pursuant to Section 211(o)(7) (A) of the Clean Air Act. The general waiver authority granted in this part of the statute is different from the authority granted in Section 211(o)(7) (D) that allows the advanced biofuel and total renewable fuels volume requirements to be reduced in

the event that the cellulosic biofuel volume is reduced. After extensi ve analysis, review of thousands of comments, and consultation with the Department of Agriculture and the Department of Energy, the EPA on November 27, 2012 published a Federal Register decision denying the requests for a waiver. 20 The Federal Register notice contains a detailed description of the analysis EPA conducted in conjunction with DOE and USDA, along with a discussion of relevant comments we received through our public comment process.

19 The energy security analysis took into account both domestic and foreign sources of advanced biofuel.

20 77 FR 70752, November 27, 2012.*** E.O. 12866 Review

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Page 35 of 58 B. Assessment of Available Volumes of Advanced Biofuel

Renewable fuels that can be used to meet the standard for advanced biofuel include those with Renewable Identification Number (RIN) codes of 3, 4, 5, or 7. Table III.B

- 1 shows the number of each of these types of RIN that was generated in 2011. For the final rule, we will update our analysis with estimates from 2012.

Table III.B

- 1 2011 RINs That Qualified to Meet the Advanced Biofuel Standard 21

(million ethanol

- equivalent gallons)

D

code Category Ethanol Biodiesel Renewable

diesel Biogas and

heating oil

3 Cellulosic biofuel 0 0 0 0

4 Biomass

- based

diesel 0 1,600 76 0

5 Advanced biofuel 186 0 27 8

7 Cellulosic diesel 0 0 0 0

Total 1,895

The total of 1,895 mill ethanol

- equivalent gallons is significantly higher than the 1,350 mill gal required in 2011 and nearly as high as the 2012 advanced biofuel requirement of 2,000 mill gal. This result supports our projection in the rulemaking setting the 2012 standards 22 that there was no need to reduce the 2012 advanced biofuel requirement despit e the significant reduction in the applicable volume of cellulosic biofuel.

The statutory volume requirement for advanced biofuel in 2013 is 2,750 mill gal, an increase of 750 mill gal over the 2012 requirement of 2,000 mill gal. In order to determine t he sufficiency of advanced biofuel volumes to meet a requirement for 2,750 mill gal in 2013, we

first accounted for biomass

- based diesel and cellulosic biofuels that would be required under the standards we are proposing today. As shown in Table III.B

- 2, the result is that there would need

to be 8 16 mill ethanol

- equivalent gallons of other advanced biofuels in order to meet the total advanced biofuel requirement of 2,750 mill gal.

Table III.B

- 2 Necessary Volume of Advanced Biofuel (mill gal ethanol

- equivalent) 2013 Advanced biofuel applicable volume 2,750 Cellulosic biofuel requirement 14

Biomass

- based diesel requirement 1,920 a Necessary volume of excess biodiesel, other domestic advanced biofuels, and/or imported sugarcane ethanol 816

a In 2011, a substantial majority of biomass

- based diesel was biodiesel. Moreover, we expect further increases in biomass

- based diesel to be met primarily with expanded biodiesel. Therefore, for this analysis we have

21 2011 data from the EPA

- Moderated Transaction System (EMTS)

22 77 FR 1320, published on January 9, 2012*** E.O. 12866 Review

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Page 36 of 58 assumed that the 1.28 bill gal requir ement is composed entirely of biodiesel with an equivalence value of 1.5.

We have identified a variety of sources of advanced biofuel that could meet the need for

8 16 mill gal of additional advanced biofuel, including the following:

• Biodiesel in excess of that required to meet the volume requirement of 1.28 bill gal

• Domestically produced advanced biofuels such as renewable diesel that does not qualif y as biomass

- based diesel , heating oil and qualifying fuel oil , and

ethanol and other qualifying renewable fuels from separated food wastes

• Imported sugarcane ethanol

We have investigated each of these sources as discussed below.

1. Biodiesel

In a separate action, we have finalized a biomass

- based diesel volume of 1.28 bill gal for

2013. How ever, biomass

- based diesel volumes above 1.28 bill gal are possible

. As of October 2012, the aggregate production capacity of biodiesel plants in the U.S. is estimated to be 2. 1 billion gallons per year across 1 07 facilities. 23 This includes idled plants, those producing at less than full capacity, and those that are producing products other than biodiesel. We expect the time and reinvestment required to ramp up biodiesel production at existing facilities to be likely

on the ord er of 1

- 2 months, significantly less than the time required to build and begin production at new plants, which takes about a year on average

. 24 Thus, restarting idled plants is likely to be a cost

- effective way of exceeding the applicable volumes of 1.28 b ill gal in 2013 if a demand for such production exists.

Moreover, the biodiesel industry has demonstrated that it can increase production quickly under appropriate circumstances. Total production of biomass

- based diesel in 2011 exceeded 1.0 bill gal, co mpared to a 2010 production of about 380 mill gallons. 25 In response to the NPRM published on July 1, 2011, some stakeholders expressed doubts that such increases could occur by 2012. 26 Nevertheless, based on the single

- year increase of more than 600 mill gal in 2011 and the total capacity of existing plants described above, it is possible that the industry could achieve increases in production of both the 280 mill gallon increment that is reflected in the biomass

based diesel requirement for 2013 as well a s some "excess" production.

23 Figures taken from Table 4, "Monthly Biodiesel Production Report," EIA, December 2012.

. 24 Based on construction times for new plants listed in Biodiesel Magazine from July 2006 through May 2009.

25 All values from EMTS. 2010 estimate consists of approximately 209 mill gallons as recorded through EMTS for volume produced under the RFS2 regulations in July through December of 2010, and approximately 171 mill gallons as recorded through RIN generation reports submitted by producers for volume produced under the RFS1 regulations in January through June of 2010.

26 See comments in docket EPA

- HQ

- OAR

- 2010

- 0133 from the American Petroleum Institute, Marathon Petroleum Company, and the National Petrochemical Refiners Association. Comment [A15]: 1/22/2013

- Does EPA have forecasts for biodiesel capacity for 2013? EPA states the capacity at 2.1 billion gallons but no production forecast.

Comment [A16]: No actual production forecasts, since they depend on market e conomics driven by a combina'tion of the biodiesel tax subsidy, availability and price of imported sugarcane ethanol, availability and price of other domestic advanced biofuels. However, there is no need to forecast actual production for the purpsoes of t his section. Rather, we are only establishing the possibility of volumes greater than 1.28 bill gal.*** E.O. 12866 Review

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Page 37 of 58 Recently, the tax credit for biodiesel was reinstated after having expired at the end of

2011 27 . This tax credit , applicable retroactively to 2012 and through the end of 2013, may provide additional incentives to produce and consume biodiesel volumes in excess of the 1.28 bill gal requirement. EPA is requesting comment on what effect the tax credit will have on the advanced biofuel production volumes and the whether this w ould affect the incentives to import sugarcane ethanol and to what extent

.

Nevertheless, there are a variety of factors that make the potential for 2013 biodiesel volumes in excess of 1.28 bill gal uncertain. For instance, d espite the significant excess production capacity, the industry may not make the necessary preparations for excess production above 1.28 bill gal , such as restarting idled plants or establishing contracts for feedstocks supply,

until such time as it becom es clear what the demand for excess biodiesel might be. This might

not occur until later in 2013. Moreover, b i odiesel production rates are currently and will continue to be at a historic high. The industry that supplies feedstocks for biodiesel producti on will be adjusting supplies and distribution routes to ensure that the 1.28 bill gal volume requirement is met, and biodiesel distribution and blending infrastructure is being upgraded to ensure that those volumes can be consumed. However, it is unclear if those adjustments and upgrades will be designed to accommodate biodiesel production in 2013 of volumes above 1.28 bill gal. We request comment on the degree to which biodiesel volumes in excess of the 1.28 bill gal requirement might be expected.

2

. Domestic Production of Other Advanced Biofuel

Pathways that have been approved for the generation of RINs are provided in the regulations in Table 1 to §80.1426. Apart from ethanol made from sugarcane which is permitted to generate advanced biofuel R INs, there are currently three pathways through which advanced biofuel RINs can be generated. These three are shown in Table III.B. 2

- 1.

27 " Congress Votes to Reinstate Biodiesel Tax Incentive ," January 2, 2013. http://biodiesel.org/news/biodiesel

news/news

- display/2013/01/02/congress

- votes

- to

- reinstate

- biodiesel

- tax

- incentive Deleted: will

Deleted: those affect may be

Deleted: 28 Comment [A17]: 1/22/2013

- Suggest taking comment on the recent report from Scott Irwin and Darrel Good (2013) Farmdocdaily report of Jan. 16,

2013. http://farmdocdai ly.illinois.edu/2013/01/domestic

biodiesel

- versus

- brazilian.html

Comment [A18]: Though it's fine to take comment on the effect of the tax credit generally, there's no need to take comment on this report. Our analysis of the availability of imported sugarcane

ethanol re sts on the assumption that biodiesel volumes will be 1.28 bill gal. Excess biodiesel volumes brought aboput by the tax credit would only reduce the need for imported sugarcane ethanol.*** E.O. 12866 Review

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Page 38 of 58 Table III.B. 2

- 1 Pathways for Advanced Biofuel Fuel type Feedstock Production process requirements

Ethanol Grain Sorghum Dry mill process, using only biogas from landfills, waste treatment plants, and/or waste digesters for process

energy and for on

- site production of all electricity

used at the site other than up to 0.15 kWh of electricity from the grid per gallon of ethanol produced, calculated on a per batch basis.

Biodiesel,

renewable diesel 29 Soy bean oil;

Oil from annual covercrops; Algal oil; Biogenic waste oils/fats/greases;

Non

- food grade corn oil One of the following:

Trans

- Esterification Hydrotreating

Incl udes only processes that

co

- process renewable biomass and petroleum
Ethanol, renewable diesel, jet fuel, heating oil, and naphtha The non

- cellulosic portions of

separated food waste Any

Biogas Landfills 30 , sewage waste

treatment plants, manure digesters A ny

In addition to producers of biomass

- based diesel and cellulosic biofuel, there are many companies either producing or developing technologies to produce "other advanced biofuels." In

order to estimate the volumes of other advanced biofuels that could be produced by these companies in 2013, we investigated three sources of data:

Production Outlook Reports . Required under §80.1449 for all registered producers, these reports contain projections of renewable fuel production for each of the next five years. 31

2011 producers . Data from the EPA

- Moderated Transaction System (EMTS) was reviewed to identify parties that produced some RIN

- generating advanced biofuel in 2011. Insofar as such parties did not provide a projected 2013 volume in a Production

Ou tlook Report, they were contacted to update their 2013 projected production volume. We will update this analysis with information from 2012 for the final rule.

29 Our final action on the 2013 biomass

- based diesel renewable fuel volume provides further details with regards to

which feedstocks we b elieve will be used to meet that volume. See 77 FR 59458, September 27, 2012.

30 Biogas from landfills could be generated from separated food waste or yard waste.

31 While the individual reports have not been published since they include company

- specific in formation that could impact the competitive nature of the industry, we are providing aggregate results in this NPRM.*** E.O. 12866 Review

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Page 39 of 58 Additional registered producers . We identified parties that were registered as producers

of a dvanced biofuel under the RFS program, but neither produced RIN

- generating volume in 2011 nor provided a projection of 2013 production volume in a Production Outlook Report. We contacted such parties to determine what, if any, volume could be expected in 2013.

Based on these investigations, we identified twenty domestic companies that are expected to produce some other advanced biofuel in 2013. The total projected production volume for these companies in 2013 is about 115 mill actual gallons, or 150 mill ion ethanol

- equivalent gallons, as

shown in Table III.B. 2

- 2.

Table III.B. 2

- 2

Projected Domestic Production of Other Advanced Biofuel in 2013

(million ethanol

- equivalent gallons)

Ethanol Renewable

diesel Heating oil CNG Total

Production Outlook Reports 31 35 4 0 70

2011 producers 18 18 0 5 41 Other registered producers 0 15 15 9 39

Total 49 68 19 14 150

A projected volume of 150 mill ethanol

- equivalent gallons of other advanced biofuel in 2013 is also consistent with a 2011 report released by E2/Environmental Entrepreneurs 32 which estimated that the production capacity of domestic advanced biofuels in 2012 would be about 180 mill gal.

EPA has recently approved an advanced ethanol pathway that is produced from grain sorghum at dry mill facilities using specified forms of biogas for both process energy and most electricity production 33 . Although advanced sorghum ethanol is not reflected in Table III.B. 2

- 2, sorghum ethanol is likely to help meet the 2013 advanced biofuel volume requirement s as a number of companies have been making preparations to use thi s feedstock

. We are also currently investigating a variety of other potential RIN

- generating pathways for advanced biofuel

that could result in additional volumes in 2013. In addition to potential new pathways for cellulosic biofuel that would also count as advanced biofuel as discussed in Section II.D, new pathways for advanced biofuel could include certain butanol processes from corn and certain ethanol processes from barley . We have no t yet determined, either through rulemaking or approval of an industry petition, whether the se pathways are valid for the generation for advanced biofuel RINs. However, approval of such advanced biofuel pathways could potentially

result in 200 million add itional ethanol

- equivalent gallons of advanced biofuel being qualified to

32 Solecki, Mary et al, "Advanced Biofuel Market Report 2011, Meeting the California LCFS" August 22, 2011. E2/Environmental Entrepreneurs.

33 See 77 FR 74592 published on December 17, 2012.*** E.O. 12866 Review

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Page 40 of 58 participate in the RFS program. Insofar as any of these pathways are approved in time to be used in 2013, it would increase the volume of domestically

- produced advanced biofuels ava ilable for 2013 compliance

.

3

. Imported Sugarcane Ethanol

EPA estimates that i f biodiesel production in 2013 does not exceed 1.28 bill gallons, and domestic production of other advanced biofuels is about 150 mill gallons, imports of sugarcane

ethanol from Brazil would need to reach 666 mill gal in order for the 2.75 bill gal a d vanced biofuel requirement to be met. We believe that such volumes can be reasonably expected from Brazil despite some uncertainty in production and export potential.

From the supply perspective, recent production of sugarcane in Brazil has been lower than normally expected due to two factors. First, adverse weather conditions have reduced production. 34 Since the adverse weather conditions are estimated to have reduced cane production by about 4%, a return to normal weather conditions should alone rest ore approximately 4% of production. Second, the general economic downturn made credit harder to get, delaying the replanting of existing fields. Normally sugarcane fields are replanted every five or six years to maximize yield. However, the lack of avai lable credit caused some growers to delay the expense of this replanting, with the older fields losing production. 35

Early 2012/13 sugarcane crop year data suggests that, at the very least, production in the 2012/2013 year will not be lower than in 2011 /2012. According to UNICA’s December 1, 2012 biweekly report of sugar and ethanol production, total ethanol production from the 2012/13 crop in the South Central region was approximately 5.38 billion gallons, up slightly from 5.36 billion gallons this tim e last year. 36 In September, UNICA projected that the South Central region, the dominant region for ethanol production in Brazil, will produce a total of 5.56 billion gallons for the 2012/13 year. 37 Other regions contributed roughly another 565 million gal lons in 2011/12. Based on this, 6.1 billion gallons is a reasonable conservative estimate for total 2012/13 production, assuming no growth at all in production outside the South Central region. By comparison, total ethanol production from the 2011/12 cro p was just less than 6 billion gallons.

Some parties expect a more typical trend in sugarcane ethanol production for 201 3 and future years, with replanted fields beginning to boost sugarcane production in existing plantations and, in response to increase d worldwide demand, a growth in the acres planted with

34 Gain Report BR110016, October 3, 2011, USDA Agricultural Service. See http: //gain.fas.usda.gov/Recent%20GAIN%20Publications/Sugar%20Semi

annual_Sao%20Paulo%20ATO_Brazil_10

- 3

- 2011.pdf

35 On the margin, the high sugar prices may have also encouraged some growers to divert their crop from ethanol production to sugar production . B ut most cane growers do not have this flexibility with sugarcane mills designed for fixed amounts of refined sugar or ethanol so high sugar prices was likely a contributing factor but not a major cause of reduced sugarcane ethanol production in Brazil.

36 U NICA, “Harvest update: Biweekly Bulletin”, December 1, 2012, http://www.unicadata.com.br/listagem.php?idMn=63

. 37 UNICA, “Estimate for 2012/2013 Sugarcane Harvest of Brazilian South

- Central Region”, September 20, 2012, http://www.unicadata.com.br/listagem. php?idMn=39

. Comment [A19]: 1/22/2013

– Does the CA LCFS mandate have any effect on the federal

p rogram? If yes, suggest discussing the volumes that will be needed and how much has been imported for CA’s program? Would it be accurate to say: “California LCFS mandates will also encourage the importation of Brazilian ethanol”?

If no, please explain response in comment bubble.

Comment [A20]: CARB has been very reticent to provide estimates of how much sugarcane ethanol will be imported to meet their LCFS requirements, and we have no independent estimates. However, I added some ge neral text about the LCFS a few

par agraphs down.*** E.O. 12866 Review

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Page 41 of 58 sugarcane. Increased production is supported by the Brazilian government which announced in February 2012 support for a plan to invest over $8 billion annually to boost cane and ethanol production. 38 Private investment in Brazil is also increasing. For example, Usina de Acucar Santa Terezinha, a Brazilian ethanol producer, recently announced plans to invest almost $300 million in a new mill and sugarcane plantation. 39 All of this suggests that sugarca ne and ethanol production in the 2013/14 harvest year (which will begin in April of 2013) will be significantly higher than production over the last two years.

Nevertheless, there remains some uncertainty in the volumes of sugarcane ethanol that

could be produced in Brazil in 2013. If weather conditions are unfavorable for another year, ethanol production may not recover from the comparatively low levels in 2011 and early 2012. A study from USDA projects that this may be the case, and concludes that total ethanol exports

from Brazil to all countries in 2013 may only reach about 500 mill gallons 40 , well short of the

666 mill gal that would be needed as described above

. As a result , it is possible that there could

be a shortfall of the total advanced bi ofuel requirement in 2013 under these circumstances.

Brazil’s sugarcane ethanol production serves both its domestic market as well as the export market. The government of Brazil sets a minimum ethanol concentration for its gasoline. In 2011, the Brazi lian government lowered this concentration to 20%, reflecting the decrease in domestic production. There have been indications that Brazil may raise the minimum ethanol concentration back up by 25% by May of 2013 41 , but no formal announcement has been made

. Projecting this Brazilian domestic demand into the future can be uncertain since the government can reset the minimum ethanol content at any time; in the past this adjustment has largely been influenced by the price of ethanol (high prices leading to a reduction in the minimum percent).

While these historical changes have typically varied by a few percent and have only occurred periodically , they do add an other element of uncertainty to any projection of the volumes of ethanol that may be available for export to the U.S. in 2013

.

Total exports of ethanol from Brazil depend on ethanol production and demand within Brazil, and have varied significantly over the last decade. The historical maximum occurred in 2008 when 1.35 bill gal was exported, and ongoing efforts to upgrade distribution infrastructure mean that Brazil is capable of exporting around 2 bill gal today. However, actual export

volumes in 2010

- 2012 have been significantly below those from previous years

. Moreover, imports of ethanol i nto Brazil also impact the volumes it exports. In both 2011 and 2012 there was significant two

- way trade in ethanol between the United States and Brazil. According to current EIA data, in 2011 the U.S. imported 101 million gallons of sugarcane ethanol f rom Brazil and exported 396 million gallons of corn

- based ethanol to Brazil. Total fuel ethanol exports in 2011 were 1.2 billion gallons, and total exports through October 2012 were 646 million gallons.

This two

- way trade of ethanol engenders additional transport related emissions.

38 See http://www.platts.com/RSSFeedDetailedNews/RSSFeed/Oil/8987702

39 See http://www.bloomberg.com/news/2012

- 03

- 08/santa

- terezinha

- invests

- 283

- million

- in

- brazil

- ethanol

projects.html

40 USDA Foreign Agricultural Service, "Brazil Biofuels Annual , Annual Report 2012," August 21, 2012. GAIN Report Number BR12013.

41 Bloomberg, " Brazil Said to Plan Higher Ethanol Blend as Early as May ," December 18, 2012. http://www.bloomberg.com/news/2012

- 12

- 18/brazil

- said

- to

- plan

- higher

- ethanol

- blend

- as

- early

- as

- may.html*** E.O. 12866 Review

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Page 42 of 58 Figure III.B.2

- 1

Total Worldwide Exports of Ethanol from Brazil

Sources: USDA Foreign Agricultural Service, "Brazil Biofuels Annual, Annual Report 2012", August 21, 2012,

BR12013. Constanza Valdez, "Brazil's Ethanol Industry: Looking Forward", BIO

- 02, ERS, USDA, June 2011

Aside from production capability and domestic demand within Brazil, market conditions generally determine the availability of sugarcane ethanol imported into the U.S. fr om Brazil. Approved as an advanced biofuel pathway, ethanol produced from sugarcane benefits from the RIN value associated with advanced biofuel but also has to compete with other sources of ethanol used for blending with gasoline in the U.S. , most notabl y ethanol made from corn starch (which does not qualify as an advanced biofuel). T he expiration of the tariff applicable to imported ethanol has helped make imported sugarcane ethanol more cost competitive in the U.S.

, and any volumes of Brazilian sugarca ne ethanol imported into California to meet the requirements of their Low Carbon Fuel Standard ( LCFS ) would also count towards meeting the requirements of the RFS program. However, international demand for Brazilian sugarcane

ethanol is expected to continue to create some limitations in what volumes may be available to the U.S. Indeed in 2010 essentially all ethanol exported from Brazil went to other countries, and in 2011 about 70% of ethanol exported from Brazil went to other countries. As a resu lt, imports of Brazilian sugarcane ethanol into the U.S. in 2010 and 2011 were comparatively low. Brazil is on track to meet the need for about 500 mill gal of imported sugarcane ethanol in the U.S. in 2012, but this is below the 666 mill gal that may be needed in 2013 to meet the 2.75 bill gal advanced biofuel requirement. However, since the rate of ethanol imports from Brazil was significantly higher in recent months than at the beginning of 2012, there may be good reason to

expect that import volumes i n 2013 will be higher than in 2012

. Deleted: but*** E.O. 12866 Review

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Page 43 of 58 Figure III.B.2

- 2 Total Imports of Ethanol Into the U.S.

Source: EIA, "U.S. Imports by Country of Origin"

Considering that reinvestment in sugarcane stock is already underway, a considerable resurgence in Brazilian ethanol export poten tial in the 2013 calendar year seems likely. Any limitations on ethanol exports created by delayed reinvestment in sugarcane stock appear to be waning. While uncertainties exist, on balance there is good reason to believe that Brazil can export at least 666 mill gal of ethanol to the U.S. in 2013.

C. Proposed Volume Requirements for Advanced Biofuel and Total Renewable Fuel in

2013

As shown in Table III.B

- 2, in order for an advanced biofuel requirement of 2.75 bill gal to be met, there would need to be 8 16 mill gal of advanced biofuels in addition to the volumes that would need to be produced to meet the biomass

- based diesel and proposed cellulosic bi ofuel requirements. After reviewing the projected availability of advanced biofuel volumes from various sources, we have preliminarily determined that it is likely that there will be sufficient volumes available to produce or import this 8 16 mill gal. Gi ven our estimate of about 150 mill gal of domestic "other" advanced biofuel, the remaining volume of 666 mill gal would likely need to come from imported sugarcane ethanol and/or biodiesel in excess of 1.28 bill gal. As discussed above, we believe that th is volume is achievable through a combination of these sources. Therefore, we believe that there is no reason to reduce the required volume of 2.75 bill gal advanced biofuel on the basis of available volumes. As noted above, maintaining the 2.75 bill gal advanced biofuel volume set forth in the statute will result in the reduced GHG emissions from the transportation sector and could also contribute to energy security objectives

. We do not believe it is appropriate to for go such benefits when they are physically achievable but we invite

comment on this issue , particularly in the context of increasing international trade in biofuels and

the blend wall implications for ethanol consumption (see discussion in Section D b elow)

. Deleted: result in

Deleted: that Congress envisioned in enacting this provision.

Deleted: The prospect of increasing sugarcane ethanol imports from South America Brazil coupled with increasing exports of domestic conventional ethanol may not result in the energy security nor

GHG benefits envisioned in EISA. Comment [A21]: 1/22/2013

– Similar to comment A11, request EPA to provide further support for the energy security and GHG benefits statement. Or, solicit further information or data to support the statement.

Other suggestions provided on imports and dome stic production.

Comment [A22]: Disagree with the edits. In the final RFS2 rule, we specifically analyzed the energy security benefits of importing biofuels from other countries, and found that there are benefits. See 75

FR 14840

- 14841.

“ As the U.S. relies

more heavily on biofuels, such as corn based ethanol, there could be adverse consequences from a supply

- disruption perspective associated with, for example, a long

- term drought. Alternatively, a supply disruption of petroleum will more likely be caused by

geop olitical factors rather than extreme weather conditions. Hence, the causal factors of a supply

- disruption from imported petroleum and, alternatively, biofuels, are likely to be unrelated. Thus, diversifying the sources of U.S. transportation fuel is expect ed to provide energy security benefits. Biofuel supply disruptions are represented based on the historical volatility of yields for biofuel feedstocks or similar crops. The ORNL estimates this macroeconomic/disruption component of the energy security benef it (oil market and biofuel market impacts combined) is $6.56/barrel (2007$) for the year 2022,

as shown in Table VIII.B.2

– 1.”

Deleted: these

Deleted:

. Comment [A23]: 1/24/2013

– Some suggested

edits.*** E.O. 12866 Review

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Page 44 of 58 Nevertheless, we recognize that some uncertainty exists in the projected availability of other advanced biofuels. The single largest source, Brazilian sugarcane ethanol, was exported at

lower total volumes in 2010

- 2012 than the U.S. would need in 2013 to meet the 2.75 bill gal advanced biofuel requirement. Moreover, the need for 666 mill gal of Brazilian sugar ethanol in 2013 exceeds all historical volumes of ethanol imported into the U.S. from Brazil by a substantial margin. There may be enough uncertainty to warrant a more cautious approach to

advanced biofuel and total renewable fuel in 2013 , for example a reduction of 200 mill gal to approximate the uncertainty discussed above. Therefore, while we are not proposing to reduce the req uired volumes of advanced biofuel and total renewable fuel for 2013, we request comment

on whether and to what extent a reduction is warranted ; we have the discretion to reduce the advanced biofuel volume requirement for 2013 by up to the amount that the c ellulosic biofuel volume requirement is reduced (986 mill gal in today's proposal). Were we to do so, as discussed in Section III.A, we would also simultaneously reduce the total renewable fuel requirement by the same amount.

The overall cost impact of reducing the advanced biofuel and total renewable fuel volume

mandates would depend on a number of factors, such as the future cost of petroleum, 2012/2013 crop production, the number of additional advanced biofuel pathways that are approved over the

ne xt year, and the time it w ould take for facilities using new advanced pathways to begin generating RIN s

.

In 2014, the advanced biofuel requirement rises substantially to 3.75 bill gal. Thus regardless of whether we reduce the advanced biofuel and total renewable fuel volume requirements for 2013, we also seek comment on whether such a reduction should be considered for 2014, the basis for such a reduction, and the amount of that reduction.

D. Consideration of the Ethanol Blendwall

As the volume requirements of the RFS program increase, it becomes more likely that the volume of ethanol that must be consumed to meet those requirements will exceed the volume

that can be consumed as E10. Additional volumes of ethanol must then be consu med as higher

blend levels such as E15 or E85. While other non

- ethanol biofuels can also be used to meet the RFS requirements, ethanol has predominated and will likely continue to predominate in the near

future. As a result, s ome stakeholders have indica ted that the volume of ethanol that can be legally and practically consumed in 201 3 is a limiting factor in how much renewable biofuel can

be consumed.

In the context of the analyses conducted to support the d ecision r egarding r equests for a

w aiver of the r enewable f uel s tandard , we estimated that the number of excess RINs generated in

2012 that could be carried over to 2013 will be on the order of 2.6 billion. 42 Since this number of carryover RINs falls below the rollover cap imposed by §80.1427(a)(5), all of them can be used for compliance purposes in 2013. As a result, we expect that the RFS demand for physical gallons of ethanol will be significantly less than the E10 saturation point (the blendwall) , and

42 77 FR 70759*** E.O. 12866 Review

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Page 45 of 58 thus there would be no dependence on significant volumes of E15

- E85 in 2013

. This remains the case regardless of whether EPA were to reduce the advanced biofuel and total renewable fuel volume requirements as described in Section III.C above. Nevertheless, we request comment on

whether th e blendwall presents an y difficulty in terms of compliance with the RFS volume requirements in 2013.

In 2014, the situation could be different. T here are a number of factors that will play a role in determining how regulated parties will demonstrate com pliance with the applicable RFS volumes. First, the advanced biofuel and total renewable fuel requirement s rise substantially to 3.75 bill gal and 18.15 bill gal respectively . This increase in volume

, combined with the corn

ethanol volume expected to mee t the total renewable fuel standard, could cause the total ethanol

volume used to comply with the RFS program to be higher than 16 bill gal. While non

- ethanol biofuels are also anticipated to continue to grow to help supply the advanced biofuel standard, this value gives some estimate of the amount of ethanol that might need to be used to comply with the RFS program in 2014. Second, the number of carryover RINs will also be a critical factor in determining whether obligated parties can acquire sufficient RINs to show compliance

with the RFS volume requirement s. However, t he number of carryover RINs into 2014 will almost certainly be lower than for 2013. EPA will continue to engage with stakeholders on this issue as we project the RFS volume requirements for 2014.*** E.O. 12866 Review

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Page 46 of 58 IV. Proposed Percentage Standards for 2013

A. Background

The renewable fuel standards are expressed as volume percentages and are used by each refiner, blender, or importer to determine their renewable volume obligations (RVO). Since there are four separate standards under the RFS2 program, there are likewise f our separate RVOs applicable to each obligated party. Each standard applies to the sum of all gasoline and diesel produced or imported. The applicable percentage standards are set so that if every obligated party meets the percentages, then the amount of renewable fuel, cellulosic biofuel, biomass

- based diesel, and advanced biofuel used will meet the volumes required on a nationwide basis.

As discussed in Section II.D, we are proposing a required volume of cellulosic biofuel for

2013 of 11 million gal lons ( 14 million ethanol

- equivalent gallons). The volume we select for the final rule will be used as the basis for setting the percentage standard for cellulosic biofuel for 2013. We are also proposing that the advanced biofuel and total renewable fuel volumes would not be reduced below the applicable volumes specified in the statute. The biomass

- based diesel volume for 2013 has been established at 1.28 billion gallons through a separate rulemaking. The volumes used to determine the four proposed perc entage standards are shown in Table IV.A

- 1.

Table IV.A

- 1 Proposed Volumes for Use in Setting the Applicable Percentage Standards for 2013 a

Cellulosic biofuel 14 mill gal

Biomass

- based diesel 1.28 bill gal

Advanced biofuel 2.75 bill gal

Renewable fuel 16.55 bill gal

a Due to the manner in which the percentage standards are calculated, all volumes are given in terms of ethanol

equivalent except for biomass

- based diesel which is given in terms of physical volume

As with previous years’ renewable fuels standards determination, the formulas used in deriving the annual standards are based in part on estimates of the volumes of gasoline and diesel fuel, for both highway and nonroad uses, that are projected to be used in the year in which the

standards will apply. Producers of other transportation fuels, such as natural gas, propane, and electricity from fossil fuels, are not subject to the standards, and volumes of such fuels are not used in calculating the annual standards. Since the standards apply to p roducers and importers of gasoline and diesel, these are the transportation fuels used to set the standards, and then again to determine the annual volume obligations of an individual gasoline or diesel producer or importer.

B. Calculation of Standards

1. How Are the Standards Calculated?

The following formulas are used to calculate the four percentage standards applicable to producers and importers of gasoline and diesel (see §80.1405):*** E.O. 12866 Review

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Page 47 of 58 Where

Std CB,i = The cellulosic biofuel standard for year i, in percent.

Std BBD,i = The biomass

- based diesel standard (ethanol

- equivalent basis) for year i, in percent.

Std AB,i = The advanced biofuel standard for year i, in percent.

Std RF,i = The renewable fuel standard for year i, in percent.

RFV CB,i = Annual volume of cellulosic biofuel required by section 211(o) of the Clean Air

Act for year i, in gallons.

RFV BBD,i = Annual volume of biomass

- based diesel required by section 211(o) of the Clean

Air Act for year i, in gallons.

RFV AB,i = Annual volume of advanced biofuel required by section 211(o) of the Clean Air

Act for year i, in gallons.

RFV RF,i = Annual volume of renewable fuel required by section 21 1(o) of the Clean Air Act

for year i, in gallons.

G i = Amount of gasoline projected to be used in the 48 contiguous states and Hawaii, in

year i, in gallons.

D i = Amount of diesel projected to be used in the 48 contiguous states and Hawaii, in

year i, in gallons.

RG i = Amount of renewable fuel blended into gasoline that is projected to be consumed

in the 48 contiguous states and Hawaii, in year i, in gallons.*** E.O. 12866 Review

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Page 48 of 58 RD i = Amount of renewable fuel blended into diesel that is projected to be consumed in

the 48 contiguous states and Hawaii, in year i, in gallons.

GS i = Amount of gasoline projected to be used in Alaska or a U.S. territory in year i if

the state or territory opts

- in, in gallons.

RGS i = Amount of renewable fuel blended into gasoline that is projected to be consumed

in Alaska or a U.S. territory in year i if the state or territory opts

- in, in gallons.

DS i = Amount of diesel projected to be used in Alaska or a U.S. territory in year i if the

state or territory opts

- in, in gallons.

RDS i = Am ount of renewable fuel blended into diesel that is projected to be consumed in

Alaska or a U.S. territory in year i if the state or territory opts

- in, in gallons.

GE i = Amount of gasoline projected to be produced by exempt small refineries and

small refiners in year i, in gallons, in any year they are exempt per §§80.1441 and 80.1442, respectively. For 2013, this value is zero. See further discussion in

Section IV.B.2 below.

DE i = Amount of diesel projected to be produced by exempt small refineries and small

refiners in year i, in gallons, in any year they are exempt per §§80.1441 and 80.1442, respectively. For 2013, this value is zero. See further discussion in

Section IV.B.2 below.

The Act requires EPA to base the standards on an EIA estimate o f the amount of gasoline and diesel that will be sold or introduced into commerce for that year. The four separate renewable fuel standards for 2013 are based on the gasoline , ethanol, diesel , and biodiesel consumption volumes projected by EIA

. 43 We adjus ted these nationwide values to represent the 49 states that participate in the RFS program (neither Alaska nor any U.S. territory participates).

43 Letter, Adam Sieminski, Administrator, U.S. Energy Information Administration, to Lisa P. Jackson, Administrator, U.S. EPA, October 18, 2012.*** E.O. 12866 Review

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Page 49 of 58 2. Small Refineries and Small Refiners

In CAA section 211(o)(9), enacted as part of the Energy Policy Act of 2005, Congress provided a temporary exemption to small refineries (those refineries with a crude throughput of no more than 75,000 barrels of crude per day) through December 31, 2010. In our initial rulemaking to implement the new RFS program 44 , we exercised our discretion under section 211(o)(3)(B) and extended this temporary exemption to the few remaining small refiners that met the Small Business Administration’s (SBA) definition of a small business (1,500 employees or less company

- wide) but did not meet the statutory small refinery definition as noted above. 40 CFR §§ 80.1141, 80.1142. Because EISA did not alter the small refinery exemption in any way, the RFS2 program regulations maintained the exemptions for gasoline and diesel produced

b y small refineries and small refiners through 2010 (unless the exemption was waived). See 40 CFR §§ 80.1441, 80.1442.

Congress provided two ways that small refineries can receive a temporary extension of the exemption beyond 2010 . One is based on th e results of a study conducted by the Department of Energy (DOE) to determine whether small refineries would face a disproportionate economic hardship under the RFS program. The other is based on EPA determination of disproportionate economic hardship on a case

- by

- case basis in response to refiner petitions

In January 2009, DOE issued a study which did not find that small refineries would face a disproportionate economic hardship under the RFS program. 45 The conclusions were based in part on the expected robust availability of RINs and EPA’s ability to grant relief on a case

- by

case basis. As a result, beginning in 2011 small refiners and small refineries were required to participate in the RFS program as obligated parties, and there was no small refiner/refine ry volume adjustment to the 2011 standards as there was for the 2010 standards.

Following the release of DOE's 2009 small refinery study, Congress directed DOE to complete a reassessment and issue a revised report. In March of 2011 DOE re

- evaluated the impacts of the RFS program on small entities and concluded that some small refineries would suffer a disproportionate hardship. 46 As a result, EPA exempted these refineries from being obligated parties for two additional years, 2011 and 2012. 47 The 2012 s tandards established in the January 9, 2012, final rulemaking reflected the exemption of these refineries. We are seeking comment on whether it would be appropriate to extend the two year exemption for small refineries as discussed in section 211 (o)(9)(A) (ii)(II).

EPA may also extend the exemption for individual small refineries or small refiners on a

case

- by

- case basis if they demonstrate disproportionate economic hardship. 40 CFR §§ 80.1441(e)(2), 80.1442(h). EPA has granted some exemptions pursuant to this process that apply in 2011 and 2012. However, at this time, no exemptions have been approved for 2013.

44 72 FR 23900, May 1, 2007.

45 DOE report “EPACT 2005 Section 1501 Small Refineries Exempt ion Study” , (January, 2009).

46 "Small Refinery Exemption Study: An Investigation into Disproportionate Economic Hardship," U.S. Department of Energy, March 2011.

47 Since the standards are applied on an annual basis, the exemptions are likewise on an annual basis even though the determination of which refineries would receive an extension to their exemption did not occur until after January 1,

2011. Deleted: an

Deleted:

. We approved a number encourage any producers of extensions to gasoline and/or diesel who believe that they may be eligible under the small refinery exemption for provision to send a petition to the EPA under the provisions of §80.1441 or §80.1442. ¶

Moved (insertion) [1]

Comment [A24]: 1/24/2013

– Suggest leaving the request for comment in this paragraph as it

makes it clear tha t the comment is concerning the extension of the exemptions based on the DOE study. Putting this sentence at the beginning of the last paragraph in this section makes it seem as if EPA is taking comment on whether all exemptions should be provided or not.

Deleted:

Deleted: We are seeking comment on whether it would be appropriate to extend the two year exemption for small refineries as discussed in section 211 (o)(9)(A)(ii)(II). ¶

Comment [A25]: 1/24/2013*** E.O. 12866 Review

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Page 50 of 58 Therefore , for this proposal we have calculated the proposed 2013 standards without a small refinery/small refiner adjustment.

Note that if exemptions under section 211 (o)(9) (A)(ii)(ll) were granted before finalizing the standards, or if an individual small refinery or small refiner requests an exemption under section 211(o)(9)(B) and is approved following the release of this NPRM and prior to issuance of the final rule, the final standards will be adjusted to account for the exempted volumes of gasoline and diesel. Any requests for exemptions that are approved after the release of the final 2013 RFS standards will not affect the 2013 standards. As stated in the final rule establishing the 2011 standards, “EPA believe s the Act is best interpreted to require issuance of a single annual standard in November that is applicable in the following calendar year, thereby providing advance notice and certainty to obligated parties regarding their regulatory requirements.

Perio dic revisions to the standards to reflect waivers issued to small refineries or refiners would be inconsistent with the statutory text, and would introduce an undesirable level of uncertainty for obligated parties.” Thus, after the 2013 standards are fina lized, any additional exemptions

for small refineries or small refiners that are issued will not affect those 2013 standards. EPA requests comment on whether it is appropriate for the agency to make changes to the 2013 volumes if small refiner exemptio ns are granted after the final rule is issued.

We encourage any producers of gasoline and/or diesel who believe that they may be eligible under the s mall refinery or small refiner exemption provision to send a petition to the EPA under the provisions of §80.1441 or §80.1442. We believe that the approach EPA is currently using to assess disproportionate economic hardships for small refineries and small

refiners appropriately addresses the intent of the statutory provision and the needs of the affected parties.

3. Proposed Standards

As specified in the March 26, 2010 RFS2 final rule 48 , the percentage standards are based

on energy

- equivalent gallons of renewable fuel, with the cellulosic biofuel, advanced biofuel, and total renewable fuel standards based on ethanol equivalence and the biomass

- based diesel

standard based on biodiese l equivalence. However, all RIN generation is based on ethanol

equivalence. More specifically, the RFS2 regulations provide that production or import of a gallon of qualifying biodiesel will lead to the generation of 1.5 RINs. In order to ensure that

de mand for 1.28 billion physical gallons of biomass

- based diesel will be created in 2013, the

calculation of the biomass

- based diesel standard provides that the required volume be multiplied by 1.5. The net result is a biomass

- based diesel gallon being wort h 1.0 gallon toward the

biomass

- based diesel standard, but worth 1.5 gallons toward the other standards.

The levels of the percentage standards would be reduced if Alaska or a U.S. territory chooses to participate in the RFS2 program, as gasoline and die sel produced in or imported into that state or territory would then be subject to the standard. Neither Alaska nor any U.S. territory has chosen to participate in the RFS2 program at this time, and thus the value of the related terms

in the calculation of the standards is zero.

48 75 FR 14716, Ma rch 26, 2010. Deleted: As a result

Moved up [1]: We are seeking comment on whether it would be appropriate to extend the two year exemption for small refineries as discussed in section 211 (o)(9)(A)(ii)(II).

Formatted: Highlight Deleted: such

Formatted: Highlight

Formatted: Highlight

Comment [A26]: 1/24/2013

– Suggest maintain these sentences. This was part of the original language that EPA had submitted and makes clear

that once the final rule is issued that EPA does not change the volume/obligations. The last sentence

was an add as in the 2011 volumes rule, commenters complained that EPA did not make this clear and that

EPA did not take comment on this.

Deleted: This adjustment would add a proportionate increase in volume and cost to all other obligated parties.

Formatted: Highlight

Formatted: Indent: First line: 0.5" Comment [A27]: 1/24/2013

– Commenter suggests that EPA should focus on the statutory provisions which ask whether small refiners experien ce a disproportionate 2011 volumes rule, commenters complained that EPA did not make this

clear and that EPA did not take comment on this. in

teh f t affected as opposed to the effects on other obligated parties.

Formatted: Highlight

Formatted: Highlight

Formatted: Highlight

Deleted: However, if an individual small refinery or small refiner requests an exemption and is approved following the release of this NPRM and

p rior to issuance of the final rule , the final standards will be adjusted to account for the exempted volumes of gasoline and diesel. We encourage any producers of gasoline and/or diesel who believe that they may be eligible under the small refinery
exempt ion provision to send a petition to the EPA under the provisions of §80.1441 or §80.1442 , the final standards will be adjusted to account for the exempted volumes of gasoline and diesel. Any requests for exemptions that are approved after the

release of t he final 2013 RFS standards will not

affect the 2013 standards. As stated in the final rule establishing the 2011 standards, “EPA believes the Act is best interpreted to require issuance of a single annual standard in November that is applicable in the

fo llowing calendar year, thereby providing advance notice and certainty to obligated parties regarding their regulatory requirements. Periodic revisions to

the standards to reflect waivers issued to small

refineries or refiners would be inconsistent with th e statutory text, and would introduce an undesirable level of uncertainty for obligated parties.” Thus, after the 2013 standards are finalized, any additional

... Deleted: ¶*** E.O. 12866 Review

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Page 51 of 58 Note that because the gasoline and diesel volumes estimated by EIA include renewable fuel use, we must subtract the total renewable fuel volumes from the total gasoline and diesel volumes to get total non

- renewable gasoline and di esel volumes. The values of the variables

described above are shown in Table IV.B.3

- 1. 49 Terms not included in this table have a value of

zero.

Table IV.B.3

- 1

Values for Terms in Calculation of the Standards (bill gal)

Term Value

RFV CB,2013 0. 014

RFV BBD,2013 1.28

RFV AB,2013 2.75

RFV RF,2013 16.55

G 2013 13 3.70

D 2013 52.26

RG 2013 12.85

RD 2013 1.23

Using the volumes shown in Table IV.B.3

- 1, we have calculated the proposed percentage

standards for 2013 as shown in Table IV.B.3

- 2.

Table IV.B.3

- 2 Proposed Percentage Standards for 2013

Cellulosic biofuel 0. 0 0 8 %

Biomass

- based diesel 1.1 2 %

Advanced biofuel 1.6 0 %

Renewable fuel 9.63 %

49 To determine the 49

- state values for gasoline and diesel, the amounts of these fuels used in Alaska is subtracted from the totals provided by DOE. The Alaska fractions are determined from the most recent (2010) EIA State Energy Data, Trans portation Sector Energy Consumption Estimates. The gasoline and transportation distillate fuel oil fractions are approximately 0.2% and 0. 7 %, respectively. Ethanol use in Alaska is estimated at 11.2% of its gasoline consumption (based on the same State d ata), and biodiesel use is assumed to be zero.*** E.O. 12866 Review

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Page 52 of 58 V. Public Participation

We request comment on all aspects of this proposal. This section describes how you can participate in this process.

A. How Do I Submit Comments?

We are opening a formal comment period by publishing this document. We will accept comments during the period indicated under the DATES section above. If you have an interest in the proposed standards, we encourage you to comment on any aspect of this rulemaking. We also request comment on specific topics identified throughout this proposal.

Your comments will be most usefu l if you include appropriate and detailed supporting rationale, data, and analysis. Commenters are especially encouraged to provide specific suggestions for any changes that they believe need to be made. You should send all comments, except those contain ing proprietary information, to our Air Docket (see ADDRESSES section above) by the end of the comment period.

You may submit comments electronically, by mail, or through hand delivery/courier. To ensure proper receipt by EPA, identify the appropriate docket identification number in the subject line on the first page of your comment. Please ensure that your comments are submitted within the specified comment period. Comments received after the close of the comment period

will be marked “late.” EPA is not required to consider these late comments. If you wish to submit Confidential Business Information (CBI) or information that is otherwise protected by statute, please follow the instructions in Section VI.B below.

B. How Should I Submit CBI to the A gency?

Do not submit information that you consider to be CBI electronically through the electronic public docket, www.regulations.gov, or by e

- mail. Send or deliver information identified as CBI only to the following address: U.S. Environmental Protectio n Agency, Assessment and Standards Division, 2000 Traverwood Drive, Ann Arbor, MI, 48105, Attention

Docket ID EPA

- HQ

- OAR

- 2012

- 0546. You may claim information that you submit to EPA as CBI by marking any part or all of that information as CBI (if you submi t CBI on disk or CD ROM, mark the outside of the disk or CD ROM as CBI and then identify electronically within the disk or CD ROM the specific information that is CBI). Information so marked will not be disclosed except in accordance with procedures set f orth in 40 CFR part 2.

In addition to one complete version of the comments that include any information claimed as CBI, a copy of the comments that does not contain the information claimed as CBI must be submitted for inclusion in the public docket. If y ou submit the copy that does not contain CBI on disk or CD ROM, mark the outside of the disk or CD ROM clearly that it does not contain CBI. Information not marked as CBI will be included in the public docket without*** E.O. 12866 Review

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Page 53 of 58 prior notice. If you have any questio ns about CBI or the procedures for claiming CBI, please consult the person identified in the FOR FURTHER INFORMATION CONTACT section.*** E.O. 12866 Review

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Page 54 of 58 VI. Statutory and Executive Order Reviews

A. Executive Order 12 866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is a "significant regulatory action” because it raises novel legal or polic y issues arising out of legal mandates, the President’s priorities, or the principles set forth in the Executive Order. Accordingly, EPA submitted this action to the Office of Management and Budget (OMB) for review under Executive Orders 12866 and 13563 ( 76 FR 3821, January 21, 2011) and any changes made in response to OMB recommendations have been documented in the docket for

this action.

The economic impacts of the RFS2 program on regulated parties, including the impacts of the required volumes of renewable fuel, were already addressed in the RFS2 final rule promulgated on March 26, 2010 (75 FR 14670). With the exception of cellulosic biofuel, this action proposes the percentage standards applicable in 2013 based on the volumes that were analyzed i n the RFS2 final rule.

B. Paperwork Reduction Act

This action does not impose an information collection burden under the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. Burden is defined at 5 CFR 1320.3(b). This proposed rule does no t impose any additional reporting requirements on regulated parties beyond those already required under the RFS program; therefore, there will not be any additional reporting burdens on entities impacted by this regulation. This action merely proposes, as required by section 211(o) of the Clean Air Act, the RFS annual standards for 2013.

C. Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute unless the agency certifies that the rule will not have a significant economic impact on a substantial number of

small entities. Small entities include small businesses, small organizations, and small governmental jurisdictions.

For purposes of assessing the impacts of today's rule on small entities, small entity is defined as: (1) a small business as defined by the Small Business Administration’s (SBA) regulations at 13 CFR 121.201; (2) a small governmental jurisdiction that is a government of a city, county, town, school district or special district with a population of less than 50,000; and (3) a small organization that is any not

- for

- profit enterpris e which is independently owned and operated and is not dominant in its field.*** E.O. 12866 Review

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Page 55 of 58 After considering the economic impacts of today’s proposed rule on small entities, we certify that this proposed action will not have a significant economic impact on a substan tial number of small entities. This rule proposes the annual standard for cellulosic biofuel for 2013 at 14 mill gal

. Since small refiners and small refineries collectively comprise about 11.9% of gasoline and 15.2% of diesel production 50

, for an average of 12.9% for the entire gasoline + diesel pool, small refiners and small refineries would only be required to collectively meet a cellulosic biofuel requirement of about 1.8 mill gal (14 x 12.9%). At a projected cellulosic biofuel waiver credit price of $ 0 .42 , the cost of complying with this requirement would total

about $ 0.7 6 mill ion for the approximately 60 obligated parties that would be aff e cted, or about $12, 6 00 per facility on average

.

The impacts of the RFS2 program on small entities were already addressed in the RFS2 final rule promulgated on March 26, 2010 (75 FR 14670), and this proposed rule will not impose any additional requirements on small entities. However, w e continue to be interested in the potential impacts of the proposed rule on smal l entities and welcome comments on issues related to such impacts.

D. Unfunded Mandates Reform Act

This proposed action contains no Federal mandates under the provisions of Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), 2 U.S.C. 1531

- 1538 for State, local, or tribal governments or the private sector. This action implements mandate(s) specifically and explicitly set forth by the Congress in Clean Air Act section 211(o) without the exercise of any policy discretion by EPA. Therefore, this action is not subject to the requirements of sections 202 or

205 of the UMRA.

This action is also not subject to the requirements of section 203 of UMRA because it contains no regulatory requirements that might significantly or uniquely affect small

gove rnments. This proposed rule only applies to gasoline, diesel, and renewable fuel producers, importers, distributors and marketers and merely proposes the 2013 annual standards for the RFS

program.

E. Executive Order 13132: Federalism

This action does not have federalism implications. It will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. This action proposes the 2013 annual standards for the RFS program and only applies to gasoline, diesel, and renewable fuel producers, importers,

distributors and marketers. Thus, Executive Order 131 32 does not apply to this rule.

50 Estimates from RFS2 final rule, 75 FR 14867.*** E.O. 12866 Review

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Page 56 of 58 In the spirit of Executive Order 13132, and consistent with EPA policy to promote communications between EPA and State and local governments, EPA specifically solicits comment on this proposed rule from State and local o fficials.

F. Executive Order 13175: Consultation and Coordination with Indian Tribal

Governments

This action does not have tribal implications, as specified in Executive Order 13175 (65 FR 67249, November 9, 2000). This proposed rule will be implemented at the Federal level and affects transportation fuel refiners, blenders, marketers, distributors, importers, exporters, and renewable fuel producers and importers. Tribal governments would be affected only to the extent they purchase and use r egulated fuels. Thus, Executive Order 13175 does not apply to

this action.

EPA specifically solicits additional comment on this proposed action from tribal officials.

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

EPA interprets EO 13045 (62 FR 19885, April 23, 1997) as applying only to those regulatory actions that concern health or safety risks, such that the analysis required under

section 5

- 501 of the EO has the potential to influence the regu lation. This action is not subject to EO 13045 because it does not establish an environmental standard intended to mitigate health or safety risks and because it implements specific standards established by Congress in statutes (section 211(o) of the Clea n Air Act).

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

This action is not a “significant energy action” as defined in Executive Order 13211, “Actions Concerning Regulations Th at Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355 (May 22, 2001)) because it is not likely to have a significant adverse effect on the supply, distribution, or use of energy. This action simply proposes the annual standards for

ren ewable fuel under the RFS program for 2013.

I. National Technology Transfer and Advancement Act

Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (‘‘NTTAA’’), Public Law 104

– 113, 12(d) (15 U.S.C. 272 note) directs EPA to use voluntary consensus standards in its regulatory activities unless to do so would be inconsistent wi th applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., materials specifications, test methods, sampling procedures, and business practices) that are*** E.O. 12866 Review

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Page 57 of 58 developed or adopted by voluntary consensus standards bo dies. NTTAA directs EPA to provide Congress, through OMB, explanations when the Agency decides not to use available and applicable voluntary consensus standards.

This proposed rulemaking does not involve technical standards. Therefore, EPA is not

consi dering the use of any voluntary consensus standards.

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

- Income Populations

Executive Order (EO) 12898 (59 FR 7629 (Feb. 16, 1994)) establishes fede ral executive policy on environmental justice. Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disprop ortionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and low

income populations in the United States.

EPA has determined that this proposed rule will not have disproportionately high and adverse human health or environmental effects on minority or low

- income populations because it does not affect the level of protection provided to human health or the environment. This action does not relax the control measures on sources regulated by the RFS regulations and therefore

will not cause emissions increases from these sources.*** E.O. 12866 Review

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Page 58 of 58 VII. Statutory Authority

Statutory authority for this action comes fr om section 211 of the Clean Air Act, 42 U.S.C. 7545. Additional support for the procedural and compliance related aspects of today’s proposal, come from Sections 114, 208, and 301(a) of the Clean Air Act, 42 U.S.C. Sections 7414, 7542, and 7601(a).

List of Subjects in 40 CFR Part 80

Administrative practice and procedure, Air pollution control, Diesel fuel, Environmental protection, Fuel additives, Gasoline, Imports, Oil imports, Petroleum.

Dated:

Lisa P. Jackson,

Administrator.*** E.O. 12866 Review

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Page 59 of 58 For the reasons set forth in the preamble, 40 CFR part 80 is amended as follows:

PART 80

— REGULATION OF FUELS AND FUEL ADDITIVES

1. The authority citation for part 80 continues to read as follows: Authority: 42 U.S.C. 7414, 7542, 7545, and 7601(a).

2. Section 80.1405 is amended by adding paragraph (a)(4) to read as follows:

§ 80.1405 What are the Renewable Fuel Standards? (a) * * * (4) Renewable Fuel Standards for 2013. (i) The value of the cellulosic biofuel standard for 2013 shall be 0.0 08 percent. (ii) The value of the biomass

- based diesel standard for 2013 shall be 1.1 2 percent. (iii) The value of the advanced biofuel standard for 2013 shall be 1.6 0 percent. (iv) The value of the renewable fuel standard for 2013 shall be 9.63 percent.