From: Simon, Karl

Sent: Friday, October 25, 2013 12:38 PM

To: Laity, Jim

Cc: Whiteman, Chad; Thomas, Amanda I.; Machiele, Paul; Hannon, John Subject: RE: RFS language

Thanks Jim. What I believe was agreed to is that the language below was going to be revised

and then shared with us. Revisions were going to be made based on the discussions yesterday. Hope this helps.

Karl

From: Laity, Jim [ mail to:James_A._Laity@omb.eop.gov ]

Sent: Thursday, October 24, 2013 7:25 PM

To: Simon, Karl

Cc: Whiteman, Chad; Thomas, Amanda I. Subject: RFS language

Karl, I had to leave the meeting early but I understand this language was passed out and

discussed and it was agreed that we would forward to you and that you would see if you could

work with it. Just to be clear, our primary interest is in preserving maximum flexibility for the

final rule. However this unfolds, we don’t want to be in a position where we can ’t do whatever seems right at the time of the final rule bc of notice and comment issues. Having said this, we are not wedded to this language. We are looking for a neutral way to raise these issues that will not undercut the logic of the NPRM, in case t hey prove useful to us later. But I’m sure your folks can improve on it.

I would also like to chat with you asap about economic analysis of the final rule. As you recall, we raised this issue early on and it was agreed that it needed to be addressed a t a higher level. Andrei and Joel have now chatted about it, and I think we are ready to discuss what would be feasible and appropriate. We have some thoughts (eg, about baseline) that may be helpful. Is there a good time for us to talk tomorrow?

Jim, 395

- 5168

Treatment of Uncertainty As discussed in detail above, there is considerable uncertainty in the estimates of the various components from which the required volume for total renewable fuel has been derived. EPA’s proposed approach for dealing wi th this uncertainty is to base the proposed volume on the best available estimate of the actual volume of total renewable fuel that can be supplied and consumed in the market, with the expectation that this estimate will be refined for the final rule

based on more up

- to

- date information and any new information received through the public

comment process. However, EPA is aware of at least two additional perspectives on how to deal with this uncertainty. One approach would recognize that there is greater po tential market disruption associated with overestimating the amount of renewable fuel that can be supplied and consumed than with underestimating it. This may include greater volatility in RIN prices and greater difficulty for obligated parties in obtaini ng RINs and in planning and implementing an orderly compliance strategy. This recognition could suggest that uncertainty should be resolvedin favor of a less binding (lower) standard in order to ensure that the final standard not be above

the level that t he market can reasonably supply and consume. An alternate approach would give greater weight to the effects that the standard itself may have on the ability of the market to supply and consume ethanol. Under this view, a more binding (higher) standard wo uld motivate market participants to promote higher ethanol blends through more aggressive marketing, price competi ti on, and infrastructure upgrades. This view could suggest that uncertainty should be resolved in favor of a higher standard in order to maxi mize the amount of ethanol based renewable fuel consumed and the environmental and energy security benefits it provides. As noted, EPA’s current view is that the best approach for resolving this uncertainty is to neither

underestimate nor overestimate the market’s capacity to supply and consume renewable fuels. EPA requests comment on its proposed approach and the two alternate approaches described

here.