```

[Federal Register Volume 77, Number 5 (Monday, January 9, 2012)]
[Rules and Regulations]
[Pages 1320-1358]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-33451]

[[Page 1319]]

Vol. 77

Monday,

No. 5

January 9, 2012

Part V

Environmental Protection Agency

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40 CFR Part 80

Regulation of Fuels and Fuel Additives: 2012 Renewable Fuel Standards; 
Final Rule

Federal Register / Vol. 77 , No. 5 / Monday, January 9, 2012 / Rules 
and Regulations

[[Page 1320]]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2010-0133; FRL-9614-4]
RIN 2060-AQ76

Regulation of Fuels and Fuel Additives: 2012 Renewable Fuel 
Standards

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: Under the Clean Air Act Section 211(o), the Environmental 
Protection Agency is required to set the renewable fuel standards each 
November for the following year. In general the standards are designed 
to ensure that the applicable volumes of renewable fuel specified in 
the statue are used. However, the statute specifies that EPA is to 
project the volume of cellulosic biofuel production for the upcoming 
year and must base the cellulosic biofuel standard on that projected 
volume if it is less than the applicable volume set forth in the Act. 
EPA is today finalizing a projected cellulosic biofuel volume for 2012 
and annual percentage standards for cellulosic biofuel, biomass-based 
diesel, advanced biofuel, and renewable fuels that will apply to all 
gasoline and diesel produced or imported for domestic use in year 2012. 
In the NPRM we also proposed an applicable volume of 1.28 billion 
gallons for biomass-based diesel for 2013. The statute specifies that 
the minimum volume of biomass-based diesel for years 2013 and beyond 
must be at least 1.0 billion gallons. We are continuing to evaluate the 
many comments on the NPRM from stakeholders, and will issue a final 
rule setting the applicable biomass-based diesel volume for calendar 
year 2013 as expeditiously as practicable. This action also presents a 
number of changes to the RFS2 regulations that are designed to clarify 
existing provisions and to address several unique circumstances that 
have come to light since the RFS2 program became effective on July 1, 
2010. Finally, today's rule also makes a minor amendment to the 
gasoline benzene regulations regarding inclusion of transferred 
blendstocks in a refinery's early benzene credit generation 
calculations.

DATES: This final rule is effective on January 9, 2012.

ADDRESSES: EPA has established a docket for this action under Docket ID 
No. EPA-HQ-OAR-2010-0133. 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 material, 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 Constitution 
Ave. NW., Washington, DC. The Public Reading Room is open from 8:30 
a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The 
telephone number for the Public Reading Room is (202) 566-1744, and the 
telephone number for the Air Docket 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; 
Email address: macallister.julia@epa.gov, or Assessment and Standards 
Division Hotline; telephone number (734) 214-4636; Email address 
OTAQPUBLICWEB@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 such as 
ethanol and biodiesel. Potentially regulated categories include:

----------------------------------------------------------------------------------------------------------------
                                                NAICS \1\                     Examples of potentially regulated
                  Category                        Codes       SIC \2\ Codes                entities
----------------------------------------------------------------------------------------------------------------
Industry...................................          324110            2911  Petroleum Refineries.
Industry...................................          325193            2869  Ethyl alcohol manufacturing.
Industry...................................          325199            2869  Other basic organic chemical
                                                                              manufacturing.
Industry...................................          424690            5169  Chemical and allied products
                                                                              merchant wholesalers.
Industry...................................          424710            5171  Petroleum bulk stations and
                                                                              terminals.
Industry...................................          424720            5172  Petroleum and petroleum products
                                                                              merchant wholesalers.
Industry...................................          454319            5989  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 
final action. This table lists the types of entities that EPA is now 
aware could potentially be regulated by this final action. Other types 
of entities not listed in the table could also be regulated. To 
determine whether your activities will be regulated by this final 
action, you should carefully examine the applicability criteria in 40 
CFR part 80. If you have any questions regarding the applicability of 
this final action to a particular entity, consult the person listed in 
the preceding section.

Outline of This Preamble

I. Executive Summary
    A. Standards for 2012
    1. Assessment of 2012 Cellulosic Biofuel Volume
    2. Advanced Biofuel and Total Renewable Fuel in 2012
    3. Percentage Standards for 2012
    4. Historical Renewable Fuel Production
    B. Regulatory Changes
    C. 2012 Price for Cellulosic Biofuel Waiver Credits
    D. Assessment of the Domestic Aggregate Compliance Approach
    E. Assessment of the Canadian Aggregate Compliance Approach
II. Projection of Cellulosic Volume and Assessment of Biomass-Based 
Diesel and Advanced Biofuel for 2012
    A. Statutory Requirements
    B. Cellulosic Biofuel Volume Assessment
    1. Existing Cellulosic Biofuel Facilities
    2. Potential New Facilities in 2012
    3. Imports of Cellulosic Biofuel
    4. Projections From the Energy Information Administration
    5. Comments on the Proposed Rule
    6. Summary of Volume Projections
    C. Advanced Biofuel and Total Renewable Fuel in 2012
    D. Biomass-Based Diesel in 2012

[[Page 1321]]

III. Final Percentage Standards for 2012
    A. Background
    B. Calculation of Standards
    1. How are the standards calculated?
    2. Small Refineries and Small Refiners
    3. Final Percentage Standards
IV. Changes to RFS2 Regulations
    A. Summary of Amendments
    B. Technical Justification for Equivalence Value Application
    C. Changes to Definitions of Terms
    1. Definition of Annual Cover Crop
    2. Definition of ``Naphtha''
    D. Technical Amendments Related to RIN Generation and Separation
    1. RIN Separation Limit for Obligated Parties
    2. RIN Retirement Provision for Error Correction
    3. Production Outlook Reports Submission Deadline
    4. Attest Procedures
    E. Technical Amendments Related to Registration & Recordkeeping
    1. Construction Discontinuance & Completion Documentation
    2. Third-Party Engineering Reviews
    3. Foreign Ethanol Producers
    F. Additional Amendments and Clarifications
    1. Third-Party Engineering Review Addendum
    2. RIN Generation for Fuel Imported From a Registered Foreign 
Producer
    3. Bond Posting
    4. Prohibition Against Repeat Generation of RINs
    5. Acceptance of Separated Yard Waste and Food Waste Separation 
Plans
    6. Transferred Blendstocks in Early Benzene Credit Generation 
Calculations
V. Annual Administrative Announcements
    A. 2011 Price for Cellulosic Biofuel Waiver Credits
    B. Assessment of the Domestic Aggregate Compliance Approach
    C. Assessment of the Canadian Aggregate Compliance Approach
VI. Comments Outside the Scope of This Rulemaking
VII. Public Participation
VIII. Statutory And Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and Review and 
Executive Order 13563: Improving Regulation and Regulatory Review
    B. Paperwork Reduction Act
    C. Regulatory Flexibility Act
    D. Unfunded Mandates Reform Act
    E. Executive Order 13132: Federalism
    F. Executive Order 13175: Consultation and Coordination With 
Indian Tribal Governments
    G. Executive Order 13045: Protection of Children From 
Environmental Health Risks and Safety Risks
    H. Executive Order 13211: Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use
    I. National Technology Transfer Advancement Act
    J. Executive Order 12898: Federal Actions To Address 
Environmental Justice in Minority Populations and Low-Income 
Populations
    K. Congressional Review Act
IX. Statutory Authority

I. Executive Summary

    The Renewable Fuel Standard (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 
Energy Independence and Security Act of 2007 (EISA), resulting in the 
promulgation of revised regulatory requirements on March 26, 2010.\1\ 
The transition from the RFS1 requirements of EPAct to the RFS2 
requirements of EISA generally occurred on July 1, 2010.
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    \1\ 75 FR 14670.
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    Under RFS2, EPA is required to determine and publish the applicable 
annual percentage standards for each compliance year by November 30 of 
the previous year. As part of this effort, EPA must 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. When we lower the applicable volume of cellulosic 
biofuel in this manner, we are also authorized to lower the applicable 
volumes of advanced biofuel and/or total renewable fuel by the same or 
a lesser amount. Since these evaluations are based on evolving 
information about emerging segments of the biofuels industry, and may 
result in the applicable volumes differing from those in the statute, 
we believe that it is appropriate to establish the applicable volumes 
through a notice-and-comment rulemaking process. Today's notice 
provides our final evaluation of the projected production of cellulosic 
biofuel for 2012, our evaluation of whether to lower the applicable 
volumes of advanced biofuel and total renewable fuel, and the final 
percentage standards for compliance year 2012. We are finalizing a 
cellulosic biofuel requirement of 10.45 mill ethanol-equivalent gallons 
for 2012, and are not reducing the advanced biofuel or total renewable 
fuel requirements below the levels specified in the statute. For future 
years, EPA will continue to evaluate whether it is appropriate to 
adjust the volume of advanced and total renewable fuel, if EPA adjusts 
the volume of cellulosic biofuel. In making such determinations, EPA 
will consider all relevant factors. The evaluations that led to these 
2012 volume requirements were based on our evaluation of individual 
producers' production plans and progress, a consideration of comments 
received in response to our notice of proposed rulemaking published on 
July 1, 2011,\2\ the estimate of projected biofuel volumes that the 
Energy Information Administration (EIA) is required to provide to EPA 
by October 31, and other information that became available.
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    \2\ 76 FR 38844.
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    Today's final rule does not include an assessment of the 
environmental impacts of the percentage standards we are setting for 
2012. All of the impacts of the RFS2 program were addressed in the RFS2 
final rule published on March 26, 2010, including impacts of the 
biofuel standards specified in the statute. Today's rulemaking simply 
sets the standards for 2012 whose impacts were already analyzed 
previously.
    Today's notice also finalizes a number of changes to the RFS2 
regulations. These changes are designed to reduce confusion among 
regulated parties and streamline implementation by clarifying certain 
terms and phrases and addressing unique circumstances that came to 
light after the RFS2 program went into effect on July 1, 2010. 
Additionally, this notice also makes a minor amendment to the gasoline 
benzene regulations regarding inclusion of transferred blendstocks in a 
refinery's early benzene credit generation calculations. Further 
discussion of all of these changes can be found in Section IV.
    Finally, in today's rulemaking we are announcing the price for 
cellulosic biofuel waiver credits that will be available for compliance 
with the 2012 cellulosic biofuel requirement, and are also announcing 
the results of our annual assessment of the aggregate compliance 
approach for U.S. crops and crop residue. These announcements are 
provided in Section V.
    EPA is required to determine the applicable volume of biomass-based 
diesel (BBD) that will be required in 2013 and beyond based on 
consideration of a variety of factors, and promulgate regulations 
establishing the volumes. The statute specifies that the volume of 
biomass-based diesel for years 2013 and beyond must be at least 1 
billion gallons. In the NPRM we proposed an applicable volume of 1.28 
bill gallons for BBD for 2013. We are continuing to evaluate the many 
comments on the NPRM from stakeholders as well as fulfilling other 
analytical requirements. In determining

[[Page 1322]]

the BBD applicable volume, the statute requires an analysis of the 
impact of the BBD volume on a variety of factors such as the impact of 
BBD on energy security, transportation fuel costs, job creation, water 
quality, and other factors. EPA intends to gather additional 
information to enhance our analysis of these factors including 
consideration of costs and benefits consistent with the provisions of 
E.O. 13563, to ensure an appropriately balanced decision. For these 
reasons, we are not finalizing an applicable volume for 2013 BBD in 
today's rulemaking. We recognize that the statute calls for EPA to 
promulgate the applicable volume of BBD for 2013 no later than 14 
months before that year. We do intend to issue a final determination 
setting the applicable BBD volume for calendar year 2013 as 
expeditiously as practicable.

A. Standards for 2012

1. Assessment of 2012 Cellulosic Biofuel Volume
    To estimate the volume of cellulosic biofuel that can be made 
available in the U.S. in 2012, we researched all potential production 
sources by company and facility. 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 
primarily focused on research and development work with no intention of 
marketing any fuel produced were not considered for this assessment. 
From this universe of potential cellulosic biofuel sources we 
identified the subset that had a possibility of producing some volume 
of qualifying cellulosic biofuel for use as transportation fuel in 
2012.
    In today's final rule we specify the projected available volume for 
2012 that forms the basis for the percentage standard for cellulosic 
biofuel. To arrive at this final volume, we took into consideration 
additional factors such as the current and expected state of funding, 
the status of the technology, progress towards construction and 
production goals, and other significant factors that could potentially 
impact fuel production or the ability of the produced fuel to generate 
cellulosic Renewable Identification Numbers (RINs). We also considered 
projections of cellulosic biofuel provided by the EIA. Further 
discussion of these factors can be found in Section II.B.
    In our assessment we focused on domestic sources of cellulosic 
biofuel. While imports of cellulosic biofuels are possible and could be 
eligible to generate RINs, we believe this is unlikely due to local 
demand for cellulosic biofuels in the countries in which they are 
produced as well as the cost associated with transporting these fuels 
to the U.S. Of the domestic sources, we estimated that six facilities 
can make volumes of cellulosic biofuel available for transportation use 
in the U.S. in 2012. These facilities are listed in Table I.A.1-1 along 
with our estimate of the projected 2012 volume for each.

                  Table I.A.1-1--Projected Available Cellulosic Biofuel Plant Volumes for 2012
----------------------------------------------------------------------------------------------------------------
                                                                                                   Projected
                                                                                               available  volume
                Company                           Location                  Fuel type           (million ethanol-
                                                                                                   equivalent
                                                                                                    gallons)
----------------------------------------------------------------------------------------------------------------
American Process Inc...................  Alpena, MI...............  Ethanol..................               0.5
Fiberight..............................  Blairstown, IA...........  Ethanol..................               2.0
INEOS Bio..............................  Vero Beach, FL...........  Ethanol..................               3.0
KiOR...................................  Columbus, MS.............  Gasoline, Diesel.........               4.8
KL Energy Corp.........................  Upton, WY................  Ethanol..................               0.1
ZeaChem................................  Boardman, OR.............  Ethanol..................               0.05
                                                                                              ------------------
    Total..............................  .........................  .........................              10.45
----------------------------------------------------------------------------------------------------------------

    Each of the facilities listed in the Table I.A.1-1 are at different 
points in their progress towards the production of commercial volumes 
of cellulosic biofuel. KL Energy Corp. is the only facility in the 
United States currently generating cellulosic biofuel RINs. American 
Process Inc., Fiberight, and ZeaChem all anticipate completing 
construction on their production facilities in late 2011 or early 2012 
and plan to begin producing biofuel soon after their facilities are 
complete. INEOS Bio and KiOR are targeting April 2012 and mid 2012 for 
the start-up of their respective cellulosic biofuel production 
facilities. The variation in these 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 from each these facilities.
2. Advanced Biofuel and Total Renewable Fuel in 2012
    The statute indicates that we may reduce the applicable volume of 
advanced biofuel and total renewable fuel if we determine that the 
projected volume of cellulosic biofuel production for 2012 falls short 
of the statutory volume of 500 million gallons. As shown in Table 
I.A.1-1, we have determined that this is the case. Therefore, we also 
must evaluate the need to lower the applicable volumes for advanced 
biofuel and total renewable fuel.
    To address the need to lower the advanced biofuel standard, we 
first consider whether it appears likely that the biomass-based diesel 
volume of 1.0 billion gallons specified in the statute can be met in 
2012. As discussed in Section II.E, we believe that the 1.0 billion 
gallon standard can indeed be met. Since biodiesel has an Equivalence 
Value of 1.5, 1.0 billion physical gallons of biodiesel would provide 
1.5 billion ethanol-equivalent gallons that can be counted towards the 
advanced biofuel standard of 2.0 billion gallons. Of the remaining 0.5 
bill gallons, 10.45 mill gallons will be met with cellulosic biofuel. 
Based on our analysis as described in Section II.C, we believe that 
there will be sufficient volumes of other advanced biofuels, such as 
imported sugarcane ethanol, additional biodiesel, or renewable diesel, 
such that the applicable volume for advanced biofuel can remain at the 
statutory level of 2.0 billion gallons. In addition, as discussed in 
Section II.C, we believe there will be sufficient volumes to satisfy 
the 15.2 billion gallon applicable

[[Page 1323]]

volume of total renewable fuel specified in the Act, so the 2012 total 
renewable fuel percentage standard is based on that volume.
3. Percentage Standards for 2012
    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 percentages, and if EIA 
projections of gasoline and diesel use are accurate, then the amount of 
renewable fuel, cellulosic biofuel, biomass-based diesel, and advanced 
biofuel used will meet the volumes required on a nationwide basis.
    To calculate the percentage standard for cellulosic biofuel for 
2012, we have used the projected annual volume of 10.45 million 
ethanol-equivalent gallons (representing 8.65 million physical 
gallons). The applicable volumes for biomass-based diesel, advanced 
biofuel, and total renewable fuel for 2012 will be those specified in 
the statute. These volumes are shown in Table I.A.3-1.

                                      Table I.A.3-1--Final Volumes for 2012
----------------------------------------------------------------------------------------------------------------
                                              Actual volume                Ethanol equivalent  volume \a\
----------------------------------------------------------------------------------------------------------------
Cellulosic biofuel....................  8.65 mill gal............  10.45 mill gal.
Biomass-based diesel..................  1.0 bill gal.............  1.5 bill gal.
Advanced biofuel......................  1.3-1.5 \b\ bill gal.....  2.0 bill gal.
Renewable fuel........................  14.5-14.7 \b\ bill gal...  15.2 bill gal.
----------------------------------------------------------------------------------------------------------------
\a\ Biodiesel and cellulosic diesel have equivalence values of 1.5 and 1.7 ethanol equivalent gallons
  respectively. As a result, ethanol-equivalent volumes are larger than actual volumes for cellulosic biofuel
  and biomass-based diesel.
\b\ Range depends on the equivalence values of advanced biofuels other than cellulosic biofuel and biomass-based
  diesel.

    Four separate standards are required under the RFS2 program, 
corresponding to the four separate volume requirements shown in Table 
I.A.3-1. The specific formulas we use to calculate the renewable fuel 
percentage standards are contained in the regulations at Sec.  80.1405 
and repeated in Section III.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 standards in today's final rule was 
provided by EIA.\3\
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    \3\ Letter from Howard K. Gruenspecht, Acting Administrator, 
Energy Information Administration, to Lisa P. Jackson, 
Administrator, EPA. October 19, 2011.
---------------------------------------------------------------------------

    In March 2011, DOE evaluated the impacts of the RFS program on 
small entities and concluded that some small refineries would suffer a 
disproportionate economic hardship if required to participate in the 
program.\4\ As a result, we are required to exempt these few refineries 
from being obligated parties for a minimum of two years (2011 and 
2012), and must also exempt their gasoline and diesel volumes from the 
calculation of the annual percentage standards. In addition, EPA has 
approved a number of individual small refinery petitions submitted 
pursuant to 40 CFR Sec.  80.1441(e)(2) since publication of the 
proposed rule, and has also adjusted the final 2012 percentage 
standards to reflect the exemption of these small refineries from being 
RFS obligated parties in 2012. The final standards for 2012 are shown 
in Table I.A.3-2 and include the adjustment for exempt small refineries 
(which constitute about 3.6% of the gasoline pool and 4.5% of the 
diesel pool). Detailed calculations can be found in Section III.
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    \4\ ``Small Refinery Exemption Study: An Investigation into 
Disproportionate Economic Hardship,'' U.S. Department of Energy, 
March 2011.

           Table I.A.3-2--Final Percentage Standards for 2012
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel...........................................     0.006%
Biomass-based diesel.........................................       0.91
Advanced biofuel.............................................       1.21
Renewable fuel...............................................       9.23
------------------------------------------------------------------------

4. Historical Renewable Fuel Production
    To provide a comparison to the 2012 volume requirements shown in 
Table I.A.3-1, we determined the actual annual production volumes for 
the four RFS categories of renewable fuel. Since data on 2011 
production is currently incomplete, we have shown the production 
volumes for the full year beginning in July 2010 and ending in June 
2011. July 2010 also marks the start of the RFS2 program when data 
collection began with the EPA-Moderated Transaction System (EMTS) on 
production of renewable fuel and generation of RINs.

                    Table I.A.4-1--Production of Renewable Fuel From July 2010-June 2011 \a\
----------------------------------------------------------------------------------------------------------------
                                              Actual volume                Ethanol equivalent  volume \a\
----------------------------------------------------------------------------------------------------------------
Cellulosic biofuel....................  0 mill gal...............  0 mill gal.
Biomass-based diesel..................  0.43 \b\ bill gal........  0.64 \b\ bill gal.
Advanced biofuel......................  0.47 bill gal............  0.70 bill gal.
Renewable fuel........................  14.05 bill gal...........  14.29 bill gal.
----------------------------------------------------------------------------------------------------------------
\a\ Except for biomass-based diesel, data derived from the EPA-Moderated Transaction System (EMTS) at http://www.epa.gov/otaq/fuels/rfsdata/index.htm.
\b\ Due to ongoing investigations of biodiesel RIN generation, these values have been derived from Census Bureau
  data on fats and oils at http://www.census.gov/manufacturing/cir/historical_data/m311k/index.html.

[[Page 1324]]

B. Regulatory Changes

    In today's action we are also finalizing a number of changes to the 
RFS2 regulations. These changes are intended to:
     Clarify certain provisions because we have learned that 
there is some confusion among some regulated parties
     Clarify the application of certain provisions to unique 
circumstances
     Provide greater specificity in the definition of certain 
terms
     Correct regulatory language that inadvertently 
misrepresented our intent
    Today's rule also makes a minor amendment to the gasoline benzene 
regulations regarding inclusion of transferred blendstocks in a 
refinery's early benzene credit generation calculations. A detailed 
discussion of these regulatory changes is provided in Section IV.

C. 2012 Price for Cellulosic Biofuel Waiver Credits

    Since we are reducing the required volume of cellulosic biofuel for 
2012 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 acquiring cellulosic biofuel RINs.\5\ These 
waiver credits are not allowed to be traded or banked for future use, 
are only allowed to be used to meet the 2012 cellulosic biofuel 
standard, and cannot be applied to deficits carried over from 2011. 
Moreover, 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 2012 compliance period, we are making 
cellulosic biofuel waiver credits available to obligated parties for 
end-of-year compliance should they need them at a price of $0.78 per 
credit. Further discussion is provided in Section VI.A.
---------------------------------------------------------------------------

    \5\ One waiver credit would apply to one gallon of an obligated 
party's cellulosic biofuel Renewable Volume Obligation (RVO).
---------------------------------------------------------------------------

D. Assessment of the Domestic Aggregate Compliance Approach

    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 feedstocks 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 residue 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.
    The RFS2 regulations provide that EPA will make a finding 
concerning whether the 2007 baseline amount of U.S. agricultural land 
has been exceeded in a given year and will publish this finding in the 
Federal Register by November 30 of the same year. Based on data 
provided by the USDA, we have estimated that U.S. agricultural land 
reached 392 million acres in 2011, and thus did not exceed the 2007 
baseline acreage.
    We also stated in the preamble to the final RFS2 rule that if, at 
any point, EPA finds that the total agricultural land is greater than 
397 million acres, EPA will conduct further investigations to evaluate 
validity of the domestic aggregate compliance approach. The total 
acreage estimate of 392 million acres does not exceed the trigger point 
for further investigation; therefore EPA does not plan to conduct 
further investigations into this matter. Additional discussion on this 
matter can be found in Section V.B of this preamble.

E. Assessment of the Canadian Aggregate Compliance Approach

    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. On March 15, 2011, EPA issued a 
notice of receipt of and solicited public comment on a petition for EPA 
to authorize the use of an aggregate approach for compliance with the 
Renewable Fuel Standard renewable biomass requirements, submitted by 
the Government of Canada. The petition requested that EPA determine 
that an aggregate compliance approach will provide reasonable assurance 
that planted crops and crop residue from Canada meet the definition of 
renewable biomass.
    The Government of 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 2011 is estimated at 121 million acres. This data was 
presented to EPA in a report titled: Changes to the Renewable Fuel 
Standard Program Aggregate Compliance for Canadian Crops and Crop 
Residues: Data Analysis and Justification Report 2011. This report has 
been docketed at EPA-HQ-OAR-2010-0133. The total acreage estimate of 
121 million acres does not exceed the trigger point for further 
investigation; therefore EPA does not plan to conduct further 
investigations into this matter. Additional discussion on this matter 
can be found in Section V.B of this preamble.

II. Projection of Cellulosic Volume and Assessment of Biomass-Based 
Diesel and Advanced Biofuel for 2012

    In order to project production volume of cellulosic biofuel in 2012 
for use in setting the percentage standard, we 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 2012. This section describes the projected 
available volume of cellulosic biofuel in 2012 as well as some of the 
uncertainties associated with those volumes. Section III describes the 
derivation of the percentage standards that will apply to obligated 
parties in 2012.
    The 2012 volume projections in today's final rule were based on 
several sources of information:
     An estimate from EIA of the volumes of transportation 
fuel, biomass-based diesel, and cellulosic biofuel that they project 
will be sold or introduced into commerce in the U.S. in 2012.
     Progress that the cellulosic biofuel industry is making in 
2011
     Our own assessment of the cellulosic biofuel industry's 
projected volumes for 2012
     Comments in response to the NPRM
    In addition to the sources of information listed above EPA had also 
intended to consider the Production Outlook Reports that are required 
under Sec.  80.1449 for all registered renewable

[[Page 1325]]

fuel producers and importers. These Production Outlook Reports were not 
as useful as EPA had hoped in helping to provide information on the 
intentions of cellulosic biofuel producers in 2012 as very few had 
registered under the RFS program and they were thus not required to 
submit a report. EPA expects that in future years as more cellulosic 
biofuel producers register under the RFS program these reports will 
become of greater value in helping to determine the appropriate 
projected available volume of cellulosic biofuel.
    In directing EPA to project cellulosic biofuel production for 
purposes of setting the annual cellulosic biofuel standard, Congress 
did not specify what degree of certainty should be reflected in the 
projections. However, in response to the NPRM, some commenters cited 
Executive Order 13563 which states that regulations must in general 
``promote predictability and reduce uncertainty.'' We agree that this 
must be a goal in the process of determining the appropriate cellulosic 
biofuel requirement for 2012. The greatest certainty is achieved when 
the level of the standard is firmly established before it becomes 
applicable, and all regulated parties can have confidence regarding 
that standard. Doing this ensures that obligated parties know what 
their obligations will be so that they can begin efforts to meet those 
obligations, and biofuel producers know what baseline demand for their 
product will be so that they can secure financing and ramp up 
production with confidence.
    In contrast to statements made by several obligated parties, 
meeting the dual goals of predictability and reducing uncertainty does 
not require EPA to specify an applicable volume for cellulosic biofuel 
that is as low as possible, or based only on demonstrated (as opposed 
to reasonably anticipated) production. Due to the availability of 
cellulosic waiver credits, obligated parties always have the means to 
comply with the cellulosic biofuel standard that we set,\6\ and at a 
cost that is predictable. There is, therefore, no uncertainty with 
regard to the level of their obligations or the means available to 
achieve it.
---------------------------------------------------------------------------

    \6\ So long as the required volume is below the volume specified 
in the statute, such that cellulosic biofuel waiver credits are 
available.
---------------------------------------------------------------------------

    Moreover, Executive Order 13563 also states that regulations must 
in general promote ``economic growth, innovation, competitiveness, and 
job creation,'' while ``taking into account benefits and costs, both 
quantitative and qualitative.'' While the cellulosic biofuel standard 
that we set should be within the range of what can be attained based on 
projected domestic production and import potential, the standard that 
we set helps drive the production of volumes that will be made 
available. This is consistent with comments submitted by the 
Biotechnology Industry Organization and the Renewable Fuels 
Association. Thus while any standard we set for cellulosic biofuel 
standard for 2012 will have some uncertainty in terms of actual 
attainment, our intention is to balance such uncertainty with the 
objective of promoting growth in the industry. Our final projected 
available volume of 8.65 million gallons of cellulosic biofuel (10.45 
million ethanol-equivalent gallons) for 2012 reflects these 
considerations.

A. Statutory Requirements

    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). These volumes for 2012 are shown in Table II.A-1.

      Table II.A-1--Required Volumes in the Clean Air Act for 2012
                               [Bill gal]
------------------------------------------------------------------------
                                                     Ethanol equivalent
                                  Actual volume            volume
------------------------------------------------------------------------
Cellulosic biofuel..........               \a\ 0.5                   0.5
Biomass-based diesel........                   1.0                   1.5
Advanced biofuel............               \a\ 2.0                   2.0
Renewable fuel..............              \a\ 15.2                  15.2
------------------------------------------------------------------------
\a\ These values assume that the biofuels would be ethanol. If any
  portion of the biofuels used to meet these applicable volumes has a
  volumetric energy content greater than that for ethanol, these values
  will be lower.

    By November 30 of each year, the EPA is required under CAA 211(o) 
to determine and publish in the Federal Register the renewable fuel 
percentage standards for the following year. These standards are to be 
based in part on transportation fuel volumes estimated by the EIA for 
the following year. The calculation of the percentage standards is 
based on the formulas in Sec.  80.1405(c) which express the required 
volumes of renewable fuel as a volume percentage of gasoline and diesel 
sold or introduced into commerce in the 48 contiguous states plus 
Hawaii.
    The statute requires that if EPA determines that the projected 
volume of cellulosic biofuel production 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 volume of cellulosic biofuel below the level specified in the 
statute, the Act also indicates that we may reduce the applicable 
volume of advanced biofuels and total renewable fuel by the same or a 
lesser volume.

B. Cellulosic Biofuel Volume Assessment

    In order to project cellulosic biofuel production for 2012, EPA has 
tracked the progress of over 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 make it commercially available in 2012. 
Each of these companies was investigated further in order to determine 
the current status of their facilities and their likely cellulosic 
biofuel production volumes for the coming years. Information such as 
the funding status of these facilities, announced construction and 
production ramp up periods, and annual fuel production targets were 
taken into account. We also considered each company's history of 
meeting milestone targets and production goals where

[[Page 1326]]

applicable. Our projection of the volume of cellulosic biofuel 
production in 2012 is based on this information as well as our own 
assessment of the likelihood of these facilities successfully producing 
cellulosic biofuel in the volumes indicated. A brief description of 
each of the companies we believe can produce cellulosic biofuel and 
make it commercially available in 2012 can be found below.
1. Existing Cellulosic Biofuel Facilities
    The rule that established the required 2011 cellulosic biofuel 
volume identified five production facilities that we projected would 
produce cellulosic biofuel and make the fuel commercially available in 
2011. Each of these production facilities are now structurally 
complete, however they are in various stages of biofuel production. All 
of these facilities have either produced some volume of cellulosic 
biofuel in 2011, or are on schedule to do so later in the year. Only KL 
Energy and Range Fuels, however, have completed registration of 
cellulosic biofuel production facilities under the RFS2 program and as 
such they are currently the only facilities of the five listed here 
currently eligible to generate cellulosic biofuel RINs. For more 
background information on each of these facilities see the 2011 
standards rule.\7\
---------------------------------------------------------------------------

    \7\ 75 FR 76790, December 9, 2010.
---------------------------------------------------------------------------

    DuPont Danisco Cellulosic Ethanol (DDCE) successfully started up 
their small demonstration facility in Vonore, Tennessee in late 2010. 
This facility has a maximum production capacity of 250,000 gallons of 
ethanol per year and uses an enzymatic hydrolysis process to convert 
corn cobs into ethanol. In conversations with EPA in July 2011 DDCE 
indicated that this facility was currently producing ethanol at 
approximately half the nameplate capacity, corresponding to a volume of 
125,000 gallons per year. The focus of this facility, however, remains 
gathering information to help successfully design and operate DDCE's 
first commercial scale facility. All the cellulosic ethanol currently 
produced at this facility is used for testing purposes or given away. 
No RINs are currently generated for this ethanol and it is not 
available for purchase by obligated parties. DDCE has indicated that 
they have no plans to generate RINs or sell ethanol produced at their 
facility in Vonore in 2012. No volume of cellulosic ethanol has 
therefore been included in the projections of available cellulosic 
biofuel for 2012.
    Fiberight uses an enzymatic hydrolysis process to convert the 
biogenic portion of separated municipal solid waste (MSW) into ethanol. 
Construction on the first stage of Fiberight's Blairstown, Iowa 
facility was completed in the summer of 2010. The production capacity 
of the first stage of this project is 2 million gallons of ethanol per 
year. Fiberight had planned to begin production of cellulosic biofuel 
from this facility in late 2010 but poor economic conditions, due in 
part to low cellulosic RIN values in 2010, caused them to postpone fuel 
production. Fiberight had also planned to begin construction on an 
expansion of this facility in late 2010 that would increase the 
production potential to 6 million gallons of ethanol per year, but were 
unable to secure funding to carry out the construction as planned. They 
have since secured funding and began construction on the expansion of 
their Blairstown facility in April 2011. Fiberight anticipates that 
they will begin fuel production in early 2012 and will ramp up 
production at this facility throughout 2012. EPA projects the 
production of 2 million gallons of cellulosic ethanol from this 
facility in 2012.
    KiOR continues to produce a small volume of renewable crude from 
agricultural residue at their demonstration facility in Houston, Texas 
using a technology they call Biomass Catalytic Cracking (BCC). This 
technology uses heat and a proprietary catalyst to convert biomass to a 
renewable crude with a relatively low oxygen content. The renewable 
crude is then upgraded to produce renewable gasoline and diesel, as 
well as a small quantity of fuel oil. While KiOR plans to continue to 
operate their Houston facility in 2012 its main purpose will be to 
provide small quantities of fuel for testing purposes and to provide 
data for the optimization of KiOR's first commercial facility. In 
conversations with EPA KiOR has indicated that it is unlikely that any 
significant volume of fuel from this facility will be sold 
commercially. EPA has therefore not included any volume from KiOR's 
Houston facility in our projected available volumes for 2012.
    KL Energy has developed a process to convert cellulose and 
hemicellulose into cellulosic sugars using a thermal-mechanical 
pretreatment process followed by an enzymatic hydrolysis. It had 
initially planned to used woody biomass as their feedstock for 
cellulosic biofuel production; however its production process is 
versatile enough to allow for a wide variety of cellulosic feedstocks 
to be used. In August 2010 KL Energy announced a joint development 
agreement with Petrobras America Inc. As part of the agreement 
Petrobras has invested $11 million to modify KL Energy's facility in 
Upton, Wyoming to allow it to process bagasse and other waste products. 
If successful, Petrobras and KL Energy plan to work together to 
integrate the technology into currently existing ethanol production 
facilities in Brazil. The modifications to KL Energy's facility were 
completed earlier this year. KL Energy is currently producing small 
volumes of cellulosic ethanol and plans to continue to do so throughout 
2012. In August 2011 KL Energy successfully registered its cellulosic 
biofuel production facility under the RFS program making it eligible to 
generate RINs for biofuel produced from this facility. KL Energy has 
indicated to EPA its intent to generate RINs for the fuel it produces 
and to sell it commercially in the United States. EPA projects that 
100,000 gallons of cellulosic ethanol will be available from this 
facility in 2012.
    Range Fuels began production of methanol at their Soperton, Georgia 
facility in the third quarter of 2010. This facility uses a 
thermochemical technology to produce syngas (consisting of mostly 
hydrogen and carbon monoxide) from a woody biomass feedstock. The 
syngas is then converted into fuel with the aid of a chemical catalyst 
developed by Range. Range has developed the capability to produce both 
methanol and ethanol, depending on the catalyst used. In January 2011, 
after producing a small volume of ethanol from this facility and 
proving this capability, Range Fuels shut down the Soperton facility in 
order to work through technical difficulties they had been 
experiencing. No timeline has been given for the restart of this 
facility and fuel production from this facility in 2012 appears 
unlikely. No cellulosic fuel production from Range Fuels has been 
included in EPA's 2012 projected available volume.
2. Potential New Facilities in 2012
    In the proposed rule EPA discussed five new cellulosic biofuel 
production facilities that had plans to begin commercial production at 
some point in 2012. These facilities were at various stages in the 
construction process, and as such had various degrees of uncertainty 
associated with any projected 2012 commercial production. Three of 
these facilities, those being developed by INEOS Bio, KiOR, and 
ZeaChem, have made significant progress towards completion and are 
expected to produce and market cellulosic biofuel in 2012. Two of the 
companies mentioned in the proposed rule, Fulcrum Bioenergy and 
Terrabon,

[[Page 1327]]

are no longer on a schedule to produce cellulosic biofuel in 2012. 
Finally, EPA has become aware of a sixth company, American Process 
Inc., which is developing a cellulosic biofuel project that is likely 
to produce and market some volume of cellulosic biofuel in 2012. The 
following section provides updated information on each of the companies 
discussed in the proposed rule, as well as a summary of the project 
being developed by American Process Inc.
    Fulcrum Bioenergy is planning to build a facility capable of 
producing 10.5 million gallons of cellulosic ethanol and 16 megawatts 
of renewable electricity per year. It has developed a thermochemical 
technology to produce ethanol from separated MSW via syngas using a 
chemical catalyst. In November 2010 Fulcrum announced that it had 
received a term sheet for an $80 million loan guarantee from DOE and 
was entering into the final phase of the loan guarantee program. Prior 
to that Fulcrum had announced that it had signed long term feedstock 
supply contracts for this facility as well as engineering, procurement, 
and construction contracts. In January 2011 Fulcrum announced it had 
closed on a $75 million Series C financing that would provide the 
remaining necessary capital for the construction of its first 
commercial production facility pending the closing of its DOE loan 
guarantee. The loan guarantee, however, has yet to be finalized. As a 
result the start of the construction of this facility, originally 
planned for the second quarter of 2011, is now expected to begin in 
late 2011. EPA has not included any volume of cellulosic biofuel from 
Fulcrum Bioenergy's facility in our 2012 projected available volume 
because of this delay.
    INEOS Bio has developed a process for producing cellulosic ethanol 
by first gasifying feedstock material 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 was in addition to the grant of up to $50 
million INEOS Bio received from DOE in January 2010. This facility will 
be capable of producing 8 million gallons of cellulosic biofuel as well 
as 6 megawatts of renewable electricity from a variety of feedstocks 
including yard, agricultural, and wood waste, as well as separated MSW. 
On February 9, 2011 INEOS Bio broke ground on this facility. Since 
February significant progress has been made and INEOS Bio remains on 
target to complete construction on this facility in April 2012. 
Commercial production of cellulosic ethanol is expected to begin soon 
after construction is complete. Three million gallons of cellulosic 
ethanol from this facility has been included in EPA's projected 
available volume for 2012.
    After successful operation of their demonstration plant in Houston, 
Texas KiOR began construction on its first commercial scale facility in 
May 2011. This facility, located in Columbus, Mississippi, will convert 
biomass to a low oxygen biocrude using a process KiOR calls Biomass 
Catalytic Cracking (BCC). BCC uses a catalyst developed by KiOR in a 
process similar to Fluid Catalytic Cracking currently used in the 
petroleum industry. KiOR's Columbus facility will also be capable of 
upgrading this biocrude into finished gasoline and diesel as well as a 
small quantity of fuel oil. KiOR plans to finish construction on this 
facility in the first half of 2012 and begin commercial production 
early in the third quarter of 2012. KiOR has also announced plans to 
construct several more commercial scale biofuel production facilities 
in Mississippi and across the southeastern United States. It is 
unlikely any of these additional facilities will begin production of 
biofuel in 2012. EPA has included 3 million gallons of cellulosic 
biofuel (4.8 million ethanol equivalent gallons) from KiOR's Columbus 
facility in our projected available volume for 2012.
    Terrabon completed construction of a small demonstration scale 
facility for the conversion of MSW and other waste materials into 
gasoline in 2010 and are currently developing plans for their first 
commercial scale facility. Terrabon utilizes a unique production 
process that can be used to produce gasoline, diesel, or jet fuel. 
Feedstock is first fermented into carboxylic acids by a variety of 
micro organisms. These carboxylic acids are then neutralized to form 
carboxylate salts that are dewatered, dried, and thermally converted to 
ketones. Finally, the ketones are hydrogenated to form alcohols which 
can then be refined into gasoline, diesel, or jet fuel. Terrabon had 
hoped to begin producing cellulosic biofuel at their first commercial 
scale facility some time in 2012, however difficulties in securing the 
necessary funding have delayed the expected start up of their first 
commercial scale facility to 2013. EPA has not included any volume of 
cellulosic biofuel from Terrabon in our 2012 projected available 
volume.
    ZeaChem has begun construction on a small demonstration scale 
facility in Boardman, Oregon capable of producing 250,000 gallons of 
cellulosic ethanol per year. Its 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 containing cellulosic 
sugars and lignin. The cellulosic sugars are fermented into ethyl 
acetate using a naturally occurring acetogen, which can then be 
hydrogenated into ethanol. The hydrogen necessary for this process is 
produced by gasifying the lignin stream from the cellulosic biomass. 
ZeaChem's process is flexible and is capable of producing a wide range 
of renewable chemical and fuel molecules in addition to ethanol. 
ZeaChem received a grant of up to $25 million from DOE in January 2010 
for the construction of their demonstration facility. Since then 
ZeaChem has made significant progress on its demonstration facility and 
currently plans to begin production of cellulosic ethanol from this 
facility in early 2012. It has indicated to EPA, however, that it is 
highly unlikely to achieve full production capacity at this facility in 
its first year of production and has suggested that the production of 
50,000 gallons of cellulosic ethanol from this facility in 2012 is a 
more realistic expectation. Despite this small volume, ZeaChem does 
intend to generate RINs for the fuel that they produce and to market it 
commercially. Based on this information EPA has included 0.05 million 
gallons of cellulosic ethanol in our projected available volume for 
2012.
    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 hemicelluloses portion of woody biomass using 
hot water and hydrolyzes it into cellulosic sugars. These cellulosic 
sugars are then converted to ethanol or other alcohols, while the 
remaining portion of the woody biomass, containing mostly cellulose and 
lignin, is processed into wood paneling at a co-located facility. At 
larger scale facilities API anticipates burning the residual biomass in 
a boiler to produce renewable steam and electricity as well as 
cellulosic biofuel. In 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 anticipates beginning the production of cellulosic ethanol at this 
site early in 2012. API was not

[[Page 1328]]

discussed as a potential producer of cellulosic biofuels in 2012 in our 
proposed rule due to uncertainty about its ability to generate RINs 
with the intended feedstock and production process. EPA anticipates 
these issues will be resolved. Cellulosic biofuel produced at API's 
facility will therefore likely be eligible for cellulosic RINs. For our 
2012 projected available volume of cellulosic biofuels we have included 
500,000 gallons of cellulosic ethanol from this facility. This volume 
represents the low end of API's production target for that year due to 
the uncertainties associated with the start up of a new industrial 
facility utilizing a technology unproven at industrial scale.
    Another potential source of cellulosic biofuel in 2012 is the 
application of a technology being developed by EdeniQ. EdeniQ is 
developing a suite of enzymes capable of breaking down cellulose into 
simple sugars that can then be fermented into ethanol. Rather than 
build its own production facilities EdeniQ plans to license its enzymes 
to existing corn ethanol facilities. Such licensing would be 
accompanied by the Cellunator, an advanced milling device EdeniQ has 
developed to reduce the particle size of corn kernels to enable greater 
conversion of starch to ethanol as well as the conversion of cellulose 
to simple sugars. EdeniQ claims that its technology would allow corn 
ethanol facilities to increase ethanol production by 1-2% by converting 
the cellulosic portion of the corn kernel into ethanol. EdeniQ is also 
working to increase the effectiveness of its enzymes in order to enable 
ethanol production increases of 3-4% from the cellulose in the corn 
kernel in the future. EdeniQ plans to begin commercial trials of its 
technology in the second half of 2011. This technology has the 
potential to be implemented rapidly and produce significant amounts of 
cellulosic ethanol in 2012 as it requires relatively small capital 
additions to already existing corn ethanol facilities. While this 
technology is promising, there is currently no pathway in the RFS2 
regulations for the generation of cellulosic biofuel RINs using the 
cellulosic portion of the corn kernel as a feedstock. Moreover, EdeniQ 
has not announced any agreements with corn ethanol producers to install 
this technology to enable the production of cellulosic ethanol. For 
these reasons, EPA has not included any cellulosic ethanol production 
from EdeniQ's technology in our 2012 projections.
    In addition to the facilities mentioned above, EPA is also aware of 
three companies planning to begin the production of cellulosic biofuels 
in early 2013. Coskata, Enerkem, and Poet are planning on completing 
construction on their first commercial scale cellulosic biofuel 
facilities in late 2012 or early 2013 and producing commercial volumes 
of biofuels in 2013. While all of these facilities continue to make 
progress towards commercial production of cellulosic biofuel in 2013 it 
is highly unlikely that any of these facilities will be capable of 
producing cellulosic biofuels by the end of 2012. EPA has therefore not 
included any volume of cellulosic biofuel from these facilities in our 
projected available volume for 2012. These facilities, along with 
several other commercial cellulosic biofuel facilities planning to 
begin production in 2013, notably the first commercial scale facilities 
from Abengoa and Mascoma, indicate that the potential exists for the 
rapid expansion of production volumes in future years.
3. Imports of Cellulosic Biofuel
    While domestically produced cellulosic biofuels are the most likely 
source of cellulosic biofuel available in the United States, producers 
and/or importers of cellulosic biofuel produced in other countries may 
also generate RINs and participate in the RFS2 program. While the RFS2 
program does provide a financial incentive for companies to import 
cellulosic biofuels into the United States, the combination of local 
demand, financial incentives from other governments, and transportation 
costs for the cellulosic biofuel has resulted in no cellulosic biofuel 
being imported to the United States thus far. EPA believes this 
situation is likely to continue in the near future. Additionally, the 
majority of internationally based cellulosic biofuel facilities that 
currently exist or plan to complete construction by the end of 2012 are 
small research and development or pilot facilities not designed for the 
commercial production of fuel.
    Two notable exceptions, both located in Canada, are Enerkem and 
Iogen. Enerkem has a currently existing commercial production facility 
in Westbury, Quebec and is expecting to complete construction on a 
second facility in Edmonton, Alberta in late 2011. Iogen has a small 
demonstration facility in Ottawa and is currently exploring the 
possibility of building its first commercial facility near Prince 
Albert, Saskatchewan. The large expected production volumes and 
relatively small distance this fuel would have to be transported to 
reach the United States make these facilities the most likely 
candidates to import cellulosic biofuel into the United States. In 
conversations with EPA, however, both companies indicated that they had 
no current intentions of importing fuel from their Canadian production 
facilities into the United States. On September 1, 2010 the government 
of Canada finalized regulations requiring all gasoline sold in Canada 
to have a renewable content of 5% and all diesel fuel and heating oil 
to have a renewable content of 2%. These regulations will further 
increase local demand for any cellulosic biofuel produced from these 
two facilities and decrease the likelihood of any of this fuel being 
exported to the United States. For these reasons we have not included 
any cellulosic biofuel production from foreign facilities in our 
projections of cellulosic biofuel availability in 2012.
4. Projections From the Energy Information Administration
    Section 211(o)(3)(A) of the Clean Air Act requires EIA to ``* * * 
provide to the Administrator 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 19, 2011.\8\ 
With regard to cellulosic biofuel, the EIA estimated that the available 
volume in 2012 would be 6.9 million gallons based on its assessment of 
the utilization of production capacity. A summary of the commercial 
scale plants they considered and associated production volumes is shown 
below in Table II.B.4. In addition to the facilities listed in this 
table EIA also projects that three pilot-scale facilities, those owned 
by American Process (Alpena, MI), KL Process Design (Upton, WY) and 
ZeaChem (Boardman, OR) will produce an additional 0.2 million gallons 
of cellulosic biofuel and make it available for sale in the U.S. in 
2012.
---------------------------------------------------------------------------

    \8\ Letter from Howard K. Gruenspecht, EIA Acting Administrator, 
to Lisa Jackson, EPA Administrator, October 19, 2011.

[[Page 1329]]

                      Table II.B.4--Commercial-Scale Cellulosic Biofuel Plants Expected To Generate Cellulosic Biofuel RINs in 2012
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                             Nameplate                       Projected
                                                                                                             capacity        Projected      production
          Year online                    Company                Location                 Product             (million       utilization      (million
                                                                                                             gallons)           (%)          gallons)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011/12........................  Fiberight, LLC........  Blairstown, IA........  Ethanol................             6.4              25             1.6
2012...........................  INP Bioenergy \a\.....  Vero Beach, FL........  Ethanol................             8.0              25             2.0
2012...........................  KiOR..................  Columbus, MS..........  Liquids................            12.2              25             3.1
                                                                                                         -----------------------------------------------
    Total......................  ......................  ......................  .......................            26.6             25%             6.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ EPA refers to INEOS New Planet (INP) Bioenergy as INEOS Bio throughout this rule.

    EIA's projections of cellulosic biofuel production in 2012 are very 
similar to EPA's projections discussed above and summarized in Section 
II.B.6 below. The lists of companies that EIA and EPA expect to 
generate cellulosic biofuel RINS in 2012 are the same. There are, 
however, several small differences in the volumes of cellulosic biofuel 
expected to be produced at some of the production facilities listed. 
EPA has slightly higher projections of cellulosic biofuel production 
for Fiberight (2 million gallons vs. 1.59 million gallons), INEOS Bio 
(3 million gallons vs. 2 million gallons), and American Process Inc. 
(0.5 million gallons vs. less than 0.2 million gallons). These slight 
variations are a result of different methodologies used by EIA and EPA 
to project biofuel production in future years. Both Fiberight and INEOS 
Bio are commercial scale facilities that plan to begin production in 
2012. As a result, EIA has used a standard utilization factor of 25% 
(used for the first year of production for all commercial scale 
facilities) along with the nameplate capacity of these facilities to 
project their production volumes for 2012. EPA believes it is more 
appropriate to consider the timing of the anticipated start up of these 
facilities within 2012. Facilities planning to begin production early 
in the year should not have the same expected utilization factor as 
those planning to begin production near the end of the year. Both 
Fiberight and INEOS Bio plan to complete construction and begin the 
production of fuel in early 2012, and therefore EPA has projected 
production volumes from these facilities that are equivalent to 2012 
utilization rates of slightly higher than 25% in comparison to their 
full, long-term production potential.
    EIA's projected production volume for American Process Inc. assumes 
a utilization factor of 10%, consistent with the factor that EIA uses 
for all demonstration scale facilities. While this may be reasonable in 
many cases as the purpose of most pilot plants is not to produce fuel 
for commercial scale, American Process Inc. has communicated to EPA 
that it plans to produce volumes approaching its facility's nameplate 
capacity in their first year. While EPA believes this is unlikely due 
to the challenges of starting up a facility utilizing a technology that 
has not been proven at commercial scale, we believe a volume 
corresponding to a utilization rate higher than 10%, but at the low end 
of American Process Inc.'s target production range is appropriate. 
While the production volumes of the other companies listed in EIA and 
EPA's projected available volume tables are not identical, the 
differences are small and their impact on the overall volume projection 
is negligible.
    There is also a slight variation in the nameplate capacities for 
two of the listed facilities, Fiberight and KiOR. This is once again 
the result of differing methods for determining the nameplate 
capacities used by EIA and EPA. EIA used publically available 
information to calculate the nameplate capacities for these two 
facilities. The Fiberight plant is a converted corn ethanol facility 
that had a production capacity of 25.5 million gallons per year. 
Fiberight announced they expected to be able produce cellulosic ethanol 
at 25% of the original capacity and these numbers formed the basis for 
EIA's nameplate capacity. Similarly for KiOR EIA's nameplate capacity 
was based on the number of tons the facility could process per day and 
the expected yield. EPA's nameplate capacities, conversely, are based 
on conversations with each of these companies. EPA does not believe 
these slight differences in nameplate capacities have a significant 
impact on the cellulosic biofuel volume projections made by EPA and 
EIA.
    While the cellulosic biofuel volume projections for 2012 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 differences exist they are primarily due to EPA's 
consideration of facility specific situations rather than use of 
uniform utilization factors. As discussed above, EPA believes this is 
appropriate, and that wherever possible these facility specific factors 
should be taken into account. CAA 211(o)(7)(D) vests the authority for 
making the projection with EPA, since it 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] Administrator''. Although the 
statute provides that our determination must be ``based on the estimate 
provided'' by EIA, we believe that our consideration of EIA's estimate 
in deriving our own projection as described above satisfies this 
statutory requirement.
5. Comments on the Proposed Rule
    EPA received comments on our proposed rule recommending various 
methodologies or suggested volumes for the final rule. Several parties 
supported our projected volumes and emphasized the importance of 
maintaining a consistent policy supporting growth in the cellulosic 
biofuel industry. Other comments we received recommended that the 
volume we set for cellulosic biofuel be based only on the demonstrated 
production rates of facilities that have been in production for at 
least three months. EPA believes this approach is inconsistent with the 
requirement that the mandated volume of cellulosic biofuel be based on 
the projected, not demonstrated, volume for any given year. Using the 
approach recommended by the commenters would effectively project no 
market growth from the end of 2011 through 2012, and would lead to no 
2012 market demand for additional cellulosic biofuel capacity that 
comes on line during the course of 2012, hindering industry growth. As 
a result, the incentives for the cellulosic biofuels industry to grow, 
which are one of the primary purposes

[[Page 1330]]

of the RFS program and which are consistent with Executive Order 13563, 
would be compromised.
    Several other commenters claimed that cellulosic biofuel technology 
was not yet capable of producing the volumes of fuel indicated in our 
proposal and that the proposed range of cellulosic biofuels was too 
high. Chevron suggested that EPA finalize the lower end of the proposed 
range (3.55 million ethanol-equivalent gallons). After reassessing the 
state of the cellulosic biofuel industry and tracking the progress 
being made towards the production of cellulosic biofuels at commercial 
scale facilities, EPA believes the industry is capable of exceeding the 
lower end of the range of projected volume from our proposed rule. In 
order to provide the appropriate economic conditions for the cellulosic 
biofuel industry to grow in accordance with the objectives of the 
statute, it is important that these fuels, once produced, have a viable 
market. EPA believes that setting the 2012 standard for cellulosic 
biofuels at the low end of the proposed range, or some lower volume, 
could potentially result in a depressed market for cellulosic biofuel 
and would discourage cellulosic biofuel producers from producing 
quantities of fuel in 2012 that are actually attainable.
    Alternatively, we also received comments requesting that EPA 
finalize the high end of the proposed volume (15.7 ethanol-equivalent 
gallons). While this approach would provide a strong incentive for 
potential cellulosic biofuel producers to maximize their production of 
fuel, EPA does not believe it would be consistent with the requirement 
that the volume mandate be based on the projected production volume. As 
discussed above, several companies have experienced delays in their 
construction plans since the proposed rule has been published, and 
others have lowered their production targets or indicated that they no 
longer intend to generate RINs for the cellulosic biofuel they produce. 
While it is possible that one or more of the companies for whom we have 
included volumes in our 2012 projection may produce a greater volume of 
fuel than we currently anticipate, EPA does not believe it would be 
appropriate to rely on such speculation in setting the applicable 
volume of cellulosic biofuel for 2012. We believe that the 2012 
cellulosic biofuel applicable volume of 8.65 million gallons (10.45 
million ethanol-equivalent gallons) finalized in this rule is a 
reasonable projection of the volume of cellulosic biofuel that will be 
produced and made available for RFS compliance in 2012. While this 
volume is slightly higher than the volume projected by EIA we believe 
this is appropriate based on the consideration of company specific 
factors such as when in the year the companies anticipate the start of 
fuel production and production targets shared with EPA. The difference 
in the methodologies used for EIA and EPA's projections is discussed in 
further detail in Section II.B.4.
    The Consumers Energy Alliance, in addition to suggesting that the 
range of cellulosic biofuel production in our proposed rule was too 
high, also requested that EPA perform a cost-benefit analysis to 
determine the implications of our proposed standards. The Clean Air Act 
clearly states that in the event that the projected volume of 
cellulosic biofuel production for the following year is less than the 
applicable volume shown in Table II.A-1, EPA is to reduce the 
applicable volume of cellulosic biofuel to the projected volume 
available during that calendar year. Since the mandated volume for any 
given year is to be based solely on the projected volume available for 
that year, a cost-benefit analysis is not necessary.
    Two cellulosic biofuel companies, American Process Inc. and 
ZeaChem, commented on the volume of cellulosic biofuels they expect to 
produce in 2012 and requested that EPA's projections of available 
volumes of cellulosic biofuel be adjusted accordingly. After 
consideration of these comments and additional information provided by 
these two companies EPA agrees that the adjustments they suggested are 
appropriate. As a result a volume of 500,000 gallons of cellulosic 
ethanol from American Process Inc., a volume representing the lower end 
of their production target for 2012, has been included in our projected 
available volume. The volume of fuel projected from ZeaChem's facility 
has been changed to 50,000 gallons of cellulosic ethanol in 2012 to 
more accurately reflect their current expectations for their facility.
    Finally, EPA received several comments from obligated parties 
requesting that in any year in which actual annual production of 
cellulosic biofuel falls below the applicable volume used to set the 
annual standard, that EPA use its waiver authority to waive a volume of 
cellulosic biofuel equal to the shortfall in February of the following 
year, prior to the February 28 deadline for submission of compliance 
demonstration reports by obligated parties. This approach, these 
commenters argued, would ensure that their obligations match the number 
of cellulosic biofuel RINs that are available in the market. These 
comments deal with EPA's general waiver authority under CAA 
211(o)(7)(A), and thus are not directly related to the annual standard 
setting process or the waiver authority that is specific to cellulosic 
biofuel under 211(o)(7)(D). At this time EPA has received no petitions 
for a waiver of the 2011 cellulosic biofuel volume under 211(o)(7)(A) 
due to inadequate domestic supply, and thus we are not considering at 
this time whether and how any portion of the 2011 cellulosic biofuel 
applicable volume should be waived.
6. Summary of Volume Projections
    The information EPA has gathered on the potential cellulosic 
biofuel producers in 2012, described above, allows us to project 
facility-specific volumes of cellulosic biofuel production for 2012. 
This information is summarized in Table II.B.6-1 below.

                                           Table II--B.6-1--Cellulosic Biofuel 2012 Projected Available Volume
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                  2012
                                                                                               Capacity         Earliest        Projected      Ethanol
          Company name                Location            Feedstock             Fuel             (MGY)         production       available    equivalent
                                                                                                                               volume (MG)  gallons (MG)
--------------------------------------------------------------------------------------------------------------------------------------------------------
American Process Inc...........  Alpena, MI........  Waste Wood........  Ethanol...........          0.9   Early 2012.......          0.5           0.5
Fiberight......................  Blairstown, IA....  MSW...............  Ethanol...........          6     Early 2012.......          2.0           2.0
INEOS Bio \a\..................  Vero Beach, FL....  Ag Residue, MSW...  Ethanol...........          8     May 2012.........          3.0           3.0
KiOR...........................  Columbus, MS......  Pulp Wood.........  Gasoline, Diesel..         10     Mid 2012.........          3.0           4.8
KL Energy......................  Upton, WY.........  Bagasse...........  Ethanol...........          1.5   Online...........          0.1           0.1

[[Page 1331]]

 
ZeaChem........................  Boardman, OR......  Planted Trees.....  Ethanol...........          0.25  Early 2012.......          0.05          0.05
                                                                                                          ----------------------------------------------
    Total......................  ..................  ..................  ..................  ............  .................          8.65         10.45
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ This facility is listed as INP Bioenergy in EIA's projections.

    While the production volumes in Table II.B.6-1 have some 
uncertainty, we believe that a total volume of 8.65 million gallons 
(10.45 million ethanol-equivalent gallons) is reasonably attainable. By 
basing the 2012 cellulosic biofuel standard on the reasonably 
attainable volumes rather than proven production volumes, we aim to 
avoid a scenario in which cellulosic biofuel production exceeds the 
mandated volume; no mechanism exists for this standard to be raised 
should cellulosic biofuel production exceed the 2011 standard. Such a 
scenario would result in weak demand for cellulosic biofuels and RINs. 
Moreover, the standard that we set determines in large part the volumes 
of cellulosic biofuel that will be produced. We believe that the intent 
of Congress in establishing steadily increasing applicable volumes of 
cellulosic biofuel in the RFS program through EISA was to provide a 
reliable market for these fuels and in so doing to spur growth in the 
cellulosic biofuels industry. EPA believes the projected available 
volume finalized in this rule best reflects these intentions.
    Based on our assessment of the potential production capabilities of 
individual companies as described above, EPA is finalizing the 
cellulosic biofuel standard for 2012 at 10.45 million ethanol-
equivalent gallons of cellulosic biofuel. This number represents the 
volume of RIN-generating cellulosic biofuel that we believe can be made 
available for use as transportation fuel, heating oil, or jet fuel in 
2012. It incorporates reductions from the annual production capacity of 
each facility based on when fuel production can begin and assumptions 
regarding a ramp-up period to full production. We believe that a 
production volume of 10.45 million ethanol-equivalent gallons is 
reasonably attainable despite the uncertainties. Moreover, by setting 
the standard for cellulosic biofuel based on the volumes that are 
reasonably attainable, we are providing incentives for producers to 
overcome uncertainties and greater opportunities for funding based on 
an established demand.
    There are also a variety of factors that could lead to production 
volumes greater than those listed in Table II.B.6-1 and make up for 
potential shortfalls elsewhere. For instance:
     For each of the facilities listed, we are projecting that 
their production will be some volume less than the capacity of their 
facility. It is possible, however, that these companies could produce a 
greater volume of fuel than they are currently anticipating or has been 
projected by EPA.
     It is possible that companies that are currently targeting 
2013 for commercial production may produce cellulosic biofuel ahead of 
schedule and generate RINs in 2012. None of this volume was included in 
our projection for 2012.
     A high demand for cellulosic biofuels may be sufficient to 
cause companies to import fuel into the United States, even if they 
currently have no plans to do so. As described in Section II.B.3 above, 
there are several foreign producers that are either producing 
cellulosic biofuel now, or could potentially produce some cellulosic 
biofuel volume in 2012.
    Finally, we note that if the actual volume of cellulosic biofuel 
RINs that are available in 2012 falls short of the 10.45 million gallon 
RINs used to derive the 2012 cellulosic biofuel standard, obligated 
parties have other recourses:
     Purchase cellulosic biofuel waiver credits from the EPA 
(see further discussion in Section V.A)
     Carry over a deficit from 2012 into 2013 according to 
Sec.  80.1427(b) under certain conditions

C. Advanced Biofuel and Total Renewable Fuel in 2012

    Under CAA 211(o)(7)(D)(i), EPA has the discretion to reduce the 
applicable volumes of advanced biofuel and total renewable fuel in the 
event that the projected volume of cellulosic biofuel production is 
determined to be below the applicable volume specified in the statute. 
As described in Section II.B above, we are indeed projecting the volume 
of cellulosic biofuel production for 2012 at significantly below the 
statutory applicable volume of 500 million gallons. Because cellulosic 
biofuel is used to satisfy the cellulosic biofuel standard, the 
advanced biofuel standard, and the total renewable fuel standard, any 
reductions in the applicable volume of cellulosic biofuel will also 
affect the means through which obligated parties comply with the 
advanced biofuel standard and the total renewable fuel standard. 
Therefore, we have considered whether and to what degree to lower the 
advanced biofuel and total renewable fuel applicable volumes for 2012.
    If the required volume of cellulosic biofuel for a given year is 
less than the volume specified in the statute, it is important to 
evaluate whether there would be sufficient volume of advanced biofuels 
to satisfy the applicable volume of advanced biofuel volume set forth 
in the statute. Even with a reduced volume of cellulosic biofuel, other 
advanced biofuels, such as biomass-based diesel, sugarcane ethanol, or 
other biofuels, may be available in sufficient volumes to make up for 
the shortfall in cellulosic biofuel.
    Several commenters stated their belief that the applicable volume 
of advanced biofuel should always be lowered concurrently, and to the 
same degree, that the applicable volume of cellulosic biofuel is 
lowered from the levels set forth in the statute. Since we are 
finalizing a cellulosic biofuel applicable volume today that is 
approximately 490 million gallons below the 500 mill gal applicable 
volume specified in the statute, this approach would lead to a 
reduction in the advanced biofuel standard of 490 million gallons as 
well, from 2,000 mill gallons to 1,510 mill gallons. However, as 
described in the NPRM, we believe that it would not be consistent with 
the energy security 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 advanced biofuels available, 
even if those volumes do not include the amount of cellulosic biofuel 
that Congress may have desired. Our authority to lower the advanced 
biofuel and/or total renewable fuel applicable

[[Page 1332]]

volumes is discretionary, and in general we believe that actions to 
lower these volumes should only be taken if insufficient volumes of 
qualifying biofuel can be made available, based on such circumstances 
as insufficient production capacity, insufficient feedstocks, competing 
markets, constrained infrastructure, or the like. As discussed below, 
we project that sufficient volumes of advanced biofuel can be made 
available in 2012 such that the 2.0 bill gallon advanced biofuel 
requirement need not be reduced.
    If we were to maintain the advanced biofuel, biomass-based diesel, 
and total renewable fuel volume requirements at the levels specified in 
the statute, while also lowering the cellulosic biofuel standard to 
10.45 million ethanol-equivalent gallons, then 1,510 million gallons of 
the 2.0 billion gallon advanced biofuel mandate would be satisfied 
automatically through the satisfaction of the cellulosic and biomass 
based diesel standards. An additional 490 million ethanol-equivalent 
gallons of additional advanced biofuels would be needed. See Table 
II.C-1.

 Table II--C-1--Projected Fuel Mix in 2012 Assuming No Change in Advanced Biofuel or Total Renewable Fuel Volume
                                                  Requirements
                                                 [Mill gallons]
----------------------------------------------------------------------------------------------------------------
                                                        Ethanol-equivalent volume          Physical volume
----------------------------------------------------------------------------------------------------------------
Total renewable fuel................................                        15,200                 14,535-14,698
Conventional renewable fuel \a\.....................                        13,200                        13,200
Total advanced biofuel..............................                         2,000                   1,335-1,498
Cellulosic biofuel..................................                         10.45                          8.65
Biomass-based diesel................................                         1,500                         1,000
Other advanced biofuel \b\..........................                           490                   \c\ 326-490
----------------------------------------------------------------------------------------------------------------
\a\ Predominantly corn-starch ethanol.
\b\ Rounded to nearest million gallons for simplicity.
\c\ Physical volume is a range because other advanced biofuel may be ethanol, biodiesel, or some combination of
  the two.

    The most likely sources of additional advanced biofuel would be 
imported sugarcane ethanol and additional biomass-based diesel, though 
there may also be some volumes of other types of advanced biofuel 
available as discussed below. To determine if there are likely to be 
sufficient volumes of these biofuels to meet the need for 490 million 
gallons of other advanced biofuel, we first examined historical data on 
ethanol imports and projections from EIA and USDA for 2012. Brazilian 
imports have made up a sizeable portion of total ethanol imported into 
the U.S. in the past, and these volumes were predominantly produced 
from sugarcane. Ethanol imports averaged about 380 million gallons per 
year over the last five years, and reached an all-time high of 730 
million gallons in 2006.\9\ However, ethanol imports were significantly 
lower in 2010 than in previous years, and continue to be low in the 
first half of 2011. This decline in imports may be related to the 
cessation of the duty drawback that became effective on October 1, 
2008, to changes in world sugar prices, and increases in demand within 
Brazil.\10\ Several commenters cited these lower import volumes in the 
last two years as evidence that importation of sugarcane ethanol will 
be low in 2012 as well.
---------------------------------------------------------------------------

    \9\ ``Monthly U.S. Imports of Fuel Ethanol,'' EIA, released 3/
30/2011.
    \10\ Lundell, Drake, ``Brazilian Ethanol Export Surge to End; 
U.S. Customs Loophole Closed Oct. 1,'' Ethanol and Biodiesel News, 
Issue 45, November 4, 2008.
---------------------------------------------------------------------------

    However, we believe that the broader view of historical data on 
sugarcane ethanol imports supports our view that Brazil has significant 
export potential under the appropriate economic circumstances. Monthly 
ethanol imports in June and July of 2011 were significantly higher than 
during any of the previous 16 months, at 3 and 13 million gallons, 
respectively.\11\ Moreover, Brazil continues to be second worldwide in 
the production of ethanol, producing a total of 6.9 bill gallons in 
2009.\12\ By establishing an increased U.S. demand for 490 million 
gallons of other advanced biofuel in 2012, we would be enhancing the 
export market for Brazilian sugarcane ethanol. This could increase the 
percentage of ethanol produced from sugarcane (as opposed to sugar 
production), and lead to higher volumes of sugarcane ethanol exported 
to the U.S. Insofar as there is insufficient availability of 
domestically produced advanced biofuel to meet the need for 490 mill 
gallons, the price of advanced biofuel RINs would likely increase, 
providing the incentive for Brazil to export more sugarcane ethanol 
into the U.S. California's Low Carbon Fuel Standard also went into 
effect in 2010, and may result in some refiners importing additional 
volumes of sugarcane ethanol from Brazil into California in 2012. These 
same volumes would count towards the federal RFS2 program as well.
---------------------------------------------------------------------------

    \11\ Monthly U.S. Imports of Fuel Ethanol, Energy Information 
Administration, Release Date 9/29/2011.
    \12\ Portal Brasil, Energy Matrix for Ethanol, http://www.brasil.gov.br/sobre/economy/energy-matrix/ethanol/br_model1?set_language=en.
---------------------------------------------------------------------------

    Projections from other sources also suggest that a large portion of 
the 490 million gallons of advanced biofuel needed could be supplied by 
imported sugarcane ethanol. For instance, in its Annual Energy Outlook 
2011, EIA projects ethanol imports of approximately 300 million gallons 
for 2012.\13\ In addition, the university-based Food and Agricultural 
Policy Research Institute (FAPRI) released its 2011 U.S. and World 
Agricultural Outlook report in which it projects 2012 ethanol imports 
of 728 million gallons.\14\ This is a substantial increase compared to 
FAPRI's previous projection of 317 mill gallons as cited in our NPRM. 
While other sources suggest that total Brazillian exports of sugarcane 
ethanol decreased in 2011 and may decrease in 2012, the higher RIN 
prices associated with the advanced biofuel mandate would be expected 
to create an incentive for a greater proportion of Brazillian exports 
to be imported into the U.S. For instance, according to the FAPRI 
report, the increase in imports into the U.S. would be concurrent with 
reductions in imports into other countries rather than an increase in 
exports of sugarcane ethanol from Brazil.
---------------------------------------------------------------------------

    \13\ Table 11 of AEO2011, Report Number DOE/EIA-0383(2011). 
http://www.eia.doe.gov/forecasts/aeo/tables_ref.cfm.
    \14\ Table ``Ethanol Trade'', Commodity Outlook/Biofuels, FAPRI-
ISU 2011 World Agricultural Outlook. http://www.fapri.iastate.edu/outlook/2011/.

---------------------------------------------------------------------------

[[Page 1333]]

    We also examined the potential for excess biodiesel to help meet 
the need for 490 million gallons of advanced biofuel. The applicable 
volume of biomass based diesel established in the statute for 2012 is 
1.0 billion gallons (which corresponds to 1.5 billion ethanol-
equivalent gallons). As discussed more fully in Section II.D below, we 
believe that the biodiesel industry has the potential for producing 
volumes above 1.0 billion gallons if demand for such volume exists.
    There are also other potential sources of advanced biofuels. Based 
on RIN generation reports collected via the EPA-Moderated Transaction 
System (EMTS), 32 million ethanol-equivalent gallons of advanced 
biofuel with a D code of 5 were produced in the first half of 2011.\15\ 
Extrapolated to the end of the year, it would be reasonable to expect a 
total of over 60 million ethanol-equivalent gallons of such advanced 
biofuel to be produced in 2011. Production Outlook Reports also 
provided some insight into producers' expectations for 2012. For 2012, 
producers of advanced biofuel projected that they would produce about 
80 million ethanol-equivalent gallons, composed of some combination of 
ethanol, renewable diesel, and heating oil.
---------------------------------------------------------------------------

    \15\ RFS2 EMTS Informational Data, updated on August 18, 2011. 
http://www.epa.gov/otaq/fuels/renewablefuels/compliancehelp/rfsdata.htm.
---------------------------------------------------------------------------

    Another potential source of advanced biofuels is electricity 
generated from renewable biomass that is used as a transportation fuel. 
EIA data indicates that in 2009, the most recent year for which data is 
available, 36.05 million megawatt-hours of electricity was generated 
from wood and wood derived fuels, and an additional 18.4 million 
megawatt-hours was generated from other biomass in the United 
States.\16\ This is significantly more than the 6.8 million megawatt-
hours of electricity used in the transportation sector in 2009,\17\ 
equivalent to about 300 mill ethanol-equivalent gallons. While not all 
the feedstocks used to generate the electricity included in these 
totals would meet the RFS2's renewable biomass definition, this remains 
a very large potential source of advanced biofuel RINs.
---------------------------------------------------------------------------

    \16\ Table ES1 of Electric Power Industry 2009: Year in Review. 
Available online: http://www.eia.doe.gov/cneaf/electricity/epa/epayir.pdf.
    \17\ Table 36 of AEO2011, Report Number DOE/EIA-0383(2011). 
Number based on the conversion that 1 megawatt hour is equivalent to 
3.41 million BTU http://www.eia.doe.gov/forecasts/aeo/tables_ref.cfm.
---------------------------------------------------------------------------

    Currently, there are no valid pathways in Table 1 to Sec.  80.1426 
for the generation of RINs representing electricity used as 
transportation fuel. However, several companies have approached EPA 
with requests for such a pathway, and investigations are underway. It 
is possible that one or more new pathways for electricity may be 
available for use in 2012.
    In addition to verifying that the feedstocks used to generate 
renewable electricity meet the renewable biomass definition, producers 
would also be required to document that the electricity they produce is 
used as a transportation fuel in order to be eligible to generate RINs. 
Until recently there were very few vehicles capable of using 
electricity as a transportation fuel, limited mainly to electric trains 
and trolley cars. Expected increases in the number of vehicles with 
this capability, such as electric vehicles and plug in hybrids, has the 
potential to dramatically increase the degree to which electricity is 
able to be used as a transportation fuel. Verifying that the renewable 
electricity produced is used as a transportation fuel would still 
remain a challenge, however the potential for capitalizing on the RIN 
value, without the necessity of making major changes in the areas of 
fuel production, distribution, or end use, may be a large enough 
incentive to overcome this challenge. While the uncertainties 
associated with the generation of advanced biofuel RINs representing 
renewable electricity used as transportation fuel prevent EPA from 
making a quantitative projection for 2012, such RINs may nevertheless 
play a role in meeting the advanced biofuel standard.
    In light of the potential volumes of imported sugarcane ethanol, 
excess biodiesel, and other sources of advanced biofuel, we continue to 
believe that there will likely be sufficient volumes of advanced 
biofuels to meet the need for 490 million ethanol-equivalent gallons. 
As a result, the applicable volume of advanced biofuel set forth in the 
statute need not be lowered. A number of commenters on the NPRM agreed 
with this assessment. However, several commenters raised a concern 
about the ethanol blendwall, saying that the volume of ethanol that can 
be legally and practically consumed in 2012 is a limiting factor in how 
much advanced biofuel can be consumed. We disagree. Based on gasoline 
energy demand projections from EIA,\18\ a total of about 14.3 bill 
gallons of ethanol could be consumed in 2012 if all gasoline contained 
10% ethanol.\19\ Under the requirements of the RFS program, however, 
the total volume of ethanol that would need to be consumed to meet the 
RFS standards would be no more than 13.7 bill gallons in 2012.\20\ This 
assumes an extreme case in which all renewable fuel that is not 
advanced biofuel is assumed to be ethanol, and all advanced biofuel 
other than biomass-based diesel is also assumed to be ethanol.
---------------------------------------------------------------------------

    \18\ Total energy demand for light-duty vehicles, motorcycles, 
and nonroad per AEO 2011 Tables 10, 45, and 46.
    \19\ In reality, there may be some areas where gasoline without 
ethanol endures, but there will also be some E85 and potentially 
other gasoline-ethanol blends as well. We have used a scenario 
consisting of 100% E10 for this exercise.
    \20\ From Table II.C-1, sum of ethanol-equivalent gallons of 
conventional renewable fuel, cellulosic biofuel, and other advanced 
biofuel.
---------------------------------------------------------------------------

    It is possible that more ethanol may be produced/imported in 2012 
than is necessary to meet the RFS requirements, and such circumstances 
could accelerate the arrival of the blendwall. However, this would only 
occur if market forces favored the consumption of higher volumes of 
ethanol, and we cannot make reliable predictions of such market forces. 
Since the applicable standards are set before a given compliance year 
begins, obligated parties should be coordinating with producers, 
distributors, and blenders of the various forms of ethanol (e.g. 
cellulosic ethanol, corn-ethanol, sugarcane ethanol) to ensure that all 
RFS standards are met by the end of the compliance period.
    Based on our assessment of the availability of volumes of advanced 
biofuel beyond those required to meet the cellulosic biofuel and 
biomass-based diesel standards, we do not believe that the advanced 
biofuel standard need be lowered below the 2.0 billion gallon level 
specified in the Act. Thus, we are not reducing the applicable volume 
of advanced biofuel for 2012.
    A number of parties that commented on the NPRM requested that the 
applicable volume for total renewable fuel in 2012 be reduced. However, 
all such commenters tied the reduction in total renewable fuel to a 
reduction in the advanced biofuel standard. Since we are not lowering 
the advanced biofuel standard for 2012, and there are expected to be 
sufficient volumes of corn-ethanol to meet the need for 13.2 bill 
gallons of conventional renewable fuel (see Table II.C-1), we do not 
believe that there is a need to lower the total renewable fuel 
standard.

D. Biomass-Based Diesel in 2012

    Unlike for cellulosic biofuel, the statute does not require EPA to 
project available volumes of biomass-based

[[Page 1334]]

diesel for years up through 2012 and to base the standard on the 
projected available volume. Instead, the standard for 2012 is to be 
based on the statutory applicable volume of 1.0 bill gallons. However, 
the statute does include waiver provisions that allow for lowering the 
applicable volume of biomass-based diesel under certain circumstances. 
Moreover, as described more fully in Section II.C above, we must 
determine whether the required volumes of advanced biofuel and/or total 
renewable fuel should be reduced if we reduce the required volume of 
cellulosic biofuel. Since biomass-based diesel is also an advanced 
biofuel, the amount of biomass-based diesel that is consumed in 2012 
directly affects our consideration of adjustments to the volumetric 
requirements for advanced biofuel and total renewable fuel. We 
therefore investigated whether the applicable volume of 1.0 bill 
gallons for biomass-based diesel is achievable in 2012, and whether 
additional volumes are also feasible.
    We examined recent production rates, production capacity of the 
industry, and projections for future production from a variety of 
sources. Although there are several different fuel types that can 
qualify as biomass-based diesel, biodiesel is by far the predominant 
type. Thus, our assessment focused primarily on biodiesel, though we 
also investigated potential volumes of renewable diesel.
    According to information from the EPA-Moderated Transaction System 
(EMTS) and RIN generation reports submitted to EPA from producers, we 
estimate that the volume of biomass-based diesel produced in 2010 was 
about 380 mill gallons.\21\ A number of commenters pointed to this low 
volume as an indication that the volume requirements of 800 mill 
gallons in 2011 and 1.0 bill gallons in 2012 are not achievable. 
However, many of the activities of the biodiesel industry in 2010 were 
due to unique circumstances that may not apply in 2012. It is likely 
that a contributing factor to the lower production volumes in 2010 was 
the expiration of the biodiesel tax credit at the end of 2009 and its 
absence throughout 2010, and the fact that the RFS program effectively 
created a demand for about 345 mill gallons in 2010.\22\ A more 
comprehensive view of historical biodiesel production levels strongly 
indicates that the U.S. biodiesel industry has produced higher volumes 
when demand for it existed, and that as a result the industry has the 
capability to produce greater volumes than it did in 2010 under the 
appropriate circumstances. This point is illustrated in Figure II.D-1 
below.
---------------------------------------------------------------------------

    \21\ Consists of approximately 209 mill gallons as recorded 
through EMTS for volume produced under the RFS2 regulations in July 
through December, 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.
    \22\ See question 6.7 in EPA's ``Questions and Answers on 
Changes to the Renewable Fuel Standard Program (RFS2)'', http://www.epa.gov/otaq/fuels/renewablefuels/compliancehelp/rfs2-aq.htm#6.
[GRAPHIC] [TIFF OMITTED] TR09JA12.000

    The biodiesel industry's production potential supports the view 
that it can more than satisfy the applicable volume of biomass based 
diesel specified in the statute for 2012. As of August, 2011, the 
aggregate production capacity of biodiesel plants in the U.S. was 
estimated at 2.4 billion gallons per year across 148 facilities.\23\ We 
expect the time and reinvestment required to ramp up production at 
existing facilities to be 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 will not be a hindrance to 
meeting the applicable volumes for biomass-based diesel in 2011 or 
2012. A higher mandate for biomass-based diesel will increase demand 
for biodiesel with associated increases in RIN prices. This in turn

[[Page 1335]]

will create the incentive for biodiesel producers to put idled capacity 
into production.
---------------------------------------------------------------------------

    \23\ Figures taken from National Biodiesel Board's Member Plant 
List as of August 22, 2011. Some plants did not report production 
capacity. http://biodiesel.org/buyingbiodiesel/plants/showall.aspx.
    \24\ Based on construction times for new plants listed in 
Biodiesel Magazine from July 2006 through May 2009.
---------------------------------------------------------------------------

    Additionally, information from the U.S. Census Bureau indicates 
that monthly production volumes of biodiesel have increased steadily in 
the first half of 2011, reaching about 78 mill gallons by July.\25\ See 
Figure II.D-2.
---------------------------------------------------------------------------

    \25\ U.S. Census Bureau, Fats and Oils, Production, Consumption, 
and Stocks, Survey M311K. http://www.census.gov/manufacturing/cir/historical_data/m311k/index.html. Assumes 7.68 lb/gal conversion.
[GRAPHIC] [TIFF OMITTED] TR09JA12.001

Over the seven months shown in this figure, biodiesel production 
increased by an average of about 16% each month. This trend 
demonstrates that the industry is responding to the higher demand 
created by the 800 mill gal biomass-based diesel volume requirement 
under the RFS program in 2011. Biodiesel production will only need to 
increase at a more modest rate of about 3% each month after July in 
order for the total 2011 production volume to reach 800 mill gallons. 
Moreover, further increases in monthly production volumes would not be 
necessary after December 2011 for the industry to reach a total 
production volume of 1.0 bill gallons in 2012. We believe, therefore, 
that the 1.0 bill gallon requirement for biomass-based diesel in 2012 
can be met. Moreover, given the increases in monthly production volumes 
that occurred in the first half of 2011 and the significant amount of 
underutilized production capacity that exists within the biodiesel 
industry, there is also reason to believe that monthly production 
volumes will increases after July 2011 at a rate that is more than 
needed to meet the statutory biomass-based diesel volume requirements, 
providing additional volumes that can be used to meet the advanced 
biofuel standard.
    Projections from other sources provide additional support to our 
conclusions that 1.0 bill gal biomass-based diesel can be produced in 
2012. For instance, the U.S. Department of Agriculture projects that 
over 400 mill gallons of biodiesel will be produced from soybean oil in 
2012, and adds that ``Although some other first-use vegetable oils are 
also used to produce biodiesel, most of the remaining biodiesel 
production needed to reach the 1-billion-gallon mandate of the 2007 
Energy Act uses animal fats or recycled vegetable oil as the 
feedstock.'' \26\ This projection is further supported by the 
Agricultural Marketing Resource Center at Iowa State University, which 
projects that soy-oil biodiesel production may reach as high as 470 
mill gallons and that non-soy biodiesel may reach as high as 460 mill 
gallons.\27\ Both of these sources project more growth in non-soy oil 
feedstock volumes than soy oil. Finally, EIA projects that the total 
volume of biodiesel in 2012 would be about 830 mill gallons.\28\ While 
all of these projections suggest that volumes of biodiesel may fall 
short of 1.0 bill gallons, they do not take into account the increase 
in monthly production volumes as noted above, nor sources of renewable 
diesel that will also be available. For instance, Dynamic Fuels has 
constructed one plant in Geismar, Louisiana that started production of 
renewable diesel in November, 2010.\29\ In the final RFS2 rule, we 
projected that

[[Page 1336]]

annual renewable diesel production could reach 150 mill gallons based 
on feedstock availability. Renewable diesel can also be produced at 
existing refineries with little modification to processing 
equipment.\30\ Thus, we currently believe that the total production 
volume of biomass-based diesel can readily reach 1.0 bill gal in 2012.
---------------------------------------------------------------------------

    \26\ USDA Agricultural Projections to 2020, Long-Term 
Projections Report OCE-2011-1, February 2011. See Table 24. Assumes 
7.68 lb/gal.
    \27\ Soybean Oil and Biodiesel Usage Projections and Balance 
Sheet, updated 2/18/2011. A version made available on 8/1/2011 shows 
similar volumes of soybean oil for biodiesel use, but does not 
provide information about non-soy oil sources of biodiesel. http://www.extension.iastate.edu/agdm/crops/outlook/soybeanbalancesheet.pdf. Values cited are for the ``High'' case.
    \28\ Short-Term Energy Outlook, August 2011. Table 8.
    \29\ Project status updates are available via the Syntroleum Web 
site, http://dynamicfuelsllc.com/wp-news/.
    \30\ For such a product to qualify for biomass-based diesel, 
however, it cannot be co-processed with petroleum feedstock. This 
might limit its potential for refinery-based production of 
qualifying product.
---------------------------------------------------------------------------

    We also reviewed information submitted by registered producers of 
biomass-based diesel under the requirements of Sec.  80.1449 for 
Production Outlook Reports. Of the 65 facilities that submitted a 
report, the total projected 2012 volume of biomass-based diesel was 937 
mill gallons. We believe that this projection is indicative of the 
industry's expectation that the applicable volume requirement for 2012 
will be 1.0 bill gallons and its intention to meet that requirement. 
Moreover, the projection provided in these reports likely 
underestimates the actual expectations and capabilities of the 
industry, since the number of facilities that submitted a report is far 
less than the total number of facilities capable of producing biodiesel 
and renewable diesel.
    In additional to production capacity and projections of 2012 
production volume, we also investigated feedstocks used to produce 
biomass-based diesel. We believe that there will be sufficient sources 
of qualifying renewable biomass to more than meet the needs of the 
biodiesel industry in 2012. The largest sources of feedstock for 
biodiesel in 2012 are expected to be soy oil, canola oil, rendered 
fats, and corn oil extracted during production of fuel ethanol. In 
response to the NPRM, the National Biodiesel Board (NBB) cited 
historically high soybean production rates for 2011 as evidence that 
there will be ample volumes of soybean oil available for biodiesel 
production. Likewise, the Renewable Energy Group (REG) provided 
information on significant increases in the availability of inedible 
corn oil from ethanol producers that it believes will occur in the next 
1-2 years.
    While commenters did not provide any information suggesting that 
the applicable volume of 1.0 bill gallons cannot be reached, some 
raised concerns about impacts on other industries and feedstock price. 
For instance, the American Trucking Association (ATA) stated that 
feedstocks will need to be diverted from other uses in order to meet 
the 1.0 bill gallon requirement, and the American Cleaning Institute 
(ACI) provided information about how such a diversion could affect the 
oleochemical industry. We address concerns about price in more detail 
below in our discussion of ATA's request for a waiver of the 2012 
applicable volume of 1.0 bill gallons.
    While we agree that the total volume of animal fats is largely 
inelastic and is unlikely to grow significantly due to the presence of 
the increasing market for biomass-based diesel, we also agree with the 
statement from ACI that ``there is nothing in EISA or the proposed rule 
that limits the amount of animal fats that can be used to meet the 
mandate.'' Under the statutory definition of renewable biomass, valid 
feedstocks include animal waste material and animal byproducts. We 
believe that animal fats fall into these categories, and as a result we 
do not have the authority to exclude or limit volumes of animal fats 
that are used for production of biomass-based diesel. Such wastes could 
potentially be considered ``biogenic waste oils/fats/greases'' or 
``non-cellulosic portions of separated food waste'' under the RIN-
generating pathways listed in Table 1 to Sec.  80.1426, and could thus 
be eligible for the production of RIN-generating biofuel.
    In response to the NPRM, we received comments both in support of 
and opposed to our proposal to maintain the statute's applicable volume 
of 1.0 bill gallons for biomass-based diesel in 2012. In general, 
producers of biodiesel and crop-based feedstocks were supportive, 
citing the sufficiency of available feedstocks and production capacity. 
Several supporters indicated that historically low biodiesel production 
volumes are not an appropriate reference point on which to base the 
capabilities of the industry for the future, since the higher biomass-
based diesel mandates established by Congress for 2011 and 2012 are 
expected to drive production volumes more than any other factor.
    Parties opposed to maintaining the statutory applicable volume of 
1.0 bill gallons for 2012 were primarily obligated parties, as well as 
representatives of diesel trucking companies and the oleochemical 
industry. To a large degree, these commenters pointed to historical 
biodiesel production levels in support of their belief that 1.0 bill 
gallons in 2012 is not achievable. As described above, we do not agree 
with this conclusion.
    One party opposed to maintaining the 1.0 bill gal requirement for 
2012 also raised concerns about infrastructure. We acknowledge that the 
required expansion of the biodiesel handling capacity at terminals will 
represent a challenge to industry. However, as discussed in the NPRM, 
we continue to believe that there will be sufficient biomass-based 
diesel distribution infrastructure in place to support the use of 1.0 
bill gal biodiesel in 2012. For instance, NBB stated in their comments 
that in most markets, terminals can treat 5% biodiesel blends as a 
fungible commodity like diesel fuel and that they believe that many 
terminals may be storing B5 blends. To the extent terminals store a 
finished B5 blend, it would obviate the need for much of the segregated 
biodiesel storage and blending capability that is assumed in our 
infrastructure analysis. The Iowa Biodiesel Board stated that claims 
that industry cannot accommodate the distribution of the target gallons 
are baseless and cited various examples of recent biodiesel blending 
initiatives at Iowa terminals.
    Industry activities are currently progressing to ramp up biodiesel 
consumption from the approximately 380 mill gallons estimated to be 
used in the U.S. in 2010 to the volumes that will be needed in 2011 to 
meet the biomass-based diesel volume requirement. For example, Kinder 
Morgan and the Renewable Energy Group opened a substantial biodiesel 
distribution facility to serve the Chicago area in December of 
2010.\31\ Magellan also recently announced that it plans to complete 
its biodiesel blending facility in Sioux Falls Minnesota in 2011.\32\ 
In June of this year, Sunoco Logistics and Sprague Energy opened a new 
terminal facility to supply biodiesel blended transportation fuel and 
heating fuel to New Jersey.\33\ These new terminal facilities employ 
segregated biodiesel storage and blending capability. Just as there has 
been considerable biodiesel production capacity idled due to lack of 
demand which will be brought back on line as biodiesel volumes ramp up, 
we believe that there may also be substantial idled biodiesel 
distribution assets that could be brought back into service. It seems 
reasonable to assume that at least some of the distribution assets used 
previously to deliver biodiesel

[[Page 1337]]

manufactured at now idled production plants would still be available.
---------------------------------------------------------------------------

    \31\ Biodiesel Magazine, November 17, 2010. http://www.biodieselmagazine.com/articles/4568/chicago-area-terminal-soon-to-offer-biodiesel.
    \32\ Report to the Legislature, Annual Report on Biodiesel, 
Minnesota Department of Agriculture, January 15, 2011. http://
www.mda.state.mn.us/en/news/government/~/media/Files/news/
govrelations/legrpt-biodiesel2011.ashx.
    \33\ http://www.tankterminals.com/news_detail.php?id=1284.
---------------------------------------------------------------------------

    Of the parties that requested a reduction in the applicable volume 
of 1.0 bill gallons for 2012, the American Trucking Association (ATA) 
and Chevron explicitly invoked the waiver mechanism provided at 
211(o)(7)(E). The full text of this statutory provision is shown below:

    (E) BIOMASS-BASED DIESEL.--
    (i) MARKET EVALUATION.--The Administrator, in consultation with 
the Secretary of Energy and the Secretary of Agriculture, shall 
periodically evaluate the impact of the biomass-based diesel 
requirements established under this paragraph on the price of diesel 
fuel.
    (ii) WAIVER.--If the Administrator determines that there is a 
significant renewable feedstock disruption or other market 
circumstances that would make the price of biomass-based diesel fuel 
increase significantly, the Administrator, in consultation with the 
Secretary of Energy and the Secretary of Agriculture, shall issue an 
order to reduce, for up to a 60-day period, the quantity of biomass-
based diesel required under subparagraph (A) by an appropriate 
quantity that does not exceed 15 percent of the applicable annual 
requirement for biomass-based diesel. For any calendar year in which 
the Administrator makes a reduction under this subparagraph, 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.
    (iii) EXTENSIONS.--If the Administrator determines that the 
feedstock disruption or circumstances described in clause (ii) is 
continuing beyond the 60-day period prescribed in clause (ii) or 
this clause, the Administrator, in consultation with the Secretary 
of Energy and the Secretary of Agriculture, may issue an order to 
reduce, for up to an additional 60-day period, the quantity of 
biomass-based diesel required under subparagraph (A) by an 
appropriate quantity that does not exceed an additional 15 percent 
of the applicable annual requirement for biomass-based diesel.

    The waiver authority provided in paragraph 211(o)(7)(E)(ii) is 
based on an EPA determination that there ``is'' a feedstock disruption 
or other market circumstance that would make the price of biomass-based 
diesel rise significantly. The authority to extend a temporary waiver 
in paragraph (iii) is based on an EPA determination that such 
disruption or circumstance ``is continuing.'' Thus, we believe that any 
waiver of the 2012 biomass-based diesel requirements under this 
statutory provision must be based on an evaluation of feedstock 
conditions or other circumstances that exist currently and ``would 
make'' the price of biomass based diesel rise significantly in 2012. If 
Congress had intended that we project future market circumstances that 
might lead to significant prices increases, it could have used ``will 
be'' in place of ``is'' in paragraph 211(o)(7)(E)(ii). Thus, we believe 
that any waiver of the biomass-based diesel requirements for 2012 must 
be based on a current evaluation of the market, rather than a projected 
one.
    We do not believe that the information provided by Chevron and ATA 
warrants a waiver of the 2012 biomass-based diesel volume at this time. 
While ATA provided some information on the relative price of biodiesel 
and conventional diesel, it did not demonstrate how this price 
difference represented a price increase as required under the statute. 
Also, they did not cite any particular renewable feedstock disruption 
or other market circumstance to demonstrate how the difference in price 
between conventional diesel fuel and biomass-based diesel meets the 
statutory criterion for a significant increase in the price of biomass-
based diesel.
    Both Chevron and ATA cite an expected expiration of the biodiesel 
tax credit at the end of 2011 as a reason that prices will increase 
significantly. EPA has not determined whether the expiration of a tax 
credit should be considered a ``market circumstance'' within the 
meaning of CAA 211(o)(7)(E)(ii), and is making no determination 
regarding that matter at this time. Whether or not such a development 
would be a ``market circumstance,'' it is clear that it is not an 
existing circumstance, and conjecture that the tax credit may not be 
continued in the future does not provide an appropriate basis for a 
waiver under 211(o)(7)(E)(ii). Apart from possible consideration under 
the statutory waiver provisions, however, we note that the applicable 
volumes set by Congress must be met regardless of the status of Federal 
or state tax credits, subsidies, incentives, and the like.
    One commenter requested a cost-benefit analysis in the context of 
determining the appropriate volume for biomass-based diesel in 2012. 
Under the statute, we are to set the percentage standard for biomass-
based diesel for 2012 based on the applicable volume of 1.0 bill 
gallons specifically set forth in the statute in CAA 211(o)(2)(B)(IV). 
While the statute does provide limited mechanisms for waiving all or a 
portion of any annual biomass-based diesel standard in 2012 under CAA 
211(o)(7), the statute does not require a cost-benefit analysis either 
in setting a standard based on the statutory applicable volume or in 
considering whether or not to issue a waiver. For instance, under 
211(o)(7)(A), waivers can be granted based on an EPA finding of severe 
harm to the economy or environment of a state, region, or the United 
States, or inadequate domestic supply. Under 211(o)(7)(E) waivers can 
be granted based on a significant renewable feedstock disruption or 
other market circumstance that would make the price of biomass-based 
diesel fuel increase significantly. Neither of these statutory 
provisions provides for a comparison of the costs associated with 
meeting the biomass-based diesel standard to the benefits of meeting 
that standard. Therefore, we do not believe that cost-benefit analyses 
are necessary or appropriate in the context of considering the 2012 
biomass-based diesel volume of 1.0 bill gallons.
    Based on our review of the production potential of the biodiesel 
industry, projections from several sources, and our assessment of 
available feedstocks, we believe that the 1.0 billion gallons needed to 
satisfy the applicable volume of biomass-based diesel specified in the 
statute can be produced in 2012, and that more than 1.0 bill gallons of 
production is possible. Moreover, we do not believe that waiving a 
portion of the 2012 biomass-based diesel volume of 1.0 bill gallons 
under the provisions of 211(o)(7)(E) is appropriate at this time.

III. Final Percentage Standards for 2012

A. Background

    The renewable fuel standards are expressed as a volume percentage, 
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 four separate RVOs 
applicable to each obligated party. Each standard applies to the sum of 
all gasoline and diesel produced or imported for use in the U.S. The 
applicable percentage standards are set so that if each regulated 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.B.6, we are finalizing a required volume 
of cellulosic biofuel for 2012 of 8.65 million gallons (10.45 million 
ethanol equivalent gallons). The advanced biofuel and total renewable 
fuel volumes will not be reduced below the applicable volumes specified 
in the statute. The final 2012 volumes used to determine the four 
percentage standards are shown in Table III.A-1.

[[Page 1338]]

                                      Table III.A-1--Final Volumes for 2012
----------------------------------------------------------------------------------------------------------------
                                              Actual volume                  Ethanol equivalent  volume
----------------------------------------------------------------------------------------------------------------
Cellulosic biofuel....................  8.65 mill gal............  10.45 mill gal.
Biomass-based diesel..................  1.0 bill gal.............  1.5 bill gal.
Advanced biofuel......................  2.0 bill gal.............  2.0 bill gal.
Renewable fuel........................  15.2 bill gal............  15.2 bill gal.
----------------------------------------------------------------------------------------------------------------

    The formulas used in deriving the annual renewable fuel standards 
are based in part on estimates of the volumes of gasoline and diesel 
fuel, for both highway and nonroad uses, that will 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 
producers 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 Sec.  80.1405):
[GRAPHIC] [TIFF OMITTED] TR09JA12.002

Where:

StdCB,i = The cellulosic biofuel standard for year i, in 
percent.
StdBBD,i = The biomass-based diesel standard (ethanol-
equivalent basis) for year i, in percent.
StdAB,i = The advanced biofuel standard for year i, in 
percent.
StdRF,i = The renewable fuel standard for year i, in 
percent.
RFVCB,i = Annual volume of cellulosic biofuel required by 
section 211(o) of the Clean Air Act for year i, in gallons.
RFVBBD,i = Annual volume of biomass-based diesel required 
by section 211(o) of the Clean Air Act for year i, in gallons.
RFVAB,i = Annual volume of advanced biofuel required by 
section 211(o) of the Clean Air Act for year i, in gallons.
RFVRF,i = Annual volume of renewable fuel required by 
section 211(o) of the Clean Air Act for year i, in gallons.
Gi = Amount of gasoline projected to be used in the 48 
contiguous states and Hawaii, in year i, in gallons.
Di = Amount of diesel projected to be used in the 48 
contiguous states and Hawaii, in year i, in gallons.
RGi = 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.
RDi = 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.
GSi = 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.
RGSi = 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.
DSi = 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.
RDSi = Amount 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.
GEi = The 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 Sec. Sec.  80.1441 and 80.1442, 
respectively.
DEi = The 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 Sec. Sec.  80.1441 and 80.1442, 
respectively.

[[Page 1339]]

    The four separate renewable fuel standards for 2012 are based in 
part on the gasoline and diesel consumption volumes projected by EIA. 
The Act requires EPA to base the standards on an EIA estimate of the 
amount of gasoline and diesel that will be sold or introduced into 
commerce for that year. EIA estimates 8.85 million barrels per day of 
gasoline (~136 billion gallons) and 3.36 million barrels per day of 
transportation diesel (~ 52 billion gallons) will be sold or introduced 
into commerce in 2012.\34\ Because diesel used in ocean-going vessels 
is excluded from the RFS2 program, that amount must be subtracted from 
the total projected transportation diesel value. EIA estimates 
approximately 26,000 barrels per day of transportation diesel will be 
used in ocean-going vessels in 2012, resulting in approximately 3.334 
million barrels per day (51.11 billion gallons) projected for all other 
transportation uses in 2012.
---------------------------------------------------------------------------

    \34\ Letter, Howard K. Gruenspecht, Acting Administrator, U.S. 
Energy Information Administration, to Lisa P. Jackson, 
Administrator, U.S. Environmental Protection Agency, October 19, 
2011.
---------------------------------------------------------------------------

    The gasoline and diesel volumes are adjusted to account for 
renewable fuel volumes--ethanol (estimated by EIA) and biodiesel (based 
on EIA's Short-Term Energy Outlook (STEO)). For 2012, these values are 
0.87 million barrels per day (~13 billion gallons) and 0.119 
quadrillion Btu \35\ (~ 0.9 billion gallons), respectively.
---------------------------------------------------------------------------

    \35\ Table 8 ``U.S. Renewable Energy Supply and Consumption,'' 
Short Term Energy Outlook, U.S. Energy Information Administration, 
October 2011.
---------------------------------------------------------------------------

    In addition, because Alaska does not participate in the RFS2 
program, the gasoline and diesel volumes must be further reduced by 
Alaska's projected share of transportation fuels. 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. Just as with 
its corresponding gasoline and diesel volumes, renewable fuels used in 
Alaska are not included in the renewable fuel volumes that are 
subtracted from the total gasoline and diesel volume estimates. Section 
211(o) of the Clean Air Act requires that the renewable fuel be 
consumed in the contiguous 48 states, and any other state or territory 
that opts-in to the program (as Hawaii has done). However, because 
renewable fuel produced in Alaska is unlikely to be transported to the 
contiguous 48 states or to Hawaii, including Alaska's renewable fuel 
volumes in the calculation of the standard would not serve the purpose 
intended by section 211(o) of the Clean Air Act of ensuring that the 
statutorily required renewable fuel volumes are consumed in the 48 
contiguous states and any state or territory that opts-in.
    The 2012 Alaska fractions of U.S. consumption are determined from 
the most recent (2009) EIA State Energy Data System (SEDS) estimates, 
assuming fairly constant Alaska to U.S. year-to-year ratios. We used 
Table CT1 ``Energy Consumption Estimates for Major Energy Sources in 
Physical Units, 1960-2009, Alaska'' to get total gasoline and ethanol 
consumption for Alaska for 2009. We coupled this data with total U.S. 
estimates from Table C2 ``Energy Consumption Estimates for Major Energy 
Sources in Physical Units, 2009'' to determine the corresponding Alaska 
fractions. The gasoline fraction is approximately 0.2%. Ethanol use in 
Alaska is estimated at 8.4% of its gasoline consumption (based on the 
data in Table CT1), or approximately 0.2% of national ethanol 
consumption. Because only transportation diesel fuel is subject to the 
RFS program, we need more specific data than that used to calculate the 
gasoline and ethanol fractions. We used data from Table C8 
``Transportation Sector Energy Consumption Estimates, 2009'' to 
calculate the Alaska transportation distillate fuel oil fraction, 0.8%. 
Biodiesel use is assumed to be zero. The Alaska and U.S. data just 
described are shown in Table III.B-1.

                                       Table III.B-1--Alaska and U.S. Data
----------------------------------------------------------------------------------------------------------------
                                                                                                        Alaska
                                                                                                     fraction\x\
                                                      Alaska                        U.S.                 (in
                                                                                                       percent)
----------------------------------------------------------------------------------------------------------------
Motor Gasoline...........................  6725 Mbbl \a\..............  3283.7 MMbbl \b\...........          0.2
Fuel Ethanol.............................  565 Mbbl \a\...............  262.8 MMbbl \b\............          0.2
Transportation Distillate................  46.1 tBtu \c\..............  5528.3 tBtu \c\............          0.8
----------------------------------------------------------------------------------------------------------------
\a\ Source: EIA State Energy Data System, Table CT1 ``Energy Consumption Estimates for Major Energy Sources in
  Physical Units, 1960-2009, Alaska''.
\b\ Source: EIA State Energy Data System, Table C2 ``Energy Consumption Estimates for Major Energy Sources in
  Physical Units, 2009''.
\c\ Source: EIA State Energy Data System, Table C8 ``Transportation Sector Energy Consumption Estimates, 2009''.
\x\ Calculated value.

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 RFS1, 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. Because EISA did not alter 
the small refinery exemption in any way, the RFS2 program regulations 
exempted gasoline and diesel produced by small refineries and small 
refiners in 2010 from the renewable fuels standard (unless the 
exemption was waived), see 40 CFR 80.1141.
    Under the RFS program, Congress provided two ways that small 
refineries can receive a temporary extension of the exemption beyond 
2010. One is based on the results of a study conducted by the 
Department of Energy (DOE) to determine if 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.\36\ The conclusions were based in part on the expected 
robust availability of RINs and

[[Page 1340]]

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/refinery volume adjustment to the 2011 standard as there 
was for the 2010 standard.
---------------------------------------------------------------------------

    \36\ DOE report ``EPACT 2005 Section 1501 Small Refineries 
Exemption Study'', (January, 2009).
---------------------------------------------------------------------------

    Following the release of DOE's 2009 small refinery study, Congress 
directed DOE to complete a reassessment and issue a revised report. DOE 
recently re-evaluated the impacts of the RFS program on small entities 
and concluded that 21 small refineries would suffer a disproportionate 
hardship if required to participate in the program.\37\ As a result, 
these refineries will be exempt from being obligated parties for a 
minimum of two additional years, 2011 and 2012.\38\ In 2009, the 
gasoline produced by refineries identified in the DOE report as well as 
those refineries exempted through the petition process constituted 
approximately 3.6% of total US gasoline, and 4.5% of total US diesel. 
Applying these percentages to the 2012 projections of gasoline and 
diesel volumes yields exempt small refinery gasoline volume of 4.87 
billion gallons and diesel volume of 2.28 billion gallons.
---------------------------------------------------------------------------

    \37\ ``Small Refinery Exemption Study: An Investigation into 
Disproportionate Economic Hardship,'' U.S. Department of Energy, 
March 2011.
    \38\ 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.
---------------------------------------------------------------------------

    CAA section 211(o) requires that the small refinery adjustment also 
account for renewable fuels used during the prior year by small 
refineries that are exempt and do not participate in the RFS2 program. 
Accounting for this volume of renewable fuel would reduce the total 
volume of renewable fuel use required of others, and thus directionally 
would reduce the percentage standard. However, as we discussed in RFS1, 
the amount of renewable fuel that would qualify, i.e., that was used by 
exempt small refineries but not used as part of the RFS program, is 
expected to be very small. In fact, these volumes would not 
significantly change the resulting percentage standards. Whatever 
renewable fuels small refineries blend will be reflected as RINs 
available in the market; thus there is no need for a separate 
accounting of their renewable fuel use in the equations used to 
determine the standards. Thus we assign a value of zero to small 
refinery renewable fuel use.
    The 2012 standards reflect the exemption of these refineries. In 
addition, and separate from the DOE determination, EPA may extend the 
exemption for individual small refineries on a case-by-case basis if 
they demonstrate disproportionate economic hardship.
    In the NPRM, we stated that ``requests for exemptions that are 
approved after the release of the final 2012 RFS standards will not 
affect the 2012 standards.'' This position is unchanged from that set 
in the final rule establishing the 2011 standards.\39\ At that time, we 
stated, ``EPA believes 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. Periodic 
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.'' However, a few commenters took issue with this approach. 
Specifically, these commenters maintain that EPA did not provide notice 
and comment opportunities regarding the extensions of the small 
refinery exemptions for the current compliance period (2011), and that 
EPA cannot grant such extensions (mid-year) without modifying the 
standards because such authority is not provided in the statute. In 
addition, these commenters extend the application of their comments to 
any extensions of exemptions that may occur after issuance of the final 
2012 standards. Commenters suggested requiring petitions to be 
submitted in time to be considered in the annual standard-setting 
process. One commenter also suggested that the volumes waived in 2011 
as a result of the small refiner waivers be ``made up'' in setting the 
2012 standards. EPA understands the desire of the commenters to have 
the annual required volumes of renewable fuels realized. However, while 
the statute requires EPA to publish the standards for the following 
year by November 30 of the preceding year, there is no provision for 
changing the percentage standards once they are set outside of the 
waiver provisions of CAA 211(o)(7). In addition, we are not required to 
ensure that the biofuel volumes in the statute are precisely met. We 
are required to use the specified volumes to set the percentage 
standards, but there are no provisions for ensuring that the percentage 
standards actually result in the specified volumes actually being 
consumed. This outcome is evidenced by the fact that we use projections 
of gasoline and diesel volume for the next year which might turn out to 
be too high or too low. Insofar as those projections are wrong, the 
percentage standards will not produce a demand for biofuels that 
exactly corresponds to the volumes in the statute. Thus Congress 
allowed for some imprecision to exist in the actual volumes of 
renewable fuel that are consumed as a result of the percentage 
standards that we set each November, and did not provide a means for 
correcting the percentage standards after November to ensure that the 
applicable volumes of renewable fuel are exactly met in a given 
compliance year.
---------------------------------------------------------------------------

    \39\ See 75 FR 76805, December 9, 2010.
---------------------------------------------------------------------------

3. Final Percentage Standards
    As finalized in the March 26, 2010 RFS2 rule, the standards are 
expressed in terms of 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 biodiesel equivalence. However, all RIN generation is 
based on ethanol-equivalence. More specifically, the RFS2 regulations 
provide that production or import of a gallon of biodiesel will lead to 
the generation of 1.5 RINs. In order to ensure that demand for 1.0 
billion physical gallons of biomass-based diesel will be created in 
2012, 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 worth 1.0 gallons toward the biomass-
based diesel standard, but worth 1.5 gallons toward the other 
standards.\40\
---------------------------------------------------------------------------

    \40\ 75 FR 14716, March 26, 2010.
---------------------------------------------------------------------------

    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 diesel 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.
    Note that the terms for projected volumes of gasoline and diesel 
use include gasoline and diesel that has been blended with renewable 
fuel. Because the gasoline and diesel volumes estimated by EIA include 
renewable fuel use, we must subtract the total renewable fuel volume 
from the total

[[Page 1341]]

gasoline and diesel volume to get total non-renewable gasoline and 
diesel volumes, as discussed earlier. The values of the variables 
described above are shown in Table III.B.3-2. Terms not included in 
this table have a value of zero.

    Table III.B.3-2--Values for Terms in Calculation of the Standards
                               [Bill gal]
------------------------------------------------------------------------
                            Term                                Value
------------------------------------------------------------------------
RFVCB,2012.................................................      0.01045
RFVBBD,2012................................................          1.0
RFVAB,2012.................................................          2.0
RFVRF,2012.................................................        15.20
G2012......................................................       135.39
D2012......................................................        50.68
GE2012.....................................................         4.87
DE2012.....................................................         2.28
RG2012.....................................................        13.31
RD2012.....................................................         0.93
------------------------------------------------------------------------

    Using the volumes shown in Table III.B.3-2, we have calculated the 
percentage standards for 2012 as shown in Table III.B.3-3.

          Table III.B.3-3--Final Percentage Standards for 2012
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel...........................................     0.006%
Biomass-based diesel.........................................      0.91%
Advanced biofuel.............................................      1.21%
Renewable fuel...............................................      9.23%
------------------------------------------------------------------------

IV. Changes to RFS2 Regulations

    As the RFS2 program got underway in the second half of 2010, we 
discovered that a number of regulatory provisions were causing 
confusion among regulated parties. In some cases the confusion was due 
to a lack of specificity in terms, while in others it was due to unique 
circumstances that were not sufficiently addressed in the RFS2 
regulations. A few amendments are being finalized in order to correct 
these problems and to amend regulatory language that inadvertently 
misrepresented our intent as reflected in the preamble to the final 
RFS2 regulations. In addition, as we have worked with regulated parties 
to ensure that the RFS program is operating as intended, we identified 
areas in the regulations that could benefit from streamlining. We also 
identified one provision in the gasoline benzene regulations that 
misrepresented our intent as stated in the preamble. As a result, we 
are finalizing a number of amendments to the RFS regulations, and one 
amendment to the gasoline benzene regulations, in 40 CFR Part 80.

A. Summary of Amendments

    Below is a table listing the provisions that we are amending in 
today's action. We have provided additional explanation for several of 
these amendments in Sections IV.B through IV.F below.

              Table IV.A-1--Summary of Technical Amendments
------------------------------------------------------------------------
                Section                            Description
------------------------------------------------------------------------
80.1275(d)(3)..........................  Removed to allow for the
                                          inclusion of transferred
                                          blendstocks in the calculation
                                          of benzene early credits.
80.1401................................  Amended definition of ``annual
                                          cover crop'' to clarify that
                                          the crop has no existing
                                          market to which it can be sold
                                          except for its use as
                                          feedstock for the production
                                          of renewable fuel.
80.1401................................  Amended definition of
                                          ``naphtha'' to clarify that it
                                          applies to hydrocarbons only,
                                          must be commonly or
                                          commercially known as naphtha,
                                          and is used for producing
                                          gasoline.
80.1405(a), (b), and (d)...............  Amended to state the standards
                                          for 2012 and the date of the
                                          annual standards calculation.
80.1405(c).............................  Amended terms ``GEi'' and
                                          ``DEi'' to reference the
                                          amount of gasoline and/or
                                          diesel produced by small
                                          refineries and small refiners
                                          that are exempt pursuant to
                                          Sec.  Sec.   80.1441 and
                                          80.1442.
80.1415(c)(2)..........................  Amended to state the specific
                                          requirements needed for
                                          technical justifications for
                                          applications for Equivalence
                                          Values.
80.1426(f)(1)..........................  Corrected typographical error
                                          in cross reference to
                                          paragraph (f)(6) of Sec.
                                          80.1426.
80.1426(f)(5)(ii)......................  Amended requirements so that
                                          the separated yard waste plans
                                          and separated food waste plans
                                          need not be approved by EPA,
                                          but instead only need to be
                                          accepted by EPA under the
                                          registration provisions.
80.1429(b)(2)..........................  Amended to clarify that
                                          ``fossil-based'' diesel fuel
                                          is different from renewable
                                          diesel fuel.
80.1429(b)(9)..........................  Amended to include RIN
                                          separation limitations on
                                          parties whose non-export RVOs
                                          are solely related to imports
                                          of gasoline and diesel or the
                                          use of blendstocks to produce
                                          gasoline or diesel.
80.1449(a).............................  Amended Production Outlook
                                          Report due date; added
                                          allowance for unregistered
                                          renewable fuel producers and
                                          importers to submit Production
                                          Outlook Reports.
80.1450(d)(1)-(d)(3)...................  Amended to add more specificity
                                          on when updates, addenda, or
                                          resubmittals are required for
                                          engineering reviews and to
                                          include references to foreign
                                          ethanol producers.
80.1451(a)(1)(xi)......................  Amended to clarify that this
                                          section references RFS1 RINs
                                          retired for compliance.
80.1452(b)(2)..........................  Corrected typographical error.
80.1452(b)(4)..........................  Amended to clarify that a RIN-
                                          generating importer must
                                          submit to EMTS the EPA
                                          facility registration number
                                          of the facility at which the
                                          renewable fuel producer or
                                          foreign ethanol producer
                                          produced the batch.
Sec.   80.1452(b)(5)...................  Amended to clarify that for
                                          imports of renewable fuel, the
                                          RIN-generator must submit to
                                          EMTS the EPA facility
                                          registration number of the
                                          importer that imported the
                                          batch.
80.1460(b)(6)..........................  Adds the existing prohibition
                                          against generating a RIN for
                                          fuel for which RINs have
                                          previously been generated.
80.1464(a)(2)(iii), (a)(2)(iv),          Added to clarify that auditors
 (b)(2)(iii), (b)(2)(iv), (c)(1)(iii),    must verify that product
 and (c)(1)(iv).                          transfer documents for RIN
                                          transactions contain the
                                          required information for
                                          obligated parties/exporters
                                          and for renewable fuel
                                          producers/importers.

[[Page 1342]]

 
80.1464(a)(2)(i), (a)(3)(ii),            Amended to clarify that
 (b)(2)(i), (b)(3)(ii).                   auditors must validate RIN
                                          separations for obligated
                                          parties/exporters and for
                                          renewable fuel producers/
                                          importers; amended to correct
                                          typographical error.
80.1465(h)(2); 80.1466(h)(2); and        Amended to remove the option of
 80.1467(e)(1), (e)(2), and (g)(2).       using an alternative
                                          commitment in lieu of paying a
                                          bond and to clarify the amount
                                          of bond a foreign entity must
                                          post.
------------------------------------------------------------------------

    There are also two changes to Table 1 to Sec.  80.1426 that we 
proposed in the July 1, 2011 NPRM that we are not finalizing in today's 
action, but which instead will be finalized in a separate action. The 
first change would amend the table to include ID letters for each 
pathway to facilitate references to specific pathways. The second 
change would add ``rapeseed'' to the existing pathway that currently 
allows canola oil to be used as a valid feedstock in the production of 
biodiesel. These two changes are being finalized in a separate action 
in order to ensure that multiple changes to Table 1 to Sec.  80.1426 
that are made sequentially do not inadvertently result in later changes 
over-writing earlier changes.

B. Technical Justification for Equivalence Value Application

    A producer or importer of renewable fuels is required to submit an 
equivalence value (EV) application in accordance with Sec.  80.1415(c) 
for any renewable fuel that does not have an EV listed in Sec.  
80.1415(b). In addition, a producer or importer could apply for an 
alternative EV if the producer or importer has reason to believe that a 
different EV than that listed in Sec.  80.1415(b) is warranted. Section 
80.1415(c) provides the calculation equation for the EV of the 
renewable fuel and the requirements for the technical justification to 
be submitted in the EV application.
    We have received many inquires from producers and importers of 
renewable fuels requesting clarification of the specific requirements 
for the technical justification listed in Sec.  80.1415(c). In 
addition, based on the many EV applications we have evaluated, we have 
found that we needed to request additional information from producers 
and importers to better understand the composition of the renewable 
fuel they produced, such as intermediate steps and energy inputs in 
production process, sources of renewable and non-renewable feedstock, 
and so forth, to better evaluate and assign the correct EV to the 
producer or importer's renewable fuel.
    Therefore, we are finalizing in this rulemaking amendments to Sec.  
80.1415(c)(2) to clarify the current requirements and to include 
additional requirements for the technical justification to be submitted 
in the EV application. The final amendments to Sec.  80.1415(c)(2) 
include:

--A calculation for the requested equivalence value according to the 
equation in Sec.  80.1415(c)(1), including supporting documentation for 
the energy content (EC) of the renewable fuel such as a certificate of 
analysis from a laboratory that verifies the lower heating value in Btu 
per gallon of the renewable fuel produced.
--For each feedstock, component or additive used to make the renewable 
fuel, provide a description, the percent input and identify whether or 
not it is renewable biomass or is derived from renewable biomass.
--For each feedstock that could independently qualify as a renewable 
fuel, state whether or not RINs have been previously generated for the 
feedstock.
--A description of renewable fuel and the production process, including 
a block diagram that shows quantities of all inputs and outputs 
required at each step of the production process for the production of 
one batch of renewable fuel.

    We received no adverse comments on our proposed changes to Sec.  
80.1415(c)(2), and so are finalizing the changes as proposed.

C. Changes to Definitions of Terms

1. Definition of Annual Cover Crop
    As explained in the preamble of the RFS2 final rulemaking, EPA 
extended modeling for cellulosic biofuel made from corn stover and 
biodiesel/renewable diesel made from waste oils/fats/greases to certain 
fuels made from annual cover crops, based on the expectation that 
cultivation of annual cover crops, as defined in Sec.  80.1401, will 
have little impact on the agricultural commodity markets and therefore 
little or no land use impact associated with them. Therefore, certain 
fuels (as specified in Table 1 to Sec.  80.1426) derived from annual 
cover crop feedstocks qualify for D-codes under the advanced biofuel, 
biomass-based diesel, and cellulosic renewable fuel categories.
    Section 80.1401 of the final RFS2 rule defines ``annual cover 
crop.'' We proposed to amend the definition of annual cover crop in 
order to more clearly define those feedstocks that meet the intent of 
including cover crops in several pathways in Table 1 to Sec.  80.1426.
    As explained in the proposal, in order to extend our modeling to 
cover crops, we used the rationale that annual cover crops would have 
no indirect land use impact since they are planted on land otherwise 
used for crop production. Direct greenhouse gas emissions would only be 
associated with growing, harvesting and transporting the cover crop, 
and then processing into biofuel. (See 75 FR 14794 col. 3.) These 
direct impacts could include requiring the farmer to use more 
commercial fertilizer in compensation for removing cover crops that 
would have been plowed into the field, or in decreasing yield of food 
crops. However, our determination that cover crops qualified for D-
codes under the advanced biofuel, biomass-based diesel, and cellulosic 
renewable fuel categories was based on the fact that they did not have 
any indirect impacts. Thus, we assumed that no additional land would be 
required to plant annual cover crops, that cover crops would not 
displace primary crop production, and that the use of the cover crop as 
a feedstock for renewable fuels would not have secondary impacts on 
other agricultural commodity markets. This implies that annual cover 
crops would not be planted and harvested for the purpose of being sold 
to existing markets. If a cover crop already had an existing market, 
then the increased use of cover crops as feedstocks for renewable fuel 
production could potentially impact the existing markets. Therefore, we 
proposed to amend the current definition for ``annual cover crop'' to 
clarify that for purposes of the RFS program the term only includes 
crops that have no existing market to which they can be sold except for 
the use of the feedstock for renewable fuel. This will ensure that no 
unintended land use or significant indirect effects result from the use 
of annual cover

[[Page 1343]]

crops as feedstocks for renewable fuel production.
    Several parties commented against this change, stating that it is 
too restrictive and thus would prevent some crops they considered cover 
crops from qualifying as eligible feedstock under the RFS2 program. 
While this change clarifies that crops having existing market impacts 
would not qualify as cover crops, such exclusion is consistent with the 
basis for including the cover crop provision. EPA determined that crops 
with no market value could be planted on land without any expected 
impact on other crops and thus no expected indirect land use impact. 
This amendment clarifies that only crops with no market impact can 
qualify as cover crops and is consistent with the underlying analysis. 
However, even if a crop does not qualify under this revised cover crop 
definition, that does not prevent it from being included as an eligible 
feedstock under the RFS2 program. As stated in the proposal, EPA 
recognizes that there may be additional fuel pathways requiring 
lifecycle greenhouse gas (GHG) assessments and the assignment of 
appropriate RIN D-Codes, including those using feedstocks that do not 
meet the proposed amended definition of annual cover crop. For further 
guidance on the process for requesting EPA evaluation of new fuel 
pathways, please refer to the following sites:
    http://www.epa.gov/otaq/fuels/renewablefuels/compliancehelp/rfs2-lca-pathways.htmhttp://www.epa.gov/otaq/fuels/renewablefuels/compliancehelp/lca-petition-instructions.htm#1
2. Definition of ``Naphtha''
    In the RFS2 final rule, we included several RIN-generating pathways 
in Table 1 to Sec.  80.1426 for naphtha made from renewable biomass. We 
also provided a definition of naphtha in Sec.  80.1401. However, the 
definition we finalized was overly broad and did not adequately 
represent our intent to limit naphtha to gasoline blendstocks. As a 
result, some biofuel producers have expressed interest in interpreting 
the term ``naphtha'' to include materials that, while falling within 
the boiling range of gasoline, are not used as a blendstock to produce 
gasoline.
    To remedy this situation, we proposed to revise the definition of 
naphtha to also specify that it applies only to blendstocks which are 
composed of only hydrocarbons, are commonly or commercially known as 
naphtha, and are used to produce gasoline. We received no adverse 
comments on this proposal, and so are finalizing it as proposed.

D. Technical Amendments Related to RIN Generation and Separation

1. RIN Separation Limit for Obligated Parties
    We proposed to amend section Sec.  80.1429(b)(9) to limit the 
amount of RINs a company who is an obligated party solely by virtue of 
importation of obligated fuel can separate to meet their Renewable 
Volume Obligation (RVO). This proposal was designed to prevent abuse of 
the obligated party RIN separation provision by a company that imports 
a relatively small amount of an obligated volume, but then separates a 
large amount of RINs. It was also designed to help prevent hoarding of 
RINs by parties that do not need them for compliance purposes, and to 
generally increase the liquidity of RINs. EPA structured the original 
RFS1 separation regulations around facilitating compliance by obligated 
parties who must acquire RINs to meet their RVOs. This change is 
consistent with the original design and also ensures that importers can 
separate enough RINs to meet their obligations. Overall, commenters 
were against this amendment with many companies indicating that they 
are currently taking advantage of the ability to separate all RINs in 
their possession if they are an obligated party solely related to their 
gasoline and/or diesel imports, and that they wish to continue to do 
so.
    One commenter opposed this change, stating that the RIN life 
limitation would prevent hoarding. EPA does not agree with this; the 
life of a RIN prevents use for compliance after a designated amount of 
time, see Sec.  80.1447(a)(6), this does not provide an adequate 
mechanism to prevent hoarding of RINs.
    Several commenters stated that the carryover provisions prevent RIN 
hoarding. EPA does not agree; the carryover provisions, Sec.  
80.1428(a)(5), refer only to the ratio of assigned RINs to volumes of 
renewable fuel owned at the end of a quarter. There is no limit on the 
amount of separated RINs that a party may own at the end of a quarter.
    Several commenters stated that market liquidity would decrease if 
obligated importers could not separate all RINs that they own. They 
also stated that RINs will be held by fewer obligated parties. We 
believe that market liquidity would not be decreased; RIN separation 
would still occur according to Sec.  80.1429 and obligated parties 
would still have access to the separated RINs needed for compliance. In 
fact, to the extent that the provision prevents RIN hoarding, as 
intended, it should increase RIN liquidity. EPA has determined that 
this will not change or limit who can participate in the RFS program or 
become an obligated party; it will only limit the number of RINs that 
certain importers can separate. In addition, these obligated importers 
and any other RIN owning party can separate RINs without being subject 
to the limitation in Sec.  80.1429(b)(9) for any of the reasons 
outlined in Sec.  80.1429(b)(2)-(b)(5) and (b)(8).
    One commenter was concerned about how an obligated importer would 
know how many RINs they could separate for ``receipt of fuel by an 
obligated party'' noting that they will not know their exact RVO until 
the end of the compliance year. EPA believes that obligated importers 
should separate RINs on the basis of ``receipt of fuel by an obligated 
party'' only to the extent necessary to meet their existing obligation.
    One commenter felt that the proposed amendment would limit the 
actual capacity of an importer to introduce a volume of renewable fuel 
into the marketplace. EPA does not agree with this statement and 
believes that limiting RIN separation using the reason ``receipt of 
fuel by an obligated party'' would not reduce the amount of renewable 
fuel that is in demand and may be sold.
    One commenter requested confirmation of the following statement: 
``this change would, in no way, limit the right of a company to 
separate RINs from renewable fuel if that entity is acting as a blender 
and blending renewable fuel into transportation, heating fuel or jet 
fuel.'' EPA confirms the previous statement with one clarification. 
Amended Sec.  80.1429 applies ``except as provided in paragraphs (b)(2) 
through (b)(5) and (b)(8).'' Since the obligation for blenders to 
separate RINs for renewable fuel that they blend to produce a 
transportation fuel, heating oil or jet fuel appears in (b)(2), the 
limitations in (b)(9) are not applicable to RIN separations pursuant to 
that provision. We clarify, however, that (b)(2) applies to blending 
``to produce'' a transportation fuel, heating oil or jet fuel. For 
example, blending biodiesel at a rate of 5% into motor vehicle diesel 
fuel would produce a transportation fuel.
    One commenter indicated that this method of separation helped 
companies that did not want to be involved with the RFS program; 
allowing obligated importers to transfer renewable fuel without RINs 
and not violating the quarterly check outlined in

[[Page 1344]]

Sec.  80.1428(a)(5). EPA notes that all parties have the ability to 
separate up to 2.5 RINs per gallon pursuant to Sec.  80.1429. This 
amendment, which will limit obligated importers' ability to separate 
RINs, would not change this feature. This provision could facilitate 
the transfer of fuel with separated RINs to parties not wishing to 
receive RINs. Also, small blenders have the ability to delegate all RIN 
related responsibilities to the party directly upstream as long as they 
are blending less than 125,000 gallons of renewable fuel per year 
(Sec.  80.1440). In addition to separating up to their RVO, obligated 
importers and any other RIN owning party can separate for any of the 
reasons outlined in Sec.  80.1429(b)(2)-(b)(5) and (b)(8) without being 
subject to the limitation in (b)(9).
    One commenter argued that the ability to separate as an obligated 
importer allowed them more flexibility with RIN transfer dates. EPA 
believes that this implies that the party uses its ability to separate 
to avoid the requirement in Sec.  80.1428(a)(3) ``an assigned RIN 
cannot be transferred to another person without simultaneously 
transferring a volume of renewable fuel to that same person.'' The 
commenter indicated that a reason for becoming an obligated importer is 
to be able to separate all RINs and avoid the previously referenced 
regulatory requirement. This also allows them to remain in compliance 
with the EMTS transaction reporting time frames laid out on Sec.  
80.1452(c). EPA believes that transfer date and the ability to transfer 
separated RINs without renewable fuel are not relevant to this 
amendment. The commenter's use of the provision is counter to how the 
program was set up to ensure the distribution of RINs and could be used 
not only to slow the transfer of RINs downstream to the blender or 
final user of the renewable fuel, but also allow hoarding. The 
commenter also stated that there is no requirement to report physical 
fuel inventory and number of assigned RINs (Sec.  80.1428(a)(5)). EPA 
has determined that this statement is not accurate pursuant to Sec.  
80.1451. Currently, Sec.  80.1451(c)(2)(xiv), requires the volume of 
renewable fuel owned at the end of the quarter. This volume must meet 
the requirements of Sec.  80.1428(a)(5).
    EPA believes that while commenters were mainly against the 
amendment, specific arguments presented supported EPAs reason for the 
amendment. For the reasons stated above, we are finalizing the 
regulatory changes as proposed.
2. RIN Retirement Provision for Error Correction
    As we stated in the proposal, in some instances, renewable fuel 
producers or importers may improperly generate RINs in EMTS as a result 
of calculation errors, meter malfunctions or clerical errors. Pursuant 
to Sec.  80.1431(a), improperly generated RINs are invalid, and cannot 
be used to achieve compliance with any Renewable Volume Obligations 
(RVOs).
    EPA sought comment on the possibility of amending Sec.  80.1431 to 
provide the regulated community with limited flexibility to allow 
certain RINs that were improperly generated to nevertheless be 
transferred and used for compliance, provided the RIN-generator retires 
equivalent RINs (the same quantity and fuel category (D-code) of RINs 
with the same RIN year) in order to make the market whole.
    We sought comment on whether EPA should amend the regulations to 
include the flexibility for EPA to allow improperly generated RINs to 
be used for compliance, whether the conditions set forth in the 
proposal were appropriate, and whether there are additional or 
alternative conditions that should be imposed if the flexibility were 
to be granted. We proposed that the following general limitations 
should apply to any flexibility to allow improperly generated RINs to 
be transferred and used for compliance: (1) The RINs must have been 
improperly generated as a result of an inadvertent error, (2) the 
improperly generated RINs must have the correct D code, (3) the RIN 
generator must correct the information submitted to EMTS and retire an 
equivalent number and type of any excess RINs that were generated as a 
result of the error within a fixed time period of 60 days, (4) the 
flexibility to allow improperly generated RINs to be used for 
compliance would only apply if the number of excess RINs generated for 
a particular batch exceeds the number of RINs that should have been 
generated by no more than two percent, and (5) the flexibility to allow 
improperly generated RINs to be used for compliance should be limited 
to a certain number of times per year per RIN generator.
    We received several comments in support of providing EPA with some 
sort of flexibility to allow improperly generated RINs to be used for 
compliance, and a few comments that did not support EPA providing any 
flexibility of this type. Supporters of the flexibility believe that 
this flexibility is necessary for good faith RIN generators who have 
made inadvertent mistakes. They argue that the flexibility will avoid 
time spent by both EPA and regulated parties tracking invalidly 
generated RINs to their current owner when equivalent RINs could be 
retired to make the system whole. Commenters believe EPA's time is 
better spent investigating more egregious violations. Many supporters 
of the flexibility, however, believe that, given the proposed 
limitations, the proposed flexibility would be too narrow. Commenters 
believe that EPA should take into consideration the totality of the 
circumstances, including the number of RINs/percent of the batch that 
are invalid, the frequency of improper generation on the part of the 
producer and indications of good faith mistake when determining whether 
to allow the flexibility for improperly generated RINs to be used for 
compliance, rather than imposing strict limitations on the use of the 
flexibility.
    EPA believes that providing this type of flexibility will reduce 
disruptions to the RIN market while continuing to apply appropriate 
pressure on parties that generate, transfer and use RINs to comply with 
the regulations. However, EPA disagrees with the commenters that 
advocated that the flexibility should be unlimited. EPA believes that 
by limiting the use of this flexibility, RIN generators are provided an 
incentive to implement and utilize measures and controls to ensure the 
validly of information sent to EMTS in a more timely manner. Therefore, 
in today's rule in 80.1431(c) and (d), EPA is finalizing an approach 
that provides flexibility to RIN generators to retire equivalent RINs 
in situations where they have over-generated RINs on a batch due a 
broken meter, an inadvertent temperature correction error, or an 
inadvertent administrative error. This flexibility may only be used 
under certain conditions, though, in order to mitigate harm to the RIN 
market, as specified in the regulations and discussed in detail below.
    Some commenters supported the proposed 60-day time allowance for a 
RIN generator to correct RIN generation information submitted to EMTS. 
The commenters believe 60 days is sufficient to identify and correct 
inadvertent mistakes, and the time limit provides an incentive for the 
regulated community to regularly verify that RINs have been correctly 
generated. On the other hand, another commenter thought that the 
correction period should be longer than 60 days. One commenter 
suggested 18 months for RIN generators to notify EPA of improperly 
generated RINs at which point EPA would determine whether to allow 
those invalid RINs to be used for

[[Page 1345]]

compliance. The commenter believed this would allow invalid RINs to be 
discovered during the attest audit conducted each year concerning the 
renewable fuel producer's compliance records.
    Additionally, commenters generally disagreed with EPA's proposal to 
limit the flexibility to situations where the number of excess RINs 
generated for a particular batch exceeds the number of RINs that should 
have been generated by no more than 2%. Commenters argued that a simple 
typing error in any digit can easily result in an over-generation that 
far exceeds 2%. One commenter suggested that the number of RINs 
eligible for the flexibility be limited to no more than 2% of a 
specific RVO category (e.g. Cellulosic Biofuel, Advanced Biofuel, etc.) 
for any given year. Another suggested that there is no reason to limit 
the flexibility this way, and that EPA should maintain discretion to 
determine when invalid RINs can be used for compliance, regardless of 
what percentage of the RIN batch is invalid. The commenter states that 
there is no reasonable equitable basis for limiting the availability of 
the flexibility to situations involving an error of no more than 2%, 
since there can be significant variability in the size of renewable 
fuel batches; for example, 2% of a large batch could consist of more 
RINs than an entire batch for a smaller facility.
    In today's final rule, EPA did not limit the ability to use the 
flexibility to a certain number of RINs or percentage of a batch as 
proposed because we agree with commenters' suggestion that a simple 
typing or meter error may result in a large number of excess RINs just 
as easily as it could result in an error that constitutes only a small 
number of RINs. EPA's decision to eliminate the two percent limitation 
may result in more regulated parties taking advantage of the 
flexibility created by this rule. Nevertheless, EPA is limiting the use 
of the flexibility to situations in which RIN generators who improperly 
over-generated RINs on a batch fit certain criteria, including taking 
remedial action to retire equivalent RINs within 30 days of the 
original invalid RIN generation submission in EMTS, as specified in 
80.1431(c)(7). EPA believes that it is appropriate to require RIN 
generators to correct the information submitted to EMTS within 30 days 
to encourage the regulated community to take prompt corrective action, 
which will aid in maintaining market integrity. EPA believes that 
limiting the amount of time that RIN generators are afforded to avail 
themselves of this flexibility is necessary to provide an incentive to 
RIN generators to conduct timely internal inspections of their RIN 
generation activities in order to ensure that RINs are properly 
generated and the accuracy of RIN information in EMTS.
    We also sought comment on the possibility of establishing a limit 
on the number of times this flexibility could be requested within a 
compliance period by a given RIN generator. We stated that we believe 
such a limitation could encourage RIN generators to take appropriate 
measures to avoid generating invalid RINs, and limit the possibility 
that RIN generators would intentionally generate invalid RINs to take 
advantage of short term RIN price spikes. Some commenters argued that 
there should not be a limit on the number of times a RIN generator can 
request EPA allow them to use the flexibility, but that if a particular 
company regularly generates RINs improperly, that company should be 
penalized on a case-by-case basis, taking into account whether the 
error was truly a mistake made in good faith.
    EPA disagrees with commenters' belief that RIN generators should 
have unlimited access to these flexibilities. EPA believes that the 
flexibility should be limited to a set number (namely, five) of 
improperly generated batches per year and is finalizing regulations to 
that effect in 80.1431(c)(6). By limiting the number of times a RIN 
generator may utilize the flexibility to retire equivalent RINs, the 
regulations will encourage RIN generators to implement robust measures 
and controls to prevent errors from occurring, knowing that the 
flexibility is only available to them for five batches each compliance 
year. Additionally, limiting the number of batches to which this 
flexibility can be applied restricts the ability of RIN generators that 
might otherwise intentionally generate invalid RINs to take advantage 
of short term RIN price spikes.
    Finally, EPA is finalizing a provision informing the regulated 
community that EPA intends to publicly post information concerning RIN 
generators utilizing this flexibility in 80.1431(c)(7)(B). By posting 
this information, EPA is assisting obligated and other regulated 
parties in their due diligence to ensure compliance with all RFS2 
regulations. EPA believes that posting information concerning the use 
of this flexibility will incentivize proper RIN generation in the 
future.
    Further, EPA may remove improperly generated RINs from EMTS if the 
RIN generator has failed to properly meet the remedial action 
requirements stated in the regulations, as specified in 80.1431(d). EPA 
believes this will prevent invalid RINs that do not meet the 
requirements in 80.1431(c) from propagating through the market and 
being used for compliance purposes, thus preventing additional 
violations. While EPA is aware that the proposal did not include the 
ability to remove improperly generated RINs, EPA believes this ability 
is a logical outgrowth from the comments that EPA should spend more 
time investigating egregious violations. This provision will allow EPA 
to quickly remove from the market those RINs reported by the RIN 
generator to be invalid due to reasons in 80.1431(c)(2), thus affording 
EPA more time to spend investigating egregious violations.
    Finally, a number of commenters noted that good faith purchasers 
and the ultimate users of the RINs, the obligated parties, should not 
be subject to a violation for unwittingly buying and/or retiring 
invalid RINs for compliance. EPA disagrees, and believes that the 
``buyer beware'' aspect of the RIN trading program is one of the 
cornerstones of the program. It provides an important incentive for the 
regulated community to comply with the regulations and mandates due 
diligence on the part of all RIN buyers. It encourages self-policing on 
the part of RIN generators, owners and users in order to keep the 
program functioning smoothly. EPA is not making any changes to the 
liability sections of RFS2 as a result of these comments and although 
today's rule will allow obligated parties to use some invalid RINs for 
compliance, the obligated parties and any intermediary party are still 
liable for buying and/or transferring invalid RINs.
3. Production Outlook Reports Submission Deadline
    In the final RFS2 regulations, in Sec.  80.1449(a), EPA set the 
annual deadline for submitting Production Outlook Reports as March 31 
of each year. However, EPA has determined that, in order for the 
information contained in the Production Outlook Reports to be most 
useful when setting the RFS2 volume requirements and associated 
percentage standards for the following calendar year, the reports 
should contain the most accurate projections possible. Since the 
accuracy of projections tends to increase the closer those projections 
are made to the following calendar year, we proposed that the March 31 
deadline should be moved to June 1. This revised deadline would still 
allow the information contained in the Production Outlook Reports to be 
used in the development

[[Page 1346]]

of the final rulemaking setting the standards for the following year.
    We received one comment on the proposed Production Outlook Reports 
deadline of June 1 that suggested August 31, or as late as possible 
that still ensures the information is useful in the development of the 
final RFS standards for the following year. EPA believes, however, that 
if the deadline is set later in the year, there would be insufficient 
opportunity for EPA to quality check the incoming data prior to 
incorporating it into the analysis for developing the RFS2 volume 
requirements and associate percentage standards for the following 
calendar year. EPA strives to make the most accurate projections 
possible, so without time to check the data quality, there could be 
inaccuracies in the volume requirements that lead to market disruption.
    Another commenter suggested that having the Production Outlook 
Reports deadline immediately after the May 31 attest engagement 
deadline would place a significant burden on regulated parties at that 
time, and suggests a deadline of June 30 for the Production Outlook 
Reports. EPA believes that it is not a significant burden for regulated 
parties to submit the Production Outlook Report at the same time as the 
attest engagement report, especially considering the attest audit and 
report are typically conducted by independent third-party auditors, 
rather than the regulated parties themselves.
    For the reasons stated above, EPA believes that the proposed June 1 
deadline for Production Outlook Reports is reasonable and should not be 
moved to later in the year. Therefore, EPA is finalizing the June 1 
deadline for Production Outlook Reports.
4. Attest Procedures
    In the final RFS2 regulations, EPA required in Sec.  
80.1464(c)(1)(i) and (c)(2)(ii) that RIN owners conduct attest 
procedures for RIN transaction and RIN activity reports that involve 
RIN separations. This requirement was intended to be included in the 
attest procedures for obligated parties and exporters as well as for 
renewable fuel producers and RIN-generating importers, in order to 
confirm that RINs are being properly separated by all parties 
participating in the RIN market. Thus, we proposed amendments to Sec.  
80.1464(a)(2)(i) and (a)(3)(ii) for obligated parties and exporters as 
well as to Sec.  80.1464(b)(2)(i) and (3)(ii) for renewable fuel 
producers and RIN-generating importers to include attest procedures 
concerning verification of RIN separation.
    Additionally, in the final RFS2 regulations, EPA required in Sec.  
80.1464 that auditors of RIN generation reports verify that product 
transfer documents (PTDs) include the required information. EPA 
believes it would be beneficial for auditors to verify the required 
information is present on PTDs for RIN transactions for all parties, 
including obligated parties, renewable fuel producers and importers and 
RIN owners. Thus, we proposed amendments to Sec.  80.1464(a)(2), (b)(2) 
and (c)(1) to require auditors to verify that the PTDs for a 
representative sample of RINs sold and purchased contains the 
information required in Sec.  80.1453.
    We received one comment that stated that the attestation procedures 
should be comparable for all reporting activities of all regulated 
parties. EPA believes, however, that the proposed regulatory changes to 
the attest engagement procedures apply consistently to all regulated 
parties in that all parties are responsible for ensuring that RINs that 
they separate, purchase or use for compliance have been properly 
separated and that they have associated PTDs with all of the required 
information. Another commenter states that obligated parties should not 
be required to audit RIN separation activities in addition to RIN 
purchases. Again, EPA feels this additional check on RIN separation 
activities will ensure that the RINs are properly separated and that 
renewable fuel is actually being blended for use as transportation 
fuel, heating oil or jet fuel. Therefore, EPA is finalizing the 
amendments to the attest engagement procedures as proposed.

E. Technical Amendments Related to Registration & Recordkeeping

1. Construction Discontinuance & Completion Documentation
    The registration requirements in Sec.  80.1450(b)(1)(vi) state that 
for facilities claiming the exemption described in Sec.  80.1403(c) or 
(d), evidence must be submitted demonstrating the date that 
construction commenced. However, the registration requirements do not 
explicitly require the submission of evidence demonstrating that they 
meet the other requirements described in Sec.  80.1403(c)(1) and (2) or 
(d)(1), (2) and (3).
    In order to verify that facilities which claim to qualify for an 
exemption under Sec.  80.1403(c) or (d) in fact meet all of the 
qualification requirements for such an exemption, we proposed to amend 
Sec.  80.1450(b)(1)(vi) to include requirements that the owner or 
operator of facilities claiming exemption under Sec.  80.1403(c) submit 
evidence demonstrating that construction was not discontinued for a 
period of 18 months after construction began, and that construction was 
completed by December 19, 2010. Similarly, we proposed that for 
facilities claiming the exemption under Sec.  80.1403(d), evidence be 
submitted demonstrating that construction was not discontinued for a 
period of 18 months after construction began and that construction was 
completed within 36 months of the commenced construction date.
    We received comments that EPA should not adopt these proposed 
amendments because the requirements would be overly burdensome and 
unnecessary due to the fact that the majority of all facilities that 
have claimed the exemption under Sec.  80.1403 have already been 
registered and therefore these amended requirements would have no 
effect on these facility's registration. Secondly, the commenter stated 
that the proposed requirement to submit evidence that construction was 
not discontinued for a period of 18 months is unreasonable because it 
is unclear how a facility could prove a lack of construction activity. 
Thirdly, the commenter stated that the proposed amendment to submit 
evidence that construction was timely completed was unnecessary because 
a facility's operation activity such as production of fuel was enough 
to serve as evidence that construction was completed. The commenter 
suggested that EPA only request evidence to demonstrate that these 
requirements are met from facilities that EPA believes did not rightly 
claim the exemption under Sec.  80.1403.
    In order to fully assess the concerns raised by the commenters, EPA 
has decided to investigate this issue in more detail and analyze some 
additional options. Therefore, at this time, EPA is not taking final 
action with respect to this proposed amendment.
2. Third-Party Engineering Reviews
    The regulations stipulate that producers of renewable fuels and 
foreign ethanol producers are required to update their registration 
information, and submit an updated independent third-party engineering 
review, every 3 years after their initial registration in accordance 
with Sec.  80.1450(d)(3). We have received many inquiries regarding the 
start date that EPA uses to determine the 3 year period after which the 
producer must submit an updated independent third party engineering 
review (such as the registration acceptance date, the third-party 
professional engineer's signature date

[[Page 1347]]

on the engineering review report, or the due date for engineering 
reviews.
    Given the lack of clarity in the current regulations, we proposed 
amendments to specify the time frame for submission of updated 
independent third-party engineering reviews which included a simplified 
method that would group producers according to the calendar year they 
were or will be registered, and set a fixed time frame for registration 
updates for each group. We proposed to amend Sec.  80.1450(d)(3) to 
stipulate that for all producers of renewable fuel and foreign ethanol 
producers for which registration was accepted by EPA in calendar year 
2010, that the updated registration information and independent third-
party engineering review would be submitted to EPA within the three 
months prior to January 1, 2014, and within three months prior to 
January 1 of every third calendar year thereafter. For all producers of 
renewable fuel and foreign ethanol producers registered in any calendar 
year after 2010, the updated registration information and independent 
third-party engineering review would be submitted to EPA within three 
months prior to January 1 of every third calendar year after the first 
year the producer's registration was accepted by EPA. For example, a 
producer registered in 2011 would be required to submit an updated 
independent third-party engineering review by January 1, 2015, and by 
January 1 every three calendar years thereafter.
    We received comments that supported the adoption of the proposed 
amendments for a simplified method of grouping producers according to 
the calendar year that they were or will be registered to determine the 
due date for submission of the updated registration information and 
independent third-party engineering review. The commenter suggested 
that we provide a clear method to determine the due date for individual 
facilities to further help with the compliance of this requirement. We 
agree with the commenter that providing more clarity and guidance would 
help facilities comply with this requirement. Therefore, in the near 
future and well before the due date for any updated engineering 
reviews, we plan to compile and publish a guidance document that will 
provide the date in which each facility's registration was accepted, 
the calendar year in which each facility will be grouped, and the 
corresponding triennial due dates for the updated engineering review 
for each calendar year group. This guidance document will be published 
on the RFS public Web site. Parties must also comply with all other 
applicable requirements in 40 CFR Part 80, Subpart M. This guidance 
does not, in any way, alter the requirements of the renewable fuel 
program regulations, and does not establish or change legal rights or 
obligations.
    In addition, we are removing from the final rule the proposed 3 
months allowance period prior to triennial due date. The reason we 
included a 3 months allowance was to ensure that the updated 
engineering reviews were not submitted so early as to not provide 
appropriately updated information as of the three-year submission 
deadline. We believed at the time of the proposal that the inclusion of 
the 3 month window would ensure that facilities conduct their 
engineering review closer to the end of the 3 year period, which we 
assumed would provide the most up-to-date information. However, now we 
believe that the inclusion of this 3 month period is unnecessary since 
the owners or operators of a facility can determine for themselves when 
it is appropriate to coordinate and conduct the engineering review for 
their facility and that the regulatory requirement for ``updated'' 
engineering reviews provide sufficient clarity that the information 
submitted to EPA must reflect the up-to-date information.
    Therefore, we are finalizing in this rulemaking the proposed 
simplified method to group facilities based on the calendar year in 
which their facility's registration was accepted by EPA with the due 
date for the updated registration and independent third party 
engineering review to be submitted to EPA by January 31st of every 3 
calendar years, starting from the acceptance date of the facility's 
initial registration. We are allowing the engineering reviews to be 
submitted at the end of January due to possible scheduling concerns 
during the holiday season.
3. Foreign Ethanol Producers
    We proposed that the amendments to the registration requirements in 
Sec.  80.1450 also apply to foreign ethanol producers. As defined in 
Sec.  80.1401, foreign ethanol producers are foreign producers that 
produce ethanol for use in transportation fuel, heating oil or jet fuel 
but who do not add denaturant to their product. Therefore, foreign 
ethanol producers do not technically produce ``renewable fuel'' as 
defined in our regulations. As discussed in the preamble to the Direct 
Final Rule published on May 1, 2010 (see 75 FR 26032), the result of 
the amendments made in the Direct Final Rule is to require foreign 
ethanol facilities that produce ethanol that ultimately becomes part of 
a renewable fuel for which RINs are generated to provide EPA the same 
registration information as foreign renewable fuel facilities that 
export their product to the United States. In both cases the required 
registration information is important for enforcement purposes, 
including verifying the use of renewable biomass as feedstock and the 
assignment of appropriate D codes. Therefore, we believe amendments to 
the registration requirements that we make in this final rule should 
also be applicable to foreign ethanol producers for the same reasons. 
We did not receive comments on this proposed change, so we are 
finalizing the amendment as proposed.

F. Additional Amendments and Clarifications

1. Third-Party Engineering Review Addendum
    We have received many inquires as to whether an addendum to the 
existing independent third-party engineering review is sufficient to 
meet the requirement that all producers of renewable fuel and foreign 
ethanol producers submit an updated independent third-party engineering 
review if they make changes to their facility that will qualify the 
renewable fuel that is produced for a renewable fuel category or D code 
that is not already reflected in the producer's registration 
information. In some circumstances the majority of the information 
verified in the existing independent third-party engineering review 
would remain the same, and duplicating the entire effort does not 
appear necessary. We believe the concept of allowing the submission of 
an addendum in lieu of a updated independent third-party engineering 
review is reasonable and therefore we are finalizing to amend the 
requirements in Sec.  80.1450(d)(1) to state that a producer of 
renewable fuel or foreign ethanol producer may submit an addendum to 
the existing independent third-party engineering review on file with 
EPA provided the addendum meets all the requirements in Sec.  
80.1450(b)(2) and verifies for EPA the most up-to-date information at 
the producer's existing facility. The updated independent third-party 
engineering review or addendum shall be submitted at least 60 days 
prior to producing the new type of renewable fuel and must meet all the 
same requirements stipulated in Sec.  80.1450(b)(2) for the independent 
third-party engineering review, including a new site visit conducted by 
the third party to verify any changes to the facility that allows it

[[Page 1348]]

to produce a different renewable fuel that is not currently reflected 
in their registration on file with EPA.
2. RIN Generation for Fuel Imported From a Registered Foreign Producer
    In RFS2, EPA finalized provisions allowing importers to generate 
RINs for renewable fuel imported from a foreign producer only under 
certain circumstances. The importer may only generate RINs for fuel 
imported from a foreign renewable fuel producer or foreign ethanol 
producer if that producer is registered with EPA and has received EPA 
company and facility identification numbers pursuant to Sec.  80.1450. 
Pursuant to Sec.  80.1426(c)(4), the importer is prohibited from 
generating RINs for fuel imported from a foreign producer that is not 
registered with EPA. In the proposed rulemaking, EPA proposed to 
clarify that when an importer is generating RINs for fuel imported from 
a registered foreign renewable fuel producer or foreign ethanol 
producer, the importer must submit to EPA via EMTS the importer's 
company identification number, the facility identification number of 
the import facility where the batch was imported, and the facility 
identification number for the foreign renewable fuel or ethanol 
producer that produced the batch of fuel for which the importer is 
generating RINs. EPA did not receive comments on these clarifications, 
and is therefore finalizing them as proposed in Sec.  80.1452(b)(4) and 
(5).
3. Bond Posting
    We proposed to amend paragraphs (e)(1), (e)(2) and (g)(2) of Sec.  
80.1467 to make them consistent with Sec.  80.1467(g)(1). These 
proposed amendments were intended to clarify that the amount of the 
posted bond must cover the number of gallon RINs that are sold and/or 
transferred, and also those RINs held and/or obtained by the foreign 
entity, including those held and/or obtained to comply with a foreign 
importer's RVO requirements. We also proposed to amend Sec. Sec.  
80.1465-80.1467 by striking Sec. Sec.  80.1465(h)(2)(iii), 
80.1466(h)(2)(iii) and 80.1467(e)(2)(iii), which allowed entities to 
make alternative commitments in lieu of posting bonds. EPA believes 
that this method is vague, unnecessary, and unenforceable.
    One commenter at the hearing is against the removal of the 
regulation allowing foreign producers to make alternative commitments 
as it may discourage foreign renewable fuel producers from entering the 
U.S. market. EPA disagrees as no foreign producer has used an 
alternative commitment to date, and most foreign renewable fuel 
producers do not post bonds and instead rely on the renewable fuel 
importers to generate RINs for renewable fuel that is imported. For 
those reasons and the reasons described above, we are finalizing the 
proposed changes to the bond posting regulations as proposed.
4. Prohibition Against Repeat Generation of RINs
    We are finalizing our proposal to add a new paragraph (b)(6) to the 
prohibited acts of Sec.  80.1460 to specify in this section of the 
regulations that RINs may not be generated for any fuel for which RINs 
have previously been generated. Pursuant to Sec.  80.1401, a RIN is a 
unique number generated to represent a volume of renewable fuel. If 
more than one RIN is generated for a particular volume, the RIN will no 
longer be unique, and is therefore improperly generated and cannot be 
used to demonstrate compliance with the renewable volume obligations. 
While generating RINs for a particular volume of fuel for which RINs 
have already been generated is already prohibited, we are amending the 
regulations to include this prohibition in Sec.  80.1460 for clarity.
5. Acceptance of Separated Yard Waste and Food Waste Separation Plans
    We proposed to amend Sec.  80.1426(f)(5)(ii)(A) to remove the 
requirement that the separated yard waste plan and separated food waste 
plan must be approved by EPA, and instead only require that these two 
plans be submitted and accepted by EPA under the registration 
procedures specified in Sec.  80.1450(b)(1)(vii). The details and 
information required to be submitted in the separated yard waste plan 
and separated food waste plan are not overly burdensome or complex, and 
therefore we believe it does not warrant a specific EPA approval, but 
that EPA acceptance of these plans through the registration procedures 
is sufficient.
    We received comments that supported the adoption of this amendment 
for separated food waste plan and separated yard waste plan. We also 
received comments suggesting that we also adopt this amendment for the 
separated MSW plan. The commenter stated that although the separated 
MSW plan requires somewhat more information than the separated yard and 
food waste plans, the same logic applies in that the separated MSW plan 
will also be subject to EPA review as part of the producer's 
registration process and therefore requiring a separate duplicate 
approval for the separated MSW plan is not necessary.
    First, we would like to clarify that there is not a duplicate 
approval process for the separated MSW plan that serves as a separate 
additional requirement for the producer's registration. Similar to the 
proposed acceptance process for the producer's separated yard and food 
waste plan, the approval process for the producer's separated MSW plan 
will equally serve as verification of compliance as part of the 
producer's registration. Secondly, we disagree with the commenter that 
the separated MSW plan only requires somewhat more information than the 
separated yard and food waste plans, and that the same logic applies in 
terms of the review process. For the separated MSW plan, producers are 
required to provide ongoing verification that there is separation of 
recyclable paper, cardboard, plastics, rubber, textiles, metals, and 
glass wastes to the extent reasonably practicable, including: The 
extent and nature of the recycling that occurred prior to receipt of 
the waste material, identification of available recycling technology 
and practices that are appropriate for removing recycling materials 
from the waste stream, and identification of the technology or 
practices selected for implementation, including an explanation for 
such selection, and reasons why other technologies or practices were 
not implemented. In addition, producers are also required to provide 
contracts relevant to materials recycled from municipal waste streams 
and certification that recycling is conducted in a manner consistent 
with goals and requirements of applicable State and local laws relating 
to recycling and waste management as part of their registration 
process. For the separated yard and food waste plan, the producers are 
only required to provide ongoing verification that the separated yard 
waste or food waste was kept separate since generation from other waste 
materials, and for food waste, contain only incidental amounts of other 
components. We believe the information submitted in the separated MSW 
plan will be considerably more complex than information submitted in 
the separated yard and food waste plans, and therefore, will require 
EPA conduct a much more comprehensive review and also consider many 
additional factors to ensure that the producer has met the all the 
requirements stipulated. Based on the factors discussed, we believe 
that it is not reasonable to apply the same proposed acceptance process 
for separated yard and food waste plan to the separated MSW plan.

[[Page 1349]]

    Therefore, we are finalizing in this rulemaking only for separated 
yard waste plan and separated food waste plan to amend the requirement 
that the plans must be approved by EPA, and instead only require that 
the plans will be accepted by EPA under the registration procedures 
specified in Sec.  80.1450(b)(1)(vii).
6. Transferred Blendstocks in Early Benzene Credit Generation 
Calculations
    Today's rule also finalizes one minor correction to the gasoline 
benzene regulations which would clarify how refiners should account for 
transferred blendstocks in their early benzene credit generation 
calculations. Under current rules, refineries which generated early 
benzene credits are required to reduce gasoline benzene during an early 
credit generation period by at least 10% compared to the refinery's 
benzene baseline, and are also required to make specific operational 
changes and/or improvements in benzene control technology to reduce 
gasoline benzene levels.\41\ Refineries which reduce their gasoline 
benzene by at least 10%, in part by transferring reformate to another 
refinery, could also generate early benzene credits, provided the 
transferee refinery treated the reformate in specific benzene-reduction 
processing units.\42\ See 72 FR 8486-87 (Feb. 26, 2007). However, the 
gasoline benzene regulations also contain an additional provision that 
requires all blendstock streams transferred to, from or between 
refineries to be excluded from a refinery's early credit generation 
calculations (except for reformate as described previously). This led 
to an inconsistent comparison of a refinery's benzene during an early 
credit generation period with a refinery's benzene baseline (which 
included blendstocks transferred to the refinery), which was not EPA's 
intent.
---------------------------------------------------------------------------

    \41\ Early credit generation periods were July 1, 2007 through 
December 31, 2007, and calendar years 2008, 2009 and 2010.
    \42\ Refineries produce gasoline by combining several different 
blendstocks produced by various refinery processing units. Reformate 
is a blendstock which contains approximately 80% of all benzene 
found in gasoline, per the MSAT2 regulatory impact analysis.
---------------------------------------------------------------------------

    As described in the preamble of the gasoline benzene final rule, 
EPA intended that refineries not be allowed to generate early benzene 
credits exclusively through blendstock trading, without making any 
other qualifying reductions (see 72 FR 8487), but that refineries could 
generate early benzene credits in part through qualifying reductions 
and ``in part'' through other means such as blendstock transfers (see 
72 FR 8496-97). However, the current regulations do not allow this 
approach, and this inconsistency has caused confusion among refiners 
about how to calculate the amount of early credits generated. Refiners 
have generally followed the approach set out in the preamble (as EPA in 
fact intended), and included all blendstocks transferred to a refinery 
in the refinery's early credit generation calculations. Refiners 
typically keep records on transferred blendstocks for 1-2 years, and 
thus do not have sufficient data to exclude transferred blendstocks 
from their early credit generation calculations.
    EPA recently became aware of this inconsistency and is amending the 
regulations to make them consistent with EPA's intent as described in 
the preamble. This rule amends the gasoline benzene regulations at 40 
CFR 80.1275(d)(3) by deleting that provision. This will allow a 
refinery to include blendstocks transferred to the refinery in the 
refinery's early benzene credit generation calculations (all other 
conditions, including treatment which removes benzene in transferred 
reformate streams still applying, of course). Consistent with EPA's 
original intent, today's rule also allows a refinery to include 
transferred blendstocks in past early credit generation calculations, 
provided the refinery met all of the other requirements for generating 
early benzene credits. EPA is finalizing this change to include 
transferred blendstocks in past early credit generation calculation not 
only because this was EPA's intent at the time of the benzene gasoline 
rulemaking, but because some refiners have reasonably relied upon that 
stated intent in devising their compliance strategies.
    All of the comments received on this change to the regulations were 
in support of this change. Commenters generally noted that the change 
was needed in order to align the language in the regulations with the 
intent stated in the preamble.

V. Annual Administrative Announcements

    In the RFS2 final rule, we stated our intent to make two 
announcements each year:
     Set the price for cellulosic biofuel waiver credits that 
will be made available to obligated parties in the event that we reduce 
the volume of cellulosic biofuel below the applicable volume specified 
in the Clean Air Act (CAA), and
     Announce the results of our annual assessment of the 
aggregate compliance approach for U.S. planted crops and crop residue.
    The biofuel waiver credit price being announced today was 
calculated in accordance with the specifications in Sec.  80.1456(d). 
Since the manner in which EPA calculates the waiver credit price is 
precisely set forth in EPA regulations (which were issued through a 
notice-and-comment process), and since some of the variables necessary 
to compute the price have only recently become available, EPA did not 
propose a waiver credit price for comment. Similarly, because EPA's 
assessment of the aggregate compliance approach announced today was 
conducted using data sources, methodology, and criteria that were 
identified and explained in the preamble to the RFS2 final rule, it was 
not necessary to present a preliminary annual assessment for comment in 
the NPRM.

A. 2011 Price for Cellulosic Biofuel Waiver Credits

    Section 211(o)(7)(D) of the CAA requires that whenever EPA sets the 
applicable volume of cellulosic biofuel at a level lower than that 
specified in the Act, EPA is to provide a number of cellulosic credits 
for sale that is no more than the EPA-determined applicable volume. 
Congress also specified the formula for calculating the price for such 
waiver credits: Adjusted for inflation, the credits must be offered at 
the price of the higher of 25 cents per gallon or the amount by which 
$3.00 per gallon exceeds the average wholesale price of a gallon of 
gasoline in the United States.\43\ The inflation adjustment is for 
years after 2008. EPA regulations provide that the inflation adjustment 
is calculated by comparing the most recent Consumer Price Index for All 
Urban Consumers (CPI-U) for the ``All Items'' expenditure category as 
provided by the Bureau of Labor Statistics that is available at the 
time EPA sets the cellulosic biofuel standard to the comparable value 
that was reported soonest after December 31, 2008.\44\
---------------------------------------------------------------------------

    \43\ More information on wholesale gasoline prices can be found 
on the Department of Energy's (DOE), Energy Information 
Administration's (EIA) Web site at: http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EMA_EPM0_PBR_NUS_DPG&f=M.
    \44\ See U.S. Department of Labor, Bureau of Labor Statistics 
(BLS), Consumer Price Index Web site at: http://www.bls.gov/cpi/.
---------------------------------------------------------------------------

    In contrast to its directions to EPA for setting the price of a 
cellulosic biofuel waiver credit, Congress afforded the Agency 
considerable flexibility in designing regulations specifying the 
permissible uses of the credits. The CAA states that EPA regulations 
``shall

[[Page 1350]]

include such provisions, including limiting the credits' uses and 
useful life, as the Administrator deems appropriate to assist market 
liquidity and transparency, to provide appropriate certainty for 
regulated entities and renewable fuel producers, and to limit any 
potential misuse of cellulosic biofuel credits to reduce the use of 
other renewable fuels, and for such other purposes as the Administrator 
determines will help achieve the goals of this subsection.'' The final 
RFS2 regulations provide a detailed discussion of how we designed the 
provisions for cellulosic biofuel waiver credits in keeping with the 
statutory language. In short, 2012 cellulosic biofuel waiver credits 
(or ''waiver credits'') are only available for the 2012 compliance 
year. Waiver credits will only be made available to obligated parties, 
and they are nontransferable and nonrefundable. Further, obligated 
parties may only purchase waiver credits up to the level of their 
cellulosic biofuel RVO less the number of cellulosic biofuel RINs that 
they own. A company owning cellulosic biofuel RINs and cellulosic 
waiver credits may use both types of credits if desired to meet their 
RVOs, but unlike RINs, waiver credits may not be carried over for use 
in the next calendar year. Obligated parties may not use waiver credits 
to meet a prior year deficit obligation. Finally, unlike cellulosic 
biofuel RINs which may also be used to meet an obligated party's 
advanced and total renewable fuel obligations, waiver credits may only 
be used to meet a cellulosic biofuel RVO. An obligated party will still 
need to additionally and separately acquire RINs to meet their advanced 
biofuel and total renewable fuel obligations.
    For the 2012 compliance period, since the applicable volume of 
cellulosic biofuel used to set the annual cellulosic biofuel standard 
is lower than the volume for 2012 specified in the CAA, we are making 
cellulosic waiver credits available to obligated parties for end-of-
year compliance should they need them at a price of $0.78 per credit. 
To calculate this price, EPA first determined the average wholesale 
(refinery gate) price of gasoline using the most recent 12 months of 
data available from the EIA Web site on September 30, 2011. Based on 
this data, we calculated an average price of gasoline for the period 
July 2010 to June 2011 of $2.44. In accordance with the Act, we then 
calculated the difference of the inflation-adjusted value of $3.00, or 
$3.22, and $2.44, which yielded $0.78. Next, we compared the value of 
$0.78 to the inflation-adjusted value of $0.25, or $0.27. The Act 
requires EPA to use the greater of these two values as the price for 
cellulosic biofuel waiver credits.
    The derivation of this value is more fully explained in a 
memorandum submitted to the docket for this rulemaking,\45\ and a more 
complete description of the statutory requirements and their 
application can be found in the RFS2 final rule.\46\ The price for the 
2013 compliance period, if necessary, will be set when we announce the 
2013 cellulosic biofuel standard.
---------------------------------------------------------------------------

    \45\ See memo to docket number EPA-HQ-OAR-2010-0133 from Scott 
Christian, on the subject of ``Calculating the price for cellulosic 
biofuel waiver credits,'' dated September 30, 2011.
    \46\ 75 FR 14726-14728.
---------------------------------------------------------------------------

B. Assessment of the Domestic Aggregate Compliance Approach

    The RFS2 regulations contain a provision for renewable fuel 
producers who use planted crops and crop residue from U.S. agricultural 
land that relieves them of the individual recordkeeping and reporting 
requirements concerning the specific land from which their feedstocks 
were harvested. To enable this approach, EPA established a baseline 
number of acres for U.S. agricultural land in 2007 (the year of EISA 
enactment) and determined that as long as this baseline number of acres 
was not exceeded, it was unlikely that new land outside of the 2007 
baseline would be devoted to crop production based on historical trends 
and economic considerations. We therefore provided that renewable fuel 
producers using planted crops or crop residue from the U.S. as 
feedstock in renewable fuel production need not comply with the 
individual recordkeeping and reporting requirements related to 
documenting that their feedstocks are renewable biomass, unless EPA 
determines through one of its annual evaluations that the 2007 baseline 
acreage of agricultural land has been exceeded.
    In the final RFS2 regulations, EPA committed to make an annual 
finding concerning whether the 2007 baseline amount of U.S. 
agricultural land has been exceeded in a given year and publish this 
finding in the Federal Register by November 30 of the same year. If the 
baseline is found to have been exceeded, then producers using U.S. 
planted crops and crop residue as feedstocks for renewable fuel 
production would be required to comply with individual recordkeeping 
and reporting requirements to verify that their feedstocks are 
renewable biomass.
    Based on data provided by the USDA Farm Service Agency (FSA) and 
Natural Resources Conservation Service (NRCS), we have estimated that 
U.S. agricultural land reached approximately 392 million acres in 2011, 
and thus did not exceed the 2007 baseline acreage. This acreage 
estimate is based on the same methodology used to set the 2007 baseline 
acreage for U.S. agricultural land in the RFS2 final rulemaking. 
Specifically, we started with FSA crop history data for 2011, from 
which we derived a total estimated acreage of 392 million acres. We 
then subtracted the amount of land estimated to be participating in the 
Grasslands Reserve Program (GRP) and Wetlands Reserve Program (WRP) by 
the end of Fiscal Year 2011, 275,000 acres, to yield an estimate of 
approximately 392 million acres of U.S. agricultural land in 2011. The 
USDA data used to make this calculation can be found in the docket to 
this rule.

C. Assessment of the Canadian Aggregate Compliance Approach

    On March 15, 2011, EPA issued a notice of receipt of and solicited 
public comment on a petition for EPA to authorize the use of an 
aggregate approach for compliance with the Renewable Fuel Standard 
renewable biomass requirements, submitted by the Government of Canada. 
The petition requested that EPA determine that an aggregate compliance 
approach will provide reasonable assurance that planted crops and crop 
residue from Canada meet the definition of renewable biomass. After 
through consideration of the petition, all supporting documentation 
provided and the public comments received, EPA determined that the 
criteria for approval of the petition were satisfied and approved the 
use of an aggregate compliance approach to renewable biomass 
verification for planted crops and crop residue grown in Canada.
    The Government of 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 2011 is estimated at 121 million acres. This total 
agricultural land area includes 95.6 million acres of cropland and 
summer fallow, 15.6 million acres of pastureland and 9.8 million acres 
of agricultural land under conservation practices. This

[[Page 1351]]

acreage estimate is based on the same methodology used to set the 2007 
baseline acreage for Canadian agricultural land in the RFS2 response to 
petition. The data used to make this calculation can be found in the 
docket to this rule.

VI. Comments Outside the Scope of This Rulemaking

    In their comments responding to the NPRM, a number of parties used 
the opportunity to raise concerns that were not directly related to the 
issues and provisions we were addressing in the NPRM, such as the 
proposed standards for 2012, the applicable volume of biomass-based 
diesel for 2013, and the various proposed changes to the regulations 
designed to clarify intent and streamline implementation. Neither did 
these comments address setting the price for cellulosic biofuel credits 
or EPA's annual evaluation of the U.S. aggregate compliance approach 
for renewable biomass. In some cases, commenters requested EPA action 
in some other area, such as the following:
     Request for EPA to implement a more robust biofuel quality 
assurance program
     Request for EPA to mandate that 50% of all vehicles be 
E100 capable by 2017
     Request for EPA to encourage legislation that allows corn 
ethanol to be categorized as advanced biofuel
     Request for EPA to pursue changes to the statute that 
would make valid renewable fuels feedstock-neutral.
    In other cases, commenters raised issues related to other areas not 
addressed in our NPRM, such as the following:
     Other state and federal fuel regulations
     Retail dispensing requirements and misfueling of E15 in 
non-flexible fueled vehicles
     Need for continuing federal incentives for biofuels, such 
as tax subsidies
     Relative energy security implications of imported 
petroleum versus imported biofuels
     Delayed RINs
     Definition of heating oil.
    While we are taking these comments under consideration as we 
continue to implement the RFS2 program, these comments are outside the 
scope of today's action. In some cases, they are also outside our 
authority. Thus, we are not providing substantive responses to them at 
this time.
    We also received comments in a number of other areas that, while 
outside the scope of this rulemaking, we believe would benefit from a 
response to clarify our position and/or intentions. These issues are 
addressed below.
    One commenter provided a copy of a copyrighted report, ``Energy 
Life-Cycle Assessment Of Soybean Biodiesel Revisited''. Similarly, both 
Monsanto and RFA provided comments on the lifecycle GHG impacts of corn 
ethanol, indicating that it should be a higher GHG reduction than what 
was calculated by EPA as part of the RFS2 final rule and that we should 
reevaluate corn ethanol lifecycle emissions based on new studies that 
are available. Another commenter requested that we investigate the GHG 
impacts of the oleochemical industry increasing the use of palm oil as 
a feedstock as animal fats are increasingly diverted to the production 
of biofuels. We will consider the information and analyses provided as 
part of any future updates to our lifecycle evaluations of these 
biofuels.
    Another commenter urged EPA to quickly certify additional 
feedstocks for cellulosic biofuels under the RFS. We are moving forward 
responding to a series of petitions requesting EPA approval of other 
pathways, including both feedstock-specific pathways (e.g., palm oil 
and sorghum) and company- or process-specific pathways. A discussion of 
the process involved and a list of the current pathways we are 
currently evaluating can be found at: http://www.epa.gov/otaq/fuels/renewablefuels/compliancehelp/rfs2-lca-pathways.htm.
    We appreciate that multiple stakeholders are highly interested in 
the timeline on which EPA is conducting these analyses. We note that 
the analysis required for the RFS fuel pathway determinations as 
required under CAA 211(o) are comprehensive in nature, and EPA is 
committed to ensuring they are conducted in an appropriately rigorous 
fashion.
    Some commenters noted that regulated parties are having difficulty 
complying with the requirement that the RIN transfer date in EMTS and 
on product transfer documents (PTDs) be the actual title transfer date. 
Some of these commenters requested EPA enforcement discretion to allow 
biofuel producers and first purchasers to update their electronic 
systems in order to be in compliance with the title transfer date 
regulatory requirement. Two commenters specified that this enforcement 
discretion should be issued for six months in order to provide these 
companies with sufficient time to update their systems. EPA believes 
that the proposed enforcement discretion would likely introduce 
confusion for anyone who attempts to review and match transactions with 
records.
    In contrast, several commenters requested that EPA reconsider its 
position that the RIN transfer date reported to EMTS and identified on 
PTDs must be the actual title transfer date. One commenter requested 
that EPA allow invoice dates to be used in lieu of title transfer dates 
as title transfer does not usually coincide with customer payments and 
ultimately place a burden on the selling company's cash flow. While we 
understand that some parties would prefer to use a date other than the 
true title transfer date for purposes of EMTS reporting and PTDs, we 
believe this would violate the clear language and intent of the 
regulations.
    One commenter requested that EPA provide adjustment mechanisms to 
allow corrections in EMTS after noting that EMTS is a ``forward 
looking'' system, meaning that EMTS transactions cannot be modified 
once submitted. EPA is looking at several ways and has updated the RFS2 
remedial action Web page since the comment period closed. EPA will 
continually update its guidance for regulated parties to correct 
violations that true mistakes on the following Web page: http://www.epa.gov/otaq/fuels/renewablefuels/compliancehelp/rfs2remedialactions.htm.
    Additionally, in this rule, EPA is finalizing a regulation 
amendment giving EPA discretion to allow invalidly generated RINs to be 
used for compliance purposes on a case-by-case basis (see Section IV).
    Several commenters requested that EPA edit Q&As 7.8 and 10.6 as 
they conflict with the regulations. EPA will review and make edits to 
the RFS2 Q&As in order to ensure agreement with the regulations as 
appropriate at a later date.

VII. Public Participation

    Many interested parties participated in the rulemaking process that 
culminates with this final rule. This process provided opportunity for 
submitting written public comments following the proposal that we 
published on July 1, 2011 (76 FR 38844), and we considered these 
comments in developing the final rule. Public comments and EPA 
responses are discussed throughout this preamble.

VIII. Statutory and Executive Order Reviews

A. Executive Order 12866: 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

[[Page 1352]]

``significant regulatory action'' because it raises novel legal or 
policy issues. 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). This action finalizes the percentage standards 
applicable in 2012 based on the volumes that were analyzed in the RFS2 
final rule. This action is also finalizing technical amendments to the 
RFS2 regulations that have been determined to have no adverse economic 
impact on regulated parties since they generally clarify existing 
requirements.

B. Paperwork Reduction Act

    This action does not impose any new information collection burden. 
While there are three regulatory amendments in today's rule that affect 
the recordkeeping and reporting burdens for regulated parties, we 
believe that the information collections already approved for the RFS2 
program's general recordkeeping and reporting requirements, or the 
information collection already under review, would also cover the these 
technical amendments.
    The regulatory changes are listed in Table VIII.B-1.

    Table VIII.B-1--Technical Amendments Affecting Recordkeeping and
                                Reporting
------------------------------------------------------------------------
                Section                            Description
------------------------------------------------------------------------
80.1449(a).............................  Amended Production Outlook
                                          Report due date; added
                                          allowance for unregistered
                                          renewable fuel producers and
                                          importers to submit Production
                                          Outlook Reports.
80.1450(b)(1)(vi)......................  Amended to require submission
                                          of additional evidence as part
                                          of registration to verify
                                          eligibility for exemptions in
                                          Sec.   80.1403(c) or (d).
80.1450(d)(1)-(d)(3)...................  Amended to add more specificity
                                          on when updates, addenda, or
                                          resubmittals are required for
                                          engineering reviews and to
                                          include references to foreign
                                          ethanol producers.
------------------------------------------------------------------------

    With regard to Production Outlook Reports, the change in due date 
is not expected to have any impact on the reporting burden. In 
addition, EPA recently prepared an Information Collection Request (ICR) 
document to permit the submission of voluntary Production Outlook 
Reports by domestic and foreign renewable fuels producers. The parties 
affected by the ICR are not regulated parties under the RFS2 program. 
The ICR has been submitted for approval to OMB under the Paperwork 
Reduction Act, 44 U.S.C. 3501 et seq. and may be identified by EPA ICR 
number 2409.01. Documents related to the ICR have been placed in docket 
number EPA-HQ-OAR-2005-0161, which is accessible at http://www.regulations.gov.
    On October 14, 2010, EPA published a notice in the Federal Register 
announcing our intent to submit the proposed ICR for voluntary 
Production Outlook Reports to OMB for approval. (See 75 FR 63173). The 
60-day comment period closed on December 14, 2010. No comments were 
received. On February 8, 2011, EPA published a Federal Register notice 
announcing submission of the ICR to OMB. Additional comments were 
solicited via an additional comment period through March 10, 2011.\47\
---------------------------------------------------------------------------

    \47\ See ``Agency Information Collection Activities; Submission 
to OMB for Review and Approval; Comment Request; Production Outlook 
Reports for Un-Registered Renewable Fuel Producers (New 
Collection),'' 76 FR 6781 (February 8, 2011). The document 
identification number for this notice is EPA-HQ-OAR-2005-0161-3221. 
The document identification number for the supporting statement is 
EPA-HQ-OAR-2005-0161-3222.
---------------------------------------------------------------------------

    The Office of Management and Budget (OMB) has previously approved 
the information collection requirements contained in the existing 
regulations at 40 CFR Part 80, Subpart M under the provisions of the 
Paperwork Reduction Act, 44 U.S.C. 3501 et seq. This would include the 
following approved information collections (with OMB control numbers 
and expiration dates listed in parenthesis): ``Renewable Fuels Standard 
Program: Petition and Registration'' (OMB Control Number 2060-0367, 
expires March 31, 2013); ``Renewable Fuels Standard (RFS2)'' (OMB 
Control Number 2060-0640, expires July 31, 2013); ``Regulations of 
Fuels and Fuel Additives: 2011 Renewable Fuels Standard--Petition for 
International Aggregate Compliance Approach'' OMB Control Number 2060-
0655, expires February 28, 2014). Detailed and searchable information 
about these and other approved collections may be viewed on the Office 
of Management and Budget (OMB) Paperwork Reduction Act Web site, which 
is accessible at http://www.reginfo.gov/public/do/PRAMain. With regard 
to the technical amendments in Sec.  80.1450, we believe that these 
information collections already approved for the RFS2 program's general 
recordkeeping and reporting requirements would also cover the 
amendments in today's final rule.

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 enterprise which is independently owned and operated 
and is not dominant in its field.
    After considering the economic impacts of today's final rule on 
small entities, we certify that this action will not have a significant 
economic impact on a substantial number of small entities. The impacts 
of the RFS2 program on small entities that are directly regulated under 
the RFS2 program were already addressed in the RFS2 final rule 
promulgated on March

[[Page 1353]]

26, 2010 (75 FR 14670). This rule simply:
     Reduces the applicable volume of cellulosic biofuels in 
2012 based on our projection of 2012 production levels.
     Establishes percentage standards for 2012 based either on 
this production projection (for cellulosic biofuels) or statutory 
levels (for advanced biofuels, biomass-based diesel, and total 
renewable fuel).
     Makes minor technical amendments to the regulations.
    Therefore, this action will not impose any additional requirements 
on small entities beyond those which have already been evaluated.

D. Unfunded Mandates Reform Act

    This rule does not contain a Federal mandate that may result in 
expenditures of $100 million or more for State, local, and tribal 
governments, in the aggregate, or the private sector in any one year. 
This rule simply:
     Reduces the applicable volume of cellulosic biofuels in 
2012 based on our projection of 2012 production levels.
     Establishes percentage standards for 2012 based either on 
this production projection (for cellulosic biofuels) or statutory 
levels (for advanced biofuels, biomass-based diesel, and total 
renewable fuel).
     Makes minor technical amendments to the regulations.
    Thus, this action is not subject to the requirements of sections 
202 or 205 of 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 governments.

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 only applies to 
gasoline, diesel, and renewable fuel producers, importers, distributors 
and marketers and makes relatively minor corrections and modifications 
to the RFS2 regulations. A summary of the concerns raised, and EPA's 
response to those concerns, is provided in this preamble.

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 rule will 
be implemented at the Federal level and impose compliance costs only on 
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 regulated fuels. Thus, Executive Order 13175 does not apply to 
this action.

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 regulation. 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.

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

    This rule is not a ``significant energy action'' as defined in 
Executive Order 13211, ``Actions Concerning Regulations That 
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 finalizes the annual standards for cellulosic biofuels for 2012 
and clarifying changes and minor technical amendments to the 
regulations.

I. National Technology Transfer 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 with applicable law or 
otherwise impractical. Voluntary consensus standards are technical 
standards (e.g., materials specifications, test methods, sampling 
procedures, and business practices) that are developed or adopted by 
voluntary consensus standards bodies. NTTAA directs EPA to provide 
Congress, through OMB, explanations when the Agency decides not to use 
available and applicable voluntary consensus standards.
    This action does not involve technical standards. Therefore, EPA 
did not consider 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 
federal 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, disproportionately 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 final 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 RFS2 regulations and therefore will not cause 
emissions increases from these sources.

K. Congressional Review Act

    The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the 
Small Business Regulatory Enforcement Fairness Act of 1996, generally 
provides that before a rule may take effect, the agency promulgating 
the rule must submit a rule report, which includes a copy of the rule, 
to each House of the Congress and to the Comptroller General of the 
United States. EPA will submit a report containing this rule and other 
required information to the U.S. Senate, the U.S. House of 
Representatives, and the Comptroller General of the United States prior 
to publication of the rule in the Federal Register. A major rule cannot 
take effect until 60 days after it is published in the Federal 
Register. This action is not a ``major rule'' as defined by 5 U.S.C. 
804(2). Therefore, this rule will be effective on the date of 
publication.

IX. Statutory Authority

    Statutory authority for the rule finalized today can be found in 
section 211 of the Clean Air Act, 42 U.S.C. 7545. Additional support 
for the procedural and compliance related aspects of today's rule, 
including the recordkeeping requirements, come from sections 114, 208, 
and 301(a) of the

[[Page 1354]]

Clean Air Act, 42 U.S.C. 7414, 7542, and 7601(a).

List of Subjects in 40 CFR Part 80

    Environmental protection, Administrative practice and procedure, 
Air pollution control, Confidential business information, Diesel fuel, 
Fuel additives, Gasoline, Imports, Labeling, Motor vehicle pollution, 
Penalties, Petroleum, Reporting and recordkeeping requirements.

    Dated: December 22, 2011.
Lisa P. Jackson,
Administrator.
    For the reasons set forth in the preamble, 40 CFR part 80 is 
amended as follows:

PART 80--REGULATION OF FUELS AND FUEL ADDITIVES

0
1. The authority citation for part 80 continues to read as follows:

    Authority:  42 U.S.C. 7414, 7542, 7545, and 7601(a).

Sec.  80.1275  [Amended]

0
2. In Sec.  80.1275, remove paragraph (d)(3).

0
3. Section 80.1401 is amended by revising the definitions of ``Annual 
cover crop'' and ``Naphtha'' to read as follows:

Sec.  80.1401  Definitions.

* * * * *
    Annual cover crop means an annual crop, planted as a rotation 
between primary planted crops, or between trees and vines in orchards 
and vineyards, typically to protect soil from erosion and to improve 
the soil between periods of regular crops. An annual cover crop has no 
existing market to which it can be sold except for its use as feedstock 
for the production of renewable fuel.
* * * * *
    Naphtha means a blendstock falling within the boiling range of 
gasoline which is composed of only hydrocarbons, is commonly or 
commercially known as naphtha, and is used to produce gasoline.
* * * * *

0
4. Section 80.1405 is revised to read as follows:

Sec.  80.1405  What are the Renewable Fuel Standards?

    (a) (1) Renewable Fuel Standards for 2010.
    (i) The value of the cellulosic biofuel standard for 2010 shall be 
0.004 percent.
    (ii) The value of the biomass-based diesel standard for 2010 shall 
be 1.10 percent.
    (iii) The value of the advanced biofuel standard for 2010 shall be 
0.61 percent.
    (iv) The value of the renewable fuel standard for 2010 shall be 
8.25 percent.
    (2) Renewable Fuel Standards for 2011.
    (i) The value of the cellulosic biofuel standard for 2011 shall be 
0.003 percent.
    (ii) The value of the biomass-based diesel standard for 2011 shall 
be 0.69 percent.
    (iii) The value of the advanced biofuel standard for 2011 shall be 
0.78 percent.
    (iv) The value of the renewable fuel standard for 2011 shall be 
8.01 percent.
    (3) Renewable Fuel Standards for 2012.
    (i) The value of the cellulosic biofuel standard for 2012 shall be 
0.006 percent.
    (ii) The value of the biomass-based diesel standard for 2012 shall 
be 0.91 percent.
    (iii) The value of the advanced biofuel standard for 2012 shall be 
1.21 percent.
    (iv) The value of the renewable fuel standard for 2012 shall be 
9.23 percent.
    (b) EPA will calculate the value of the annual standards and 
publish these values in the Federal Register by November 30 of the year 
preceding the compliance period.
    (c) EPA will calculate the annual renewable fuel percentage 
standards using the following equations:
[GRAPHIC] [TIFF OMITTED] TR09JA12.003

[[Page 1355]]

Where:

StdCB,i = The cellulosic biofuel standard for year i, in 
percent.
StdBBD,i= The biomass-based diesel standard for year i, 
in percent.
StdAB,i= The advanced biofuel standard for year i, in 
percent.
StdRF,i= The renewable fuel standard for year i, in 
percent.
RFVCB,i= Annual volume of cellulosic biofuel required by 
42 U.S.C. 7545(o)(2)(B) for year i, or volume as adjusted pursuant 
to 42 U.S.C. 7545(o)(7)(D), in gallons.
RFVBBD,i= Annual volume of biomass-based diesel required 
by 42 U.S.C. 7545 (o)(2)(B) for year i, in gallons.
RFVAB,i= Annual volume of advanced biofuel required by 42 
U.S.C. 7545(o)(2)(B) for year i, in gallons.
RFVRF,i= Annual volume of renewable fuel required by 42 
U.S.C. 7545(o)(2)(B) for year i, in gallons.
Gi= Amount of gasoline projected to be used in the 48 
contiguous states and Hawaii, in year i, in gallons.
Di= Amount of diesel projected to be used in the 48 
contiguous states and Hawaii, in year i, in gallons.
RGi= 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.
RDi= 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.
GSi= Amount of gasoline projected to be used in Alaska or 
a U.S. territory, in year i, if the state or territory has opted-in 
or opts-in, in gallons.
RGSi= 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.
DSi= Amount of diesel projected to be used in Alaska or a 
U.S. territory, in year i, if the state or territory has opted-in or 
opts-in, in gallons.
RDSi= Amount 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.
GEi= The 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 Sec. Sec.  80.1441 and 80.1442.
DEi= The amount of diesel fuel projected to be produced 
by exempt small refineries and small refiners in year i, in gallons, 
in any year they are exempt per Sec. Sec.  80.1441 and 80.1442.

    (d) (1) The 2010 price for cellulosic biofuel waiver credits is 
$1.56 per waiver credit.
    (2) The 2011 price for cellulosic biofuel waiver credits is $1.13 
per waiver credit.
    (3) The 2012 price for cellulosic biofuel waiver credits is $0.78 
per waiver credit.

0
5. Section 80.1415 is amended by revising paragraph (c)(2) to read as 
follows:

Sec.  80.1415  How are equivalence values assigned to renewable fuel?

* * * * *
    (c) * * *
    (2) The application for an equivalence value shall include a 
technical justification that includes all the following:
    (i) A calculation for the requested equivalence value according to 
the equation in paragraph (c)(1) of this section, including supporting 
documentation for the value of EC used in the calculation such as a 
certificate of analysis from a laboratory that verifies the lower 
heating value in Btu per gallon of the renewable fuel produced.
    (ii) For each feedstock, component, or additive that is used to 
make the renewable fuel, provide a description, the percent input, and 
identify whether or not it is renewable biomass or is derived from 
renewable biomass.
    (iii) For each feedstock that also qualifies as a renewable fuel, 
state whether or not RINs have been previously generated for such 
feedstock.
    (iv) A description of the renewable fuel and the production 
process, including a block diagram that shows all inputs and outputs at 
each step of the production process with a sample quantity of all 
inputs and outputs for one batch of renewable fuel produced.
* * * * *

0
6. Section 80.1426 is amended as follows:
0
a. By revising paragraph (f)(1).
0
b. By revising paragraph (f)(5)(ii).

Sec.  80.1426  How are RINs generated and assigned to batches of 
renewable fuel by renewable fuel producers or importers?

* * * * *
    (f) * * *
    (1) Applicable pathways. D codes shall be used in RINs generated by 
producers or importers of renewable fuel according to the pathways 
listed in Table 1 to this section, paragraph (f)(6) of this section, or 
as approved by the Administrator. In choosing an appropriate D code, 
producers and importers may disregard any incidental, de minimis 
feedstock contaminants that are impractical to remove and are related 
to customary feedstock production and transport. Tables 1 and 2 to this 
section do not apply to, and impose no requirements with respect to, 
volumes of fuel for which RINs are generated pursuant to paragraph 
(f)(6) of this section.
* * * * *
    (5) * * *
    (ii) (A) A feedstock qualifies under paragraph (f)(5)(i)(A) or 
(f)(5)(i)(B) of this section only if it is collected according to a 
plan submitted to and accepted by U.S. EPA under the registration 
procedures specified in Sec.  80.1450(b)(1)(vii).
    (B) A feedstock qualifies under paragraph (f)(5)(i)(C) of this 
section only if it is collected according to a plan submitted to and 
approved by U.S. EPA.
* * * * *

0
7. Section 80.1429 is amended by revising paragraphs (b)(2) and (b)(9) 
introductory text to read as follows:

Sec.  80.1429  Requirements for separating RINs from volumes of 
renewable fuel.

* * * * *
    (b) * * *
    (2) Except as provided in paragraph (b)(6) of this section, any 
party that owns a volume of renewable fuel must separate any RINs that 
have been assigned to that volume once the volume is blended with 
gasoline or fossil-based diesel to produce a transportation fuel, 
heating oil, or jet fuel. A party may separate up to 2.5 RINs per 
gallon of blended renewable fuel.
* * * * *
    (9) Except as provided in paragraphs (b)(2) through (b)(5) and 
(b)(8) of this section, parties whose non-export renewable volume 
obligations are solely related to either the importation of products 
listed in Sec.  80.1407(c) or Sec.  80.1407(e) or to the addition of 
blendstocks into a volume of finished gasoline, finished diesel fuel, 
RBOB, or CBOB, can only separate RINs from volumes of renewable fuel if 
the number of gallon-RINs separated in a calendar year is less than or 
equal to a limit set as follows:
* * * * *

0
8. Section 80.1431 is amended by adding a new paragraph (c) to read as 
follows:

Sec.  80.1431  Treatment of invalid RINs.

* * * * *
    (c) Notwithstanding paragraph (b) of this section, improperly 
generated RINs may be used for compliance provided that all of the 
following conditions and requirements are satisfied and the renewable 
fuel producer or importer who improperly generated the RINs 
demonstrates that the conditions and requirements are satisfied through 
the reporting and recordkeeping requirements set forth below, that:
    (1) The number of RINs generated for a batch exceeds the number of 
RINs that should have been properly generated.
    (2) The RINs were improperly generated as a result of a broken 
meter,

[[Page 1356]]

an inadvertent temperature correction error, or an inadvertent 
administrative error.
    (3) The renewable fuel producer or importer had in place at the 
time the RINs were improperly generated a quality assurance/quality 
control plan designed to ensure that process measuring equipment such 
as meters and temperature probes are properly maintained and to prevent 
inadvertent administrative errors.
    (4) The renewable fuel producer or importer has taken any 
appropriate additional steps to prevent similar violations from 
occurring in the future.
    (5) The improperly generated RINs have been transferred to another 
party.
    (6) The renewable fuel producer or importer has not improperly 
generated RINs for the reasons described in paragraph (c)(2) of this 
section on more than five batches during any calendar year.
    (7) All of the following remedial actions have been implemented 
within 30 days of the EMTS submission date of the improper RIN 
generation:
    (i) The renewable fuel producer or importer retires an equal number 
of valid RINs with the same D Code and RIN year as the properly 
generated RINs, using an EMTS retire code of 110.
    (ii) The renewable fuel producer or importer reports all the 
following information to EPA via EMTS, which EPA may make publicly 
available:
    (A) Company name.
    (B) Company ID.
    (C) Facility name.
    (D) Facility ID.
    (E) The date the renewable fuel was produced.
    (F) The date the RINs were originally generated.
    (G) The number of RINs generated.
    (H) The number of RINs improperly generated.
    (I) RIN year.
    (J) D codes of generated RINs.
    (K) Batch numbers.
    (L) EMTS Transaction ID of the original generation.
    (M) An explanation of how the violation occurred, and why the 
improperly generated RINs meet the criteria in paragraph (c)(2) of this 
section.
    (N) Steps taken to prevent similar violations from occurring in the 
future.
    (O) Information under paragraphs (c)(3), (c)(4), and (c)(5) of this 
section.
    (P) Any additional information the Administrator may require.
    (8) The renewable fuel producer or importer maintains all records 
relating to the improper RIN generation and the associated remedial 
actions taken, including but not limited to any of the following:
    (i) All information regarding the generation of invalid RINs, 
including information that is sufficient to demonstrate that the 
improperly generated RINs meet the criteria in paragraph (c)(2) of this 
section.
    (ii) Documents demonstrating that the renewable fuel producer or 
importer has implemented the quality control/quality assurance plan 
required in paragraph (c)(3) of this section, and has taken all 
appropriate additional steps to prevent similar violations from 
occurring in the future.
    (iii) All correspondence with EPA.
    (iv) All EMTS transactions (Generation, Buy, Sell and Retire).
    (v) All Product Transfer Documents (PTDs).
    (d) If EPA determines that a renewable fuel producer improperly 
generated RINs but did not meet the requirements set forth in paragraph 
(c) of this section, then the requirements of paragraph (b) of this 
section apply from the moment that the invalid RINs were generated in 
EMTS. Once the RIN generator has identified improperly generated RINs 
to EPA, then EPA may remove these improperly generated RINs from EMTS.

0
9. Section 80.1449 is amended by revising paragraph (a) introductory 
text to read as follows:

Sec.  80.1449  What are the Production Outlook Report requirements?

    (a) By June 1 of each year (September 1 for the report due in 
2010), a registered renewable fuel producer or importer must submit and 
an unregistered renewable fuel producer may submit all of the following 
information for each of its facilities, as applicable, to EPA:
* * * * *

0
10. Section 80.1450 is amended by revising paragraphs (d)(1) through 
(d)(3) to read as follows:

Sec.  80.1450  What are the registration requirements under the RFS 
program?

* * * * *
    (d) * * *
    (1) Any producer of renewable fuel, and any foreign ethanol 
producer who makes changes to his facility that will allow him to 
produce renewable fuel, as defined in Sec.  80.1401 that is not 
reflected in the producer's registration information on file with EPA 
must update his registration information and submit a copy of an 
updated independent third-party engineering review on file with EPA at 
least 60 days prior to producing the new type of renewable fuel. The 
producer may also submit an addendum to the independent third-party 
engineering review on file with EPA provided the addendum meets all the 
requirements in paragraph (b)(2) of this section and verifies for EPA 
the most up-to-date information at the producer's existing facility.
    (2) Any producer of renewable fuel and any foreign ethanol producer 
who makes any other changes to a facility that will affect the 
producer's registration information but will not affect the renewable 
fuel category for which the producer is registered per paragraph (b) of 
this section must update his registration information 7 days prior to 
the change.
    (3) All producers of renewable fuel and foreign ethanol producers 
must update registration information and submit an updated independent 
third-party engineering review according to the schedule in paragraph 
(d)(3)(i) or (d)(3)(ii) of this section, and including the information 
specified in paragraph (d)(3)(iii) of this section:
    (i) For all producers of renewable fuel and foreign ethanol 
producers registered in calendar year 2010, the updated registration 
information and independent third-party engineering review shall be 
submitted to EPA by January 31, 2013, and by January 31 of every third 
calendar year thereafter; or
    (ii) For all producers of renewable fuel and foreign ethanol 
producers registered in any calendar year after 2010, the updated 
registration information and independent third-party engineering review 
shall be submitted to EPA by January 31 of every third calendar year 
after the first year of registration.
    (iii) In addition to conducting the engineering review and written 
report and verification required by paragraph (b)(2) of this section, 
the updated independent third-party engineering review shall include a 
detailed review of the renewable fuel producer's calculations used to 
determine VRIN of a representative sample of batches of each 
type of renewable fuel produced since the last registration. The 
representative sample shall be selected in accordance with the sample 
size guidelines set forth at Sec.  80.127.
* * * * *

0
11. Section 80.1451 is amended by revising paragraph (a)(1)(xi) to read 
as follows:

Sec.  80.1451  What are the reporting requirements under the RFS 
program?

    (a) * * *
    (1) * * *
    (xi) A list of all RINs generated prior to July 1, 2010 that were 
retired for compliance in the reporting period.
* * * * *

[[Page 1357]]

0
12. Section 80.1452 is amended revising paragraphs (b)(2), (b)(4), and 
(b)(5) to read as follows:

Sec.  80.1452  What are the requirements related to the EPA Moderated 
Transaction System (EMTS)?

* * * * *
    (b) * * *
    (2) The EPA company registration number of the renewable fuel 
producer or foreign ethanol producer, as applicable.
* * * * *
    (4) The EPA facility registration number of the facility at which 
the renewable fuel producer or foreign ethanol producer produced the 
batch, as applicable.
    (5) The EPA facility registration number of the importer that 
imported the batch, if applicable.
* * * * *

0
13. Section 80.1460 is amended by adding a new paragraph (b)(6) to read 
as follows:

Sec.  80.1460  What acts are prohibited under the RFS program?

* * * * *
    (b) * * *
    (6) Generate a RIN for fuel for which RINs have previously been 
generated.
* * * * *

0
14. Section 80.1464 is amended as follows:
0
a. By revising paragraph (a)(2) heading and paragraph (a)(2)(i).
0
b. By adding paragraphs (a)(2)(iii) and (a)(2)(iv).
0
c. By revising paragraph (a)(3)(ii).
0
d. By revising paragraph (b)(2) heading and paragraph (b)(2)(i).
0
e. By adding paragraphs (b)(2)(iii) and (b)(2)(iv).
0
f. By revising paragraph (b)(3)(ii).
0
g. By revising paragraph (c)(1) heading.
0
h. By adding paragraphs (c)(1)(iii) and (c)(1)(iv).

Sec.  80.1464  What are the attest engagement requirements under the 
RFS program?

* * * * *
    (a) * * *
    (2) RIN transaction reports and product transfer documents.
    (i) Obtain and read copies of a representative sample, selected in 
accordance with the guidelines in Sec.  80.127, of each RIN transaction 
type (RINs purchased, RINs sold, RINs retired, RINs separated, RINs 
reinstated) included in the RIN transaction reports required under 
Sec.  80.1451(a)(2) for the compliance year.
* * * * *
    (iii) Verify that the product transfer documents for the 
representative samples under paragraph (a)(2)(i) of this section of 
RINs sold and the RINs purchased contain the applicable information 
required under Sec.  80.1453 and report as a finding any product 
transfer document that does not contain the required information.
    (iv) Verify the accuracy of the information contained in the 
product transfer documents reviewed pursuant to paragraph (a)(2)(iii) 
of this section and report as a finding any exceptions.
    (3) * * *
    (ii) Obtain the database, spreadsheet, or other documentation used 
to generate the information in the RIN activity reports; compare the 
RIN transaction samples reviewed under paragraph (a)(2) of this section 
with the corresponding entries in the database or spreadsheet and 
report as a finding any discrepancies; compute the total number of 
current-year and prior-year RINs owned at the start and end of each 
quarter, purchased, separated, sold, retired and reinstated, and for 
parties that reported RIN activity for RINs assigned to a volume of 
renewable fuel, the volume and type of renewable fuel (as defined in 
Sec.  80.1401) owned at the end of each quarter; as represented in 
these documents; and state whether this information agrees with the 
party's reports to EPA.
    (b) * * *
    (2) RIN transaction reports and product transfer documents.
    (i) Obtain and read copies of a representative sample, selected in 
accordance with the guidelines in Sec.  80.127, of each transaction 
type (RINs purchased, RINs sold, RINs retired, RINs separated, RINs 
reinstated) included in the RIN transaction reports required under 
Sec.  80.1451(b)(2) for the compliance year.
* * * * *
    (iii) Verify that the product transfer documents for the 
representative samples under paragraph (b)(2)(i) of this section of 
RINs sold and the RINs purchased contain the applicable information 
required under Sec.  80.1453 and report as a finding any product 
transfer document that does not contain the required information.
    (iv) Verify the accuracy of the information contained in the 
product transfer documents reviewed pursuant to paragraph (b)(2)(iii) 
of this section and report as a finding any exceptions.
    (3) * * *
    (ii) Obtain the database, spreadsheet, or other documentation used 
to generate the information in the RIN activity reports; compare the 
RIN transaction samples reviewed under paragraph (b)(2) of this section 
with the corresponding entries in the database or spreadsheet and 
report as a finding any discrepancies; report the total number of each 
RIN generated during each quarter and compute and report the total 
number of current-year and prior-year RINs owned at the start and end 
of each quarter, purchased, separated, sold, retired and reinstated, 
and for parties that reported RIN activity for RINs assigned to a 
volume of renewable fuel, the volume of renewable fuel owned at the end 
of each quarter, as represented in these documents; and state whether 
this information agrees with the party's reports to EPA.
* * * * *
    (c) * * *
    (1) RIN transaction reports and product transfer documents.
* * * * *
    (iii) Verify that the product transfer documents for the 
representative samples under paragraph (c)(1)(i) of this section of 
RINs sold and RINs purchased contain the applicable information 
required under Sec.  80.1453 and report as a finding any product 
transfer document that does not contain the required information.
    (iv) Verify the accuracy of the information contained in the 
product transfer documents reviewed pursuant to paragraph (c)(1)(iii) 
of this section and report as a finding any exceptions.
* * * * *

0
15. Section 80.1465 is amended by revising paragraph (h)(2) to read as 
follows:

Sec.  80.1465  What are the additional requirements under this subpart 
for foreign small refiners, foreign small refineries, and importers of 
RFS-FRFUEL?

* * * * *
    (h) * * *
    (2) Bonds shall be posted by any of the following methods:
    (i) Paying the amount of the bond to the Treasurer of the United 
States.
    (ii) Obtaining a bond in the proper amount from a third party 
surety agent that is payable to satisfy United States administrative or 
judicial judgments against the foreign refiner, provided EPA agrees in 
advance as to the third party and the nature of the surety agreement.
* * * * *

0
16. Section 80.1466 is amended by revising paragraph (h)(2) to read as 
follows:

Sec.  80.1466  What are the additional requirements under this subpart 
for RIN- generating foreign producers and importers of renewable fuels 
for which RINs have been generated by the foreign producer?

* * * * *

[[Page 1358]]

    (h) * * *
    (2) Bonds shall be posted by any of the following methods:
    (i) Paying the amount of the bond to the Treasurer of the United 
States.
    (ii) Obtaining a bond in the proper amount from a third party 
surety agent that is payable to satisfy United States administrative or 
judicial judgments against the foreign producer, provided EPA agrees in 
advance as to the third party and the nature of the surety agreement.
* * * * *

0
17. Section 80.1467 is amended by revising paragraphs (e)(1), (e)(2), 
and (g)(2) to read as follows:

Sec.  80.1467  What are the additional requirements under this subpart 
for a foreign RIN owner?

* * * * *
    (e) * * *
    (1) The foreign entity shall post a bond of the amount calculated 
using the following equation:

Bond = G * $ 0.01

Where:

Bond = Amount of the bond in U.S. dollars.
G = The total of the number of gallon-RINs the foreign entity 
expects to obtain, sell, transfer or hold during the first calendar 
year that the foreign entity is a RIN owner, plus the number of 
gallon-RINs the foreign entity expects to obtain, sell, transfer or 
hold during the next four calendar years. After the first calendar 
year, the bond amount shall be based on the actual number of gallon-
RINs obtained, sold, or transferred so far during the current 
calendar year plus the number of gallon-RINs obtained, sold, or 
transferred during the four calendar years immediately preceding the 
current calendar year. For any year for which there were fewer than 
four preceding years in which the foreign entity obtained, sold, or 
transferred RINs, the bond shall be based on the total of the number 
of gallon-RINs sold or transferred so far during the current 
calendar year plus the number of gallon-RINs obtained, sold, or 
transferred during any immediately preceding calendar years in which 
the foreign entity owned RINs, plus the number of gallon-RINs the 
foreign entity expects to obtain, sell or transfer during subsequent 
calendar years, the total number of years not to exceed four 
calendar years in addition to the current calendar year.

    (2) Bonds shall be posted by any of the following methods:
    (i) Paying the amount of the bond to the Treasurer of the United 
States.
    (ii) Obtaining a bond in the proper amount from a third party 
surety agent that is payable to satisfy United States administrative or 
judicial judgments against the foreign RIN owner, provided EPA agrees 
in advance as to the third party and the nature of the surety 
agreement.
* * * * *
    (g) * * *
    (2) Any RIN that is obtained, sold, transferred, or held that is in 
excess of the number for which the bond requirements of this section 
have been satisfied is an invalid RIN under Sec.  80.1431.
* * * * *
[FR Doc. 2011-33451 Filed 1-6-12; 8:45 am]
BILLING CODE 6560-50-P
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