EO12866_RFS standards 2060

- AR43 NPRM FRN_2012 071 7 .docx

*** E.O. 12866 Review

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA

- HQ

- OAR

- 2012

- 0546; FRL

- 9678

- 8]

RIN 2060

- AR43

Regulation of Fuels and Fuel Additives: 2013 Renewable Fuel Standards

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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

the st andards are designed to ensure that the applicable volumes of renewable fuel specified in the statute are used. However, the statue specifies that EPA is to project the volume of cellulosic biofuel production for the upcoming year and must base the cellul osic biofuel standard on that projected volume if it is less than the applicable volume set forth in the Act. EPA is today proposing a projected cellulosic biofuel volume for 2013 that is below the applicable volume specified in the Act. Today's action a lso proposes annual percentage standards for cellulosic biofuel, biomass

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

DATES: Comments must be received on or before [ i nsert date 45 days after date of publication in the Federal Register ].

Hearing: If we receive a request for a public hearing on or before [ insert date 7 days after date of publication in the Federal Register ], we will hold the hearing on XXXdateXXX at

XXX locationXXX, beginning at 9:00am local time. If we do not receive a request for a public hearing by the deadline, the hearing will be cancelled through an announcement in the Federal Register

.

ADDRESSES: Submit your comments, identified by

Docket ID No. EPA

- HQ

- OAR

- 2012

- 0546, by one of the following methods:

• www.regulations.gov : Follow the on

- line instructions for submitting comments.

• Email: a

- and

- r

- docket@epa.gov

.

• Mail: Air and Radiation Docket and Information Center, Environmental Protection Agency, Mailcode: 2822T, 1200 Pennsylvania Ave., NW., Washington, DC 20460.

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

deliveries of boxed information.

Instructions: Direct your comments to Docket ID No. EPA

- HQ

- OAR

- 2012

- 0546. EPA's polic y is that all comments received will be included in the public docket without change and may be*** E.O. 12866 Review

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made available online at www.regulations.gov, including any personal information provided,

unless the comment includes information claimed to be Confidential Bu siness Information (CBI) or other information whose disclosure is restricted by statute. Do not submit information that you consider to be CBI or otherwise protected through www.regulations.gov or e

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

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

e

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

- ROM you submit. If EPA cannot read your comment due to technical difficulties and cannot contact you for clarification, EPA may not be able to consider your comment. Electronic files should avoid the use of special charact ers, any form of encryption, and be free of any defects or viruses. For additional information about EPA’s public docket visit the EPA Docket Center homepage at http://www.epa.gov/epahome/dockets.htm. For additional instructions on submitting comments, g o to Section I.B of the SUPPLEMENTARY

INFORMATION section of this document.

Docket: All documents in the docket are listed in the www.regulations.gov index. Although listed in the index, some information is not publicly available, e.g., CBI or other infor mation 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 har d 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 tele phone 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, Env ironmental Protection Agency, 2000 Traverwood Drive, Ann Arbor MI 48105 ; Telephone number: 734

- 214

- 4131 ; Fax number: 734

- 214

- 4816 ; E

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

- 4333; E

- mail address OTAQ@epa.gov.

SUPPLEMENTARY INFORMATION:

I. General Information

A. Does this Action Apply to Me?

Entities potentially affected by this proposed rule are those involved with the production, distribution, and sale of transportation fuels, including gasoline and diesel fuel or renewable fuels such as ethanol and biodiesel. Potentially regulated categories include:*** E.O. 12866 Review

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Category NAICS 1

Codes SIC 2

Codes Examples of Potentially Regulated Entities

Industry Industry Industry Industry Industry Industry

Industry 324110

325193

325199

424690

424710

424720

454319 2911

2869

2869

5169

5171

5172

5989 Petroleum Refineries Ethyl alcohol manufacturing Other basic organic chemical manufacturing

Chemical and allied products merchant wholesalers

Petroleum bulk stations and terminals Petroleum and petroleum products merchant

wholesalers

Other fuel dealers

1 North American Industry Classification System (NAICS)

2 Standard Industrial Classification (SIC) system code.

This table is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be regulated by this proposed action. This table lists the types of

entities that EPA is now aware could potentially be regulated by this proposed action. Other types of entities not listed in the table could also be regulated. To determine whether your activities would be regulated by this proposed action, you should carefully examine t he applicability criteria in 40 CFR part 80. If you have any questions regarding the applicability of this proposed action to a particular entity, consult the person listed in the preceding section.

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

1. Submitting CBI

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

- mail. Clearly mark the part or all of the information that you claim to be CBI. For CBI information in a disk or CD ROM that you ma il to EPA, mark the outside of the disk or CD ROM as CBI and then identify electronically within the disk or CD ROM the specific information that is claimed as CBI. In addition to one complete version of the comment

that includes information claimed as CB I, a copy of the comment that does not contain the information claimed as CBI must be submitted for inclusion in the public docket. Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR part 2.

2. Tips for Preparing Your Comments

When submitting comments, remember to:

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

• Follow directions

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

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

• Describe any assumptions a nd provide any technical information and/or data that you

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

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

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

threats.

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

Outline of this preamble

I. Executive Summary

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

A. Purpose of This Proposed Action

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

B. Summary of Major Provisions in This Notice

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

1. Cellulosic Biofuel Volume for 2013

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

2. Advanced Biofuel and Total Renewable Fuel in 2013

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

3. Proposed Standards for 2013

................................ ................................ ........................ 10

4. Biomass

- Based Diesel for 2014

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

C. Impacts of Proposed Actions

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

II. Projection of Cellulosic Volume for 2013

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

A. Statutory Requirements

................................ ................................ ................................ ..... 14

B. Status of the Cellulosic Biofuel Industry

................................ ................................ .......... 14

C. Cellulosic Biofuel Volume Assessment for 2013

................................ ............................. 17

1. Cellulosic Biofuel Facilities Considered in the 2012 Projections

................................ 18

2. Facilities not Included in 2012 Projections

................................ ................................ ... 22

3. Other Potential Sources of Domestic Cellulosic Biofuel

................................ .............. 23

4. Imports of Cellulosic Biofuel

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

5. Summary of Volume Projections

................................ ................................ .................. 25

D. Proposed Cellulosic Biofuel Volume for 2013

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

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

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

A. Statutory Requirements

................................ ................................ ................................ ..... 28

B. Assessment of Available Volumes of Advanced Biofuel

................................ ................. 29

1. Biodiesel

................................ ................................ ................................ ....................... 30

2. Imported Sugarcane Ethanol

................................ ................................ ......................... 31

3. Domestic Production of Other Advanced Biofuel

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

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

2013

................................ ................................ ................................ ................................ ........... 34

IV. Proposed Percentage Standards for 2013

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

A. Background

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

B. Calculation of Standards

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

1. How Are the Standards Calculated?

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

2. Small Refineries and Small Refiners

................................ ................................ ............ 39

3. Proposed Standards

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

V. Public Participation

................................ ................................ ................................ ............... 42

A. How Do I Submit Comments?

................................ ................................ .......................... 42

B. How Should I Submit CBI to the Agency?

................................ ................................ ....... 42

VI. Statutory and Executive Order Reviews

................................ ................................ ........... 44*** E.O. 12866 Review

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

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

B. Paperwork Reduction Act

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

C. Regulatory Flexibility Act

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

D. Unfunded Mandates Reform Act

................................ ................................ ...................... 45

E. Executive Order 13132: Federalism

................................ ................................ ................. 45

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

45

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

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

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

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

I. National Technology Transfer and Advancement Act

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

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

- Income Populations

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

VII. Statutory Authority

................................ ................................ ................................ ........... 48*** E.O. 12866 Review

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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 major revisions to the regulat ory requirements on March 26, 2010 1

.

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

in Table I

- 1.

Table I

- 1

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

Cellulosic biofuel 1.0 a

Biomass

- based diesel ≥1.0 b

Advanced biofuel 2.75 a

Renewable fuel 16.55 a

a Ethanol

- equivalent volume

b Actual volume

Under the RFS program, EPA is required to determine and publish annual percentage standards for each compliance year by November 30 of the previous year. The percentage standards are used by obligated parties to calculate their individual compliance obligations. The percentage standards are applied to the volume of gasoline and/or diesel fuel that each obligated party produces or imports during the specified calendar year to determine the volumes of renewable fuel that they must cause to be used as transportation fuel, heating oil, or jet fuel. The

percen tage standards are calculated so as to ensure use in transportation fuel of the “applicable volumes” of four types of biofuel (cellulosic biofuel, biomass

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

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

- scale to commercial scale facilities, leading to substantial increases in production capacity. Construction has begun on several facilities, and there is a high likelihood that cellulosic biofuel will be produced in 2012. Based on detailed information from production companies and a consideration of various potential uncertainties, we ar e projecting that 33 million gallons of cellulosic biofuel will be available in 2013.

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

2013 and have determined that there will be sufficient volumes to meet the statutor y applicable volume of 2.75 billion gallons. Combined with the availability of conventional biofuels such as corn ethanol, there will also be sufficient total renewable fuels available in 2013 to meet the statutory applicable volume of 16.55 billion gallo ns.

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

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A. Purpose of This Proposed Action

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

and total renewable fuel for 2013. Table I.A

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

Table I.A

- 1 Statutory Provisions for Determination of Proposed Applicable Volumes Applicable volumes Clean Air Ac t
reference Criteria provided in statute for determination

of applicable volume

Cellulosic biofuel in

2013 211(o)(7)(D)(i) Mandatory determination. Required volume must be lesser of volume specified in CAA 211(o)(2)(B)(i)(III) or EPA’s projected

volume.

Advanced biofuel in

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

Total renewable fuel in

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

EPA must annually determine the projected volume of cellulosic biofuel production for the following year. If the projected volume of cellulosic biofuel production is less than the applicable volume specified in section 211(o)(2)(B)(i)(III) of the statute, EPA must lower the applicable volume used to set the annual cellulosic biofuel percentage standard to the projected volume of production. In today's proposal, we present our analysis of cellulosic biofuel production and proposed projected volume for 2013. The analyses that led to the proposed 2013 applicable volume require ment were based on our evaluation of individual producers’ production plans and progress to date. For the final rule, we will also consider comments received in response to this notice of proposed rulemaking, the estimate of projected biofuel volumes that the Energy Information Administration (EIA) is required to provide to EPA by October 31, information from Production Outlook Reports, and other information that becomes available.

When we lower the applicable volume of cellulosic biofuel below the volum e specified in CAA 211(o)(2)(B)(i)(III), we also have the authority to reduce the applicable volumes of advanced biofuel and/or total renewable fuel by the same or a lesser amount. Today's proposal includes our consideration of the 2013 volume requirement s for these biofuels.

Based on the applicable volumes for cellulosic biofuel, biomass

- based diesel, advanced biofuel, and total renewable fuel presented in today's proposal, we have calculated proposed percentage standards that would apply to all produce rs and importers of gasoline and diesel in*** E.O. 12866 Review

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2013. The proposed percentage standards are based on an early projection of volumes of gasoline and diesel consumption in 2013 from the Energy Information Administration (EIA). EPA intends to use updated EIA pro jections of gasoline and diesel consumption in 2013 in calculating the final percentage standards.

B. Summary of Major Provisions in This Notice

1. Cellulosic Biofuel Volume for 2013

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

further refine cellulosic biofuel production technology and to construct the first commercial

scale facilities. From 2007 through the second quarter of 2011over $2.4 billion was invested in advanced biofuel production companies by venture capitalists alone. 2 For more information on

the current status of the cellulosic biofuel industry in the United States and the advances being made, see Section II.B.

2013 is also expected to be a year of transition for the cellulosic biofuel industry, as many companies are shifting their focus from te chnology development to commercialization. This transition began in 2012 with the first commercial production facilities from INEOS Bio and KiOR scheduled to come online, and will continue throughout 2013. Two of the largest producers of ethanol in the U nited States, Abengoa and Poet, are planning to begin producing cellulosic ethanol at commercial scale in 2013. Several others companies, including BP and DuPont, will be constructing their first commercial scale facilities in 2013, with the intention of beginning production in 2014. If these facilities are able to operate as anticipated, the uncertainty associated with commercial

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

To est imate the volume of cellulosic biofuel that can be made available in the U.S. in 2013, we researched all potential production sources by company and 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 were not the focus of our assessment; however their production volumes were considered in aggregate. From this universe of potential cellulosic biofuel sources we identified the subset that had a possibility of producing commercial volumes of qualifying cellulosic biofuel for use as transportation fuel in

2013. To a rrive at this proposed projected volume, we took into consideration factors such as the current and expected state of funding, the status of the technology utilized, progress towards

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

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

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construction and production goals, and other significant factors that cou ld potentially impact fuel production or the ability of the produced fuel to generate cellulosic Renewable Identification Numbers (RINs) in 2013. Further discussion of these factors can be found in Section II.B.

In our assessment we focused on domestic sources of cellulosic biofuel. We are not aware of any internationally

- based cellulosic biofuel production facilities with the intention of exporting their fuel into the U.S. in 2013. Of the domestic sources, we estimated that five

facilities can make co mmercial

- scale volumes of cellulosic biofuel available for transportation

use in the U.S. in 2013. These facilities are listed in Table I.B.1

- 1 along with our estimate of the projected 2013 volume for each. The table also includes an estimate of the tota l RIN

- generating volume of cellulosic biofuel that will be produced from the many small research and development and demonstration facilities in the United States in 2013.

Table I.B.1

- 1 Projected Available Cellulosic Biofuel Plant Volumes for 2013

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

Start

- Up

Date Projected available

volume a

Abengoa Hugoton, KS Ethanol 26 3Q 2013 4 Fiberight Blairstown, IA Ethanol 3.8 1 st Half 2013 1

INEOS Bio Vero Beach, FL Ethanol 8.0 2Q 2012 8

KiOR Columbus, MS Gasoline and

Diesel 11 2 nd Half 2012 18

Poet

- DSM Emmetsburg, IA Ethanol 25 2 nd Half 2013 1

Various Pilot/

Demo Plants N/A N/A N/A N/A 1

Total 73.8 33

a Volumes listed in million ethanol

- equivalent gallons

The variation in expected start

- up times, along with the facility production capacities, company production plans, and a variety of other factors have all been taken into account in projecting the

available volume of cellulosic biofuel.

2. Advanced Biofuel and Total Renewable Fuel in 2013

The statute indicates that we may reduce the applicable volume of advanced biofuel and total renewable fuel specified in the statute if we determine that the projected volume of cellulosic biofuel production for 2 013 falls short of the statutory volume of 1.0 billion gallons.

As shown in Table I.B.1

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

tot al renewable fuel. Since the statute provides no criteria or direction for making this determination, we have focused our evaluation on the availability of renewable fuels that would qualify as advanced biofuel.

The CAA specifies an applicable volume of 2.75 billion gallons of advanced biofuel for 2013. To determine whether to lower this volume, we first considered the contribution that

biomass

- based diesel will make to the advanced biofuel requirement. We have finalized a*** E.O. 12866 Review

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Page 10 of 49 volume of 1.28 bill gal in a separate action. Since biodiesel has an Equivalence Value of 1.5, 1.28 billion physical gallons of biodiesel would provide 1.92 billion ethanol

- equivalent gallons that could be counted towards the advanced biofuel standard of 2.75 billion gallons. Of the remaining 830 mill gallons, we project that 33 mill gallons would be met with cellulosic biofuel.

There are three primary sources of other advanced biofuels that, considered together, are projected to have the potential to provide significantly more t han the approximately 800 mill gal needed to meet the statutory 2.75 bill gal advanced biofuel applicable volume, after cellulosic

biofuel and biomass

- based diesel are taken into account. As described in more detail in Section III, these sources include d omestic advanced biofuels which are expected to grow steadily through 2013, imports of sugarcane ethanol, and biodiesel production in excess of 1.28 bill gal. In addition, we believe there will be sufficient volumes of conventional renewable fuel to satis fy the 16.55 billion gallon applicable volume of total renewable fuel specified in the Act. Since there appears to be adequate supply, we are not proposing to reduce either the advanced biofuel volume requirement of 2.75 bill gal, nor the total renewable fuel volume requirement of 16.55 bill gal.

3. Proposed Standards for 2013

The renewable fuel standards are expressed as a volume percentage and are used by each refiner, blender or importer to determine their renewable fuel volume obligations. The

ap plicable percentages are set so that if each regulated party meets the percentages, and if EIA projections of gasoline and diesel use for the coming year are accurate, then the amount of renewable fuel, cellulosic biofuel, biomass

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

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

volume of 33 million ethanol

- equivalent gallons of cellulosic biofuel and the volume of bi omass

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

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

- 1.

Table I.B.3

- 1 Proposed Volumes Used to Determine the Proposed 2013 Percentage Standards a

Cellulosic biofuel 33 mill gal

Biomass

- based diesel 1.28 bill gal

Advanced biofuel 2.75 bill gal

Renewable fuel 16.55 bill gal

a All volumes are ethanol

- equivalent, except for biomass

- based diesel which is

actual.

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

- 1. The specific formulas we use to calculate the renewable fuel percentage standards are contained in the regulations at §80.1405 and repeated in Section IV.B.1. The percentage standards represent the ratio of renewable fuel volume to projected non

- renewable gasoline and diesel volume. The projected volume of*** E.O. 12866 Review

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Page 11 of 49 transportation gasoline and diesel used to calculate the standards in today's proposed rule was derived from available EIA projections. We expect to base the final renewable fuel percentage standards on updated projections provid ed by EIA. At this time EPA has not approved any small refinery or small refiner exemptions for 2013, and thus no adjustment has been made to the proposed standards to account for such exemptions. The proposed standards for 2013 are shown

in Table I.B.3

- 2. Detailed calculations can be found in Section IV.

Table I.B.3

- 2 Proposed Percentage Standards for 2013

Cellulosic biofuel 0.020%

Biomass

- based diesel 1.18%

Advanced biofuel 1.69%

Renewable fuel 10.15%

4. Biomass

- Based Diesel for 2014

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

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

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

- based diesel for 2013 on July 1, 2011, and is issuing a final rule establishing that applicable volume in a separate notice.

In order to determine and propose an appli cable volume of biomass

- based diesel for 2014, we are required under 211(o)(2)(B)(ii) to analyze a number of factors, including biodiesel production capacity, consumption, and infrastructure capabilities, as well as impacts on emissions, costs, energy secu rity, and other factors. The statute also indicates that we should take into account a review of the implementation of the program for years prior to 2013. While the industry is currently on track to produce a total annual volume of around 1.3 bill gallo ns in 2012, we are still evaluating the potential market impacts of this production level. In order to provide sufficient time for this evaluation, as well as the other other analyses we are required to conduct, we are not proposing an applicable volume o f biomass

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

C. Impacts of Proposed Actions

The anticipated increase in cellulosic biofuel in comparison to the 2012 volume requirement will have directio nally beneficial GHG impacts as cellulosic biofuels in general have at least a 60 percent GHG emissions improvement compared to the gasoline and diesel fuel they will replace. Analyses for the March 26, 2010 RFS2 final rule indicated the GHG benefits

from cellulosic biofuels compared to the petroleum

- based fuels they displace could likely range well above the 60 percent threshold.

For advanced biofuel and total renewable fuel, we are not proposing to reduce the applicable volumes below the volumes requ ired in the statute. All of the impacts of the biofuel*** E.O. 12866 Review

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Page 12 of 49 volumes specified in the statute were addressed in the RFS2 final rule published on March 26, 2010. Today's rulemaking simply proposes the standards for 2013 advanced biofuel and total

renewable fuel whose impacts were previously analyzed.*** E.O. 12866 Review

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Page 13 of 49 II. Projection of Cellulosic Volume for 2013

In order to project the available production volume of cellulosic biofuel in 2013 for use in setting the percentage standard, we collected information on individual facilities that have the potential to produce qualifying volumes for consumption as transportation fuel, heating oil, or jet

fuel in the U.S. in 2013. This section describes the volumes that coul d be produced or imported

in 2013 as well as some of the uncertainties associated with those volumes.

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

and demonstration

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

- scale cellulosic biofuel production facilities. Two commercial

- scale facilities are on schedule to begin producing fuel in 2012. Three more have plans to start

- up i n 2013, with several more planning construction in

2013 and start

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

United States.

Despite significant advances in cellulosic biofuel production technology in recent years,

RIN

- generating cellulosic biofuel production in 2010 and 2011 wa s zero despite our projections that the industry was positioned to produce about 6 million gallons in each of those years. 3 A discussion of the reasons for this disparity is provided in Section II.B below.

In today's NPRM we are proposing a volume for 2013 cellulosic biofuel that is based on discussions with individual producers. By the time we announce the final 2013 volumes and percentage standards in November 2012, we will have additional information. First, in addition to comments in response to today's proposal, we will have updated and more detailed information about how the industry is progressing in 2012. Second, all registered producers and importers of renewable fuel must submit Production Outlook Reports by June 1 describing their

expectat ions for new or expanded biofuel supply for the next five years, according to §80.1449. Finally, by October 31, 2012, the Energy Information Administration (EIA) is required by statute to provide EPA with an estimate 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 2013. All of this information will be used in setting the final cellulosic biofuel applicable volume and percentage standard for 2013.

3 In the first half of 2010 when the RFS1 program was still effective, some cellulosi c biomass ethanol was produced. However, this biofuel was not made from cellulosic feedstocks, but rather was categorized as cellulosic under the limited provisions of §80.1101(a)(2).*** E.O. 12866 Review

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Page 14 of 49 A. Statutory Requirements

The volumes of renewable fuel to be used under the RFS program each year (absent an adjustment or waiver by EPA) are specified in CAA 211(o)(2). For 2013, the statute specifies a cellulosic biofuel applicable volume requirem ent of 1.0 bill gal. 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 cel lulosic 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 s of advanced biofuels and total renewable fuel by the same or a lesser volume. Our consideration of the 2013 volume requirements for advanced biofuels and total renewable fuel is presented in

Section III.

B. Status of the Cellulosic Biofuel Industry

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

limited to small

- scale research and development, pilot, and demonstration

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

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

While there were numerous small

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

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

Each of the companies included in our 2011 projections for cell ulosic biofuel production had different reasons for not generating cellulosic RINs in 2011. DuPont had concerns about their ability to retain the R&D status of their Vonore, TN facility if they generated RINs and sold the cellulosic ethanol they produced from this facility. Fiberight was unable to secure the funding required to complete the modifications to their facility to allow for cellulosic ethanol production. KL Energy finalized an agreement with Petrobras in the second half of 2010 and changed the direction of their facility to focus on using bagasse as a primary feedstock. Finally, after completing initial production of cellulosic ethanol Range Fuels shut down operations in January 2011 and eventually declared bankruptcy.

While cellulosic bio fuel production in the United States remains limited, the industry continues to make significant progress towards producing cellulosic biofuel at prices competitive*** E.O. 12866 Review

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Page 15 of 49 with petroleum fuels. From 2007 through the second quarter of 2011 venture capitalists inv ested over $2.4 billion in advanced biofuel companies in North America 4 . Recent advancements in enzyme and catalyst technologies are allowing cellulosic biofuel producers to achieve greater yields of biofuel per ton of feedstock. These advancements have led to lower operational costs as they have driven down the cost for feedstock, energy, and other important inputs on a per gallon basis. For example, the estimated cost of cellulosic ethanol production using an enzymatic hydrolysis process has decreased from $4

- $8 per gallon in 2007 to $2

- $3.50 per gallon by 2012 5 . NREL similarly reports that advancements in cellulosic ethanol technology have resulted in a decrease in modeled costs from more than $6.50 per gallon in 2001 to less than $2 per gallon in 201 0. 6 The same technological advances have also lowered the capital costs of cellulosic biofuel production facilities per gallon of annual fuel production, as more gallons of biofuel can be produced at a facility without additional equipment or increased fe edstock requirements.

As cellulosic biofuel producers gain experience and continue to progress towards

commercial

- scale biofuel production, it is reasonable to expect that the production costs and capital costs will continue to decline. This is a patter n shown by many new technologies, including renewable and emerging energy technologies. One example which has several similarities to the cellulosic biofuel industry is the experience with the dry mill corn ethanol industry. From 1983, the year in which the first commercial volumes of dry mill ethanol were produced, to 2005 the processing cost of corn ethanol decreased by 45%, while the capital costs of a dry mill ethanol facility decreased by 88%. 7 Many of the drivers for this cost reduction,

such as hi gher ethanol yields, reduced enzyme costs, and better fermentation technologies 8 are also expected to be factors in the lower cellulosic biofuel costs expected in the future. While the cost reduction percentages observed in the dry mill corn ethanol indus try are not directly applicable to the cellulosic biofuel industry, the trend of decreasing production and capital costs over time is expected to hold true.

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

commercial

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

- scale production facilities. Over the past several years both Abengoa and Poet have been reaching out to farmers

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

< http://www.e2.org/ext/doc/E2%20Advanced%20Biofuel%20Mkt%20Report%202 011.pdf >.

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

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

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

- presentations/Documen ts/Cellic3_conf_call_220212.pdf >.

6 NREL. Cellulosic Ethanol Technology on Track to being Competitive With Other Transportation Fuels. February

2011. NREL/FS

- 2700

- 50846. Available Online < http://www.nrel.gov/science_technology/pdfs/50846.pdf >.

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

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

8 IBID*** E.O. 12866 Review

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Page 16 of 49 in the regions surrounding their first commercial

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

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

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

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

- created at future production facilities.

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

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

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

for their first commercial

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

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

Another appealing feedstock for cellulosic biofuel production is separated municipal solid waste (MSW). MSW is already being collected and transported to a centralized facility, is consistently available throughout the year, and can be obtained for a very low, or even negative cost. MSW often contains contaminants, however, that may make it challenging to process for some cellulosic biofuel technologies. EPA also requires that waste separation plans be submitted and approved prior to any company generating RINs using separated MSW as a feedstock. Near the end of 2011 EPA received the first waste separation plan for Fiberight’s facility in Blairstown, Iowa. This plan is current ly being evaluated, and we anticipate that a decision will be made on Fiberight’s separation plan by the time of the final rule.

Significant progress has also been made by some companies towards funding the

construction of their first commercial

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

- up companies announced plans to build large commercial

- scale facilities that were scheduled to begin production in the past few years. The construction of many of these f

acilities was dependent on the companies raising additional funding, either from venture capitalists, government grants, or loans backed by government guarantees. So far few of the companies that made these early announcements have been able to successful ly raise the necessary funds and begin construction. Securing this funding proved difficult, and when it did not materialize the projects were delayed or cancelled.

The funding profiles of the companies included in our proposed volume for 2013, as well as for many of the companies targeting production in 2014, are markedly different. Many of*** E.O. 12866 Review

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Page 17 of 49 these projects have already received, and in several cases have closed on loan guarantees offered by DOE or USDA. Other companies have filed for and successfully e xecuted IPOs. Several cellulosic ethanol projects are being self

- financed by large companies such as Abengoa, BP, and Poet with significant experience in the biofuel, petrochemical, and specialty chemical markets. This solid financial backing has allowed these companies to proceed with construction. With the exception of Fiberight, which is retrofitting an existing corn ethanol facility, all of the facilities included in our proposed volume for 2013 have already begun the construction of their first

comm ercial production facilities. The next section provides additional details on the funding and construction status of the projects included in our projected cellulosic biofuel production

volumes for 2013.

If these first commercial

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

commercial

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

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

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

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

- locating with some of their existing starch facilities in the US. Poet has a similar expansion strategy to build cellulosic ethanol plants at their grain ethanol facilities, license their technology for use at other grain ethanol facilities, and build cellulosic ethano l facilities that use feedstocks such as rice straw, rice hulls, woody biomass, or energy crops as a feedstock. Poet’s goal is to be involved in the production of 3.5 billion gallons of cellulosic ethanol per year by 2022. Several other companies, such a s BP, DuPont, and Enerkem are also targeting 2014 for the start

- up of cellulosic biofuel production facilities and would likely look to build additional facilities relatively quickly if successful. While many of these expansion plans are still in the earl y stages and are subject to change, they do point to the potential for cellulosic biofuel production to increase rapidly in future years.

C. Cellulosic Biofuel Volume Assessment for 2013

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

- up of innovative, first

- of

- a

- kind technology, but also the challenge of securing funding in a difficult economy. The cellulosic biofuel industry also is influenced by various tax credits and subsidies, and uncertainty about these programs may have had an impact on cellulosic biofuel production in

2011.*** E.O. 12866 Review

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Page 18 of 49 Despite these challenges, there are several factors indicating that significant volumes of cellulosic biofuel can be produced in 2013. Commercial

- scale cellulosic biofuel projects from INEOS Bio and KiOR are expected to begin fuel production in 2012 and plan to produce fuel at volumes near their capacities in 2013. Two more commercial

- scale facilities backed by large companies with significant experience in biofuel production, Abengoa and Poet, are also scheduled to begin producing cellulosic biofuel in 2013. These facilities are indicative of a shift across the cellulosic biofuel industry from small

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

- up companies to large commercial

- scale facilities backed by large companies, many of which ha ve substantial experience in related industries.

In order to project cellulosic biofuel production for 2013, we have tracked the progress of more than 100 biofuel production facilities. From this list of facilities we used publically

available informa tion, as well as information provided by DOE and USDA, to make a preliminary determination of which facilities are the most likely candidates to produce cellulosic biofuel and generate cellulosic biofuel RINs in 2013. Each of these companies was investiga ted further in order to determine the current status of their facilities and their likely cellulosic biofuel production and RIN generation volumes for the coming years. Information such as the funding status of these facilities, current status of the prod uction technologies, announced construction and production rampup periods, and annual fuel production targets were all considered when we met with senior level representatives of each company to discuss cellulosic biofuel target production levels for 2013. Our projection of the cellulosic biofuel production in 2013 is based on the individual production targets that emerged from these discussions. A brief description can be found below for each of the companies we believe will produce cellulosic biofuel an d make it commercially available in 2013. We will continue to gather more information to help inform our decision regarding the final cellulosic biofuel volume to be required for 2013, and we will specify the final volume in the final rule to be released by November 31, 2012.

In the sections that follow, we first discuss the cellulosic production facilities that were part of our volume projections for the 2012 compliance year and the progress that they have made. Then we present our consideration of add itional facilities that we believe will also produce cellulosic biofuel in 2013.

1. Cellulosic Biofuel Facilities Considered in the 2012 Projections

In the January 9, 2012, final rule that established the required 2012 cellulosic biofuel volume, we ide ntified six production facilities that we projected would produce cellulosic biofuel and make that fuel commercially available in 2012. Two of these production facilities are currently structurally complete, three are currently under construction, and one is planning to retrofit an existing corn ethanol plant with construction beginning in the second half of 2012. None of the facilities have completed the registration process for the RFS program, and they will be unable to generate cellulosic RINs until t his process is completed. The current status of each of these facilities, including target production levels for each facility in 2013, is discussed below.

API*** E.O. 12866 Review

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Page 19 of 49 American Process Inc. (API) is developing a project in Alpena, Michigan capable of producing up to 900,000 gallons of cellulosic ethanol per year from woody biomass. This facility will use a technology developed by API called GreenPower+TM. This technology extracts the hemicellulose portion of woody biomass using hot water and hydrolyzes it into sugars. These sugars are then converted to ethanol or other alcohols, while the remaining portion of the woody biomass, containing mostly cellulose and lignin, is processed into wood paneling at

a co

- located facility. At future, larger

- scale facilities A PI 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. Co nstruction of the Alpena, Michigan facility began in March 2011 and API anticipates beginning the production of cellulosic ethanol at this site in the first half of 2012. API plans to switch fuel production at their Alpena facility from ethanol to butanol in late 2012 or early 2013. API is also developing a list of projects and is currently in the process of screening for locations for their next project, which will likely produce 10 million gallons of cellulosic biofuel per year and be co

- located with a biomass pellet or biomass

- to

- electricity facility. Production from API’s Alpena facility has been included in our proposed volume as one contributor to the one million gallons from various pilot and demonstration plants in 2013.

Fiberight

Fiberight uses an enzymatic hydrolysis process to convert the biogenic portion of separated MSW and other waste feedstocks into ethanol. They have successfully completed five years of development work on their technology at their small pilot plant in Lawrenceville,

Vir ginia. This facility is currently in the process of being upgraded to an integrated demonstration plant with initial production of cellulosic ethanol expected in July 2012. In 2009 Fiberight purchased an idled corn ethanol plant in Blairstown, Iowa with the intention of making modifications to this facility to allow for the production of 3.8 million gallons of cellulosic ethanol per year from separated MSW and industrial waste streams. These modifications were scheduled to be completed in 2011, but diffi culties in securing funding have resulted in construction at this facility being delayed. In January 2012 Fiberight was offered a $25 million loan guarantee from USDA. Closing on this loan would provide substantially all of the remaining funds required f or Fiberight to complete the modifications necessary to allow for the production of cellulosic ethanol at their Blairstown facility. Construction will begin as soon as Fiberight has secured the necessary funds and will take approximately 6 months to compl ete. While this is a much shorter timeline that most cellulosic biofuel production facilities, it is reasonable as Fiberight is retrofitting an existing corn ethanol plant and will be able to use much of the existing equipment. Additionally, we have rece ived a waste separation plan from Fiberight for this facility that if approved would allow Fiberight to generate RINs for the production of cellulosic ethanol using MSW as a feedstock. Fiberight plans to produce 1 million gallons of cellulosic ethanol in 2013. Fiberight is also currently developing a second

commercial

- scale project based on their MSW “hub and spoke” concept. They anticipate that this facility will begin fuel production in 2014 and will produce approximately 25 million gallons

of cellulos ic ethanol per year when fully built out.

INEOS Bio*** E.O. 12866 Review

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Page 20 of 49 INEOS Bio has developed a process for producing cellulosic ethanol by first gasifying cellulosic feedstocks into a syngas and then using naturally occurring bacteria to ferment the syngas into ethanol. In January 2011 USDA announced a $75 million loan guarantee for the construction of INEOS Bio’s first commercial facility to be built in Vero Beach, Florida. This was in addition to the grant of up to $50 million INEOS Bio received from DOE in December

2 009. When completed, this facility will be capable of producing 8 million gallons of cellulosic biofuel as well as 6 megawatts (gross) of renewable electricity from a variety of feedstocks including yard, agricultural, and wood waste. The facility is als o permitted to use a limited quantity of separated MSW as a feedstock and plans to do so by late 2012. Their ability to generate RINs for any fuel generated using separated MSW would be dependent on having an approved waste separation plan.

On February 9 , 2011, INEOS Bio broke ground on this facility. Since then 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 and commissioning of the facility. INEOS Bio has reported that they plan to be producing cellulosic ethanol at levels near the facility’s capacity of 8 million gallons per year by the end of 2012. For this proposal we project 8 millio n gallons of cellulosic ethanol from INEOS Bio in 2013. INEOS Bio is also exploring several opportunities for additional cellulosic biofuel production facilities, both in the United States and internationally. INEOS Bio is targeting sources of inexpensiv e feedstock and see a market for plants with production capacities ranging from 8 to 50 million gallons per year.

KiOR

KiOR is working to commercialize a technology capable of converting biomass to a low

oxygen biocrude using a process they call Biomass Fluid Catalytic Cracking (BFCC). BFCC uses a catalyst developed by KiOR in a process similar to Fluid Catalytic Cracking currently used in the petroleum industry. The first stage of this process produces a renewable crude oil with an oxygen content of ap proximately 10%. This bio

- crude is then upgraded to produce primarily gasoline, diesel, and jet fuel as well as a small quantity of fuel oil, all of which are nearly identical to those produced from petroleum.

KiOR’s first commercial

- scale facility is located in Columbus, Mississippi and is capable of producing approximately 11 million gallons of gasoline, diesel, and jet fuel per year. Construction on this facility began in May 2011. KiOR expects production of cellulosic biofuel from this facility in the 2 nd half of 2012. This facility is funded, in large part, with funds from KiOR’s $150 million IPO in June 2011. They expect to be producing biofuel at a rate consistent with the capacity of the Columbus facility by the end of 2012. KiOR has feedsto ck supply agreements in place to supply all of the required feedstock for their Columbus facility with slash and pre

- commercial thinning. They also have off

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

commercial

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

- up of their first facility. It is unlikely this second facility will begin production of biofuel in 2013.*** E.O. 12866 Review

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Page 21 of 49 For 2013 our proposed production projection is for 11 million gallons (18 million ethanol

equivalent gallons) of cellulosic biofuel from KiOR’s Columbus facility.

KL Energy

KL Energy has developed a process to convert cellulose and hemicellulose into sugars

and ethanol using a combined chemical/thermal

- mechanical pretreatment process followed by enzymatic hydrolysis, co

- fermentation of C5 and C6 sugars, and distillation to fuel

- grade ethanol. This production process is versatile enough to allow for a wide variet y of cellulosic feedstocks to be used, including woody biomass and herbaceous biomass such as sugarcane bagasse. 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 1.5 million gallons per year demonstration facility in Upton, Wyoming to allow it to process bagasse and other biomass feedstocks. The modifications to KL Energy’s facility were completed in the spring of 2011. KL Energy is currently producing small volumes of cellulosic ethanol from a bagasse feedstock at this facility and plans to continue to do so throughout 2012 and into 2013. The main purpose of the Upton, Wyoming facility is to further refine KL Energy’s technology in preparation for their first commercial facilities which may be located in the Brazil or the United States. Cellulosic ethanol production from KL Energy in 2013 has been included as a contributor to the one million gallons from various pilot plants and demonstration

facilities.

ZeaChem

ZeaChem successfully completed construction of the core components of their

demonstration

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

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

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

- end process, the upgrading of the chemicals produced to transportation fuel, to the ex isting core facility. ZeaChem plans to begin the production of ethanol from cellulosic biomass at this facility by the end of 2012. Work is currently underway to add additional process modules that will enable ZeaChem to convert the cellulosic ethanol to jet and diesel fuel beginning in 2013.

ZeaChem’s process is flexible and is capable of producing a wide range of renewable chemicals and fuels from many different feedstocks. They plan to use both agricultural residues

and wood waste at their demonstra tion facility and have contracts in place for these feedstocks, as well as purpose

- grown wood, at their first commercial

- scale facility. In January 2012*** E.O. 12866 Review

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Page 22 of 49 ZeaChem announced that they had received a $232.5 million conditional loan guarantee offer

from USDA f

or the construction of their first commercial

- scale facility, which will have a capacity of at least 25 million gallons per year. ZeaChem currently has agreements in place to provide all of the necessary feedstock for this facility. This facility, howeve r, is not expected to begin producing cellulosic biofuel until late 2014 at the earliest. ZeaChem’s only cellulosic biofuel production in 2013, therefore, will be from their demonstration

- scale facility and has

been included as a contributor to the one mi llion gallons we are proposing for 2013 from various pilot and demonstration

- scale facilities.

2. Facilities not Included in 2012 Projections

In addition to the facilities that were included in our cellulosic biofuel volume projections

for the 2012 compliance year, there are two additional facilities that we believe will produce volumes in 2013. These facilities are owned by Abengoa and Poet.

Abengoa

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

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

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

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

commercial

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

When completed, the Hugoton plant will be capable of processing 700 dry tons of corn stover per day, with an expected annual ethanol production capacit y of approximately 26 million gallons. Abengoa plans to begin ramping up production at the facility shortly after completing construction in late 2013 and to be producing fuel at rates near the nameplate capacity by the end of the year. After successfull y proving their technology at commercial

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

- locating these new facilities with their currently existing starch ethanol facilities around the United States. We propose that for 2013 cellulosic ethanol production from Abengoa’s Hugoton facility could be as much as 4 million gallons.

Poet

Poet has also developed an enzymatic hydrolysis process to convert cellulo sic biomass into ethanol. Poet has been investing in the development of cellulosic ethanol technology for*** E.O. 12866 Review

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Page 23 of 49 more than a decade and began producing small volumes of cellulosic ethanol at pilot

- scale at their plant in Scotland, SD in late 2008. In January 20 12, Poet formed a joint venture with Royal

DSM of the Netherlands called Poet

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

The joint venture’s first commercial

- scale facility, called Project LIBERTY, will be

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

- up of this facility, Poet

constructed a 22

- acre biomass storage facility and had its first commercial harvest in 2010, collecting 56,000 tons of biomass

.

Site prep work for Project LIBERTY began in the summer of 2011, and vertical construction of the facility is scheduled to begin in the spring of 2012. Poet was awarded a $105 million loan guarantee offer for this project from DOE in July 2011, but wi th the joint venture decided to proceed without the loan guarantee. This project is expected to be completed and produce commercial volumes of cellulosic ethanol in the second half of 2013. For 2013 we project that Project LIBERTY will produce up to 1 mi llion gallons of cellulosic ethanol. After the completion of Project LIBERTY, Poet plans to build cellulosic ethanol facilities at all of their existing corn ethanol plants. They are also planning to license their technology for use at other grain ethano l plants, as well as build additional plants that will process wheat straw, rice hulls, woody biomass or herbaceous energy crops. By 2022 Poet has a goal of producing 3.5 billion gallons of cellulosic ethanol per year.

Other companies

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

commercial

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

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

3. Other Potential Sources of Domestic Cellulosic Biofuel

Each of the companies listed in the previous two sections is planning to generate cellulosic biofuel RINs using one of the valid RIN

- generating pathways listed in Table 1 to §80.1426. We are also aware of several companies who may be in a position to produce cellulosic biofuel in 2013 but intend to use a production pathway that is not currently approved for RIN generation. Three p athways that are currently under evaluation by EPA include the following:*** E.O. 12866 Review

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Page 24 of 49 • Compressed natural gas (CNG) derived from biogas, where the biogas is produced from the cellulosic portion of MSW

• Cellulosic ethanol produced from corn kernel fiber

• Fuel oil p roduced from woody biomass

If these or other cellulosic biofuel pathways are approved by EPA, they may be used to generate cellulosic biofuel RINs in 2013. Because a final determination on these pathways has not been made, however, no volume of cellulosi c fuel from these pathways has been included in our proposed 2013 cellulosic biofuel projection. The status of these pathways will be reevaluated at the time of the final rule and volumes from these pathways may be included in our final projection if appr opriate.

4. Imports of Cellulosic Biofuel

While domestically produced cellulosic biofuels are the most likely source of cellulosic biofuel available in the United States in 2013, imports of cellulosic biofuel produced in other countries may also genera te RINs and participate in the RFS program. While the RFS program does provide a financial incentive for companies to import cellulosic biofuels into the United States, the combination of local demand, financial incentives from other governments, and

tran sportation costs for the cellulosic biofuel has resulted in no cellulosic biofuel being imported to the United States thus far. We believe this situation is likely to continue in the near future and has not included any cellulosic biofuel imports in our p rojections of available volume in 2013.

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

limited to small

- scale research and development, pilot, and demonstration facilities. This is likely to continue to be t he case throughout 2013. Two notable exceptions are facilities currently being built by Chemtex and Enerkem. Chemtex is planning to complete construction of their

first commercial

- scale facility located in Crescentino, Italy in the summer of 2012. When completed, this facility will be capable of producing approximately 12 million gallons of cellulosic ethanol per year. Chemtex uses an enzymatic hydrolysis process to produce ethanol from local agricultural residues and herbaceous energy crops.

Enerkem is also in the process of building their first commercial

- scale facility in Edmonton, Alberta and plans to begin operations in early 2013. Enerkem’s facility will use a thermochemical process to produce syngas from MSW and then catalytically convert the syngas to methanol. The methanol can then be sold directly or upgraded to ethanol or other chemical products. At full capacity this facility will be capable of producing 10 million gallons of cellulosic ethanol per year. Neither Chemtex nor Enerkem, how ever, have plans to import

cellulosic biofuel into the United States from their first commercial

- scale facilities. Both are planning to locate additional plants in the United States in the future and are likely to generate RINs for production from domesti c facilities in future years.*** E.O. 12866 Review

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Page 25 of 49 5. Summary of Volume Projections

The information we have gathered on the potential cellulosic biofuel producers in 2013, described above, allows us to project volumes that are reasonably likely to be produced by each

facil ity in 2013. For the purposes of this proposed rulemaking we have focused on commercial

scale cellulosic biofuel production facilities. In 2013 we expect cellulosic biofuel production

from five commercial

- scale facilities. Each of these facilities is di scussed above, and the facility production targets for each are summarized in Table II.C.5

- 1 below. We believe our focus on

commercial

- scale facilities is appropriate as the industry transitions from small

- scale R&D and pilot facilities to large

- scale com mercial production. It is likely that several small

- scale facilities such as API, KL Energy, ZeaChem, and others will also produce some cellulosic biofuel in 2013. The volume of fuel produced by each individual facility, however, is expected to small,

es pecially in relation to that from the five facilities listed in Table II.C.5

- 1 below. A combined volume of one million gallons from the various pilot and demonstration

- scale facilities in 2013 has been included in this proposal.

When added together, the total projected production volume from commercial

- scale production facilities in the United States in 2013 is 26 million gallons (33 million ethanol

equivalent gallons). This number represents the expected fuel production from each facility, taking into account the potential for project delays, difficulty in start

- up, and the various other factors discussed above. As such, we believe it is an appropriate number for the projected available volume in 2013 for this proposal.*** E.O. 12866 Review

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Page 26 of 49 Table II.C.5

- 1 Potentially Available Cellulosic Biofuel for 2013

Company

Name Location Feedstock Fuel Capacity (MGY) Production

Start

- Up 2013 Potentially

Available Volume (MG) Ethanol

Equivalent Gallons (MG) Abengoa Hugoton, KS Corn Stover Ethanol 26 3 rd Quarter 2013 4 4 Fiberight Blairstown, IA MSW Ethanol 3.8 1 st Half 2013 1 1

INEOS Bio Vero Beach, FL Vegetative Waste Ethanol 8.0 2 nd Quarter 2012 8 8

KiOR Columbus, MS Wood Waste Gasoline

and Diesel 11 2 nd Half 2012 11 18

Poet

- DSM Emmetsburg, IA Corn Stover Ethanol 25 2 nd Half 2013 1 1

Various

Pilot/ Demo

Plants N/A N/A N/A N/A N/A 1 1

Total 73.8 26 33*** E.O. 12866 Review

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Page 27 of 49 D. Proposed Cellulosic Biofuel Volume for 2013

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

- scale facilities in 2013. Many factors have been

taken into consideration in dev eloping these production targets, such as the current status of project funding, the status of the production facility, anticipated construction timelines, the anticipated start

- up date and ramp

- up schedule, feedstock supply and many others. We believe

th e sum of these individual production targets (33 million ethanol

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

- scale facilities prior to the design and

construction of their first commercial

- scale facilities. The projects have solid financial backing, and in the case of Abengoa, Fiberight, and INOES Bio are backed by federal loan guarantees. By the time of our final rule the facilities owned by KiOR and INEOS Bio are scheduled to have already begun fuel production. These two facilities make up a significant majority of the

cellulosic biofu el in our 2013 projection, and their progress towards meeting their production goals will be an important piece of information as we consider the appropriate level of the

cellulosic biofuel standard to finalize.

It is important to note that the final cell ulosic biofuel standard for 2013 may be set at a volume that differs from the proposed volume. This could happen for a variety of reasons, including unexpected project modifications or cancellations or the inclusion of volumes of

cellulosic biofuel from s ources other than those listed above. For example, the proposed projected available volume of cellulosic biofuel in 2013 discussed above (33 million ethanol

equivalent gallons) does not include potential contributions from cellulosic biofuel produced

from corn fiber, renewable heating oil, or landfill biogas that is converted to transportation fuel. Together, these pathways could generate several tens of millions of gallons of ethanol

- equivalent renewable fuel. However, since they are currently undergoin g an evaluation to determine whether they are valid for the generation of cellulosic RINs, we have not included their volumes in our 2013 projection in this NPRM. If any of these pathways are approved, additional volume from these sources may be added to the target production volumes listed in Table II.C.5

- 1 for the

final rule.

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

- up schedules they have presented, as we consider public comments on this proposal, and as we consider the EIA estimated 2013 volume of cellulosic biofuel production that they are required to provide to us by October 31 of this year, we will have a clearer idea of the appropriate volume of fuel that we can reasonably expect to be produced and made commercially available in 2013.

III. Assessment of Advanced Biofuel and Total Renewable Fuel for 2013*** E.O. 12866 Review

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Page 28 of 49 As described in Section I, the volumes of renewable fuel to be used under the RFS2 program each year (absent an adjustment or waiver by EPA) are specified in CAA 211(o )(2). For 2013, the applicable volume of advanced biofuel is 2.75 bill gal and the applicable volume of total renewable fuel is 16.55 bill gal. However, the statute gives EPA the discretion to reduce one or both of these volume requirements in the event that the cellulosic biofuel volume requirement is reduced. This section discusses our evaluation of these two volume requirements.

A. Statutory Requirements

According to CAA 211(o)(7)(D)(i), if EPA determines that the projected volume of

cellulosic b iofuel production for the following year is less than the applicable volume provided in the statute, then EPA must reduce the applicable volume of cellulosic biofuel to the projected volume available during that calendar year. Under such circumstances, EP A also has the discretion to reduce the applicable volumes of advanced biofuel and total renewable fuel by an

amount not to exceed the reduction in cellulosic biofuel.

Since cellulosic biofuel is also used to satisfy the advanced biofuel standard and t he total renewable fuel standard, any reductions in the applicable volume of cellulosic biofuel will also affect the means through which obligated parties comply with these two other standards. Congress presumably established the volume requirements for a dvanced biofuel and total renewable fuel under the assumption that the specified cellulosic biofuel volumes would be produced and thus available to help meet these two standards. It is therefore logical to consider a possible reduction in the advanced bio fuel and total renewable fuel applicable volumes when EPA reduces the cellulosic biofuel volume below the applicable volume for cellulosic biofuel set

forth in the statute.

In 2013 the applicable volume of cellulosic biofuel specified in the statute re presents more than a third of the advanced biofuel volume (1.0 bill gal out of 2.75 bill gal), a higher fraction than in any previous year. A substantial reduction in the applicable volume of cellulosic biofuel could potentially also have a substantial im pact on the sufficiency of volumes to meet the advanced biofuel and total renewable fuel standards. As described in Section II.D above, we are indeed proposing a projected available volume of cellulosic biofuel for 2013 at significantly

below the statutor y applicable volume of 1.0 billion gallons. If we were to finalize a cellulosic biofuel applicable volume of 33 mill gallons for 2013, we would have the discretion to reduce the advanced biofuel and total renewable fuel applicable volumes by up to 967 mil l gallons (ethanol

- equivalent). Therefore, we believe that an investigation into the need for a reduction in the applicable volumes of advanced biofuel and/or total renewable fuel is warranted.

The statute does not provide any criteria that must be met or factors that must be considered when making a determination as to whether and to what degree to reduce the advanced biofuel and/or total renewable fuel applicable volumes when we have the discretion under CAA 211(o)(7)(D)(i) to do so. However, in gener al 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 avail able, even if those volumes do not include the amount of cellulosic*** E.O. 12866 Review

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Page 29 of 49 biofuel that Congress may have desired. And, if we do not lower the advanced biofuel standard, then our reduction of cellulosic biofuel applicable volume has no impact on the amount of no n

advanced biofuel that could be used in attaining the total renewable fuel standard set forth in the Act. Therefore, we believe as a general matter that, when we do not exercise our discretion to lower the applicable volume of advanced biofuel under CAA 211(o)(7)(D)(i), our action in reducing the cellulosic biofuel applicable volume should not in itself justify a modification of the total renewable fuel applicable volume.

B. Assessment of Available Volumes of Advanced Biofuel

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

- 1 shows the number of each of these types of RIN that was generated in 2011.

Table III.B

- 1 2011 RINs That Qual ified to Meet the Advanced Biofuel Standard 9

(million ethanol

- equivalent gallons)

D

code Category Ethanol Biodiesel Renewable

diesel Biogas and

heating oil

3 Cellulosic biofuel 0 0 0 0

4 Biomass

- based

diesel 0 1,600 76 0

5 Advanced biofuel 186 0 27 8

7 Cellulosic diesel 0 0 0 0

Total 1,895

The total of 1,895 mill ethanol

- equivalent gallons is significantly higher than the 1,350 mill gal required in 2011 and nearly as high as the 2012 advanced biofuel requirement of 2,000 mill gal.

This result supports our projection in the rulemaking setting the 2012 standards 10 that there was no need to reduce the 2012 advanced biofuel requirement despite the significant reduction in the applicable volume of cellulosic biofuel.

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

first account ed for biomass

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

- 2, the result is that there would need

to be about 800 mill ethanol

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

9 2011 data from the EPA

- Moderated Transaction System (EMTS)

10 77 FR 1320, published on January 9, 2012*** E.O. 12866 Review

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Page 30 of 49 Table III.B

- 2 Necessary Volume of Advanced Biofuel (mill gal ethanol

- equivalent) 2013 Advanced biofuel applicable volume 2,750 Cellulosic biofuel requirement 33

Biomass

- based diesel requirement 1,920 a
Necessary volume of excess biodiesel, other domestic advanced biofuels, and/or imported sugarcane ethanol 797

a In 2011, a substantial majority of biomass

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

- based diesel to be met primarily with expanded biodiesel. Therefore, for this analysis we have assumed that the 1.28 bill gal requir ement is composed entirely of biodiesel with an equivalence value of 1.5.

We have identified a variety of sources of advanced biofuel that could meet the need for about 800 mill gal of additional advanced biofuel, including the following:

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

• Imported sugarcane ethanol

• Domestically produced advanced biofuels such as renewable diesel, heating oil, and ethanol from separated food wastes

We have investigated each of thes e sources as discussed below.

1. Biodiesel

In a separate action, we are finalizing a biomass

- based diesel volume of 1.28 bill gal for 2013. However, we believe that biomass

- based diesel volumes above 1.28 bill gal are possible.

Insofar as other sou rces of advanced biofuel fall short of what is needed to meet the advanced biofuel volume requirement, the biodiesel industry has the potential to fill much if not all of the gap. As of February 2012, the aggregate production capacity of biodiesel plants in the U.S. is estimated to be 2.5 billion gallons per year across 191 facilities. 11 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, wh ich takes about a year on average. 12
Thus, restarting idled plants is likely to be a cost

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

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

- based diesel in 2011 exceeded 1.0 bill gal, compared to a 2010 production of about 380 mill gallons. 13 In response to the NPRM

11 Figures taken from National Biodiesel Board's Member Plant List as of February 7, 2012

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

13 All values from EMTS. 2010 estimate consists of approximately 209 mill gallons as recorded through EMTS for volume produced under the RFS2 regulati ons in July through December of 2010, and approximately 171 mill*** E.O. 12866 Review

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Page 31 of 49 published on July 1, 2011, some stakeholders expressed doubts that such increases could occur by 2012. 14 Nevertheless, based on the single

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

the biomass

- based diesel requirement for 2013 and an additional "excess" production of several hundred million gallons or more.

2. Imported Sugarc ane Ethanol

From the supply perspective, recent production of sugarcane in Brazil has been lower than normally expected due to two factors. First, adverse weather conditions have reduced production. 15 Since the adverse weather conditions are estimated to have reduced cane production by about 4%, a return to normal weather conditions should alone restore approximately 4% of production. Second, the general economic downturn made credit harder to get, delaying the replanting of existing fields. Normally sugarcane fields are replanted every five or six years to maximize yield. However, the lack of available credit caused some growers to delay the expense of this replanting, with the older fields losing production. 16 Nevertheless, in 2011 Brazil exported a round 520 million gallons of which approximately 173 million gallons were shipped to the U.S.

The outlook for 2012 and future years suggests a more typical trend in sugarcane ethanol with replanted fields beginning to boost sugarcane production in exist ing plantations and, in response to increased worldwide demand, a growth in the acres planted with sugarcane. UNICA, a trade association for the sugarcane ethanol industry in Brazil, projects that over the next four years, the return to a normal replantin g schedule combined with normal weather conditions will boost production by 30%. They project that by 2015/2016, ethanol production in Brazil will exceed 12 billion gallons of which over 3 billion gallons could be available for export. Even assuming only modest increases in 2012 production due to the need to replant fields, using the UNICA projection for 2015/2016 and assuming a linear increase in export volumes from 2012 to 2016, 2013 sugarcane ethanol export volumes could easily double to over 1 billion gallons in 2013. Increased production is supported by the Brazilian government which announced in February 2012 support for a plan to invest over $8 billion annually to boost cane and ethanol production. 17 Private investment in Brazil is also increasing. For example, Usina de Acucar

gallons as recorded through RIN generation reports submitted by producers for volume produced under the RFS1 regulations in January through June of 2010.

14 See comments in docket EPA

- HQ

- OAR

- 2 010

- 0133 from the American Petroleum Institute, Marathon Petroleum Company, and the National Petrochemical Refiners Association.

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

annual_Sao%20Paulo%20ATO_Brazil_10

- 3

- 2011.pdf

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

17 See http://www.platts.com/RSSFeedDetailedNews/RSSFeed/Oil/8987702*** E.O. 12866 Review

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Page 32 of 49 Santa Terezinha, a Brazilian ethanol producer, recently announced plans to invest almost $300 million in a new mill and sugarcane plantation. 18

Brazil’s sugarcane ethanol production serves both its domestic market as well as the export market. The government of Brazil sets a minimum ethanol concentration for its gasoline. In 2011, the Brazilian government lowered this concentration to 20%, reflecting the decrease in domestic production. Projecting this Brazilian domes tic demand into the future can be uncertain since the government can reset the minimum ethanol content at any time; in the past this adjustment has largely been influenced by the price of ethanol (high prices leading to a reduction in the minimum percent). However, these historical changes have typically varied by a few percent and have only occurred periodically. Assuming continued tight supplies of sugarcane ethanol, we would not expect a near

- term increase in the minimum concentration of ethanol in gas oline in Brazil and no significant change in demand for ethanol within Brazil over the next couple of years.

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

As a result of this investigation, we have concluded that there are no definite barriers to the importation of sugarcane ethanol up to the volumes required (considering the availability of other advanced biofuels) to meet an advanced biofuel requirement of 2.75 bill gal.

3. Domestic Production of Other Advanced Biofuel

Pathways that have been approved for the generation of RINs are provided in the regulations in Table 1 to §80.1426. Apart from ethanol made from sugarcane which is permitted

to gene rate advanced biofuel RINs, there are currently three pathways through which advanced biofuel RINs can be generated. These three are shown in Table III.B.3

- 1.

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

- 03

- 08/santa

- terezinha

- invests

- 283

- million

- in

- brazil

- ethanol

projects.html*** E.O. 12866 Review

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Page 33 of 49 Table III.B.3

- 1 Pathways for Advanced Biofuel Fuel type Feedstock Production process requiremen ts

Biodiesel,

renewable diesel Soy bean oil;

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

Non

- food grade corn oil One of the following:

Trans

- Esterification Hydrotreating Includes only processes that

co

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

- cellulosic portions of

separated food waste Any

Biogas Landfills, sewage waste treatment

plants, manure digesters Any

In addition to producers of biomass

- based diesel and cellulosic biofuel, there are many companies either producing or developing technologies to produce "other advanced biofuels." In order to estimate the volumes of other advanced biofuels that could be produced by these companies in 2013, we inv estigated three sources of data:

Production Outlook Reports . Required under §80.1449 for all registered producers, these reports contain projections of renewable fuel production for each of the next five years. 19

2011 producers . Data from the EPA

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

- generating advanced biofuel in 2011. Insofar as such parties did not provide a projected 2013 volume in a Production Outlook Report, they were contacted to update their 2013 projected production volume.

Additional registered producers . We identified parties that were registered as producers of advanced biofuel under the RFS program, but neither produced RIN

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

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

- equivalent gallons, as

shown in Table III.B.3

- 2.

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

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

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Page 34 of 49 Table III.B.3

- 2 Projected Domestic Production of Other Advanced B iofuel in 2013

(million ethanol

- equivalent gallons)

Ethanol Renewable

diesel Heating oil CNG Total

Production Outlook Reports 31 35 4 0 70

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

Total 49 68 19 14 150

A projected volume of 150 mill ethanol

- equivalent gallons of other advanced biofuel in 2013 is also consistent with a 2011 report released by E2/Environmental Entrepreneurs 20 which estimated that the production capacity of domestic advanced biofuels in 2012 would be ab out 180 mill gal.

We are also currently investigating a variety of other potential RIN

- generating pathways for advanced biofuel that could result in additional volumes in 2013. In addition to potential new pathways for cellulosic biofuel that would also count as advanced biofuel as discussed in Section II.D, new pathways for advanced biofuel could include certain butanol processes from corn and certain ethanol processes from sorghum. We have not yet determined, either through rulemaking or approval of a n industry petition, whether the pathways are valid for the generation for advanced biofuel RINs. However, approval of such advanced biofuel pathways could potentially

result in 200 million additional ethanol

- equivalent gallons of advanced biofuel being q ualified to participate in the RFS program. Insofar as any of these pathways are approved in time to be used in 2013, we may include projected volumes for them as we prepare the final rulemaking setting

standards for 2013.

C. Proposed Volume Requirement s for Advanced Biofuel and Total Renewable Fuel

in 2013

As shown in Table III.B

- 2, in order for an advanced biofuel requirement of 2.75 bill gal to be met, there would need to be about 800 mill gal of advanced biofuels in addition to the volumes that would need to be produced to meet the biomass

- based diesel an d cellulosic biofuel requirements. After reviewing the projected availability of advanced biofuel volumes from various sources, we have determined that there will be more than sufficient volumes available to produce or import this 800 mill gal. Given our estimate of about 150 mill gal of domestic "other" advanced biofuel, the remaining volume of about 650 mill gal would likely need to come from imported sugarcane ethanol and/or biodiesel in excess of 1.28 bill gal. As discussed above,

we believe that thi s volume is achievable through a combination of these sources or potentially even through one of these individual sources. Therefore, we believe that there is no reason to

20 Solecki, Mary et al, "Advanced Biofuel Mark et Report 2011, Meeting the California LCFS" August 22, 2011. E2/Environmental Entrepreneurs.*** E.O. 12866 Review

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Page 35 of 49 reduce the required volume of 2.75 bill gal advanced biofuel on the basis of availa ble volumes. As noted above, maintaining the 2.75 bill gal advanced biofuel volume set forth in the statute will result in the GHG emissions and energy security objectives that Congress envisioned in enacting this provision. We are not aware of any reaso ns why it should choose to forgo these benefits when they are physically achievable but we invite comment on this issue.

We also expect that there will be sufficient volumes of corn ethanol to meet the need for 13.8 bill gallons of conventional renewable fuel since domestic production of corn ethanol

reached this level in 2011. 21 Moreover, corn ethanol production capacity continues to increase. Since we are not proposing to lower the advanced biofuel standard for 2013, and the need for 13.8 bill gallons of conventional renewable fuel can be met, we are not proposing to lower the applicable volume of total renewable fuel below 16.55 bill gal.

21 EIA Monthly Energy Review, February 2012, Table 10.3.*** E.O. 12866 Review

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Page 36 of 49 IV. Proposed Percentage Standards for 2013

A. Background

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

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

As discussed in Section II.D, we are proposing a required volume of cellulosic biofuel for 2013 of 26 million gal lons (33 million ethanol

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

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

- 1.

Table IV.A

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

Cellulosic biofuel 33 mill gal

Biomass

- based diesel 1.28 bill gal

Advanced biofuel 2.75 bill gal

Renewable fuel 16.55 bill gal

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

equivalent except for biomass

- based diesel which is given in terms of physical volume

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

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

B. Calculation of Standards

1. How Are the Standards Calculated?

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

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Page 37 of 49 Where

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

Std BBD,i = The biomass

- based diesel standard (ethanol

- equivalent basis) for year i, in percent.

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

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

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

Act for year i, in gallons.

RFV BBD,i = Annual volume of biomass

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

Air Act for year i, in gallons.

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

Act for year i, in gallons.

RFV RF,i = Annual volume of renewable fuel required by section 211(o) of the Clean Air Act

for year i, in gallons.

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

year i, in gallons.

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

year i, in ga llons.

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

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

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Page 38 of 49 RD i = Amount of renewable fuel blended into diesel that is projected to be consumed in

the 48 cont iguous states and Hawaii, in year i, in gallons.

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

the state or territory opts

- in, in gallons.

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

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

- in, in gallons.

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

state or territory opts

- in, in gallons.

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

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

- in, in gallons.

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

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

Section IV.B.2 below.

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

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

Section IV.B.2 below.

The four separate renewable fuel standards for 2013 are based o n the 49

- state 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. The projected volumes of gasoline and diesel that will be used to calculate the final 2013 percentage standards will be provided to EPA by EIA by October 31, 2012. To estimate the gasoline and diesel projected volumes for the purposes of this proposal,

we have used EIA's Shor t

- Term Energy Outlook (STEO) 22 for the gasoline projection and EIA's Annual Energy Outlook 2012 Early Release 23 for the diesel projection. Gasoline and diesel volumes are adjusted to account for renewable fuel contained in the EIA projections. The projecte d volumes of ethanol and biodiesel used to calculate the final percentage standards will be provided to EPA by EIA by October 31, 2012. To estimate the ethanol and biodiesel projected volumes for the purposes of this proposal, we have used the February 20 12 values 24 for ethanol and biodiesel provided in the STEO. Using the most recent available EIA data for purposes of this proposal allows us to provide the affected industries with a reasonable estimate of the standards for planning purposes.

22 Energy Information Administration/Short

- Term Energy Outlook

- February 2012, Table 4a, “U.S. Crude Oil and Liquid Fuels Supply, Consumption, and Inventories.”

23 Energy Information Administration/Annual Energy Outlook 2012, Early Release (January 23, 2012), Table 2,

“ Energy Consumption by Sector and Source, United States, Reference case .”

24 Energy Informat ion Administration/Short

- Term Energy Outlook

- February 2012, Table 8, “U.S. Renewable Energy Supply and Consumption (Quadrillion Btu).”*** E.O. 12866 Review

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Page 39 of 49 2. Small Re fineries and Small Refiners

In CAA section 211(o)(9), enacted as part of the Energy Policy Act of 2005, Congress provided a temporary exemption to small refineries (those refineries with a crude throughput of no more than 75,000 barrels of crude per day) through December 31, 2010. In our initial rulemaking to implement the new RFS program 25 , 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 Administra tion’s (SBA) definition of a small business (1,500 employees or less company

- wide) but did not meet the statutory small refinery definition as noted above. 40 CFR §§ 80.1141, 80.1142. Because EISA did not alter the small refinery exemption in any way, th e RFS2 program regulations maintained the exemptions for gasoline and diesel produced by small refineries and small refiners through 2010 (unless the exemption was waived). See 40 CFR §§ 80.1441, 80.1442.

Congress provided two ways that small refinerie s 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 whether small refineries would face a disproportionate economic hardship under the RFS progra m. 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. 26 The conclusions were based in part on the expected robust availability of RINs and EPA’s ability to grant relief on a case

- by

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

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

- evaluated the impacts of the RFS program on small entities and concluded that some small refineries would suffer a disproportionate hardship. 27 As a result, EPA exempted these refineries from being obligated parties for two additional years, 2011 and 2012. 28 The 2012 standards established in the January 9, 2012, final rulemaking reflected the exemption of these refineries.

EPA may extend the exemption for individual small r efineries or small refiners on a case

by

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

25 72 FR 23900, May 1, 2007.

26 DOE report “EPACT 2005 Section 1501 Small Refineries Exemption Study” , (January, 2009).

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

28 Since the standards are applied on an annual basis, the exemptions are likewise on an annual basis even though the

deter mination of which refineries would receive an extension to their exemption did not occur until after January 1,

2011.*** E.O. 12866 Review

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Page 40 of 49 Therefore, for this proposal we have calculated the proposed 2013 standards without a small refinery/small refiner adjustment.

However, if an individual small refinery or small refiner requests an exemption and is approved following the release of this NPRM, the final standards will be adjusted to account for the exempted volumes of gasoline and diesel. Any requests for exemptions that are approved

after the release of the final 2013 RFS standards will not affe ct the 2013 standards. As stated in the final rule establishing the 2011 standards, “EPA believes the Act is best interpreted to require issuance of a single annual standard in November that is applicable in the 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.” Thus, after the 2013 standards are finalized, any additional exemptions for small refineries or small refiners that are issued will not

affect those 2013 standards.

3. Proposed Standards

As specified in the March 26, 2010 RFS2 final rule 29 , the percentage standards are based

on energy

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

- 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 R INs. In order to ensure that demand for 1.28 billion physical gallons of biomass

- based diesel will be created in 2013, the calculation of

the biomass

- based diesel standard provides that the required volume be multiplied by 1.5. The

net result is a biomas s

- based diesel gallon being worth 1.0 gallon toward the biomass

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

The levels of the percentage standards would be reduced if Alaska or a U.S. territory chooses to participate in the R FS2 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 rel ated terms

in the calculation of the standards is zero.

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

- renewable gasoline and diesel volumes. The values of the variables

described above are shown in Table IV.B.3

- 1. 30 Terms not included in this table have a value of

zero.

29 75 FR 14716, March 26, 2010.

30 To determine the 49

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

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Page 41 of 49 Table IV.B.3

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

Ter m Value

RFV CB,2013 0.033

RFV BBD,2013 1.28

RFV AB,2013 2.75

RFV RF,2013 16.55

G 2013 132.94

D 2013 45.06

RG 2013 13.90

RD 2013 1.02

Using the volumes shown in Table IV.B.3

- 1, we have calculated the proposed percentage

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

- 2.

Table IV.B.3

- 2 Proposed Percentage Standards for 2013

Cellulosic biofuel 0.020%

Biomass

- based diesel 1.18%

Advanced biofuel 1.69%

Renewable fuel 10.15%*** E.O. 12866 Review

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Page 42 of 49 V. Public Participation

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

A. How Do I Submit Comments?

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

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

You may submit co mments electronically, by mail, or through hand delivery/courier. To ensure proper receipt by EPA, identify the appropriate docket identification number in the subject line on the first page of your comment. Please ensure that your comments are submitted within the specified comment period. Comments received after the close of the comment period will be marked “late.” EPA is not required to consider these late comments. If you wish to submit Confidential Business Information (CBI) or information that i s otherwise protected by statute, please follow the instructions in Section VI.B below.

B. How Should I Submit CBI to the Agency?

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

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

Docket ID EPA

- H Q

- OAR

- 2012

- 0546. You may claim information that you submit to EPA as CBI by marking any part or all of that information as CBI (if you submit CBI on disk or CD ROM, mark the outside of the disk or CD ROM as CBI and then identify electronically within

the disk or CD ROM the specific information that is CBI). Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR part 2.

In addition to one complete version of the comments that include any information

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

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Page 43 of 49 prior notice. If you have any questions about CBI or the procedures for claiming CBI, please consult the person identified in the FOR FURTHER INFORMATIO N CONTACT section.*** E.O. 12866 Review

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Page 44 of 49 VI. 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 "significant regulatory action” because it raises novel legal or policy issues arising out of legal mandates, the President’s priorities, or the principles set forth in the Executive Or der. 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 d ocket for

this action.

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

B. Paperwork Reduction Act

This action does not impose an information collection burden under the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. Burden is defined at 5 CFR 1320.3(b). This proposed rule does not impose any additional reporting requirements on regulated parties beyond those already required under the RFS program; therefore, there will not be any additional reporting burdens on entities impacted by this regulation. This action merely proposes, as required by section 211(o) of the Clean Air Act, the RFS annual standards for 2013.

C. Regulat ory 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 statu te 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 asses sing 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.*** E.O. 12866 Review

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Page 45 of 49 After considering th e economic impacts of today’s proposed rule on small entities, we certify that this proposed action will not have a significant economic impact on a substantial number of small entities. This rule proposes the annual standard for cellulosic biofuel for 20 13. The impacts of the RFS2 program on small entities were already addressed in the RFS2 final rule promulgated on March 26, 2010 (75 FR 14670), and this proposed rule will not impose any additional requirements on small entities. However, w e continue to be interested in the potential impacts of the proposed rule on small entities and welcome comments on issues related to such impacts.

D. Unfunded Mandates Reform Act

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

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

205 of the UMRA.

This action is also not subject to the requirements of section 203 of UMRA because it contains no regulatory requirements that might significantly or uniquely affect small governments. This proposed rule only applies to gasoline, diesel, and renewable fuel producers, importers, distributors and marketers and merely proposes the 2013 annua l standards for the RFS

program.

E. Executive Order 13132: Federalism

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

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

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

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

Governments

This action does not have tribal implications, as specified in Executive Order 13175 (65 FR 67249, November 9, 2000). This proposed rule will be implement ed at the Federal level and affects transportation fuel refiners, blenders, marketers, distributors, importers, exporters, and*** E.O. 12866 Review

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Page 46 of 49 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.

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

G. Executive Order 13045: Protection of Children from Environmental Health Risks and Safet y 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 (section 211(o) of the Clean Air Act ).

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

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

renewable fu el for 2013.

I. National Technology Transfer and Advancement Act

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

– 113, 12(d) (15 U.S.C. 272 note) directs EPA to use voluntary

consensus standards in its regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., materials specifications, test methods, sampling procedures, and business practi ces) 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 proposed rulemak ing does not involve technical standards. Therefore, EPA is not considering the use of any voluntary consensus standards.

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

- Income Populations*** E.O. 12866 Review

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Page 47 of 49 Ex ecutive 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 o f 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 proposed rule will not have disproportionately high and adverse human health or environmental effects on minority or low

- income populations because it

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

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

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Page 48 of 49 VI I. Statutory Authority

Statutory authority for this action comes from section 211 of the Clean Air Act, 42 U.S.C. 7545. Additional support for the procedural and compliance related aspects of today’s proposal, come from Sections 114, 208, and 301(a) of t he Clean Air Act, 42 U.S.C. Sections 7414, 7542, and 7601(a).

List of Subjects in 40 CFR Part 80

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

Dated:

Lisa P. Jackson,

Administrator.*** E.O. 12866 Review

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Page 49 of 49 For the reasons set forth in the preamble, 40 CFR part 80 is proposed to be amended as follows:

PART 80

— REGULATION OF FUELS AND FUEL ADDITIVES

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

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

§ 80.1405 What are the Renewable Fuel Standards? (a) * * * (4) Renewable Fuel Standards fo r 2013. (i) The value of the cellulosic biofuel standard for 2013 shall be 0.020 percent. (ii) The value of the biomass

- based diesel standard for 2013 shall be 1.18 percent. (iii) The value of the advanced biofuel standard for 2013 shall be 1.69 percent. (iv) The value of the renewable fuel standard for 2013 shall be 10.15 percent.