Summary of Interagency Working Comments on Draft Language under EO 12866 and EO 13563

Interagency Review. Subject to Further Policy Review.

EO12866_RFS standards 2060

- AR43 NPRM FRN_2012 1010 .docx

*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA

- HQ

- OAR

- 2012

- 0546; FRL

- 9678

- 8]

RIN 2060

- AR43

Regulation of Fuels and Fuel Additives: 2013 Renewable Fuel Standards

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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

the st andards are designed to ensure that the applicable volumes of renewable fuel specified in the statute are used. However, the statue specifies that EPA is to project the volume of cellulosic biofuel production for the upcoming year and must base the cellul osic biofuel standard on that projected volume if it is less than the applicable volume set forth in the Act. EPA is today proposing a projected cellulosic biofuel volume for 2013 that is below the applicable volume specified in the Act. 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 ]. A request for a public hearing must be received by
[ insert date 15 days after date of publication in the Federal Register ]

.

ADDRESSES: Submit your comments, identified by

Docket ID No. EPA

- HQ

- OAR

- 2012

- 0546, by one of the following methods:

• www.regulations.gov : Follow the on

- line instructions for submitting comments.

• Email: a

- and

- r

- docket@epa.gov

.

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

• Hand Delivery: EPA Docket Center, EPA West Building, Room 3334, 1301 Constitution Ave., NW., Washi ngton, 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 policy is that all comments received will be included in the public docket without change and may be made available online at www.regulations.gov, including any personal information provided,

unless the comment includes information claimed to be Confident ial Business Information (CBI)*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 2 of 48

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 “anon ymous 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 automatically 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 c haracters, 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 comme nts, go to Section I.B of the SUPPLEMENTARY

INFORMATION section of this document.

Docket: All documents in the docket are listed in the www.regulations.gov index. Although listed in the index, some information is not publicly available, e.g., CBI or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, will be publicly available only in hard copy. Publicly available docket materials are available either electronically in www.regulations.gov or in hard copy at the Air and Radiation Docket and Information Center, EPA/DC, EPA West, Room 3334, 1301 Constitution Ave., NW, Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. Th e telephone number for the Public Reading Room is (202) 566

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

- 1742.

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

- 214

- 4131 ; Fax number: 734

- 214

- 4816 ; E

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

- 4333; E

- mail address OTAQ@epa.gov.

SUPPLEMENTARY INFORMATION:

I. General Information

A. Why is EPA I

ssuing T his P roposed R ule?

This document proposes the applicable standards that would apply in 2013 under the RFS

program. We have published a direct final rule which sets the applicable standards for 2013

in the ‘‘Rules and Regulations’’ section of this Federal Register because we view this as a noncontroversial action and anticipate no adverse comment . We have explained our reasons for

this action in the preamble to the direct final rule. If we receive no adverse comment or request for public hearing, we will not take further action on this proposed rule. If we receive adverse

comment or a request for public hearing on a distinct provision of this rulemaking, we will publish a timely withdrawal in the Federal Register indicating which provisions we are*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 3 of 48

withdrawing, and those provisions will not take effect. The provisions that are not withdrawn

will become effective on the date set out in the direct final rule, notwithstanding adverse comment or a request for hearing on any other provision. We would address all public comments

in any subseq uent final rule based on this proposed rule. We do not intend to institute a second comment period on this action. Any parties interested in commenting must do so at this time. For

further information, please see the information provided in the ADDRESSES section of this

document.

B

. 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:

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 petr oleum 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 pro posed action. Other types of entities not listed in the table could also be regulated. To determine whether your activities would be regulated by this proposed action, you should carefully examine the applicability criteria in 40 CFR part 80. If you hav e any questions regarding the applicability of this proposed action to a particular entity, consult the person listed in the preceding section.

C

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

1. Submitting CBI

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

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

the disk or CD ROM as CBI a nd then identify electronically within the disk or CD ROM the specific information that is claimed as CBI. In addition to one complete version of the comment that includes information claimed as CBI, a copy of the comment that does not contain the*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 4 of 48

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

2. Tips for Preparing Your Comments

When submitting comments, remember to:

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

• Follow directions

- The agency may ask you to respond to specific questions or organize comments by 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 and provide any technical information and/or data that you

u sed.

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

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

• Explain your views as cl early 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

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

3. Proposed S tandards for 2013

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

4. Biomass

- Based Diesel for 2014

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

C. Impacts of Proposed Actions

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

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 Cellulos ic Biofuel

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

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

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

A. Statutory Requirements

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

B. Assessment of Available Volumes of Advanced Biofuel

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

1. Biodiesel

................................ ................................ ................................ ....................... 30 Deleted: 9

Deleted: 23

Deleted: 27*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 5 of 48

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

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

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 6 of 48

I. Execu tive 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 s ubsequently modified through the Energy Independence and Security Act of 2007 (EISA), resulting in the promulgation of major revisions to the regulatory requirements on March 26, 2010 1

.

The volumes of renewable fuel to be used under the RFS program eac h 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 Applicable Volumes in the Clean Air Act for 2013 (bill gal)

Cellulosic biofuel 1.0 a

Biomass

- based diesel ≥1.0 b

Advanced biofuel 2.75 a

Renewable fuel 16.55 a

a Ethanol

- equivalent volume

b Actual volume

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 specifi ed calendar year to determine the volumes of renewable fuel that they must cause to be used as transportation fuel, heating oil, or jet fuel. The percentage standards are calculated so as to ensure use in transportation fuel of the “applicable

volumes” of four types of biofuel (cellulosic biofuel, biomass

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

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

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

st art

- up phase , 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 are projecting that 14 million ethanol

- equiva lent 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 statutory 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 gallons.

1 75 FR 14670 Comment [A1]: Suggest adding something

sim ilar to: “The ethanol equivalent is either 1.5 or 1.7 times the actual volume, depending on the fuel produced.”

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

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 7 of 48

A. Purpose of Thi s 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 Act

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 th e 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 proje cted volume of production. In today's proposal, we present our analysis of cellulosic biofuel production and proposed projected volume for 2013. The analyses that led to the proposed 2013 applicable volume requirement were based on our evaluation of indi vidual 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 (E IA) 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 volume 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 requirements for these biofuels.

Based on the a

pplicable volumes for cellulosic biofuel, biomass

- based diesel, advanced biofuel, and total renewable fuel presented in today's proposal, we have calculated proposed Deleted:

Deleted:

Comment [A2]: Suggest revising now that EPA is issuing a direct final rule.*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 8 of 48

percentage standards in Table I.B.3

- 2 that would apply to all producers and importers of g asoline and diesel in 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 projections of gasoline and diesel consumption in 2013 in calculating the final percentage standards.

EPA has received requests for a waiver of RFS volumes under CAA section 211(o)(7) based on the impact of drought conditions that are occurring in many areas of the country . We

have invited comment on the se requests in a separate Federal Register notice 2 . Since we have not yet made a determination about whether to waive any of the RFS volume requirements based on these waiver requests, they have not been reflected in today 's NPRM. Depending on whether a decision on these waiver requests is made before or after the applicable 2013 standards are finalized, we will adjust those standards either as part of the rulemaking setting the final standards, or as an adjustment to the final standards subsequent to the final rulemaking.

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 developed, and several companies

have reach ed 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 th e 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. 3 For more information on

the current status of the cellulosic biofuel i ndustry 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 technology 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. Abengoa, one of the largest producers of ethanol in the United States, is planning to begi n producing cellulosic ethanol at commercial scale in 2013. Several others companies, including BP

, DuPont, and Poet, expect to be constructing their first commercial scale facilities in 2013, with the intention of beginning production in 2014. If these facilities are able to operate as anticipated, the uncertainty

associated with commercial

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

2 77 FR 52715, August 30, 2012

3 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 >. Comment [A3]: Please explain this process and the timing for issuing the final percentage sta ndards.

Does EPA wait for the issuance of the final AEO Outlook report or some other report from EIA?

Does EPA also do an adjustment at the end of the

year to true

- up the percentages based on actual production?

Comment [A4]: Suggest updating to reflect the

issuance o f the denial of the waivers.

In the past few months, drought has raised corn prices from $6 per bushel to more than $8 per bushel, and spot ethanol prices have risen from $2.20 to $2.60 per gallon. The NPRM would benefit from a discussion of how drought is likely to affect the corn, ethanol, and beef markets, and how EPA considered these impacts in deciding to leave the overall ethanol production standard unchanged in the

NPRM.

Deleted: will

Deleted: be significantly

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

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 9 of 48

To estimate the volume of cellulosic biofuel that can be made available in the U.S. in 2013, we researched all potential production sources by company and facility. This inc luded 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 as production from these facilities represents very small volumes of cellulosic biofuel, and the vast majority of these facilities have not generated RINs for the fuel they have already produced

. From this universe of potential cellulosic biofuel sources we identified the subset that had a possibility of producing commercial volumes of qualifying cellulosic biofuel for use as transportation fuel in 2013. To arrive at this proposed projected vol ume, we took into consideration factors such as the current and expected state of funding, the status of the technology utilized, progress towards construction and production goals, and other significant factors that could potentially impact fuel productio n or the ability of the produced fuel to generate cellulosic Renewable Identification Numbers (RINs) in 2013. Further discussion of

these factors can be found in Section II.B.

In our assessment we focused on domestic sources of cellulosic biofuel. At t he time of this rulemaking no internationally

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

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

U.S. in 2013. Two of these four facilities have made sufficient progress to lead us to believe that

commercial scal e production from these two facilities will occur, and we have therefore included production from them in our projected available volume for 2013. All four facilities are listed in

Table I.B.1

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

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 2 4 4 Q 2013 0 Fiberight Blairstown, IA Ethanol 6 4Q 2013 0

INEOS Bio Vero Beach, FL Ethanol 8.0 4 Q 2012 6

KiOR Columbus, MS Gasoline and

Diesel 11 4Q 2012 8

Various Pilot/

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

Total 49 14

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. For more detailed information on our projections of available cellulosic biofuel in 2013 and the companies we expect to produce this volume see

Section II. Comment [A5]: Suggest touching base with INEOS as their most recent press release (10/31) states that they expect to start producing biofuels in

the 4 th quarter. http://www.ineosbio.com/76

- Press_releases

- 44.htm Would be good to know if anything has changed since 10/31 and reflect that change, if any, in the projected volume.

Comment [A6]: Suggest touching base with KiOR as their most recent press release (11/8) states that they started producing biofuels but does not

mention e if they are running at full scale. http://www.kior.com/content/article.php?Atricle=25 &s=2&s2=35&p=35&t=News

- and

- Events Would be good to know if anything ha s changed since 11/18 and reflect that change, if any, in the projected

volume.*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 10 of 48 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 2013 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 total 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 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 14 mill gallons would be met with cellulosi c biofuel.

There are three primary sources of other advanced biofuels that, considered together, are projected to have the potential to provide significantly more than the 8 16 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 domestic 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 satisfy 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 ren ewable fuel standards are expressed as a volume percentage and are used by each refiner, blender or importer to determine their renewable fuel volume obligations. The applicable percentages are set so that if each regulated party meets the percentages, an d if EIA projections of gasoline and diesel use for the coming year are accurate, then the amount of renewable fuel, cellulosic biofuel, biomass

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

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

volume of 14 million ethanol

- equivalent gallons of cellulosic biofuel and the volume of biomass

based diesel of 1.28 bill gal that we have finalized in a separate action. The a pplicable 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. Deleted: approximately

Deleted: 00*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 11 of 48 Table I.B.3

- 1 Proposed Volumes Used to Determine the Proposed 2013 Percentage S tandards a

Cellulosic biofuel 14 mill gal

Biomass

- based diesel 1.28 bill gal

Advanced biofuel 2.75 bill gal

Renewable fuel 16.55 bill gal

a All volumes are ethanol

- equivalent, except for biomass

- based diesel which is

actual.

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

- 1. The specific formulas we use to calculate 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 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 provided 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. 0 09 %

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 which the applicable volume will app ly. EPA proposed an applicable volume of biomass

- based diesel for 2013 on July 1, 2011, and issued a final rule establishing that applicable volume on September 27, 2012 4

.

In order to determine and propose an applicable 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 security, 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 gallons in 2012, we are still evaluating t he potential market impacts of this production level. In order to

4 77 FR 59458 Comment [A7]: Suggest including the EIA projected volumes for transportation gasoline and diesel that were used to calculate these percentages.

What was the source of the EIA projections ?*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 12 of 48 provide sufficient time for this evaluation, as well as the other analyses we are required to conduct, we are not proposing an applicable volume of biomass

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

C. Impacts of Proposed Actions

The anticipated increase in cellulosic biofuel in comparison to the 2012 volume requirement will have directionally beneficial GHG impacts as cellulosic biofuels in general have at least a 60 percent GHG emissions improvement compared to the gasoline and d iesel 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 required in the statute. All of the impacts of the biofuel volumes specified in the statute were addressed in the RFS2 final rule published on March 26, 2010. Today's rulemaking simply proposes the standards for 2013 advanced biofuel and total renewable fuel whose impacts were previously analyzed.*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 13 of 48 II. Projection of Cellulosic Volume for 20 13

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 could be produced or imported

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

In the past several years the cellulo sic 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 well as lower enzyme and catalyst costs. As a result of these yield increases, the projected capital costs and energy costs to produce a gallon of cellulosic biofuel have decreased. New feedstock supply chains, which will be necessary to provide the raw materials for 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 availability 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. Two more have plans to start

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

and start

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

United States.

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

RIN

- generating cellulosic biofuel production in 2010 and 2011 was zero despite our projections that the industry was positioned to produce about 6 million gallons in each of those years. 5 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 s tandards, 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 importer s of renewable fuel must submit Production Outlook Reports by June 1 describing their expectations 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 use d in setting the final cellulosic biofuel applicable volume and percentage

standard for 2013.

5 In the first half of 2010 when the RFS1 program was still effective, some cellulosic biomass ethanol was produced. How ever, this biofuel was not made from cellulosic feedstocks, but rather was categorized as cellulosic under the limited provisions of §80.1101(a)(2). Comment [A8]: Suggest also discussing whether the production of cellulosic has met the volume requirements in previous years. Based on what has been reported to date, does it appear that companies

will meet the 2012 mandated volume?

In addition, suggest discussion what happens and who pays if there is not enough cellulosic biofuel production in a given year. For example, what is the cost of waivers credits and how much money was collected from petroleum refiners due to the lack of cellulosic production in previous years?

How does EPA expect the credits to compare to the production price of cellulosic ethanol itself?*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 14 of 48 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 requirement 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 cellulosic biofuel to the projected volume available during that calendar year.

In addition, if EPA reduces the required volume of cellulosic biofuel below the level specified in the statute, the Act also indicates that we may reduce the applicable volumes 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 tota l renewable fuel is presented in

Section III.

B. Status of the Cellulosic Biofuel Industry

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

limited to small

- scale research and development, pilot, and demonstration

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

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

While there were numerous small

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

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

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

While cellulosic biof

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

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 15 of 48 with petroleum fuels. From 2007 through the second quarter of 2011 venture capitalists inve sted over $2.4 billion in advanced biofuel companies in North America 6 . Recent advancements in enzyme and catalyst technologies are allowing cellulosic biofuel producers to achieve greater yields of biofuel per ton of feedstock. These advancements have l ed to lower operational costs as they have driven down the cost for feedstock, energy, and other important inputs on a per gallon basis. For example, the estimated cost of cellulosic ethanol production using an enzymatic hydrolysis process has decreased f rom $4

- $8 per gallon in 2007 to $2

- $3.50 per gallon by 2012 7 . 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 2010

. 8 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 fee dstock requirements.

As cellulosic biofuel producers gain experience and continue to progress towards

commercial

- scale biofuel production, it is reasonable to expect that the production costs and capital costs will continue to decline. This is a pattern 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 t he 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%. 9 Many of the drivers for this cost reduction, such as hig her ethanol yields, reduced enzyme costs, and better fermentation technologies 10 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 indust ry 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

- s cale cellulosic biofuel production facilities. This issue has often been raised as a factor that could hinder the development of the cellulosic biofuel industry as many of the proposed facilities rely on feedstocks, such as agricultural residues or energy 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 A bengoa and Poet have been reaching out to farmers

6 Solecki M, Rickey D, Epstein B. Advanced Biofuel Market Report 2011: Meeting the California LCFS.

Envi ronmental Entrepreneurs. August 22, 2011. Available Online

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

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

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

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

- presentations/Documents/Cellic3_conf_call_220212.pdf >.

8 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 >.

9 Hettinga WG, Junginger HM, Dekker SC, Ho ogwijk 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>.

10 IBID*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 16 of 48 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 feedsto ck for a cellulosic biofuel production facility would require significant feedstock storage facilities. In the last two years Abengoa and Poet completed construction of large

- scale feedstock storage facilities to ensure adequate supply to their cellulosic 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 p rovide 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 cel lulosic 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 announce d 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 ve getative 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 w aste separation plans be submitted and approved prior to any company generating RINs using separated MSW as a feedstock. In

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

Signif icant progress has also been made by some companies towards funding the

construction of their first commercial

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

- up companies announced plans to build large commerci al

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

The funding profiles of the companies included in our proposed volume for 2013, as well as for many of the companies targeting production in 2014, are markedly different. Many of these projects have already received, and in several cases have closed on loan guarantees offered*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 17 of 48 by DOE or USDA. Other companies have filed for and successfully executed IPOs. Several cellulosic ethanol projects are being self

- financed by large companies such as Abengoa, BP, and Poet with signific ant 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 commercial production facilities. The next section provides additional details on the funding and construction status of the projects includ ed in our projected cellulosic biofuel production

volumes for 2013.

If these first commercial

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

commercial

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

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

- scale facilities (~25 mill gal per year) as soon as they are able to raise the necessary funds. INEOS Bio plans to expand production by building additi onal units near sources of inexpensive feedstock ranging in size from 8 to 50 million gallons of ethanol per year. They are currently exploring expansion possibilities in the 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 anticip ates 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 gr ain ethanol facilities, license their technology for use at other grain ethanol facilities, and build cellulosic ethanol facilities that use feedstocks such as rice straw, rice hulls, woody biomass, or energy crops as a feedstock. Poet’s goal is to be inv olved in the production of 3.5 billion gallons of cellulosic ethanol per year by 2022. Several other companies, such as BP, DuPont, and Enerkem are also targeting 2014 for the start

- up of cellulosic biofuel production facilities and would likely look to b uild additional facilities relatively quickly if successful. While many of these expansion plans are still in the early stages and are subject to change, they do point to the 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 small volumes were produced. Announcements of new projects and project funding, changes in project plans, project delays, and cancellations occur red . Biofuel producers faced not only the challenge of the scale

up of innovative, first

- of

- a

- kind technology, but also the challenge of securing funding in a difficult economy. The cellulosic biofuel industry also is influenced by var ious tax credits and subsidies, and uncertainty about these programs may have had an impact on cellulosic biofuel production in 2011. Comment [A9]: What tax credits and subsidies is EPA referring to here, and how would these have discouraged production of cellulosic biofuel?

Is EPA referring to uncertainty with respect to its own program, i.e. uncertainty over the final RFS volume requirement for cellulosic biofuel?

Please include in the preamble text a few examples

of which tax credits and subsidies E PA is referring to, and how they might have dampened cellulosic biofuel production in 2011.*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 18 of 48 Despite these challenges, there are several factors indicating that significant volumes of cellulosic biofuel can be p roduced in 2013. Commercial

- scale cellulosic biofuel projects from INEOS Bio and KiOR are expected to begin fuel production in 2012 and plan to achieve production rates at or near their nameplate capacities in 2013. Another commercial

- scale facilit y back ed by Abengoa, a large compan y with significant experience in biofuel production , is 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 d emonstration facilities operated by small start

- up companies to large commercial

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

In order to project cellulosic biofuel production for 2013, we have tracked the progress of more than 100 biofuel production facilities. From this list of facilities we used publically available information, as well as information provided by DOE and USDA, to make a preliminary determination of which facilities are the most likely candidates to produce cellulosic biofuel and generate cellulosic biofuel RINs in 2013. Each of these companies was investigated further in order to determine the current status of their facilities and their likely cellulosic biofuel produc tion and RIN generation volumes for the coming years. Information such as the funding status of these facilities, current status of the production technologies, announced construction and production ramp

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

In the sections that follow, we first discuss the cellulosic production facilities that were part of our volume projections for the 2012 compliance year and the progress that they have made. Then we present our c onsideration of additional 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 identified 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 c ellulosic RINs until this process is completed. The current status of each of these facilities, including target production levels for each facility in 2013, is discussed below.

API Comment [A10]: The continuing delays in production start

- up in cell ulosic ethanol plants appear to have continued even during the period when this rule was being drafted would tend to suggest skepticism about the like lihood that the INEOS and KiOR plants will produce at full rated capacity for twelve months in 2013. The track record for projections under previous volume standards were overly optimistic and suggest that EPA should consider taking another look at the

pr ojections.*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 19 of 48 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 a nd 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, lar ger

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

In January 2010 API received a grant from DOE for up to $18 million for the

construction of their dem onstration facility. Construction of the Alpena, Michigan facility began

in March 2011 and API began commissioning their facility in the summer of 2012. Commissioning is expected to be completed by the end of 2012 and production start

- up is expected to b egin in 2013.

Fiberight

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

, Virginia. This facility is currently in the process of being upgraded to an integrated demonstration plant with initial production of cellulosic ethanol expected in October 2012. In 2009 Fiberight purchased an idled corn ethanol plant in Blairstown, Io wa with the intention of making modifications to this facility to allow for the production of 6 million gallons of cellulosic ethanol per year from separated MSW and industrial waste streams. These modifications were scheduled to be completed in 2011, but difficulties in securing funding have resulted in construction at this facility being delayed. In January 2012 Fiberight was offered a $25 million loan guarantee from USDA. Closing on this loan would provide substantially all of the remaining funds requ ired for Fiberight to complete the modifications necessary to allow for the production of cellulosic ethanol at their Blairstown facility. Construction is expected to begin in early spring 2013 and will take approximately 6 months to complete. While this is a much shorter timeline that most cellulosic biofuel production facilities, it is possible as Fiberight is retrofitting an existing corn ethanol plant and will be able to use much of the existing equipment. Additionally, Fiberight ’s waste separation p lan for this facility was approved in J u ne 2012 allowing Fiberight to generate RINs for the production of cellulosic ethanol using MSW as a feedstock. Fiberight is also currently developing a second commercial

- scale project based on their MSW “hub and spo ke” concept. They anticipate that this facility will begin fuel production in 2014 and will produce approximately 25 million gallons of cellulosic ethanol per year when fully built out.

INEOS Bio

INEOS Bio has developed a process for producing cellulosic ethanol by first gasifying cellulosic feedstocks into a syngas and then using naturally occurring bacteria to ferment the syngas into ethanol. In January 2011 USDA announced a $75 million loan gua rantee for the construction of INEOS Bio’s first commercial facility to be built in Vero Beach, Florida. This*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 20 of 48 was in addition to the grant of up to $50 million INEOS Bio received from DOE in December 2009. 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 also 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. Sinc e then significant progress has been made, and INEOS Bio complete d construction on this facility in July 2012. In August 2012 INEOS Bio received approval from EPA for their yard waste separation plan and successfully registered their Vero Beach, FL facili ty under the RFS program. Commercial production of cellulosic ethanol has not yet begun, but is expected to begin in the 4 th quarter of

2012 . 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 and throughout 2013

. This reported schedule represents a very aggressive ramp

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

- of

- a

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

- line

ramp

- up period beginning in January 2013. EPA requests comment on the projected available volume from INEOS Bio’s facility in 2013, as well as these assumptions for the appropriate

ramp

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

up phase. 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 inexpensive 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 biocrude using a process they call Biomass Fluid Catalytic Cracking (BFCC). BFCC uses a catalyst developed by KiOR in a process similar to Fluid Catalytic Cracking currently used in the petroleum industry. The first stage of this process produces a renewable crude oil which is then upgraded to pr oduce 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 prod ucing 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 early in the 4 th quarter of 2012. This facility is fu nded, in large part, with funds acquired through private equity raises and supplemented by KiOR’s $150 million IPO in June

2011. KiOR’s current expectations at their Columbus facility are for a start

- up 11 period lasting

9

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

- 50% of the facility capacity after which they plan to approach full production rates at the facility. KiOR has

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

- out” period Comment [A11]: Suggest confirming.*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 21 of 48 feedstock supply agreements in place to supply all of the required feedstock for their Columbus facility with slash and pre

- commercial thinning. They also have off

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

- 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. For 2013 our proposed production projection is for 5 millio n gallons ( 8 million ethanol

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

- o ut period beginning in October 2012) followed by three months of production at the nameplate capacity of the facility. These numbers are relatively conservative estimates based on the low end of KiOR’s production guidance. EPA believes this is an appropr iate approach for this proposal, but we request comment on alternative projected available volumes approaches for determining the appropriate volume from this facility.

Blue Sugars

Blue Sugars, formerly KL Energy

, has developed a process to convert cellu lose 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 vers atile enough to allow for a wide variety of cellulosic feedstocks to be used, including woody biomass and herbaceous biomass such as sugarcane bagasse. In August 2010 Blue Sugars announced a joint development agreement with Petrobras America Inc. As part of the agreement Petrobras has invested $11 million to modify Blue Sugars’ 1.5 million gallons per year demonstration facility in Upton, Wyoming to allow it to process bagasse and other biomass feedstocks. The modifications to Blue Sugars’ facility were completed in the spring of 2011. Blue Sugars 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. In April 2012 Blue Sugars generated approximat ely 20,000 cellulosic biofuel RINs, the first such RINs generated under the RFS

program. The main purpose of the Upton, Wyoming facility , however, is to further refine Blue Sugars’ technology in preparation for their first commercial facilities which may be located in

the Brazil or the United States.

ZeaChem

ZeaChem successfully 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 cellulose 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 thermochemica l technologies to produce ethanol and other renewable chemicals from cellulosic materials. The feedstock is first fractionated into two separate streams, one containing sugars derived from cellulose and hemicellulose and the other containing lignin. The sugars are fermented into an intermediate chemical, acetic acid, using a naturally occurring acetogen. The acetic acid is then converted into ethyl acetate, which can then be hydrogenated into ethanol. The hydrogen*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 22 of 48 necessary for this process is produced by gasifying the lignin 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

transporta tion fuel, to the existing 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 c ellulosic 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 wast e at their demonstration facility and have contracts in place for these feedstocks, as well as purpose

- grown wood, at their first commercial

- scale facility. In January 2012 ZeaChem announced that they had received a $232.5 million conditional loan guarant ee offer

from USDA for the construction of their first commercial

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

2. Facilities not Included in 2012 Projections

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

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

cellulosic biofuel in 2014.

Abengoa

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

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

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

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

commercial

- scale cellulosic ethanol facility in Hugoton, Kansas. Abengoa has contracts in place to provide the majority of feedsto cks 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 qu arter 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) l oan guarantee.

When completed, the Hugoton plant will be capable of processing 700 dry tons of corn stover per day, with an expected annual ethanol production capacity of approximately 24 million gallons. Abengoa plans to begin ramping up production at t he facility shortly after completing construction in late 2013 and to be producing fuel at rates near the nameplate capacity in the*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 23 of 48 second quarter of 2014 . After successfully proving their technology at commercial

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

- locating these new facilities with their currently existing

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

volume for 2013.

Poet

Poet has also developed an enzymatic hydrolysis process to convert cellulosic biomass into ethanol. Poet has been investing in the development of cellulosic ethanol technology for

more than a d ecade and began producing small volumes of cellulosic ethanol at pilot

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

DSM of the Netherlands called Poet

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

The joint venture’s first commercial

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

- up of this facil ity, 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 schedu led 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 with the joint venture decided to proceed without the loan guarantee. This project is expected to be completed by the

end of 2013 , however at this time EPA is not projectin g any commercial cellulosic ethanol production from this facility until 2014 . After the completion of Project LIBERTY, Poet plans to build cellulosic ethanol facilities at all of their existing corn ethan ol plants. They are also planning to license their technology for use at other grain ethanol plants, as well as build additional plants that will process wheat straw, rice hulls, woody biomass or herbaceous energy crops. By 2022 Poet has a goal of produc ing 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 facilities. These facilities represent approximately 100 million gallons of additional cellulosic biofuel production capacity. As with the companies discussed above, most of these companies have already begun to develop plans for their successive facilities after the successful completion of their initial projects. While they will not contribute any volume in 2013, and have therefore not*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 24 of 48 been included in our proposed volu me, they are a further indication of the potential for the significant growth of the cellulosic biofuel industry in the United States in the near future.

3. Other Potential Sources of Domestic Cellulosic Biofuel

Each of the companies listed in the pr evious 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 int end to use a production pathway that is not currently approved for RIN generation. Three pathways that are currently under evaluation by EPA include the following:

• 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 produced 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. Beca use a final determination on these pathways has not been made, however, no volume of cellulosic 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 appropriate.

4. Imports of Cellulosic Biofuel

While domestically produced cellulosic biofuels are the most likely source of cellulosic

biofuel available in the Un ited States in 2013, imports of cellulosic biofuel produced in other countries may also generate RINs and participate in the RFS program. While the RFS program does provide a financial incentive for companies to import cellulosic biofuels into the United States, the combination of local demand, financial incentives from other governments, and transportation costs for the cellulosic biofuel has resulted in no cellulosic biofuel being imported

to the United States thus far. We believe this situation is like ly to continue in the near future and has not included any cellulosic biofuel imports in our projections of available volume in 2013.

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

limited to small

- scale rese arch and development, pilot, and demonstration facilities. This is likely to continue to be the case throughout 2013. Two notable exceptions are facilities built and operated by Beta Renewables and Enerkem. Beta Renewables complete d construction of thei r first commercial

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

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

Renewables uses an enzymatic hydrolysis process to produce ethanol from local agricultural residues and herbaceous energy crops. Comment [A12]: EPA states that these three pathways are currently under evaluation . Will EPA confirm if the three pathways mentioned on Page 27 ( cellulosic biofuel produced from corn fiber,

renewable heating oil, and landfill biogas c onv erted to transportation fuel) as the same as those listed here. If these are the same pathways, please use the same terms on pp. 23

- 24 and p. 27 t o make it easier

for the reade r to follow.*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 25 of 48 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. At this point, n either Beta Renewables nor Enerkem have registered their facilities under the RFS program, a necessary step that must be completed before these companies can generate RINs for any fuel they import into the United States . Both are planning to locate additional plants in the United States in the future and are likely to generate RINs for production from domestic facilities in future years.

5. Su mmary of Volume Projections

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

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

- scale facilities is appropriate as the industry transitions from small

- scale R&D and pilot facilities to large

- scale

comm ercial 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 be small, especially in relation to

that from the four facilities listed in Table II.C.5

- 1 below. Additionally, while RINs may be generated for any cellulosic biofuel produced from these small facilities, historically many have chosen not to do so for a variety of reasons.

In 2013 as many as four domestic cellulosic biofuel production facilities have the potential to produce fuel at commercial scale . Each of these facilities is discussed above, and the facility production targets for each are summarized in Table I I.C.5

- 1 below. Two of the companies that have the potential to produce cellulosic biofuel in 2013, Abengoa and Fiberight, are not planning on beginning fuel production until late in the year. Even a small delay in their expected production timeline could result in their failure to produce any cellulosic biofuel in 2013. For the purpose of this proposal, therefore, we are only projecting commercial scale cellulosic biofuel production from two companies, INEOS Bio and KiOR.

When added together, the tot al projected production volume from commercial

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

equivalent gallons). This number represents the expected fuel production from each facility, taking into acco unt 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

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 26 of 48 Table II.C.5

- 1 Projected Available Cellulosic Biofuel for 2013

Company

Name Location Feedstock Fuel Design Capacity (MGY) Production

Start

- Up 2013

P rojected

Available

Volume a 

### Abengoa Hugoton, KS Corn Stover Ethanol 24 4 Q 2013 0 Fiberight Blairstown, IA MSW Ethanol 6 4Q 2013 0

INEOS Bio Vero Beach, FL Vegetative Waste Ethanol 8 4Q 2012 6

KiOR Columbus, MS Wood Waste Gasoline

and Diesel 11 4Q 2012 8

Various

Pilot/ Demo

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

Total 49 14

a 

### V olumes in million ethanol

- equivalent gallons*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 27 of 48 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 four companies with the potential to produce cellulosic biofuel from commercial

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

- up date and ramp

- up schedule, feedstock supply and many others. We

believe the sum of these individual projected available volumes ( 14 million ethanol

- equivalent gallons) is a r easonable representation of likely production at these facilities . 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 r ule 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 biofuel in our 2013 projection, and their progress towards meeting their production g oals 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 cellulosic biofuel standard for 2013 may be set at a volume that differs from the pr oposed volume. This could happen for a variety of reasons, including unexpected project modifications or cancellations or the inclusion of volumes of cellulosic biofuel from sources other than those listed above. For example, the proposed projected avail able volume of cellulosic biofuel in 2013 discussed above ( 14 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 tran sportation fuel. Together, these pathways could generate several tens of millions of gallons of ethanol

- equivalent renewable fuel. However, since they are currently undergoing an evaluation to determine whether they are valid for the generation of cellul osic 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 time progresses and we are able to track whether or not the cellulosic biofuels pr oducers 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.*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 28 of 48 III. Assessment of Advanced Biofuel and Total Renewable Fuel for 2013

As described in Section I, the volumes of renewable fuel to be used under the RFS2 program each year (absent an adjustment or waiver by EPA) are specified in CAA 211(o)(2). For 2013, the applicable volume of advanced biofuel is 2.75 bill gal and the 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 di scusses our evaluation of these two volume requirements.

A. Statutory Requirements

According to CAA 211(o)(7)(D)(i), if EPA determines that the projected volume of cellulosic biofuel production for the following year is less than the applicable volume provided in the statute, then EPA must reduce the applicable volume of cellulosic biofu el to the projected volume available during that calendar year. Under such circumstances, EPA also has the discretion to reduce the applicable volumes of advanced biofuel and total renewable fuel by an

amount not to exceed the reduction in cellulosic biof uel.

Since cellulosic biofuel is also used to satisfy the advanced biofuel standard and the total renewable fuel standard, any reductions in the applicable volume of cellulosic biofuel will also affect the means through which obligated parties comply w ith these two other standards. Congress presumably established the volume requirements for advanced 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 biofuel and total renewable fuel applicable volumes when EPA reduces the cellulosic biofuel volume below the applicable volume for cellulosic biofuel set

forth in the statute.

In 2013 the applicable volume of cellulosic biofuel specified in the statute represents more than a third of the advanced biofuel volume (1.0 bill gal out of 2.75 bill gal), a higher fraction than in any previous year. A substantial reductio n in the applicable volume of cellulosic biofuel could potentially also have a substantial impact on the sufficiency of volumes to meet the advanced biofuel and total renewable fuel standards. As described in Section II.D above, we are indeed proposing a projected available volume of cellulosic biofuel for 2013 at significantly below the statutory applicable volume of 1.0 billion gallons. If we were to finalize a cellulosic biofuel applicable volume of 14 mill gallons for 2013, we would have the discretio n to reduce the advanced biofuel and total renewable fuel applicable volumes by up to 986 mill gallons (ethanol

- equivalent). Therefore, we believe that an investigation into the impact of maintaining or reducing the applicable volu mes 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 discre tion under CAA 211(o)(7)(D)(i) to do so. However, in general we believe that it would not be

consistent with the greenhouse gas reduction goals of the statute to reduce the applicable volume Comment [A13]: Suggest EPA evaluate the difference in costs of maintaining the advanced and renewable biofuel volumes in light of the decrease in cellulosic volumes. Although EPA has considered the production capability, it would be helpful to

know the difference in costs of the two alternatives.

Deleted: need for

Deleted: a reduction in Comment [A14]: It would appear that the statute

or iginally contemplated a much smaller portion of

advanced biofuels to come from other sources

besides cellulosic and BBD. If the statute set the total biofuel level for 2013 at 2.75 billion gallons with 1.5 coming from BBD and 1 billion from cellulosic, th en the statute envisioned 250 million gallons coming from other advanced fuels such as imported sugarcane ethanol. We would suggest the following slight edits based on this.

Deleted: energy security and Comment [A15]: Suggest deleting the reference to energy security as the 986 million gallons are expected to be partially met by imported ethanol as opposed to domestic biofuel production.*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 29 of 48 of advanced biofuel set forth in the stat ute if there are sufficient volumes of advanced biofuels available, even if those volumes do not include the amount of cellulosic biofuel that Congress may have desired. And, if we do not lower the advanced biofuel standard, then our reduction of

cellulos ic biofuel applicable volume has no impact on the amount of non

- 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 Av ailable 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 Qualified to Meet the Advanced Biofuel Standard 12

(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 13 that there was no need to reduce the 2012 advanced biofuel requirement despite the significant reduction in the applicable vo lume of cellulosic biofuel.

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

first accounted for biomass

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

- 2, the result is that there would need

to be 8 16 mill ethanol

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

12 2011 data from the EPA

- Moderated Transaction System (EMTS)

13 77 FR 1320, published on January 9, 2012 Deleted: about

Deleted: 00*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 30 of 48 Table III.B

- 2 Necessary Volume of Advanced Biofuel (mill gal ethanol

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

Biomass

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

a In 2011, a substantial majority of biomass

- based die sel 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 requirement is composed entirely of biodiesel with an equiva lence value of 1.5.

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

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

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

• Imported sugarcane ethanol

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

We have investigated each of these sources as discussed below.

1. Biodiese l

In a separate action, we have finalized 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 sources 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 g allons per year across 191 facilities. 14 We expect the time and reinvestment required to ramp up production at existing facilities to be less than the time required to build and begin production at new plants, which takes about a year on average. 15

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 quick ly 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. 16 In response to the NPRM

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

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

16 All values from EMTS. 2010 estimate consists of approximately 209 mill gallons as recorded through EMTS for volume produced under the RFS2 regulations in July through December of 2010, and approximately 171 mill Deleted: about Comment [A16]: Suggest using the more precise number of 816 to make it easier to follow throughout

the document.

Deleted: 00

Comment [A17]: These numbers seem optimistic compared to EIA’s numbers for b iodiesel production. EIA states there are 105 biodiesel plants with operable capacity of 2.1 billion gallons. http://www.eia.gov/biofuels/biodiesel/production/ Please explain the difference . Does the association list include planned and/or prospective plants?

Comment [A18]: Please explain the mechanism by which producers of biomass

- based diesel would restart idled plants. In other words, if there is a shortfall of advanced biofuel, then presumably the price of RINs for advanced biofuel rises, resulting in the decision by BBD producers to increase production. But over what time period would these signals and decisions occur? By the time the market

determines there to be a shortfall of advanced biofuel, w ill the industry have sufficient lead time to restart idled plants and increase production, in time

to meet the demand for 2013?*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 31 of 48 published on July 1, 2011, some stakeholders expressed doubts th at such increases could occur by 2012. 17 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 p roduction 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 Sugarcane Ethanol

From the supply pers pective, recent production of sugarcane in Brazil has been lower than normally expected due to two factors. First, adverse weather conditions have reduced production. 18 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 ever y 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. 19 Nevertheless, in 2011 Brazil exported around 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 existing plantations and, in response to increased worldwide demand, a growth in the acres planted wit h sugarcane. UNICA, a trade association for the sugarcane ethanol industry in Brazil, projects that over the next four years, the return to a normal replanting schedule combined with normal weather conditions will boost production by 30%. They project th at 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 projec tion 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 announc ed in February 2012 support for a plan to invest over $8 billion annually to boost cane and ethanol production. 20 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.

17 See comments in docket EPA

- HQ

- OAR

- 2010

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

18 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

19 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 cont ributing factor but not a major cause of reduced sugarcane ethanol production in Brazil.

20 See http://www.platts.com/RSSFeedDetailedNews/RSSFeed/Oil/8987702 Comment [A19]: There is concern over whether Brazil has the ability to effectively export 650 million gallons to the U.S. This level of impo rts appears to be higher than all of Brazil’s exports in 2011 and almost four times what was exported to the United States. Brazil’s total ethanol production in 2011 was 5.6 billion so 650 million gallons represents more than 10 percent of their entire

p roduction. We understand that there have been years where total imports have been higher; however, given the past few years of total Brazilian production, at least this level appears to deserve a bit

more discussion.

Comment [A20]: EIA data shows that imports

from Braz il in 2011 were only 100 million gallons (assuming 42 gallons in a barrel). http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?
n=PET&s=MFEIM_NUS

- NBR_1&f=M From

wh ere did EPA obtain the 520 and 173 million gallon numbers?

Comment [A21]: Please provide the projections

for 2013 and the citation.*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 32 of 48 Santa Terezinha, a Brazilian ethanol producer, recently announc ed plans to invest almost $300 million in a new mill and sugarcane plantation. 21

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 domestic demand into the future can be uncertain since the government can reset the minimum ethanol content at any time; in the past this adjustment has largely been influenced by the price of ethanol (high prices leading to a reduction in the minimum percent). However, these historical changes have typically varied by a few percent and have only occur red periodically. Assuming continued tight supplies of sugarcane ethanol, we would not expect a near

- term increase in the minimum concentration of ethanol in gasoline in Brazil and no significant change in demand for ethanol within Brazil over

the next co uple 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 generate advanced biofuel RINs, there are currently three pathways through which advanced biofuel RINs can be g enerated. These three are shown in Table III.B.3

- 1.

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

- 03

- 08/santa

- terezinha

- invests

- 283

- million

- in

- brazil

- ethano l

projects.html Comment [A22]: What has been imported for California’s program compared to the national RFS program?

Would it be accurate to say that California LCFS mandates will also encourage the importation of

Brazilian ethanol or would the volumes count for both the CA and federal programs?*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 33 of 48 Table III.B.3

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

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

Production Outlook Reports . Required under §80.1449 for all registere d producers, these reports contain projections of renewable fuel production for each of the next five years. 22

2011 producers . Data from the EPA

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

- generating advance d 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 reg istered as producers of advanced biofuel under the RFS program, but neither produced RIN

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

22 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. Comment [A23]: H ow do the feedstocks for “biodiesel, renewable diesel,” rank in terms of magnitude of production? In other words, is the largest percentage of “biodiesel, renewable diesel”

derive d from soybean oil, followed by oil from annual covercrops, etc.? Would be helpful to have a sense of the contribution of each pathway to meeting

th e volume requirements.*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 34 of 48 Table III.B.3

- 2 Projected Domestic Production of Other Advanced Biofuel in 2013

(million ethanol

- equivalent gallons)

Ethanol Renewable

diesel Heating oil CNG Tota l

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 23 which estimated that the production capacity of domestic advanced biofuels in 2012 would be about 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 inc lude certain butanol processes from corn and certain ethanol processes from sorghum. We have not yet determined, either through rulemaking or approval of an industry petition, whether the pathways are valid for the generation for

advanced biofuel RINs. H owever, approval of such advanced biofuel pathways could potentially

result in 200 million additional ethanol

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

standards for 2013.

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

in 2013

As shown in Table III.B

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

- based diesel and 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 8 16 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 this volume is achievable through a c ombination of these sources or potentially even through one of these individual sources. Therefore, we believe that there is no reason to

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

Deleted: 00

Deleted: 00*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 35 of 48 reduce the required volume of 2.75 bill gal advanced biofuel on the basis of available volumes. As noted above, main taining 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 reasons why it should choose to forgo t hese benefits when they are physically achievable but we invite comment on this issue.

Section 211(o)(7) of the Clean Air Act allows the Administrator, in consultation with the Secretary of Agriculture and the Secretary of Energy, to waive the national volume requirements

of the RFS, in whole or in part, upon petition by one or more States, or by any party subject to the requirements of the RFS program. Governors of the States of Arkansas and North Carolina submitted separate letters on August 13 and 14 respectively requesting a waiver of required volumes of renewable fuel under the RFS program.

EPA is currently evaluating waiver petitions under Section 211(o)(7). This section establishes criteria for reducing the mandated vol ume of renewable fuels independent of the statutory provisions addressed by this rulemaking. Therefore, we are not proposing to lower the applicable volume of total renewable fuel below 16.55 bill gal

. Deleted: 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. 24 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.

Deleted: ¶

Comment [A24]: We suggest this edit to reflect the recent waiver requests submitted to EPA, in the spirit of being transparent and providing the public with clear information, as per EO 13563.*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 36 of 48 IV. Proposed Percentage Standards for 2013

A. Background

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

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

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

2013 of 11 million gal lons ( 14 million ethanol

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

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

- 1.

Table IV.A

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

Cellulosic biofuel 14 mill gal

Biomass

- based diesel 1.28 bill gal

Advanced biofuel 2.75 bill gal

Renewable fuel 16.55 bill gal

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

equivalent except for biomass

- based diesel which is given in terms of physical volume

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

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

B. Calculation of Standards

1. How Are the Standards Calculated?

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

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 37 of 48 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 stan dard for year i, in percent.

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

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

Act for year i, in gallons.

RFV BBD,i = Annual volume of biomass

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

Air Act for year i, in gallons.

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

Act for year i, in gallons.

RFV RF,i = Annual volume of renewable fuel required by se ction 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 gallons.

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

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

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 38 of 48 RD i = Amount of renewable fuel blended into diesel that is projected to be consumed i n

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

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

the state or territory opts

- in, in gallons.

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

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

- in, in gallons.

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 on 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 Short

- Term Energy Outlook (STEO) 25 for the gasoline projection and EIA's Annual Energy Outlook 2012 Early Release 26 for the diesel projection. Gasoline and diesel volumes are adjusted to account for renewable fuel contained in the EIA projections. The projected 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 volum es for the purposes of this proposal, we have used the February 2012 values 27 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 reasona ble estimate of the standards for planning purposes.

25 Energy Information Administration/Short

- Term Energy Outlook

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

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

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

27 Energy Information Administration/Short

- Term Energy Outlook

- February 2012, Table 8, “U.S. Renewable Energy Supply and Consumption (Quadrillion Btu).” Comment [A25]: Assuming this has been provided and that EPA can u pdate the language in the previous comment concerning the discussion of the proposed/final percentages.*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 39 of 48 2. Small Refineries and Small Refiners

In CAA section 211(o)(9), enacted as part of the Energy Policy Act of 2005, Congress provided a temporary exemption to small refineries (those refineries with a crude throughput of no more than 75,000 barrels of crude per day) through December 31, 2010. In our initial rulemaking to implement the new RFS program 28 , we exercised our discretion under section 211(o)(3)(B) and extended this temporary exemption to the f ew remaining small refiners that met the Small Business Administration’s (SBA) definition of a small business (1,500 employees or less company

- wide) but did not meet the statutory small refinery definition as noted above. 40 CFR §§ 80.1141, 80.1142. Beca use EISA did not alter the small refinery exemption in any way, the 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 refineries can receive a temporary extension of the exemption beyond 2010. One is based on the results of a study conducted by the Department of Energy (DOE) to determine whether small refineries wo uld face a disproportionate economic hardship under the RFS program. The other is based on EPA determination of disproportionate economic hardship on a case

- by

- case basis in response to refiner petitions.

In January 2009, DOE issued a study which did not find that small refineries would face a disproportionate economic hardship under the RFS program. 29 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, be ginning 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

suff er a disproportionate hardship. 30 As a result, EPA exempted these refineries from being obligated parties for two additional years, 2011 and 2012. 31 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 refineries or small refiners on a case

by

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

28 72 FR 23900, May 1, 2007.

29 DOE report “EPACT 2005 Section 1501 Small Refineries Exemption Stud y” , (January, 2009).

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

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

2011. Comment [A26]: Please explain what has changed from 2012 that would make it such that small refineries no longer suffer a disproportionate hardship. It would seem wi th increasing volume mandates that the burden would be increasing on small refiners as opposed to decreasing. Please explain EPA’s logic behind this decision.*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 40 of 48 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 app roved

after the release of the final 2013 RFS standards will not affect the 2013 standards. As stated in the final rule establishing the 2011 standards, “EPA 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 w ould 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 wi ll not

affect those 2013 standards.

3. Proposed Standards

As specified in the March 26, 2010 RFS2 final rule 32 , the percentage standards are based

on energy

- equivalent gallons of renewable fuel, with the cellulosic biofuel, advanced biofuel,

and total re newable fuel standards based on ethanol equivalence and the biomass

- based diesel standard based on biodiesel equivalence. However, all RIN generation is based on ethanol

equivalence. More specifically, the RFS2 regulations provide that production or impo rt of a gallon of biodiesel will lead to the generation of 1.5 RINs. 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 r equired volume be multiplied by 1.5. The

net result is a biomass

- 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 RFS2 program, as gasoline and diesel produced in or imported into that state or territory would then be subject to the standard. Neither Alaska nor any U.S. territory has chosen to partic ipate in the RFS2 program at this time, and thus the value of the related terms

in the calculation of the standards is zero.

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

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

described above are shown in Table IV.B.3

- 1. 33 Terms not included in this table have a value of

zero.

32 75 FR 14716, March 26, 2010.

33 To determine the 49

- state values for gasoline and diesel, the amounts of these fuel s used in Alaska is subtracted from the totals provided by DOE. The Alaska fractions are determined from the most recent (2010) EIA State Energy Data, Transportation Sector Energy Consumption Estimates. The gasoline and transportation distillate fuel

oil fractions are approximately 0.2% and 0. 7 %, respectively. Ethanol use in Alaska is estimated at 11.2% of its gasoline consumption (based on the same State data), and biodiesel use is assumed to be zero.*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 41 of 48 Table IV. B.3

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

Term Value

RFV CB,2013 0. 014

RFV BBD,2013 1.28

RFV AB,2013 2.75

RFV RF,2013 16.55

G 2013 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. 0 09 %

Biomass

- based diesel 1.18%

Advanced biofuel 1.69%

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

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 42 of 48 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

- HQ

- OAR

- 2012

- 0546. You may claim information that you submit to EPA as CBI by marking any part or all of that information as CBI (if you 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 t he 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 con tain CBI. Information not marked as CBI will be included in the public docket without*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 43 of 48 prior notice. If you have any questions about CBI or the procedures for claiming CBI, please consult the person identified in the FOR FURTHER INFORMATION CONTACT sectio n.*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 44 of 48 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 Order. Accordingl y, EPA submitted this action to the Office of Management and Budget (OMB) for review under Executive Orders 12866 and 13563 (76 FR 3821, January 21, 2011) and any changes made in response to OMB recommendations have been documented in the docket for

this a ction.

The economic impacts of the RFS2 program on regulated parties, including the impacts of the required volumes of renewable fuel, were already addressed in the RFS2 final rule promulgated on March 26, 2010 (75 FR 14670). With the exception of cellu losic 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. Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute u nless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small organizations, and small governmental jurisdictions.

For purposes of assessing the impacts of today's rule on small entities, small entity is defined as: (1) a small business as defined by the Small Business Administration’s (SBA) regulations at 13 CFR 121.201; (2) a small governmental jurisdiction that is a government of a city, co unty, 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. Field Code Changed*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 45 of 48 After considering the ec onomic 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 2013. 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 pro visions 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 annual standards for the RFS

program.

E. Executive Order 13132: Federalism

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

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

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

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

Governments

This action does not have tribal implications, as specified in Executive Order 13175 (65 FR 67249, November 9, 2000). This proposed rule will be implemented at the Federal level and affects transportation fuel refiners, blenders, marketers, distributors, importers, exporters, and Field Code Changed

Comment [A27]: Does this hold true knowing that EPA is no longer providing a blanket exemption

for small refin ers? How many small entities are affected by the elimination of the exemption ...is it

59 ? If there are 59 small refiners affected, what number of small refiners having to comply with the

volumetric standards would cause the rule to be economically signific ant?*** E.O. 12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 46 of 48 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 additi onal comment on this proposed action from tribal officials.

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

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

section 5

- 501 of the EO has the potential to influence the regulation. This action is not subject to

EO 13045 because it does not establish an environmental standard intend ed 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 Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355 (May 22, 2001)) because it is n ot likely to have a significant adverse effect on the supply, distribution, or use of energy. This action simply proposes the annual standards for

renewable fuel 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 practices) that are developed or adopted by voluntary consensus standards bodies. NTTAA directs EPA to provide Congress, through OMB, explanations when the Agency decides not to use available and applicable voluntary consensus standards.

This proposed rulemaking 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

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 47 of 48 Executive Order (EO) 12898 (59 FR 7629 (Feb. 16, 1994)) establishes federal executive policy on environmental justice. Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and low

income populations in the United States.

EPA has determined that this 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 no t 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

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 48 of 48 VII. 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 the Clean Air Act, 42 U.S.C. Sections 7414, 7542, and 7601(a).

List of Subjects in 40 CF R Part 80

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

Dated:

Lisa P. Jackson,

Administrator.

*