EO12866_RFS 2014 Annual Rule 2060

- AR76 NPRM FRN_2013082 6 .docx

*** EO12866 Review

- Draft

- Do Not Cite, Quote, or Release During Review ***

Page 1 of 102 ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA

- HQ

- OAR

- 2013

- 0479; FRL

- XXXX

- X]

RIN 2060

- AR76

2014 Standards For The Renewable Fuel Standard Program

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 percentage standards each November for the following year. Today’s action proposes the ann ual percentage standards for cellulosic biofuel, biomass

- based diesel, advanced biofuel, and renewable fuels that would apply to all motor vehicle gasoline and diesel produced or imported in the year 2014. For cellulosic biofuel, the statute specifies tha t EPA is to project the volume of production and must base the cellulosic biofuel standard on projected available volume if it is less than the applicable volume set forth in the Act. Today EPA is proposing a cellulosic biofuel volume for 2014 that is bel ow the applicable volume specified in the Act. The statute also provides EPA the discretion to reduce the volumes of advanced biofuel and total renewable fuel under certain conditions. Relying on its Clean Air Act
waiver authorit ies , EPA is proposing to reduce the applicable volumes of advanced biofuel and total renewable fuel to address limitations in the ability of the relevant industries to make
sufficient renewable fuels available for the ultimate consumers of the renewable fuels , including
the set of factors commonly referred to as the ethanol “blendwall

. ” Finally, the statute requires EPA to determine the applicable volume of biomass

- based diesel to be used in setting annual percentage standards under the renewable fuel standard program for years af ter 2012. EPA is proposing the applicable volume of biomass

- based diesel that would apply in 2014 and 2015.

DATES: Comments must be received on or before [ insert date 45 days after date of publication in the Federal Register ]. Hearing : We intend to hold a hearing on XXdateXX at XXlocationXX.

ADDRESSES: Submit your comments, identified by
Docket ID No. EPA

- HQ

- OAR

- 2013

- 0479, by one of the following methods:

• www.regulations.gov : Follow the on

- line instructions for submitting comments.

• Email: a

- and

- r

- docket@epa.gov

.

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

• Hand Delivery: EPA Docket Center, EPA West Building, Room 3334, 1301 Constitution Ave., NW., Washington, DC 20460. Such deliveries are only accepted during the Docket’s normal hours of operation, and special arrangements should be made for
del iveries of boxed information. Style Definition: Heading 4*** EO12866 Review

- Draft

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

Page 2 of 102 Instructions: Direct your comments to Docket ID No. EPA

- HQ

- OAR

- 2013

- 0479. EPA's policy is that all comments received will be included in the public docket without change and may be made available online at www.regulations.gov , including any personal information provided, unless the comment includes information claimed to be Confidential Business Information (CBI) or other information whose disclosure is restricted by statute. Do not submit information that you consider to be CBI or otherwise protected through www.regulations.gov or e

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

yo u 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 cl arification, EPA may not be able to consider your comment. Electronic files should avoid the use of special characters, any form of encryption, and be free of any defects or viruses. For additional information about EPA’s public
docket visit the EPA Dock et Center homepage at http://www.epa.gov/epahome/dockets.htm. For additional instructions on submitting comments, go to Section I.B of the SUPPLEMENTARY
INFORMATION section of this document.
Docket: All documents in the docket are listed in the www.regula tions.gov index. Although listed in the index, some information is not publicly available, e.g., CBI or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, will be publicly available only in hard copy. Publicly available docket materials are available either electronically in www.regulations.gov or in hard copy at the Air and Radiation Docket and Information Center, EPA/DC, EPA West, Room 3334, 1301 Constitution Ave., NW, Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Public Reading Room is (202) 566

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

- 1742.

FOR FURTHER INFO RMATION 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 ad dress: macallister.julia@epa.gov, or the public information line for the Office of Transportation and Air Quality; telephone number (734) 214

- 4333; E

- mail address OTAQ@epa.gov.

SUPPLEMENTARY INFORMATION:

I. General Information

A. Does this Action App ly 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 regula ted categories include:*** EO12866 Review

- Draft

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

Page 3 of 102 Category NAICS 1

Codes SIC 2

Codes Examples of Potentially Regulated Entities

Industry Industry Industry Industry Industry Industry

Industry 324110

325193
325199
424690
424710
424720

454319 2911

2869
2869
5169
5171
5172

5989 Petroleum Refineries Ethyl alcohol manufacturing Other basic organic chemical manufacturing Chemical and allied products merchant wholesalers
Petroleum bulk stations and terminals Petroleum and petroleum products merchant
wholesalers
Other fuel dealer s

1 North American Industry Classification System (NAICS)

2 Standard Industrial Classification (SIC) system code.

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

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

1. Submitting CBI

Do not submit confidential 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
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.*** EO12866 Review

- Draft

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

Page 4 of 102 • 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 Action

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

B. Summary of Major Provisions in This Notice

................................ ................................ ........ 9
1. Cellulosic Biofuel Volume for 2014

................................ ................................ ................... 9
2. Biomass

- Based Diesel in 2014 and 2015

................................ ................................ .......... 12
3. Advanced Biofuel and Total Renewable Fuel in 2014

................................ ..................... 12
4. Proposed Annual Percentage Standards for 2014

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

II. PROJECTION OF CELLUL OSIC BIOFUEL VOLUME FOR 2014

................................ . 15
A. Statutory Requirements

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

B. Cellulosic Biofuel Volume Assessment for 2014

................................ ................................ . 16
1. Potential Domestic Producers with Approved Pathways

................................ ................. 18
2. Potential Domestic Producers without Existing Pathways

................................ ............... 24
3. Potential Foreign Sources of Cellulosic Biofuel

................................ ............................... 27
4. Summary of Volume Projections for Individual Companies

................................ ............ 29
C. Proposed Cellulosic Biofuel Volume for 2014

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

D. Rescission of the 2011 Cellulosic Biofuel Standards

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

III. PROPOSED NATIONAL VO LUME REQUIREMENT FOR BIOMASS

- BASED
DIESEL IN 2014 AND 2 015

................................ ................................ ................................ ........ 40
A. Statutory Requirements

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

B. Compliance with 2013 Volume Requirement of 1.28 Billion Gallons

................................ . 41
C. Determination of Appli cable Volume for 2014 and 2015

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

IV. NATIONAL VOLUME REQU IREMENTS FOR ADVANCE D BIOFUEL AND
TOTAL RENEWABLE FUEL FOR 2014

................................ ................................ ................... 46
A. Statutory Authorities for Reducing Volumes to Address Insufficient Availability and the
Ethanol Blendwall

................................ ................................ ................................ ......................... 47
1. Cellulosic Waiver Authority

................................ ................................ ............................. 48
2. General Waiver Authority

................................ ................................ ................................ . 49
3. Combining Authorities for Re ductions in Advanced Biofuel and Total Renewable Fuel 53

B. Determination of Reductions in Total Renewable Fuel

................................ ........................ 54
1. Estimating Ethanol Volumes that Could Reasonably Be Consumed

............................... 54
2. Estimating Availability of Non

- Ethanol Renewable Fuel Volumes

................................ . 60

a. Non

- Ethanol Cellulosic Biofuel

................................ ................................ .................... 60
b. Biomass

- Based Diesel

................................ ................................ ................................ .. 61

c. Non

- Ethanol Advanced Biofuel

................................ ................................ .................... 65
d. Non

- Ethanol Non

- Advanced Renewable Fuel

................................ .............................. 67
3. Treatment of Carryover RINs in 2014

................................ ................................ .............. 67 Deleted: 12 12

Deleted: 12 12

Deleted: 13 13

Deleted: 15 15

Deleted: 16 15

Deleted: 16 16

Deleted: 18 18

Deleted: 25 24

Deleted: 27 27

Deleted: 29 29

Deleted: 32 32

Deleted: 39 39

Deleted: 40 40

Deleted: 40 40

Deleted: 41 41

Deleted: 43 43

Deleted: 46 46

Deleted: 47 47

Deleted: 48 48

Deleted: 49 49

Deleted: 53 53

Deleted: 54 54

Deleted: 54 54

Deleted: 60 60

Deleted: 60 60

Deleted: 61 60

Deleted: 66 65

Deleted: 67 66

Deleted: 68 67*** EO12866 Review

- Draft

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

Page 5 of 102 4. Proposed Range for the Volume Requirement for Total Renewable Fuel

....................... 68
C. Determination of Reductions in Advanced Biofuel

................................ .............................. 73
1. Available Volumes of Advanced Biofuel in 2014

................................ ............................ 73

a. Cellulosic biofuel

................................ ................................ ................................ .......... 74
b. Biomass

- Based Diesel

................................ ................................ ................................ .. 74

c. Domestic Production of Other Advanced Biofuel

................................ ........................ 74
d. Imported Sugarcane Ethanol

................................ ................................ ......................... 75

e. Summary

................................ ................................ ................................ ....................... 79
2. Availability, Growth, and the E10 Blendwall

................................ ................................ .. 83

D. Summary of Proposed Volume Requirements for 2014

................................ ....................... 86

E. Volume Requirements for 2015

................................ ................................ ............................ 88

V. PROPOSED PERCENTAGE STANDARDS FOR 2014

................................ ................... 89
A. Background

................................ ................................ ................................ ........................... 89

B. Calculation of Standards

................................ ................................ ................................ ....... 89
1. How Are the Standards Calculated?

................................ ................................ ................. 89
2. Small Refineries and Small Refiners

................................ ................................ ................ 92
3. Proposed Standards

................................ ................................ ................................ ........... 93

VI. PUBLIC PARTICIPATION

................................ ................................ ............................. 95
A. How Do I Submit Comments?

................................ ................................ .............................. 95

B. How Should I Submit CBI to the Agency?

................................ ................................ ........... 95

VII. STATUTORY AND EXECUT IVE ORDER REVIEWS

................................ ................ 97
A. Executive Order 12866: Regulatory Planning and Review and Executive Order 13563: Improving Regulation and Regulatory Review

................................ ................................ ............ 97

B. Paperwork Reduction Act

................................ ................................ ................................ ..... 97
C. Regulatory Flexibility Act

................................ ................................ ................................ .... 97

D. Unfunded Mandates Reform Act

................................ ................................ .......................... 98

E. Executive Order 13132: Federalism

................................ ................................ ..................... 98

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

. 99
G. Executive Order 13045: Protection of Children from Environmental Health Risks and Safety Risks

................................ ................................ ................................ ................................ .. 99

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

................................ ................................ ................................ ......... 99

I. National Technology Transfer and Advancement Act

................................ ......................... 99

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

- Income Populations

................................ ................................ ................. 100

VIII. STATUTORY AUTHORITY

................................ ................................ ........................ 101 Deleted: 69 68

Deleted: 73 72

Deleted: 73 72

Deleted: 74 73

Deleted: 74 73

Deleted: 74 73

Deleted: 75 74

Deleted: 79 78

Formatted: TOC 3, Tab stops: 0.5", Left + Not at 0.67"

Deleted: Options for Determining Appropriate
Reductions in Advanced Biofuel 81 81 79 ¶

a. Option 1: Advanced Biofuel Availability 81 81 80 ¶
b. Option 2: Full Reduction in Cellulosic
Biofuel 82 83 81 ¶

c. Option 3:

Deleted: 84 82

Deleted: 87 85

Deleted: 89 87

Deleted: 90 88

Deleted: 90 88

Deleted: 90 88

Deleted: 90 88

Deleted: 93 91

Deleted: 94 91

Deleted: 96 94

Deleted: 96 94

Deleted: 96 94

Deleted: 98 96

Deleted: 98 96

Deleted: 98 96

Deleted: 98 96

Deleted: 99 97

Deleted: 99 97

Deleted: 100 98

Deleted: 100 98

Deleted: 100 98

Deleted: 100 98

Deleted: 101 99

Deleted: 102 100*** EO12866 Review

- Draft

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

Page 6 of 102 I. Executive Summary

The Renewable Fuel Standard (RFS) program began in 2006 pursuant to the requirements
in Clean Air Act (CAA) section 211(o)

, which was added through the Energy Policy Act of 2005 (EPAct). The statutory requirements for the RFS program were subsequently modified through the Energy Independence and Security Act of 2007 (EISA), resulting in the publication of major
revisions to t

he regulatory requirements on March 26, 2010

. 1

The national volumes of renewable fuel to be used under the RFS program each year (absent an adjustment or waiver by EPA) are specified in CAA section 211(o)(2). The volumes
for 2014 are shown in Table I

- 1. Note that cellulosic biofuel and biomass

- based diesel categories are nested within advanced biofuel, which is itself nested within the renewable fuel
category.

Table I

- 1

Required Applicable Volumes in the Clean Air Act for 2014 ( bill ion gal l on )

Cellulosic biofuel 1.75 a

Biomass

- based diesel ≥1.0 b

Advanced biofuel 3.75 a

Renewable fuel 18.15 a

a Ethanol

- equivalent volume

b Actual volume. The ethanol

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

Under the RFS program, EPA is required to determine and publish annual percentage standards for each compliance year by November 30 of the previous year. The percentage standards are calculated so as to ensure use in transportation fuel of the national “a pplicable 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 percenta ge standards are used by obligated parties (generally, producers and importers of transportation fuel) to calculate their individual compliance obligations. The percentage standards are applied to the volume of non

- renewable transportation fuel that each obligated party produces or imports during the specified calendar year to determine the volumes of renewable fuel that must be used as transportation fuel, heating oil, or jet fuel.

We have evaluated the availability of qualifying renewable fuels and f actors that in some cases limit supplying those fuels to the vehicles and equipment that can consume them. Based on this evaluation we believe that reductions in the volumes of cellulosic biofuel, advanced biofuel, and total renewable fuel required under the statute are warranted for 2014 due to an inadequate domestic supply of these fuels (see Section IV.A for further detail). We are also

1 75 FR 14670 Deleted:

.

Deleted: bill gal) Comment [A1]: Throughout the document, EPA should be consistent with the use of “billion gallon,” and “million gallon.” When abbreviation is used, such as “bill gal,” and “mill gal,” they should be defined when first appear.

Response: Text changed to clarify term definitions.*** EO12866 Review

- Draft

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

Page 7 of 102 proposing to maintain the same volume for biomass

- based diesel for 2014 and 2015 as was adopted for 2013. The volume s that we are proposing for 2014 are shown below.

Table I

- 1 Proposed 2014 Volume Requirements a

Cellulosic biofuel 23 mill gal

Biomass

- based diesel 1.28 bill gal

Advanced biofuel 2.21 bill gal

Renewable fuel 15.21 bill gal

a All volumes are ethanol

- equivalent, except for
biomass

- based diesel which is actual.

A. Purpose of This Action

EPA is today proposing annual volume requirements for obligated parties for cellulosic biofuel, biomass

- based diesel, advanced biofuel, and total renewable fuel for 2014. Table I.A

- 1 lists the statutory provisions and associated criteria relevant to determining the national applicable volumes used to set the applicable standards in today’s proposed rule. Comment [A2]: Because these numbers are not transparent and are so different from what analysts would expect, it might make sense to say something in the Exec. Summary.

Response: Clarifying text was added to point
readers to appropriate sections for details.

Formatted Table*** EO12866 Review

- Draft

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

Page 8 of 102 Table I.A

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

of applicable volume

Cellulosic biofuel in

2014 211(o)(7)(D)(i) Required volume must be lesser of volume specified in CAA 211(o) (2)(B)(i)(III) or EPA’s projected volume.

Biomass

- based diesel in
2014 and 2015 211(o)(2)(B)(ii) and (v) Required volume for years after 2012 must

be at least 1.0 bill gal, and must be based on a review of implementation of the program and an analysis of several factors.

Advanced biofuel in

2014 211(o)(7)(D)(i) If applicable volume of cellulosic biofuel is reduced to the projected volume, EPA may
reduce advanced biofuel and total renewable fuel by the same or lesser volume. No criteria specified.

2 11(o)(7)(A) EPA may waive any portion of the statutory

volume requirements if implementation of those requirements would severely harm the economy or environment of a State, region,
or the United States

, or there is an inadequate domestic supply

. Total renewable fuel in

2014 211(o)(7)(D)(i) If applicable volume of cellulosic biofuel is reduced to the projected volume, EPA may
reduce advanced biofuel and total renewable fuel by the same or lesser volume. No criteria specified.

211(o)(7)(A) EPA may waive any portion of the statutory

volume requirements if implementation of those requirements would severely harm the economy or environment of a State, region,
or the United States

, or there is an inadequate domestic supply

.

Under the statute, EPA must annually determine the projected volume of cellulosic biofuel production for the following year. If the projected volume of cellulosic biofuel production is less than the applicable volume specified in section 211(o)(2)(B)(i)(I II) of the statute, EPA must lower the applicable volume used to set the annual cellulosic biofuel percentage standard to the projected volume of production available during the year. In today's proposed rule, we present our analysis of cellulosic biofuel production and projected volume for 2014. This analysis provides our evaluation of individual producers’ production plans and progress to date, and includes an assessment of the probabilities associated with production schedules from each of these producers. Deleted: integrates information provided by EIA
with Comment [A3]: Reviewers disagrees with this
characterization.

Response: Text was modified to be more accurate.*** EO12866 Review

- Draft

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

Page 9 of 102 While CAA section 211(o)(2)(B) specifies the volumes of biomass

- based diesel to be used in the RFS program through year 2012, it directs the EPA to establish the applicable
volume of biomass

- based diese l for years after 2012. The statute also lists the factors that must be considered in this determination. In today's action we are proposing volume requirements for
biomass

- based diesel for both 2014 and 2015.

There are two different authorities in the statute that permit EPA to reduce volumes of advanced biofuel and total renewable fuel below the volumes specified in the statute. When we lower the applicable volume of cellulosic biofuel below the volume specified in CAA 211(o)(2)(B)(i)(III), we also h ave the authority to reduce the applicable volumes of advanced biofuel and total renewable fuel by the same or a lesser amount. We can also reduce the applicable volumes of advanced biofuel or total renewable fuel under the general waiver authority provid ed at CAA 211(o)(7)(A) under certain conditions. Today's proposal uses a
combination of these two authorities to reduce volumes of both advanced biofuel and total renewable fuel to address two important realities:

• Limitations in the volume of ethanol t hat can be consumed in gasoline given practical constraints on the supply of higher ethanol blends to the vehicles that can use them and other limits on ethanol blend levels in gasoline

– a set of factors commonly
referred to as the ethanol “blendwall”

• Limitations in the ability of the industry to produce sufficient volumes of qualifying
renewable fuel

As summarized below in Section I.B.3 and described in detail in Section IV, today's action lays out a framework for determining the applic able volume requirements that addresses these two realities. We are proposing to use this framework to establish the volume requirements in 2014
and anticipate that, subject to adjustments made in the course of this rulemaking, it w ould also be

a pplied to later years.

In today's proposed rule we have also provided the annual percentage standards (shown in Section I.B.4 below) that would apply to all producers and importers of gasoline and diesel in 2014. The percentage standards , which establis h the legal requirement for the obligated parties, are based on the 2014 applicable volumes that we project for the four types of renewable fuel and a projection of volumes of gasoline and diesel consumption in 2014 from the Energy
Information Administrati on (EIA).

B. Summary of Major Provisions in This Notice

1. Cellulosic Biofuel Volume for 2014

The cellulosic biofuel industry continues to transition from research and development (R&D) and pilot scale to commercial scale facilities, leading to si gnificant increases in production capacity. RIN generation from the first commercial scale cellulosic biofuel facility Deleted: then

Deleted: could Comment [A4]: Align with statements elsewhere on forward guidance

Response: Text modified in Section IV.*** EO12866 Review

- Draft

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

Page 10 of 102 began in March 2013. 2 A second facility began producing fuel in July 2013 with several others expected to follow in 2014. Based on information we have collected from these companies , we have identified five companies we expect to produce cellulosi c biofuel in 2014. There are an
additional three companies that may be in a position to produce cellulosic biofuel if additional pathways are approved by EPA. Each of the relevant facilities is listed in Table I.B.1

- 1 along with our estimate of their pro jected 2014 volume. Based on the information we have received from these companies, our conversations with other government agencies, and EPA's own engineering judg ment we are projecting that 13

- 36 million ethanol

- equivalent gallons of
cellulosic biofu el will be available in 2014. This projected range does not include any volume from facilities that could use pathways which have not yet been approved. If production volumes from these facilities were included, we would project a production range of 56

- 86
million ethanol

- equivalent gallons.

As part of estimating the volume of cellulosic biofuel that would be made available in the U.S. in 2014, we researched all potential production sources by company and facility. This included sources that were still in the planning stages, those that were under construction, and those that are already producing some volume of cellulosic ethanol, cellulosic diesel, or some other type of cellulosic biofuel. Facilities primarily focused on research and development were not the focus of our assessment as produ ction from these facilities represents very small volumes of cellulosic biofuel, and these facilities typically have not generated RINs for the fuel they have already produced. From this universe of potential cellulosic biofuel sources, we identified the
subset that is expected to produce commercial volumes of qualifying cellulosic biofuel for use in 2014. To arrive at a projected volume for each facility, we develop ed company specific projections based on 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 pr oduction or the ability of the produced fuel to qualify for cellulosic biofuel Renewable Identification Numbers (RINs) in 2014. Further discussion of
these factors can be found in Section II.B.

In our assessment we focused on domestic sources of cellulo sic biofuel. At the time of this proposed rule 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 2014.

2 A RIN is unique number genera ted by the producer and assigned to each gallon of a qualifying renewable fuel under the RFS program, and is used by refiners and importers to demonstrate compliance with the volume requirements under the program. Deleted: and discussions with EIA Comment [A5]: See comment, bottom of page 8

Response: Test was not modified.

Deleted: e

Comment [A6]: EIA will provide its required
letter to EPA in October which will reflect the latest

assessment.

Response: Text was modified to acknowledge forthcoming letter from EIA.

Deleted: areareare

Deleted: are

Deleted: worked closely with EIA to develop to

Formatted: Font: Bold, Italic Comment [A7]: EIA

- EPA coordination effort just started . There are historic MOUs in place sharing EIA data with EPA but nothing comparable
from EPA to EIA.

Response: Text was modified to be more accurate.

Deleted: develop develop*** EO12866 Review

- Draft

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

Page 11 of 102 T able I.B.1

- 1 Projected Available Cellulosic Biofuel Plant Volumes for 2014

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

Production Projected 2014

available volume a

Companies with Approved Pathways Abengoa Hugoton, KS Ethanol 24 1Q 2014 b 0

– 18

DuPont Nevada, IA Ethanol 30 2H 2014 b 0

– 2

INEOS Bio Vero Beach, FL Ethanol 8 3Q 2013 2

– 8

KiOR Columbus, MS Gasoline and
Diesel 11 March 201 3 4

– 15

Poet Emmetsburg, IA Ethanol 25 1H 2014 b 0

– 6 Total for companies with approved pathways 13

- 36 c

Companies with Proposed Pathways

CNG/LNG
Producers Various CNG/LNG Various Various 35

– 50

Edeniq Various Ethanol Various 1H 2014 b 0

- 7 Ensyn Stanley, WI Heating Oil 3 2007 0

– 5 Total for both companies with approved pathways and those with proposed pathways 56

- 86 c

a Volumes listed in million ethanol

- equivalent gallons

b Start

- up dates for these facilities are projections

c Total volumes are the result of Monte Carlo simulations rather than the sum of the low and high end of the range of projected available volume for each company. See Section II.C for more detail.

In projecting the actual volume of cellulosic biofuel that will be available for use in 2014, we have taken into account variation in expected start

- up times, along with the facility production capacities, company production plans, the progress made in 2013, expected production distribution and a variety of other factors. Section II discusses in greater detail our projections of cellulosic biof uel in 2014 and the companies we expect to produce this volume.

In response to a recent court decision, we are also proposing to rescind the cellulosic biofuel standards for 2011. In January 2013, the United States Court of Appeals for the District
of Columbia Circuit issued a decision interpreting the statutory requirements for EPA’s cellulosic biofuel projections, in the context of considering a challenge to the 2012 cellulosic biofuel standard. The Court found that in establishing the applicable vo lume of cellulosic biofuel for 2012, EPA had used a methodology in which “the risk of overestimation [was] set deliberately to outweigh the risk of underestimation.” The Court held EPA’s action to be
inconsistent with the statute because EPA had failed to apply a “neutral methodology” aimed at providing a prediction of “what will actually happen,” as required by the statute. As a result of this ruling, the C ourt vacated the 2012 cellulosic biofuel standard. See API v. EPA , 706 F.3d 474 (D.C. Cir. 2013). EPA later removed the 2012 cellulosic biofuel requirement from the regulations. 3 Since we used essentially the same methodology to develop the 2011 cellulosic biofuel standard as we did to develop the 2012 standard, we believe it would be appropriate to rescind the 2011 cellulosic biofuel standard as well and accordingly are proposing to do so in

3 [XXcite final 2013 standards rule when p ublished in the Federal Register ] Formatted Table

Comment [A8]: This capacity # is variable. EIA is using 23 MMG.

Response: Text added to address this issue (footno te to this table)

Deleted: 2014

Deleted: 4 Comment [A9]: Shouldn’t this be 2013?

Response: Yes, text edited

Deleted: 2014 Comment [A10]: Is this the best information given the new information on the lawsuits and KiOR’s deteriorating cash position?

Response: KiOR projection has been adjusted based
on new information to address this issue

Comment [A11]: EPA never identifies in this NPRM who these producers are.

Response: No changes made to the text. EPA has withheld the names of these companies as this estimate is based on a small number (3) of companies and facility capacity in formation that may
be considered CBI.*** EO12866 Review

- Draft

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

Page 12 of 102 today’s action. All of the money paid by obligated parties to purchase cellulosic waiver credits to comply with the 2011 cellulosic biofuel standard would be re funded if this action is finalized. 4

2. Biomass

- Based Diesel in 2014 and 2015

While 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. Moreover, the statute requires that we finalize these biomass

- based diesel volume requirements no later than 14 months before the first year for which that volume requirement will apply. We did not propose a volume requirement for biom ass

- based diesel in the February 7, 2013 Notice of Proposed Rulemaking because at that time we were still evaluating the potential market impacts of current production levels. In order to provide sufficient time for this evaluation, as well as the other a nalyses we are required to conduct, we delayed our proposal for the 2014 volume requirement for biomass

- based diesel.

In today's action we are proposing to maintain the applicable volume of 1.28 bill gallons
for biomass

- based diesel for both 2014 and 2 015. This proposal is based on a consideration of the factors specified in the statute, including biodiesel production, consumption, infrastructure, climate change, energy security, the agricultural sector, air quality, and others. Section III provides additional discussion of our assessment of the proposed volume of 1.28 bill ion gallons
of biomass

- based diesel.

3. Advanced Biofuel and Total Renewable Fuel in 2014

Since the RFS2 program began in 2010, EPA has conside red reductions in advanced biofuel and total renewable fuel authorized under the cellulosic waiver provisions of 211(o)(7)(D)(i). In the past we have focused primarily on the availability of advanced biofuels in determining whether reductions in the requi red volume of cellulosic biofuel should be accompanied by reductions in the required volumes of advanced biofuel and total renewable fuel. The total volume of renewable fuel in the form of ethanol that could reasonably be available and supplied to vehicle s as either E10 or higher ethanol blends given various constraints ( notably those collectively referred to as the blendwall) , was not a limiting factor for years prior to 2014. However, for 2014 and later years, the total volume of ethanol that can be consumed, and the
total volume of non

- ethanol renewable fuels that could reasonably be available, are together expected to be less than the volume requirements established in EISA for advanced biofuel and total renewable fuel. Therefore, we are proposing reductions in the volume requirements for these categories of renewable fuel to address these concerns.

In order to determine the nessesary reductions in EISA volume requirements, EPA must
consider the capabilit ies of the relevant industries to make qualifying renewable fuels available,

4 In 2011 obligated parties purchased 4,248,388 cellulosic biofuel waiver credits at a price of $1.13 per gallon

- RIN for a total cost of $4,800,678. Comment [A12]: Does the statute specify similar
factors to be considered for other biofuel categories?
Does EPA consider these factors for other biofuel categories?

Response: These factors are only required to be
considered for BBD for 2014. Text was modified to clarify this fact.

Deleted: billbillbill

Deleted: the

Deleted: W e evaluated three potential approaches for reducing the applicable volume requirements for
advanced biofuel and total renewable fuel. Each of
these approaches would require u se of a combination
of the cellulosic and general waiver authorities at 211(o)(7)(D)(i) and 211(o)(7)(A), respectively, to address supply concerns associated with the blendwall; the approaches differ primarily with regard to how the advanced biofuel requirement would be adjusted using these authorities. The first approach w ould lower the statutory volumes for advanced biofuels only to the extent that additional volumes are not projected to be available; the general waiver authori ty would be used to ensure
that the total volume of renewable fuel would address supply concerns associated with the
blendwall . The second approach would make
reductions in advanced biofuel and total renewable fuel that are equal to the proposed reductions in
cellulosic biofuel and would u se the general waiver authority to make further reductions to the total renewable fuel requirement necessary to address the
blendwall Comment [A13]: The first and second “approaches” are outcomes, rather than approaches. In particular, what is called the “second approach” might be an outcome that results from application of the third approach: the only “approach” that is actually an approach as oppos ed to an outcome.

Response: Suggested deletions were not incorporated.

Deleted:

. ¶

Deleted: The third approach that we evaluated, and the one that we are proposing today, includes

Deleted: includes both a consideration of

Deleted: capabilitycapabilitycapability

Deleted: y capability*** EO12866 Review

- Draft

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

Page 13 of 102 either through domestic production or importation, and also the capability of the relevant industries to ensure that those renewable fuels are used as transportation fuel, heating oi l, or jet
fuel. The use of renewable fuels includes a consideration of the infrastructure available for distributing, blending, and dispensing renewable fuels, as well as appropriate vehicles in the fleet that can consume various renewable fuels, such as flex

- fuel vehicles (FFVs). Our proposed framework for addressing both availability of qualifying renewable fuels and constraints on their consumption would make use of a combination of the cellulosi c waiver authority at 211(o)(7)(D)(i) and the general wai ver authority at 211(o)(7)(A). As described in detail in Section IV.A.2, we interpret the term "inadequate domestic supply" as it is used under the general waiver authority to include consideration of factors that affect consumption of renewable
fuel

. We believe the framework being proposed today best approximates the multiple goals that Congress intended in the RFS program, and we would intend this framework to apply not just to 2014, but to later years as well. However, we are soliciting comment on alt ernative approaches as well. We discuss the proposed framework and the alternative approaches in Section IV.

We believe that our proposed framework for determining appropriate volumes of total renewable fuel and advanced biofuel would simultaneously a ddress the ethanol blendwall and limitations in availability of qualifying renewable fuels. For total renewable fuel, we would project the volume of ethanol that could reasonably be consumed as E10 and higher ethanol blends, and would add to that the volu me of all non

- ethanol renewable fuels that could reasonably be expected to be available. For advanced biofuel, we would sum the ethanol

equivalent volumes of the cellulosic biofuel requirement, the biomass

- based diesel requirement,
and the additional non

- ethanol advanced biofuels that could reasonably be expected to be available and be consumed. In this process we have projected ranges that encompass the most likely outcomes, and we propose several approaches to determining the most likely value for the
f inal rule.

4. Proposed Annual Percentage Standards for 2014

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

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

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

- 1. The specific formulas we use in
calcul ating the renewable fuel percentage standards are contained in the regulations at 40 CFR §80.1405 and repeated in Section V.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 EIA projections. The proposed standards for 2014 are shown in Table

I.B.4

- 2. Detailed calculations can be found in Sectio n V, including the projected 2014 gasoline
and diesel volumes used. Deleted:

Comment [A14]: It would be helpful if EPA can explain why it is necessary to include this particular phrase in this sentence.

Response: This text has been in previous annual
rules and clarifies t hat the required volumes may not be exactly realized in

- use due to uncertainty in gasoline and diesel projections. Text was modified to clarify.*** EO12866 Review

- Draft

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

Page 14 of 102 Table I.B.4

- 2 Proposed Percentage Standards for 2014

Cellulosic biofuel 0.017%
Biomass

- based diesel 1.16 %
Advanced biofuel 1.36 %
Renewable fuel 9.33 % Comment [A15]: Need to recalculate based on
different G and D values

Response: Values have been recalculated.*** EO12866 Review

- Draft

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

Page 15 of 102 II. Proposed Cellulosic Biofuel Volume for 2014

In order to project the volume of cellulosic biofuel production in 2014 for use in setting the applicable percentage standard, we considered information we received from EIA and
information we collected from individual facilities that have the potential to produce qualifying volumes for consumption as transportation fuel, heating oil, or jet fuel in the U.S. i n 2014. This section describes the volumes that we project will be produced or imported in 2014 as well as
some of the uncertainties associated with those volumes.

In the past several years the cellulosic biofuel industry has continued to progress. T he first cellulosic biofuel RINs under the current RFS regulations were produced in 2012 at two
small demonstration scale facilities. During 2013

, the first commercial scale cellulosic biofuel
facilities have successfully complete d commissioning and beg a n fuel production

, and several more large scale commercial production facilities are expected to begin fuel production in 2014. Projected costs for the production of cellulosic biofuels continues to fall as a result of ongoing technology development and op erating 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
the se advances , the projected capital costs and energy costs to produce a gallon of cellulosic biofuel have decreased. New feedstock supply chains, which will be necessary to provide the raw materials for anticipated commercial facilities, have been establis hed, and in several cases companies have signed contracts to obtain significant quantities of feedstocks for their first commercial facilities. EPA has also approved new pathways to increase the variety of fuels for which cellulosic RINs can be generated and the feedstocks from which these fuels can be produced. These factors have combined to continue to reduce the perceived technical, financial, and regulatory risks associated with the cellulosic biofuel industry and place the cellulosic biofuel industry on firm ground for future growth.

Although the cellulosic biofuel industry faces many challenges and RIN

- generating cellulosic biofuel production continues to be limited, the industry is growing incrementally , both
in the United States and around the wor ld. 5 New facilities projected to be brought online in the United States in 2014 would increase the production capacity of the cellulosic industry by approximately 600 percent. The following section discusses the companies the EPA reviewed in the process of projecting cellulosic biofuel production for use as a transportation fuel in the
United States in 2014. Information on these companies form s the basis for our projection that the volume of cellulosic biofuel produced in 2014 is likely to be in the range of

– 13

– 36 million gallons. EPA will continue to monitor the progress of these facilities, as well as any others of which we become aware that have the potential for cellulosic biofuel production in 2014, in
order to have the most up to date information possible to set the cellulosic biofuel standard in the
final rule.

5 As of July 31, 2013

, 215,044 RINS that can be used to fulfill the cellu losic biofuel standard (D3 and D7 RINS) have been generated

. Deleted:

– including information from EIA

–*** EO12866 Review

- Draft

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

Page 16 of 102 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 spec ified in CAA 211(o)(2). For 2014, the statute specifies a cellulosic biofuel volume requirement of 1.75 billion gallons. The statute requires that if EPA determines, based on EIA’s estimate, that the projected volume of cellulosic biofuel production
for the following year is less than the applicable volume 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 2014 volume requirements for advanced biofuels and total renewable fuel is presented in
Section IV.

B. Cellulosic Biofuel Volume Assessment for 2014

In order to project cellulosic biofuel production for 2014, we have tracked the progress of several dozen potential cellulosic biofuel production facilit ies. As for the 2013 annual volumes, we have focused on facilities with the potential to produce commercial volumes of cellulosic biofuel rather than small R&D or pilot scale facilities as the larger commercial scale facilities are much more likely to ge nerate RINs for the fuel they produce and the volumes they produce will have a far greater impact on the cellulosic biofuel standard for 2014. From this list of facilities we used publically available information, as well as information provided by DOE, E IA, 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 2014. Each of these companies was investigated further in order to determine the cur rent status of its facilities and its likely cellulosic biofuel production and RIN generation volumes for the coming years. Information such as the funding status of these facilities, current status of the production technologies, announced construction a nd production ramp

- up periods, and annual fuel production targets were all considered when we spoke with representatives of each company to discuss cellulosic biofuel target production levels for 2014

.

For each company included in our 2014 volume projections EPA has established a range of potential production volume such that it is possible, but highly unlikely that the actual production will be above or below the range. 6 The low end of the range for each company is designed to represent the volume of fuel EPA believes each company is likely to produce if they
are unable to b egin fuel production on their expected start

- up date and/or experience challenges that result in reduced production volumes or a longer than expected ramp

- up period. Experience to date with cellulosic biofuel production facilities is that historically the y have been unable to
achieve announced start

- up dates and production volumes in their first few years of expected production. To project a low end of the range of production volumes, therefore, we must

6 For the purposes of the Monte Carlo simulation, discussed in more detail later, this range will be treated as representing the 90% confidence interval

. Deleted: Throughout this process EPA has been in regular conta ct with EIA to discuss relevant information and EIA’s assessment of potential cellulosic biofuel producers. Comment [A16]: Reviewers d isagree with this
characterization.

Response: Text modified to address this comment,
reference to contact with EIA retained.*** EO12866 Review

- Draft

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

Page 17 of 102 consider the likely minimum volume of fuel new facil ities are likely to produce if they experience similar delays and setbacks. The low end of the range for any facilities that have not yet begun producing cellulosic biofuel is set at zero in our assessment. This reflects the
uncertainties related to thes e facilities’ start

- up dates, the possibility that any remaining construction and commissioning timelines may be delayed, and the possibility that initial fuel volumes are likely to be small.

If a facility has already begun production any uncertainty rela ted to its start

- up date is no longer relevant and the remaining uncertainty primarily relates to the facility’s ability to achieve steady state production and target yields as it progress es towards production rates that reflect the facility’s nameplate ca

pacity. For these facilities, production history is a significant factor in establishing the low end of the projected production range. It is important to note that the low end of the range does not represent a worst

- case scenario. The worst

- case scenar io for any of these facilities is zero, as it is always possible that extreme circumstances or natural disasters may result in extended delays, project cancellation, or liquidation. While not denying this possibility for any of the facilities included in our projections, several have made sufficient progress that we believe a non

- zero value for the low end of the range is appropriate. For these facilities we believe it is highly unlikely that the production volume will fail to exceed the low
end of their projected production range in 2014. Further discussion on the basis for the low end of the projected production range for each facility is included in the company descriptions in the following sections.

To determine the high end of the range of expected production volumes for each company we considered a variety of factors, including company history, expected start

- up date and ramp

- up period, facility capacity, and others mentioned above. As a starting point, EPA
calculated a production volume using the expected start

- up date and facility capacity assuming
our best

- case scenario benchmark of a six

- month straight

- line ramp

- up period. Any production volumes that exceeded this volume were not considered to be credible, even fo r the high end of the range of expected production volumes. If the production estimate EPA received from a company was lower than the volume calculated using the methodology above, EPA used the company production targets instead. In some cases these volu mes were discounted further based on the history of these companies or EPA’s engineering judg ment. More information on the process used to project the high end of the range of expected production volumes for each company can be found below. This process is similar to the process used in the 2013 standards

NPRM to calculate the expected production for each company.

We believe our range of projected production volumes for each company represents the range of what is likely to actually happen for each c ompany. A brief description can be found below for each of the companies we believe will produce cellulosic biofuel and make it commercially available in 201 4. We will continue to gather more information to help inform our decision regarding the cellulosic biofuel volume to be required for 2014 in the final rule. In the sections that follow, we first discuss domestic cellulosic biofuel production facilities with an approved RIN generating pathway, followed by facilities with pathways that have been proposed or are currently being evaluated by EPA, and finally foreign cellulosic biofuel producers. Deleted: information received from EIA,

Deleted: e

Comment [A17]: Spell out when first appears

Response: Text modified to address the comment

Deleted: These projections are made in
coordination with EIA as well as each of the individual companies.*** EO12866 Review

- Draft

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

Page 18 of 102 EPA has determined a range of potential production volumes for each company rather than a single value as a range better reflects the uncertainty associated with the production from each company. Additionally, there are a large number of companies that EPA must assess and aggregate to produce a single national volum e covering the entire cellulosic biofuel industry. We believe that our projected production volume for the cellulosic biofuel industry as a whole is more accurate if it is done in such a way as to reflect the uncertainty associated with each of the

compan ies that contribute to the projection. As discussed in more detail in Section II.C below, EPA is using a Monte Carlo simulation as a tool to combine our production projections for each individual company to determine a reasonable range of cellulosic biofu el production in 2014 for the entire industry in a way that reflects the uncertainty across the full suite of facilities. This projected range will help to provide a basis for public comment and to inform our ultimate decision on the single value for the final rule that best represents the projected volume of
cellulosic that will be available in 2014.

1. Potential Domestic Producers with Approved Pathways

The companies and facilities discussed in this section all have the potential to produce
cellul osic biofuel for use as transportation fuel, heating oil, or jet fuel in the United States in

2014. Two of the facilities discussed here successfully began producing cellulosic biofuel at
commercial

- scale in 2013. The remaining seven are in various st ages of construction. All seven of these facilities project the successful completion of construction of commercial scale facilities and initial fuel production in 2014. The strong financial incentive provided by the cellulosic RINs, combined with the fa ct that all these facilities are located in the United States and intend to use approved pathways, give us a high degree of confidence that any fuel they produce will also generate corresponding cellulosic biofuel RINs. 7

In order to generate RINs, each of these companies must register under the RFS program
and comply with all applicable recordkeeping and reporting requirements. This includes using an approved RIN

- generating pathway and verifying that their feedstocks meet the definition of
renewable biomass.

Abengoa

Abengoa, a large international biofuels c ompany, has developed 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 demo nstration

- scale facility in Salamanca, Spain, Abengoa is now working towards the completion of their first commercial scale cellulosic ethanol facility in Hugoton, Kansas. After successfully proving their technology at commercial scale in Hugoton, Abengoa currently

7 In 2012

, approximately 20,000 gallons o f cellulosic biofuel produced in the US was exported to Brazil to be used for promotional purposes. We believe the circumstances surrounding this export of cellulosic biofuel were unique, including significant investment in the company that produced the f uel by Petrobras, and are unlikely to be repeated by the companies included in future years. Comment [A18]: Not sure that Monte Carlo is the best was to get the numbers we are looking for.

Response: Text modified to address this comment

– points to further discussion in Section IV

Comment [A19]: Name the two for clarity.

Response: Text modified to address this comment*** EO12866 Review

- Draft

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

Page 19 of 102 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.

Abengoa has contrac ts in place to provide the majority of feedstocks necessary for the Hugoton 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 expecte d to take approximately two years and be completed in the fourth quarter of 2013. All of the major process equipment for this project has been purchased and all of the required permits for construction have been approved. Abengoa’s Hugoton facility is be ing partially funded by a $132 million Department of Energy (DOE) loan guarantee.

When completed, the Hugoton plant will be capable of processing 700 dry tons of corn stover per day, with an expected annual ethanol production capacity of approximately 24 million gallons. Abengoa plans to begin producing fuel at the facility in January 2014, shortly after completing construction in late 2013, and to be producing fuel at rates near the nameplate capacity by the end of the second quarter of 2014. They are c urrently projecting 17

– 20 million gallons of cellulosic ethanol production from this facility in 2014. This range of volumes is consistent with the 18 million gallons EPA would project if we assume production starts on January 1, 2 0 14 and use the six

- month ramp

- up period as a benchmark best case scenario for new cellulosic biofuel production facilities. To date construction at the Abengoa facility has proceeded as expected and EPA has no reason to believe this facility is less likely to achieve
their production targets than any other new first

- of

- a

- kind cellulosic biofuel facility. EPA is therefore using 18 million gallons of cellulosic ethanol as the high end of the projected production range from Abengoa in todays proposed rule. For the low end of the production range, EPA is projecting a volume of 0 gallons, consistent with our projections for all facilities that have not yet begun producing commercial volumes of cellulosic biofuel. This significantly
reduced volume reflects the fact that no comm ercial scale cellulosic biofuel facility has yet been
able to achieve its target date for the first production of fuel. Any delay in the start

- up date of this facility would have a significant negative impact on production in 2014 and may result in produc tion being delayed until 2015.

Cool Planet Biofuels

Cool Planet Biofuels has developed a process to convert a variety of forms of cellulosic biomass into a renewable gasoline product. Their process uses pressure and heat to convert the
cellulosic biom ass to a hydrocarbon stream in a biomass fractionator which is then upgraded using proprietary catalysts into a renewable gasoline product. Cool Planet Biofuels plans to deploy relatively small scale production units capable of producing 10 million gallon s of fuel per year that can be located near readily available sources of cellulosic biomass. In December 2012 Cool Planet Biofuels began producing fuel from their 400,000 gallon per year demonstration scale facility that is currently being used for testin g purposes.

Cool Planet Biofuels plans to begin producing fuel at their first commercial scale unit, with a nameplate capacity of 10 million gallons per year by the end of 2014. The location of this facility has not yet been announced, and it is unclear whether Cool Planet Biofuels has raised Comment [A20]: Refer to communications from Abengoa.

Response: R eference to email from Abengoa added
as a footnote*** EO12866 Review

- Draft

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

Page 20 of 102 sufficient funds for the construction of this facility. Cool Planet Biofuels claims that the very short construction time they anticipate for their facility relative to cellulosic biofuel production
facilities of si milar size, which generally take at least two years to build, is made possible by their use of very little novel equipment. The majority of the facility is composed of units already used in commercial operation in other applications that will be purchased from vendors and assembled by Cool Planet Biofuels. The facility will be constructed on cargo container skids and then transported to the fuel production site.

EPA believes that it may be possible for Cool Planet Biofuels to produce cellulosic
biofuel from their first commercial scale production facility in 2014, but any production from this facility is highly uncertain. Historically the construction of cellulosic biofuel production facilities has taken multiple years, with delays to the initial const ruction schedules common. Cool Planet’s unique construction plan may allow for a reduced construction timeframe; however we do not believe it would be appropriate to rely on this in projecting available volumes
of cellulosic biofuel in 2014. We have ther efore not included any volume from Cool Planet Biofuels in our projection of the potentially available volume of cellulosic biofuel in 2014 in today’s proposal.

DuPont

DuPont has developed an enzymatic process to convert corn stover into cellulosic
ethan ol. DuPont has invested hundreds of millions of dollars to develop this technology and since 2009 has operated a small demonstration scale facility in Vonore, Tennessee. In addition to developing technology for converting cellulosic biomass to ethanol, D uPont has been working with corn producers, equipment manufacturers, and Iowa State University to develop expertise in the collection, transportation, and storage of the biomass feedstock for their cellulosic ethanol facilities. On March 29, 2013 DuPont s igned an agreement with USDA to promote the sustainable harvesting of feedstocks for cellulosic biofuel facilities.

On November 30, 2012 DuPont began the construction of their first commercial scale cellulosic ethanol facility in Nevada, Iowa. When com pleted, this facility will have a nameplate production capacity of 30 million gallons of cellulosic ethanol per year. DuPont currently plans to achieve mechanical completion at this facility in June 2014 and to begin production in the
second half of 2014. They are currently projecting the production of approximately 3 million gallons of cellulosic ethanol from this facility in 2014; however they acknowledge that even slight delays in their expected construction timeline could have significant impacts on t heir fuel production in 2014. Using EPA’s best

- case benchmark of a six month straight

- line ramp

- up period assuming a production startup date of October 1, 2014 would result in an expected production of approximately 2 million gallons in 2014. Due to the start

- up date that is late in the year, however, even a relatively minor delay in the construction and commissioning timeline or unforeseen challenges in start

- up would result in no production from this facility in 2014. We have projected a range or 0

– 2 million gallons of cellulosic biofuel from DuPont’s Nevada, Iowa facility in 2014.

Fiberight*** EO12866 Review

- Draft

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

Page 21 of 102 Fiberight uses an enzymatic hydrolysis process to convert the biogenic portion of separated municipal solid waste (“ MSW ”) and other waste feedstocks into ethanol. They have successfully completed five years of development work on their technology at their small pilot plant in Lawrenceville, Virginia. In 2009 Fiberight purchased an idled corn ethanol plant in Blairstown, 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 required modifications at their Blairstown facility. Additional construction will be required at this facility before the production of cellulosic biofuel can begin, and the company expects that this
construction will ta

ke approximately 6 months to complete. Additionally, Fiberight’s waste separation plan for this facility was approved in June 2012 allowing Fiberight to generate RINs for the cellulosic ethanol they produce using separated MSW as a feedstock. Because of the uncertainty surrounding Fibright’s funding status, the lack of progress towards the completion of the modifications at their Blairstown, Iowa facility, and their history of production delays EPA is not including any volume from Fiberight in today’s pro posal.

INEOS Bio

INEOS Bio has developed a process for producing cellulosic ethanol by first gasifying
cellulosic feedstocks into a synthesis gas (“ syngas ”) and then using naturally occurring bacteria to ferment the syngas into ethanol. In January 2011

, USDA announced a $75 million loan guarantee for the construction of INEOS Bio’s first commercial facility to be built in Vero Beach, Florida. This loan was closed in August 2011. This was in addition to the grant of up to $50 million INEOS Bio received from DOE in December 2009. At full capacity, this facility will be capable of producing 8 million gallons of cellulosic biofuel as well as 6 megawatts (gross) of renewable electricity from a variety of feedstocks including food and yard waste, agricultura l residues, slash and pre

- commercial thinnings, and tree residues from tree plantations

. 8 The facility also plans to use a limited quantity of separated MSW as a feedstock
after initial start

- up.

On February 9, 2011, INEOS Bio broke ground on this facil ity. INEOS Bio completed construction on this facility in June 2012 and began full commissioning of the facility. In August 2012 INEOS Bio received approval from EPA for their yard waste separation plan and successfully registered their Vero Beach, FL fa cility under the RFS program. In October 2012 the facility began producing renewable electricity. INEOS Bio entered the start

- up phase of cellulosic ethanol production in November 2012. During this phase the facility was not run continually

, as facility modifications continued to be made ; however

, a small volume of cellulosic ethanol was successfully produced. On July 31, 2013

, INEOS Bio announced they had begun producing cellulosic ethanol at commercial scale from their Vero Beach facility. INEOS

8 Both slash and pre

- commercial thinnings and tree residue from tree plantations must come from non

- federal forestland to qualify as a feedstock in the RFS progra m. Additionally slash and pre

- commercial thinnings must come from land that is not ecologically sensitive forest land. Deleted:

Deleted:

.

Deleted:

,,,
Deleted:

,
Deleted:*** EO12866 Review

- Draft

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

Page 22 of 102 Bio has previously reported that they plan to be producing cellulosic ethanol at levels near the facility’s capacity of 8 million gallons by the end of 2013. If they are able to achieve these production rates by the end of 2013, production in 2014 may be at or near the nameplate capacity of 8 million gallons of cellulosic ethanol.

There is, however, significant uncertainty in the ability of this facility to achieve these production volumes in 2014. The facility has not yet reached production rates con sistent with its nameplate capacity and production ramp

- up could take longer than expected. INEOS Bio also experienced several setbacks to production related to weather

- caused power losses at the facility. While they are working to protect against these issues in the future by enabling the facility to operate in a self

- sustaining mode, the possibility of future interruption due to serious weather events will still exist. For this proposed rule we are projecting a production range of 2

– 8 million gallon s of cellulosic ethanol from INEOS Bio’s Vero Beach facility in 2014. The low end of the range accounts for the possibility of both an extended ramp

- up period and interruptions to production continuing into 2014.

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. Th e first stage of this process produces a renewable crude oil which is then upgraded to produce primarily gasoline, diesel, and jet fuel as well as a small quantity of fuel oil, all of which are nearly identical to those produced from petroleum.

KiOR’s f irst commercial scale facility is located in Columbus, Mississippi and is capable of producing approximately 11 million gallons of gasoline, diesel, and jet fuel per year. Construction on this facility began in May 2011 and was completed in September 2012 . This facility is funded, in large part, with funds acquired through private equity raises and supplemented by KiOR’s $150 million IPO in June 2011. On March 17, 2013 KiOR generated their first cellulosic biofuel RINs from this facility. KiOR initially announced that they expected
the start

- up period at their Columbus facility to last 9

- 12 months, during which time they estimate fuel production will average 30%

- 50% of the facility capacity and production rates at or near nameplate capacity following. O n August 8, 2013 KiOR reduced its production targets for
2013 from 3

- 5 million gallons to 1

- 2 million gallons. KiOR has feedstock supply agreements in place to supply all of the required feedstock for their Columbus facility with slash and pre

commercial thinning. They also have off

- take agreements with several companies for all of the fuel that will be produced.

In today’s proposal we are projecting a production range of 4

– 15 million ethanol

equivalent gallons in 2014 from KiOR’s Columbus, MS facili ty. The high end of our proposed production projection (9.5 million gallons or 15 million ethanol

- equivalent gallons) has been calculated assuming this facility produces at a rate of 50% of nameplate capacity in the first three
months of 2014 and at full capacity for the remaining nine months. This projection is in line with KiOR’s expectations for this facility, assuming a 12 month ramp

- up period starting in March 2013. It is less than we would calculate using our best case scenario

, six month straight

Deleted:*** EO12866 Review

- Draft

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

Page 23 of 102 line ramp

- up period, which would lead to full nameplate production (17 million ethanol

equivalent gallons) in 2014. The low end of the range (2 million gallons or 4 million ethanol

equivalent gallons) reflects the fact that KiOR has yet to achieve steady state production at their facility and therefore have not yet begun work to optimize the efficiency and yields of their Columbus facility. As a result production rates have thus far been well below nameplate capacity. If further modifications are require d to address these issues, KiOR could face an extended period with no production. We believe this is appropriate in light of KiOR’s recent reduc tion in its production targets for the remainder of 2013.

LanzaTech

LanzaTech has developed a process for the production of ethanol from feedstock streams that contain carbon monoxide. The LanzaTech process can utilize industrial waste gas streams or syngas produced from the gasification of agricultural residues, woody biomass, or other
cellulosic feedstocks. 9 These gas streams are dispersed into a liquid medium where they are converted into ethanol or other chemicals by LanzaTech’s proprietary microbes. LanzaTech is currently using this technology at two demonstration scale facilities in China, producing et hanol from waste gasses at steel mills in partnership with Baosteel and Capital Steel.

On January 3, 2012 LanzaTech purchased the former Range Fuels facility in Soperton, Georgia. LanzaTech is currently in the process of assessing the equipment in place at this facility. After making any necessary modifications to the existing gasifiers they plan to install units to allow for the production of ethanol from syngas produced from the gasification of local woody biomass. LanzaTech believes the current produ ction capacity of the gasifiers when used in combination with their ethanol producing microbes is approximately 4

– 6 million gallons per year, with the potential for further expansion to allow for the production of 20

– 30 million gallons per year at this site. At this point, however, LanzaTech is not projecting initial ethanol production from this facility until late 2014 or early 2015. EPA has therefore not included any volume from LanzaTech in our cellulosic biofuel projections in this proposed rule.

Poet

Poet has developed an enzymatic hydrolysis process to convert cellulosic biomass into ethanol. Poet has been investing in the development of cellulosic ethanol technology for more than a decade and began producing small volumes of cellulosic ethanol at pilot scale at their plant in Scotland, South Dakota 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 technolo gy.

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,

9 RIN generation would be limited to fuels produced using approved sources of biomass such as agricultural residue,
tree residue from a tree plantation, or slash and pre

- commercial thinnings. LanzaTech would be required to meet all recordkeeping and reporting requirements to demonstrate the feedstock is renewable biomass sourced from land that meets all of the land use requirements of th e RFS program. Comment [A21]: Given these concerns perhaps a zero on the low end would be more appropriate or a derating of the 15 MMG high end?

Response: Text and production range modified
based on new information to address this c omment.*** EO12866 Review

- Draft

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

Page 24 of 102 leaves, husks, and some stalk per day into cellulosic ethanol. The fa cility is projected to have an annual production of approximately 25 million gallons per year. In anticipation of the start

- up of this facility, Poet constructed a 22

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

Site prep work for Project LIBERTY began in the summer of 2011, and vertical construction of the facility began in the spring of 2012. Poet was awarded a $105 million loan guarantee offer for this project from DOE in July 2011, but with the joint venture

, decided to proceed without the loan guarantee. This project is expected to be completed in the first half of 2014 and will be followed by a commissioning period before the plant begins cellulosic ethanol production. Poet curre ntly projects that production from Project LIBERTY will be between 7 and 12 million gallons of cellulosic ethanol in 2014. Using the six month best

- case ramp

- up period

, with production beginning on July 1, 2014

, would result in a volume projection of 6
mi llion gallons from this facility. In today’s proposed rule

, EPA is therefore setting the high end of Poet’s projected production range at 6 million gallons of cellulosic ethanol. The low end of the projected production range for Poet’s Project LIBERTY is 0 gallons in 2014. This number reflects the fact that any significant delay in the start

- up date or difficulties encountered in the commissioning or start

- up phases of production are likely to result in little to no production from this facility in 2014. While EPA has no reason to believe this facility will be any more prone to these types of challenges than any other commercial scale cellulosic biofuel production facility, our experience suggests that these types of delays are common and should be consi dered when projecting the low end of the range for production volume in 2014.

Sweetwater Energy

Sweetwater Energy has also developed a technology for converting cellulosic biomass, primarily agricultural residues and woody biomass, to cellulosic sugars. Sweetwater Energy uses a modular approach, building relatively small facilities near the source of feedstock and transporting the sugars they produce to a larger facility to be converted into renewable fuels or chemicals. They currently have two arrangem ents in place with corn ethanol facilities in the United States to provide cellulosic sugars in sufficient quantity for the production of 3.6 million gallons of cellulosic ethanol from each of these facilities. Both of Sweetwater Energy’s cellulosic sugar production modules are scheduled to begin production in the summer of 2014. If both these facilities begin producing sugars that are converted to cellulosic biofuel on July 1,

2014

, our best case scenario benchmark six month straight

- line ramp

- up period would project a
volume of 2 million ethanol

- equivalent gallons. At this time, however, cellulosic RINs would not be able to be generated for any fuel produced using Sweetwater Energy’s cellulosic sugars

, since the existing RFS registration regulations wer e not designed to allow the subdivision of processes between multiple facilities. Until this is resolved, fuel production processes of this type will not be able to generate RINs. We therefore have not included any volume from Sweetwater Energy in our pr ojections of cellulosic biofuel for 2014.

2. Potential Domestic Producers without Existing Pathways*** EO12866 Review

- Draft

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

Page 25 of 102 In addition to the facilities discussed above

, there are a number of companies with the potential to produce cellulosic biofuel from domestic facilitie s in 2014 from pathways that have not been approved for RIN generation by EPA. Some of these pathways were addressed in a notice of proposed rulemaking published by EPA on June 14, 2013, while others are currently being evaluated by EPA. As the companies discussed in this section do not yet have approved RIN generating pathways for the fuels they plan to produce

, there is additional uncertainty regarding RIN production from them in 2014. 10 Nevertheless, if the pathways are approved by EPA these facilities represent a significant potential source of cellulosic biofuel. The ranges projected for each company reflect only the uncertainty associated with production volumes

, assuming pathway ap proval occurs. 11 EPA will decide whether or not to include any volume from these pathways based on the status of these pathways at the time of the final rule.

Compressed Natural Gas (CNG) and Liquified Natural Gas (LNG) Producers

One of the new pathways proposed by EPA for the production of cellulosic biofuel is for the production of CNG or LNG from landfill biogas if used as a transportation fuel. The production potential for this type of cellulosic biofuel is very large with many landfills currently

c apturing biogas. The use of CNG and LNG as a transportation fuel in 2014 is expected to be approximately 700 million ethanol

- equivalent gallons. 12 To generate RINs for landfill biogas, however, companies must be able to demonstrate that any fuel for which they generate RINs is used as transportation fuel. This can be done by fueling vehicles with CNG/LNG onsite or through contractual mechanisms.

In this proposed rule

, we are projecting a production range of 35

- 50 million ethanol

equivalent gallons from l andfill biogas in 2014. The high end of the range represents the permitted capacity of all of the facilities currently registered to produce advanced biofuel RINs from landfill biogas while the low end represents the current production rate of advanced bi ofuel from landfill biogas. In the case of CNG and LNG from landfill biogas

, EPA believes a different methodology for projecting the high end of the production range is appropriate

, as the uncertainties surrounding RIN generation are significantly differe nt. The only change at issue in the proposal to approve this pathway for the generation of cellulosic biofuel RINs is a change in the type of RIN that is generated, allowing for the generation of cellulosic biofuel instead of
advanced biofuel RINs based o n new information of the composition of the feedstock . In this case production facilities already exist and are already capturing landfill biogas at or near their registered capacities. Similarly, the amount of CNG and LNG currently being used as
transpo rtation fuel far exceeds the combined production capacity of all of the registered facilities. RIN generation is therefore limited by the companies’ ability to demonstrate the use of the biogas as a transportation fuel. 13 As part of the registration proce ss for the generation of advanced biofuel RINs, each of these facilities submitted documentation that included contracts

10 At the time of this proposal

, EPA has not yet completed our determination of whether or not the fuels discussed in this section meet all of the requirements to generate cellulosic biofuel RINs.

11 In projecting potential production volumes EPA has assumed that the pathways are all approved as of January 1, 2014. Approval subsequent to that date would reduce potential volumes, depending on the producer at issue.

12 EIA Annual Energy Outlook 2013. Transportation Sector Energy Use by Mode and T ype, Reference case.

13 See CFR 80.1426 for requirements for generating RINs from biogas

. Formatted: Font: Italic*** EO12866 Review

- Draft

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

Page 26 of 102 with parties capable of using CNG/LNG as transportation fuel who had access to the same common carrier pipeline network as the biofuel producers.

We believe the sum of the maximum permitted capacities of all of the facilities currently registered to produce advanced biofuel RINs from landfill biogas is an appropriate volume to use for the high end of the projected production range. It is also the case, however, that these facilities would appear to have the capability to realize value from advanced RIN production if they were to produce at their facility capacity and are not currently doing so. There may be
additional factors that EPA is unaware of at this time that is limiting production. To account for this, we are setting the low end of the range for the production of cellulosic RINs from CNG/LNG produced from landfills equal to 35 million gallons, the current production rate when projected over a full year.

Edeniq

Edeniq has developed a proprietary process that would allow corn ethanol producers to generate cellulosic ethanol from corn kernel fiber at the producers’ existing production facilities. Their process involves the addition of the CellunatorTM, a proprietar y milling technology designed to increase the uniformity of the feedstock particles, along with a unique combination of enzymes to convert the cellulosic material in the corn kernel into sugars and ultimately cellulosic ethanol. Edeniq claims that their t echnology would not only allow corn ethanol producers to produce cellulosic ethanol from low value feedstock already present in their facility, but also would increase the yields of ethanol produced from starch by 2

- 4%. Several commercial plants are curre ntly using the Cellunator technology to increase their yields of ethanol from starch. Edeniq ha s been testing their technology, including both the Cellunator and the additional enzymes, at a demonstration scale facility in Visalia, California

, since June 2012 and announced in May 2013 that they had successfully completed a trial run at this facility with a continuous run time of greater than 1000 hours.

Several plants are evaluating Edeniq’s proprietary system to produce cellulosic ethanol from corn kernel fiber. These evaluations have included commercial scale trials. If the pathway for the produ ction of cellulosic ethanol from corn kernel fiber is approved

, these facilities would be in position to begin generating cellulosic RINs shortly after approval. Other facilities currently using the Cellunator would only have to make minor modifications t o their operations, including the addition of Edeniq’s suite of enzymes to produce cellulosic ethanol. Edeniq currently projects approximately 7 million gallons of cellulosic ethanol production using their technology in 2014 and ha s provide d EPA with detailed information on the expected production volumes and dates of initial cellulosic ethanol production for facilities expected to utilize their technology. In today’s proposed rule, we have included a projected production volume of 0

– 7
mi llion gallons. The low end of this range reflects the fact that Edeniq’s technology has not yet been used to generate commercial scale volumes of cellulosic biofuel. The high end of the range reflects Edeniq’s own projections, which EPA has reviewed and believes are reasonable given the nature of Edeniq’s technology, the deals they currently have in place, and their experience with the installation and operation of the various components of their technology. This volume is also dependent on the finalizat ion of EPA’s proposed rule clarifying that the definition of crop
residue includes corn kernel fiber. Deleted: havehavehave

Deleted: ve

Deleted:

,
Deleted: havehavehave

Deleted: ve*** EO12866 Review

- Draft

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

Page 27 of 102 Ensyn

Ensyn has developed a technology called Rapid Thermal Processing ( RTP ) that uses heat to thermally crack carbon based feedstocks into a liquid bio

- oil product they call renewable fuel oil (RFO). This conversion takes place in less than two seconds and is similar to the fluid catalytic cracking (FCC) process used in many refineries. Ensyn is currently using this technology in two commerci al facilities located in Wisconsin and Ontario , Canada to produce renewable chemicals, food additives, and heating oil. They estimate that they have up to 3 million gallons of additional capacity at these two facilities that could be utilized if the fuel were eligible to generate RINs under the RFS program as home heating oil. This facility has a history of consistent production and we therefore believe this projection of 3 million ethanol

- equivalent gallons is an appropriate number to use as the high end of the projected range.

The RFS regulations currently require that

, to qualify as “heating oil” for which RINs may be generated

, the fuel must be : #1 diesel fuel, #2 diesel fuel, or any non

- petroleum diesel blend that is sold for use in furnaces, boilers, and similar applications and which is commonly or commercially known or sold as heating oil, fuel oil, and similar trade names, and that is not je t fuel, kerosene, or MVNRLM diesel fuel . EPA has proposed a rule to amend this definition to include any “ fuel oil that, pursuant to §80.1450(b)(1)(ix) and (d)(4), 80.1451(b)(1)(ii)(T), 80.1453(d) and 80.1454(b)(7), is demonstrated to be used to heat i nterior spaces of homes or buildings to control ambient climate for human comfort, is capable of flowing at 60 degrees Fahrenheit and 1 atmosphere of pressure, and is not used for any other purpose .” 14 This amendment could allow the RFO produced by Ensy n to qualify for RINs if it were used to heat buildings where people live, work, recreate, or conduct other activities and it meets the other required components of the proposed definition. However, even if the definition of home heating oil is changed as proposed, and its fuel meets the new definition, Ensyn would still face several challenges to generating cellulosic biofuel RINs. Ensyn would have to secure approved sources of renewable feedstock for their existing production facilities, increase produc tion at these facilities, and find customers willing to make the modifications necessary to use Ensyn’s RFO as home heating oil. Any of these steps could result in delays in the increased production or qualifying use of RFO until 2015. For this proposal EPA is projecting a range of production
of 0

– 3 million gallons (0

– 5 million ethanol

- equivalent gallons) from Ensyn’s facilities in

2014.

3. Potential Foreign Sources of Cellulosic Biofuel

In addition to the potential sources of cellulosic biofuel located in the United States discussed above there are several foreign cellulosic biofuel companies that may produce cellulosic biofuel in 2014. All of these facilities utilize fuel production pathways that have been approved by EPA for cellulosic RIN ge neration provided eligible sources of renewable feedstock are used. These companies would therefore be eligible to register these facilities under the RFS program and generate RINs for any fuel imported into the United States. Currently, however,

14 77 FR 61313 (October 9, 2012). Deleted: RTPRTPRTP

Comment [A22]: Suggest including a definition
of this term at this first use.

Response: Text edited to address this comment

Comment [A23]: Block quote? 53 words

Response: text edited to address this comment*** EO12866 Review

- Draft

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

Page 28 of 102 none of these facilities have expressed interest in registering their facilities under the RFS program or exporting the fuel they produce to the United States. Further, demand for the cellulosic biofuels they produce is expected to be high in local markets. Pro duction volumes from these foreign facilities have therefore not been included in our projection of potentially available volume for 2014. EPA plans to continue to monitor the progress of these foreign facilities and may include volumes from these facilit ies should their plans change in the future.

Beta Renewables

Beta Renewables has developed a biochemical technology to convert cellulosic biomass into cellulosic sugars, which can then be used in the production of fuels or chemicals. Their first

commer cial scale facility was built in Crescentino, Italy and began producing cellulosic ethanol in commercial quantities in June 2013. This facility uses Arundo donax and wheat straw as feedstocks and has an annual production capacity of 20 million gallons of ethanol per year. Ethanol produced at this facility would be eligible to generate cellulosic RINs if Beta Renewables registers its facility and imports the cellulosic ethanol into the United States for use as a transportation fuel.

Enerkem

Enerkem p lans to use a thermochemical process to produce syngas from MSW and other waste materials and then catalytically convert the syngas to methanol. The methanol can then be sold directly or upgraded to ethanol or other chemical products. Their first commerc ial scale facility in Edmonton, Alberta , Canada is scheduled to complete construction and begin producing methanol in 2013 with ethanol production following in 2014. At full capacity this facility will be capable of producing 10 million gallons of cellulosic ethanol per year. Despite
their relative c lose proximity to the United States, Enerkem has indicated to EPA that they do not intend to export cellulosic biofuel into the United States from their Edmonton facility.

GranBio

GranBio began construction on its first commercial cellulosic ethanol production facility in São Miguel dos Campos, Brazil in December 2012. It is largely funded by a 300.3 million Reais loan from BNDES, Brazil’s national social and economic development bank. This facility, which will use technology licensed from Beta Rene wables, will have a nameplate capacity of 22 million gallons of ethanol per year and is scheduled to be completed in the first half of 2014. The feedstock for this facility will be excess bagasse not currently used to provide process heat or electricity a t sugarcane ethanol production facilities.

Raizen

Raizen, a joint venture between Royal Dutch Shell and Cosan SA, is planning to build a 10.5 million gallon per year cellulosic ethanol plant attached to their Costa Pinto sugarcane mill in Piracicaba, Br azil. This facility will use a biochemical conversion technology developed by Iogen and Codexis to convert sugarcane bagasse to ethanol. The facility is currently scheduled Comment [A24]: How is EPA addressing Beta Renewable’s NC project?

Response: Text edited to address this comment*** EO12866 Review

- Draft

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

Page 29 of 102 to complete construction in the second half of 2014 and

, if successful

, will be the first of up to 8 cellulosic ethanol production facilities built by Raizen in Brazil.

4

. Summary of Volume Projections for Individual Companies

The information we have gathered on cellulosic biofuel producers, described above, allows us to projec t a range of production volumes for each facility in 2014. As in 2013

, we have once again focused on commercial scale cellulosic biofuel production facilities. This focus is appropriate

, as the volume of cellulosic biofuel produced from R& D and pilot scale facilities is quite small in relation to that expected from the commercial scale facilities for which we have projected volumes in 2014 and historically R&D and demonstration scale facilities have not generated RINs for any fuel they have produced.

In 2014

, as many as twelve domestic cellulosic biofuel production facilities have the potential to produce fuel at commercial scale. Each of these facilities is discussed above, and the projected available volumes for each are summarized in Ta ble II.B.4

- 1 below. Two of the companies that have the potential to produce cellulosic biofuel in 2014, INEOS Bio and KiOR, are currently producing cellulosic biofuel. The production of RIN generating fuel from the remaining 10 facilities is more uncerta in as these facilities have either yet to complete construction or do not currently have a valid pathway for generating cellulosic RINs.

We have also identified four foreign facilities with the potential to produce cellulosic ethanol in 2014. At this point we do not believe any of these facilities are likely to export any of the fuel they produce to the United States. We will continue to monitor the status of these facilities and may include volume from th em in our final rule if appropriate. We ask for comment on this analysis and are especially interested in data that would support cellulosic
volume estimates. Comment [A25]: Contradicts chart IIB41below

Response: Table II.B.4

- 1 edited to match this

statement

Deleted:

### *** EO12866 Review

- Draft

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

Page 30 of 102 Table II.B.4

- 1 Projected Available Cellulosic Biofuel for 2014

Company

Name Location Feedstock Fuel Design Capacity (MGY) First Production 2014 Projected
Available Volume (ethanol

- equivalent) Domestic Facilities; Approved Pathways Abengoa Hugoton, KS Corn Stover Ethanol 24 1 st 

### Quarter 2014 0

– 18
CoolPlanet
Biofuels TBD TBD Gasoline 10 2 nd 

### Half 2014 0

DuPont Nevada, IA Corn Stover Ethanol 30 2 nd 

### Half 2014 0

– 2 Fiberight Blairstown, IA MSW Ethanol 6 Unknown 0
INEOS Bio Vero Beach, FL Vegetative Waste Ethanol 8 3 rd 

### Quarter 2013 2

– 8
KiOR Columbus, MS Wood Waste Gasoline
and Diesel 11 1 st 

### Quarter 2013 2

– 9.5 (4

– 15)

LanzaTech Soperton, GA Wood Waste Ethanol 5 1 st 

### Half 2015 0

Poet Emmetsburg, IA Corn Stover Ethanol 25 1 st 

### Half 2014 0

– 6

Sweetwater Energy Various Ag. Residue Ethanol 7 1 st 

### Half 2014 0

Domestic Facilities; Proposed Pathways

CNG/LNG
Producers Various Biogas from
Landfills CNG/

LNG Various N/A 35

– 50

Edeniq Various Corn Kernel Fiber Ethanol Various 1 st 

### Half 2014 0

– 7 Ensyn Stanley, WI Wood Waste Heating
Oil 3 2007 0

– 3 (0

– 5)

Foreign Facilities

Beta
Renewables Crescentino, Italy Wheat straw,
Arundo Donax Ethanol 20 2Q 2013 0

Enerkem Edmonton,

Alberta Seperated MSW Methanol,
Ethanol 10 1 st 

### Half 2014 0

GranBio São Miguel dos

Campos, Brazil Bagasse Ethanol 22 1 st 

### Half 2014 0

### *** EO12866 Review

- Draft

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

Page 31 of 102 Raizen Piracicaba, Brazil Bagasse Ethanol 10.5 1 st 

### Half 2014 0 Comment [A26]: Paragraph above says 2 nd half

Response: Text edited to address this comment*** EO12866 Review

- Draft

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

Page 32 of 102 C. Proposed Cellulosic Biofuel Volume for 2014

As discussed in the preceding sections we have used information from a variety of sources, including EIA, USDA, and the companies themselves

, to determine a projected range of production of cellulosic biofuel for each company in 2014. These volumes are summarized in
Table II.B.4

- 1 above. These volumes form the basis for our projection of cellulosic biofuel production in 2014. We do not belie ve, however, that a simple summation of the low end and high end of the projected production volumes for each company would result in an appropriate projected range of production volumes across the cellulosic biofuel industry. It is highly unlikely that e very company will produce at or near the low end, or conversely the high end, of
its range of projected production volumes. It is also the case that the production expectations within the projected ranges differ for facilities in different stages. The un certainties associated with cellulosic biofuel production vary in both type and degree among facilities that have already begun production, those that are currently in or will soon be approaching the commissioning of their facilities, and those that are st ill undergoing significant construction operations.

EPA is using a Monte Carlo simulation to account for the need to aggregate across several ranges, with different producers having different production probability distributions across their expected pr oduction range. As discussed above, the high and the low end of each range represents values such that it is possible but highly unlikely that volumes would be higher or lower than this range. EPA will therefore treat these individual ranges as represent ing the 90% confidence interval of a distribution of possible volumes. In other words, the low end of the range for a producer would represent the 5th percentile and the high end of the range would represent the 95th percentile. This approach is consiste nt with EPA’s judgment that, while the ranges shown in Table II.B.4

- 1 are intended to encompass the vast majority of possible volumes, there remains a small possibility that volumes outside of those ranges are possible. We believe it
is reasonable to trea t these values as a 90% confidence interval for purposes of the Monte Carlo analysis, though we request comment on treating them as a different confidence interval such as
80% or 95%.

For the purposes of the Monte Carlo analysis, EPA must also identify an uncertainty distribution for production for each facility. These distributions reflect our expectation for the most likely distribution of production volumes within the projected range when taking into account the many different uncertainties associated with the production volume from each facility. While each facility faces its own set of unique circumstances and challenges in producing cellulosic biofuels at commercial scale, many can be grouped into one of several general categories, the impact of whi ch will vary with the progress achieved at that facility to date. One source of uncertainty in the projected production volume of a new cellulosic biofuel facility is related to the completion of the construction and commissioning phases of the facility. This includes uncertainty in the construction schedules, modifications to the design during the construction or commissioning phase, challenges encountered in scaling up the technology to commercial scale, unexpected delays or repairs due to weather event s, or any of a number of other reasons. Delays of this type will result in a later than expected start

- up date which may result in significantly decreased production volumes in 2014 or the start of production being delayed until 2015. The uncertainty rel ated to delays in the completion of the construction of a*** EO12866 Review

- Draft

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

Page 33 of 102 facility decreases the closer the project is to completion, and is entirely irrelevant to facilities that have already begun production.

A second source of uncertainty is that associated with the r amp

- up phase of new facilities. Lower than expected product yields, feedstock supply and handling challenges, contamination of chemical or biological catalysts, and a number of other issues can cause reduced production during the ramp

- up phase and/or a lo nger than expected ramp

- up period before reaching production levels that correspond to the nameplate capacity of the facility. Facilities that face these types of challenges during the ramp

- up phase of production are very likely to still achieve some leve l of production, but that level may vary depending on the severity and duration of the challenges they face. The closer a facility is to achieving production rates that correspond to the nameplate capacity of the facility, the less likely they are to see reductions in their expected production due to challenges in the ramp

- up phase.

A third source of uncertainty is the ability of the facility to maintain consistent production at or near nameplate capacity after the ramp

- up phase has been successfully comp leted. A number of factors including, but not limited to feedstock supply interruption, significant issues with feedstock quality, loss of power or other essential utilities at the facility, and interruptions in production due to accidents, operator error , or weather events could cause fuel production at a facility to decrease or cease altogether. While the uncertainty associated with these issues is never completely absent, it does decrease over time if a facility is able to consistently achieve producti on levels at or near nameplate capacity with few or no interruptions to production.

The degree to which these three sources of uncertainty impact expected production of cellulosic biofuel in 2014 varies greatly with the progress achieved by the facility t o date. To represent this uncertainty for facilities expected to begin operations in different timeframes, we used three different standardized uncertainty distributions . The three standard curves that represent the expected production distributions from cellulosic biofuel production facilities are shown in Figure II.C

- 1 below. Comment [A27]: EPA should also seek comments on the probability dis tribution assumption and assignment to facilities in the Monte Carlo simulation analysis.

Response: Text modified to address this comment*** EO12866 Review

- Draft

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

Page 34 of 102 Figure II. C

- 1 Standardized Distributions Used to Project Aggregate Cellulosic Biofuel Production a

a The skewed distribution is based on a Weibull distribution with a shape parameter of 0.5.

Facilities that have already begun producing cellulosic biofuel in 2012 or earlier and have at least a full year of production history do not face uncertainty associated with delays in the construction and commissioning of the facili ty

. They may , however, face some uncertainty in their ramp

- up schedule relative to the progress they have achieved to date, as well as the risk of unexpected shutdown or slowdown faced by all facilities. For facilities facing these uncertainties

we expec t that the most likely production volume is towards the middle of the range, with decreasing production probabilities as the high and low ends of the production ranges are approached. A normal curve is appropriate for this expected production distribution . In 2014, however, there are no commercial scale cellulosic biofuel production facilities that meet these
criteria.

Facilities that began producing cellulosic biofuel in 2013 no longer face uncertainty due to potential delays in the completion of co nstruction and the commissioning of the facility. There is, however, uncertainty regarding these facilities ramp

- up schedules which can have a significant impact on the production volumes from these facilities. We believe that the expected production of these facilities would be best represented by a right

- skewed or Weibull curve, with the most likely production volume near, but not at, the low end of the range and the production probabilities gradually towards the high end of the range.

Facilities not e xpected to begin producing cellulosic biofuel until 2014 face uncertainty associated with a delay in the completion in the construction and commissioning of the facility. Given this uncertainty, we believe that the most likely production volume is at the low end of the range with decreasing probability as the high end of the range is approached. To represent this asymmetrical uncertainty, we believe a half

- normal curve is a reasonable representation of the expected production distribution from these facil ities

. Comment [A28]: This doesn’t look like a Weibull distribution with a shape parameter of 0.5. The shape implies that the shape para meter should be greater than 1.

Response: Text was modified to clarify nature of
Weibull curve.

Deleted: are

Comment [A29]: We have a hard time with the economic justification for the half normal distribution. For Abengoa, Dupont and Poet this means the mode (most likely
value ) is 0.

A gamma distribution might be more useful.

Response: Added text to Section IV.B.4 to address
this comment.*** EO12866 Review

- Draft

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

Page 35 of 102 The type of uncertainty distribution used to represent the expected production within the projected range for each company is shown in Table II.C

- 1.

Table II.C

- 1 Standard Distributions Used to Project Cellulosic Biofuel Production in 2014 Company Distribution Curve 5 th Percentile Volume a (ethanol

- equivalent) 95 th Percentile Volume a (ethanol

- equivalent) Abengoa Half

- Normal 0 18

DuPont Half

- Normal 0 2
INEOS Bio Right

- Skewed 2 8
KiOR Right

- Skewed 4 15

Poet Half

- Normal 0 6

CNG/LNG Producers Normal 35 50 Edeniq Half

- Normal 0 7 Ensyn Normal 0 5

a For half

- normal distributions, the low end of the range was represented by the 0th percentile and the high end of the range was represented by the 90th percentile.

To aggregate the production distributions for each of the companies into a single distribution representing cellulosic biofuel production across the entire industry, we performed two Monte Carlo simulations in which each of the distributions was randomly sampled in an
iter ative fashion. Each of the distributions was sampled 3000 times and the results of all the iterations were then summed to produce a distribution for cellulosic biofuel. For the uncertainty distributions where the low end of the projected range was zero

, it was possible for the Monte Carlo simulation to select a negative volume for these companies. In these cases

, the volume

was set to zero

.

We generated two separate aggregate distributions to represent total cellulosic biofuel using the Monte Carlo process. Given the uncertainty surrounding the timing and approval of the proposed RIN

- generating pathways that would be used by CNG/LNG producers, Edeniq, and Ensyn, the first aggregate distribution only included volumes from those facilities using RIN

generating pathways that have already been approved. The result of this Monte Carlo simulation forms the basis for the range of cellulosic biofuel production included in this proposal. Comment [A30]: From a numerical perspective
we need to see some sense of how accurate the Monte Carlo approximations are. In other words,
how close is the Monte Carlo estimate of the mean of the joint distribution to the actual mean? There are various algorithms to estimate this quantity.

If EPA believes a more precise methodology is necessary, we can calculate the sum of differently distributed (ind ependent) random variables through the convolution process, which uses multiple integrals. Using numerical integration, we can bound
the error to ensure we are close.

Response: Added text to Section IV.B.4 to address
this comment.*** EO12866 Review

- Draft

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

Page 36 of 102 Figure II.C

- 2
Results of Monte Carlo Simulation for Cellulosic Biofuel Production

(Approved Pathways Only)

The second Monte Carlo simulation included volumes from all eight facilities for which we have projected a range of volumes in 2014. The results of this simu lation would be more representative of the volume of cellulosic biofuel included in our final rule in the event that the proposed RIN

- generating pathways discussed above are approved for RIN generation before the 2014 applicable volumes are finalized.*** EO12866 Review

- Draft

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

Page 37 of 102 Figure II.C

- 3
Results of Monte Carlo Simulation for Cellulosic Biofuel Production

(All Approved and Proposed Pathways)

In today’s NPRM we are proposing a volume for the 2014 cellulosic biofuel standard of

13

- 36 million ethanol

- equivalent gallons. This volume is expected to be comprised of 6

- 26 million gallons of ethanol and 4

- 15 million ethanol

- equivalent gallons of cellulosic hydrocarbons. 15 The proposed range is derived from the 90% confidence interval of the Monte
Carlo simulation that inclu des all the companies we expect to produce commercial volumes of cellulosic biofuel in 2014 using pathways in the current RFS regulations. As discussed in Section II.B, many factors have been taken into consideration in developing the individual

company p rojections, such as the information from EIA, the current status of project funding, the status of the production facility, anticipated construction timelines, the anticipated start

- up date and ramp

- up schedule, feedstock supply, and many others. We belie ve the range of volumes proposed (13

- 36 million ethanol

- equivalent gallons) resulting from the Monte Carlo simulation is a reasonable representation of expected production in 2014 across the industry.

Our proposed range reflects EPA’s best estimate of the range of cellulosic biofuel volumes that will actually be produced in 2014. In the final rule EPA will determine a single volume that represents EPA’s best estimate of the volume that will actually be produced in

15 These volumes are also the result of our Monte Carlo simulation. Similar to the individual company production projections, the low and high ends of the ranges cannot be simply added together to calculate the high and low ends of our total cellulosic biofuel production projection in 2014. Cellulosic hydrocarbons include both cellulosic gasoline and cellulosic diesel.*** EO12866 Review

- Draft

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

Page 38 of 102 2014. 16 EPA invites comment on the be st approach to determine a single value from a range developed using the approach described above. For example, EPA could use the mean (average value), median (50 th percentile), or mode (the volume that occurs most frequently). It may also
be reasonable to use a value representing higher or lower values in the distribution, such as the

25 th or 75 th percentile if there is reason to believe these would provide a more accurate projection of actual production in 2014. 17 We have determined the volumes represented by each of these methods and presented the values in Tables II.C

- 2 and II.C

- 3 below.

Table II.C

- 2 Potential Approaches to Determining the Final Cellulosic Biofuel Requirement (Approved Pathways Only) a (million ethanol

- equivalent gallons)

Mean 23 50th percentile 22
Mode 22

25 th percentile 18

75 th percentile 27

a All volumes are ethanol

- equivalent gallons

Table II.C

- 3 Potential Approaches to Determining the Final Cellulosic Biofuel Requirement

(All Approved and Proposed Pathways) a (million ethanol

- equivalent gallons)

Mean 71 50th percentile 70
Mode 70

25 th percentile 64

75 th percentile 76

a All volumes are ethanol

- equivalent gallons

In today's NPRM

, we are proposing to use the mean value for the final volume requirement for cellulosic because we believe it best represents a neutral aim at the volumes that could reasonably be supplied. However, we request comment on whether one of the alternative values
shown in Table II.C

- 2 would be more appropriate a s the basis for the required volume of
cellulosic biofuel in the final rule.

It is important to note that the final cellulosic biofuel standard for 2014 may be set at a volume outside the proposed range of 13

- 36 million ethanol

- equivalent gallons. If EPA finalizes the pathways discussed in the recent proposed rulemaking 18 before the applicable volume of
cellulosic biofuel for 2014 is finalized

, volumes of fuel from companies intending to utilize these pathways may be included in our projected available volume for 2014 as discussed above.

16 See API v. EPA , 706 F.3d 474 (D.C. Cir. 2013).

17 This could be the case if there was reason to believe there was a systematic bias such that the ranges tended to over or under estimate the actual production volumes.

18 78 FR 36042 (June 14, 2013 ))))

. Comment [A31]: Reviewers recommend including the estimate that would be reflected in the
EIA Administrator’s letter to EPA.

Response: We will incorporate a discussion of projections in the EIA letter when we receive that letter. We have modified the expected producti on ranges from KiOR and INEOS, and these ranges now result in ranges expected in EIA’s letter to EPA.

Comment [A32]: Given the track record of optimistic projections and its need to rescind the 2011 and 2012 standards, reviewers recommend

that the low r ange or some low percentile might be preferable to the mean.

Response: Text not modified. We are taking comment on whether a lower percentile may be more appropriate.

Formatted: Font: Italic*** EO12866 Review

- Draft

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

Page 39 of 102 Foreign producers of cellulosic biofuel who inform EPA of their intent to export the fuel they produce to th e United States may also be included. Finally, a variety of factors may a ffect our production projections for the companies considered in this proposal, including unexpected project modifications or cancellations or the inclusion of volumes of cellulosic biofuel from
sources other than those listed above.

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 proposed 2014 volume projection. We expect that for the final rule there will be greater certainty on the appropriate volume of fuel that we can reasonably expect to be produced and made commercially available in 2014. We request comment on our analysis and estimates. 19

D. Rescission of the 2011 Cellulosic Biofuel Standards

On January 25, 2013 , the United States Court of Appeals for the District of Columbia Circuit issued its decision concerning a challenge to the 2012 cellulosic biofuel standard. The Court found that in establishing the applica ble volume of cellulosic biofuel for 2012, EPA had used a methodology in which “the risk of overestimation [was] set deliberately to outweigh the
risk of underestimation.” The Court held EPA’s action to be inconsistent with the statute
because EPA had fai led to apply a “neutral methodology” aimed at providing a prediction of “what will actually happen,” as required by the statute. As a result of this ruling, the Court vacated the 2012 cellulosic biofuel standard, and we removed the 2012 requirement from t he regulations in a previous action. Industry had also challenged the 2011 cellulosic biofuel standard by, first, filing a petition for reconsideration o f that standard, and then seeking judicial review of our denial of the petition for reconsideration. This matter was still pending at the time of the D.C. Circuit’s ruling on the 2012 cellulosic biofuel standard. Since we used essentially the same methodology to develop the 2011 cellulosic biofuel standard as we did to develop the 2012 standard, we reque sted, and the Court granted, a partial voluntary remand to enable us to reconsider our denial of the petition for reconsideration of the 2011 cellulosic biofuel standard.
Given the Court ’s ruling that the methodology EPA used in developing the 2012 cellul osic biofuel standard was flawed, we have decided to grant reconsideration of the 2011 cellulosic biofuel standard, and are today proposing to rescind the 2011 cellulosic biofuel standard. If this proposal is finalized, the money paid by obligated parties to purchase cellulosic waiver credits to comply with the 2011 cellulosic biofuel standard would be refunded.

19 Since EPA is pro posing to reduce the applicable volume of cellulosic biofuel under section 211(o)(7)(D), EPA will be required to make available cellulosic biofuel credits. EPA will set the price for the cellulosic biofuel credits in the final rule, using the same approac h to applying the criteria in section 211(o)(7)(D)(ii) that was used in setting the price for cellulosic biofuel credits for 2013. See [cite to 2013 FRM].*** EO12866 Review

- Draft

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

Page 40 of 102 III. Proposed National Volume Requirement for Biomass

- Based Diesel in 2014 and 2015

EPA set the national volume requirement for biomass

- based diesel for 2013 at 1.28 billion gallons of biomass

- based diesel. 20 This national volume is then used to determine the applicable percentage standard that determines the specific renewable volume ob ligations for refiners and importers. Subsequently, EPA received two Petitions for Reconsideration requesting that EPA reconsider the final rule setting the 2013 biomass

- based diesel volume requirement at 1.28 bill gal. 21 After review and consideration of the issues raised by petitioners, EPA denied both petitions. 22

In today's action

, we are proposing an applicable volume of 1.28 billion gallons biomass

based diesel for 2014 and 2015. In proposing the 2015 applicable volume of biomass

- based diesel, we are not at this time proposing the percentage standards that would apply to obligated parties in 2015. The percentage standards for 2015 will be proposed in a subsequent rulemaking as required by the statute once the requisite gasoline and diesel fuel vo lumes for 2015 are
determined.

A. Statutory Requirements

Section 211(o)(2)(B)(i) of the Clean Air Act specifies the applicable volumes of renewable fuel on which the annual percentage standards must be based, unless the applicable
volumes are waive d or adjusted by EPA in accordance with the Act. 23 Applicable volumes are provided in the statute for years through 2022 for cellulosic biofuel, advanced biofuel, and total
renewable fuel. For biomass

- based diesel, applicable volumes are provided through 2012. For years after those specified in the statute (i.e. 2013+ for biomass

- based diesel and 2023+ for all others), EPA is required under 211(o)(2)(B)(ii) to determine the applicable volume, in coordination with the Secretary of Energy and the Secretary of Agriculture, based on a review of the implementation of the program during calendar years for which the statute specifies the applicable volumes and on analysis of the following factors:

• The impact of the production and use of renewable fuels on the environment, including on air quality, climate change, conversion of wetlands, ecosystems, wildlife habitat, water quality, and water supply;

• The impact of renewable fuels on the energy security of the United States;

• The expected annual rate of future commercial production of renewable fuels, including advanced biofuels in each category (cellulosic biofuel and biomass

- based diesel);

20 77 FR 59458 (September 27, 2012). .

21 Letter dated November 20, 2012 to Honorable Lisa Jackson f rom Richard Moskowitz, American Fuel & Petrochemical Manufacturers, “Re: Petition for Reconsideration

– Docket No. EPA

- HQ

- OAR

- 2010

- 0133

... ; Letter dated November 26, 2012 to Honorable Lisa Jackson from Robert L. Greco, III, American Petroleum Institute, “Re: Request for Reconsideration of EPA’s Final Rulemaking “2013 biomass

- Based Diesel Renewable Fuel Volume

22 78 FR 49411, August 14, 2013.

23 For example, EPA may waive a given standard in whole or in part following the provisions at CAA 211(o)(7). Deleted:

.*** EO12866 Review

- Draft

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

Page 41 of 102 • The impact of renewable fuels on the infrastructure of the United States, including deliverability of materials, goods, and products other than renewable fuel, and the sufficiency of infrastructure to deliver and use renewable fuel;

• The impact of the use of renewable fuels on the cost to consumers of transportation fuel and on the cost to transport goods; and

• The impact of the use of renewable fuels on other factors, including job creation, the price and supply of agricultural commodities, rural economic development, and food prices.

The statute also specifies that the applicable volume of biomass

- based diesel cannot be less than the applicable volume for calendar year 2012, which is 1.0 bill gallons. The statute does not, however, establish any other numeric criteria or overarching goals for EPA to achieve in setting the applicable volumes in years after thos e specifically set forth in the provision.

Finally, the statute also specifies the timeframe within which these volumes must be promulgated: the applicable volumes must be established no later than 14 months before the first year for which such applicab le volume will apply. We did not propose a 2014 volume for
biomass

- based diesel in the February 7, 2013 NPRM because at that time we were still evaluating the potential market impacts of current production levels. In order to provide
sufficient time for this evaluation, we delayed our proposal for the 2014 volume requirement for
biomass

- based diesel. Consequently, today we are proposing volume requirements for both 2014
and 2015.

B. Compliance with 2013 Volume Requirement of 1.28 Billion Gallons

In making a determination regarding the volume requirement for biomass

- based diesel to propose for 2014 and 2015, we first investigated the recent historical and current circumstances in the biodiesel market. According to data collected through the EPA

- Moder ated Transaction System (EMTS) production of biodiesel in 2011 exceeded 1.0 bill gal 24 and in 2012 exceeded 1.14 bill gal. 25 This demonstrates that the industry was able to meet the applicable 2012 volume requirement of 1 b ill gal. b ill ion gal lons

. It also provides evidence that the industry will meet
the 1.28 bill ion gal lon requirement in 2013. Additional volumes above 1.28 bill ion gal lons are possible in 2013, and may be used to help meet the advanced biofuel standard. Indeed current production rates in the biodiesel industry for the first six months of 2013 are almost 40% above

24 Fuels and Fuel Additives 2011 EMTS Data, http://www.epa.gov/otaq/fuels/rfsdata/2011emts.htm (last accessed June 27, 2013).

25 Fuels and Fuel Additives 2012 EMTS Data, http://www.epa.gov/otaq/fuels/rfsdata/2012emts.htm (last accessed June 27, 2013). Comment [A33]: Does this include the fraudulent RINs? If so, this seems using this benchmark may no t be advisable.

Response: We have edited text to address this issue.
and focus on 2012 data.

Deleted: bill galgalgal

Deleted: bill galgalgal*** EO12866 Review

- Draft

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

Page 42 of 102 monthly production rates for the same time period in 2012 and are consistent with a total production volume of at least 1.5 bill i on gal lons for 2013. 26

While annual production volume has been increasing, a review of EIA’s Monthly Biodiesel Production Reports 27 since 2009 indicates that there has been some variability both in monthly production volume and in the number of facilities producing that volume. For example, there were significant biodiesel facility closures during the 2009 and 2010 calendar years. Since
that t ime

, the overall number of biodiesel facilities in operation has stabilized while overall capacity in the biodiesel industry has remained stable from 2009

- 2012 at more than 2 billion gallons. It is also clear that overall industry

- wide utilization rates h ave increased during this time period from 25% in 2009 to approximately 46% in both 2011 and 2012. Thus it is clear that total production capacity at facilities already operating is above 1.28 bill gal. Nevertheless, there are
indications that new or idl e facilities will begin production in response to the 1.28 bill ion gal lons mandate for 2013. Specifically, EIA’s monthly reports indicate that nine additional producers have become operational in the U.S. since the rule for 2013 biomass

- base d diesel was finalized. 28
The latest EIA monthly biodiesel report, available for April 2013 , indicates that U.S. production was 106 million gallons in April 2013, and came from 114 biodiesel plants in 38 states with total operating capacity of 2.2 bill ion gallons per year. 29 As described in Section IV.B.2.b, total biodiesel production by the end of 2013 could be as high as 1.7 bill ion gal lons , and the facilities contributing to this production collectively have a capacity of well over 2 bill ion gal lons

.

We also investigated the impact of the 1.28 bill ion gal lon requirement on the price and supply of agricultural commodities and food prices. Since the start of the RFS program

, we have increased our understanding of the impact that higher biodiesel production volumes have in both these areas. Soybean prices were significntly higher in 2011 than in 2010 and 2009. While many different factors are known to influence food prices, USDA has found that, “any increase in farm prices for corn and soybeans due to increased biofuels production has likely had only a small effect on U.S. food prices.” 30 With regard to agricultural supply and prices, s ince their peak in August and September o f 2012 during the height of uncertainty about the effects of the

26 Fuels and Fuel Additives 2013 EMTS Data, http://www.epa.gov/otaq/f uels/rfsdata/2013emts.htm (last accessed June 27, 2013).

27 The U.S. Energy Information Administration as part of it responsibilities under section 1508 of the 2005 Energy Policy Act, amended its ICR and has began collecting and publishing biodiesel production information on a monthly basis including production o f biodiesel in a given month, the number of plants operating and contributing to the monthly total volume by state, and their total operating capacity for the year. U.S. Energy Information Administration/Monthly Biodiesel Production Report, Form EIA

- 22m Mo nthly Biodiesel Production Survey. U.S. Energy Information Administration, Monthly Biodiesel Production Report, For 2012 data collected showed that 2012 production was 969 milmilmilmil lion gallons, which was up from production 967 million gallons during 20 11.

28 EIA data indicates that in December 2011, after the close of the comment period, 103 biodiesel plants existed with an operating capacity of 2.1 billion gallons per year. In March 2012, 104 biodiesel plants were operational and the report indicates that for the first quarter of 2012 production was up 78% over the first quarter of 2011. As EPA finalized the 2013 volume mandates in September 2012 there were 105 biodiesel producers operating in the U.S. By
late November 2012 that number had increased to 112.

29 http://www.eia.gov/biofuels/biodiesel/production/ (last accessed June 27, 2013).

30 Testimony of Joseph Glauber, Chief Economist, U.S. Department of Agriculture to the House Energy & Commerce Committee. Overview of the Renewable Fuel Standards: Government Perspectives. June 26, 2013. http://energycommerce.house.gov/hearin g/overview

- renewable

- fuel

- standard

- government

- perspectives (last accessed July 15, 2013). Deleted: bill galgalgal

Comment [A34]: Please explain the reason for not using EIA biodiesel data.

Response: EIA biodiesel data was in fact used. No change to text.

Deleted: bill galgalgal

Comment [A35]: The latest biodiesel report w i th
d ata for June 2013 was r elease d on August 29, 2013

Response: Text was edited to address this issue.

Deleted: bill galgalgal

Deleted: bi ll galgalgal

Deleted: bill galgalgal*** EO12866 Review

- Draft

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

Page 43 of 102 2012 drought, prices of soybeans and soybean products have been trending downward. The USDA World Agricultural Supply and Demand Estimates (WASDE) Report’s estimate 31 of soybean prices for th e 2012/2013 marketing year have declined from an August 2012 range of $15

- 17 per bushel to a June 2013 estimate of $14.35 per bushel for the 2012/2013 marketing year. WASDE’s June Outlook Report estimates that for the 2013/2014 marketing year (which
inclu des the months of October through December 2013) soybean prices will range from $9.75

– $11.75 per bushel

, which is in line with the projections used by EPA in the 2013 biomass

- based
diesel volume final rule. 32

Further discussion of the factors we must consider

, in the context of the biomass

- based
diesel volume of 1.28 bill ion gallons for 2013

, is contained in both the final rule adopting this
level for 2013 33 and in EPA’s denial of two petitions requesting the Agency reconsider the 2013
biomass

- based diesel final rule. 34 As discussed in that final rule, the assessment of these factors supported a volume of 1.28 bill ion gallons for 2013. As we woul d expect that the impacts of

1.28 bill ion gal lons in 2014 and 2015 would not be materially different, we are not repeating the discussion of those analyses here.

C. Determination of Applicable Volume for 2014 and 2015

The biodiesel ind

ustry clearly has demonstrated that it can produce the volumes of
biomass

- based diesel up to the minimum required by the statute, and that 1.28 bill ion gal lons of biodiesel is readily attainable. We have no real concerns that a level of 1.28 billion gallons will be achieved effectively

- in 2013, and that once it is met

, that this level of production and consumption can also be achieved in years after 2013 . Production costs associated with 1.28
bill ion gal lons of biodiesel could be affected by various factors, including the expiration of the biodiesel tax credit and projected lower soy oil prices.

EPA’s evaluation of the applicable volume that we should set for biomass

- based diesel takes into account the context of the larger advanced biofuel and total renewable fuel volume requirements. The biomass

- based diesel standard is a subset of both the advanced biofuel and total renewable fuel standards, and biomass

- based diesel volumes ca n be used to meet all three standards. As discussed in Section IV below, we are proposing to reduce the applicable volumes of advanced biofuel and total renewable fuel. The reductions are designed to address several
factors that affect achievement of the volume goals that Congress established in the statute for these categories of renewable fuel. These factors include limitations in production or

31 See http://www.usda.gov/oce/commodity/wasde/index.htm (last accessed June 7, 2013); The WASDE rep ort is a monthly report published by the U.S. Department of Agriculture (USDA) providing comprehensive forecast of supply and demand for major crops both for the US and globally. Throughout the growing season and afterwards, estimates are compared with ne w information on production and utilization, and historical revisions are made as

necessary. It is widely considered to be the benchmark to which all other private and public agricultural forecasts are compared.

32 CompareCompareCompare Cf. 77 FR 59458 at 59465

, with the May 10, 2013 WASDE Report released on May 10, 2013, Table 518

- 15. See http://www.usda.gov/oce/commodity/wasde/index.htm (last accessed June 7, 2013).

33 77 FR 5 9458 (September 27, 2012).

34 78 FR 49411, August 14, 2013. Comment [A36]: There are a several difficulties with this discussion. See supplemental comments.

Response: Discussion of ag prices has been moved
to Section IV .B.2.b.

Deleted: billbillbill

Deleted: billbillbill

Deleted: bill galgalgal

Deleted: bill galgalgal

Deleted: and efficiently Comment [A37]: See supplemental comments on
biodiesel costs

Response: No changes to text here, but discussion of
biodiesel credit credit in Section IV.B.2.b has been expanded.

Deleted: bill galgalgal

Deleted:

Formatted: Font: Italic

Formatted: Font: Italic

Deleted: ompare

Formatted: Font: Italic*** EO12866 Review

- Draft

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

Page 44 of 102 importation of the necessary volumes, and factors that limit supplying those volumes to the
vehicles that can consume them. These same factors impact our consideration of the biomass

based diesel volume requirement for 2014. For example, EPA considers the availability of feedstock for production of biodiesel.

More importantly, the production and use of biom ass

- based diesel can be supported by both the need to comply with the required volume for biomass

- based diesel as well as the need to comply with the required volume for advanced biofuel

, or even the volume for total renewable fuel. This provides EPA addi tional flexibility in considering the appropriate national volume to
set for the biomass

- based diesel volume requirement, as this requirement is not the only mechanism in the RFS program that can support production and use of biomass

- based diesel.

For exa mple, while the applicable volume that EPA sets for biomass

- based diesel will ensure
that at least that volume of biomass

- based diesel would be produced and used, the advanced biofuel standard provides an alternative potential source of support for product ion and use of
additional volumes of biomass

- based diesel. It does this because obligated parties have
discretion whether to choose biomass

- based diesel or another advanced biofuel to satisfy their advanced biofuel obligation. EPA believes there is value in providing obligated parties increased flexibility in how they meet their required volume obligations in 2014. As discussed in Section IV, EPA is reducing the statutory volumes of advanced biofuel and total renewable fuel based on concerns of inadequat e domestic supply of these renewable fuels. Providing obligated parties additional flexibility to address future supply circumstances is of increased importance under
these circumstances.

In setting the applicable volume for biomass

- based diesel for 2 013, EPA discussed various impacts of requiring volumes of biomass

- based diesel in light of the relevant factors to be considered under CAA section 211(o)(2)(B)(ii). 35 EPA believes this analysis continues to be appropriate, and supports the proposed applic able volume of biomass

- based diesel for 2014. In considering all of these factors, EPA sees no need to reduce the biomass

- based diesel volume requirement from 2013 levels. We have a high degree of confidence that this volume could be achieved effectively , and without any real risk of production or supply problems assuming the
biodiesel tax credit is extended to 2014 and 2015

. We also see no need to increase it

. W e believe that volumes of biomass

- based diesel above 1.28 billion gallons can, and likely will, be produced in 2014 to meet the requirements of the advanced biofuel standard. EPA does not expect that there would be a significant difference between addi tional volumes of biomass

- based diesel above 1.28 billion gallons and other advanced biofuels, as far as the overall impact of the fuels in terms of the factors to consider under section 211(o)(2)(B)(ii). Any such differences would also be hard to quantif y. At the same time, providing obligated parties the discretion to
ch o ose the method to comply with their advanced biofuel volume requirement most appropriate for their circumstances is likely to reflect the most effective or effici ent way to achieve the advanced biofuel volume requirements

, given the market circumstances present in 2014. In addition, as noted above

, providing obligated parties additional flexibility to address the 2014 supply circumstances is of increased importanc e under the supply circumstances discussed in

35 77 FR 59458 (September 27, 2012), especially sections IV and V of the preamble. Deleted: and efficiently Comment [A38]: See supplemental comments on
biodiesel costs

Response: No changes to text here, b ut discussion of
biodiesel credit credit in Section IV.B.2.b has been expanded.

Deleted:

. Comment [A39]: Reviewers believe that this would depend significantly on the future of the
biodiesel tax credit.

Response: Text modified in next paragraph and later
in Section IV.

Deleted: chosechosechose

Deleted: that is*** EO12866 Review

- Draft

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

Page 45 of 102 Section IV. Therefore we are not proposing to increase the volume of biomass

- based diesel that will be required in 2014 and 2015. 36

In the overall context of the RFS program, the level of the biomass

- based diesel applicable volume is uncertain because of the expiration of the biodiesel tax credit at the end of 2013. However, if the tax credit is extended that 1.28 billion gallons could be seen as the
minimum amount of biomass

- based diesel that is required, recognizing that additional volumes
of biomass

- based diesel may and likely will be used, along with other advanced biofuels, to satisfy the volume requirements for advanced biof uel and total renewable fuel. Having considered the statutory factors in the context of proposing the volume requirements for
advanced biofuel and total renewable fuel , we believe the minimum required volume of biomass

based diesel should be set at the sa me level as 2013. This approach would recognize the
likelihood that volumes of biomass

- based diesel could be produced and consumed above the required volume level, and that obligated parties could well choose to use more biomass

- based diesel than is requi red to satisfy their volume obligations for advanced and total renewable fuel. A volume requirement of 1.28 bill ion gal lons for biomass

- based diesel in 2014 and 2015 would provid e an assured minimum volume level for biomass

- based diesel while also providing a clear opportunity for greater growth as part of the advanced biofuel category. Greater use of biomass

based diesel would be a recognized compliance path for the advanced and total renewable fuel volume obligations being proposed today

. T he proposed levels of those standards provide a significant opportunity for greater volumes of biomass

- based diesel to be produced and used if
the market chooses them. We request comment on t his proposed approach to the biomass

- based diesel volume requirement for 2014 and 2015.

36 While the statute requires EPA to establish the applicable volume of cellulosic biofuel at projected production levels, this is not thecase with respect to the applicable volume of biomass

- based diesel. For biomass based

- diesel, EPA may set the applicable volume at any level above 1 billion gallons after consideration of the factors set forth in
the statute and consultation with the Departments of Agriculture and Energy. Deleted: section

Deleted: can

Deleted: bill galgalgal*** EO12866 Review

- Draft

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

Page 46 of 102 IV. Proposed National Volume Requirements for Advanced Biofuel and Total
Renewable Fuel for 2014

As described in Section I, the national volumes of renewable fuel to be used under the RFS program each year are specified in CAA 211(o)(2). For 2014, the applicable volume of
advanced biofuel is 3.75 bill ion gal lons and the applicable volume of total renewable fuel is

18.15 bill ion gal lons . However, two statutory provisions authorize EPA to reduce these volumes. EPA may reduce these volumes if it reduces the applicable volume for cellulosic biofuel, o r if the criteria are met under the general waiver authority. 37 We are proposing to exercise our discretion under these provisions to reduce the applicable volumes of advanced
biofuel and total renewable fuel to addre ss several factors

– commonly referred to as the ethanol
blendwall

– that affect achievement of the volume goals that Congress established in the statute. These factors include limitations in production or importation of the necessary volumes, and
factors that limit supplying those volumes to the vehicles that can consume them such as limited access of FFVs to retail stations offering E85. Based on a detailed analysis of these limitations, we are proposing reductions in the statutory volumes of both advan ced biofuel and total
renewable fuel as shown below.

Table IV

- 1 Proposed Volumes for 2014 (billion gallons)

Statutory volume Proposed volume Range Mean
Advanced biofuel 3.75 2.01

- 2.51 2.21
Total renewable fuel 18.15 14.98

- 15.53 15.21

In proposing these reductions, we are proposing to use a combination of the cellulosic biofuel waiver authority and the general waiver authority to ensure that the proposed volumes are reasonably achievable given limitations in the volume of ethanol that c an be practically consumed in motor vehicles considering constraints on the supply of higher ethanol blends to the vehicles that can use them and other limits on ethanol blend levels approved for use in motor
vehicles and the volume of non

- ethanol renewable fuels that we expect would be reasonably achievable. To accomplish this, we are proposing an approach involving the following three
steps:

• First, we would determine the total volume of ethanol that can reasonably be supplied

to and consumed b y consumers as both E10 and higher ethanol blends such as E15 or

E85 . We would then add to this the volume of all non

- ethanol biofuels that we expect could be reasonably available for meeting all four of the applicable volume requirements (cellulosic biof uel, biomass

- based diesel, advanced biofuel, and total renewable fuel). The results of this first step would identify the level of renewable fuel that can adequately be produced and supplied to consumers in light of the

37 See CAA section 211(o)(7)(D) and (A). Deleted: bill galgalgal

Deleted: bill galgalgal

Deleted: See CAA section 211(o)(7)(D) and (A).

Formatted Table*** EO12866 Review

- Draft

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

Page 47 of 102 blendwall and other relevant constr aints, and would form the basis for the required
volume of total renewable fuel as adjusted pursuant to EPA’s waiver authorities

.

• Second, we would determine the volumes of all sources of advanced biofuel that could be reasonably achieved to ensure tha t the required volume of advanced biofuel be set no higher than the volume that is projected to be available.

• Third, we would determine an appropriate level of advanced biofuel at or below the projected available volume determined in the second ste p. This level would include the required levels of cellulosic biofuels and biomass

- based diesel, which are set separately, as well as any additional volumes of non

- ethanol advanced biofuels projected to be reasonably achievable. This approach would accou nt for the contribution of ethanol volumes in the advanced biofuel category to the supply concerns related to total renewable fuel, most notably the factors commonly referred
to as the blendwall. While ensuring that both advanced biofuel and non

- advanced renewable fuels play a role in addressing the ethanol blendwall, it would also support Congress’s goal in the RFS program of continued growth in the advanced biofuel
category

, as reflected in the volume requirements established in the statute. As
discusse d in detail in Section IV.C.2, we have examined several alternative approaches to this third step, but we believe this approach best accommodates the objectives of the RFS program, while accounting for the limitations in the ability to produce and consume renewable fuels. We request comment, however, on alternative approaches and on all aspects of the framework discussed in this section.

We anticipate that the framework described in this section would apply not only to 2014, but to subsequent years as well. The specific estimates of volumes for each potential source of renewable fuel would be different in each future year, but the manner in which we aggregate those estimates to determine appropriate volume requirements would follow the overall approach
described above.

A. Statutory Authorities for Reducing Volumes to Address Insufficient Availability
and the Ethanol Blendwall

In establishing the annual volume objectives in the statute, Congress i ntended that volumes of renewable fuel, advanced biofuel, and cellulosic biofuel increase every year through 2022, and that volumes of biomass based diesel be at least equal to the statutory volume for 2012, while granting EPA discretion to increase this v olume based on consideration of several specified factors. However, Congress recognized that circumstances could arise that might require a reduction in the volume objectives specified in the statute as evidenced by the different waiver provisions in CAA 211(o)(7). As described in more detail below, we believe that limitations in production or importation of qualifying renewable fuels, and factors that limit supplying those volumes to the vehicles that can consume them, both constitute circumstances
that warrant a waiver under section 211(o)(7) as discussed below. With regard to the ethanol blendwall, a decrease in total gasoline consumption since EISA was enacted in 2007, coupled
with limitations in the number and geographic distribution of retail statio ns that offer higher Comment [A40]: All of this seems to be dependent on the relationship between oil and biodiesel feedstock prices and the value of RINs,
which is itself a function of the values selected.
There is no real discussion below of how the available supply relates to these key facto rs. There should be such an analysis.

Response: Text in Section IV.B.1.c modified to request comment on this issue.

Deleted: believe

Deleted: could Comment [A41]: Align with forward guidance wording elsewhere

Response: Text edited here and at the end of Section

IV.

Comment [A42]: This language is not strong

en ough if we want the market to understand that this is a long tem methodology.

Response: Text at the end of Section IV was
modified.*** EO12866 Review

- Draft

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

Page 48 of 102 ethanol blends such as E85 and the number of FFVs that have access to E85, as well as other market factors, combine to place significant restrictions on the volume of ethanol that can be supplied to and consumed by consumers

. Based on the types of renewable fuel that we project are likely to be available in 2014 and the volume that is likely to be non

- ethanol, we believe that the ethanol blendwall represents a circumstance that warrants a reduction in the mandated
volumes for 2014.

T he statute provides two separate authorities that permit EPA to reduce volumes of advanced biofuel or total renewable fuel under certain conditions: the cellulosic waiver authority and the general waiver authority. Applying a combination of these two auth orities is the most appropriate way to address limitations in production or importation of the necessary volumes, and factors that limit supplying those volumes to the vehicles that can consume them, including
the ethanol blendwall. This section discusses both of these statutory authorities and the manner in which we believe they can be used together to set standards for 2014.

1. Cellulosic Waiver Authority

Under CAA section 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 biof uel 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 bio fuel.

Section 211(o)(7)(D)(i) provides that “[f]or any calendar year in which the Administrator makes such a reduction, the Administrator may also reduce the applicable volume of renewable fuel and advanced biofuels requirement established under paragr aph (2)(B) by the same or a lesser volume.” Thus Congress authorized EPA to reduce the volume of total renewable fuel and advanced biofuel. As EPA has discussed before, this indicates a clear Congressional intention that under this provision EPA may redu ce both the total renewable and advanced biofuel volume together, not one or the other.

As described in the May 26, 2009 NPRM for the RFS regulations, we do not believe it would be appropriate to lower the advanced biofuel standard but not the total re newable standard, as doing so would allow conventional biofuels to effectively be used to meet the standards that Congress specifically set for advanced biofuels. 38 EPA interprets this provision as authorizing EPA to reduce both total renewable fuel and advanced biofuel, by the same amounts, if EPA reduces the volume of cellulosic biofuel. Using this authority the reductions in total renewable fuel and advanced biofuel can be up to but no more than the amount of reduction
in the cellul osic biofuel volume. Further discussion of this provision can be found in the final rule establishing the 2013 RFS standards. 39

38 See 74 FR 24914

- 15.

39 78 FR 49794, August 15, 2013. Deleted: See 74 FR 24914

- 15.

Formatted: Font: Italic*** EO12866 Review

- Draft

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

Page 49 of 102 The statute does not provide any explicit criteria that must be met or factors that must be considered when making a determina tion as to whether and to what degree to reduce the advanced biofuel and total renewable fuel applicable volumes based on a reduction in cellulosic biofuel volumes under CAA section 211(o)(7)(D)(i). EPA can consider the criteria described in sections 211( o)(2)(B)(ii) and 211(o)(7)(A) in determining appropriate reductions in advanced biofuel and total renewable fuel under the cellulosic waiver authority at section 211(o)(7)(D)(ii), or any other factors that may be relevant. However, EPA must provide a reas oned explanation for any decision to reduce the advanced biofuel and total renewable fuel volume requirements under the cellulosic biofuel waiver authority.

2. General Waiver Authority

CAA 211(o)(7)(A) provides that EPA, in consultation with the Secre tary of Agriculture (USDA) and the Secretary of Energy (DOE), may waive the applicable volume requirements of the Act in whole or in part based on a petition by one or more States, by any person subject to the requirements of the Act, or by the EPA Adminis trator on her own motion. Such a waiver must be based on a determination by the Administrator, after public notice and opportunity for comment, that:

• Implementation of the requirement would severely harm the economy or the environment of a State, a region, or the United States; or

• There is an inadequate domestic supply.

In this Notice, EPA is proposing to utilize the general waiver authority to waiv e applicable volume requirements based on the authority under the statute to act on the Administrator’s own
motion. We have initiated discussions with both USDA and DOE on the proposed approach to determining the applicable volume requirements that is des cribed in this section.

Because this provision provides EPA the discretion to waive the volume requirements of the Act "in whole or in part," we interpret this section as granting authority to waive any or all of the four applicable volume requirements i n appropriate circumstances. Thus, for example, unlike the cellulosic waiver authority, a reduction in total renewable fuel pursuant to the general waiver authority would not automatically result in the same reduction in advanced biofuel, and
would not be limited by the reduction in cellulosic biofuel.

EPA has not previously interpreted or applied the waiver provision in CAA section 211(o)(7)(A)(ii) related to "inadequate domestic supply ." 40 As explained in greater detail below,
we believe that this amb iguous provision is reasonably and best interpreted to encompass the full range of constraints, including fuel infrastructure and other constraints that could result in an inadequate supply of renewable fuel to the ultimate consumers. This would include, for instance, factors affecting the ability to produce or import qualifying renewable fuels as well as factors affecting the ability to distribute, blend, dispense, and consume those renewable fuels.

40 EPA has applied the waiver provision in section 211(o)(7)(A)(i) related to severe harm to the economy. See 77 FR 70752 (November 27, 2012), 73 FR 47168 (August 13, 2008). Deleted:

,*** EO12866 Review

- Draft

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

Page 50 of 102 The waiver provision at CAA 211(o)(7)(A) (ii) is ambiguous in several respects. First, it does not specify what the general term "supply" refers to. The common understanding of this

term is an amount of a resource or product that is available for use by the person or place at
issue. 41 Hence the evaluation of the supply of renewable fuel product is best understood in terms of the person or place using the product. In the RFS program, various parties interact across
several industries to affect a ffect the ultimate use of renewable fuel by consumers of transportation fuel . For example, supplying renewable fuel to obligated parties and terminal blenders is one part of this process, while supplying renewable fuel to the ultimate consumer as part of transportation fuel is a different a nd later aspect of this process . This is clearly the case with respect to the renewable fuels ethanol and biodiesel, which are typically supplied to the obligated parties and terminals as a neat fuel, but in almost all cases are supplied to the consumer

a s a blend with conventional fuel (ethanol and gasoline or biodiesel and diesel). The waiver provision does not specify what product is at issue (for example, neat renewable fuel or blended renewable fuel with transportation fuel) or the person or place at issue (for example, obligated party or ultimate consumer) , in determining whether there is an “inadequate domestic supply

. ”

The waiver provision also does not specify what factors are relevant in determining the adequacy of the supply. Adequacy of the supply would logically be seen in terms of the parties who use the supply of renewable fuel. Adequacy of supply could affect various parties, including obligated parties, terminal operators, and consumers. Adequacy of supply with respect
to the consumer might well involve consideration of factors different from those involved when considering adequacy of supply to the obligated parties. We believe that interpreting this waiver provision as authorizing EPA to consider the adequacy of supply of renewable f uel to all of the relevant parties, including the adequacy of supply to the ultimate consumer of transportation fuel, is consistent with the common understanding of the terms used in this waiver provision

, especially in the context of a fuel program that i s aimed at increasing the use of renewable fuel by consumers. In our view, this is the most reasonable and appropriate construction of this ambiguous language in light of the overall policy goals of the RFS program.

EPA has reviewed other fuel rela ted provisions of the Clean Air Act with somewhat similar waiver provisions , and they highlight both the ambiguity of th e RFS general waiver provision and the reasonableness of applying the latter broadly to include adequacy of supply to the ultimate consumer of transportation fuel

. For example

, CAA section 211(k)(6)( A ) (ii) allows EPA to defer application of reformulated gasoline (RFG) requirements in a state that opt s in to
the RF G program if EPA determines that " there is insufficient domestic capacity to produce reformulated gasoline. " A related RFG waiver provision concerning the application of RFG requirements in the Ozone Transport Region, section 211(k)(6)(B)(i) and (iii), provides for a
wai ver of RFG requirements based on "insufficient capacity to supply reformulated gasoline." For these RFG waiver provisions, Congress more clearly and explicitly indicated that the capacity to supply RFG could include consideration of factors beyond those c oncerning the

41 example, E.g., see http://oxforddictionaries.com/us/definition/american_english/ supply ( a stock of a resource from which a person or place can be provided with the necessary amount of that resource: " T here were fears that the drought would limit the exhibition’s water supply .”); http://www.macmillandictionary.com/us/dictionary/american/supply ( “A limited oil supply has made gas prices rise.” and “Aquarium fish n eed a constant supply of oxygen.”). Comment [A43]: The concept of supply also has something to do with prices. The amount of supply that is available generally varies with the price level, with more being available if the price is higher.

Response: No changes made.

Deleted: a

Deleted: effect

Deleted: effect

Deleted: e

Deleted: For

Deleted: example

Formatted: Font: Italic

Formatted: Font: Italic*** EO12866 Review

- Draft

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

Page 51 of 102 capacity to produce RFG. The language of t h e RFS general waiver provision Congress , in comparison, use d a single, broader and clearly ambiguous phrase

– "inadequate domestic supply "

– without elaboration or clarification as to whether it re fers solely to production capacity or also
includes additional factors relevant to the ability to supply the fuel to various persons such as the
ultimate consumer

. A s in the RFG provision, however, the adequacy of supply referred to in the RFS general waiver provision can logically

– and we believe should

– be read to include factors beyond capacity to produce that impact the ability of consumers to use the fuel as a transportation fuel.

CAA section 211(c)(4)(C)(ii) provides EPA with waiver authority to address "extreme and unusual fuel or fuel additive supply circumstances ... which prevent the distribution of an adequate supply of the fuel or fuel additive to consumers." The supply circumstances must be
the result of a natural disaster, an Act of God, a pipeline or refinery equipment failure or another event that could not reasonably have been foreseen, and granting the waiver must be "in the public interest." In this case, Congress clearly specified that the adeq uacy of the supply is judged in terms of the availability of the fuel for use by the ultimate consumer, and includes
consideration of the ability to distribute the required fuel or fuel additive to the ultimate

consumer. Although the RFS waiver provision does not contain any such explicit clarification from Congress, its broad and ambiguous wording provides EPA the discretion to reasonably interpret the scope of the RFS waiver provision. EPA’s interpretation of the RFS waiver provision is consistent with the view

, expressed more explicitly in the section 211(c) wai ver , that the adequacy of the supply of a fuel or fuel additive can reasonably be judged in terms of availability for use by the consumer, and can include consideration of the capacity to distrib ute

t he product to the ultimate consumer

.

CAA section 211(m)(3)(C) allows EPA to delay the effective date of oxygenated gasoline requirements for certain carbon monoxide nonattainment areas if EPA finds " an inadequate domestic supply of, or distrib ution capacity for, oxygenated gasoline . . . or fuel additives " needed to make oxygenated gasoline. Here , Congress chose to expressly differentiate between

" domestic supply " and " distribution capacity ," indicating that each of these elements was to be

co nsidered separately

. This would indicate that the term inadequate supply , although ambiguous for the reasons discussed above, could in appropriate circumstances be read as more limited in scope. In contrast to the RFS waiver provision, the section 211(m) waiver provision includes
additional text that makes clear that EPA’s authority includes consideration of distribution capacity

– reduc ing the ambiguity inherent in using just the general phrase "inadequate domestic supply." Presumably this avoids a situation where ambiguity would result in an overly narrow administrative interpretation. The oxygenated gasoline waiver provision is also in structive in that it clarifies that it applies separately to both finished oxygenated fuel and to oxygenated fuel blending components. That is, there could be an adequate supply of the oxygenate, such as ethanol, but not an adequate supply of the blended fuel which is sold to the consumer. The RFS waiver provision employs the phrase “ inadequate domestic supply ” without further specification
or clarification

, thus provid ing EPA the discretion to determine whether the adequacy of the supply of renewable fue l can reasonably be judged in terms of availability for use by the ultimate consumer, includ ing consideration of the capacity to distribute the product to the ultimate consumer. In contrast to the section 211(m) waiver provision, Congress arguably did not mandate that the RFS waiver provision be interpreted as providing authority to address problems*** EO12866 Review

- Draft

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

Page 52 of 102 affecting the supply of renewable fuel to the ultimate consumer. However

, the RFS waiver provision does provide EPA the discretion to adopt such an interpreta tion, resulting in a policy approach consistent with that required by the less ambiguous section 211(m) waiver provision. 42

As the above review of various waiver provisions in Title II of the Clean Air Act makes clear, Congress has used the t erm s "supply" and "inadequate supply" in different waiver provisions. In the RFS general waiver provision, Congress spoke in general terms and did not address the scope of activities or persons or places that are the focus in determining the adequacy
of s upply. In other cases, Congress provided, to varying degrees, more explicit direction.
Overall

, the various waiver provisions lend support to the view that it is appropriate , where Congress has used just the ambiguous phrase "inadequate domestic supply " in the RFS waiver provision, to consider supply in terms of distribution and use by the ultimate consumer, and that
the term “ inadequate supply ” of a fuel need not be read as referring to just the capacity to produce renewable fuel or the capacity to supply it to the obligated parties.

We are aware that prior to final adoption of the Energy Independence and Security Act of

2007

, Congress had before it bills that would have provided for an EPA waiver in situations
where th ere was "inadequate domestic supply or distribution capacity to meet the requirement." 43 EPA is not aware of any conference or committee reports, or other legislative history, explaining why Congress ultimately enacted the language in EISA in lieu of this alternative formulation. There is no discussion, for example, of whether Congress did or did not want EPA to consider distribution capacity, whether Congress believed the phrase "inadequate domestic supply" was sufficiently broad that a reference to dist ribution capacity would be unnecessary or superfluous, or whether Congress considered the alternative language as too limiting, since it might suggest that other types of constraints on delivering renewable fuel to the ultimate consumer should not
be consi dered for purposes of granting a waiver. 44 Given the lack of interpretive value typically given to a failure to adopt a legislative provision, and the lack of explanation in this case, we find the legislative history to be uninformative with regard to Cong ressional intent on this issue. It does not change the fact that the text adopted by Congress, whether viewed by itself or in the context of other fuel waiver provisions, is clearly ambiguous.

We believe the term "inadequate domestic supply" should be interpreted to authorize EPA to consider the full range of constraints, including fuel infrastructure and other constraints, that could result in an inadequate supply of renewable fuels to consumers. Under this interpretation, we would not limit ourselves to consideration of the capacity to produce or import renewable fuels but would also consider practical and other constraints related to the fuel delivery infrastructure and their effect on the volume of qualifying renewable fuel that would be supplied to the ultimate consumer.

42 In CAA section 211(h)(5)(C)(ii), Congress authorized EPA to delay the effective date of certain changes to the federal requirements for Reid vapor pressure in summertime gasoline, if the changes would result in an " insufficient supply of gasoline" in the affected area. As with the RFS general waiver provision, Congress did not specify what considerations would warrant a determination of insufficient supply. EPA has not been called upon to apply this provision to da te and has not interpreted it.

43 H.R. 6 and S. 606 as reported by Senate Envt. & Public Works in Senate Report 109

- 74

. 44 There are, for example, legal constraints on the amount of certain renewable fuels that may be blended into transportation fuels. Deleted: termtermterm

Deleted: in the RFS waiver provision

Deleted:

,

Deleted:

Deleted:

Deleted:*** EO12866 Review

- Draft

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

Page 53 of 10 2 This interpretation is consistent with the provisions of section 211(o) and promotes Congress’s purposes in establishing the RFS program, which are to ensure that certain volumes of renewable fuel are used by the ultimate consumer as a replacement for the use of fossil based transportation fuel. 45 The RFS program does not achieve the desired benefits unless renewable fuels are actually used to replace fossil based transportation fuels. For example, the greenhouse

gas reductions and energy security benefits that Congress sought to promote through this

program are realized only through the use by consumers of renewable fuels that reduce or replace fossil fuels present in transportation fuel. Imposing RFS volume requirem ents on obligated parties without consideration of the ability of the obligated parties and other parties to
deliver the renewable fuel to the ultimate consumers, would achieve no such benefits and would fail to account for the complexities of the fuel sys tem that delivers transportation fuel to

consumers. We do not believe it would be appropriate to interpret the RFS general waiver provision more narrowly and limit EPA's consideration of factors related to the distribution and use of renewable fuels by th e ultimate consumers of these fuels

.

We invite comment on all aspects of our proposed interpretation of the waiver provision based

on " inadequate domestic supply

. " Whether or not circumstances projected for 2014 justify a
waiver on this basis is discuss ed in Sections IV.B and IV.C.

3. Combining Authorities for Reductions in Advanced Biofuel and Total Renewable Fuel

The two primary drivers that we have considered in today's NPRM for reductions in the required volumes are limitations in the availabili ty of qualifying renewable fuels and factors that constrain supplying those volumes to the vehicles that can consume them. These two drivers are
both relevant forms of inadequate domestic supply , which authorize reductions under the general
waiver authori ty and can also justify reductions under the cellulosic biofuel waiver authority. We believe that reducing both total renewable and advanced biofuel are appropriate responses to these circumstances, and we propose to use a combination of the two waiver au thorities discussed above to achieve this result as neither authority independently is sufficient to justify the necessary volume reductions. As discussed in Section II, EPA is proposing to reduce the applicable volume of cellulosic biofuel based on a pro jection of production for 2014. Given this reduction in the cellulosic biofuel volumes, EPA is also proposing to reduce the applicable volume of advanced biofuel using the cellulosic biofuel waiver authority in Section 211(o)(7)(D)(i). We are proposing a larger reduction in total renewable fuel volume than in the
advanced biofuel volume. In effect

, one part of the reduction in total renewable fuel would be

45 See CAA section 211(o)(1)(I) (renewable fuel defined as “fuel ... used to replace or reduce the quantity of fossil fuel present in a transportation fuel”), section 211(o)(2)(A)(i) ( EPA’s regulations must “ensure that transportation
fuel sold or introduc ed into commerce in the United States ... contains at least the applicable volume of [renewable fuels]”). Also see CAA section 211(o)(1)(A), definition of “additional renewable fuel.” As one example, in the RFS program fuels with multiple end uses such as biogas or electricity are not considered a renewable fuel absent a demonstration that they will be used by the ultimate consumers as transportation fuel. As noted above, ethanol is almost always used as a renewable fuel in the form of E10 or higher, not as neat ethanol. The supply of neat ethanol, or biogas or electricity, does not by itself determine the supply of the fuel ethanol used as a transportation
fuel. Deleted:

Deleted:

Formatted: Font: Italic

Deleted:*** EO12866 Review

- Draft

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

Page 54 of 102 based on both the general waiver authority and the cellulosic biofuel waiver authority, and the remainder of the reduction in total renewable fuel would be based solely on the general waiver authority. Below we discuss the basis for each of the proposed v olume reductions.

B. Determination of Reductions in Total Renewable Fuel

As a first step in our proposed framework for setting the applicable volumes for total renewable fuel and advanced biofuel, we would estimate the volume of ethanol that can reasonably be expected to be available and consumed and the volume of non

- ethanol renewable fuel that can reasonably be expected to be available and consumed. Taken together, these two considerations would determine the required volume of total renewable fuel. For ethanol, the issue is the use of the fuel in the transportation sector, as the purpose of the RFS program is to ensure that renewable fuels are used to replace or reduce the use of fossil fuel based transportation fuel. 46 Thus availability and consumption of the renewable fuel are both relevant
factors f or achieving the national volumes under the RFS program. For ethanol blends, there are legal constraints on the amount of ethanol that can be blended into gasoline and practical constraints on the volume of ethanol that can be consumed as transportation f uel

, notwithstanding the ability to produce higher volumes. For non

- ethanol renewable fuels, the primary issue is the availability of volumes of the renewable fuel, and much less so the ability to consume it in the transportation sector if it is available . For purposes of this proposal, we generally refer to the consumption concerns related to ethanol, and the availability concerns
related to non

- ethanol forms of renewable fuel, recognizing the primary concern that is raised for each of these types of ren ewable fuel.

1. Estimating Ethanol Volumes that Could Reasonably Be Consumed

The volume of ethanol that could reasonably be consumed is a function of the total demand for gasoline and the consumption of ethanol as E10, E15, or E85

. 47 All vehicles a nd engines are capable of operating on E10, so at a minimum

, the total volume of ethanol that can be consumed can be calculated by assuming that all gasoline is E10. Higher volumes of ethanol
can be consumed insofar as E15

- E85 is viable.

T he total demand for gasoline has been decreasing due to the recent GHG and CAFE standards for vehicles, contrary to the projections that were available in 2007 when the Energy Independence and Security Act (EISA) was enacted. Comparing the projections for 2 014 gasoline demand in EIA's 2007 and 2013 Annual Energy Outlooks indicates that in 2007, the expected 2014 gasoline energy demand was 18.68 Quad Btu and could have absorbed 15.43

46 Renewable fuels in heating oil and jet fuel are also valid under the RFS program, but eth anol is not used in these

contexts. See CAA section 211(o)(1)(J) (the definition of renewable fuel), and CAA section 211(o)(2)(A) (the rulemaking authority related to ensuring renewable fuels are sold or introduced into commerce).

47 Intermediate blends are also possible, but for this assessment we have focused on E85 volumes. There are currently very few retail stations offering E15. While a variety of blend levels are possible for E85 from 51% to 83%, in today's NPRM we have assumed that the ethanol cont ent of E85 is 74% consistent with the value used by

EIA. Deleted: See CAA section 211(o)( 1)(J) (the definition of renewable fuel), and CAA section 211(o)(2)(A) (the rulemaking authority related to ensuring renewable fuels are sold or introduced into commerce).

Comment [A44]: Both the practical amount of ethanol that can be consumed, and supply volume of

non

- ethanol biofuels, are both likely to be sensitive to prices paid by consu mers or received by producers, both of which can be significantly influenced by RIN values that are in turn influenced by the level of the various RFS requirements. The analysis of “reasonable” volumes does not consider prices at all.

Response: Tex t modified in Section IV.B.1.c to address the impact of the standards on availability and consumption.

Deleted:

. Comment [A45]: Are there any places in the nation where they cannot blend ethanol or cannot
blend to E10?

Response: Text modified to acknowledge potential
for small amounts of E0.

Comment [A46]: It also makes sense to acknowledge that three may be some circumstances where gasoline is not blended at 10 percent. For instance if a terminal is short ethanol, and a shipment is a few days away, it might blend at 5 percent. Setting the number at exactly 10 percent leaves little room for the day

- to

- day operational challenges that might affect the industry.

Response: NPRM requests comment on potential
volumes of E0. Text added to discuss ethanol
content of E10.

Deleted: Stakeho lders have noted that t

Deleted: the

Formatted: Font: Italic*** EO12866 Review

- Draft

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

Page 55 of 102 bill ion gal lons of ethanol as E10, while in 2013 the expected 2014 gasoline energy demand is 15.94 Quad Btu and could absorb 13.17 bill ion gal lons ethanol as E10. The difference between these two projections thus represents about 2.3 bill ion gal lons of ethanol. That is, the gasoline pool will be able to absorb about 2.3 bill ion gal lons less ethanol as E10 in 2014 than it was expected to absorb in the 2007 projection. If 15.43 bill ion gal lons of ethanol were to be consumed in 2014, the gasoline energy demand pr ojected in AEO2013 would require about 3.4
bill ion gal lons of E85.

Table IV.B.1

- 1
Reduced Gasoline Demand in 2014 Motor gasoline (Quad Btu) a E85

(Quad Btu) a Total energy

(Quad Btu) a Equivalent E10

volume (bill gal)

AEO2007 b 18.67 0.01 18.68 154.30

AEO2013 b 15.84 0.10 15.94 131.67
Difference 22.63

a Higher heating value

b Table 2, total consumption for all sectors.

For purposes of determining the total renewable fuel volume requirement for 2014, consistent with the waiver authorities we are proposing to exercise in this action, we have
assessed the volume of E85 that can reasonably be supplied to and consumed by consumers, based on a variety of factors that limit supplying E85 in the transportati on sector. In doing so, we are not mandating that this amount of E85 be produced and consumed. The industries involved will decide what actually occurs in the marketplace. Obligated parties can take actions to facilitate the sale of E85, to the extent t hey can and choose to do so , or they can obtain RINs
from non

- ethanol sources of renewable fuel such as renewable diesel, heating oil, and biogas. We expect that the parties involved will resolve this through their business decisions. However,
we believe that the amount of renewable fuel reflected in this E85 assessment reflects a volume that is reasonably achievable and can be supplied to consumers.

There are a variety of sources we have used to make an estimate of the volume of E85
that could be supplied in the transportation sector in 2014. For the purposes of this estimate, and to simplify the calculations and the discussion, we have assumed that the volumes of E15 that are consumed in 2014 will be negligible, as there are currently very few re tail stations offering E15.

According to EIA, actual consumption of E85 in 2012 was about 40 mill ion gal lons

. 48 There are indications that actual consumption of E85 was higher than this, as the EIA volume does not necessarily account f or consumption in all states. Nevertheless, the actual volume consumed was small fraction of the consumption capacity of the FFVs currently in use. The low consumption is most likely due primarily to limited access to retail stations offering E85 and the
fact that in 2013 E85 was x percent more expensive than E10

. on an energy equivalent basis in

2012. Demand for E85 also was limited by consumer s’ unfamiliarity with E85, poor information about where it is sold, how it is priced, and whether it will work in one’s car. Other factors

, such

as consumer At this time, available information regarding the level of E85 consumption in 2013

48 EIA, "U.S. Refinery and Blender Net Production", April 29, 2013. Deleted: bill galgalgal

Deleted: bill galgalgal

Deleted: bill galgalgal

Deleted: bill galgalgal

Deleted: bill galgalgal

Deleted: bill galgalgal

Comment [A47]: Actual value is 0.0041 Q uad

Btu.

Response: Table has been modified.

Comment [A48]: Report the conversion factor
used.

Response: Footnote added.

Comment [A49]: Incorrect cite. Page 136 of aeo

2013

Response: Citation was verified as being correct. No change made.

Deleted: ¶

Deleted: mill galgalgal Comment [A50]: Please double check this
estimate with EIA.

Response: Text changed to clarify source.

Deleted: the price of

Deleted: only about 13% lower than the price of

Deleted: in 2013

Deleted: 49

. Since the volumetric energy content of E85 is about 22% below that of E10, the price of E85 was actually higher than the price of E10

Deleted: Other factors such as

Deleted: knowledge and information about the availability and pricing of E85, as well as about whether the consumer has an FFV capable of using such fuel, may also play a role.

Deleted: 4/29/13*** EO12866 Review

- Draft

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

Page 56 of 102 is limited, and we expect that better and more detailed information will be available

– including through the notice and comment process

– by the time we promulgate a final rule. We solicit comment and information on 2013 consumption of E85 and its relevance to projecting reasonable levels of consumption in 2014.

The volume of E85 that ca n and will be sold is likely highly dependent on price. A survey conducted by the National Association of Convenience Stores found that 71% of customers indicated that price was the most important factor in determining where they buy gasoline. 50 If E85 we re to be priced in such a way that it provided greater value for consumers than E10 we anticipate that many consumers who own an FFV and have access to E85 would choose to purchase E85 over E10

, just as they have in Brazil.

The product cost relationship between E85 and E10 is primarily dependent on the prices
of corn and crude oil

. 51 The price differential between E85 and E10 also depends on relative convenience costs (discussed further below) and also reflects the price of RINs . Corn and crude oil are the contributors to the cost of production of the gasoline and ethanol , respectively, used in the United States. The RIN price function s as a mechanism to reduce t he price of ethanol until it is at or below price parity with gasoline on an energy

- equivalent basis even if the relative prices of corn and oil would not otherwise support such a pricing structure. The net effect of a reduction in the price of blended ethanol is that the price of E85 should fall relative to the price of E10, since E85 contains mo re ethanol than E10. The significant rise on the price of D6 (non

advanced) RINs and the subsequent drop in the retail price of E85 relative to E10 over the course of 2013, 53 indicates that RINs are already functioning in this manner. While we currentl y have insufficient data to allow us to correlate sales volumes of E85 with its price relative to gasoline on an energy basis, we would expect E85 consumption to increase if the price of E85 decreases relative to the price of E10. We also request comment on the manner and extent to which RIN prices are affecting gasoline and E85 prices? What effects are market participants seeing and what evidence do they see? Are the effects uniform throughout the nation? Is it affected by
market structure and if so ho w?

Due to the paucity of data correlating E85 sales with its price relative to E10, we have turned to other sources to help inform our projections. For instance, even without further reductions in the price of E85 relative to the price of E10, highe r E85 consumption in 2014 could reasonably be expected compared to 2012 based on business

- as

- usual growth in the number of
FFVs in use and the number of retail stations offering E85. The combined effect of these two
factors could raise the total E85 cons umption volume to 80 mill ion gal lons if the purchasing
behavior of individual FFV owners remains constant. 54 However, it remains unclear what fraction of current E85 consumption is for government

- owned fleets which may already be

50 2013 NACS Retail Fuels Report

. 51 Other factors, including Federal and State taxes and subsidies and distribution costs , may also affect the price relationship. It is therefore very difficult to accurately predict fuel prices.

53 http://e85prices.com

, August 26, 2013. E85 prices have fallen steadily since the beginning of 2013 relative to E10 prices , and are current at about 20% lower than the price of E10.

54 While there are many different factors that may potentially influence consumer purchasing behavior with respect to E10 and E85, we believe the primary factor will be the relative price of the two products. Comment [A51]: This fails to discuss convenience,

Response: Text was modified to acknowledge this.

Deleted: The price

Deleted:

, Comment [A52]: A few comments:

1. Inconvenience cost of E85. This analysis ignores the paucity of E85 distribution stations acro ss the U.S. While price is certainly a significant factor in the amount of E85 that will be sold, The reviewer also believes the “inconvenience” of getting E85 to be a significant driver in the economics of E85.

Specifically, since there are far fewer E8 5 distribution stations than E10 stations, E10 stations will, on average, be easier to access than E85 stations. Thus, there is a lower “inconvenience cost” associated with filling your car with E10 since.

This issue is discussed well below so the sugge sted edits sidestep this issue to avoid confusion and to avoid duplicate wording.

Response: Text was modified.

Deleted: and

, 52 and is reflected in the price of

RINs

Comment [A53]: Flip these

Response: Text was moedified.

Deleted: can function

Deleted: function

Comment [A54]: E85prices.com is not the most complete data set for this type of analysis. The reviewer suggests using the WEX data set employed by OPIS and others.

Response: No changes to text. EPA is in the process of obtaining WEX data, but it is unlikely to
be available for this NPRM.

Formatted: Not Highlight

Formatted: Highlight

Formatted: Highlight

Comment [A55]: It is inappropriate to use prices from E85prices.com. They are anecdotal and not statistically valid.

Response: No changes to text. E85prices.com
tracks with data from Minnesota.

Deleted:

-

Deleted: mill galgalgal

Comment [A57]: The reasoning here runs the risk of being circular. Projections of increasing E85 consumption depend on low E85 prices but those

... Comment [A56]: What is the basis for this
estimate?

...

Formatted: Font: Not Bold*** EO12866 Review

- Draft

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

Page 57 of 102 required to consume E85. Consumption of E85 by fleets would not be expected to change as the price of E85 changes relative to the price of E10.

Based on historical market practices with diesel fuel, in the March 2010 RFS final rule we presented a means for estimating the E85 consumption capacity of FFVs. 55 We defined “reasonable access” to E85 as a situation in which one out of every four service stations to which an FFV owner had access offered E85, such that an FFV owner could be considered to have a

r easonable option of refueling on E85. All other FFVs would then be assumed not to have reasonable access to E85, and would therefore always refuel on gasoline (here presumed to be E10).

We have used this one

- in

- four access to estimate the volume of E85 that could be consumed by FFVs in 2014. Based on projections of the number of retail stations likely to offer E85 in 2014, we estimated that approximately 8.6% of FFVs would have access to E85. As a thought exercise, w e then estimated that the energy 56 consumed by all FFVs in 2014 would be about 9% of all the energy consumed by all light

- duty vehicles and trucks. If all FFVs that had reasonable access to E85 actually consumed E85, the total volume of E85 consumed would be 1,275 mill ion gal l ons

. Details of these calculations can be found in a memorandum in the
docket. 57

We recognize that the average FFV will not consume E85 anything approaching 100% of
the time. However, the lower the price of E85 compared to the price of E10, the greater the likelihood that FFV owners will opt to purchase E85. E85 prices have fallen steadily since the beginning of 2013, and are current at about x % higher than the price of E10 on an energy content adjusted basis

. . In order to further incentivize FFV owners to purchase E85, the price difference may also need to reflect the inconvenience of a greater frequency of refuelings for a vehicle operating on E85, and potentially the greater driving distance to a station offering E85. Under these conditions, FFV owners that have access to E85 would have an equal economic
incentiv e to purchase either E10 or E85. With no clear economic advantage of one fuel over the other, the highest E85 consumption that one could reasonably expect would be that half of FFVs owners that have access to E85 would purchase it. If this occurred it wo uld bring the maximum
volume of E85 consumed in 2014 to about 640 mill gal

. mill ion gal lons

.

There are a variety of other sources providing estimates of potential E85 consumption in

2014. For instance, in their comments on the NPRM, the University of Illinois included an article from the February 13, 2013 issue of Farmdoc Daily in which the projected E85 consumption volume could be 300 mill ion gal lons under appropriate conditi ons of lower E85 prices in comparison to E10 prices. mill ion gal lons EIA ’s project ed gasoline and ethanol

55 See discussion at 75 FR 14761, March 26, 2010

. 56 From all fuel sources, including both E10 and E85.

57 "Application of one

- in

- four E85 access methodology to 2014 ",",",

, " Memorandum from David Korotney to EPA
docket EPA

- HQ

- OAR

- 2013

- 0479

. Deleted: W

Deleted: We

Comment [A58]: The math here is wrong.

Response: Math was verified as bein g correct. No change to text. Memo to docket will provide details.

Deleted: mill gal.

Deleted: It is likely that FFVs having access to
E85 will not use E85

Comment [A59]: This example is really a red herring. While it may be there just to make a point, it is not presented that way. The average FFV probably consumed less than a tank full of E85 over
the course of last year. The idea that they would go to 100 percent is not simply “not likely.” It is impossible. And is likewise impossible that they
would come even close.

Response: Discussion of 1,275 mill gal eliminated.

Deleted: 20

Deleted: 20%

Deleted: lower

Deleted:

.
Deleted: This is just below the difference of 22% that would be needed in order to reach energy parity

Deleted: 58

.
Deleted: accommodate

Comment [A61]: Understand the source, but this seems high. If there were no economic advantage, but assuming 3⁄4 of the stations sell gasoline only, why would we reasonably expect the E85 station get
3 times the business as a non

- E85 gas station?

... Deleted:

. Comment [A60]: What is the basis for thi s estimate?

Response: Details will be in a memo to the docket. No change to text.

Formatted: Font: Italic

Deleted: mill galgalgal

Comment [A62]: That is a misstatement of what

...

Deleted: Likewise, EIA's Annual Energy Outlook 2013 projects E85 consumption of 1,021 mill

... Deleted: in 2014 based on projections of market conditions under the influence of the RFS program. Comment [A64]: Not very relevant, since this is driven by a very different assumption about the

... Comment [A63]: You can not reasonably cite numbers that EIA has updated

...

Deleted: EIA also provided a more recent

Deleted: ion projection of

Deleted:

,*** EO12866 Review

- Draft

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

Page 58 of 102 consumption for 2014 in the July Short Term Energy Outlook. The volume of E85 that would
need to be consumed based on these values is about 400 mill ion gal lons

. 60

In the context of EPA's response to requests for a waiver of the 2012 renewable fuel volume requirements due to drought, the Department of Energy provided its own analysis of the
maximum volume of E85 that could be consumed based on technical analysis of retail station throughput. 61 Based on assumptions about E85 tank sizes at retail stations and the associated refill frequencies, DOE estimated that the maximum sales of E85 would be 600 mill ion gal lons

. However, thi s volume assumes that the number of retail stations offering E85 is about 2,300. We estimate that the number of stations offering E85 will be closer to 3,300 in 2014, which would correspond to a maximum E85 throughput of about 860 gal. mill io n gal lons

.

Based on the discussion above, we have reason to believe that the market is reasonably capable of supplying and consuming higher volumes of E85 in 2014 than was actually consumed in 2012. A summary of all of the sources is provided below.

T able IV.B.1

- 2 Projections of 2014 E85 Consumption, Ordered from Lowest to Highest Actual 2012 consumption 40 mill gal Scaling up 2012 consumption to account for BAU growth in E85
stations and more FFVs 80 mill gal

EIA Short Term Energy Outlook, July 2013 400 mill gal

We recognize that the actual volume of E85 consumed is highly dependent upon its price relative to the price of E10, as well as the various business decisions made by the parties involved with making E85 available to FFV owners. As discussed a bove, our goal is to generate an estimate of the amount of E85 that could reasonably be supplied to and consumed by consumers in light of the various circumstances involved with distribution and sale of E85. The various parties involved in producing and d istributing gasoline and ethanol will determine what in fact will occur in 2014. Here we are assessing the volume of E85 that could reasonably be supplied to
and consumed by consumers , and including that volume as part of the total renewable fuel
volume. Once the applicable volume requirements are set, the parties in the market will determine whether this volume of E85 is in fact consumed, or whether other renewable fuels are
consumed instead of the volume of ethanol that we estimate could be consumed as E85.

60 Based on a total gasoline consumption of 132.79 bill gal, assumed to be E10, and a total ethanol consumption of 13.58 bill gal.bill ion gal lons . Ethanol content of E85 is assumed to be 74%.

61 "Department of Energy Analyses in Support of the EPA Evaluation of Waivers of the Renewable Fuel
Standard ",",",

, " November 2012, EPA

- HQ

- OAR

- 2012

- 0632

- 2544. Deleted: ir their

Deleted: mill gal. 59 Comment [A65]: Even this number has a problem. It is based on what EIA thinks wil l happened given the RFS. To cite it as justification for the RFS is circular. Moreover it can only happen with a high RIN price, but we are trying to avoid that
here.

Response: Discussion of STEO has been eliminated.

Deleted: gal Comment [A66]: Not sure which edition of 2013
STEO used. Please cite. Gasoline volume is for
2013 not 2014 as intended.

Regardless of which edition of the STEO EPA is using, 400 million gal does not compute. 10 percent of 132.79 billion gallons of Gasoline consumption is
13.279. 13.58 billion ga llons of total ethanol consumption minus 13.279 of E10 is more like 300 million gallons (of ethanol). Maybe EPA assumed 400 million gallons of actual E85 consumption, including the gasoline portion? None of this takes
into account the STEO also assumes denaturant in

...

Deleted: mill gal. Comment [A67]: Why are you citing year old DOE analysis when EIA has current analysis?

...

Deleted: mill Comment [A68]: What is the basis for assuming that the number of stations with E85 will grow 40

...

Deleted: galgal

Comment [A69]: This table includes data that are modified without being s o identified. Please see an

...

Deleted: University of Iowa comments Comment [A70]: This should have been Illinois,

not Iowa.

...

Deleted: 300 mill gal

Deleted: DOE estimate of maximum throughput
from 2012 waiver denial

Deleted: 600 mill gal

Deleted: All FFVs with access to E85 use it 50% of the time, assuming that access is defined as one

-

... Deleted: 640 mill gal

Deleted: DOE estimate, after adjusting for projected number of E85 stations in 2014

Deleted: 860 mill gal

Deleted: AEO2013 projection

Deleted: 1,021 mill gal

Deleted: All FFVs with access to E85 use it 100% of the time, assuming that access is defined as one

-

... Deleted: 1,275 mill gal

Deleted:

Deleted:

,*** EO12866 Review

- Draft

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

Page 59 of 102 For purposes of determining the appropriate adjustment to the total renewable fuel volume under the general waiver authority, w e believe that it would be most appropriate to project a range of E85 that reflects the volume that could reasonably be consumed in 2014, using
the values in Table IV.B.1

- 2 as a guide. For the purposes of this NPRM, we are estimating a range of 40

- 400 mill ion gal lons of E85 consumption for 2014. This estimated range of E85 encompasses the most likely p ossibilities. Volumes below 40 mill ion gal lons are possible, but we believe that they are unlikely given that this volume has been consumed in the past.
Likewise

, volumes above 400 mill ion gal lons are possible, but we believe that they are unlikely since they would require substantial changes in the E85 market. We believe that such changes are unlikely to occur in the timeframe available. For instance, the estimate of 640 mill ion gal lons in Table IV.B.1

- 2 assumes that FFV owners that have access to E85 have an equal economic incentive to purchase either E10 or E85. This would require that the price of E85 be reduced below energy parity to address the inconvenience of greater frequency of refuelings for a vehicle operating on E85, potentially greater driving distances to a station offering E85, and any other reasons FFV owners may have for resisting the use of E85 (for example, unfamiliarity with a new fuel, not knowing that they own an FF V, etc). We believe it is unlikely that the price of
E85 relative to E10 will reflect all of these factors in the short time available between this proposal and the beginning of 2014, and thus E85 volumes as high as 640 mill ion gal lons are

u nlikely in 2014 . However, 400 mill ion gal lons of E85 may be achievable if the price of E85 only partially reflects these factors. The projection of 400 mil lion gal lons is also the most recent of the projections shown in Tabl e IV.B.1

- 2 that are derived from sources outside of EPA.
Therefore we believe that 400 mill ion gal lons is a reasonable upper end of the range of possible
volumes of E85 for 2014.

For the final rule, we will need to determine a single val ue of reasonable total ethanol consumption in 2014 for purposes of exercising the waiver authority and setting the total
renewable fuel volume. Given that 2014 is the first year for which we are proposing to exercise the general waiver authority to addres s constraints associated with the ethanol blendwall, that there remain significant uncertainties associated with determining adequacy of supply of ethanol to ultimate consumers, and that there is a relatively short time period in which to achieve
infrastru ctural and market changes that would affect ethanol consumption in 2014, we anticipate basing our final determination on a stochastic projection of reasonable ethanol consumption for

2014. We anticipate that actual levels of E85 consumption in 2013 will be highly relevant to determining an appropriate value, and as discussed above, we expect to have better and more detailed information on 2013 consumption by the time we promulgate a final rule

. In light of
current uncertainties a

nd the limited information available at this time

, we are propos ing that the specific volume of E85 that we would use in determining total ethanol consumption for 2014 would be based on the mean value form the Monte Carlo analysis within the finalized rang e of potential E85 volumes discussed above

. Based on the Monte Carlo analysis discussed in more detail in Section IV.B.4 below, the mean value for E85 consumption would be 180 mill ion gal lons

. As noted below, this analysis is based on a hal f

- normal distribution, consistent with our view that the reasonable level of consumption will be towards the lower end of the range. However, we request comment on whether an alternative mid

- range value would be more appropriate, such as the median (50th percentile) or the mode (highest frequency value). Further

, we request comment more generally on the range of E85 consumption that could reasonably be Deleted: mill galgalgal Comment [A71]: Too high

Response: E85 range has been changed.

Deleted: mill galgalgal

Deleted: mill galgalgal

Deleted: mill galgalgal

Deleted: mill galgalgal

Comment [A72]: Liquid fuels prices can change VERY quickly, as illustrated by recent market developments. If RIN prices or oil prices were to skyrocket, or if corn prices were to plummet, prices could change very quickly.

Response: Text was modifi ed.

Deleted: mill galgalgal

Deleted: mil galgalgal

Deleted: mill galgalgal

Deleted: conservative Comment [A73]: This adjective is more appropriate given the level on uncertainty in projecting E85 consumption.

Response: Text was modified.

Deleted: mill gal. Comment [A74]: Mean is the wrong value given asymmetric risk..

Response: Text was modified to address this

comment.

Comment [A75]: Although the results of the E85 results are not presented here, they were presented in the slide deck that EPA presented in the conference
call scheduled on 9/6.

We are concerned about the bimodal nature of the
distribution in that slide

– is it possible that an error
was made with the Monte Carlo simulation for E85 consumption?

Response: No error was identified in the analysis. No change to text.*** EO12866 Review

- Draft

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

Page 60 of 102 achieved under appropriate conditions in 2014, including the methodologies and approaches that
would provide a projection of E85 that could reasonably be consumed in light of the various factors affecting the distribution and sale of E85

. We request comment in particular on methodologies and approaches that would be appropriately conservative in light of the
considerations , such as uncertainty and the short

- time frame for market changes , highlighted
above

.

As described at the beginning of this section, the purpose of projecting potential consumption of E85 is to provide a basis for estimating the total volume of ethanol that could reasonably be consumed in 2014 in any gasoline

- ethanol blend. To this end, we assumed that all gasoline

- powered vehicles would use either E10 or E85. We have not assumed that any gasoline
would be E0 since E10 is common ly used in small nonroad engines in addition to E10 used in cars and trucks. However, we request comment on whether including some E0 in the gasoline pool would be appropriate in this calculation to represent its use in small nonroad engines, and if
so wh at volume would be reasonable given that many of these small engines use E10 today.

We assumed that the total energy consumption for all gasoline

- powered vehicles and engines would be 14.33 Quadrillion Btu

. 62 Based on a denatured ethanol energy content of 77,000 Btu/gal and a gasoline (E0) energy content of 115,000 Btu/gal, we determined that an E85 consumption range of 40

- 400 mill ion gal lons would correspond to a total ethanol consumption volume of 12.91

- 13.15 bill gal. This ethano l volume would include non

- advanced ethanol such as that made from corn as well as advanced biofuels such as sugarcane ethanol or other domestically

- produced advanced ethanol.

2. Estimating Availability of Non

- Ethanol Renewable Fuel Volumes

In additi on to the volume of ethanol that could reasonably be consumed in 2014, the total volume of renewable fuel depends on the volume of non

- ethanol renewable fuels that are projected to be available in 2014. These include both advanced and non

- advanced non

- eth anol
renewable fuels of all types that could reasonably be supplied to meet all four standards.

a. Non

- Ethanol Cellulosic Biofuel

The production of non

- ethanol cellulosic biofuel in 2014 is projected to be between 4 and
15 million ethanol

- equivalent ga llons. This volume could be significantly greater if pathways for the generation of cellulosic biofuel RINs from landfill biogas are approved and the definition of home heating oil is adjusted as proposed in EPA’s RFS Pathways II rulemaking. 78 FR 36042 (June 14, 2013). For more details on the potential production of non

- ethanol cellulosic biofuels in 2014, and the companies expected to produce these fuels, see Section II.

62 EIA Annual Energy Outlook 2013, Table 37. Represents lower heating value. Comment [A76]: The short time frame for market changes points to the fact that the costs of an estimation error are asy

mmetric. A standard built on

a too

- low estimate will forego GHG emissions reductions, while a standard based on a too

- high
estimate will induce market distortions that can be costly in the long run and even more costly in the short run, far outweighing th e GHG emissions benefits based on the SCC according to the reviewer’s estimates. This reasoning provides a policy/economic basis for using an asymmetric loss function. An asymmetric loss function would lead
one to use a more conservative estimate than th e middle of the range. For example, using a Lin

- Lin loss function leads to using a quantile of the distribution, for example the 25% quantile if the cost
of overestimation is three times the cost of an underestimate of the same magnitude. Such a procedur e has a strong economic/policy basis, we do not have a view as to whether it has a legal basis in
the context of the RFS.

Response: Text was modified.

Deleted:

.
Deleted: mill galgalgal

Comment [A77]: EPA’s assumptions of E10 consumption + 180 mllion gallons of E85 consumption brings them to 12.91

– 13 .15 billion gallons of ethanol consumption. That’s below the blend wall, much less the blend wall plus E85. EPA

appear s to be calculating it on a Btu basis, but not sure why since E10 is purely volumetric.

Response: Text was modified to clarify. Variability in E85 demands that we use energy, not volume.*** EO12866 Review

- Draft

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

Page 61 of 102 b. Biomass

- Based Diesel

Obligated parties are required to fulfill a renewable volume obligations ( RVO ) based on a national applicable volume for biomass

- based diesel of 1.28 bill ion gal lons of biodiesel (1.92
bill ion ethanol

- equivalent gallons) in 2013. 63 As described in Section III, in today's NP RM we are proposing that the national applicable volume for biomass

- based diesel remain the same for 2014. However, this proposed requirement is not based exclusively on projected availability and we recognize that it does not represent the maximum volume that could be available for purposes of satisfying the total renewable fuel volume requirements.

There is a large amount of excess production capacity for biomass

- based diesel, including at facilities that were in operation in 2012. The total produc tion capacity for all facilities that produced some volume in 2012 is 2.4 bill ion gal lons , and the production capacity for all facilities that utilized at least 20% of their individual production capacities in 2012 was about 1.6 bill gal.
bill ion gal lons

.

Figure IV.B.2.b

- 1

Distribution of Capacity Utilization for Registered Parties that

Produced Some Biodiesel in 2012

While there is a large amount of excess production capacity, the degree to which it will be used to produce biodiesel in excess of 1.28 bill ion gal lons depends on a variety of factors.
One of those factors is the federal tax credit for biodi esel that was most recently extended through the end of 2013 under the American Taxpayer Relief Act of 2012. Under this Act, parties that produce a mixture of biodiesel and diesel fuel can claim a $1.00

- per

- gallon credit

63 77 FR 59458, September 27, 2012 (establishing the national applicable volume for BBD), CITE (establishing the percentage standards for obligated parties for 2013). Deleted: n

Formatted: Font color: Text 1

Deleted: bill galgalgal

Deleted: billbillbill

Deleted: bill galgalgal

Comment [A78]: The reviewer believes that this is an unrealistically high estimate of operable capacity. We don’t believe that EMTS data should
be used in this manner.

Response: Text modified to clarify actua l capacity. Data on production capacity added to docket.

Deleted: bill galgalgal*** EO12866 Review

- Draft

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

Page 62 of 102 against their tax liability. 64 Thi s tax credit has enabled biodiesel to be more competitive with other advanced biofuels. However, as of this writing it is unclear if this tax credit will apply in 2014. Since many expect the tax credit to have a direct impact on the economic attractivene ss of biodiesel, the fact that it does not yet apply in 2014 adds uncertainty to the volume of biodiesel above 1.28 bill gal that may be produced and consumed

.

Nevertheless, the volume of biodiesel that already has been produced in 2013 provides

ano ther benchmark for what could occur in 2014. According to production data available through EMTS, the total volume of biomass

- based diesel produced through July 2013 was 875 million gallons. Depending on how monthly production continues through the remai nder of 2013, we would expect total 2013 biodiesel production to be between 1.5 and 1.7 billion gallons. A projection of 1.5 bill ion gal lons results from the assumption that the January

- July average production rate continues through the re st of 2013, while a projection of 1.7 bill ion gal lon results from the assumption that the July production rate continues through the rest of 2013. If the trend in production follows the downward trend that occurred in 2012 in the August

- De cember timeframe, the total 2013 production would be 1.57 gal. bill ion gal lons

.

Figure IV.B.2.b

- 2 Projected Production of Biomass

- Based Diesel in 2013

In the past some stakeholders have expressed concern that there may be limitations in biodiesel consumption that could be imposed by manufacturer warranties and cold

- weather operation, and that this could impact use of biodiesel above 1.28 bill ion gal lons

. However, we do not believe that this is the case for 2014. For instance, most diesel engines are warrantied by

64 See Section 405. Deleted:

. Comment [A79]: Seems like supply would collapse if credit is not extended.

Response: Text was modified.

Deleted: bill galgalgal

Deleted: bill galgalgal

Deleted: bill Comment [A80]: Is there normally seasonality. If so, why different this year.

Response: Text was modified to acknowle dge this possibility.

Deleted: galgal

Deleted: bill gal.*** EO12866 Review

- Draft

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

Page 63 of 102 their manufacturer to B5. That is, the use of biodiesel in concentrations above 5vol% will void these warranties. While not a legal limitation on the use of biodiesel, it does present a practical limitation. Assuming a total diesel consumption volume of about 47.8 bill gal bill ion gal lons for

2014

, 65 B5 for the diesel pool as a whole would correspond to a biodiesel volume of 2. 4 bill gal 8
bill ion gal lons

. However, some diesel truck engines have been warrantied by their manufacturers to consume B20, starting in 2011. 66 This c ould potentially raise the limit on biodiesel consumption even higher assuming retailers would dedicate a pump exclusively for B20 to this pool of diesel fuel consumers. Since 2. 4 bill gal 8 bill ion gal lons is significantly higher than the range of biodiesel volumes we are considering in this proposal, manufacturer
warranties may not represent a limitation on biodiesel use in 2014

. However, this estimate also does consider consumer response to the i ssue

.

At the same time, even biodiesel blends as low as B5 cannot be utilized year

- round due to
cold weather constraints. The cloud point for B5 soy methyl ester (SME) blended with No. 2 diesel is estimated to be approximately 5 °F. Thus, the use of B5 is highly unlikely in any region where temperatures regularly drop below 5 °F. Assuming that biodiesel cannot be blended in such regions during any month where the 10% percentile temperature falls below 5 °F would
result in a reduction of the 2014 biomass

- based diesel volume by only about 3%. This would still permit more than 2 bill ion gal lons of biodiesel to be consumed in 2014. Thus, it appears that for 2014, the ability to consume biodiesel in the vehicle fleet is not constrained by cold weather.

There are a variety of other sources that provide benchmarks for what volumes of
biodiesel co uld be reasonably available in 2014 in excess of 1.28 bill ion gal lons

. For instance, in the March 2010 RFS final rulemaking, we projected that there could be 1.39 bill ion gal lons
biodiesel in 2014 based on an assessment of available feedstocks. This analysis was done in the context of our projections out to 2022 demonstrating how the statutory volume requirements might be met.

In the 2013 standards final rule

, 67 we assessed potential feedstocks for biodiesel production, concludi ng that excess soy oil and corn oil could be used to produce an additional

200 mill ion gal lons of biodiesel in 2013 above the 1.28 bill ion gal lon requirement. For 2014 the additional biodiesel from these sources could be higher. According to USDA, domestic soybean production is expected to increase by 13% in the 2013 soybean marketing year which extends through September 2014, in comparison to th e 2012 marketing year. 68 If this occurs, then domestic production of soy oil could increase by about 240 mill ion gal lons

. Regarding corn oil,
more than one third of the 320 mill ion gal lons total production was exported in 2012. Th ese exports could be diverted to biodiesel production depending on relative prices and other factors. Taken together, the use of both additional soy oil production and the diversion of corn oil exported could bring the total biodiesel production volume to about 1.62 bill ion gal lons

.

65 EIA Annual Energy Outlook 2013, Table 11.

66 Very few automobiles war rantied by manufacturers to consume B20 have been sold in the U.S. As such, this volume of biodiesel was assumed to be negligible for purposes of this estimate.

67 78 FR 49794, August 15, 2013.

68 Pete Riley, "Grains and Oilseeds Outlook; 2013 Agricultural Outlook Forum," USDA/Farm Service Agency, February 22, 2013. 13% is assumed to apply only during the first 9 months of 2014. Deleted: 56 Comment [A81]: 56 billion gallons is EIA’s
demand for all distillate not on and off road distillate. Transportation sector diesel demand is ~ 47.8 billion gallons (Table 36 EIA AEO 2013).

Response: Table 11 of AEO2013 includes a separate
line for total diesel consumption. No change made

to text.

Deleted: galgal

Deleted:

,
Deleted: 88 8

Deleted: galgal

Deleted: would w

Deleted:

.
Deleted:

.
Deleted: 88 8

Deleted: galgal

Deleted: dodo do

Deleted: do

Deleted: bill galgalgal

Deleted: bill gal.

Deleted: bill galgalgal

Deleted:

,
Deleted:

-

Deleted: mill galgalgal

Deleted: bill galgalgal

Deleted: mill gal.

Deleted:

-

Deleted: mill galgalgal

Deleted: bill galgalgal*** EO12866 Review

- Draft

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

Page 64 of 102 We continue to receive requests for approval of additional RIN

- generating pathways for new feedstocks to expand the availability of feedstock types and for new production processes to produce biodiesel. 69 While the degree to which these new processes and feedstocks may be viable for the 2014 production year is uncertain, given their directional impacts on lowering cost and improving feedstock availability, we would expect that approval of such new pathway s would add biodiesel production volume in 2014. For example, since the adoption of the final rule in March 2010, we have added canola and camelina oil as valid biodiesel feedstocks and analyzed the potential to produce up to 600 million gallons of biodie sel from these new feedstocks by 2022 through expanded crop production. 70 These feedstocks were added in response to industry requests based on their intention to expand production of these feedstocks to support biodiesel production. Since canola and came lina are established crops that can be grown for biodiesel use today, some portion of these maximum volumes could be produced in 2014, adding to the volume of feedstock otherwise available for biodiesel production.

We are aware of three other source s that provide potential benchmarks for biodiesel production volume in 2014. In 2011

, IHS Global Insight estimated the potential for biodiesel production over the following decade. 71 Under specified assumptions for crude oil price, crop yields, technology , and tax policies, this report concluded that it would be economically feasible to produce 1.54 bill ion gal lon biodiesel in the U.S. in calendar year 2014. This estimate assumed that the biodiesel tax credit would be extended beyond 2013, a nd did not examine a case in
which the tax credit is not extended.

In their comments on the NPRM for the 2013 standards, the University of Illinois provided the results of an analysis of both production and consumption limitations for ethanol
and biodies el. They concluded that 1.7 bill ion gal lons of biodiesel could be available without overwhelming feedstock supplies, but provided little detail on the limits of feedstock supply. Darling International, Inc. also evaluated available feedstoc ks and concluded that 1.9 bill ion gal lons of biodiesel could be produced without diverting feedstocks from domestic food requirements.

Based on the discussion above, we have good reason to believe that the volume of biodiesel that can be produced in 2014 will be higher than the applicable volume requirement of

1.28 bill ion gal lons

. A summary of all of the sources we have conside red is provided below.

69 For example, as of June 2013, EPA had 5 petitions for new biodiesel pathways under review and had approved 3 additional petitions for new biodiesel pathways.

70 See

, for example

, the final rules adding giant reed and napier grass feedstocks (74 FR 41703) and final rule adding camelina and energy cane as feedstocks and renewable gasoline and renewable gasoline pathways (74 FR 14190)

71 John R. Kruse, "Biodiesel Production Prospects for the Next Decade ",",",

, " March 11, 2011. Deleted: bill galgalgal

Deleted: bill galgalgal

Deleted: bill galgalgal

Comment [A82]: Neutral?

Response: Comment did not indicate in what manner the text is not neutral. No change made to

text.

Deleted: bill gal.

Deleted:

,*** EO12866 Review

- Draft

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

Page 65 of 102 Table IV.B.2.b

- 1 Projections of 2014 Biomass

- Based Diesel Ordered from Lowest to Highest (million gallons)

Biomass

- based diesel volume requirement 1,280 Projection from RFS2 final rule 1,390 IHS Global Insight report 1,540 Extrapolated 2013 production 1,570 All registered biodiesel facilities that operated at least 20% of capacity in 2012 1,600

Additional soy oil production and diversion of exported corn oil to biodiesel production 1,620

University of Illinois estimate in their comments 1,700 Darling International, Inc. estimate in their comments 1,900 Production capacity of all registered biodiesel facilities that produced some biodiesel in 2012 2,400

As with E85, we believe that it would be most appropriate to project a range of possible biodiesel production volumes for 2014, using the values in Table IV.B.2.b

- 1 as a guide . For the purposes of this NPRM, we are estimating a range of 1.28

- 1.6 bill ion gal lons of biodiesel production for 2014. While it would not be below 1.28 bill ion gal lons , as that is the required volume, it could be above the high end of 1.6 bill ion gal lons . However we estimate that it would be unlikely to be above this value. For instance, the estimate from Darling international, Inc. was based on extrapolating the historically high production rate from Decemb er 2011 into the future. The circumstances in December 2011 were unique: the tax credit for biodiesel was to expire at the end of that month, prompting a jump in production. Thus while it is possible that the production rate from December 2011 might be s ustained in the future, it may be unlikely, especially since monthly production rates have been highly variable over the last several years. Likewise the analysis provided by the University of Illinois did not provide sufficient detail to permit a reasona

ble assessment of whether feedstock supplies would indeed be sufficient to support 1.7 bill ion gal lons of biodiesel. Finally, while total actual production of biodiesel in 2013 could potentially be as high as 1.7 bill ion gal lon s , one of the contributing factors to this high volume is the tax credit which is set to expire at the end of 2013.

c. Non

- Ethanol Advanced Biofuel

Non

- ethanol advanced biofuel other than cellulosic biofuel and biomass

- based diesel has
a D code of 5, and could include biodiesel and renewable diesel that is co

- processed with petroleum

, 72 heating oil, biogas, jet fuel, naphtha, and LPG. In 2012, RINs were generated for only three of these fuel types , as summarized in the following table

.

72 Biodiesel and renewable diese l that is co

- processed with petroleum does not meet the requirements for biomass based diesel (D4 RIN), however it may qualify as an advanced biofuel (D5 RIN ))))

. Deleted: mill gal

Deleted: mill gal

Deleted: mill gal

Deleted: mill gal

Deleted: mill gal

Deleted: mill gal

Deleted: mill gal

Deleted: mill gal

Deleted: mill gal

Comment [A83]: As written, it appears that these projections are independent of EPA’s decision with

res pect to the RFS targets for biomass

- based diesel
and advanced biofuels.

Response: No change made to text here. Text added to Section IV.B.1.c to acknowledge impact of standards of availaility and consumption.

Deleted: bill galgalgal

Deleted: bill galgalgal

Deleted: bill galgalgal

Deleted: bill galgalgal

Deleted: bill galgalgal

Comment [A84]: One consideration for further analysis wo uld be to look at the impacts of the expiration of the biodiesel tax credit at the end of 2009.Total production levels dropped by 33.4% from 2009 to 2010 using data from EIA.

A paper prepared for the National Biodiesel Board looks further at the impact o f the expiration of the
tax credit in 2009: http://www.biodiesel.org/reports/20110608_gen

425.pdf

Response: Text modified to cite NBB report.

Deleted:

,

Deleted:*** EO12866 Review

- Draft

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

Page 66 of 102 Table IV.B .2.c

- 1
Other Non

- Ethanol Advanced Biofuel Produced in 2012

(million ethanol

- equivalent gallons) Heating oil 0.2 Biogas 2.9
Renewable diesel 20.5
Total 23.6

These volumes were produced domestically and t here were no volumes of non

- ethanol advanced biofuel imported into the U.S. in 2012.

In order to estimate a range of possible volumes of other non

- ethanol advanced biofuel for 2014, we examined the Production Outlook Reports that are required to be s ubmitted by all registered renewable fuel producers under §80.1449.

Table IV.B.2.c

- 2 Projections from Production Outlook Reports for Other Non

- Ethanol Advanced Biofuel

Production in 2014 (million ethanol

- equivalent gallons)

Biodiesel 0.2 Biogas 45.8 Nap htha 6.6
Renewable diesel 79.1
Total 131.7

Because biogas cannot be used in conventional gasoline or diesel vehicles, we investigated more closely whether the 45.8 mill ion gal lons shown in the above table was realistic for 2014. According to EPA's Landfill Methane Outreach Program, about 360 mill ion ethanol

- equivalent gallons of biogas is currently being purified and injected into existing natural gas pipelines. 73

Unde r §80.1426

, this biogas can generate advanced biofuel RINs if it is demonstrated to have been used to fuel CNG vehicles and meets all other regulatory requirements. However, this amount of biogas is approximately equal to the total volume of CNG used in a ll CNG vehicles each year. While establishing contracts to ensure that all CNG vehicles are fueled with landfill biogas rather than fossil

- based natural gas is highly unlikely to occur in the short term given the rapid expansion underway of CNG vehicles i n the marketplace, we believe it is reasonable that

some smaller portion of all CNG vehicles could be fueled with landfill biogas in 2014. Since the

45.8 mill ion ethanol

- equivalent gallons of biogas from the Production Outlook Reports, shown i n Table IV.B.2.c

- 2, represents about 13% of the annual CNG vehicle consumption , it is reasonable

to expect that this volume could be used in 2014 to fuel CNG vehicles and thus generate
advanced biofuel RINs. We request comment, however, on whether t his level of consumption can reasonably be achieved within the relevant time frame

.

73 Based on list of operational landfill gas (LFG) energy projects provided at http://www.epa .gov/lmop/projects

candidates/operational.html. Deleted: mill galgalgal

Deleted: millmillmill

Deleted: millmillmill

Comment [A85]: AEO 2013 shows 51 TBTU of compressed/liquef

ied natural gas in the transportation section (Table 2) which is about 650 million ethanol equivalent gallons.

Response: Text modified to clarify source of comparison.

Comment [A86]: But it is 10

- 0 percent of output to a specific use. How do you make sure that gas
was used for vehicles.

Response: Regs contain mechanisms to ensure use in vehicles. No change made to text.

Comment [A87]: This raises some issues that may not be addressed in this Rule. Drop

- in replacement fuels can meet the cellulosic mandate while not being bound by the blend wall. By adding
bio

- gas with only a contractual requirement that it be consumed as a transportation fuel, this could be potentially a very inexpensive source of cellulosic credits, and adds considerable uncertainty that a drop

- in replacement f

uel will ever be competitive.

At $1 per RIN, this provision is worth about $13 per MMBTU for the price of writing a contract.

From EPA there is approximately 1.3 billion ethanol equivalent gallons of landfill gas going to direct use applications (102 BC F/year). For $13/MMBTU, one could expect more than 5 percent of this gas applying for credits.

http://epa.gov/lmop/documents/pdfs/overview.pdf

Response: No changes made to the text. RFS does not limit cellulosic biofuel to drop

- in or even liquid
fuels. Allowing bio

- gas to generate cellulosic RINs has been proposed in a separate rulemaking and is outside the scope of this rule.*** EO12866 Review

- Draft

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

Page 67 of 102 Therefore, based on the actual production in 2012 and the projected production for 2014, for this NPRM we have used a range of 24

- 132 mill ion gal lons t o represent non

- ethanol
advanced biofuel with a D code of 5. While the actual volume could be above 132 mill ion gal lons , we believe this is unlikely as this volume is based on the projections made by the producers themselves in light of thei r assessment of their own capabilities and plans. Likewise,
while the actual volume could be below 24 mill ion gal lons , we believe this is unlikely since the industry has demonstrated that it can produce at this level. For the final rule we will update this range based on more recent data on actual production in 2013 and more recent versions of the Production Outlook Reports.

d. Non

- Ethanol Non

- Advanced Renewable Fuel

To determine a range for the non

- ethanol non

- advanced renewable fuel volume, we used the same approach as for the non

- ethanol advanced biofuel volume. That is, we used actual 2012 production to represent the low end of the range and 2014 projections from Production Outlook Reports to represent the high end of the range. This approach resulted in a range of 1

- 25
mill ion gal lons , mostly represent ing production of biodiesel at facilities that have been grandfathered under §80.1403 and which may use feedstocks for which there is currently no
valid RIN

- generating pathway, such as sunflower or cottonseed oil. For the final rule we will update this range based on more recent data on actual production in 2013 and more recent versions of the Production Outlook Reports.

3. Treatment of Carryover RINs in 2014

In the final rule establishing the applicable standards for 2013, we estimated the volume
of etha nol that would need to be consumed to meet the statutory volume requirements prior to
consideration of RINs carried over from 2012 in 2013. 74 The total estimated volume of ethanol was 14.5 bill gal. I f no ethanol blends higher than E10 were consumed in 20 13, the total volume
of E10 would be 131.1 bill ion gal lons (ignoring small amounts of E0) and the maximum volume
of ethanol that could be consumed would thus be 13.1 bill ion gal lons

. On the basis of these estimates, the volume of et hanol that is estimated to exceed the amount that could be consumed
as E10 in 2013 was 1.4 bill ion gal lons

.

In addition to the option of using E85 and/or more non

- ethanol renewable fuels, the 2013 standards final rule also pointed to the su bstantial number of RINs carried over from 2012 into 2013 that could be used in lieu of physical volumes. We determined that there would be about 2.6 billion such carryover RINs available in 2013. If the 1.4 bill ion gal lons of ethanol that is in excess of that which can be consumed as E10 in 2013 is covered entirely by carryover RINs,
then there w ould still be at least 1.2 billion RINs that could be carried over from 2013 and
available for use in 2014

.

74 78 FR 49794, August 15, 2013. Deleted: mill galgalgal

Deleted: mill galgalgal

Deleted: mill galgalgal

Deleted: mill galgalgal

Deleted: bill galgalgal

Deleted: bill gal.

Deleted: bill galgalgal

Deleted: bill galgalgal*** EO12866 Review

- Draft

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

Page 68 of 102 As described in the 2007 rulemaking establishing the RFS program

, 75 carryover RINs are intended to provide flexibility in the face of a variety of circumstances that could limit the availability of RINs. More specifically, carryover RINs provide a mechanism for offsetting the negative effe cts of fluctuations in either supply of or demand for renewable fuels. The flexibility afforded by these carryover RINs was evidenced in the recent response of the market to the drought in 2012. The flexibility of these carryover RINs is also what we hig hlighted in the 2013 standards final rulemaking as providing the opportunity for compliance despite potential constraints on physical ethanol consumption.

In the context of determining the appropriate volume requirements for 2014, it would be appropriate to consider carryover RINs that may be available. However, we believe it is also important to the viability of the market that some carryover RINs continue to be available to address unforeseen circumstances that could limit the availability of RINs foll owing the establishment of the RFS standard. In 2013 this was not a concern, since even if the 1.4 bill ion gal lons of ethanol that is estimated to be in excess of that which can be consumed as E10 in 2013 is covered entirely by carryover RINs, there would remain at least 1.2 billion additional, unused carryover RINs . For 2014, however, if we accounted for all 1.2 bil lion carryover RINs in setting the applicable standards, obligated parties would be left with no flexibility for addressing other
unforeseen circumstances. We believe that a standard

- setting process that included an assumption that the carryover RIN balan ce would be reduced to zero would be contrary to the original intention of the provision for carryover RINs. Were unforeseen circumstances to occur, the only flexibility remaining to avoid noncompliance would be a waiver of the RFS standards under our gen eral authority (beyond that being proposed today). This process requires notice and comment and thus could be delayed beyond the time period during which the unforeseen circumstances were occurring. For this reason, we have not accounted for carryover RI Ns in our assessment of the reductions in the statutory volume requirements that would be appropriate in setting the RFS standards for 2014. For years after 2014 , if circumstances differ substantially from those described here for 2013 and 2014, or if fur ther analysis of the RINs market suggests additional adjustments, we may again consider the existence of carryover RINs in the standard

setting process depending on the number of carryover RINs expected to be available and projections o f supply and consumption of renewable fuels.

4. Proposed Range for the Volume Requirement for Total Renewable Fuel

As discussed in the preceding sections, we have estimated volume ranges for five different categories of renewable fuel as a step towa rds estimating the volume requirement for total renewable fuel for 2014. These ranges are summarized below.

75 72 FR 23900, May 1, 2007. Deleted:

,

Deleted: bill galgalgal

Deleted: For years after 2014

Comment [A88]: The purpose of the suggested wording is to enhance forward guidance. One could read the wording as implying that at some future date EPA might tighten up on the stock of RINs. If there is some probability of that happening, then RIN prices will go up today (option value) and compliance cost will increase today (measured in terms of price spreads and thus SCC

- comparisons). So including this optionality is costly. The wording here restricts this optionality. The second clause leaves open the possibility that if analysis of the RINs market suggests that an additional stock of RINs are needed to maintain liquidity/avoid manip ulation, then that could be added in a later rule.

Response: Text was modified.*** EO12866 Review

- Draft

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

Page 69 of 102 Table IV.B.4

- 1 Volume Ranges for Estimating Total Renewable Fuel Volume for 2014

(million ethanol

- equivalent gallons)

Ethanol that can be consume d 12,914

- 13,152
Available volumes of non

- ethanol cellulosic biofuel 4

– 15
Available volumes of biomass

- based diesel 1,920

- 2,400 a

Available volumes of non

- ethanol advanced biofuel 24

– 132
Available volumes of non

- ethanol non

- advanced renewable fuel 1

– 25

a Represents a physical volume range of 1.28

- 1.6 bill ion gal lons

By aggregating these five categories, we can estimate the total volume of renewable fuel that represents both the volume of ethanol that could reasonably be consumed as E10 and higher ethanol blends, and the volume of all non

- ethanol renewable fuels that c ould reasonably be available to meet the four applicable standards. However, we do not believe that a simple summation of the five ranges would be appropriate (i.e. basing the low end of the range of total
renewable fuel on the sum of the low ends of the ranges for each of the five different categories, and likewise for the high end of the range). Doing so would tend to exaggerate the width of the range for the required volume of total renewable fuel as it is highly unlikely that 2014 volumes
for each of these categories will simultaneously be at the extreme low or high end of the proposed ranges, and would also mischaracterize biofuel categories wherein one end of the range is expected to be more likely than the other.

In order to aggregate the ranges in Table IV.B.4

- 1 into a single range for total renewable fuel, we used a Monte Carlo analysis to account for the need to aggregate multiple ranges, each having different likely distributions of likelihood across their range. As discussed in the precedin g sections, the high and the low end of each range represents values such that it is possible but unlikely that volumes would be outside of those ranges. We have therefore treated these individual ranges as representing the 90% confidence interval of a di stribution of possible volumes. In other words, the low end of the range would represent the 5th percentile and the high end of the range would represent the 95th percentile. This approach is consistent with our judgment that, while the ranges shown in T able IV.B.4

- 1 are intended to encompass the vast majority of possible volumes, there remains a small possibility that volumes outside of those ranges are possible. We believe it is reasonable to treat these ranges as representing 90%
confidence intervals for purposes of the Monte Carlo analysis, though we request comment on treating them as a different confidence interval such as 80% or 95%.

For the purposes of the Monte Carlo analysis, we are also proposing an appropriate shape to represent the applicab le distribution of volumes within each range. The shape of the distribution of volumes is based on factors unique to each source of renewable fuel. We identified three standardized distributions that we can use to reasonably represent uncertainty in
the distribution of volumes for each of the sources of renewable fuel under consideration. Deleted: bill gal galgal*** EO12866 Review

- Draft

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

Page 70 of 102 Figure IV.B.4

- 1 Standardized Distributions Used to Aggregate Ranges a

a The skewed distribution is based on a Weibull distribution with a shape parameter of 0.5.

I n the case of biomass

- based diesel, we are proposing that the applicable volume requirement for
2014 would be 1.28 bill ion gal lons

. Since this volume would be required, there is no realistic
likelihood that the actual volume will be below 1.28 bill ion gal lons

. While production volumes
of biomass

- based diesel in 2013 are expected to substantially exceed the required volume of 1.28
bill ion gal lons , this is likely driven in large part by the tax credit, currently scheduled to expire at the end of the year , and on RIN prices which have been high in 2013

. Without this tax credit in place demand for biomass

- based diesel beyond the required volume is uncertain. For 2014 we
believe a ny additional incremental volumes would be pro gressively less likely than the required volume. This suggests that a half

- normal distribution would be the most appropriate way to represent volumes of biomass

- based diesel. With regard to non

- ethanol cellulosic biofuel, we developed a distribution that was based on an aggregation of projected volume ranges for each cellulosic biofuel facility. 76 For the total volume of ethanol that could reasonably be consumed,
we chose a half

- normal distribution representing ethan ol in E10 and E85 because there is little historical information on how market prices for E85 might respond to higher RIN prices, nor on how FFV owners might respond to changes in the relative price of E85 and E10. In the future it may be more appropriate to use a skewed or normal distribution for the total volume of ethanol to reflect a growing understanding of the impact that RIN prices have on the retail price of E85 and the impact that E85 prices have on consumer choice. For volumes of non

- ethanol adv anced
biofuel and non

- ethanol non

- advanced renewable fuel, we chose normal distributions because we believe there is an equal likelihood that the volumes that could be made available would be on either the low end of the respective ranges or the high end o f the respective ranges. We do not believe that actual historical volumes, which form the basis for the low end of the range in both

76 See infra Section II.C for more discussion. Comment [A89]: This doesn’t look like a Weibull distribution with a shape parameter of 0.5. The shape implies that the shape parameter should be greater than 1.

Response: Text was change d to clarify.

Deleted: bill gal.

Deleted: bi ll gal.

Deleted: bill gal galgal

Deleted:

.
Deleted:

.

Deleted: See Section II.C for more discussion.

Formatted: Font: Italic*** EO12866 Review

- Draft

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

Page 71 of 102 cases, should also be used as justification for using skewed distributions. The distributions that
we used for each of th e five categories of renewable fuel are shown below

.

Table IV.B.4

- 2 Standard Distribution Assumptions Used in Estimating Total Renewable Fuel Volume for 2014 Ethanol that could reasonably be consumed Half

- normal

Available volumes of non

- ethanol cellulosic biofuel Combined a

Available volumes of biomass

- based diesel Half

- normal

Available volumes of non

- ethanol advanced biofuel Normal

Available volumes of non

- ethanol non

- advanced renewable fuel Normal

a As described in Section II.C, this distribution is a combination of the distributions for all facilities projected to produce non

- ethanol cellulosic biofuel.

Based on the estimated ranges and distributions, we used a Monte Carlo process to aggregate th e five distributions into a single distribution representing total renewable fuel. The Monte Carlo process randomly samples each of the five distributions in an iterative fashion. The results of all the iterations were then summed to produce a distributi on for total renewable fuel. The figure below shows the resulting distribution after 3000 iterations. Comment [A90]: But the normal distribution would have some probability of negative volumes. So there are not symmetric at the very low and high
ends.

We need an appendix describing the Monte Carlo.
How were the draws chosen and what was the
estimated vari ance?

In other words how close are these values to the true means of the distributions you created?

Response: Memo with details of analysis will be added to the docket. No change made to text.

Comment [A91]: We understand the rationale of
the half normal distribut ion but think it is a not the best representation of a the probability density of any particular fuel. As shown in Figure IV.B.4

- 1
The mode of the half normal distribution is at 0. Even discretizing the function as described, we set the .05 percentile a s the mode, and have no probability below the .05 percentile.

Response: Text modified to acknowledge concerns
about the mode.

Comment [A92]: What is combined? Why not
set the same as KiOR

– skewed as in table II.C.1?

Response: Text was modified to clarify.

Deleted:*** EO12866 Review

- Draft

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

Page 72 of 102 Figure IV.B.4

- 2
Results of Monte Carlo Simulation for Total Renewable Fuel

Based on this approach to aggregating the five ranges shown in Table IV.B.4

- 1, the volume of total renewable fuel that we are proposing for 2014 would fall within the range of

14.98

- 15.53 bill gal ion lons

. 77 Given that the applicable volume in the statute is 18.15 bill gal ion lons , this range represents a reduction of 2.62

- 3.17 bill gal ion lons . Within the uncertainties discussed above for each of the components, a range of 14.98

- 15.53 bill gal represents a volu me of renewable fuel that reasonably accounts for both limitations in the
volume of ethanol that can be supplied to and consumed by consumers as well as limitations in the availability of non

- ethanol renewable fuels

.

The distribution generated by the Monte Carlo process also provides a basis for determining a specific value within the range that represents a reasonably achievable volume if the actual values for some of the input volumes fall at the high end of their respective ranges
while the actu al value of other input volumes fall at the low end of their ranges. These include the mean, the mode (highest frequency value) and the median (50th percentile). It may also be reasonable to use a value representing higher or lower values in the distribu tion, such as the 25th or 75th percentile. For example, this analysis represents a reasonable approach to assessing the values of renewable fuel that could reasonably be available and consumed in 2014, but there is uncertainty in this analysis and thus di fferent approaches could be taken to addressing this uncertainty. The table below shows the values for each of these approaches that correspond to the distribution in Figure IV.B.4

- 2.

77 The numbers are expressed as two significant digits to reflect that the applicable volumes in the statute are expressed this way. Deleted: gal gal

Deleted: bill

Deleted: gal

Deleted: gal gal

Deleted: bill

Deleted: gal

Deleted: gal gal

Deleted: bill

Deleted: gal

Comment [A93]: As sta ted before, this needs a reference to a docket document explaining the methodology and estimate error (variance) from the
Monte Carlo simulation

Response: Details of Monte Carlo analysis will be
added to docket.*** EO12866 Review

- Draft

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

Page 73 of 102 Table IV.B.4

- 3 Potential Approaches to Determining the
Final Total Re newable Fuel Volume Requirement (million ethanol

- equivalent gallons)

Mean 15,213
Mode 15,121 25th percentile 15,086 50th percentile 15,186 75th percentile 15,319

In today's NPRM

, we are proposing to use the mean value for the final volume requirement for total renewable fuel because we believe it best represents a neutral aim at renewable fuel volumes that could reasonably be supplied. However, we request comment on whether one o f
the alternative values shown in Table IV.B.4

- 3 would be more appropriate as the basis for the required volume of total renewable fuel in the final rule.

C. Determination of Reductions in Advanced Biofuel

The second step in our proposed framework for setting the applicable volume standards would be to determine an appropriate reduction in advanced biofuel that accounts for the availability of advanced biofuels in light of the significant shortfall in cellulosic biofuel compared to the statutory volume , as well as t he contribution of ethanol in this category to the supply concerns related to total renewable fuel. The proposed volume of advanced biofuel should also support the goals of the RFS program for continued growth in the advanced biofuel
categor y as reflected in the increasing gap between the cellulosic biofuel and advanced biofuel
volumes set by EISA

.

1. Available Volumes of Advanced Biofuel in 2014

Using a process similar to that for total renewable fuel in Section IV.B above, we
determin ed the maximum volume of advanced biofuel that can reasonably be available in 2014.
This volume defines the upper limit for any potential volume requirement we would propose for advanced biofuels under the overall approach we are proposing . As described more fully in Section IV.A above, availability is one important factor to consider i n determining the appropriate volume of advanced biofuel to require. However, as discussed in Section IV.C.2 below, for 2014 additional considerations lead us to propose to set the advanced biofuel volume requirement at a level below the total available volume.

In this section we describe the estimation of reasonable ranges for four separate categories of advanced biofuel, inc luding:

• Cellulosic biofuel

• Biomass

- based diesel Deleted: of the

Deleted: s

Deleted: that is important

Deleted: t it*** EO12866 Review

- Draft

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

Page 74 of 102 • Domestic Production of Other Advanced Biofuel

• Imported Sugarcane Ethanol

a. Cellulosic biofuel

As discussed in Section II above, the production of cellulosic biofuel in 2014 is projected
to be b etween 13 and 36 million ethanol

- equivalent gallons. This range can be separated into
ethanol and non

- ethanol components as shown below.

Table IV.C.1.a

- 1 Projected Volumes of Cellulosic Biofuel for 2014 (million ethanol

- equivalent gallons)

Ethanol 6

– 26

Non

- ethanol 4

– 15
Total 13

– 36

The projected volume could be significantly greater if pathways for the generation of cellulosic biofuel RINs from landfill biogas and corn kernel fiber are approved and the definition of home heating oil is adjusted as proposed in EPA’s RFS Pathways II rulemaking. For more details on the potential production of non

- ethanol cellulosic biofuels in 2014, and the companies expected to produce these fuels, see Section II.

b. Biomass

- Based Diesel

The range of biomass

- based diesel that we used in estimating the availability of advanced biofuel is the same as the range that we used in determining the proposed volume of total
renewable fuel. Table IV.B.2.b

- 1 lists the sources that we used to conclude that there could be

1.28

- 1.6 bill ion gal lons of biodiesel production in 2014. We have used this range as the basis for a distribution of biodiesel production volumes based on a standard half

- normal distribution.

c. Domestic Production of Other Advanced Biofuel

In Section IV.B.2.c above we used 2012 production data and Production Outlook Reports to develop a range of 24

- 132 mill ion gal lons representing non

- ethanol advanced biofuel with a
D code of 5. These same sources were used to deve lop a range of ethanol advanced biofuel with
a D code of 5.

In 2012, 28 mill ion gal lons of ethanol advanced biofuel (other than cellulosic ethanol) was produced in the U.S. Based on Production Outlook Reports, we project that domestic Deleted: bill galgalgal

Deleted: mill galgalgal

Deleted: mill galgalgal*** EO12866 Review

- Draft

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

Page 75 of 102 production of such biofuel using some combination of sugarcane, grain sorghum, and separated food wastes could be as high as 142 mill ion gal lons

. Based on these sources, for this NPRM we have used a range of 28

- 142 mill ion gal lons to represent domestic production of ethanol
advanced biofuel with a D code of 5.

d. Imported Sugarcane Ethanol

Sugarcane ethanol qualifies as advanced biofuel, and historically the U.S. has imported substantial volumes of it. Imports from the last t en years are shown below. While ethanol imported into the US is not produced exclusively from sugarcane, it has historically been the primary feedstock for ethanol imported into the U.S. and is expected to continue to be the primary feedstock of ethanol i mported into the U.S. in future years. While the generation of advanced biofuel RINs from sugarcane ethanol is not limited to ethanol imported from Brazil, historically Brazil has been the source of the majority of ethanol imported into the United States. As such, this section focuses on the availability of sugarcane ethanol imported from Brazil.

Figure IV.C.1.d

- 1 Historical Imports of Ethanol into the U.S.

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

As some stakeholders have noted before, i mported volumes of ethanol have been highly variable. As a commodity traded on the world market, the market clearing price and quantity of Brazilian ethanol sold into the U.S. market fluctuates over time. Significant factors that can affect the price
and quantity of ethanol imported into the U.S. include:

• Sugarcane harvest (both acres planted and yield)

• Worldwide market for sugar

• Worldwide demand for sugarcane ethanol Deleted: mill gal.

Deleted: mill galgalgal*** EO12866 Review

- Draft

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

Page 76 of 102 • Brazilian demand for ethanol, including the minimum ethanol content of gasoline as specified by the Brazilian government

• Potential for exporting corn

- ethanol from the U.S. to Brazil

• Opportunities for sale of sugarcane ethanol in the U.S. which is a function of the RIN price for advanced biofuel, legal and practical constraints on the volume of ethanol
that can be consumed , state Low Carbon Fuel Standards (LCFS) program demand, and the availability and price of competing advanced biofuels such as biodiesel

• Import and export tariffs

P roduction of sugarcane in Brazil in recent year s has been lower than normally expected due to two factors. First, adverse weather conditions reduced production. 78 For example, adverse weather conditions are estimated to have reduced cane production by about 4% in the 2011/2012 marketing year. 79 Thus, a return to more typical weather conditions, such as occurred in the 2012/2013 agricultural marketing year, in the timeframe that this rulemaking considers would by itself restore approximately 4% of production. Second, the general global economic downturn in recent years made obtaining credit more difficult in the Brazilian sugar cane industry, resulting in delayed replanting of existing fields. Normally sugarcane fields are replanted every five or six years to maximize yield. However, the lack of available credit caused some growers to delay the expense of this replanting, resulting in older fields losing production. 80 It appears that credit conditions have eased and that more direct investment in sugar cane production and milling in Brazil is o ccurring.

Some parties expected a more typical trend in sugarcane ethanol production for the 2012/2013 through the 2014/2015 harvest years, with replanted fields boosting sugarcane production in existing plantations and, in response to increased worldwid e demand, a growth in the acres planted with sugarcane. Increased production is supported by the Brazilian government which announced in February 2012 support for a plan to invest over $8 billion annually to boost cane and ethanol production. 81 Private in vestment in Brazil may also be increasing. For example, Usina de Acucar Santa Terezinha, a Brazilian ethanol producer, last year announced plans to invest almost $300 million in a new mill and sugarcane plantation. 82 Such information suggests that sugarca

ne and ethanol production in the 2013/14 and 2014/15 harvest years could be higher than production in 2011 and 2012.

78 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

79 The sugar marketing year in Brazil’s center

- south sugar

- produ cing region, where the large majority of production occurs, runs from May through April.

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

81 See http://www.platts.c om/RSSFeedDetailedNews/RSSFeed/Oil/8987702

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

- 03

- 08/santa

- terezinha

- invests

- 283

- million

- in

- brazil

- ethanol

projects.html

.*** EO12866 Review

- Draft

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

Page 77 of 102 Brazil’s sugarcane ethanol production serves both its domestic market as well as the export market. The government of Brazil sets a mini mum ethanol concentration for its gasoline. In 2011, the Brazilian government lowered this concentration to 20%, reflecting in part the decrease in domestic ethanol production. However, given the more optimistic production outlook, Brazil raised the mini mum ethanol concentration to 25 %

, effective May 1, 2013. 83 The 25% concentration rate is the highest allowed by law in Brazil. The ability of the Brazilian government to reset the minimum ethanol content introduces some uncertainty in projecting
future Brazilian demand. However, historically, adjustments have been infrequent, relatively small in degree (a few percent), and largely influenced by the price of ethanol (high prices leading to a reduction in the minimum). Indeed, as evidenced by the reducti on to a 20% blending rate in 2011, the Brazilian government considers the likely supply of sugarcane ethanol to support its domestic needs in setting the minimum ethanol content of its blended fuel.

The Iowa State/CARD model projects that Brazil will pro duce roughly 8.7 bill ion gal lons
of ethanol in 2014. Non

- fuel use and Brazilian ethanol exports to countries other than the U.S. is estimated to be around 500 million gallons, which leaves roughly 8.2 bill ion gal lons for Brazil ian consumption and for exports to the U.S. If the minimum blending rate for ethanol in motor vehicles in Brazil is set at 25% (the current rate), Iowa State estimates that Brazil will consume roughly 5.9 bill ion gal lons of ethanol. At a 20% minimum blend rate, ethanol demand in Brazil would be roughly 5.2 bill ion gal lons

. Therefore, even with the 25% minimum blending requirement for ethanol in vehicles, Brazil should have up to 2.8 bill ion g al lons available for a wide variety of domestic uses as well as the potential to export ethanol to the U.S. 84 Thus, assuming that the 25% blending rate remains in effect through 2014 (including both the 2013/14 sugarcane season which ends in May 2014 and t he subsequent 2014/15 sugarcane season), the analyses referenced below suggest that more than enough ethanol should be available assuming normal weather patterns to support both the Brazilian domestic demand as well as export to the
U.S. in 2014.

The his torical volumes of sugarcane ethanol imports into the U.S. from Brazil are indicative of Brazilian production and export capacity, and thus provide several benchmarks for the volume that could potentially be imported into the U.S. in 2014. For instance, t he average import volume over the last ten years is 223 mill ion gal lons , while the maximum volume was

560 mill ion gal lons in 2006. In 2010 Brazil had its largest ethanol production volume in recent history, and in that same yea r it exported 490 mill ion gal lons to the U.S. Finally, the largest total export volume from Brazil to all other countries was 1.35 bill ion gal lons in 2008.

There are several other sources providing estimates of what import volumes of Brazilian sugarcane ethanol may be possible in 2014. In an addendum to its Annual Energy Outlook 2013, EIA included an estimate of sugarcane ethanol imports of 719 mill gal for 2014 . In their comments on the 2013 standards NPRM, the Brazilian Ministry of Mines and Energy indicated that Brazil could achieve exports of 800 mill ion gal lons to the U.S. in 2014. A recent report from

83 Platts, "Brazil to raise ethanol mix in gasoline to 25% from 20% May 1," http://www.platts.com/ RSSFeedDetailedNews/RSSFeed/Oil/8194390

. 84 Personal Communication with Dr. Bruce Babcock, Iowa State, June 27 , 2013

. Deleted: %%%

Deleted: bill galgalgal

Deleted: bill galgalgal

Deleted: bill galgalgal

Deleted: bill galgalgal

Deleted: bill galgalgal

Deleted: mill galgalgal

Deleted: mill galgalgal

Deleted: mill galgalgal

Deleted: bill galgalgal

Comment [A95]: This information appears to be
taken from Table 11 of the AEO2013 Reference

C ase. Please cite and include the original number in millions of barrels per day.

Response: Source cited.

Deleted: mill galgalgal

Deleted: th

Deleted:*** EO12866 Review

- Draft

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

Page 78 of 102 Iowa State University indicated t hat total ethanol imports could be 310

- 820 mill ion gal lons in 2014, depending on whether the biodiesel tax credit remains in effect. 85

The Food and Agricultural Policy Research Institute (FAPRI) publishes several different
documents that also provide some benchmarks. The 2012 World Agricultural Outlook projected that total net exports of ethanol from Brazil could be 1,259 mill gal in 2014, 86 while their Biofuel Baseline projects that total ethanol imports into the U.S. could reach 496 mill ion gal lons in

2014. 87

Based on the discussion above, we have compiled a list of benchmarks that we believe can be used to estimate a range of import volumes for Brazilian sugarcane ethanol.

Table IV.C.1.d

- 1 Projections of 2014 Imported Sugarcane Ethanol Ordered from Lowest to Highest (million gallons) Average import volumes from 2003

- 2012 223 ISU Staff Report

- biodiesel tax credit in place 310 Ethanol exported from Brazil to the U.S. when ethanol production was at its historical maximum (2010) 490

FAPRI Biofuel Baseline 496 Production Outlook Reports 510 Historical maximum ethanol imported into the U.S. from
Brazil (2006) 560

AEO2013 719 Projection from Brazilian Ministry of Mines and Energy 800 ISU Staff Report

- biodiesel tax credit not in place 820 FAPRI 2012 World Agricultural Outlook

- total Brazilian exports in 2014 1,259

Historical maximum ethanol exported from Brazil (2008) 1,350

For the purposes of this NPRM, we estimate, based on a review of the benchmarks shown in the table above, that a range of 300

- 800 mill ion gal lons of Brazilian sugarcane ethanol could be available for import to the U.S. for 2014. We do not believe that it would be appropriate to use either the highest or lowest values in the table since they are unlikely to reasonably represent
the market circumstances in 2014.

85 Bruce A. Babcock et al, "Biofuel Taxes, Subsidies, and Mandates: Impacts on US and Brazilian Markets," Staff Report 13

- SR 108, May 22, 2013.

86 FAPRI

- ISU 2012 World Agricultural Outlook, "Ethanol Trade """

. "

87 FAPRI

- MU Biofuel Baseline, March 2013. FAPRI

- MU Report #02

- 13. Values for the 2013/2014 agricultural year were averaged with those from the 2014/2015 agricultural year assuming that the year begins in September and ends in August. Deleted: mill galgalgal

Deleted: mil l galgalgal

Deleted: mill gal

Deleted: mill gal

Deleted: mill gal

Deleted: mill gal

Deleted: mill gal

Deleted: mill gal

Deleted: mill gal

Deleted: mill gal

Deleted: mill gal

Deleted: mill gal

Deleted: mill gal

Deleted: mill galgalgal

Comment [A96]: As written, it appears that these projections are independent of EPA’s decision with respect to the 2014 RFS targets for advanced biofuels and implementation of California’s LCFS program. This also seems to ignore the past practice
of two

- way trade in eth anol between the United States and Brazil, which could support much higher volumes of sugarcane ethanol exports to the United

States.

Response: No changes made to text here. Section IV.B.1.c acknowledges that standards impacts potential availability an d consumption.*** EO12866 Review

- Draft

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

Page 79 of 102 While the vol umes of sugarcane ethanol imported into the U.S. in 2012 were about 500
mill ion gal lons , and in 2013 could reach a similar level, we believe it is reasonable to use 300
mill ion gal lons as the low end of the range for 2014. Ther e has been significant variability in sugarcane ethanol imports in the past, so volumes below 500 mill ion gal lons are possible depending on market factors and relevant public policies in both countries

. W hile volumes
above 800 mill ion gal lons are possible, we believe that they are unlikely given that the Brazilian agency responsible for projections of exports indicated that 800 mill ion gal lons would be achievable in 2014, and 800 mill ion gal lons would be a substantially higher import volume of Brazilian sugarcane ethanol than in any previous year.

We have used a projected range of 300

- 800 mill ion gal lons for imported sugarcane
ethanol in our estimate of the total volume of advanced biofuel that could be available in 2014. However, as described in Section IV.C.2 below, we are not proposing to use only availability in the determination of the applicable volume requirement for advanced biofuel. Thus the proposed volume requirement for advanced biofuel would not require the use of 300

- 800 mill ion gal lons of sugarcane ethanol, and the actual volume of sugarcane ethanol that is imported will be highly dependent upon competition in the U.S. market with other advanced biofue ls that could be
available.

e. Summary

As discussed in the preceding sections, we have estimated volume ranges for six different categories of advanced biofuel as a step towards estimating the availability of advanced biofuel
for 2014. We also identified which of the three standardized curves shown in Figure IV.B.4

- 1 would be most appropriate for each category. A discussion of the standardized distributions for cellulosic biofuel, biomass

- based diesel, and domestic non

- ethanol advanced biofuel are provided in Section IV.B.4 above. For volumes of ethanol advanced biofuel, we chose a normal distribution because we believe there is an equal likelihood that the volumes that could be made available would be on either the low end of the range or the high end of the range. A normal
distribution for ethanol advanced biofuel is also consistent with our approach to non

- ethanol advanced biofuel, as both ranges were developed from the same sources. For volumes of imported sugarcane ethanol, the most recent historical data on actual imports suggests that the middle of the range 300

- 800 mill ion gal lons is likely, and this suggests that a normal distribution is more reasonable than a skewed distribution. The advanced biofuel ranges and the
assumed standardized distributions are summarized be low. Deleted: mill galgalgal

Deleted: mill galgalgal

Deleted: mill galgalgal

Deleted: mill galgalgal

Deleted: mill galgalgal

Deleted: mill galgalgal

Deleted: mill galgalgal

Deleted: mill galgalgal

Deleted: mill galgalgal*** EO12866 Review

- Draft

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

Page 80 of 102 Table IV.C.1.e

- 1 Volume Ranges for Estimating Advanced Biofuel Availability for 2014

(million ethanol

- equivalent gallons)

Available volumes of non

- ethanol cellulosic
biofuel 4

– 15 Skewed

Available volumes of ethanol cellulosic
biofuel 6

– 26 Combi nation a

Available volumes of biomass

- based diesel 1,920

- 2,400 b Half

- normal

Available volumes of domestic non

- ethanol
advanced biofuel 24

– 132 Normal

Available volumes of domestic ethanol
advanced biofuel 28

– 142 Normal

Available volumes of imported sugarcane ethanol 300

– 800 Normal

a As described in Section II.C, this distribution is a combination of the distributions for all facilities projected to produce non

- ethanol cellulosic biofuel.

b Represents a physical volume range of 1.28

- 1.6 bill ion gal lons

As for the total renewable fuel volume, the high and the low end of each range represents values such that it is possible but unlikely that volumes would be higher or lower than this range.
EPA therefore treated each individual range in Table IV.C.1.e

- 1 as representing the 90% confidence interval of the applicable standardized distribution. We then used a Monte Carlo process in which each of the six distributions were randomly sampled in an iterative fashion.
The results of al l the iterations were then summed to produce a distribution for advanced. The figure below shows the resulting distribution after 3000 iterations. Deleted: bill galgalgal*** EO12866 Review

- Draft

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

Page 81 of 102 Figure IV.C.1.e

- 1 Results of Monte Carlo Simulation for Advanced Biofuel Availability

Based on this approach to aggregating the six ranges shown in Table IV.C.1.e

- 1, we believe that available volumes of advanced biofuel are likely to fall within the range of 2.50

- 3.21 bill ion gal lons

. Given that the volume requirement in the sta tute is 3.75 bill ion gal lons , this range of availability represents a reduction of 0.54

- 1.25 bill ion gal lons

.

2. Availability, Growth, and the E10 Blendwall

While projected availability defines the upper limit of the volume requirement we would set for advanced biofuel, we have also considered two other factors: the contribution of ethanol in the advanced category to the supply concerns discussed above with respect to total renewable fuel, and the RFS program's goal of growth in the advanced biofuel category.

The RFS volume requirements that Congress established in CAA 211(o)(2)(B) increase steadily between 2009 and 2022. Over this period, the amount of total renewable fuel which is not advanced biofuel (largely corn starch based ethanol) was intended by Congress to grow slowly up to 15.0 bill ion gal lons in 2015, and then stay at that level for subsequent years. Cellulosic biofuel was intended to grow very dramatically, from 0.5 bill io n gal lons in 2012 to

16.0 bill ion gal lons in 2022. Non

- cellulosic advanced biofuel was expected to grow steadily every year, increasing from 1.5 bill ion gal lons in 2012 to 5.0 bill ion gal lons in 2022. This anticipated growth of the advanced biofuel category is also evident from its increasing role as a component of the applicable volume of total renewable fuel, growing from 5.4% in 2009, to Deleted: bill gal.

Deleted: bill galgalgal

Deleted: bill galgalgal

Deleted: Options for Determining Appropriate
Reductions in Advanced Biofue l Comment [A97]: The first and second “approaches” are actually outcomes. In particular, what is called the “second approach” might be an outcome that results from application of the third approach: the only “approach” that is actually an approach as oppo sed to an outcome.

Response: No changes made to text.

Deleted: Below we discuss three approaches that could be taken to determine an appropriate volume
of advanced biofuel for 2014. We believe that Option 3 b est addresses the dual concerns of
constraints on ethanol supply to and consumption by

consumers and limited availability of advanced
biofuels while also effectuating Congress’s intention that the volume require ment for advanced biofuel continues to grow.

Deleted: a. Option 1: Advanced Biofuel Availability

¶

Deleted: bill galgalgal

Deleted: bill galgalgal

Deleted: bill galgalgal

Deleted: bill galgalgal

Deleted: bill galgalgal*** EO12866 Review

- Draft

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

Page 82 of 102 20.7% in 2014, and 61.1% in 2022. Advanced biofuel must meet a GHG reduction threshold of 50%, compared to a 20% threshold for non

- advanced renewable fuel. 88 Thus, increased substitution of advanced biofuels for fossil fuels would result in lower lifecycle GHG emissions from transportation fuels.

In p revious rulemakings where we considered reductions in the applicable annual volume of advanced biofuel following a reduction in the statutory volume for cellulosic biofuel, we focused on the availability of advanced biofuel (and in some cases available car ryover RINs) when making determinations as to whether a reduction in advanced biofuel volumes was warranted. Using availability to set the applicable volume of advanced biofuel for 2014 and beyond would be consistent with past practice, and would reflect placing sole emphasis on its availability and the growth in advanced biofuels that results. However, the approach we used in previous annual rulemakings was based on the circumstances in previous years. In particular, supply concerns related to the legal constraints on the amount of ethanol that can be blended into gasoline and practical constraints on the volume of ethanol that can be consumed were not a limiting factor in previous years and so were not discussed as a potential basis for determining
volu mes. As discussed in Section IV.B.1 above, constraints on ethanol consumption are a limiting factor in 2014.

Moreover, using availability as the sole basis for determining advanced biofuel volumes would ignore the impact that ethanol within the advanced biofuel category have on the supply concerns related to constraints on ethanol consumption in blends higher than E10. W hile the available volume of advanced biofuel would be predominantly non

- ethano l, a substantial volume
would be ethanol. 89 For an advanced biofuel availability of 2.50

- 3.21 bill ion gal lons (see Figure IV.C.1.e

- 1), the fraction that is ethanol ranges from an average of about 18% at the low end of the range to an averag e of about 25% at the high end of the range. Since any advanced biofuel that is ethanol contributes to the concerns related to total ethanol consumption, it is appropriate to consider reductions in the required volume of advanced biofuel beyond the 0.54

- 1.25 bill ion gal lon reduction needed to ensure that the volume required is available.

Under the cellulosic waiver authority we have the discretion to reduce advanced biofuel by up to the same amount that we reduce cellulosic biofuel. Our proposed cellulosic biofuel volume requirement of 13

- 36 mill ion gal lons for 2014 corresponds to a reduction of 1,714

- 1,737 mill ion gal lons in comparison to the statutory volume of 1,750 mill ion gal lons

. mill ion gal lons

A reduction of 1,714

- 1,737 mill ion gal lon in the advanced biofuel requirement would
allow for overall growth in non

- cellulosic advanced biofuel , consistent with overall levels of

non

- cellulosic advanced biofuels that Congress specified for 2014 in 211(o)(2)(B). The table below shows that this approach would ensure that the required volume of non

- cellulosic
advanced biofuel

– comprised of biomass

- based diesel and other advanced biofuel

– that would
be needed to m eet the requirements would remain at 2.0 bill ion gal lons , the volume that would

88 Renewable fuels grandfathered under the provisions of §80.1403 are not required to meet any GHG threshold.

89 While production volumes of ethanol that can qualify as an advanced biofuel, both domestically and internationally are significant, consumption of this fuel will be constrained

. Deleted: bill galgalgal

Deleted:

Deleted: bill galgalgal

Deleted: ¶ For these reasons, we invite comment on the Option 1 approach but are not proposing it. ¶ ¶ ¶
b. Option 2: Full Reduction in Cellulosic Biofuel ¶

Deleted: Thus, a second option would be to reduce the advanced biofuel volume by the same amount
that we reduce the cellulosic biofuel volume.

Deleted: mill galgalgal

Deleted: mill galgalgal

Deleted: mill g algalgal

Deleted: This is approximately twice the size of
the reduction in advanced biofuel that would result from accounting for availability alone, as in Option 1, and would result in an advanced biofuel volume requirement of 2,013

- 2,036 mill g algal gal

Deleted:

.
Deleted: mill galgalgal

Deleted: bill galgalgal*** EO12866 Review

- Draft

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

Page 83 of 102 have been needed to meet the statutory level of 3.75 bill ion gal lons of advanced biofuel if 1.75
bill ion gal lons of cellulosic biofuel were available. 90

Table IV.C.2.b

- 1 Impact on Other Advanced Biofuel of Reducing the Advanced Biofuel Requirement by an Amount Equal to the Reduction in Cellulosic Biofuel (million ethanol

- equivalent gallons) Required volumes without a reduction in cellulosic biofuel
or advanced biofuel Required volumes with a
reduction in advanced biofuel equal to reduction in cellulosic

Cellulosic biofuel 1,750 13

– 36
Biomass

- based diesel a 1,920 1,920
Other advanced biofuel b 80 80
Total advanced biofuel 3,750 2,013

- 2,036

a Represents a physical volume of 1.28 bill gal biodiesel.

b Can include biomass

- based diesel with a D code of 4 that is in excess of that required to meet the biomass

- based diesel requirement of 1.28 bill gal, as well as any other forms of advanced biofuel with a D code of 5 such as renewable diesel, heating oil, biogas, and imported sugarcane ethanol.

However, under EPA’s broader waiver authorities, EPA can waive statutory volume requirements by accounting for the capability of the relevan t industries to make qualifying renewable fuels available and also the capability of the relevant industries to ensure that those renewable fuels are used as transportation fuel. Heating oil or jet fuel considering the
infrastructure available for distribu ting, blending and dispensing renewable fuels as well as appropriate vehicles in the fleet that can consumer various renewable fuels, such as FFVs. we have therefore summ ed the applicable volume requirements for cellulosic biofuel and biomass

based diesel, and then adding available volumes of non

- ethanol advanced biofuel, including any
biodiesel in excess of the 1.28 bill ion gal lon requirement as well as other available non

- ethanol advanced biofuels such as renewable diesel, heating oil, and biogas. We consider o nly non

ethanol sources of advanced biofuel

, as these fuels are not limited b y their ability to be consumed by the E10 blendwall or sale as higher level ethanol blends. This approach would help to ensure that the advanced biofuel requirement would include all available volumes of advanced biofuel which do not contribute to the sup ply concerns related to constraints on ethanol consumption. It would also provide for additional growth in volumes of advanced biofuel that would otherwise be lost due to the shortfall in cellulosic biofuel. Once the advanced biofuel volume requirement

90 The 2.0 bill gal bill ion gal lons i s composed of the proposed volume of biomass

- based diesel, 1.92
billbillbillbill ion gallons ethanol equivalent, and the remaining volume of non

- cellulosic advanced biofuel, 0.08
billbillbillbill ion gallons. Deleted: bill galgalgal

Deleted: bill galgalgal

Deleted:

-

Deleted:

-

Deleted: This approach to setting the advanced biofuel volume requirement would minimize the impact of the advanced biofuel category on the supply problems associated with constraints on ethanol consumption. However this approach would ignore the availability of non

- cellulosic advanced
biofuel to fill the shortfall in cellulosic biofuel. It would reduce the market opportunities for other advanced biofuels (as compared to the other options), and thereby hinder the develop ment of advanced biofuels that might otherwise help to meet the broader energy security and GHG reduction goals of Congress for the RFS program. Finally, as discussed below, this approach would result in greater reductions in advanced biofuel than are

nee ded to account for the contribution of ethanol
advanced biofuels to the blendwall. For these reasons, we invite comment on this approach but are not proposing it.

Deleted: c. Option 3: Availability, Growth, and
the E10 Blendwall

Deleted: Neither Option 1 nor Option 2 address all the factors we believe are important in the determination of the applicable advanced biofuel volume requirement. For instance, under Option 1 (using just availability to determine the appropriate volume of advanced biofuel), the significant i mpacts of constraints on ethanol consumption and the factors leading to a reduction in the total volume of
renewable fuel would not be reflected at all in our determination of the advanced biofuel requirement. On the other hand, under Option 2 (reducing t he advanced biofuel requirement by the same amount that we reduce cellulosic biofuel), would impose unnecessary constraints on non

- ethanol advanced biofuels even though they do not contribute to the
constraints on the volume of ethanol that can reasonably be consumed.

Deleted: For these reasons we are proposing a third option that would address these issues by first summing

Deleted: For these reasons we are proposing a third option that

Deleted: would address these issues by first

Deleted: ing

Deleted: bill galgalga l

Deleted: Under this approach, wewe we

Deleted: we*** EO12866 Review

- Draft

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

Page 84 of 102 w as set, the market would determine which advanced biofuels would be produced and sold to meet the advanced biofuel requirement, including whether they would be ethanol or non

- ethanol. Thus under this approach we would not be mandating or determining what renewable fuels would in fact be produced and sold.

We once again used a Monte Carlo approach to aggregate the ranges for cellulosic biofuel, biomass

- based diesel, and non

- ethanol advanced biofuel. The ranges and standardized
distributions we used in this process are shown in Table IV.C.2.c

- 1, and the resulting distribution for advanced biofuel is shown in Figure IV.C.2.c

- 1.

Table IV.C.2.c

- 1 Proposed Volume Ranges for Estimating Advanced Biofuel Requirement for 2014

(million ethanol

- equivalent gallons) Proposed requirement for cellulosic biofuel 13

- 36 Combined a Proposed requirement for biomass

- based
diesel 1,920 b n/a

Available volumes of excess biomass

- based
diesel 0

- 480 c Half

- normal

Available volumes of domestic non

- ethanol
advanced biofuel 24

- 132 Normal

a As described in Section II.C, this distribution is a combination of the distributions for all facilities projected to produce cellulosic biofuel.

b Represents a physical volume of 1.28 bill ion gal lons

c Represents a physical volume range of 0

- 320 mill ion gal lons Deleted: bill galgalgal

Deleted: mill galgalgal*** EO12866 Review

- Draft

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

Page 85 of 102 Figure IV.C.2.c

- 1 Results of Monte Carlo Simulation for Advanced Biofuel Requirement

For the reasons discussed above, we propose that the advanced biofuel volume requirement would be set within the range of 2.01

- 2.51 bill ion gal lons

. Given that the volume requirement in the statute is 3.75 bill ion gal lons , this proposed range of advanced biofuel would represent a reduction of 1.24

- 1.74 bill ion gal lons . In comparison, the reduction in cellulosic biofuel that we are proposing in today's NPRM is 1.71

- 1.73 bill ion gal lons , and the reduction in total renewable fuel that we are proposing is 2.62

- 3.17 bill ion gal lons

.

.

The approach we are proposing in today's NPRM is based upon and fully consistent with the authorities provided i n the statute for waiving volumes. The proposed reductions in the
volumes of advanced biofuel and total renewable fuel are based on our determination that the industry and market will be unable to supply sufficient volumes in 2014 to meet the statutory

ma ndates, either because of projected limitations in production and importation of qualifying renewable fuels, or projected limitations in the available infrastructure to ensure that those fuels

are supplied to and consumed by end

- use consumers . All of these limitations represent forms of inadequate supply and are permissible bases for exercising both the general waiver authority and the cellulosic waiver authority

. Deleted: based on the Option 3 approach,

Deleted: bill gal.

Deleted: bill galgalgal

Deleted: bill galgalgal

Deleted: bill galgal gal

Deleted: bill galgalgal

Deleted: The Option 3 approach to setting the advanced biofuel volume requirement would generate a volume that falls approximately mi dway between Options 1 and 2 for 2014

Deleted: Figure IV.C.2.c

- 2 ¶ Comparison of Three Options to Determination of
2014 Advanced Biofuel Volume Comment [A98]: Delete chart.

Response: Chart was deleted.

Deleted: ¶*** EO12866 Review

- Draft

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

Page 86 of 102 As for the required volume of total renewable fuel, there are a variety of wa ys in which a specific value within the proposed range can be chosen for the volume of advanced biofuel that we require in the final rule. The table below shows the values that correspond to the distribution in Figure IV.C.2.c

- 1 using several possible app roaches.

Table IV.C.2.c

- 2 Potential Approaches to Determining the Final Advanced Biofuel Volume Requirement (million ethanol

- equivalent gallons)

Mean 2,208
Mode 2,082 25th percentile 2,088 50th percentile 2,177 75th percentile 2,298

In today's NPRM we are proposing to use the mean value of 2,208 mill ion gal lons for the final volume requirement for advanced biofuel because we believe it best represents a neutral aim at advanced biofuel volumes that could reasonably be sup plied. However, we request comment on
whether one of the alternative values shown in Table IV.C.2.c

- 2 , or some other approach, would be more appropriate as the basis for the required volume of advanced biofuel in the final rule.

D. Summary of Proposed Volume Requirements for 2014

For the reasons discussed above, we are proposing the volumes of total renewable fuel
and advanced biofuel as shown below.

Table IV.D

- 1 Proposed Volumes for 2014 (billion gallons)

Statutory volume Proposed v olume Range Mean
Advanced biofuel 3.75 2.01

- 2.51 2.21
Total renewable fuel 18.15 14.98

- 15.53 15.21

For the final rule, we may revise these ranges based on additional information that becomes available after publication of this NPRM. This information could include more recent Production Outlook Report required under §80.1449, production and consumption data for 2013, and information from stakeholders. If the ranges are modified, the mean value within those ranges may change as well.

With regard to the mean, we request comment on whether it is the most appropriate way
to determine the volume within e ach of the ranges that we would require in the final rule, or
whether instead one of the alternatives shown in Tables IV.B.4

- 3 or IV.C.2.c

- 2 , or some other approach, would be more appropriate. Deleted: mill galgalgal

Comment [A99]: The asymmetric risk of picking a volume that is too high instead of one that is too low suggests that picking the mean will result in too high a volume.

Response: Text was modified in Section IV.B.1 to
address this comment.

Comment [A100]: See extended supplemental comment on Monte Carlo aggregation methodology and reporting.

Response: Changes to text made throughout as appropriate to clarify.

Comment [A101]: It would be helpful to i nclude in this table, or elsewhere, the Total Ethanol value. This can be constructed from figures given above but given its central importance it is worth summarizing
here.

Response: Total ethanol volume provided in Table

IV.B.4

- 1. No change to text he re.

Formatted Table*** EO12866 Review

- Draft

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

Page 87 of 102 We note that the two ranges shown in Table IV.D

- 1 were not independently derived and thus cannot be treated independently from one another in the determination of the appropriate volumes to finalize. Many of the same ranges of biofuel availability that were used in estimating the range of total renewable fuel wer e also used in estimating the range of advanced biofuel. This fact can be seen in the distribution of results from the Monte Carlo process, which shows a
distinct correlation between total renewable fuel and advanced biofuel.

Figure IV.D

- 1
Results of Monte Carlo Process for Both Total Renewable Fuel and Advanced Biofuel

Because of this correlation, decisions for both total renewable fuel and advanced biofuel need to take this relationship into account. For example, it would not be appropriate to fi nalize a volume for total renewable fuel that is at the high end of its proposed range, while also finalizing a volume for advanced biofuel that is at the low end of its proposed range. Doing so would result
in a demand for renewable fuels that either cou ld not be filled with available volumes or could

not reasonably be consumed.

The ranges that we are proposing for advanced biofuel and total renewable fuel determine the range of non

- advanced renewable fuel that would be needed. The majority of non

- adva nced renewable fuel is ethanol made from corn starch, though as discussed in Section IV.B.2.d we would also expect some non

- ethanol renewable fuel as well, in the range of 1

- 25 mill ion gal lons

. Taking this non

- ethanol renewable fuel into accoun t, we used the results of the Monte Carlo process that generated the ranges shown in Table IV.D

- 1 to determine that the volume of

corn

- ethanol that would be needed would be 12.91

- 13.34 bill ion gal lons

. This range represents
a reduction of 1.06

- 1.49 bill ion gal lons in comparison to the 14.4 bill ion gal lons that would have been required if the statutory volumes for advanced biofuel and total renewable fuel were promulgated , and if all non

- advanced renewable fuel used to meet the total renewable fuel Deleted: mill gal.

Deleted: bill gal.

Deleted: bill galgalgal

Deleted: bill galgalgal*** EO12866 Review

- Draft

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

Page 88 of 102 volume were in fact corn ethanol . However, it represents an increase in comparison to 2012

corn

- ethanol consumption which was about 12.5 bill ion gal lons 91 and a projected 2013 corn

ethanol consumption of about 12.3 bill ion gal lons

. 92 For comparison, this reduction in corn

ethanol volume for 2014 is about 90% of the size of the proposed reduction in advanced biofuel. Thus under our proposed ap proach, both non

- advanced renewable fuels and advanced biofuels are contributing to the necessary reductions needed to attain renewable fuel volumes that can reasonably be supplied to and consumed by consumers

.

E

. Volume Requirements for 2015

The iss ues concerning availability of qualifying renewable fuels and the ethanol blendwall that provided the impetus for the approach described above will continue to be relevant in 2015 and beyond. We would intend to propose the same general approach in
determi ning appropriate volume requirements for 2015 and beyond as we have in today's proposed rule, subject to potential adjustments to that approach based on comments received in response to this NPRM. We would also use the most recently available information to update the projected range of potential volumes in each of these areas:

• Volume of E15

- E85 that could be consumed

• Available volumes of cellulosic biofuel

• Available volumes of biomass

- based diesel

• Available volumes of advanced biofu el

• Available volumes of non

- advanced renewable fuel

In 2015 the total renewable fuel volume in the statute increases from 18.15 bill ion gal lons

to 20.5 bill ion gal lons , and the advanced biofuel volume increases from 3.75 bill ion gal lons to
5.5 bill ion gal lons . If these increases in the statutory volume requirements are larger than increases in the availability of qualifying non

- ethanol renewable fuels and/or the ability of the market to absorb hig her level ethanol blends such as E85, the reductions in the volume requirements for advanced biofuel and total renewable fuel may be larger in 2015 than we are proposing for 2014. We will provide a detailed assessment of these issues when we propose the

v olume requirements for 2015.

91 EIA Monthly Energy Review for June 2013, Table 10.3. Corn

- ethanol exports were about 740 mill galgalgalmill ion gal lons in 2012 based on EIA Exports By Destination.

92 EIA AEO2013, Table17. Assumes corn

- ethanol exports of 885 mill galgalgalmill ion gal lons per EIA. Deleted: bill galgalgal

Deleted: bill galgalgal

Comment [A102]: Align with forward guidance wording elsewhere

Response: Text modified.

Deleted: bill galgalgal

Deleted: bill galgalgal

Deleted: bil l galgalgal

Deleted: bill galgalgal*** EO12866 Review

- Draft

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

Page 89 of 102 V. Proposed Percentage Standards for 2014

A. Background

The renewable fuel standards are expressed as volume percentages and are used by each refiner or importer to determine their RVO . Since there are four separate standards under the RFS2 program, there are likewise four separa te 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.C, we are proposing a required volume of cellulosic biofuel for
2014 of 23 million ethanol

- equiv alent gallons. The volume we select for the final rule will be used as the basis for setting the percentage standard for cellulosic biofuel for 2014. We are also proposing to reduce the advanced biofuel and total renewable fuel volumes. The biomass

- base d diesel volume for 2014 has been proposed to be maintained at 1.28 billion gallons. The volumes to be used to determine the four proposed percentage standards are shown in Table V.A

- 1.

Table V.A

- 1 Proposed Volumes for Use in Setting the Applicable Per centage Standards for 2014 a

Cellulosic biofuel 23 mill gal

Biomass

- based diesel 1.28 bill gal

Advanced biofuel 2.21 bill gal

Renewable fuel 15.21 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 t he 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 fuel s, are not subject to the standards, and volumes of such fuels are not used in calculating the annual standards. Since the standards apply to producers and importers of gasoline and diesel, these are the transportation fuels used to set the standards, and then again to determine the annual volume obligations of an individual gasoline or diesel producer or importer.

B. Calculation of Standards

1. How Are the Standards Calculated?

The following formulas are used to calculate the four percentage standards applicable to producers and importers of gasoline and diesel (see §80.1405): Deleted: renewable volume obligations (

Deleted: )

Formatted Table*** EO12866 Review

- Draft

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

Page 90 of 102 Where

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

Std BBD,i = The biomass

- based diesel standard (ethanol

- equivalent basis) for year i, in percent.

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

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

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

Act for year i, in gallon s.

RFV BBD,i = Annual volume of biomass

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

Air Act for year i, in gallons.

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

Act for year i, in gallons.

RFV RF,i = Annual volume of renewable fuel required by section 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 us ed in the 48 contiguous states and Hawaii, in

year i, in gallons. This value excludes diesel used in ocean

- going vessels.

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

in the 48 contiguous states and Hawaii, in yea r i, in gallons.

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

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

¶ ¶

¶ ¶

¶ ¶

¶

Field Code Changed

Field Code Changed

Field Code Changed

Field Code Changed*** EO12866 Review

- Draft

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

Page 91 of 102 GS i = Amount of gasoline projected to be used in Alaska or a U.S. territory in year i if

the state or territory opts

- in, in gallons.

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

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

- in, in gallons.

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

state or territory opts

- in, in gallons.

RDS i = 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 2014, this value is zero. See further discussion in
Section V.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 2014, this value is zero. Se e further discussion in
Section V.B.2 below.

The four separate renewable fuel standards for 2014 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 2014 percentage standards will be provided to EPA by EIA by October 31,

2013. To estimate the gasoline and diesel projected volumes for the purposes of this proposal,
we have used EIA's Short

- Term Energy Outlook (STEO) 93 for the gasoline projection and EIA's Annual Energy Outlook 2013 Early Release 94 for the diesel projection. Gaso line 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, 2013. To es timate the ethanol and biodiesel projected volumes for the purposes of this proposal, we have used the February 2013 values 95 for ethanol and biodiesel provided in the STEO. Using the most recent available EIA data for purposes of this proposal allows us t o provide the affected industries with a reasonable estimate of the standards for planning purposes.

93 Energy Information Administration/ Short

- Term Energy Outlook

– June 2013, Table 4a, “U.S. Crude Oil and Liquid Fuels Supply, Consumption, and Inventories.”

94 Energy Information Administration/Annual Energy Outlook 2013, April 2013, “ Energy Consumption by Sector and Source, United States, R eference case .”

95 Energy Information Administration/Short

- Term Energy Outlook

– June 2013, Table 8, “U.S. Renewable Energy Consumption (Quadrillion Btu).” Comment [A103]: EIA projections are for 50 states and territories. The reviewer disagrees with
this characterization.

Response: Deleted “49

- state”.*** EO12866 Review

- Draft

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

Page 92 of 102 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 exemp tion 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

, 96 we exercised our discretion under section 211(o)(3 )(B) and extended this temporary exemption to the few remaining small refiners that met the Small Business Administration’s (SBA) definition of a small business (1,500 employees or less company

- wide) but did not meet the statutory small refinery definition as noted above. 97 Because 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). 98

Congress provided two ways that small refineries could receive a temporary extension of the exemption beyond 2010. One was based on the results of a study conducted by the Department of Energy (DOE) to determine whether small refineries would face a disproportionate economic hardship under the RFS program. In March of 2011, DOE evaluated the impacts of the RFS program on small entities and concluded that some small refineries would

su ffer a disproportionate hardship. 99 The other way that small refineries could receive a temporary extension is based on EPA determination of disproportionate economic hardship on a

case

- by

- case basis in response to refiner petitions. 100 EPA has granted some exemptions pursuant to this process, as recently as 2013. However, at this time, no exemptions have been approved for 2014. Therefore, for this proposal we have calculated the 2014 standards without a small refinery

/small refiner adjustment.

However, if an individual small refinery or small refiner requests an exemption and is approved prior to issuance of the final rule, the final standards will be adjusted to account for the exempted volumes of gasoline and diesel . Any requests for exemptions that are approved after
the release of the final 2014 RFS standards will not affect the 2014 standards. As stated in the final rule establishing the 2011 standards, “EPA believes the Act is best interpreted to require
issuan ce 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 waive rs issued to small refineries or refiners would be inconsistent with the statutory text, and would introduce an undesirable level of uncertainty for obligated parties.” Thus, after the 2014 standards are finalized, any additional exemptions for small refi neries or small refiners that are issued will not
affect those 2014 standards.

96 72 FR 23900, May 1, 2007.

97 40 CFR §§ 80.1141, 80.1142.

98 See 40 CFR §§ 80.1441, 80.1442.

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

100 40 CFR §§ 80.1441(e)(2), 80.1442(h). Deleted:

,

Deleted: 40 CFR §§ 80.1141, 80.1142.

Deleted: See 40 CFR §§ 80.1441, 80.1442.

Deleted: 40 CFR §§ 80.1441(e) (2), 80.1442(h).

Moved (insertion) [0]

Moved (insertion) [0]

Moved (insertion) [0]*** EO12866 Review

- Draft

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

Page 93 of 102 3. Proposed Standards

As specified in the March 26, 2010 RFS2 final rule

, 101 the percentage standards are based

on energy

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

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

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

1.2 8 billion physical gallons of biomass

- based diesel will be created in 2014, the calculation of
the biomass

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

- based diesel gallon being worth 1.0 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 participate in the RFS2 program at this time, and thus the value of the related terms
in the calculation of the standar ds is zero.

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

- renewable gasoline and diesel volumes . The values of the variables
described above are shown in Table V.B.3

- 1. 102 Terms not included in this table have a value of

zero.

Table V.B.3

- 1

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

(bill ion gal lons )

Term Value

RFV CB,2014 0.023

RFV BBD,2014 1.28

RFV AB,2014 2.21

RFV RF,2014 15.21

G 2014 132.79

D 2014 47.45

RG 2014 13.84

RD 2014 1.32

101 75 FR 14716, March 26, 2010.

102 To determine the 49

- state values for gasoline and diesel, the amounts of these fuels used in Alaska is subtracted from the totals provided by DOE. The Alaska fractions are determined from the most recent (2011) EIA State Energy Data, Transportation Sector Energy Consumption Estimates. The gasoline and t ransportation distillate fuel oil fractions are approximately 0.2% and 0.7%, respectively. Ethanol use in Alaska is estimated at 7.8% of its gasoline consumption (based on the same State data), and biodiesel use is assumed to be zero. Deleted:

,

Comment [A104]: No exempt refineries
assumed this time. So all calculations should be transparent. Please show conversions used and original EIA data as a footnote. Diesel forecast
should be available from STEO.

Response: Our diesel estimate comes from

AEO2013. Footnote added with details.

Comment [A105]: This appears to be the 2013 value. June 2013 STEO projected gasoline consumption for 2014 is 8.68 million barrels per day = 133.06 billion gallons per year

Response: Will update to Sept 2013 STEO per
comment calcs.

Comment [A106]: Not clear how this was
calculated. See attached Excel file.

Response: Our diesel estimate for the proposed rule comes from AEO Transportation Distillate estimate.*** EO12866 Review

- Draft

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

Page 94 of 102 Using the volumes shown in Table V.B.3

- 1, we have calculated the proposed percentage
standards for 2014 as shown in Table V.B.3

- 2.

Table V.B.3

- 2 Proposed Percentage Standards for 2014

Cellulosic biofuel 0.017 %
Biomass

- based diesel 1.16%
Advanced biofuel 1.36%
Renewable fuel 9.33% Comment [A107]: Need to recalculate based on
different G and D values

Response: Values recalculated.*** EO12866 Review

- Draft

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

Page 95 of 102 VI. 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 publi shing this document. We will accept comments during the period indicated under the DATES section above. If you have an interest in the proposed standards, we encourage you to comment on any aspect of this rulemaking. We also request comment on specific topics identified throughout this proposal.

Your comments will be most useful if you include appropriate and detailed supporting rationale, data, and analysis. Commenters are especially encouraged to provide specific suggestions for any changes that th ey 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 comments electronically, by mail, or through hand delivery/courier. To ensure proper receipt by EPA, identify the appropriate docket identification number in the subject line on the first page of your comment. Please ensure that your comments are submitted within the specified comment period. Comments received after the close of the comment period will be marked “late.” EPA is not required to consider these late comments. If you wish to submit Confidential Business Information (CBI) or information that is otherwise protected by statute, please follow the instructions in Section VI.B below.

B. How Should I Submit CBI to the 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

- 2013

- 0479. You may claim information that you submit to EPA as CBI by marking any part or all of that information as CBI (if you submit CBI on disk or CD ROM, mark the outside of the disk or CD ROM as CBI and then identify electronically within the disk or CD ROM the specific information that is CBI). Informat ion 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 informat ion claimed as CBI must be submitted for inclusion in the public docket. If you submit the copy that does not contain CBI on disk or CD ROM, mark the outside of the disk or CD ROM clearly that it does
not contain CBI. Information not marked as CBI will b e included in the public docket without*** EO12866 Review

- Draft

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

Page 96 of 102 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 section.*** EO12866 Review

- Draft

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

Page 97 of 102 VII. 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 1 2866 (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. Accordingly , EPA submitted this action to the Office of Management and Budget (OMB) for review under Executive Orders 12866 and 13563 (76 FR 3821, January 21, 2011) and any changes made in response to OMB recommendations have been documented in the docket for
this ac tion.

The economic impacts of the RFS2 program on regulated parties, including the impacts of the volumes of renewable fuel specified in the statute, were already addressed in the RFS2 final rule promulgated on March 26, 2010 (75 FR 14670). With the exc eption of biomass

- based diesel, this action proposes standards applicable in 2013 that would be reduced from those analyzed in the RFS2 final rule. The impacts of the proposed 2014 and 2015 volumes of
biomass

- based diesel were addressed in the final rule establishing the 2013 volume requirement of 1.28 bill gal (77 FR 59458).

B. Paperwork Reduction Act

There are no new information collection requirements associated with the standards in this notice of proposed rulemaking. The standards being proposed today would not impose new or different reporting requirements on regulated parties. The existing information collection requests (ICR) that apply to the RFS program are sufficient to address the reporting requirements in the regulations.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. The OMB control numbers for EPA's regulations in 40 CFR are listed in 40 CFR part 9.

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 Procedures Act or any other statute unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small organizations, and small governmental jurisdictions.

For purposes of assessi ng the impacts of today's proposed rule on small entities, small entity is defined as: (1) a small business as defined by the Small Business Administration’s*** EO12866 Review

- Draft

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

Page 98 of 102 (SBA) regulations at 13 CFR 121.201; (2) a small governmental jurisdiction that is a government
of a city, county, town, school district or special district with a population of less than 50,000; and (3) a small organization that is any not

- for

- profit enterprise which is independently owned and operated and is not dominant in its field.

After conside ring the economic impacts of today’s proposed rule on small entities, we certify that this proposed action will not have a significant economic impact on a substantial number of small entities. This rule proposes that the annual volume requirement for cel lulosic biofuel for 2014 would be reduced from the statutory volume of 1.75 bill ion gal lons

. We are also proposing to reduce the annual volume requirements for advanced biofuel and total renewable fuel. The impacts of the RFS2 program on small e ntities 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 beyond those already analyzed. 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 provisions of Title II of the
Unfunded Ma

ndates 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 exercis e 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 th at 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 2014 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 2014 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. Deleted: bill gal.*** EO12866 Review

- Draft

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

Page 99 of 102 F. Executive Order 13175: Consultation and Coordination with Indian Tribal

Governments

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

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

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

EPA interprets EO 13045 (62 FR 19885, April 23, 1997) as applying only to those regulatory actions that concern health or safety risks, such that the analysis required under
section 5

- 501 of the EO has the potential to influence the regu lation. This proposed action is not subject to EO 13045 because it does not establish an environmental standard in tended 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 Regul ations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355 (May 22, 2001)) because it is not likely to have a significant adverse effect on the supply, distribution, or use of energy. This action simply proposes the annual standard s for renewable fuel under the RFS program for 2014.

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 cons ensus standards.*** EO12866 Review

- Draft

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

Page 100 of 102 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 Pop ulations and Low

- Income Populations

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

- income populations because it does not affect the level of protection provided to human health or the environment. This action does not relax the control measures on sources regulated by the RFS regulations and therefore
will not cause emissions increases from these sources.*** EO12866 Review

- Draft

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

Page 101 of 102 VIII. 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 CFR Part 80

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

Dated:

Gina McCarthy,
Administrator.*** EO12866 Review

- Draft

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

Page 102 of 102 For the reasons set forth in the preamble, 40 CFR part 80 is amended as follows:

PART 80

— REGULATION OF FUELS AND FUEL ADDITIVES

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

2. Section 80.1405 is amended by adding paragraph (a)(5) to read as follows:

§ 80.1405 What are the Renewable Fuel Standards? (a) * * * (5) Renewable Fuel Standards for 2014. (i) The value of the cellulosic biofuel standard for 2014 shall be 0.017 percent. (ii) The value of the biomass

- based diesel standard for 2014 shall be 1.16 percent. (iii) The value of the advanced biofuel standard for 2014 shall be 1.36 percent. (iv) The value of the renewable fuel standard for 2014 shall be 9.33 percent.