```

[Federal Register Volume 77, Number 188 (Thursday, September 27, 2012)]
[Rules and Regulations]
[Pages 59457-59485]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-23344]

[[Page 59457]]

Vol. 77

Thursday,

No. 188

September 27, 2012

Part II

Environmental Protection Agency

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40 CFR Part 80

Regulation of Fuels and Fuel Additives: 2013 Biomass-Based Diesel 
Renewable Fuel Volume; Final Rule

Federal Register / Vol. 77, No. 188 / Thursday, September 27, 2012 / 
Rules and Regulations

[[Page 59458]]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2010-0133; FRL-9678-7]
RIN 2060-AR55

Regulation of Fuels and Fuel Additives: 2013 Biomass-Based Diesel 
Renewable Fuel Volume

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: Under the Clean Air Act Section 211(o), the Environmental 
Protection Agency is required to determine the applicable volume of 
biomass-based diesel to be used in setting annual percentage standards 
under the renewable fuel standard program for years after 2012. We 
proposed an applicable volume requirement for 2013 of 1.28 billion 
gallons on July 1, 2011. In order to sufficiently evaluate the many 
comments on the proposal from stakeholders as well as to gather 
additional information to enhance our analysis, we did not finalize 
this volume requirement in the January 9, 2012, rulemaking setting the 
2012 percentage standards. In this action we are finalizing an 
applicable volume of 1.28 billion gallons of biomass-based diesel for 
calendar year 2013.

DATES: This final rule is effective on November 26, 2012.

ADDRESSES: EPA has established a docket for this action under Docket ID 
No. EPA-HQ-OAR-2010-0133. All documents in the docket are listed in the 
www.regulations.gov index. Although listed in the index, some 
information is not publicly available, e.g., CBI or other information 
whose disclosure is restricted by statute. Certain other material, such 
as copyrighted material, will be publicly available only in hard copy. 
Publicly available docket materials are available either electronically 
in www.regulations.gov or in hard copy at the Air and Radiation Docket 
and Information Center, EPA/DC, EPA West, Room 3334, 1301 Constitution 
Ave. NW., Washington, DC. The Public Reading Room is open from 8:30 
a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The 
telephone number for the Public Reading Room is (202) 566-1744, and the 
telephone number for the Air Docket is (202) 566-1742.

FOR FURTHER INFORMATION CONTACT: Julia MacAllister, Office of 
Transportation and Air Quality, Assessment and Standards Division, 
Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor, MI 
48105; Telephone number: 734-214-4131; Fax number: 734-214-4816; Email 
address: macallister.julia@epa.gov, or the public information line for 
the Office of Transportation and Air Quality; telephone number (734) 
214-4333; Email address OTAQ@epa.gov.

SUPPLEMENTARY INFORMATION:

I. General Information

A. Does this action apply to me?

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

----------------------------------------------------------------------------------------------------------------
                                                NAICS \1\                     Examples of potentially regulated
                  Category                        codes       SIC \2\ codes                entities
----------------------------------------------------------------------------------------------------------------
Industry...................................          324110            2911  Petroleum Refineries.
Industry...................................          325193            2869  Ethyl alcohol manufacturing.
Industry...................................          325199            2869  Other basic organic chemical
                                                                              manufacturing.
Industry...................................          424690            5169  Chemical and allied products
                                                                              merchant wholesalers.
Industry...................................          424710            5171  Petroleum bulk stations and
                                                                              terminals.
Industry...................................          424720            5172  Petroleum and petroleum products
                                                                              merchant wholesalers.
Industry...................................          454319            5989  Other fuel dealers.
----------------------------------------------------------------------------------------------------------------
\1\ North American Industry Classification System (NAICS).
\2\ Standard Industrial Classification (SIC) system code.

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

Outline of This Preamble

I. Executive Summary
    A. Purpose of This Action
    B. Summary of Today's Action
    C. Impacts of This Action
II. Statutory Requirements
III. Factors Affecting Supply and Consumption
    A. Demand for Biomass-Based Diesel
    B. Availability of Feedstocks To Produce 1.28 Billion Gallons of 
Biodiesel
    1. Grease and Rendered Fats
    2. Corn Oil
    3. Soybean Oil
    4. Effects on Food Prices
    5. Other Bio-Oils
    C. Production Capacity
    D. Consumption Capacity
    E. Biomass-Based Diesel Distribution Infrastructure
IV. Impacts of 1.28 Billion Gallons of Biomass-Based Diesel
    A. Consideration of Statutory Factors
    1. Climate Change
    2. Energy Security
    3. Agricultural Commodities and Food Prices
    4. Air Quality
    5. Deliverability and Transport Costs of Materials, Goods, and 
Products Other Than Renewable Fuel
    6. Wetlands, Ecosystems, and Wildlife Habitats
    7. Water Quality and Quantity
    a. Impacts on Water Quality and Water Quantity Associated With 
Soybean Production
    b. Impacts on Water Quality and Water Quantity Associated With 
Biodiesel Production
    8. Job Creation and Rural Economic Development
    B. Consideration of Applicable Statutory Economic Factors
    1. Monetized Quantifiable Costs
    a. Impact on the Cost of Soybean Oil
    b. Cost of Displacing Petroleum-Based Diesel With Soybean-Based 
Biodiesel
    c. Transportation Fuel Costs
    2. Monetized Quantifiable Benefits
    a. Energy Security
    b. Air Quality
    3. Quantifiable Benefits and Costs Compared
V. Final 2013 Volume for Biomass-Based Diesel
VI. Public Participation
VII. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and Review and 
Executive Order 13563: Improving Regulation and Regulatory Review
    B. Paperwork Reduction Act
    C. Regulatory Flexibility Act
    D. Unfunded Mandates Reform Act

[[Page 59459]]

    E. Executive Order 13132: Federalism
    F. Executive Order 13175: Consultation and Coordination With 
Indian Tribal Governments
    G. Executive Order 13045: Protection of Children From 
Environmental Health Risks and Safety Risks
    H. Executive Order 13211: Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use
    I. National Technology Transfer Advancement Act
    J. Executive Order 12898: Federal Actions To Address 
Environmental Justice in Minority Populations and Low-Income 
Populations
    K. Congressional Review Act
VIII. Statutory Authority

I. Executive Summary

    The Renewable Fuel Standard (RFS) program began in 2006 pursuant to 
the requirements in Clean Air Act (CAA) section 211(o) which were added 
through the Energy Policy Act of 2005 (EPAct). The statutory 
requirements for the RFS program were subsequently modified through the 
Energy Independence and Security Act of 2007 (EISA), resulting in the 
promulgation of revised regulatory requirements on March 26, 2010.\1\ 
The transition from the RFS1 requirements of EPAct to the RFS2 
requirements of EISA generally occurred on July 1, 2010.
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    \1\ 75 FR 14670.
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A. Purpose of This Action

    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 
diesel for years after 2012 no later than 14 months before the first 
year for which the applicable volume will apply. On July 1, 2011, we 
proposed that the applicable volume of biomass-based diesel for 2013 
would be 1.28 billion gal.\2\
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    \2\ 76 FR 38844.
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    In a final rulemaking published on January 9, 2012, we specified 
the 2012 standards for cellulosic biofuel, biomass-based diesel, 
advanced biofuel, and total renewable fuel. Although we had intended to 
also finalize the applicable volume of biomass-based diesel for 2013 in 
that rulemaking, we did not do so. In that final rule we explained that 
we were continuing to evaluate the many comments on the NPRM from 
stakeholders as well as fulfilling other analytical requirements. We 
indicated that we intended to gather additional information to enhance 
our analysis including consideration of costs and benefits. In today's 
notice we are finalizing the applicable volume of biomass-based diesel 
for 2013. We believe that the volume we are finalizing today is 
feasible and consistent with the overall analytic approach to the RFS2 
program and also consistent with the overall intent of the Act to 
expand the use of renewable fuels through the year 2022.
    While we did not finalize the 2013 applicable volume of biomass-
based diesel within 14 months before the first year for which the 
applicable volume will apply as required by the statute, we do not 
believe that this will create a difficulty in the ability of obligated 
parties to meet the applicable volume that we are finalizing today. We 
are finalizing the 2013 applicable volume about three months before it 
will apply. As described in Section III.B, producers of biodiesel, the 
largest contributor to biomass-based diesel, have significantly greater 
production capacity than will be required by today's final rule, and in 
general it only requires a few months to bring an idled biodiesel 
facility back into production. Moreover, many facilities that are 
producing volume currently are underutilizing their capacity, and can 
ramp up production relatively quickly. Finally, the biodiesel industry 
is already producing at a rate consistent with an annual volume of 
about 1.3 billion gallons.

B. Summary of Today's Action

    In today's action we are finalizing an applicable volume of 1.28 
billion gallons for biomass-based diesel for 2013. This is the volume 
that was projected for 2013 in the March 26, 2010, RFS2 final 
rulemaking, and we are requiring it in 2013 based on consideration of 
the factors specified in the statute.
    Today's final rule does not specify the percentage standard for 
biomass-based diesel in 2013, but only the applicable volume. The 
percentage standards for cellulosic biofuel, biomass-based diesel, 
advanced biofuel, and total renewable fuel that will be applicable in 
2013 are being proposed in a separate Notice of Proposed Rulemaking.

C. Impacts of This Action

    The RFS program established by Congress is a long-term program 
aimed at replacing fossil fuels used in the transportation sector with 
low-GHG renewable fuels over time. In the March 26, 2010 RFS2 final 
rule, EPA assessed the costs and benefits of this program as a whole 
when the program would be fully mature in 2022. While this is an 
appropriate approach to examining the costs and benefits of a long-term 
program like the RFS2, for this final rulemaking we have estimated 
costs and benefits in 2013 where such estimates can reasonably be made.
    Quantified estimates of benefits include $41 million in energy 
security benefits and $19-52 million in air quality disbenefits. Other 
benefits include GHG emissions reduction benefits and both direct and 
indirect employment benefits in rural areas due to increased biodiesel 
production. Impacts on water quality, water use, wetlands, ecosystems 
and wildlife habitats are expected to be directionally negative but 
modest due to both the small impact on crop acres planted necessary to 
supply sufficient soy oil feedstock and due to the relatively small 
impact on these measures of soybean production compared to other 
potential crops.
    Biodiesel is produced from a variety of feedstocks, including 
recycled cooking oil, agricultural oils such as soybean and canola oil, 
and animal fats. Most biodiesel producers can switch from one feedstock 
to another depending on price and availability. However, for the 
purpose of analyzing the impacts of this action, we have assumed that 
all of the 280 million gallon increment above the 2012 standard is met 
through increased demand for soy oil. Using this assumption, we 
estimate that soybean prices could increase up to 3 cents per pound in 
2013 if all of the 280 million gallon increment above the 2012 standard 
is met through increased demand for soy oil. Using these assumptions, 
we estimate the cost of producing this increment in biomass-based 
diesel would range from $253 to $381 million in 2013.\3\ Adding the 
estimate of 2013 costs to the total 2013 fuel pool would suggest a 
diesel fuel cost increase of less than 1 cent per gallon.
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    \3\ Cost estimates do not account for projections in recent 
trends in crop yields and grain prices resulting from drought 
conditions that are occurring in many areas of the country.
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II. 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 waived or 
adjusted by EPA in accordance with specific authority and directives 
specified in the statute.\4\ 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

[[Page 59460]]

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 section 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 an analysis of the following:
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    \4\ For example, EPA may waive a given standard in whole or in 
part following the provisions at section 211(o)(7).
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     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);
     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.
    While EPA is given the authority to determine the appropriate 
volume of renewable fuel for those years that are not specified in the 
statute based on a review of program implementation and analysis of the 
factors listed above, 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 billion gallons (see CAA 
211(o)(2)(B)(v)).
    It is useful to note that the statutory provisions described above 
are silent in two important areas. For instance, the statute does not 
provide numerical criteria or thresholds that must be attained when EPA 
determines the applicable volume of biomass-based diesel for years 
after 2012 (other than specifying a minimum volume of 1.0 billion gal), 
nor does it describe any overarching goals for EPA to achieve in 
setting the applicable volumes for biofuels in years after those 
specifically set forth in the statute. Instead, the statute provides a 
list of factors we must consider. Due to this ambiguity in the statute, 
commenters differed in their perspectives on the intent of Congress in 
allowing EPA to determine the appropriate applicable volume for 
biomass-based diesel for years after 2012.
    Some expressed the belief that Congress intended the required 
volumes of biomass-based diesel to increase every year, with EPA's role 
being that of determining an achievable size of that increase. Others 
expressed their belief that Congress intended for the statutory minimum 
volume of 1.0 billion gallons to be used to set the applicable volume 
for all years after 2012, with higher volumes being required only if 
EPA could demonstrate that those higher volumes were already being 
produced. Given that all biomass-based diesel counts towards the 
advanced biofuel requirement, and that the statute requires annual 
increases in advanced biofuel through 2022, we believe that it is 
appropriate that biomass-based diesel play an increasing role in 
supplying advanced biofuels to the market between 2012 and 2022. 
However, the determination of whether to increase the volume 
requirement for biomass-based diesel in any given year is subject to a 
consideration of a number of factors in the statute as described above.
    We also note that the statute does not provide authority to raise 
the applicable volumes of advanced biofuel or total renewable fuel 
above those specified in the statute for years up to and including 
2022. Thus, any increase in the biomass-based diesel volume requirement 
above that specified for 2012 would not have any impact on the advanced 
biofuel or total renewable fuel volume requirements. While increasing 
the biomass-based diesel volume requirement above the 1.0 billion 
gallons minimum value specified in the statute could result in a change 
in the makeup of biofuels used to meet the advanced biofuel and the 
total renewable fuel standards, doing so would not change the total 
required volumes of those fuels (in terms of ethanol-equivalent 
gallons).
    We received one comment in response to the NPRM requesting that we 
prohibit increases in biomass-based diesel above 1.0 billion gallons in 
years after 2012. We disagree. As described in this preamble, we 
believe it is appropriate to require 1.28 billion gal of biomass-based 
diesel in 2013, and that we should consider further increases in the 
future by evaluating the factors specified in the statute.
    The statute also specifies the timeframe within which these volumes 
must be promulgated: the rules establishing the applicable volumes must 
be finalized no later than 14 months before the first year for which 
such applicable volume will apply. For the biomass-based diesel volume 
requirement applicable in 2013, the deadline for promulgation was 
November 1, 2011. As described in the January 9, 2012, final rule that 
set the applicable percentage standards for 2012, we delayed issuing 
this final rule to allow additional time to evaluate the many comments 
on the NPRM from stakeholders as well as to fulfill other analytical 
requirements. To this end, we did in fact gather additional information 
to enhance our analysis of the factors required in the statute, and we 
considered costs and benefits. Our assessment is provided in Sections 
III and IV. We do not believe that the delay in issuing this final rule 
will materially affect the regulated community, however, since we are 
setting the final volume requirement several months prior to the date 
when it will be applicable.
    The statute requires that in evaluating and establishing renewable 
fuel volumes in years beyond those for which volumes are specified in 
the statute, that EPA must coordinate with the Departments of 
Agriculture and Energy. EPA has coordinated with these agencies in 
developing this final rule through a series of telephone exchanges and 
meetings. Consistent with the statute, EPA will coordinate with these 
agencies in future rules in setting fuel volumes.

III. Factors Affecting Supply and Consumption

    As described in Section II, we are required to review the 
implementation of the RFS program for years prior to 2013 and to use 
information from this review in determining the applicable volume of 
biomass-based diesel for 2013. In the NPRM we indicated our belief that 
this review is of limited value due to the short history of the RFS 
program. Not only did the RFS1 program have no volume requirement 
specific to biomass-based diesel, but even in 2010 under the RFS2 
program several unique factors hindered biodiesel production volumes 
from increasing substantially above historical levels. For instance, 
RFS1 RINs from both 2008 and 2009 could be carried over to 2010 and 
used to meet a combined 2009/2010 volume requirement for biomass-based 
diesel.
    Since release of the NPRM, however, some information has become 
available on the implementation of the RFS program in 2011. The 
available data provide some indication as to how the biomass-based 
diesel standard for 2011

[[Page 59461]]

is affecting the market for biodiesel. Based on information provided 
through the EPA-Moderated Transaction System (EMTS), reported biodiesel 
production increased significantly to about 1.07 billion gal in 2011. 
This is a significant increase over the 2010 production volume of about 
400 mill gal and exceeds the applicable volume requirement of 800 mill 
gal for 2011. 2011 biomass-based diesel RINs were available to meet the 
higher advanced biofuel volume requirement. Based on these results, we 
believe that the RFS program is driving production of biomass-based 
diesel, and that higher applicable volume requirements in future years 
would likewise drive increases in production volumes.
    In the NPRM we indicated that, based on the limited information 
available on the current and historical operation of the RFS program, 
it would be prudent for 2013 to consider only moderate increases in 
biomass-based diesel above the statutory minimum of 1.0 billion 
gallons. We cited the annual increments in biomass-based diesel volumes 
specified in the statute for years 2009 through 2012 and conveyed our 
belief that our proposed applicable volume of 1.28 billion gallons for 
2013 was not a dramatic change from the trend in increments in the 
statute. In addition, since this biomass-based diesel volume had 
already been partially evaluated in the RFS2 rule, we decided to 
evaluate the appropriateness of setting an applicable volume of 1.28 
billion gallons for 2013 by considering whether 1.28 billion gal of 
biomass-based diesel was reasonable given likely market demand, 
availability of feedstocks, production capacity, storage, distribution, 
and blending capacity, the capability of the existing diesel fleet to 
consume this volume of biodiesel, and the impacts of biomass-based 
diesel in a variety of areas as required under the statute.
    In responding to the NPRM, some commenters took issue with our 
characterization of the proposed volume of 1.28 billion gallons as a 
``moderate'' increase consistent with the annual increments in biomass-
based diesel volumes specified in the statute for years 2009 through 
2012. These comments also suggested that any comparison to volume 
requirements in the statute is not appropriate. However, we did not 
base our proposed volume of 1.28 billion gallons on this comparison but 
referred to past statutory increments to put our proposal in context. 
Regardless of the size of these past statutory increments, however, we 
find the final 280 mill gal increment to be moderate and achievable, as 
described below, especially in light of the substantial increases in 
production volume that occurred in 2011 which were approximately twice 
the amount of the 280 mill gal increase we are adopting for 2013. Other 
commenters agreed with the comparison and agreed that the 0.28 billion 
gallons increment can appropriately be characterized as moderate.
    In some cases commenters opposed the proposed volume requirement of 
1.28 billion gallons, citing concerns that the 2012 applicable volume 
of 1.0 billion gallons is not achievable. As noted above, our 
evaluation indicates that biodiesel production exceeded 1.0 billion 
gallons in 2011, confirming our projection that the 1.0 billion gallon 
applicable volume for 2012 is achievable. Therefore, concerns about the 
industry's ability to meet the applicable volume in 2012 are not a 
reasonable basis for concerns about achieving 1.28 billion gallons in 
2013. Other commenters agreed with our assessment of 2012 and agreed 
that an increase of 0.28 billion gallons over the statutory minimum for 
2013 is moderate given the capabilities of the industry.
    Several commenters suggested that 1.28 billion gallons is an 
infeasible target for 2013 and requested that we set the biomass-based 
diesel standard at the statutory minimum of 1.0 billion gallons. 
Commenters taking this view generally did not offer any data or 
information to support their belief that 1.28 billion gal is not 
achievable in 2013 beyond references to historical biodiesel production 
rates. As described in the NPRM, we believe that the use of biodiesel 
production data from 2010 and earlier is of limited value, and 
production capacity as well as more recent data on actual production 
volumes does in fact demonstrate that the industry is capable of 
significant increases in production when demand for it exists. As 
described more fully in the sections below, we continue to believe that 
1.28 billion gallons is achievable based on production capacity, 
availability of feedstock, recent trends in production volumes, and 
efforts to update infrastructure for storage, transport, and blending. 
We also believe that this volume is likely to encourage continued 
investment and innovation in the biodiesel industry. Our consideration 
of other impacts, such as fuel costs and environmental impacts, can be 
found in Section IV.

A. Demand for Biomass-Based Diesel

    The demand for biomass-based diesel in 2013 will be a function of a 
number of factors, including not only the biomass-based diesel 
standard, but also the advanced biofuel standard, since the standards 
under the RFS2 program are nested. For purposes of the analysis and 
discussion in this rule, we have assumed that the applicable volume of 
advanced biofuel for 2013 will remain at the 2.75 billion gal level 
specified in the Act. While EPA is authorized to reduce the applicable 
volume of advanced biofuel pursuant to CAA section 211(o)(7)(D)(i) in 
years that it reduces the cellulosic biofuel applicable volume, any 
decision to do so will be made in the rule establishing the 2013 
renewable fuel standards, and EPA is not currently in a position to 
pre-judge the results of that future rulemaking.
    In addition to biomass-based diesel, biofuels that are likely to be 
available for meeting the advanced biofuel standard would include 
cellulosic biofuel, imported sugarcane ethanol, and other domestically 
produced advanced biofuels. As described in the January 9, 2012 
rulemaking establishing the 2012 standards,\5\ cellulosic biofuels will 
be a very small fraction of the 2.0 billion gallon advanced biofuel 
requirement in 2012, and we expect the same to be true in 2013 with 
respect to the 2.75 billion gal advanced biofuel requirement. Regarding 
other domestically produced advanced biofuels, volumes reached about 60 
mill gal in 2011, and we have projected for the applicable 2013 
standards that they could reach 150 mill gal or more in 2013. As a 
result, most of the 2.75 billion gal advanced biofuel requirement will 
be met with biodiesel and imported sugarcane ethanol.
---------------------------------------------------------------------------

    \5\ 77 FR 1320.
---------------------------------------------------------------------------

    Recent market projections suggest that the volume of sugarcane 
ethanol that can be imported into the U.S. from Brazil in 2013 could be 
on the order of historical import volumes prior to 2010, with the 
potential to reach the historical maximum or more. However, there is 
considerable variability in the projections for 2013. For instance, one 
source that evaluates trends and issues for U.S. energy markets is the 
U.S. Energy Information Administration's (EIA) Annual Energy Outlook 
(AEO).\6\ This report projects U.S. net ethanol imports in 2013 to be 
306 million gallons. Another source for U.S. and world commodity 
projections is the Food and Agricultural Policy Research Institute's 
(FAPRI) U.S. and World Agricultural Outlook. The most current version 
of the FAPRI 2011 Agricultural Outlook projects for the year 2013 that 
the U.S. will have net ethanol imports

[[Page 59462]]

of 768 million gallons.\7\ Based on historical trends, virtually all 
imported ethanol is expected to be sugarcane ethanol. As a result, 
while there is good reason to believe that there will be increased 
volumes of imported sugarcane ethanol in 2013 to help meet the advanced 
biofuel standard, there may also be a demand for volumes of biodiesel 
in excess of 1.0 billion gallons.
---------------------------------------------------------------------------

    \6\ U.S. Energy Information Administration (EIA). ``AEO2011, 
Table 11'' April 2011. http://www.eia.doe.gov/forecasts/aeo/index.cfm.
    \7\ Table ``Ethanol Trade'', Commodity Outlook/Biofuels, FAPRI-
ISU 2011 World Agricultural Outlook. http://www.fapri.iastate.edu/outlook/2011/.
---------------------------------------------------------------------------

    If we do not set the biomass-based diesel standard above 1.0 
billion gallons, biodiesel producers will be less certain of the demand 
for their product given the opportunities that are also created by the 
advanced biofuel standard for imported sugarcane ethanol. Despite the 
fact that monthly production rates in the middle of 2012 are consistent 
with an annual production volume of about 1.28 billion gal, the 
selection of facilities producing biodiesel at any given time is highly 
variable. Without a regulatory requirement for 1.28 billion gal, the 
biodiesel industry is less likely to maintain online production 
capabilities for this volume. Instead, many producers will wait until 
late in 2013 to determine if imported sugarcane ethanol volumes will 
fall short of what is needed to meet the advanced biofuel volume 
requirement of 2.75 billion gal in 2013. While much of the idled 
capacity in the biodiesel industry can be brought back online 
relatively quickly, waiting until the end of 2013 to do so may reduce 
the time available and could result in the biodiesel industry being 
unable to make up the difference between the advanced biofuel 
requirement and shortfalls in imported sugarcane ethanol.
    Thus in setting the biomass-based diesel volume requirement at 1.28 
billion gallons rather than at the statutory minimum of 1.0 billion 
gallons, we are creating greater certainty for both producers of 
biomass-based diesel and obligated parties and increasing certainty 
that the intended GHG emissions reductions and energy security benefits 
associated with the use of advanced biofuels will be realized. It is 
possible that there may be some additional cost for compliance with the 
advanced biofuel requirement of 2.75 billion gallons under a biomass-
based diesel requirement of 1.28 billion gallons, as compared to 
setting the biomass-based diesel requirement at the statutory minimum 
of 1.0 billion gallons and allowing the market to determine the 
relative volumes of each type of advanced biofuel that will be produced 
in 2013 to meet the advanced biofuel standard of 2.75 billion gallons. 
However, setting the biomass-based diesel applicable volume requirement 
at 1.28 billion gallons will provide greater certainty that the 2.75 
billion gal advanced biofuel applicable volume requirement can be 
achieved. We believe that the potential for somewhat increased costs is 
appropriate in light of the additional certainty of GHG reductions and 
enhanced energy security provided by the advanced biofuel volume 
requirement of 2.75 billion gallons.
    Among the parties that submitted comments in response to the NPRM, 
none contested our assessment of the volumes of sugarcane ethanol that 
might be expected to be imported into the U.S. from Brazil in 2013. 
Nevertheless, parties that were opposed to setting the biomass-based 
diesel applicable volume at 1.28 billion gallons in 2013 raised doubts 
about the projected demand for biomass-based diesel in 2013. In some 
cases commenters ignored the fact that much of the advanced biofuel 
standard can be met with biomass-based diesel or implicitly assumed 
that EPA would waive some portion of the advanced biofuel requirement. 
The American Trucking Association (ATA) explicitly requested that we 
lower the 2013 advanced biofuel standard in order to ensure that demand 
for biomass-based diesel would not exceed 1.0 billion gallons in 2013. 
As described in a separate Notice of Proposed Rulemaking,\8\ we are 
proposing to not reduce the 2013 advanced biofuel requirement of 2.75 
billion gal.
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    \8\ This NPRM will propose the applicable 2013 percentage 
standards for cellulosic biofuel, biomass-based diesel, advanced 
biofuel, and total renewable fuel.
---------------------------------------------------------------------------

    The American Petroleum Institute cited projections from AEO 2011 in 
support of their argument that biodiesel volumes will not reach 1.28 
billion gallons in 2013. For instance, Table 11 of AEO 2011 projects a 
total biodiesel consumption of 1.04 billion gal in 2013. However, we do 
not believe that the projections provided in AEO 2011 can be used in 
this way, since EIA assumes that the required volume of advanced 
biofuel in any given year will be reduced concurrently with reductions 
in the required volume of cellulosic biofuel.\9\ As a result, the total 
projected volume of biodiesel and imported ethanol in the 2013 EIA 
projections falls far short of what would be necessary to meet the 
applicable volume of 2.75 billion gal of advanced biofuel set forth in 
the statute.
---------------------------------------------------------------------------

    \9\ Communication between D. Korotney of EPA and W. Brown of 
EIA, 8/25/2011.
---------------------------------------------------------------------------

    Some parties that were opposed to setting the biomass-based diesel 
applicable volume at 1.28 billion gallons in 2013 did recognize that 
the advanced biofuel requirement of 2.75 billion gal could place 
pressure on the industry to produce volumes of biodiesel in excess of 
1.0 billion gal but questioned the need to set the biomass-based diesel 
standard above the statutory minimum of 1.0 billion gallons. They 
argued that the market should be allowed to determine the relative 
volumes of biomass-based diesel, imported sugarcane ethanol, and other 
advanced biofuels needed to meet the advanced biofuel standard of 2.75 
billion gallons. This approach, they argued, could potentially minimize 
the overall cost of compliance with the advanced biofuel standard in 
2013. However, as noted above, the statute does not provide any 
overarching goals for EPA to achieve in setting the applicable volumes 
for biofuels in years after those specifically set forth in the 
statute. Instead, the statute provides a list of factors we must 
consider. While one of those factors is cost, other factors must also 
be considered as described in Section II. Additionally, setting the 
biomass-based diesel standard at 1.28 billion gallons instead of at the 
statutory minimum of 1.0 billion gallons will provide more certainty 
that the applicable volume of advanced biofuel set forth in the statute 
will not need to be reduced, since it guarantees that an additional 420 
million ethanol-equivalent gallons of advanced biofuel will be 
available. This, in turn, means that there will be more certainty of 
reduced GHG emissions through the use of more advanced biofuels and 
increased certainty of energy security benefits in terms of reduced 
reliance on fossil fuels. In addition, increasing the biomass-based 
diesel volume requirement to 1.28 billion gal in 2013 provides an 
incentive for continued investment and innovation in the biodiesel 
industry and serves the long term goal of the statute to increase 
volumes of renewable fuels over time such that in the longer term they 
are more likely to be available to offset the need for crude oil.

B. Availability of Feedstocks To Produce 1.28 Billion Gallons of 
Biodiesel

    In the NPRM, we provided our assessment of the types and amounts of 
feedstock that could be used to produce 1.28 billion gallons of 
biomass-based diesel in 2013. This assessment included references both 
to the work that had been done in the RFS2 final

[[Page 59463]]

rule as well as a recent report released by IHS Global Insight.\10\ The 
feedstock estimates from these two sources are shown in Table III.B-1.
---------------------------------------------------------------------------

    \10\ Table 2, ``Biodiesel Production Prospects for the Next 
Decade,'' IHS Global Insight, March 11, 2011.

 Table III.B-1--Feedstock Sources (in Mill Gallons) That May Contribute
                   to 2013 Volume of 1.28 Billion Gal
------------------------------------------------------------------------
                                                RFS2  final   IHS global
                    Source                          rule       insight
------------------------------------------------------------------------
Grease and rendered fats......................          380          272
Corn oil......................................          300          185
Soybean oil...................................          600          624
Canola oil....................................            0           68
Palm oil......................................            0            7
Other.........................................            0          185
                                               -------------------------
    Total.....................................        1,280        1,340
------------------------------------------------------------------------

    As some comments pointed out, these two sources used fundamentally 
different approaches. In the case of the RFS2 final rule, projections 
of feedstock volumes were determined first, and then summed to conclude 
that 1.28 billion gal is a reasonable volume of biomass-based diesel 
that could be achieved in 2013. In contrast, the IHS Global Insight 
report began with the aim of reaching 1.3 billion gallons in 2013, and 
then conducted modeling to determine the likely mix of feedstock 
sources that would support that volume. Nevertheless, we believe that 
these sources suggest two similar ways that the market could meet the 
demand for feedstock under a required volume of 1.28 billion gallons of 
biomass-based diesel. The actual mix of feedstock sources used to 
produce 1.28 billion gallons of biomass-based diesel could also differ 
substantially from the values shown in Table III.B-1 as the market 
adjusts to the new mandate.
    One commenter stated that we relied too heavily on these sources 
without additional analysis. We did in fact conduct a more up-to-date 
analysis of these feedstock sources and, as described below, the 
updated analysis confirms our belief that the projections in Table 
III.B-1 are reasonable projections for the mix of feedstock sources 
that could be used to reach 1.28 billion gallons of biomass-based 
diesel. We will continue to coordinate with USDA in the future on RFS 
related rulemakings. Other comments agreed with our assessment of 
available feedstock and our conclusions that there would be sufficient 
volumes to meet a biomass-based diesel volume requirement of 1.28 
billion gallons. A summary of our updated assessment of feedstock 
sources is included below.
    It should be noted that the projections in Table III. B-1 do not 
account for recent trends in crop yields and grain prices resulting 
from drought conditions that are occurring in many areas of the 
country. Given the wide range of feedstocks from which biodiesel can be 
produced, the ultimate impact of these drought conditions on the mix of 
biodiesel feedstocks in 2013 is difficult to predict at this time.\11\
---------------------------------------------------------------------------

    \11\ EPA has received requests for a waiver of RFS volumes under 
CAA section 211(o)(7) based on the impact of the drought, and has 
invited comment on the requests.
---------------------------------------------------------------------------

1. Grease and Rendered Fats
    According to the U.S. Census Bureau, the total volume of yellow 
grease and other greases (most likely trap grease) produced in 2010 was 
about 340 mill gallons \12\. In the first half of 2011, production of 
greases was about 10% higher than for the same period in 2010, 
suggesting that total 2011 production could reach 370 mill gallons or 
more, similar to the production rates in 2008 and 2009.
---------------------------------------------------------------------------

    \12\ Current Industrial Reports, U.S. Census Bureau, M311K--Fats 
and Oils: Production, Consumption, and Stocks, Table 2b. Assumes 7.5 
lb/gal. http://www.census.gov/manufacturing/cir/historical_data/m311k/index.html. The U.S. Census Bureau terminated collection of 
data for this report as of July 2011 so updated data is not 
available.
---------------------------------------------------------------------------

    With regard to inedible tallow, the volume produced in 2010 was 
about 440 mill gallons, and indications from the first half of 2011 are 
that a similar volume will be generated in 2011 as well.
    Taken together, the total volume of grease and rendered fats 
produced annually is over 800 mill gallons. This is significantly more 
than was estimated in the RFS final rule and the report from IHS Global 
Insight for use in the production of biomass-based diesel in 2013. 
Moreover, we have not included in our estimate other potential sources, 
such as edible tallow, lard, and poultry fats. While these other 
potential feedstocks currently have existing markets, it may become 
economical for them to be used in the production of biomass-based 
diesel.
    In their comments on the NPRM, the America Cleaning Institute 
raised concerns about the diversion of animal fats from the 
oleochemical industry for the production of biofuels. We do not have 
the authority to prevent feedstocks that meet the statutory definition 
of renewable biomass from being used in the production of renewable 
fuel. The choice of which feedstocks will be used to produce biomass-
based diesel will be determined by the market. We also note that in 
responding to comments to the rule establishing the RFS2 program, we 
acknowledged that animal fat can be used in other markets such as the 
soap industry, but that the diversion of some portion of this feedstock 
to the biofuels industry was both not prohibited and would not 
significantly impact the GHG assessment of biofuel made from this 
feedstock.\13\ However, based on our assessment, it is possible that 
the 1.28 billion gall requirement could be met without the use of 
animal fats. As noted above, the total volume of grease and rendered 
fats is estimated at 800 mill gallons, far above the volumes listed in 
Table III.B-1. It is therefore possible that the industry may produce 
biodiesel predominately from waste grease instead of animal fats. 
Moreover, the volumes of other feedstock sources, such as corn oil and 
vegetable oils as described more fully below, may exceed the volumes 
needed to produce 1.28 billion gal biodiesel, further reducing the need 
to rely on animal fats for biodiesel production. Finally, EPA has 
received inquiries from industry regarding the use of additional 
sources

[[Page 59464]]

of waste oils often from the food processing industry as biodiesel 
feedstock, indicating the sources of feedstock are likely to continue 
expanding, improving the availability of alternatives to animal fat as 
a biofuel feedstock.
---------------------------------------------------------------------------

    \13\ ``Renewable Fuel Standard Program (RFS2) Summary and 
Analysis of Comments,'' February 2010, EPA-420-R-003, pages 6-15 and 
7-304. Docket number EPA-HQ-OAR-2005-0161.
---------------------------------------------------------------------------

    Since the market will determine the specific amount of animal fats 
used in the production of biofuels, we cannot project how their 
availability for the production of oleochemicals might be affected. We 
agree with the American Cleaning Institute that increases in the use of 
animal fats to produce biofuel could increase the price of those animal 
fats and/or reduce their availability for the production of 
oleochemicals. Such circumstances could in turn compel the oleochemical 
industry to use a greater fraction of alternative feedstock sources 
such as cottonseed oil. However, as discussed in Section IV.A.8, there 
could be sufficient sources of other feedstocks to produce 1.28 billion 
gallons of biomass-based diesel without using any animal fats. 
Moreover, the cost of animal fat is dependent on the general demand for 
this material which is only in part impacted by its potential use as a 
biofuel feedstock. As a result, and as discussed more fully in Section 
IV.A.8, we do not believe oleochemical production facility location 
will be significantly impacted by the potential use of rendered fats as 
a biofuel feedstock if some portion of the 280 million gallon increase 
in the biomass-based diesel standard is produced from rendered fats.
2. Corn Oil
    The RFS2 final rule projected that by 2013, 34% of all dry mill 
ethanol facilities in the U.S. would extract inedible corn oil from the 
by-products of ethanol production using advanced extraction 
technologies. This estimated extraction rate led us to conclude that 
the volume of corn oil could reach 300 mill gallons in 2013. While 
currently available technologies have not been able to reach the oil 
extraction rates that we assumed in the RFS2 final rule, these lower 
extraction rates have been offset by a higher number of ethanol plants 
utilizing some form of extraction technology. For instance, according 
to a recent article in Ethanol Producer Magazine, up to 55 percent of 
plants may be extracting corn oil by the end of 2012.\14\ Similarly, in 
an article in Biodiesel Magazine, Dave Elsenbast, vice president of 
supply chain management for REG stated that as of July 2011 about 35% 
of U.S. corn ethanol plants had implemented corn oil extraction and 
that he expected that number to double within the next couple of 
years.\15\ In the NPRM we stated our expectation that the percentage of 
dry mill ethanol facilities using some form of corn oil extraction 
technology will increase to 60% by 2013. Given the information from 
Ethanol Producer Magazine and Biodiesel Magazine, this estimate appears 
reasonable.
---------------------------------------------------------------------------

    \14\ Joseph Riley, ``Customized Coproducts Needed as Industry 
Matures,'' June 6, 2011. Ethanol Producer Magazine.
    \15\ Dave Elsenbast quoted in Ron Kotrba, ``Biodiesel from corn 
oil: a growing force,'' July 6, 2011. Biodiesel Magazine.
---------------------------------------------------------------------------

    If 60% of all dry mill corn ethanol facilities in the U.S. were 
extracting inedible corn oil at rates capable with current technology, 
the amount of corn oil available for biodiesel production would be 
approximately 270 million gallons. However, as described in the RFS2 
final rule, we expect that by 2013 technology improvements will 
increase corn oil production levels to 300 million gallons. Additional 
corn oil could come from ethanol production facilities using corn 
fractionation or wet milling technology. This corn oil was not 
considered as a biodiesel feedstock in the RFS2 rule, but market 
conditions may result in its availability to the biodiesel industry. 
The higher adoption rate of corn oil extraction in comparison to our 
projections from the RFS final rule, and the promise of ever-increasing 
oil extraction yields, indicate that the 300 million gallons of corn 
oil extraction projected in the RFS2 rule in 2013 remains a reasonable 
projection. Comments from the Renewable Energy Group support this view.
3. Soybean Oil
    While a number of parties commented on the use of soybean oil for 
the production of biomass-based diesel, none provided data or 
information suggesting that there would be insufficient supplies to 
meet the need for 1.28 billion gallons of biomass-based diesel as well 
as other traditional markets for soybeans. Instead, comments on the use 
of soybean oil were focused on costs. We have addressed these comments 
separately in Section III.B.3. The rest of this section summarizes our 
assessment of soybean oil availability, updated since the NPRM.
    Since the RFS2, other oilseeds (e.g., canola oil) have emerged as 
potential sources of biodiesel feedstock. However, the U.S. market for 
soybean oil biodiesel is significantly more mature than for biodiesel 
made from other oilseeds. Because of this, we anticipate that soybeans 
will remain the primary source of U.S. biodiesel from oilseeds in 2013. 
It is possible that biodiesel production from other oilseeds such as 
canola could achieve a significant level of production by 2013. If 
other oilseeds with approved pathways are able to contribute to the 
biodiesel volumes, achieving the biomass based diesel mandate would be 
facilitated. For the purposes of this analysis, EPA is making the 
conservative assumption that there will be no biodiesel production from 
other oilseeds in 2013.
    We examined historical and projected soybean oil supplies and use 
to verify that the volumes shown in Table III.B-1 are achievable in 
2013. Our analysis concludes that there will be sufficient supplies of 
soybean oil to meet the needs of both biodiesel production and other 
domestic uses in 2013. Producing 600 million gallons of soybean-based 
biodiesel will require 4,530 million pounds of soybean oil.
    Table III.B.3-1 below lists U.S. Department of Agriculture (USDA) 
historical data and current projections for U.S. supply and use of 
soybean oil from the 2006/2007 crop year to the 2013/2014 year. Since 
2006/2007, domestic use of soybean oil for non-biodiesel purposes has 
ranged from 14,134 million pounds to 15,813 million pounds. USDA 
projects non-biodiesel use will stay above 14,000 million lbs through 
the 2013/2014 year.

                     Table III.B.3-1--Historical Supplies and Use of Soybean Oil in the U.S.
                                                [In million lbs]
----------------------------------------------------------------------------------------------------------------
                                                                     Supplies
                                                   Domestic use    available for                    Historical
      Year starts October 1       Total supplies     for non-         biofuel       Historical        biofuel
                                                     biodiesel     feedstock use      exports      feedstock use
                                                     purposes        or export
----------------------------------------------------------------------------------------------------------------
2006/07.........................          23,536          15,813           7,723           1,877           2,762

[[Page 59465]]

 
2007/08.........................          23,730          15,089           8,641           2,911           3,245
2008/09.........................          21,319          14,196           7,123           2,193           2,069
2009/10.........................          22,578          14,134           8,444           3,359           1,680
2010/11.........................          22,452          14,244           8,208           3,233           2,550
2011/12 \a\.....................          21,215          14,100           7,115  ..............  ..............
2012/13 \a\.....................          21,075          14,200           6,875  ..............  ..............
2013/14 \a\.....................          21,290          14,400           6,890  ..............  ..............
----------------------------------------------------------------------------------------------------------------
\a\ Projected.
Sources: USDA, Agricultural Marketing Service, Oil Crops Outlook, February 10th, 2012. USDA, Economic Research
  Service, Agricultural Long-Term Projections, February 2012.

    Historical values for exports and biofuel feedstocks in the above 
table are provided for context only. The remaining values are related 
as follows:

Total Supplies = Domestic Use for Non-Biodiesel Purposes + Supplies 
Available for Biofuel Feedstock Use or Export

    USDA projects that 6,875 million pounds of soybean oil will be 
available for biofuel feedstock use or export in the 2012/2013 crop 
year and that 6,890 million pounds will be available in the 2013/2014 
year (see Table III.B.3-1). This is considerably more than the 
approximately 4,530 million pounds needed to meet the soybean-based 
biodiesel portion of the 1.28 billion gallon mandate.\16\
---------------------------------------------------------------------------

    \16\ This calculation assumes a vegetable oil to biodiesel 
conversion rate of approximately 7.6 pounds of oil per gallon of 
biodiesel. Actual conversion rates vary depending on the technology 
used and the purity of the virgin oil. As a result, the actual 
amount of soybean oil required to produce 600 million gallons of 
biodiesel could be slightly higher or lower than the amount we have 
estimated in this rulemaking.
---------------------------------------------------------------------------

4. Effects on Food Prices
    In order to determine the likelihood of a substantial increase in 
food prices, EPA projected the effects of a 1.28 billion gallon mandate 
using the CARD stochastic modeling framework discussed in Section 
IV.B.1. of this final rule. Assuming that the 280 million gallon 
increment is met entirely with soybean oil biodiesel in 2013, we 
project that the price of soybean oil will be $0.45 per pound under 
this mandate, compared to $0.42 under a 1.0 billion gal volume 
requirement. This represents a price increase of 3 cents per pound 
(about 7 percent). The increase in demand for soybean oil is also 
expected to have a small impact on the price of soybeans. We project 
that the price of soybeans will be $10.39 per bushel under this 
mandate, compared to $10.21 per bushel under a 1.0 billion gal volume 
requirement. This represents a price increase of 18 cents per bushel 
(about 1.8 percent). Both of these projections are within the recent 
historical range of prices (see Table III.B.4-1).

                  Table III.B.4-1--Historical and Projected Prices of Soybeans and Soybean Oil
                                              [2010 dollars per lb]
----------------------------------------------------------------------------------------------------------------
                                                     Soybean oil                           Soybeans
----------------------------------------------------------------------------------------------------------------
2006-2011 Low Annual Average Price.....  $0.33 per lb.......................  $9.70 per bushel.
2006-2011 High Annual Average Price....  $0.54 per lb.......................  $12.36 per bushel.
2013 Projected Price...................  $0.45 per lb.......................  $10.39 per bushel.
----------------------------------------------------------------------------------------------------------------
Sources: USDA, Agricultural Marketing Service, Oil Crops Outlook, February 10th, 2012. USDA, Economic Research
  Service, Agricultural Long-Term Projections, February 2012.

    The timeframe of this rulemaking did not permit large-scale 
modeling of the impacts of this mandate on the agricultural sector. We 
therefore cannot predict the exact impact that these increases in 
soybean and soybean oil prices will have on food prices in general.
    As noted above, these results assume that 600 mill gal of this 
mandate is soybean-based. To the extent that this increment is met with 
other feedstocks, the overall effect of this mandate on the price of 
soybeans and soybean oil would be smaller.
5. Other Bio-Oils
    Although the modeling we conducted for the RFS2 final rule assumed 
that the only form of bio-oil used to make biomass-based diesel would 
be from soybeans, in fact other seed oils may contribute meaningful 
volumes to the pool. For instance, on September 28, 2010, we approved a 
RIN-generating pathway for biodiesel made from canola oil.\17\ The 
volume of biodiesel made from canola oil was 96 mill gallons in 
2008.\18\ In addition, we are evaluating other pathways for the 
production of biodiesel from oilseeds which could potentially be 
approved for RIN generation by 2013. On January 5, 2012 we proposed to 
include oil from camelina as an approved feedstock for producing 
biodiesel (77 FR 462). Algal oil could also provide additional 
feedstocks if promising technologies for production are commercialized.
---------------------------------------------------------------------------

    \17\ 75 FR 59622.
    \18\ EPA memorandum, ``Summary of Modeling Input Assumptions for 
Canola Oil Biodiesel for the Notice of Supplemental Determination 
for Renewable Fuels Produced Under the Final RFS2 Program,'' 
Document  EPA-HQ-OAR-2010-0133-0049.
---------------------------------------------------------------------------

    Nevertheless, even if none of these other sources of bio-oil were 
available, we believe that the total volume of grease, fats, corn oil, 
and soybean oil would be sufficient to produce 1.28

[[Page 59466]]

billion gallons of biomass-based diesel in 2013.

C. Production Capacity

    Total production capacity of the biodiesel industry has exceeded 
1.28 billion gallons for a number of years. As of February 2012, total 
production capacity was more than 2.5 billion gallons for 191 
companies.\19\ According to the EPA registration database, 216 
facilities have registered with the EPA under the RFS2 program as of 
March 15, 2012. Plants that are currently not registered under RFS2 are 
either producing extremely low volumes that fall under the regulatory 
threshold for RIN generation, are producing products other than 
biodiesel such as soaps or cosmetics, or have shut down until such time 
as the demand for biodiesel rises.
---------------------------------------------------------------------------

    \19\ Plant list from National Biodiesel Board, 2/7/2012.
---------------------------------------------------------------------------

    While comments generally did not disagree that sufficient 
production capacity exists to reach 1.28 billion gallons in 2013, some 
questioned how quickly idled plants can be brought back online. We note 
that most of the production capacity exists at plants that are already 
producing some volume, and that many operating biodiesel plants are 
currently producing at less than their full capacity. As a result, 
these facilities typically do not need to go through the additional 
steps that are associated with starting up an idled plant, such as 
securing new financing, establishing contracts with feedstock suppliers 
and customers, hiring and retraining employees, and testing and proving 
the equipment. Nevertheless, since many new plants can be built and 
started within a year or so\20\, we also believe that pre-existing but 
idled plants can be restarted in considerably less than a year. Given 
the time between release of this action and when the 1.28 billion gal 
requirement will become effective, there is no reason to believe that 
idled plants cannot be restarted in time to contribute meaningfully to 
total volumes in 2013.
---------------------------------------------------------------------------

    \20\ Based on construction times for new plants listed in 
Biodiesel Magazine from July 2006 through May 2009.
---------------------------------------------------------------------------

D. Consumption Capacity

    Biodiesel is registered with the EPA under 40 CFR Part 79 as a 
legal fuel for use in highway vehicles. Under this registration, it can 
legally be used at any blend level, from 1% (B1) to 100% (B100) in 
highway diesel fuel. As there are no equivalent registration 
requirements for non-highway fuels, biodiesel can legally be used at 
any blend level in nonroad diesel and heating oil. However, other 
factors typically limit the concentration of biodiesel in conventional 
diesel fuel. To the extent that the consumption of biodiesel occurs 
only at lower blend levels, the geographic area where biodiesel must be 
marketed would correspondingly be greater, impacting both how much 
biodiesel can be consumed in the U.S. as a whole as well as how the 
infrastructure may need to change to accommodate 1.28 billion gallons 
in 2013. As described below, we believe that there are no impediments 
to consuming an additional 280 mill gal of biodiesel.
    Most engine manufacturers have explicit statements in their engine 
warranties regarding acceptable biodiesel blend levels. Although a few 
permit B100 to be used in their engines without any adverse impact on 
their warranties, most limit biodiesel blends to B20 or less, and of 
those, about half allow no more than B5.\21\ For specific applications 
where a party knows which engines will be using biodiesel blends, 
higher concentrations of biodiesel may be possible. However, for 
general distribution such as at retail facilities, these warranty 
conditions create a disincentive to blend or sell biodiesel at higher 
concentrations and would tend to drive most blends towards low 
concentrations of biodiesel such as B5. Those parties that commented on 
this issue agreed with this assessment.
---------------------------------------------------------------------------

    \21\ ``Automakers' and Engine Manufacturers' Positions of 
Support for Biodiesel Blends,'' Biodiesel.org.
---------------------------------------------------------------------------

    Cold weather operability represents another reason for preferential 
use of B5 and even B2. The most common measure of cold weather 
operability is the fuel cloud point. The cloud point is the temperature 
at which gelling begins (as indicated by solid crystals beginning to 
form in the fuel), and thus is an indicator of when potential engine 
filter plugging issues could arise. The higher the cloud point 
temperature of the fuel, the more likely such problems are to be 
experienced in cold weather. Biodiesel generally has a higher cloud 
point than conventional, petroleum-based diesel fuel, with fat-based 
biodiesel such as tallow having a higher cloud point than virgin oil-
based biodiesel such as a fuel made with soybean and canola oil. While 
cloud point issues with conventional, petroleum-based diesel are 
generally mitigated during the winter months through blending with 
lighter grades (i.e., 1 diesel fuel), the cloud point of 
biodiesel generally requires more dramatic interventions such as heated 
storage tanks, lines, and blending equipment, as well as heating rail 
cars and tank trucks. However, some of these biodiesel cloud point 
mitigation efforts may be reduced through the use of low biodiesel 
blend levels such as B2 or B5, since cloud point is strongly correlated 
with biodiesel concentration in the final blend. Insofar as biodiesel 
is blended into conventional diesel before being transported to its 
final destination for sale, low biodiesel blend levels may reduce the 
need for heated equipment at the final destination.
    Based on highway and nonroad diesel consumption projections for 
2013 from the EIA, a biodiesel volume of 1.28 billion gallons would 
represent about 2.9% of all diesel fuel.\22\ If all biodiesel were to 
be blended as B5, almost 60% of the diesel fuel consumed nationwide in 
2013 would contain biodiesel. However, today some biodiesel is blended 
at concentrations higher than B5, and we expect that some blending at 
these higher concentrations would continue in the future. One commenter 
disagreed that blends higher than B5 will be marketed in any but niche 
markets. We agree with this comment. However, since biodiesel prices 
have been higher than conventional diesel prices in the recent past, 
and yet blends above B5 have in fact been sold, we believe that the 
existing markets for blends such as B20 are niche markets that will 
continue into the future. The sale of biodiesel blends higher than B5 
will reduce the total amount of diesel fuel that will contain some 
biodiesel. Directionally, then, this will also reduce the geographical 
areas to which biodiesel must be distributed. Based on the number of 
retail stations offering different biodiesel blend levels in 2010, we 
estimate that about 30% of biodiesel was sold at retail in blends with 
biodiesel concentrations as high as 20%. Another 17% of biodiesel was 
sold in blends with biodiesel concentrations between 10% and 20%.\23\ 
If the volumes of biodiesel currently sold as B10 and higher were to 
continue to be sold in 2013, such blends would account for about one 
quarter of the 1.28 billion gal mandate, and 45% of the diesel fuel 
consumed nationwide in 2013 would contain biodiesel.
---------------------------------------------------------------------------

    \22\ Assumes total diesel volume consumed in the transportation 
sector in 2013 is 44.86 billion gal, per Annual Energy Outlook (AEO) 
2012 Early Release, Table A2.
    \23\ National Biodiesel Board, Retailing Fueling Sites, as of 
February 17, 2011. http://biodiesel.org/buyingbiodiesel/retailfuelingsites/default.shtm.
---------------------------------------------------------------------------

    Heating oil represents another opportunity for large volumes of 
biodiesel to be consumed. According to EIA's Annual Energy Outlook 
2012, residential consumption of distillate fuel oil has been about 4 
billion gal. Moreover, some of the practical issues

[[Page 59467]]

leading to warranty limits on engines regarding the use of biodiesel 
are less of a concern when burning biodiesel for home heating purposes. 
As a result, significant volumes of biodiesel can be consumed as 
heating oil and count for compliance purposes under the RFS program.
    We believe that distributing and consuming 1.28 billion gallons of 
biodiesel in 2013 are achievable. As shown in Table III.D-1, a number 
of states already have mandates for the use of biodiesel in 2013,\24\ 
and efforts are underway by the production and distribution industries 
to meet these mandates.
---------------------------------------------------------------------------

    \24\ As one commenter pointed out, some of these mandates have 
not yet taken effect as in-state production volumes have not yet 
reached specified thresholds. Nevertheless, the state mandates 
represent incentives within those states to increase production.

              Table III.D-1--States With Biodiesel Mandates
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Minnesota.............................  Diesel fuel for use in internal
                                         combustion engines must contain
                                         at least 5% biodiesel.
                                         Beginning May 1, 2012, during
                                         the months of April through
                                         October, diesel fuel must
                                         contain at least 10% biodiesel
                                         (B10).
Oregon................................  Diesel fuel sold in the state
                                         must be blended with at least
                                         5% biodiesel.
Washington............................  At least 2% of all diesel fuel
                                         sold in Washington must be
                                         biodiesel or renewable diesel.
                                         This requirement will increase
                                         to 5% after it is determined
                                         that in-state feedstock sources
                                         and oil-seed crushing capacity
                                         can meet a 3% requirement.
Pennsylvania..........................  All diesel fuel sold in
                                         Pennsylvania must contain at
                                         least 2% biodiesel one year
                                         after in-state production of
                                         biodiesel reaches 40 million
                                         gallons. The mandated biodiesel
                                         blend level will increase to 5%
                                         biodiesel one year after in-
                                         state production of biodiesel
                                         reaches 100 million gallons.
New Mexico............................  After July 1, 2012, all diesel
                                         fuel sold to consumers for use
                                         in on-road motor vehicles must
                                         contain at least 5% biodiesel.
                                         This requirement may be
                                         suspended for up to six months
                                         under certain conditions.
Louisiana.............................  Within six months following the
                                         point at which cumulative
                                         monthly production of biodiesel
                                         produced in the state equals or
                                         exceeds 10 million gallons, at
                                         least 2% of the total diesel
                                         volume must be biodiesel.
------------------------------------------------------------------------
Source: U.S. Department of Energy, Alternative Fuels and Advanced
  Vehicles Data Center.

    Collectively, these states currently account for approximately 13 
percent of the nationwide consumption of diesel. Other states that have 
implemented other forms of incentives are listed in Table III.D-2.

   Table III.D-2--States With Rebates, Refunds, Reduced Tax Rates, or
              Credits for Biodiesel Production or Blending
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Illinois.
Indiana.
Kansas.
Kentucky.
Maine.
Maryland.
Michigan.
Montana.
North Dakota.
Oklahoma.
Rhode Island.
South Carolina.
South Dakota.
Texas.
Virginia.
Washington.
------------------------------------------------------------------------
Source: U.S. Department of Energy, Alternative Fuels and Advanced
  Vehicles Data Center.
* Conditions and exemptions for all incentive programs vary by state.

    Collectively, the states listed in Table III.D-2 currently account 
for approximately 37% of the nationwide consumption of biodiesel. A 
variety of states also have requirements for the use of biodiesel in 
state fleets, provisions that allow biodiesel to be used as an 
alternative to meeting alternative fuel vehicle mandates, and credits/
rebates for the installation of biodiesel dispensing and blending 
equipment. Altogether, therefore, more than half of the states in the 
U.S. have mandates and/or incentives that will induce them to address 
biodiesel infrastructure issues.
    One commenter pointed out that state-specific economic incentives 
for the production of biodiesel do not necessarily eliminate cost 
differences between biodiesel and conventional diesel. We agree with 
this comment. Nevertheless, efforts to incentivize biodiesel production 
and use in individual states will directionally help the nation to meet 
a 1.28 billion gal biomass-based diesel requirement in 2013.
    Based on our review of the ability of diesel engines to use diesel 
blended with biodiesel, and the various state requirements and 
incentives to use biodiesel, we believe that consumption of 1.28 
billion gal of biodiesel will not be problematic.

E. Biomass-Based Diesel Distribution Infrastructure

    The National Petroleum Refiners Association (NPRA) stated that an 
analysis of the feasibility of meeting increased biodiesel use 
requirements should be based on a maximum biodiesel blend ratio of 
5%.\25\ We disagree, since there is no reason to expect that existing 
consumption patterns involving higher concentrations of biodiesel will 
not continue into the future, as described above. However, we have 
assessed the additional biodiesel distribution infrastructure that will 
be needed under a 1.28 billion gal mandate assuming a blend ratio no 
higher than 5%. NPRA commented that the required increase in the use of 
biodiesel will necessitate numerous installations of biodiesel storage 
tanks (possibly heated) as well as the installation of biodiesel 
receiving and blending capacity at the diesel fuel distribution 
terminals throughout the U.S. markets. This is also consistent with our 
analysis. In the proposal, we noted that some terminals may be able to 
avoid or delay the installation of additional biodiesel storage 
facilities by storing 50/50 biodiesel/diesel fuel blends that are then 
further blended with diesel fuel to produce a finished fuel. However, 
we assumed that all biodiesel blending facilities would install 
segregated (heated and insulated) biodiesel storage facilities in our 
infrastructure analysis. We further noted that some terminals may delay 
the installation of biodiesel in-line blending equipment by splash 
blending biodiesel.\26\ However, we stated that we expect that this 
approach would be temporary due to the heightened concerns over 
achieving a correct blend ratio and a fully mixed biodiesel blend that 
accompanies splash

[[Page 59468]]

blending. We assumed that terminals would install in-line biodiesel 
blending equipment in our infrastructure analysis.
---------------------------------------------------------------------------

    \25\ NPRA acknowledged that higher biodiesel blend ratios are 
sometimes used but that this would not substantially increase the 
capacity of the market to absorb additional biodiesel volume. NPRA 
recently changed its name to the American Fuel & Petrochemical 
Manufacturers (AFPM).
    \26\ In-line blending refers to the process of blending 
biodiesel into petroleum-based diesel fuel in the delivery line that 
feeds into the tank truck from the terminal storage tanks. Splash 
blending refers to the process of first loading petroleum-based 
diesel fuel into a tank truck followed by biodiesel so that the 
final blend meets the desired blend ratio.
---------------------------------------------------------------------------

    We proposed finding that there will be sufficient fuel distribution 
infrastructure available to support the use of 1.28 billion gal of 
biomass-based diesel in 2013. NPRA stated that the rapid expansion in 
B5 blending capability in the marketplace necessary to support the use 
of the envisioned volumes of biodiesel is unrealistic and unachievable. 
NPRA did not further support this statement. The National Biodiesel 
Board (NBB) stated that there will be sufficient biodiesel distribution 
infrastructure available to facilitate the use of the envisioned 
volumes of biodiesel.\27\ NBB further stated that in most markets, 
terminals can treat 5% biodiesel blends as a fungible commodity like 
diesel fuel and that they believe that many terminals may be storing B5 
blends. To the extent terminals store a finished B5 blend, it would 
obviate the need for much of the segregated biodiesel storage and 
blending capability that is assumed in our infrastructure analysis. The 
Iowa Biodiesel Board stated that claims that industry cannot 
accommodate the distribution of the target gallons are baseless and 
cited various examples of recent biodiesel blending initiatives at Iowa 
terminals.
---------------------------------------------------------------------------

    \27\ NBB did not provide an analysis regarding the addition of 
new biodiesel distribution facilities.
---------------------------------------------------------------------------

    We acknowledge that the required expansion of the fuel distribution 
infrastructure necessary to support the use of the 1.28 billion gal of 
biomass diesel may pose challenges to industry. However, we continue to 
believe that industry can respond effectively to this challenge to 
support the use of the envisioned 2013 biodiesel volume. In fact, EIA 
data suggests that much of the necessary infrastructure is already in 
place. EIA data indicates that annual biodiesel production in 2011 was 
nearly 1 billion gallons, and monthly biodiesel production from October 
to December 2011, and from March to May 2012 averaged nearly 100 
million gallons per month.\28\ These data indicate that significant 
progress has already been made in expanding the fuel distribution 
infrastructure necessary to support the use of the 1.28 billion gal of 
biomass diesel. We anticipate such efforts will continue to be 
successful in supporting the required biodiesel volume for 2013.
---------------------------------------------------------------------------

    \28\ http://www.eia.gov/biofuels/biodiesel/production/table1.pdf.
---------------------------------------------------------------------------

    The American Trucking Association (ATA) stated that EPA should have 
provided a discussion of the costs of the infrastructure changes 
contained in the proposed rule. These costs were accounted for in the 
discussion of the overall impacts on transportation fuel price 
contained in Section IV.B.1.d. Additional discussion of specific ATA 
comments is included below.
    ATA commented that EPA underestimated the number of tank trucks 
needed to distribute the additional amount of biodiesel in 2013 
relative to volume used in 2012. ATA stated that the assumed 6 trips 
per tank truck per day that EPA used in estimating the number of tank 
trucks that would be needed was unrealistically high. ATA stated that 
one large ATA member that transports biofuels reports that the average 
length of haul (one way) is 141 miles. Based on this, ATA stated that 2 
loads per day would be a more accurate estimate considering loading and 
unloading times.
    ATA assumed a single shift tank truck delivery operation. Our 
estimated number of tank trucks was based on a two shift operation. We 
continue to believe that a two shift truck delivery model of operation 
is appropriate to maximize the utilization of distribution system 
resources. Given time for loading and unloading and lunch breaks for 2 
shifts, our assumed 6 deliveries per day equates to an average one way 
truck shipping distance of 40 miles. We project that a number of 
additional biodiesel plants will be brought into production to meet the 
2013 biodiesel volume. Biodiesel production plants tend to be 
geographically dispersed. Hence, the opening of additional plants will 
tend to reduce the average shipping distance from the biodiesel 
production plant to the terminal compared to today. We also project 
that the production volume will increase at a number of existing 
biodiesel plants. This will facilitate the shipment by rail of 
biodiesel volumes that previously were shipped by truck long distances. 
Thus, we believe that biodiesel trucking distances will be 
substantially reduced in the future.
    Nevertheless, we acknowledge that uncertainty exists regarding what 
biodiesel shipping distances will be in the future. Therefore, we 
believe that it is useful to evaluate the potential impacts of longer 
shipping distances on the number of additional tank trucks that will be 
needed to transport biodiesel. If we were to assume a 141 mile average 
truck shipping distance per ATA and a two-shift operation, this would 
translate to 4 loads per day per tank truck. At 4 loads per day, 38 
additional number of tank trucks would be needed in 2013 relative to 
2012 (as opposed to the 25 that we projected). If we were to assume 
only 2 deliveries per day as ATA did, an additional 75 trucks would be 
needed for the 2013 case. Even under this extreme case, the addition of 
75 tank trucks would represent less than 0.3% of the total U.S. fleet 
of petroleum products tank trucks (estimated at 27,000).\29\ 
Consequently, the possibility that biodiesel shipping distances might 
be longer than we projected would not materially affect our conclusions 
about the ability to accommodate the additional tank trucks and drivers 
needed.
---------------------------------------------------------------------------

    \29\ Department of Transportation, Hazardous Materials, Safety 
Requirements for External Product Piping on Cargo Tanks Transporting 
Flammable Liquids, Notice of Proposed Rulemaking, 76 FR 4847, 
January 27, 2011. http://www.gpo.gov/fdsys/pkg/FR-2011-01-27/pdf/2011-1695.pdf.
---------------------------------------------------------------------------

    In the proposal, we estimated that a total of 5 tank trucks will be 
needed to transport 80 mill gallons/yr of renewable diesel that we 
projected would be used annually in 2012 and 2013 to the locations 
where it is blended with petroleum-based diesel fuel. This is based on 
each tank truck carrying 7,800 gallons of renewable diesel fuel making 
6 deliveries per day. We estimate that the production facility that 
will account for the renewable diesel produced through 2013 will ship 
its product 20 miles or less by tank truck to facilities that produce 
blends with petroleum-based diesel fuel. Shipment of the projected 
renewable diesel volume such short distances could likely be achieved 
by making 6 deliveries during one shift without the need for a second 
shift. We anticipate that the renewable diesel fuel will be blended 
directly into storage tanks containing petroleum-based diesel fuel. 
Consequently, we continue to believe that the distribution of renewable 
diesel fuel could be accomplished without undue difficulty.

IV. Impacts of 1.28 Billion Gallons of Biomass-Based Diesel

    In order to evaluate the impacts of a biomass-based diesel volume 
of 1.28 billion gal in the areas required under the statute (see 
Section II), we first considered what the appropriate reference would 
be. Since the statute requires that the biomass-based diesel volume we 
set for 2013 be no lower than 1.0 billion gal, we believe that this is 
an appropriate reference point. Therefore, in the discussion that 
follows, we have focused on either a volume of 1.28 billion gal 
biomass-based diesel or an increment of 0.28 billion gal biomass-based 
diesel, depending on the specific

[[Page 59469]]

sources of information and analyses available.
    The statute requires that an applicable biomass-based diesel volume 
for 2013 and other years be based on an analysis of specified 
environmental and other impacts. These analyses can be conducted for 
1.28 billion gal biomass-based diesel or an increment of 0.28 billion 
gal. Most of the areas we are required to analyze were covered in the 
RFS2 final rule in some form, and we believe that we can use this 
information in satisfying our statutory obligations to analyze 
specified factors in determining the applicable volume of biomass-based 
diesel for 2013.
    Some of the analyses presented in the RFS2 final rule were for the 
specific case of 1.28 billion gallons in 2013. These analyses included 
an investigation of the expected annual rate of commercial production 
of biomass-based diesel in 2013, impacts on agricultural commodity 
supply and price, and the cost to consumers of transportation fuel. 
Some of these were discussed in Section III above. Most of the analyses 
in the RFS2 final rule, however, were conducted to represent full 
implementation of the RFS2 program in 2022. In these analyses, the 
biomass-based diesel volume was estimated to be 1.82 billion gallons, 
which was compared to a reference case biodiesel volume of 380 mill 
gallons. These cases are shown in Table IV-1.

                            Table IV-1--Primary 2022 Reference and Control Cases From RFS2 Final Rulemaking (billion gallons)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                       Advanced biofuel                                                             Non-
-------------------------------------------------------------------------------------------------------------------------------   advanced
                                                   Cellulosic biofuel        Biomass-based diesel      Other advanced biofuel     biofuel       Total
                                              ----------------------------------------------------------------------------------------------  renewable
                                                                                                         Other                                   fuel
                                                Cellulosic   Cellulosic     FAME \a\     NCRD \b\      biodiesel     Imported       Corn
                                                 ethanol       diesel      biodiesel                      \c\        ethanol      ethanol
--------------------------------------------------------------------------------------------------------------------------------------------------------
Reference....................................         0.25          0            0.38          0             0            0.64        12.29        13.56
Control......................................         4.92          6.52         0.85          0.15          0.82         2.24        15.00        30.50
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Fatty acid methyl ester (FAME) biodiesel.
\b\ Non-Co-processed Renewable Diesel (NCRD).
\c\ Other Biodiesel is biodiesel produced in addition to the amount needed to meet the biomass-based diesel standard.

    The biomass-based diesel volume of 1.82 billion gallons analyzed 
for 2022 in the RFS2 final rule is higher than the 1.28 billion gallons 
we are required to evaluate for today's final rule for 2013. More 
importantly, the change in biodiesel production in 2022 due to the 
statutory mandates for biomass-based diesel plus other diesel 
anticipated to meet the advanced biofuel volume (a total increase of 
1.44 billion gallons compared to the reference case without the EISA 
mandates) is much larger than the change we are evaluating for 2013 
(0.28 billion gallons). The RFS2 final rule analysis considers impacts 
from the entirety of the renewable fuel mandates, as opposed to impacts 
resulting solely from the biodiesel portion of the mandates.
    In response to the NPRM, the American Petroleum Institute (API) 
commented that comparing the analyses conducted in the RFS2 final rule 
for the fully implemented RFS2 program in 2022 to a biodiesel increment 
of 0.28 billion gal occurring in 2013 was misleading. They cited the 
fact that the 2022 analysis between the control and reference cases 
accounts for agricultural and market conditions that develop over 
multiple years, while the proposed biomass-based diesel requirement of 
1.28 billion gallons in 2013 would require those changes to occur over 
a single year. They also cited the fact that the single-year growth 
from 2012 to 2013 that would occur under a requirement for 1.28 billion 
gallons (0.28 billion gallons in one year) is about twice as high as 
the annualized growth rate in the RFS final rule (1.44 billion gal 
increase over ten years, or about 0.14 billion gal per year).
    As described in Section III, we believe that the industry can 
increase production to at least 1.28 billion gallons by 2013, that 
sufficient feedstock will be available, and that the infrastructure 
will be able to accommodate these higher volumes. Therefore, we do not 
believe that API's concern about the different annual production growth 
rates in the RFS2 final rule compared to our proposal for 2013 is 
warranted.
    With regard to concerns about agricultural and market conditions, 
we agree that the positive impacts of yield growth and foreign crop 
production increases that may be reflected in the 2022 analysis from 
the RFS final rule, and which develop over multiple years, may not be 
representative of a single-year increase in biomass-based diesel of 
0.28 billion gallons in 2013. However, the RFS is a forward-looking 
program that focuses on long-term changes in the fuels sector. For this 
reason, it is not appropriate to emphasize specific interim year 
impacts in cases where these impacts are transient and continually 
changing. However, in some cases we have been able to analyze a 2013 
impact, which should then be compared to the 2022 impact analyzed for 
the RFS2 final rule. In other cases we have used trends used to derive 
our 2022 assessments to indicate likely impacts in 2013. Since the 
NPRM, EPA has conducted a specific analysis of the effects of the 2013 
mandate on the biofuels market. This analysis is detailed in Section 
IV.B of this rulemaking. This analysis was conducted in response to 
comment about quantifying some of the costs and benefits of this rule. 
However, it also addresses API's concerns by providing a year-specific 
analysis.
    We recognize that uncertainties remain regarding how markets for 
soybeans and other crops will react to a mandate of 1.28 billion 
gallons for biomass-based diesel. For instance, the volume of soybean 
oil required to meet the mandate will likely be higher in 2013 than it 
has been in 2011. As a result, there may be upward pressure on soybean 
oil prices, which we consider in Section III.B of this rulemaking. 
Nevertheless, we expect that RIN prices will adjust in the market to 
provide the economic incentive for the mandate to be met. As described 
in the rulemaking that established the RFS1 program, the RIN system was 
designed with this end in mind.

A. Consideration of Statutory Factors

1. Climate Change
    Since biodiesel has a GHG benefit compared to the petroleum-based 
diesel it is replacing, an increase in biomass-based diesel of 0.28 
billion gal from 2012 to 2013 will lead to a displacement of 
conventional diesel fuel, with corresponding GHG emissions reductions. 
This increased use of biomass-based diesel will contribute to

[[Page 59470]]

lower climate change impacts in comparison to the petroleum-based 
diesel it is replacing. The GHG lifecycle analysis of soybean biodiesel 
presented in the final RFS2 rule was based on modeling and analysis 
that estimated an annualized emissions stream over a 30-year averaging 
period, starting in 2022 (the year when the RFS2 program will be fully 
implemented). For the purpose of this annual rulemaking, we have not 
quantified the GHG emissions benefits for the 280 mill gallon increase 
in biomass-based diesel in 2013. At this time, we do not have a 
quantified estimate of the GHG impacts for the single year 2013 
standard. We also do not believe it would be appropriate to use the 30-
year average RFS2 estimate starting in 2022 as a surrogate for the 
single year impact of the 2013 BBD standard. While we are not 
quantifying the GHG emissions impact of this 2013 BBD rule, 
qualitatively we believe that it will provide a reduction in GHGs.
    One commenter suggested that increased biodiesel use would also 
reduce GHG emissions compared to sugarcane ethanol, an alternative 
advanced biofuel that would be used to meet the mandate. This statement 
is based on the specific GHG reductions associated with a gallon of 
biodiesel produced in 2022 that we estimated in our lifecycle analysis 
for different biofuels. However, for this rulemaking we are only 
considering the GHG impacts of the biomass-based diesel standard. 
Therefore, it is outside the scope of this rule to analyze the 
potential GHG emission impacts of displacing sugarcane ethanol with 
biodiesel.
    One commenter also suggested that by requiring 0.28 billion gallons 
of biomass-based diesel above the statutory minimum of 1.0 billion 
gallons, effectively shifting the biodiesel used for the ``other'' 
advanced biofuel category to biomass[hyphen]based diesel, EPA would 
actually promote increased volumes of renewable fuels (rather than 
ethanol[hyphen]equivalent gallons based on the 1.5 equivalence value), 
allowing for the greater displacement of fossil fuels. However, this is 
not the case. Although the requirement for a physical volume of 
biomass-based diesel will be 1.28 billion gallons, the contribution of 
this volume to compliance with the advanced biofuel requirement is 
based on energy-equivalence with respect to ethanol, not physical 
volumes. Thus there will be no additional quantities of other advanced 
fuels produced.
2. Energy Security
    This final standard will assure an increased use of biomass-based 
diesel in the U.S. and help to improve U.S. energy security. Reducing 
U.S. petroleum imports and increasing the diversity of U.S. liquid fuel 
supplies lowers both the financial and strategic risks caused by 
potential sudden disruptions in the supply of imported petroleum to the 
U.S. The economic value of reductions in these risks provides a measure 
of improved U.S. energy security. This section summarizes EPA's 
estimates of U.S. oil import reductions and energy security benefits 
from this rule.
    In 2010, U.S. petroleum import expenditures represented 14 percent 
of total U.S. imports of all goods and services.\30\ These expenditures 
rose to 18 percent by April of 2011.\31\ In 2010, the United States 
imported 49 percent of the petroleum it consumed,\32\ and the 
transportation sector accounted for 71 percent of total U.S. petroleum 
consumption. This compares to approximately 37 percent of total U.S. 
petroleum supplied by imports and 55 percent of U.S. petroleum 
consumption in the transportation sector in 1975. Requiring higher 
volumes of renewable fuels to be used in the U.S. is expected to lower 
U.S. oil imports.
---------------------------------------------------------------------------

    \30\ http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WTTIMUS2&f=W.
    \31\ http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbblpd_a.htm.
    \32\ http://www.eia.gov/dnav/pet/pet_pri_rac2_dcu_nus_m.htm.
---------------------------------------------------------------------------

    This rule will require an additional 280 million gallons of 
biodiesel to be produced, which equals about 255 million gallons of 
diesel equivalent.\33\ Based on analysis of historical and projected 
future variation in U.S. petroleum consumption and imports, we estimate 
that approximately 50 percent of the reduction in fuel consumption 
resulting from adopting renewable fuels is likely to be reflected in 
reduced U.S. imports of refined fuel, while the remaining 50 percent is 
expected to be reflected in reduced domestic fuel refining. Of this 
latter figure, 90 percent is anticipated to reduce U.S. imports of 
crude petroleum for use as a refinery feedstock, while the remaining 10 
percent is expected to reduce U.S. domestic production of crude 
petroleum. Thus, on balance, each gallon of fuel saved as a consequence 
of the renewable fuel standards is anticipated to reduce total U.S. 
imports of petroleum by 0.95 gallons.\34\ Therefore, based on these 
assumptions, this rule is expected to reduce imports of petroleum by 
about 242 million gallons. Table IV.A.2-1 below compares EPA's 
estimates of the reduction in imports of U.S. crude oil and petroleum-
based products from this program to projected total U.S. imports for 
the year 2013.
---------------------------------------------------------------------------

    \33\ RFS2 Final Rulemaking.
    \34\ This figure is calculated as 0.50 + 0.50*0.9 = 0.50 + 0.45 
= 0.95.

  Table IV.A.2-1--Projected Import Reductions From This Rule and Total
                  U.S. Petroleum-Based Imports in 2013
                          [Millions of barrels]
------------------------------------------------------------------------
                                                            U.S. total
                                                         petroleum-based
  U.S. petroleum-based import reductions from the rule   imports without
                  (million barrels/yr)                       the rule
                                                             (million
                                                           barrels/yr)
------------------------------------------------------------------------
5.8....................................................           3,391
------------------------------------------------------------------------

    In order to understand the energy security implications of reducing 
U.S. petroleum imports, EPA worked with Oak Ridge National Laboratory 
(ORNL), which has developed approaches for evaluating the economic 
costs and energy security implications of oil use. The energy security 
estimates provided below are based upon a methodology developed in a 
peer-reviewed study entitled, ``The Energy Security Benefits of Reduced 
Oil Use, 2006-2015,'' completed in March 2008. This study is included 
as part of the docket for this rule.35 36 When conducting 
its analysis, ORNL considered the full economic cost of importing 
petroleum into the United States.
---------------------------------------------------------------------------

    \35\ Leiby, Paul N., ``Estimating the Energy Security Benefits 
of Reduced U.S. Oil Imports,'' Oak Ridge National Laboratory, ORNL/
TM-2007/028, Final Report, 2008. (Docket EPA-HQ-OAR-2010-0162).
    \36\ The ORNL study ``The Energy Security Benefits of Reduced 
Oil Use, 2006-2015,'' completed in March 2008, is an updated version 
of the approach used for estimating the energy security benefits of 
U.S. oil import reductions developed in an ORNL 1997 Report by 
Leiby, Paul N., Donald W. Jones, T. Randall Curlee, and Russell Lee, 
entitled ``Oil Imports: An Assessment of Benefits and Costs.'' 
(Docket EPA-HQ-OAR-2010-0162).
---------------------------------------------------------------------------

    The economic cost of importing petroleum into the U.S. is defined 
to include two components in addition to the purchase price of 
petroleum itself. These are: (1) The higher costs for oil imports 
resulting from the effect of increasing U.S. import demand on the world 
oil price and on the market power of the Organization of Petroleum 
Exporting Countries (i.e., the ``demand'' or ``monopsony'' costs); and 
(2) the risk of reductions in U.S. economic output and disruption of 
the U.S. economy caused by sudden disruptions in the supply of imported 
petroleum to the U.S. (i.e., ``macroeconomic disruption/adjustment 
costs'').
    An often-identified component of the full economic costs of U.S. 
oil imports

[[Page 59471]]

is the cost to U.S. taxpayers of existing U.S. energy security 
policies. The two primary components of this cost are likely to be (1) 
the expenses associated with maintaining a U.S. military presence--in 
part to help secure a stable oil supply--in potentially unstable 
regions of the world; and (2) costs for maintaining the U.S. Strategic 
Petroleum Reserve (SPR). The SPR is the largest stockpile of 
government-owned emergency crude oil in the world.
    The EPA recognizes that potential national and energy security 
risks exist due to the possibility of tension over oil supplies. Much 
of the world's oil and gas supplies are located in countries facing 
social, economic, and demographic challenges, thus making them even 
more vulnerable to potential local instability. Thus, to the degree to 
which this final rule increases the diversity of sources of liquid fuel 
for U.S. consumption and/or reduces reliance upon imported energy 
supplies that can be deployed by either consumers or the nation's 
defense forces, the United States could expect benefits related to 
national security and increased energy supply. Although the Agency 
recognizes the clear benefit to the United States from reducing 
dependence on foreign oil, the Agency has been unable to calculate the 
monetary benefit that the United States will receive from the 
improvements in national security expected to result from this program.
    Also, while the costs of building and maintaining the SPR are 
clearly related to U.S. oil use and imports, these costs have not 
varied historically in response to U.S. oil import levels. Thus, the 
costs of maintaining the SPR are excluded from this analysis. In 
addition, given the redistributive nature of this monopsony effect from 
a global perspective, it is excluded in the energy security benefits 
calculations for this rule. In contrast, the other portion of the 
energy security premium, the U.S. macroeconomic disruption and 
adjustment cost that arises from U.S. petroleum imports, does not have 
offsetting impacts outside of the U.S. and, thus, is included in the 
energy security benefits estimated for this rule. To summarize, EPA has 
included only the macroeconomic disruption portion of the energy 
security benefits to estimate the monetary value of the total energy 
security benefits of this program.
    The U.S. is projected to be a net exporter of diesel fuel in 
2013.\37\ Increased biodiesel production would likely result in less 
domestic consumption of diesel fuel in the U.S. The reduced consumption 
may be reflected in increased exports of diesel from the U.S. However, 
regardless of the incremental effect of this rule on net imports, 
increasing the diversification of the U.S. and global diesel fuel pools 
would likely confer some reduction in the severity of a future 
potential disruption in the world oil market. Our energy security 
analysis does not evaluate the energy security benefits of individual 
finished petroleum products; rather, our analysis takes into account 
the energy security benefits of overall net petroleum product imports. 
Although we believe such an approach provides a reasonable estimate of 
energy security impacts, in future year evaluations of the biodiesel 
volumes, we may consider whether to develop an estimate more specific 
to the biodiesel market.
---------------------------------------------------------------------------

    \37\ U.S. Energy Information Administration (EIA). ``Short-Term 
Energy Outlook'', Table 4a, June 2012. http://205.254.135.7/forecasts/steo/tables/pdf/4atab.pdf .
---------------------------------------------------------------------------

    The energy security premiums for the year 2013 are presented in 
Table IV.A.2-2 as well as a breakdown of the components of the energy 
security premiums for those years. These energy security premiums are 
recorded on a dollar per barrel of oil imported reduced from this rule. 
On a gallon of biodiesel fuel basis, these translate into an estimated 
$0.15/gallon benefit in 2013 for the macroeconomic disruption and 
adjustment costs component of the energy security premium (in 2010$).

            Table IV.A.2-2--Energy Security Premiums in 2013 (2010$/Barrel) Based on ORNL Methodology
----------------------------------------------------------------------------------------------------------------
                                                              Macroeconomic disruption/
                          Monopsony                               adjustment costs           Total mid-point
----------------------------------------------------------------------------------------------------------------
$11.40......................................................                    $7.13                    $18.53
($3.83-$19.40)..............................................            ($3.41-$10.35)           ($10.03-$26.74)
----------------------------------------------------------------------------------------------------------------
Note: Values in parentheses represent a 90% confidence interval around the central value.

    Using EPA's fuel consumption analysis in conjunction with ORNL's 
energy security premium estimates, the agency has developed estimates 
of the total energy security benefits for the year 2013 in Table 
IV.A.2-3.

   Table IV.A.2-3--Estimated Energy Security Benefits in 2013 (2010$)
------------------------------------------------------------------------
                                                            Benefits ($
      U.S. oil imports reduced (million barrels/yr)          millions)
------------------------------------------------------------------------
5.8.....................................................           $41.2
------------------------------------------------------------------------

    One commenter suggested that an increase in biodiesel for the 
mandate is statistically insignificant. EPA interprets this comment to 
mean that the increase in biodiesel production due to this rule is not 
a sufficiently large volume that it will add significantly to the 
energy security position of the U.S. EPA's analysis of energy security 
is conducted on a per gallon basis, and per gallon estimates are 
extrapolated upwards to estimate the total energy security benefits 
estimate in Table IV.A.2-3. Thus, we assume that each extra gallon of 
biodiesel has an equal energy security benefit regardless of the 
overall size of the renewable fuels volume requirement. Thus, total 
energy security benefits are increasing with this rule.
3. Agricultural Commodities and Food Prices
    For the RFS2 final rule, we examined the impacts of increased 
renewable fuels production on commodity prices, food prices and trade 
in agricultural products which considered the impacts of all the 
biofuel feedstock sources anticipated to meet the 2022 biofuel volume 
requirements, not just biodiesel. For the RFS2, EPA used two primary 
models for its agricultural economic impacts analysis, the Food and 
Agriculture Sector Optimization Model (FASOM) and the Food and 
Agricultural Policy Research Institute-Center for Agriculture and Rural 
Development (FAPRI-CARD) models. The FASOM model is a long-term 
economic model of the U.S. forest and agriculture sectors that 
maximizes the net present value of the sum of producer and consumer 
surplus across the two sectors over time subject to market, technology, 
and other constraints. The FAPRI-CARD models are a system of 
econometric models covering many agricultural commodities in the U.S. 
and internationally. They are

[[Page 59472]]

based on historical data analysis, current academic research, and a 
reliance on accepted economic, agronomic, and biological relationships 
in agricultural production and markets.\38\
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    \38\ CARD Staff, Technical Report: An Analysis of EPA Renewable 
Fuel Scenarios with the FAPRI-CARD International Models, December, 
2009. Docket : EPA-HQ-OAR-2005-0161-3177.
---------------------------------------------------------------------------

    To meet the RFS2 renewable fuel volumes, a number of price effects 
on the agricultural commodities were estimated in the RFS2 final rule 
for 2022. For instance, FASOM estimated that an increase in renewable 
fuel volumes to meet the RFS2 will result in an increase in the U.S. 
soybean prices of $1.02 per bushel (10.3 percent) above the Reference 
Case price in 2022. FASOM also projected the price of soybean oil will 
increase by $183 per ton (37.9 percent) over the 2022 Reference Case 
price (all prices are in 2007$). Most of the additional soybeans needed 
for increased biodiesel production are diverted from U.S. exports to 
the rest of the world. In FASOM, soybean exports decrease by 135 
million bushels (-13.6 percent) in 2022 relative to the AEO2007 
Reference Case. This change represents a decrease of $453 million (-4.6 
percent) in the total value of U.S. soybean exports in 2022. However, 
these price effects are not attributed to the demand for biodiesel 
feedstock alone, rather the compounding affect of all changes in 
feedstock demand estimated to result from the total biofuel mandate in 
2022. Since the impact on soybeans due to biodiesel demand was only a 
portion of this total feedstock impact and since the impact in 2013 
will be less than considered in 2022 (since the 2013 biodiesel volumes 
are less than those considered for 2022), the impact on soybean prices 
and exports from an increase to 1.28 billion gall in 2013 should also 
be less. See Sections III.B.3 and IV.B.1.a of this rulemaking for 
further information on the impact on soybean availability and prices.
    A recent report by IHS Global Insight \39\ also discusses potential 
agricultural and economic impacts from increasing vegetable oil demand 
for biodiesel production. According to this study, existing soybean 
yield technologies are expected to be applied increasingly across the 
U.S., resulting in roughly a 10% higher growth rate in soybean yields 
than USDA's projections from 2010-2016 which were used by EPA in its 
RFS2 analyses. Similarly, Global Insight predicts these higher yield 
technologies will be implemented in other large soybean-producing 
countries, such as Brazil and Argentina. If higher yields than modeled 
for RFS2 indeed are realized, then it is likely that the price 
increases for soybean oil will be less than estimated for RFS2. 
Likewise, other price impacts, such as those on food prices, will still 
move in the same direction (i.e., an increase in price resulting from 
an increase in demand) but could be smaller than in the RFS2 analysis.
---------------------------------------------------------------------------

    \39\ ``Biodiesel Production Prospects for the Next Decade,'' IHS 
Global Insight, March 11, 2011.
---------------------------------------------------------------------------

    For the analyses performed for the RFS2 final rule, EPA estimated a 
$10 per person per year increase in food costs in the U.S. due to the 
total annual impact of the RFS2 program by 2022 compared to a Reference 
case that assumed no RFS2 renewable fuel requirements. Again, the 
biodiesel impacts will represent only a small portion of these overall 
impacts and will likely be even smaller in 2013 due to the smaller 
volume of feedstock required. One commenter suggested that EPA should 
conduct a more thorough analysis of food price impacts of this rule. 
EPA has conducted an analysis projecting the amount of soybean oil that 
will be required to meet this mandate and the effect this will have on 
the prices of soybeans and soybean oil. The results of this analysis 
are discussed in detail in Sections III.B.3 and IV.B.1.a of this rule.
4. Air Quality
    As described in the NPRM, we are relying on the analyses of 
renewable fuel impacts conducted in support of the RFS2 rule \40\ to 
qualitatively discuss the expected air quality impacts of a biomass-
based diesel volume of 1.28 billion gallons. The RFS2 analyses reflect 
EPA's most current assumptions regarding biodiesel emission 
impacts.\41\
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    \40\ 75 FR 14670, March 26, 2010.
    \41\ U.S. EPA 2010, Renewable Fuel Standard Program (RFS2) 
Regulatory Impact Analysis. EPA-420-R-10-006. February 2010. Docket 
EPA-HQ-OAR-2009-0472-11332. Section 3.1.1.2.4.
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    In the RFS2 rule, we analyzed both changes in pollutant emissions 
(measured in tons) and changes in ambient air quality associated with 
the changes in pollutant emissions. The changes in pollutant emissions 
were calculated by comparing the 2022 RFS2 renewable fuel volumes to 
volumes if the RFS2 mandate were not in place (the reference 
scenario).\42\ The analysis reflected full implementation of the RFS2 
program in 2022 and accounted for impacts from multiple types of 
renewable fuels, of which biodiesel was only one type. Specifically, 
the RFS2 emissions inventory analysis assumed 1.82 billion gal of 
biodiesel in the RFS2 scenario compared to 0.38 billion gal of 
biodiesel in the reference scenario, reflecting a 1.44 billion gal 
increase in biodiesel with the rule in place.
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    \42\ In the RFS2 Regulatory Impact Analysis, we analyzed the 
mandated 2022 RFS2 renewable fuel volumes relative to volumes 
required by two reference scenarios: RFS1 mandate (7.1 billion 
gallons of renewable fuels) and AEO 2007 (13.6 billion gallons of 
renewable fuels). Both reference scenarios assumed the same volume 
of biodiesel, so the emission and air quality impacts described in 
this section are the same for both reference scenarios.
---------------------------------------------------------------------------

    Biodiesel emission impacts from the RFS2 rule emissions inventory 
analysis are presented in Table IV.A.4-1. A complete discussion of the 
emissions inventory analysis conducted for the RFS2 rule can be found 
in Chapter 3 of the RFS2 Regulatory Impact Analysis (RIA).\43\ These 
biomass-based diesel emission impacts (which reflect a 1.44 billion gal 
increase in biodiesel) are all less than 1% of the total U.S. emissions 
inventory for each pollutant.\44\ We expect the impacts of the 1.28 
billion gal of biomass-based diesel volume relative to the 1.0 billion 
gal statutory minimum volume (which reflect a 0.28 billion gal 
increase) to be smaller.
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    \43\ U.S. EPA 2010, Renewable Fuel Standard Program (RFS2) 
Regulatory Impact Analysis. EPA-420-R-10-006. February 2010. Docket 
EPA-HQ-OAR-2009-0472-11332.
    \44\ While the national-level emissions and air quality impacts 
may be small, there may still be local and regional impacts that are 
larger in percentage terms. Our analysis is unable to capture this 
local and regional variability.

[[Page 59473]]

Table IV.A.4-1--Biodiesel Emission Impacts of the RFS2 Renewable Fuel Volumes (1.82 Billion Gal) Relative to the
                                        Reference Case (0.38 Billion Gal)
----------------------------------------------------------------------------------------------------------------
                                                     Biodiesel impacts of RFS2 rule emissions
                                                   inventory analysis ([Delta] 1.44 billion gal
                                                                    biodiesel)                     Percent RFS2
                                                 ------------------------------------------------   total U.S.
                                                   Upstream \a\   Downstream \b\                   inventory \c\
                                                      (tons)          (tons)       Total (tons)
----------------------------------------------------------------------------------------------------------------
VOC.............................................          -1,049          -2,422          -3,471           -0.03
CO..............................................             913          -4,104          -3,191           -0.01
NOX.............................................            -290           1,346           1,056            0.01
PM10............................................           4,268            -569           3,699            0.10
PM2.5...........................................             632            -315             317            0.01
SO2.............................................           1,580               0           1,580            0.02
NH3.............................................           4,171               0           4,171            0.10
Benzene.........................................              10             -30             -20           -0.01
Ethanol.........................................               0               0               0            0.00
1,3-Butadiene...................................               0             -16             -17           -0.10
Acetaldehyde....................................               2             -66             -65           -0.14
Formaldehyde....................................               1            -182            -181           -0.21
Naphthalene.....................................              -1               0              -1           -0.01
Acrolein........................................              63              -9              54            0.84
----------------------------------------------------------------------------------------------------------------
\a\ U.S. EPA 2010, Renewable Fuel Standard Program (RFS2) Regulatory Impact Analysis. EPA-420-R-10-006. February
  2010. Docket EPA-HQ-OAR-2009-0472-11332. Table 3.2-11. Note: units in Table 3.2-11 were mislabeled as tons/
  mmBTU. Actual units are tons.
\b\ U.S. EPA 2010, Renewable Fuel Standard Program (RFS2) Regulatory Impact Analysis. EPA-420-R-10-006. February
  2010. Docket EPA-HQ-OAR-2009-0472-11332. Table 3.2-9.
\c\ While the national-level emissions and air quality impacts may be small, there may still be local and
  regional impacts that are larger in percentage terms. Our analysis is unable to capture this local and
  regional variability.

    The air quality analysis for the RFS2 rule used photochemical 
modeling to characterize primary pollutants that are emitted directly 
into the atmosphere and secondary pollutants that are formed as a 
result of complex chemical reactions within the atmosphere. Included in 
the air quality modeling scenarios for the RFS2 rule were large volumes 
of ethanol as well as other renewable fuels, and the nature of these 
complex chemical interactions makes it difficult to determine the air 
quality impacts of biodiesel alone. Specifically, the RFS2 air quality 
analysis reflects a roughly 21 billion gal increase in ethanol, far 
outweighing the volume increase in biodiesel (0.43 billion gal). A 
complete discussion of the RFS2 air quality analysis and its 
limitations can be found in Chapter 3 of the RFS2 Regulatory Impact 
Analysis (RIA).\45\
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    \45\ U.S. EPA 2010, Renewable Fuel Standard Program (RFS2) 
Regulatory Impact Analysis. EPA-420-R-10-006. February 2010. Docket 
EPA-HQ-OAR-2009-0472-11332.
---------------------------------------------------------------------------

    The RFS2 air quality analysis was completed earlier than the final 
emissions inventory analysis because of the length of time needed to 
conduct photochemical modeling.46 47 The air quality 
analysis assumed 0.81 billion gal of biodiesel in the RFS2 scenario 
compared to 0.38 billion gal of biodiesel in the reference scenario, 
reflecting a 0.43 billion gal increase in biodiesel use with the rule 
in place. We use the 0.43 billion gal increase in biodiesel assumed in 
the RFS2 air quality analysis to qualitatively discuss the potential 
impacts of a 0.28 billion gal increase in biodiesel from this rule.
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    \46\ Emissions serve as inputs to the air quality modeling 
analysis. However, the final fuel volume assumptions (upon which the 
emission estimates were based) increased between the time that 
emissions were estimated to support the air quality modeling 
analysis and the time emissions were estimated to reflect the final 
rulemaking.
    \47\ The RFS2 air quality analysis reflects EPA's most recent 
air quality analysis applicable to changes in renewable fuel types 
and volumes.
---------------------------------------------------------------------------

    Given the small emissions impact of a 0.43 billion gal increase in 
biodiesel on the total U.S. emissions inventory (the basis for our air 
quality modeling scenarios), we expect the portion of air quality 
impacts attributable to a move from 1.0 to 1.28 billion gal (a 0.28 
billion gal biodiesel increase) to be small enough that on a nationwide 
basis the air quality impact will likely not be noticeable.
    We note that Clean Air Act section 211(v) requires EPA to analyze 
and mitigate, to the greatest extent achievable, adverse air quality 
impacts of the renewable fuels required by the RFS2 rule. We intend to 
investigate any potential adverse impacts from increased renewable fuel 
use through that study and will promulgate appropriate mitigation 
measures separate from today's final rule.
5. Deliverability and Transport Costs of Materials, Goods, and Products 
Other Than Renewable Fuel
    EPA evaluated in the RFS2 final rule the impacts on the U.S. 
transportation network from the distribution of the total additional 
volume of biofuels that will be used to meet the RFS2 standards. Oak 
Ridge National Laboratory (ORNL) conducted an analysis of biofuel 
transportation activity from production plants to petroleum terminals 
by rail, barge, and tank truck to identify potential distribution 
constraints to help support the assessment in the RFS2 final rule.\48\ 
The ORNL analysis concluded that the increase in biofuel shipments due 
to the RFS2 standards will have a minimal impact on U.S. transportation 
infrastructure. The majority of biofuel transportation is projected to 
be accomplished by rail. Nevertheless, it was estimated that the 
biofuels transport will constitute only 0.4% of the total freight 
tonnage for all commodities transported by the rail system through 
2022.\49\ Given the small increase in freight shipments due to the 
transport of biofuels to meet the RFS2 standards, we believe that the 
distribution of biofuels

[[Page 59474]]

will not adversely impact the deliverability and transport costs of 
materials, goods, and products other than renewable fuels. There were 
no comments on the proposed rule to contradict this assessment.
---------------------------------------------------------------------------

    \48\ ``Analysis of Fuel Ethanol Transportation Activity and 
Potential Distribution Constraints'', Oak Ridge National Laboratory, 
March 9, 2009. To simplify the ORNL analysis, biomass-based diesel 
volumes were assumed to originate at the same points of production 
and to be shipped to the same petroleum terminals as the ethanol 
projected to be used to meet the RFS2 standards. This may tend to 
overstate the potential impact on the transportation system from the 
shipment of biomass-based diesel fuels since biomass-based diesel 
production plants were projected to be more geographically dispersed 
than ethanol production facilities. In any event, the simplifying 
assumption was assessed to have little impact on the results from 
the analysis given that biomass-based diesel represented only 8% of 
the total projected biofuel volumes under the RFS2 final rule.
    \49\ See sections 1.6.4 and 1.6.5 of the RFS2 RIA.
---------------------------------------------------------------------------

6. Wetlands, Ecosystems, and Wildlife Habitats
    As directed by CAA section 211(o)(2)(B)(ii), in setting the 2013 
biodiesel volume requirements, EPA is to consider the impacts of 
biodiesel production and use on wetlands, ecosystems and wildlife 
habitat. No specific public comments on these impacts were received, so 
the following updates the largely qualitative analyses provided in the 
proposal.
    The most complete and up-to-date assessment of these impacts is 
contained in the analysis prepared by EPA in response to the 
requirements set out in CAA section 204. This report to Congress 
considers a range of impacts but the focus of the discussion here is on 
wetlands, ecosystems and wildlife habitats as directed by the CAA 
amendments. This report does not attempt to quantify the impacts of 
biofuel production and use as these impacts are dependent on local or 
regional conditions. Nevertheless the analyses contained in the report 
provide qualitative assessments and reasonable expectations of trends 
which can be used to consider the environmental impacts of increases in 
biodiesel production and use. These trends are only summarized here 
while the final report provides extensive detail.\50\
---------------------------------------------------------------------------

    \50\ U.S. EPA (Environmental Protection Agency). February 2012. 
``Biofuels and the Environment: First Triennial Report to 
Congress.'' Office of Research and Development, Washington, DC. EPA/
600/R-10/183F.
---------------------------------------------------------------------------

    The assessment focuses on the use of oil from soybeans as the 
feedstock for biodiesel production. Other oil seed feedstock sources 
represent a very small portion of biofuel production in 2013 so will be 
expected to have much less of an impact than soy oil. Corn oil 
extracted during the ethanol production process is increasing, adding a 
small increment of supply for biofuel production by 2013 that will 
offset demands for soy and other oil seed crops, thus reducing 
potential agricultural impact of biodiesel production. Corn as a 
feedstock for biofuel production is driven primarily by the demand for 
corn ethanol, not the demand for the corn ethanol co-product of 
extracted, non-food grade corn oil. Therefore the impact of the supply 
of extracted corn oil is not considered here. Finally, waste fats, oils 
and greases are expected to have negligible environmental impact as a 
feedstock since they do not impact agricultural land use and would 
otherwise be used for some lower value purpose or simply discarded.
    Wetlands can be adversely affected by agricultural production 
through runoff that can result in nutrient loading (particularly from 
fertilizers) or from sedimentation (from erosion). Soy production tends 
to use less fertilizer than corn production (the most likely 
alternative crop) and can reduce the amount of fertilizer required for 
corn when planted in rotation with corn. However, compared to other 
crops, erosion can be higher from fields planted in row crops such as 
corn and soy beans. While the impacts of nutrient loading and erosion 
tend to be site specific, good farming practices including the optimum 
fertilizer use and the set aside of sensitive lands via the 
Conservation Reserve Program (CRP) can significantly help control these 
adverse affects. Wetlands can also be adversely affected through 
diversion of surface and ground water for agricultural irrigation. 
Soybean production less frequently relies on irrigation than corn and 
some other crops. More discussion on water usage is included below in 
the section on water use and water quality impacts.
    Ecosystems and wildlife habitat can be adversely affected if CRP 
lands are converted to crop production, if row crops such as soybeans 
replace grassy crops and in general if new lands with diverse 
vegetation are converted to crop production. As explained in the RFS2 
final rule, we do not expect the RFS program production to result in an 
increase in total acres of agricultural land under production in the 
U.S. compared to a reference case without the impact of the RFS2 
volumes. The relatively small increase of 0.28 billion gall should not 
appreciably affect the amount of land devoted to oil seed production. 
Additionally, the USDA commitment to support the CRP program should 
minimize the likelihood of any significant change in the amount of CRP 
land. Therefore, while some very local changes may result due to 
individual farmer's planting decisions, since no new crop land are 
expected in the U.S. due to this increase in the biomass-based diesel 
standard and sensitive lands will be protected via programs such as 
CRP, no measureable impact in aggregate ecosystems or wildlife habitat 
due to cropland expansion is expected.
    Increased water withdrawals for soy biodiesel production can lead 
to more frequent low-flow conditions that reduce the availability for 
aquatic habitat. Additionally, waste water from biodiesel production 
can adversely affect surface water quality if not properly treated.
7. Water Quality and Quantity
    The water quality and quantity impacts of biodiesel are primarily 
related to the type of feedstock and the production practices used both 
to produce the feedstock and to convert the feedstock into biodiesel. 
Soybeans are the principal feedstock used for biodiesel production and 
are predicted to account for 600 million gallons of the 1.28 billion 
gallons evaluated for 2013. Non-food grade corn oil extracted during 
ethanol production, animal fats and recycled fats account for most of 
the remaining biodiesel feedstock. Since these fats and greases are the 
byproduct of another use and are not produced specifically for 
biodiesel manufacture, their production and primary use is not related 
to the level of biodiesel so their indirect impacts are not considered 
here. While non-food grade corn oil is extracted for its use as a 
feedstock for biodiesel production, it is a by-product of corn ethanol 
production. The corn used for biofuel production is primarily grown for 
the purpose of producing ethanol, not as a source of extracted non-food 
grade oil so the water impacts of corn production are primarily a 
concern for ethanol produced from the corn starch, not the by-product 
of extracted corn oil. Thus, this analysis will focus on soybeans as a 
primary source of vegetable oil used in biodiesel production. No 
specific public comments on these impacts were received so the 
following discussion updates the analyses provided in the proposal.
    From a water quality perspective, the primary pollutants of concern 
from soybean production are fertilizers (nitrogen and phosphorus) and 
sediment. Additional pollutants such as from pesticides have the 
potential to impact water quality to a lesser degree. There are three 
major pathways for these potential pollutants to reach water from 
agricultural lands: runoff from the land's surface, subsurface tile 
drains, or leaching to ground water. Climate, hydrological, and 
management factors influence the potential for these contaminants to 
reach water from agricultural lands.
a. Impacts on Water Quality and Water Quantity Associated With Soybean 
Production
    After corn, soybeans are the second largest agricultural crop in 
terms of acreage in the U.S. In 2010, American farmers planted 77.7 
million acres of

[[Page 59475]]

soybeans and harvested 3.4 billion bushels. As with the production of 
any agricultural crop, the impact on water quality depends on a variety 
of factors including production practices, use of conservation 
practices and crop rotations by farmers, and acreage and intensity of 
tile drained lands. Additional factors outside agricultural producers' 
control include soil characteristics, climate, and proximity to water 
bodies.
    Soybeans are typically grown in the same locations as corn since 
farmers commonly rotate between the two crops. Nutrients are applied to 
fewer soybean acres than corn and at much lower rates because soybean 
is a legume.\51\ Legumes have associations in their roots with bacteria 
that can acquire atmospheric nitrogen and convert it into bio-available 
forms, reducing the need for external addition of nitrogen fertilizer. 
However, losses of nitrogen and phosphorus from soybeans can occur at 
quantities that can degrade water quality.\52\ In 2006, USDA's NASS 
estimated that nitrogen was applied to 18 percent of the 2006 soybean 
planted acres in the Program States at an average rate of 16 pounds per 
acre per year. Phosphate was applied to 23 percent of the planted 
acres, at an average rate of 46 pounds per acre (NASS, 2007).\53\ The 
quantity of nitrogen fertilizer applied to soybean fields ranged from 0 
to 20 pounds per acre, while the quantity of phosphate ranged from 0 to 
80 pounds per acre. As with corn, the conversion of idled acreage to 
soybeans is estimated to result in losses of nitrogen and phosphorus 
from the soil through cultivation.\54\
---------------------------------------------------------------------------

    \51\ U.S. EPA (United States Environmental Protection Agency). 
Renewable fuel standard program (RFS2) regulatory impact analysis. 
EPA-420-R-10-006. Available at:  http://www.epa.gov/otaq/renewablefuels/420r10006.pdf.
    \52\ Dinnes, DL; Karlen, DL; Jaynes, DB; Kaspar, TC; Hatfield, 
JL; Colvin, TS; Cambardella, CA. 2002. Nitrogen management 
strategies to reduce nitrate leaching in tile-drained midwestern 
soils. Agronomy Journal 94(1): 153-171.
    \53\ NASS (United States Department of Agriculture, National 
Agricultural Statistics Service). 2007. Agricultural chemical usage 
2006 field crops summary. Ag Ch 1 (07)a. Available at: http://usda.mannlib.cornell.edu/usda/nass/AgriChemUsFC//2000s/2007/AgriChemUsFC-05-16-2007_revision.pdf.
    \54\ Simpson, TW; Sharpley, AN; Howarth, RW; Paerl, HW; Mankin, 
KR. 2008. The new gold rush: Fueling ethanol production while 
protecting water quality. Journal of Environmental Quality 37(2): 
318-324.
---------------------------------------------------------------------------

    Agricultural conservation systems can reduce the impact of soybean 
production on the environment. The systems components include (1) 
Controlled application of nutrients and pesticides through proper rate, 
timing, and method of application, (2) controlling erosion in the field 
(i.e., reduced tillage, terraces, or grassed waterways), and (3) 
trapping losses of soil and fertilizer runoff at the edge of fields or 
in fields through practices such as cover crops, riparian buffers, 
controlled drainage for tile drains, and constructed/restored 
wetlands.\55\
---------------------------------------------------------------------------

    \55\ Dinnes, DL; Karlen, DL; Jaynes, DB; Kaspar, TC; Hatfield, 
JL; Colvin, TS; Cambardella, CA. 220 2002. Nitrogen management 
strategies to reduce nitrate leaching in tile-drained 221 midwestern 
soils. Agronomy Journal 94(1): 153-171.
---------------------------------------------------------------------------

    The effectiveness of conservation practices, however, depends upon 
their adoption. The USDA`s Conservation Effects Assessment Project 
(CEAP) quantified the effects of conservation practices used on 
cultivated cropland in the Upper Mississippi River Basin. It found 
that, while erosion control practices are commonly used, there is 
considerably less adoption of proper nutrient management to mitigate 
nitrogen loss to water bodies.\56\ However, as noted above, the 
relatively low amount of fertilizer used for soy bean production tends 
to lessen the potential for nitrogen loss to water bodies. 
Additionally, soybean production can reduce the amount of biomass left 
on the field compared to a corn case where much of the stover is left 
to protect the soil and enhance biomass content. In such a case, there 
could be more soil erosion with soybean production compared to corn 
production and potentially greater nutrient runoff. Proper soil 
management can reduce this erosion concern.
---------------------------------------------------------------------------

    \56\ U.S. Department of Agriculture, National Resources 
Conservation Service. 2010. Assessment of the effects of 
conservation practices on cultivated cropland in the Upper 
Mississippi River Basin. Available at: http://www.nrcs.usda.gov/technical/NRI/ceap/umrb/index.html.
---------------------------------------------------------------------------

    Water for soybean cultivation predominately comes from rainfall, 
although about 11 percent of soybean acres in the U.S. are 
irrigated.\57\ Water use for irrigated soybean production in the U.S. 
varies from 0.2 acre-feet per acre in Pennsylvania to about 1.4 acre-
feet per acre in Colorado, with a national average of 0.8 acre-feet of 
water.\58\ Water used for irrigation is at least temporarily not 
available for other uses and if pumped from deep aquifers, may not 
return to those aquifers for centuries.
---------------------------------------------------------------------------

    \57\ U.S. Department of Agriculture. 2010. 2007 Census of 
agriculture, Farm and ranch irrigation survey (2008). http://www.agcensus.usda.gov/Publications/2007/Online_Highlights/Farm_and_Ranch_Irrigation_Survey/fris08.pdf.
    \58\ U.S. Department of Energy. 2006. Energy demands on water 
resources: Report to Congress on the interdependency of energy and 
water. Available at: http://www.sandia.gov/energy-water/docs/121-RptToCongress-EWwEIAcomments-FINAL.pdf.
---------------------------------------------------------------------------

    There is some concern that the demand for corn and soybeans as 
biofuel feedstocks may lead to high prices of these commodities, 
inducing farmers with land currently enrolled in USDA's CRP to return 
to intensive agricultural production (e.g., Secchi et al., 2009).\59\ 
The CRP provides farmers with financial incentives to set aside a 
certain portion of their cropland in order to conserve or improve 
wildlife habitat, reduce erosion, protect water quality, and support 
other environmental goals. Biomass produced from CRP lands is 
considered ``renewable biomass'' as defined under the RFS regulations 
and is therefore eligible for use in the production of renewable fuel 
under the RFS program. The Food, Conservation, and Energy Act of 2008 
(known as the Farm Bill) capped CRP acreage at 32 million acres, 
reducing enrollment by 7.2 million acres from the 2002 Farm Bill with 
the potential for making more acreage available for the production of 
row crops. However, even if the aggregate total of CRP protected lands 
does not change significantly, individual farmers have the opportunity 
to move specific land in and out of CRP such that the specific lands in 
the program do not necessarily remain fixed. Historically, land 
entering and exiting the CRP program has been more vulnerable to 
erosion than other cultivated land, but also less productive.\60\ So 
while the conversion of a specific piece of land from CRP to intensive 
feedstock production is possible, such a land use conversion is less 
likely than land already in crop production given practical economic 
and agronomic considerations.
---------------------------------------------------------------------------

    \59\ Secchi, S; Gassman, PW; Williams, JR; Babcock, BA. 2009. 
Corn-based ethanol production and environmental quality: A case of 
Iowa and the conservation reserve program. Environmental Management 
44(4): 732-744.
    \60\ ERS (United States Department of Agriculture, Economic 
Research Service). 2008. 2008 farm bill side-by-side. Available at: 
http://www.ers.usda.gov/FarmBill/2008/Titles/TitleIIConservation.htm#conservation.
---------------------------------------------------------------------------

b. Impacts on Water Quality and Water Quantity Associated With 
Biodiesel Production
    Biological oxygen demand (BOD), total suspended solids, and 
glycerin pose the major water quality concerns in wastewater discharged 
from biodiesel facilities. Actual impacts depend on a range of factors, 
including the type of feedstock processed, bio-refinery technology, 
effluent controls, and water re-use/recycling practices, as well as the 
facility location and source and receiving water. Discharge water 
quality requirements of local and regional governments can help assure 
best

[[Page 59476]]

control practices and reduce water quality concerns.
    Despite the existing commercial market for glycerin and the likely 
expanded uses for glycerin as mentioned in the RFS2 final rule, the 
rapid development of the biodiesel industry has caused a glut of 
glycerin production, resulting in many facilities disposing of 
glycerin. Glycerin disposal may be regulated under several EPA 
programs, depending on the practice. However, there have been instances 
of glycerin dumping, including an incident in Missouri that resulted in 
a large fish kill.\61\ Some biodiesel facilities discharge their 
wastewater to municipal wastewater treatment systems for treatment and 
discharge. There have been several cases of municipal wastewater 
treatment plant upsets due to high BOD loadings from releases of 
glycerin.\62\ BOD can lead to methane emissions during the water 
treatment process. To mitigate wastewater issues, some production 
systems reclaim glycerin from the wastewater. Closed-loop systems in 
which water and solvents can be recycled and reused can reduce the 
quantity of water that must be pretreated before discharge. Others 
employ anaerobic digesters to mitigate the release of methane to the 
atmosphere.
---------------------------------------------------------------------------

    \61\ U.S. EPA. 2010b. Renewable fuel standard program (RFS2) 
regulatory impact analysis. EPA-420-R-10-006. Available at: http://www.epa.gov/otaq/renewablefuels/420r10006.pdf.
    \62\ U.S. EPA. 2010b. Renewable fuel standard program (RFS2) 
regulatory impact analysis. EPA-420-R-10-006. Available at: http://www.epa.gov/otaq/renewablefuels/420r10006.pdf.
---------------------------------------------------------------------------

    Biodiesel can also impact water bodies as a result of spills. 
However, biodiesel degrades approximately four times faster than 
petroleum diesel including in aquatic environments.\63\ Results of 
aquatic toxicity testing of biodiesel indicate that it is less toxic 
than regular diesel.\64\ Biodiesel does have a high oxygen demand in 
aquatic environments and can cause fish kills as a result of oxygen 
depletion. Water quality impacts associated with spills at biodiesel 
facilities generally result from discharge of glycerin, rather than 
biodiesel itself.
---------------------------------------------------------------------------

    \63\ Kimble, J. n.d. Biofuels and emerging issues for emergency 
responders. U.S. EPA. Available at: http://www.epa.gov/oem/docs/oil/fss/fss09/kimblebiofuels.pdf.
    \64\ Kahn, N; Warith, MA; Luk, G. 2007. A comparison of acute 
toxicity of biodiesel, biodiesel blends, and diesel on aquatic 
organisms. Journal of the Air and Waste Management Association 
57(3): 286-296.
---------------------------------------------------------------------------

    Biodiesel facilities use much less water than ethanol facilities to 
produce biofuel. The primary consumptive water use at biodiesel plants 
is associated with washing and evaporative processes. Water use is 
variable but is usually less than one gallon of water for each gallon 
of biodiesel produced; some facilities recycle wash water, which 
reduces overall water consumption.\65\
---------------------------------------------------------------------------

    \65\ Renewable Fuels Standard Program (RFS2), Regulatory Impact 
Analysis (RIA). EPA-420-R-10-006. Available at: http://www.epa.gov/otaq/renewablefuels/420r10006.pdf.
---------------------------------------------------------------------------

8. Job Creation and Rural Economic Development
    The Energy Independence and Security Act (EISA) requires analyses 
of, among other factors, the impact of renewable fuel use on ``* * * 
job creation [and] rural economic development * * *'' to help inform 
each annual determination of applicable volumes. In the RFS2 final 
rule, we anticipated employment to increase and income to expand in 
rural areas and farming communities as a result of the increased use of 
renewable fuel. Income expansion in rural areas from renewable fuel 
production will contribute to rural economic development. As mentioned 
above, industry activities are currently progressing, ramping up 
biodiesel production from the approximately 0.38 billion gallons 
estimated to have been used in the U.S. in 2010 to over 1.0 billion 
gallons that was produced in 2011. This increase in biodiesel 
production was in large part due to bringing on line existing capacity 
idled due to lack of demand, a trend that we expect will continue into 
the near future.
    Employment impacts of federal rules are of particular concern in 
the current economic climate of sizeable unemployment. The recently 
issued Executive Order 13563, ``Improving Regulation and Regulatory 
Review'' (January 18, 2011), states, ``Our regulatory system must 
protect public health, welfare, safety, and our environment while 
promoting economic growth, innovation, competitiveness, and job 
creation''. Executive Order 13563 also states that ``[i]n applying 
these principles, each agency is directed to use the best available 
techniques to quantify anticipated present and future benefits and 
costs as accurately as possible'' and that ``* * * each agency may 
consider (and discuss qualitatively) values that are difficult or 
impossible to quantify * * *'' Consistent with the Executive Order, and 
consistent with recent efforts to characterize the employment effects 
of economically significant rules, the Agency has provided this 
analysis to inform the discussion of labor demand and employment 
impacts in rural areas and farming communities. Estimates of this 
particular rule's effects on labor markets beyond the biodiesel 
production sector are ``difficult or impossible to quantify'' to an 
acceptable degree of accuracy using currently available methodologies, 
Therefore, the Agency has not quantified the rule's effects on labor in 
other sectors, including conventional diesel production and sales, nor 
has the agency attempted to estimate the effects induced by changes in 
workers' incomes or changes in food and fuel prices.
    When the economy is at full employment, an environmental regulation 
is unlikely to have much impact on net overall U.S. employment; 
instead, labor would primarily be shifted from one sector to another. 
These shifts in employment impose an opportunity cost on society, 
approximated by the wages of the employees, as regulation diverts 
workers from other activities in the economy. In this situation, any 
effects on net employment are likely to be transitory as workers change 
jobs (e.g., some workers may need to be retrained or require time to 
search for new jobs, while shortages in some sectors or regions could 
bid up wages to attract workers).
    On the other hand, if a regulation comes into effect during a 
period of high unemployment, a change in labor demand due to regulation 
may affect net overall U.S. employment because the labor market is not 
in equilibrium. Schmalansee and Stavins point out that net positive 
employment effects are possible in the near term when the economy is at 
less than full employment due to the potential hiring of idle labor 
resources by the regulated sector to meet new requirements (e.g., to 
install new equipment) and new economic activity in sectors related to 
the regulated sector.\66\ In the longer run, the net effect on 
employment is more difficult to predict and will depend on the way in 
which the related industries respond to the regulatory requirements. 
For this reason, Schmalensee and Stavins urge caution in reporting and 
interpreting partial employment effects since it can ``paint an 
inaccurate picture of net employment impacts if not placed in the 
broader economic context.''
---------------------------------------------------------------------------

    \66\ Schmalensee, Richard, and Robert N. Stavins. ``A Guide to 
Economic and Policy Analysis of EPA's Transport Rule.'' White paper 
commissioned by Excelon Corporation, March 2011 (Docket EPA-HQ-OAR-
2010-0799).
---------------------------------------------------------------------------

    This rule is expected to primarily affect employment in the United 
States through the biodiesel plants and distributors, and through 
several related sectors, specifically, industries that supply inputs in 
the production of biodiesel. To provide a partial picture of

[[Page 59477]]

the employment consequences of this rule, EPA investigated the expected 
consequences for rural areas and farming communities. Assuming the 
current average of 30 to 40 people to operate a biodiesel plant of 30 
million gallons (a typical capacity for a standalone 
transesterification plant), an expansion of 280 million gallons is the 
equivalent of adding about 4 plants representing the addition of around 
350 direct jobs for biodiesel production.\67\ Providing soy oil 
feedstock would require an estimated 120 additional truck trips per day 
or an addition of 120 delivery drivers per day assuming one trip per 
delivery truck per day to account for driving and loading/unloading 
time.\68\ Expansions to the fuel distribution infrastructure (i.e., 
more fuel terminals, rail cars, tank trucks, barges etc.) would also be 
needed to support the use of an additional 280 million gallon increase 
in the 2013 volume requirement for biomass-based diesel. Necessary 
support to a functioning biodiesel plant such as the delivery of 
methanol to allow processing of vegetable oil into biodiesel as well as 
additional handling at biodiesel distribution centers will also add 
directly to the employment impacts.
---------------------------------------------------------------------------

    \67\ Presentation from National Biodiesel Board, ``Biodiesel 
Forecasts, Infrastructure, and Economic Impacts'', February 14, 
2012.
    \68\ Ibid.
---------------------------------------------------------------------------

    Most large biodiesel plants in the U.S. are located in rural 
communities near feedstock (soybean oil or corn oil) sources. Urban 
biodiesel plants tend to be smaller with more diffuse feedstock 
suppliers. In 2011, approximately 71 percent of biodiesel producers 
were located in rural areas, defined as towns of less than 50,000. A 30 
million gallon per year (MGY) biodiesel plant will spend nearly $140 
million on goods and services with feedstocks accounting for more than 
80 percent of expenditures.\69\ The size of the economic impact on the 
local economy of spending by an individual biodiesel plant will depend 
on location (e.g., state) and how much feedstock is sourced locally. 
Moreover, our analysis cannot determine the extent to which new capital 
invested in biodiesel production displaces investments that otherwise 
would have occurred in rural areas.
---------------------------------------------------------------------------

    \69\ Ibid.
---------------------------------------------------------------------------

    In addition to the employment effects from increased biodiesel 
production, this rule would also result in reductions in conventional 
diesel fuel use, which could affect employment in the diesel fuel 
supply chain. The loss of expenditures to diesel fuel suppliers 
throughout the diesel fuel supply chain, from the petroleum refiners to 
diesel fuel distributors, is likely to result in some loss in 
employment in these sectors. The potential impacts on the diesel 
industry and other sectors of the economy are not quantified in this 
analysis because available data and methodologies are insufficient to 
support reasonably accurate estimates of the incremental employment 
effects of this rule.
    To summarize, we anticipate that bringing idle biodiesel plants 
back online and expanding biodiesel distribution infrastructure in the 
U.S. will increase employment and investment in the renewable fuels and 
related industries, consistent with the EISA directive to assess impact 
on rural economic development. These increases in employment are 
similar to what we anticipated when we analyzed the volume requirements 
in RFS2 final rule. These employment impacts may be offset to some 
degree by decreases in other sectors and/or locations (e.g., from the 
reduced production and transport of conventional diesel fuel); however 
sufficiently reliable data and a satisfactory methodology supporting 
quantitative evaluation of the employment impacts beyond the biodiesel 
sectors are not currently available.
    One commenter raised the issue of the impacts of the potential 
increased use of animal fats to produce biodiesel under a 1.28 billion 
gallon requirement on employment within the oleochemical industry. 
According to the commenter, with renewable fuel production consuming an 
increasingly significant amount of the total supply of animal fats 
produced in the U.S., this may limit the availability of animal fats 
for oleochemical production. According to the commenter, the price of 
animal fats recently exceeded the price of Malaysian palm oil. If the 
oleochemical industry switched to palm oil as a feedstock to make its 
products and located near palm oil supply, there could be a possible 
loss of U.S. employment in this industry.
    As the same commenter acknowledged, we cannot prevent any 
feedstocks from being used to produce RIN-generating renewable fuel if 
they meet the regulatory definition of renewable biomass and are 
otherwise valid. Nevertheless, while Table III.B-1 lists grease and 
fats as one likely source of feedstocks for the production of biomass-
based diesel, we noted in Section III.B that there could be sufficient 
sources of other feedstocks to produce 1.28 billion gallons of biomass-
based diesel without using any animal fats. The comment implies that 
feedstock used in the oleochemical industry depends significantly on 
relative costs which can vary over time in part due to changes in 
demand. The cost of animal fat is dependent on the general demand for 
this material which is only in part impacted by its potential use as a 
biofuel feedstock. The general supply of animal fat is not expected to 
be impacted significantly by its alternative use as a biofuel feedstock 
or the range of other uses of this material. Thus the choice of 
feedstock(s) used by the oleochemical industry already depends on 
market prices of multiple feedstock sources. Since feedstock such as 
rendered fats or, as suggested by the commenter, palm oil are readily 
marketed and transportable, we do not expect the industry to relocate 
production every time feedstock market conditions change. Therefore we 
do not believe production facility location will be significantly 
impacted by the potential use of rendered fats as a biofuel feedstock 
if some portion of the 280 million gallon increase in the biomass-based 
diesel standard is produced from rendered fats.

B. Consideration of Applicable Statutory Economic Factors

    The RFS program established by Congress is primarily a long-term 
program aimed at replacing substantial volumes of fossil-based 
transportation fuels with low GHG renewable fuels over time. Congress 
established a list of factors to be considered in setting the annual 
biomass-diesel mandate, and these factors include consideration of some 
aspects of economic costs and some aspects of economic benefits (among 
other impacts and factors). In the final rulemaking for the RFS2, EPA 
assessed the costs and benefits of this program as a whole when the 
program was fully mature, which we continue to believe is the 
appropriate approach to examining the costs and benefits of a long term 
program like the RFS2. However, the annual standard-setting process is 
part of the program. The annual standard-setting process encourages 
consideration of the program on a piecemeal (i.e., year to year) basis, 
which may not reflect the long-term economic effects of the program.
    EPA received comments requesting that we consider costs and 
benefits for the 1.28 billion gallon biomass-based diesel mandate in 
2013. This mandate is an interim step within the larger RFS program, so 
any examination of short-term impacts separate from that larger effort 
must be kept in context. Further, many of the impacts of this rule are 
difficult to fully quantify, which makes any comprehensive 
consideration of

[[Page 59478]]

costs and benefits difficult to undertake in the limited timeframe of 
the RFS annual rule. In spite of these limitations, EPA has analyzed 
some of the costs and has estimated the monetary value of some of the 
benefits of the 2013 biomass-based diesel mandate to provide more 
information on this rulemaking.
1. Monetized Quantifiable Costs
    Our analysis of costs focuses on the sector most likely to be 
impacted by an increase in biomass-based diesel volumes--the 
agricultural commodity market. To assess some of the impacts of the 
1.28 billion gallon biodiesel mandate, EPA used a stochastic economic 
model developed by the Center for Agricultural and Rural Development 
(CARD) at Iowa State University to conduct this analysis. The CARD 
stochastic model approximates U.S. and Brazilian biofuel production, 
consumption, and trade. Using a relatively small set of input 
assumptions about petroleum prices, commodity yields, and ethanol 
production, the CARD model examines what the U.S. and Brazilian 
biofuels markets may look like under different combinations of 
parameters (e.g., low petroleum prices, low soybean yields, and high 
Brazilian ethanol production).
    The model shows the probability of different outcomes by running 
500 different potential scenarios. This modeling approach provides a 
range of estimates which helps to bound uncertainty about possible 
impacts on the biofuels sector. Analysis of this range can indicate 
which outcomes are more likely than others and also provide a sense of 
the possible high and low estimates that should be considered for a 
given variable. The CARD model projects ranges for commodity yields and 
prices, fuel volumes and prices, and several other variables. For the 
biomass-based diesel standard, EPA analyzed the cost of mandating an 
additional 280 million gallons for biodiesel in 2013, going from 1.0 
billion gallons of biomass-based biodiesel to 1.28 billion gallons. For 
purposes of this analysis, EPA assumed that the additional 280 million 
gallons of biodiesel we are mandating for 2013 will be entirely 
soybean-based and would not otherwise be produced. As we outline in 
Section III.B of this rulemaking, most of the additional 280 million 
gallons is likely to be soybean-based, but other sources are possible. 
Because soybean oil feedstock is more expensive than corn oil or waste 
feedstock, the cost impact of the extended volume requirement would 
decrease if biodiesel production from these other sources expands. We 
therefore consider the cost projections presented below to be 
potentially high estimates.
a. Impact on the Cost of Soybean Oil
    One commenter suggested that the biodiesel mandate for 2013 will 
result in an increase of soybean oil prices. In response to this 
comment and other related comments, EPA modeled the change in soybean 
oil prices in 2013 using the CARD stochastic model. Assuming that the 
280 million gallon increment is met entirely with soybean oil biodiesel 
in 2013, EPA estimates that the price of soybean oil will be $0.45 per 
pound (in 2010$) under this mandate, compared to approximately $0.42 
under a 1.0 billion gallon mandate (see Section III.B of this rule for 
further discussion of feedstock availability and prices). The mandate 
is estimated to increase feedstock costs of soybean-based biodiesel by 
about $0.22 per gallon of biodiesel. The effect of this increase on the 
cost of the additional 280 million gallons is incorporated into the 
estimates in section IV.B.1.b.
b. Cost of Displacing Petroleum-Based Diesel With Soybean-Based 
Biodiesel
    Producing an additional 280 million gallons of biodiesel will 
displace approximately 255 million gallons of petroleum-based diesel. 
Since biodiesel costs more to produce in the U.S. than diesel, this 
displacement has associated costs. In this analysis, we compare the 
cost of biodiesel and petrodiesel at the wholesale stage, since that is 
when the two are blended together. Therefore, this analysis does not 
consider taxes, retail margins, and any other costs and transfers that 
occur at or after the point of blending.
    On this basis, EPA estimated the cost of producing and transporting 
a gallon of biodiesel to the blender. For soybean-based biodiesel, 
soybean oil feedstock costs generally represent the majority of the 
overall cost, usually somewhere between 70 and 90 percent. The soybean 
oil price estimates discussed in Section IV.B.1.a of this rule 
therefore had a strong impact on EPA's cost estimates, though estimates 
of distribution and other production costs were also important. 
Estimating the cost to produce biodiesel and transport it to the 
blender presents considerable uncertainties, even in the near term. 
Unforeseen fluctuations in the prices of oil, for example, could have a 
very significant effect.
    After estimating the cost of biodiesel at the wholesale stage, EPA 
compared that to what it would cost to consume an equivalent amount of 
petroleum-based diesel instead. The Department of Energy's Energy 
Information Administration (EIA) publishes two regular reports that 
make estimates of wholesale diesel prices in 2013. In 2013, costs are 
on the low-end of the range if we use the wholesale diesel estimate 
from DOE's most recent Short-Term Energy Outlook (STEO).\70\ The high-
end estimate utilizes DOE's AEO12 ER wholesale diesel estimate.\71\ 
Both estimates are relevant for an analysis of fuel prices in 2013. On 
this basis, we estimate the increase in the cost of fuel for 280 
million gallons of biodiesel will be between $0.91 and $1.36 per gallon 
in 2013. This translates into total cost estimates of $253 million to 
$381 million from increased fuel cost in 2013.
---------------------------------------------------------------------------

    \70\ U.S. Department of Energy, Energy Information 
Administration. 2012. Short Term Energy Outlook, March 2012. 
Available at: http://www.eia.gov/forecasts/steo/index.cfm.
    \71\ U.S. Department of Energy, Energy Information 
Administration. 2012. Annual Energy Outlook 2012 (Early Release). 
Available at: http://www.eia.gov/forecasts/aeo/er/.

 Table IV.B.1.b-1--Estimated Increase in Wholesale Cost of Biodiesel in
                    Comparison to Petrodiesel in 2013
                            [In 2010 dollars]
------------------------------------------------------------------------
                                                       AEO 2012 early
    Petroleum assumption         STEO March 2012           release
------------------------------------------------------------------------
Difference in biodiesel       $0.91...............  $1.36.
 production cost (per
 gallon).
Cost of 280 million gallons.  253 million.........  381 million.
------------------------------------------------------------------------

[[Page 59479]]

    Consistent with our previous work in this area, EPA's quantifiable 
cost methodology is a ``bottom-up'' engineering cost analysis that 
estimates the cost to produce a gallon of soybean-based biodiesel and 
then compares that cost to the production cost of an energy-equivalent 
gallon of petroleum-based diesel. In certain situations, it may also be 
useful to use a ``top down'' analyses to estimate the potential cost of 
a program to society. In the case of the biomass-based diesel standard, 
one suggestion was to look at the RIN price as a proxy for the societal 
cost of the program.
    RIN prices reflect the incremental private marginal cost of 
blending BBD into the diesel fuel pool. As noted by Professor Bruce 
Babcock, of Iowa State University:

``The market for RINs is an effective and efficient way to enforce 
the mandates. Motor fuel producers who find that biofuel is too 
difficult to access or to blend buy RINs instead. Fuel producers who 
have ready access to biofuels and find it profitable to blend 
biofuels sell their excess RINs. By making RINs tradable, the 
mandates are met at the lowest possible cost.'' \72\
---------------------------------------------------------------------------

    \72\ Babcock, B, Mandates, Tax Credits, and Tariffs: Does the 
U.S. Biofuels Industry Need Them All? Iowa State University, Center 
for Agricultural and Rural Development, Policy Brief 10-PB-1, March 
2010. p. 4-5.

    We have received comments suggesting that we use RIN prices to 
estimate the costs to society of the biomass-based diesel RFS2 
requirement. RIN prices may be more representative of marginal costs. 
However, the use of historical RIN price trends may have limitations 
since RIN price may reflect other policy changes such as changes in 
U.S. tax policy, import tariff policies, and other effects in RIN 
markets.\73\ We finally note that other factors, such as the existence 
of multiple RIN vintages in any given year and the effects of other 
policies can create incentives for potential speculation in the RIN 
markets. In their 2011 report on RINs, USDA observed that this 
speculation results in RIN prices that are somewhat higher than the 
cost of biodiesel, though the exact amount of this increment is 
extremely difficult to quantify.\74\
---------------------------------------------------------------------------

    \74\ McPhail, L, P Westcott, and H Lutman, The Renewable 
Identification Number System and U.S. Biofuel Mandates, United 
States Department of Agriculture, November 2011.
---------------------------------------------------------------------------

c. Transportation Fuel Costs
    In the NPRM, we cited cost estimates that we had developed in the 
RFS2 final rule. In response to comment, we have revised our 
methodology for examining the effect of this mandate on the cost of 
transportation fuel. The estimates described in Section IV.B.1 above 
represent the quantifiable costs to society as a whole stemming from 
our increase in the biomass-based diesel volume requirement from 1.0 
billion gal to 1.28 billion gal. These estimates do not include certain 
transfers, such as those between buyers and sellers of diesel fuel. For 
this reason, the increase in the cost of transportation fuel from a 
societal perspective is different from the increase from the 
perspective of individual buyers and sellers of fuel. However, these 
costs do impact the retail price of diesel and associated economic 
impacts for fuel consumers.
    To estimate the increase in the cost of transportation fuel 
associated with today's mandate for 1.28 billion gal in 2013, we took 
our projections for the quantifiable program costs reported in Section 
IV.B.1.b and compared that to projected fuel consumption. The AEO 
projects that the U.S. will consume 44.9 billion gal of blended diesel 
in 2013.\75\ Averaged over this diesel pool, the quantifiable costs of 
the 1.28 billion gal mandate translate into a per gallon cost of 
between $0.006 and $0.008 in 2013.\76\
---------------------------------------------------------------------------

    \75\ U.S. Department of Energy, Energy Information 
Administration. 2012. Annual Energy Outlook 2012 (Early Release). 
Available at: http://www.eia.gov/forecasts/aeo/er/.
    \76\ If current RIN prices were used to gauge social cost in 
lieu of the bottom-up engineering cost approach applied herein, the 
estimate of transportation fuel costs would be higher.
---------------------------------------------------------------------------

    Several parties commented that the analysis of the cost impacts of 
1.28 billion gallons of biomass-based diesel must take into account the 
biodiesel tax subsidy, which expired at the end of 2011. Fuel taxes and 
tax subsidies function to change the manner in which society pays for 
transportation fuel through redistribution of costs, but they do not 
change the total cost to society. For this reason we generally do not 
quantify the impact of taxes or tax subsidies on price, but instead 
focus on the costs to produce and distribute transportation fuel. 
Moreover, the impact of the biodiesel tax subsidy on the retail price 
of biodiesel is a complex relationship that can be difficult to assess. 
For instance, Figure IV.B.1.c-2 shows the retail price of biodiesel 
over the period January 2008 through April 2012. While the biodiesel 
tax credit was not effective during 2010 or 2012, the price of 
biodiesel was not substantially higher during these years than it was 
at other times. Moreover, after the tax credit was reinstated for 2011, 
including retroactive credits for biodiesel produced in 2010, the price 
of biodiesel in 2011 did not decrease substantially in 2011 compared to 
2010. These results illustrate the difficulty in correlating biodiesel 
price with tax policies, and thus represents an additional reason that 
we have not made an effort to project biodiesel prices in the future 
under different tax policy scenarios.

[[Page 59480]]

[GRAPHIC] [TIFF OMITTED] TR27SE12.000

    In their comments on the 2012 Renewable Fuel Standards, the 
American Trucking Association (ATA) suggested that production of 
biomass-based biodiesel from yellow grease and other rendered fats may 
not be economically practical due to the diffuse nature of the 
feedstock supply chain. Specifically, ATA argued that the cost of 
collection of often small quantities of this feedstock dispersed over a 
wide geographic area and their transport to biofuel producers may be 
cost-prohibitive.
    We agree with the commenter that the transportation costs 
associated with the collection of yellow grease and other rendered fats 
may be greater than the cost of collection for biomass-based biodiesel 
feedstock such as soybean oil. However, the actual delivered cost of 
feedstock for use in producing biodiesel consists of two components: 
the cost of production and the cost of transportation. For soybean oil, 
the cost of production (e.g., planting, fertilizing, harvesting, 
expelling) is relatively large compared to the cost of transportation 
to centralized biofuel producers. However, the cost of production for 
yellow grease and other rendered fats is zero, as they are considered 
wastes or byproducts. When combining both cost components (i.e., 
production and transportation) for each respective feedstock from 
USDA's National Weekly Agricultural Energy Round-Up,\77\ the total 
delivered costs for yellow grease and other rendered fats is 
consistently less that the total delivered costs for soybean oil. For 
instance, for the week of March 30, 2012, crude soybean oil was selling 
for about 53 [cent]/lb, while yellow grease was selling for about 41 
[cent]/lb. As such, we believe that the ATA concerns regarding the 
feedstock supply chain are not warranted.
---------------------------------------------------------------------------

    \77\ USDA Livestock & Grain Market News for October 14, 2011. 
http://www.ams.usda.gov/mnreports/lswagenergy.pdf.
---------------------------------------------------------------------------

2. Monetized Quantifiable Benefits
    Many of the benefits and impacts that Congress asked EPA to examine 
when evaluating whether to increase the volume requirement for biomass-
based biodiesel are difficult to fully quantify. In this section, we 
present a selection of quantifiable benefits from increased biodiesel 
production, including increased energy security and reduced greenhouse 
gas emissions.
a. Energy Security
    Quantified energy security benefits are taken from the estimates 
reported in Section IV.A.2 of this final rule. As noted there, EPA 
considers only the macroeconomic disruption and adjustment effect in 
its estimates of energy security benefits. Based on application of the 
ORNL methodology, we estimate that the energy security benefits of the 
additional 280 mill gal increment of biodiesel are $0.15 per gallon in 
2013. This translates to a total program benefit of about $41 million.
b. Air Quality
    We discuss air quality impacts qualitatively in Section IV.A.4 of 
this final rule and expect an additional 280 mill gal of biodiesel will 
have a relatively small impact on ambient air quality. That said, we do 
expect the production and combustion of biodiesel to have a slightly 
different emissions impact relative to petroleum-based diesel. As 
presented in Table IV.A.4-1, we estimated that the increased production 
of biodiesel related to the RFS2 mandate would impact both downstream 
and upstream emissions,

[[Page 59481]]

with increases in some pollutants and decreases in others.
    Ideally, the monetized impacts of changes in air quality related to 
the final rule would be estimated based on changes in ambient pollution 
concentrations and population exposure, as determined by complete air 
quality and exposure modeling. However, conducting such detailed 
modeling was not possible within the timeframe for this analysis.
    Instead, our analysis of PM2.5-related health impacts 
associated with 280 million additional gallons of biodiesel uses a 
``dollar-per-ton'' method to estimate selected PM2.5-related 
health impacts. These PM2.5-related dollar-per-ton estimates 
provide the total monetized human health impacts (the sum of premature 
mortality and premature morbidity) of reducing one ton of directly 
emitted PM2.5, or one ton of a pollutant that contributes to 
secondarily-formed PM2.5 (such as NOx, and SOx) from a 
specified source.\78\ The dollar-per-ton technique has been used in 
previous analyses, including the 2012-2016 Light-Duty Greenhouse Gas 
Rule,\79\ the Ozone National Ambient Air Quality Standards (NAAQS) 
RIA,\80\ the Portland Cement National Emissions Standards for Hazardous 
Air Pollutants (NESHAP) RIA,\81\ and the final NO2 
NAAQS.\82\
---------------------------------------------------------------------------

    \78\ Due to analytical limitations, the estimated dollar-per-ton 
values do not include comparable impacts related to reductions in 
other ambient concentrations of criteria pollutants (such as ozone, 
NO2 or SO2) or toxic air pollutants, nor do they monetize 
all of the potential health and welfare effects associated with 
PM2.5 or the other criteria pollutants.
    \79\ U.S. Environmental Protection Agency (U.S. EPA), 2010. 
Regulatory Impact Analysis, Final Rulemaking to Establish Light-Duty 
Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel 
Economy Standards. Office of Transportation and Air Quality. April. 
Available at http://www.epa.gov/otaq/climate/regulations/420r10009.pdf. EPA-420-R-10-009.
    \80\ U.S. Environmental Protection Agency (U.S. EPA). 2008. 
Regulatory Impact Analysis, 2008 National Ambient Air Quality 
Standards for Ground-level Ozone, Chapter 6. Office of Air Quality 
Planning and Standards, Research Triangle Park, NC. March. Available 
at http://www.epa.gov/ttn/ecas/regdata/RIAs/6-ozoneriachapter6.pdf. EPA-HQ-OAR-2009-0472-0238.
    \81\ U.S. Environmental Protection Agency (U.S. EPA). 2010. 
Regulatory Impact Analysis: National Emission Standards for 
Hazardous Air Pollutants from the Portland Cement Manufacturing 
Industry. Office of Air Quality Planning and Standards, Research 
Triangle Park, NC. August. Available on the Internet at http://www.epa.gov/ttn/ecas/regdata/RIAs/portlandcementfinalria.pdf>. EPA-
HQ-OAR-2009-0472-0241.
    \82\ U.S. Environmental Protection Agency (U.S. EPA). 2010. 
Final NO2 NAAQS Regulatory Impact Analysis (RIA). Office of Air 
Quality Planning and Standards, Research Triangle Park, NC. April. 
Available on the Internet at http://www.epa.gov/ttn/ecas/regdata/RIAs/FinalNO2RIAfulldocument.pdf. Accessed March 15, 2010. EPA-HQ-
OAR-2009-0472-0237.
---------------------------------------------------------------------------

    The analysis of the final 2013 fuel mandate did not estimate the 
direct emissions impacts to which we could apply the ``dollar-per-ton'' 
estimates. Instead, we converted ``dollars-per-ton'' to ``dollars-per-
gallon'' by transferring the biodiesel tons-to-emissions relationship 
observed in the RFS2 final rule analysis to the current analysis 
(dividing emissions in Table IV.A.4-1 by 1.44 billion gallons of 
biodiesel) and multiplying that by each pollutant-specific dollar-per-
ton estimate.
    The dollar-per-ton estimates used to monetize the emissions impacts 
from each gallon of biodiesel are provided in Table IV.B.2.b-1.

                         Table IV.B.2.b-1--PM2.5-related Dollar-per-ton Values (2010$) a
----------------------------------------------------------------------------------------------------------------
                                                 All sources     Upstream (non-EGU)          Mobile sources
                                                     \c\             sources \d\       -------------------------
                      Year                      ---------------------------------------
                                                                              Direct        NOX         Direct
                                                     SO2          NOX         PM2.5                     PM2.5
----------------------------------------------------------------------------------------------------------------
Dollar-per-ton Derived from American Cancer Society Analysis (Pope et al., 2002) Using a 3 Percent Discount Rate
                                                       \b\
----------------------------------------------------------------------------------------------------------------
2015...........................................      $30,000       $4,900     $230,000       $5,100     $280,000
2020...........................................       33,000        5,400      250,000        5,600      310,000
----------------------------------------------------------------------------------------------------------------
  Dollar-per-ton Derived from American Cancer Society Analysis (Pope et al., 2002) Estimated Using a 7 Percent
                                                Discount Rate \b\
----------------------------------------------------------------------------------------------------------------
2015...........................................       27,000        4,500      210,000        4,600      250,000
2020...........................................       30,000        4,900      230,000        5,100      280,000
----------------------------------------------------------------------------------------------------------------
 Dollar-per-ton Derived from Six Cities Analysis (Laden et al., 2006) Estimated Using a 3 Percent Discount Rate
                                                       \b\
----------------------------------------------------------------------------------------------------------------
2015...........................................       73,000       12,000      560,000       12,000      680,000
2020...........................................       80,000       13,000      620,000       14,000      750,000
----------------------------------------------------------------------------------------------------------------
 Dollar-per-ton Derived from Six Cities Analysis (Laden et al., 2006) Estimated Using a 7 Percent Discount Rate
                                                       \b\
----------------------------------------------------------------------------------------------------------------
2015...........................................       66,000       11,000      510,000       11,000      620,000
2020...........................................       72,000       12,000      560,000       12,000      680,000
----------------------------------------------------------------------------------------------------------------
\a\ Total dollar-per-ton estimates include monetized PM2.5-related premature mortality and morbidity endpoints.
  Range of estimates are a function of the estimate of PM2.5-related premature mortality derived from either the
  ACS study (Pope et al., 2002) or the Six-Cities study (Laden et al., 2006).
\b\ The dollar-per-ton estimates presented in this table assume either a 3 percent or 7 percent discount rate in
  the valuation of premature mortality to account for a twenty-year segmented cessation lag.
\c\ Note that the dollar-per-ton value for SO2 is based on the value for Stationary (Non-EGU) sources; no SO2
  value was estimated for mobile sources.
\d\ Non-EGU denotes stationary sources of emissions other than electric generating units (EGUs).

    For certain PM2.5-related pollutants (such as direct 
PM2.5 and NOx), EPA estimates different per-ton values for 
reducing mobile source emissions than for reductions in emissions of 
the same pollutant from stationary sources such as fuel refineries and 
storage facilities. These reflect differences in the typical geographic 
distributions of emissions of each pollutant by different sources, 
their contributions to ambient levels of PM2.5, and 
resulting changes in population exposure. We apply these separate 
values to estimates of changes in emissions from vehicle use and from

[[Page 59482]]

fuel production and distribution to determine the net change in total 
economic impacts from emissions of those pollutants. Monetized 
PM2.5-related health impacts associated with the final rule 
can be found in Table IV.B.2.b-2 and per gallon impacts can be found in 
Table IV.B.2.b-3.

 Table VI.B.2.b-2--Total Ambient PM2.5-related Monetized Health Impacts
                           (Millions 2010$) a
------------------------------------------------------------------------
                                           2013 Monetized impacts  (7%
                                         discount rate-3% discount rate)
------------------------------------------------------------------------
Using Dollar-per-ton Derived from American Cancer Society Analysis (Pope
                              et al., 2002)
------------------------------------------------------------------------
Downstream.............................  $14 to $16.
Upstream...............................  -$34 to -$37.
Net Impacts............................  -$19 to -$21.
------------------------------------------------------------------------
  Using Dollar-per-ton Derived from Six Cities Analysis (Laden et al.,
                                  2006)
------------------------------------------------------------------------
Downstream.............................  $35 to $39.
Upstream...............................  -$82 to -$91.
Net Impacts............................  -$47 to -$52.
------------------------------------------------------------------------
\a\ Note: Negative values indicate disbenefits associated with
  decrements in ambient air quality.

   Table VI.B.2.b-3--Per Gallon Ambient PM2.5-related Monetized Health
                      Impacts (2010$ Per gallon) a
------------------------------------------------------------------------
                                          2013 Monetized impacts  (7%
                                        discount rate-3% discount rate)
------------------------------------------------------------------------
Using Dollar-per-ton Derived from American Cancer Society Analysis (Pope
                              et al., 2002)
------------------------------------------------------------------------
Downstream...........................  $0.05 to $0.06.
Upstream.............................  -$0.12 to -$0.13.
Net Impacts..........................  -$0.07 to -$0.08.
------------------------------------------------------------------------
  Using Dollar-per-ton Derived from Six Cities Analysis (Laden et al.,
                                  2006)
------------------------------------------------------------------------
Downstream...........................  $0.12 to $0.14.
Upstream.............................  -$0.29 to -$0.33.
Net Impacts..........................  -$0.17 to -$0.19.
------------------------------------------------------------------------
\a\ Note: Negative values indicate disbenefits associated with
  decrements in ambient air quality.

    The method used in this analysis to estimate the monetized 
PM2.5-related impacts of an increase in biodiesel production 
is subject to a number of assumptions and uncertainties.
     The method does not reflect local variability in 
population density, meteorology, exposure, baseline health incidence 
rates, or other local factors that might lead to an overestimate or 
underestimate of the actual benefits of controlling fine particulates 
in specific locations. This is particularly a problem for the 
monetization of upstream emissions since those have a very specific 
geographic profile different to that associated with mobile source 
emissions.
     Transferring the biodiesel tons-to-emissions relationship 
derived from the RFS2 mandate in 2022 to the current analysis assumes 
that the incremental production of biodiesel associated with the 2013 
mandate (of 280 million gallons) will yield the same relative emissions 
impacts, which we cannot say with certainty.
     This analysis assumes that all fine particles, regardless 
of their chemical composition, are equally potent in causing premature 
mortality. PM2.5 produced via transported precursors emitted 
from stationary sources may differ significantly from direct 
PM2.5 released from engines and other industrial sources. At 
the present time, however, no clear scientific grounds exist for 
supporting differential effects estimates by particle type.
     This analysis assumes that the health impact function for 
fine particles is linear within the range of ambient concentrations 
under consideration. Thus, the estimates include health benefits from 
reducing fine particles in areas with varied initial concentrations of 
PM2.5, including both regions that are in attainment with 
fine particle standard and those that do not meet the standard, down to 
the lowest modeled concentrations. This is an appropriate assumption 
because the scientific literature provides no evidence of a threshold 
below which health effects associated with exposure to fine particles--
including premature death--would not occur.
     There are several health benefits categories that we are 
unable to quantify due to limitations associated with using dollars-
per-ton estimates, several of which could be substantial. Because 
NOX and VOC emissions are also precursors to ozone, changes 
in NOX and VOC would also impact ozone formation and the 
health effects associated with ozone exposure. Dollars-per-ton 
estimates for ozone do not exist due to issues associated with the 
complexity of the atmospheric air chemistry and nonlinearities 
associated with ozone formation. The PM-related benefits-per-ton 
estimates also do not include any human welfare or ecological benefits.
3. Quantifiable Benefits and Costs Compared
    As we have observed above, the cost and benefit categories 
discussed in this section are not comprehensive. EPA has included 
estimates for those impacts that we are able to quantify at the present 
time, but this is not meant to suggest that EPA considers these to be 
the total costs and benefits of the 2013 biomass-based diesel mandate. 
However, for illustrative purposes, we are providing a range of 
quantifiable combined cost and benefit estimates for the impact of a 
1.28 billion gallon mandate in 2013, based on those impacts that we 
were able to monetize.
    EPA's estimates of quantifiable costs and benefits vary 
significantly in 2013 due to uncertainty about the price of diesel as 
well as uncertainty about the value of air quality impacts. Table 
IV.B.3-1 presents the range of estimates for the combined quantifiable 
costs and benefits of an additional 280 million gallons of biodiesel 
produced in 2013, which varies from -$425 million to -$263 million.

  Table IV.B.3-1--Estimates of Combined Costs and Benefits of the 1.28
                Billion Gallon Biodiesel Mandate in 2013
                            [In 2010 dollars]
------------------------------------------------------------------------
     AEO 2012 early release  (million)       STEO March 2012  (million)
------------------------------------------------------------------------
-$425 to -$391............................  -$297 to -$263
------------------------------------------------------------------------

    In this final rulemaking, we have only provided quantified cost and 
benefit estimates for the year 2013. However, as observed above, these 
estimates should not be considered in isolation. Rather, they should be 
treated as a snapshot within the larger trends of quantified costs and 
benefits laid out in the RFS2 final rule. The statute is forward-
looking in that it created a program whose energy and environmental 
benefits are intended to grow over time. To evaluate the program on the 
basis of only one early year's impacts, as part of near-term 
implementation, would be to paint an unbalanced and incomplete picture. 
For example, as we examine the costs of the program through time, we 
see that these costs fall steadily. This is due to changes in the cost 
of key fuel inputs. For instance, the cost of petroleum, the basic raw 
material of diesel fuel, is expected to rise through time. Meanwhile, 
the principal cost of soybean-based biodiesel, the soybean oil 
feedstock, tends to fall though time due to rising crop yields. As a 
result, the

[[Page 59483]]

relative cost difference between diesel and biodiesel fuel would be 
expected to narrow through time as the program reaches maturity. Thus, 
while quantified costs from the wider use of biomass-based biodiesel 
can be greater than quantified benefits in the near term, through time 
we expect that benefits will tend to increase and outweigh costs. The 
estimates of quantified costs and benefits presented in this rulemaking 
should be considered within this context.
    Further, as noted at the beginning of this section, this analysis 
is not intended to serve as a comprehensive quantification of the costs 
and benefits of this mandate. Rather, it illustrates those costs and 
benefits that are quantifiable in response to comments received on the 
proposed rule. To develop a comprehensive estimate of costs and 
benefits, one would need to qualitatively balance these estimates 
against the impacts discussed earlier in this section.

V. Final 2013 Volume for Biomass-Based Diesel

    Through the RFS program, Congress established a schedule of 
renewable fuel volumes that gradually increases over time. While the 
schedule in the statute for biomass-based diesel ends in 2012, the 
schedule of increasing volumes for advanced biofuels continues through 
2022. For the years between 2012 and 2022, the statute indicates that 
biomass-based diesel volumes can increase above the 2012 applicable 
volume of 1.0 billion gal, but they cannot ever be lower than 1.0 
billion gal. Subject to a consideration of a number of factors as 
described in Section II, we believe that it is appropriate to consider 
biomass-based diesel as playing an increasing role in supplying 
advanced biofuels to the market between 2012 and 2022.
    As described in Section IV.A.9, increases in the required volume of 
biomass-based diesel above 1.0 billion gal will help to support rural 
economic growth and job creation, will increase energy security, and 
reduce emissions of GHGs. Our estimates of the quantifiable benefits of 
an increase of 280 mill gal do not exceed the costs in 2013. However, 
as laid out above, we expect benefits to generally exceed costs over 
time based on the analysis performed for the RFS2 final rule. Thus by 
establishing an applicable volume for biomass-based diesel in 2013 that 
exceeds the minimum of 1.0 billion gal, we are helping to establish the 
industry as a substantial contributor to the required volumes of 
advanced biofuel anticipated after full implementation of the RFS 
program.
    Therefore, based on our review of the factors required in the 
statute, we are finalizing an applicable volume of 1.28 billion gal 
biomass-based diesel for 2013, consistent with our proposal. We 
received comments both in support of and opposed to an increase above 
the statutory minimum of 1.0 billion gallons. We have determined that 
1.28 billion gallons is achievable in 2013 and is a reasonable exercise 
of our authority under CAA 211(o)(2)(B)(ii) to bring about the long-
term benefits of the RFS program.
    We did not propose biomass-based diesel standards for 2014 and 
beyond in the NPRM since we believe we will be in a better position in 
the future to evaluate all of the factors related to establishing an 
applicable volume for 2014 and later years. In response to the NPRM, 
two parties commented that EPA should set the required volumes of 
biomass-based diesel through at least the year 2017. We agree that 
specifying the required volumes of biomass-based diesel for more than 
one compliance year would provide greater certainty for both biofuel 
producers and obligated parties, stability for future investments and 
contracts, and could potentially reduce the need to waive a portion of 
the advanced biofuel requirement in future years. However, one of the 
factors that we are required to consider when determining the 
appropriate biomass-based diesel volume for years after 2012 is a 
review of the implementation of the program during prior years. By 
determining the applicable volume requirement for biomass-based diesel 
only one year in advance, we are able to use the most up-to-date 
information on the implementation of the program in making our 
determination. This is particularly important in the early years of the 
program.

VI. Public Participation

    Many interested parties participated in the rulemaking process that 
culminates with this final rule. This process provided opportunity for 
submitting written public comments following the proposal that we 
published on July 1, 2011 (76 FR 38844), and we considered these 
comments in developing the final rule. Public comments and EPA 
responses are discussed throughout this preamble, and all comments 
received are available in EPA docket number EPA-HQ-OAR-2010-0133.

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 12866 (58 FR 51735, October 4, 1993), this 
action is an ``economically significant regulatory action'' because it 
has an annual effect on the economy of $100 million or more. 
Accordingly, EPA submitted this action to the Office of Management and 
Budget (OMB) for review under Executive Orders 12866 and 13563 (76 FR 
3821, January 21, 2011) and any changes made in response to OMB 
recommendations have been documented in the docket for this action.
    The economic impacts of the RFS2 program on regulated parties, 
including the impacts of the required volumes of renewable fuel, were 
already addressed in the RFS2 final rule promulgated on March 26, 2010 
(75 FR 14670). This action finalizes the applicable volume of biomass-
based diesel for 2013. We have been able to quantify some of the 
economic impacts of this rule in 2013.
    We estimate that soybean prices could increase up to 3 cents per 
pound in 2013 if the 2013 biodiesel standard is met solely as a result 
of increased demand for soy bean oil. Potential use of other less 
expansive feedstocks would reduce this impact on soy beans. Again 
assuming the 280 million gallon increase in required biomass-based 
diesel is met through increased demand for soy oil, we estimate the 
cost of producing this biomass-based diesel would range from $253 to 
$381 million in 2013. Adding these estimates of 2013 costs to the fuel 
pool would result in a diesel fuel cost increase of less than 1 cent 
per gallon. These estimates do not account for recent trends in crop 
yields and grain prices resulting from drought conditions that are 
occurring in many areas of the country. Given the wide range of 
feedstocks from which biodiesel can be produced, the ultimate impact of 
these drought conditions on the mix of biodiesel feedstocks in 2013 is 
difficult to predict at this time.
    Quantified estimates of benefits and disbenefits include energy 
security benefits of $0.15 per gallon in 2013 and air quality 
disbenefits of $0.07 per gallon in 2013. Other benefits include GHG 
emission reduction benefits and both direct and indirect employment 
benefits in rural areas due to increased biodiesel production. Impacts 
on water quality, water use, wetlands, ecosystems and wildlife habitats 
are expected to be modest due to both the small impact on

[[Page 59484]]

crops planted and due to the relatively small impact of soy bean 
production.

B. Paperwork Reduction Act

    This action does not impose any new information collection burden 
since it only specifies the required volume of biomass-based diesel 
under the RFS program for 2013. However, the Office of Management and 
Budget (OMB) has previously approved the information collection 
requirements contained in the existing regulations at 40 CFR part 80, 
subpart M under the provisions of the Paperwork Reduction Act, 44 
U.S.C. 3501 et seq. This would include the following approved 
information collections (with OMB control numbers and expiration dates 
listed in parenthesis): ``Renewable Fuels Standard Program: Petition 
and Registration'' (OMB Control Number 2060-0637, expires March 31, 
2013); ``Renewable Fuels Standard (RFS2)'' (OMB Control Number 2060-
0640, expires July 31, 2013); ``Regulations of Fuels and Fuel 
Additives: 2011 Renewable Fuels Standard--Petition for International 
Aggregate Compliance Approach'' OMB Control Number 2060-0655, expires 
February 28, 2014). The OMB control numbers for EPA's regulations in 40 
CFR are listed in 40 CFR part 9. Detailed and searchable information 
about these and other approved collections may be viewed on the Office 
of Management and Budget (OMB) Paperwork Reduction Act Web site, which 
is accessible at http://www.reginfo.gov/public/do/PRAMain.

C. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires an agency 
to prepare a regulatory flexibility analysis of any rule subject to 
notice and comment rulemaking requirements under the Administrative 
Procedure Act or any other statute unless the agency certifies that the 
rule will not have a significant economic impact on a substantial 
number of small entities. Small entities include small businesses, 
small organizations, and small governmental jurisdictions.
    For purposes of assessing the impacts of today's rule on small 
entities, small entity is defined as: (1) A small business as defined 
by the Small Business Administration's (SBA) regulations at 13 CFR 
121.201; (2) a small governmental jurisdiction that is a government of 
a city, county, town, school district or special district with a 
population of less than 50,000; and (3) a small organization that is 
any not-for-profit enterprise which is independently owned and operated 
and is not dominant in its field.
    After considering the economic impacts of today's final rule on 
small entities, I certify that this action will not have a significant 
economic impact on a substantial number of small entities. The impacts 
of the RFS2 program on small entities that are directly regulated under 
the RFS2 program were already addressed in the RFS2 final rule 
promulgated on March 26, 2010 (75 FR 14670). This rule simply 
establishes the applicable volume for biomass-based diesel for 2013 at 
a level that is consistent with the analyses in the RFS2 final rule. 
Therefore, this action will not impose any additional requirements on 
small entities beyond those which have already been evaluated.
    We received a comment suggesting that impacts on truckers of the 
applicable volume of biomass-based diesel for 2013 established in this 
rule should be evaluated as part of our standard small business impact 
analysis. In response, we note that such analyses are only required 
under the Regulatory Flexibility Act for parties directly regulated by 
a rule and that, in general, truckers are not directly regulated by 
today's action nor under the regulatory requirements established in the 
RFS2 final rule.

D. Unfunded Mandates Reform Act

    This rule does not contain a Federal mandate that may result in 
expenditures of $100 million or more for State, local, and tribal 
governments, in the aggregate, or the private sector in any one year. 
This rule simply establishes the applicable volume for biomass-based 
diesel for 2013 at a level that is consistent with the analyses in the 
RFS2 final rule. Thus, this action is not subject to the requirements 
of sections 202 or 205 of UMRA.
    This action is also not subject to the requirements of section 203 
of UMRA because it contains no regulatory requirements that might 
significantly or uniquely affect small governments.

E. Executive Order 13132: Federalism

    This action does not have federalism implications. It will not have 
substantial direct effects on the States, on the relationship between 
the national government and the States, or on the distribution of power 
and responsibilities among the various levels of government, as 
specified in Executive Order 13132. This action only applies to 
gasoline, diesel, and renewable fuel producers, importers, distributors 
and marketers and makes relatively minor corrections and modifications 
to the RFS2 regulations. A summary of the concerns raised, and EPA's 
response to those concerns, is provided in this preamble.

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

    This action does not have tribal implications, as specified in 
Executive Order 13175 (65 FR 67249, November 9, 2000). This rule will 
be implemented at the Federal level and impose compliance costs only on 
transportation fuel refiners, blenders, marketers, distributors, 
importers, exporters, and renewable fuel producers and importers. 
Tribal governments would be affected only to the extent they purchase 
and use regulated fuels. Thus, Executive Order 13175 does not apply to 
this action.

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

    EPA interprets EO 13045 (62 FR 19885, April 23, 1997) as applying 
only to those regulatory actions that concern health or safety risks, 
such that the analysis required under section 5-501 of the EO has the 
potential to influence the regulation. This action is not subject to EO 
13045 because it does not establish an environmental standard intended 
to mitigate health or safety risks and because it implements specific 
standards established by Congress in statutes.

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

    This rule is not a ``significant energy action'' as defined in 
Executive Order 13211, ``Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use'' (66 FR 28355 
(May 22, 2001)) because it is not likely to have a significant adverse 
effect on the supply, distribution, or use of energy. This action 
simply finalizes the annual standards for cellulosic biofuels for 2012 
and biomass-based diesel for 2013, provisions for new RIN-generating 
pathways, and clarifying changes and minor technical amendments to the 
regulations.

I. National Technology Transfer Advancement Act

    Section 12(d) of the National Technology Transfer and Advancement 
Act of 1995 (``NTTAA''), Public Law 104-113, 12(d) (15 U.S.C. 272 note) 
directs EPA to use voluntary consensus standards in its regulatory 
activities unless to do so would be inconsistent with applicable law or 
otherwise impractical. Voluntary consensus standards are technical 
standards (e.g.,

[[Page 59485]]

materials specifications, test methods, sampling procedures, and 
business practices) that are developed or adopted by voluntary 
consensus standards bodies. NTTAA directs EPA to provide Congress, 
through OMB, explanations when the Agency decides not to use available 
and applicable voluntary consensus standards.
    This action does not involve technical standards. Therefore, EPA 
did not consider the use of any voluntary consensus standards.

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

    Executive Order (EO) 12898 (59 FR 7629 (Feb. 16, 1994)) establishes 
federal executive policy on environmental justice. Its main provision 
directs federal agencies, to the greatest extent practicable and 
permitted by law, to make environmental justice part of their mission 
by identifying and addressing, as appropriate, disproportionately high 
and adverse human health or environmental effects of their programs, 
policies, and activities on minority populations and low-income 
populations in the United States.
    EPA has determined that this final rule will not have 
disproportionately high and adverse human health or environmental 
effects on minority or low-income populations because it does not 
affect the level of protection provided to human health or the 
environment. This action does not relax the ambient emission control 
measures on sources impacted by the RFS2 regulations. While we have 
estimated that some emissions may increase as the result of the 
incremental volume of 280 mill gal required through this final rule, 
ambient emission control measures remain unaffected.

K. Congressional Review Act

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

VIII. Statutory Authority

    Statutory authority for the rule finalized today can be found in 
section 211 of the Clean Air Act, 42 U.S.C. 7545. Additional support 
for the procedural and compliance related aspects of today's rule, 
including the recordkeeping requirements, come from sections 114, 208, 
and 301(a) of the Clean Air Act, 42 U.S.C. 7414, 7542, and 7601(a).

List of Subjects in 40 CFR Part 80

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

    Dated: September 14, 2012.
Lisa P. Jackson,
Administrator.
[FR Doc. 2012-23344 Filed 9-26-12; 8:45 am]
BILLING CODE 6560-50-P
```