## Summary	of	Interage ncy	Working	Comments	on	Draft	Language	under

EO13563	Interagency	Review.		Subject	to	Further	Policy	Review.
**Comments on U.S. Environmental Protection Agency’s proposed rule**  **titled, “Modification to Renewable Fuel Standard Program and E15 Misfueling Mitigation Regulations** **,” RIN 2060 -** **AR21 .** 
Market Interactions between RFS RINs and RECs It is requested that EP A provide additional explanation and discussion regarding the concept of connecting both ends of renewable fuels (RIN) production to other renewable energy (REC) markets. For instance, EPA has tentatively indicated an interest in allow ing external (to the production site) renewable energy sources to be considered in the RFS greenhouse gas (GHG) lifecycle analysis (LCA) calculation. At the distribution end, EPA’s draft proposal allows biogas

- derived liquefied natural gas (LNG) and biogas

- derived electricity to generate transportation RINs, after co

- mingling in commercial grids and pipelines that serve the many other, non

-transportation, uses of these energy sources. Th ese proposals have the effect of linking the RIN market to the REC market, with as yet un certain consequences. On th e RIN production side, EPA proposes allowing offsite generated renewable energy sources (e.g., electricity RECs) to be incorporated in the required GHG LCA analysis to determine if a renewable fuel meets the legally mandated GHG emission reductions.

 Has EPA evaluated the price and volume impact of such linkages between the biofuel RIN and REC markets? For instance, the LCA for a certain pathway may fall just short of the necessary GHG reductions, but could be rectified by sub stituting offsite gene rated renewable energy credits, may be even just the separated RECs, for any GHG emitting energy components in the LCA. This could have the effect of a small purchase of RECs leading to a large gain in RIN value (e.g., non

- renewable fuel to renewable RIN, to advanced RIN, to cellulosic RIN, if the primary carbon source i s municipal solid waste [MSW] ). If true, this would seem to undermine the intent of the GHG LCA calculation to actually indicate that the RINs represent an improvemen t over 2006 gasoline emissions, which may be come deceptive through unfettered application of RECs
.  In addition, noting that 10% of the US electricity supply is from renewable sources, much of which (e.g., hydro power) does not receive RECs, does this ope n up an alternative possibility of RIN generators taking advantage of the many existing renewable energy sources, absent any additional social benefit? Th ese concern s are in addition to the acknowledged difficulties in tracking the RECs, and the potential for double

- dipping by the REC generators to take state and local REC energy credit, plus Federal RIN fuels credit
. On the distribution side, EPA is proposing to allow cellulosic RIN credits for MSW biogas

- derived electricity and natural gas (CNG, LNG) th at enters the general commercial grid and pipelines, and is then extracted by a contractually boun d transportation

- related entity?

 The merging of electrons and natural gas in the commercial grid structures severs the direct link between the RIN generato r and transportation user, relying instead on the strength of contractual linka ges. The question regarding this proposal relates to the distinction between pre - existing and new MSW biogas facilities. For instance, what would prevent existing MSW

## Summary	of	Interage ncy	Working	Comments	on	Draft	Language	under

EO13563	Interagency	Review.		Subject	to	Further	Policy	Review. biogas facilit ies claiming that they are now producing gas or electricity for transportation needs, so long as they can identify and entice a recipient organization or group that is already or will in the future use either gas (bus companies) or electricity ( amalg a ma ted Chevy Volt owners)? What is EPA’s estimate of the impact of existing MSW biogas facilities on the social benefit that is anticipated from this proposed RFS change? If stated another way, what would prevent existing producers and consumers taking a dvantage of this opening to generate RINs based on activities that have already occurred , or would have occurred anyway ? Indeed, Section 80

- 1426(11)(i) appears to open a cellulosic RIN pathway to existing or new biomass (e.g., wood) co

fired Electric Gene rating Units (power plants) if they can contract with a transportation related entity on their grid, possibly with existing electric transit train systems. Interaction with Tailoring Rule

 Would it be appropriate for EPA to address in the proposed rule, how this rule interfaces with the Tailoring Rule? Regulated categories and entities affected by this action include production, distribution and sale of transportation fuels, and the industries identified within the table on page 8. It is understood tha t t he table is not intended to be exhaustive but rather to provide the reader with a guide for regulated entities. All regulated “categories” in the table are industrial sources, and the focus of this proposed rule is transportation fuels. At least one of the industrial source categories in the Table on page 8 of this proposed rule is also listed in Table 1 of the Deferral for CO2 Emissions from Bioenergy and Other Biogenic Sources Under the Prevention of Significant Deterioration (PSD) and Title V Programs (See the July 20, 2011 deferral posted at this website: http://www.gpo.gov/fdsys/pkg/FR

- 2011
- 07
- 20/pdf/2011

- 17256.pdf). o Would it be possible that a regulated industry could have greenhouse gas emissions exempted under one regulation and regulated, or subject to the accounting framework under another regulation ? Would the Scientific Advisory Board draft reports that focus on CO2 Accounting for Emissions from Biogenic Sources be useful in sorting through this issue? ( http://yosemite.epa.gov/sab/sabproduct.nsf/0/2f9b572c712ac52e8525783100704886! OpenDocument&TableRow=2.2#2 . )

 If the Tailoring Rule accounting decisions are to be made in 2014, how will EPA reconcile the decisions made on RFS to reflect these policies? One commenter suggested delaying the pathway decisions on the RFS rule until the Tailoring Rule accounting policy has been finalized. On page 19 it is stated that “EPA thus determined that all of the fuel generated from the biogenic portion of separated MSW would be considered cellulosic biofuel [when assigning RIN]”. This statement does not s eem to be consistent with the Tailoring Rule concerning the exempt ion of biogenic CO2 emissions
. Under the Tailoring Rule Deferral mentioned above, the emissions of “CO2 from the combustion of biogas collected from biological decomposition of waste in lan dfills, wastewater treatment or manure management processes” are all being evaluated under the deferral. The concern is that the RFS program would allocate RINs to a source that is fully or partially regulated under the biogenic portion of the Tailoring R ule. In this scenario, EPA would be endorsing the GHG emission benefits with RINs under RFS and possibly regulating the GHG emissions from biogenic sources under the Tailoring Rule.

## Summary	of	Interage ncy	Working	Comments	on	Draft	Language	under

EO13563	Interagency	Review.		Subject	to	Further	Policy	Review.

o What interactions will the RFS rule have with the offset provisions of th e Tailoring rule? On page 21 it states, “EPA is proposing that biofuel made from the following cellulosic feedstocks will be able to generate applicable cellulosic RINs for 100% of the volume produced: crop residue; slash; pre

- commercial thinnings and t ree residue; annual cover crops; switchgrass; and miscanthus.” All of these feedstocks (crop residue, slash, pre

commercial thinnings and tree residue, annual cover crops, switchgrass, miscanthus, napiergrass, giant reed, energy cane, etc.) along with man y others are being discussed unde r the Tailoring Rule Deferral. Comment suggests that EPA lay out the interactions between the rules, particularly the interactions between RIN and offset markets, as it may be confusing to affected entities when 100% of RI Ns under RFS are allocated and point source GHG emissions are discounted via the Tailoring rule. Crop Residue Definition

 P age 54 and page 137

- The phrase “left over” in the original definition of “crop residue” is meant to indicate that the use of a residue as a biofuel feedstock should not increase demand for the crop it is derived from, should not induce further crop production, and should not result in additional direct or indirect GHG emissions. The residue must come from crop production or proces sing for some other primary purpose (e.g., refined sugar, corn starch ethanol), such that the crop residue is not the reason the crop was planted. Further, the residue should generally not have a significant market in its own right, to the extent that rem oving it from that market to produce biofuels instead will result in increased GHG emissions. This appears to be a shift away from the principle that advanced biofuels should be derived from agricultural and forestry waste streams (e.g. algae and municipa l solid waste) as opposed to primary food and feed raw materials. o Commenter suggests EPA seek comment on this revision to the crop residue definition including the use of feedstock as an advanced biofuel
. How will EPA be able to ensure that changing the d efinition of crop residue will not create additional demand for corn beyond the mandate for corn

- based ethanol? Would any other primary food and raw feed materials fall into this category in addition to corn kernel fiber? Does this apply to woody materi al as found in the de finition of “renewable biomass? o C ommenter suggests EPA seek comment on how the change in the defi nition for crop residue may lead to “a significant increase in direct or indirect GHG emissions.” Were these potential emission increas es factored into the lifecycle GHG reduction analysis? What is the threshold that EPA will use to define when the impact becomes significant? Commenter suggests that EPA take comment on this issue. o The definition also indicates that this must be “existing agricultural land”
– what is then the definition of agricultural land? Does it include pasturelands, marginal lands, haylands, etc.? Commenter suggests clarifying.

 How will EPA be able to ensure that corn kernel fiber is completely separated from the starch of the kernel when generating advanced biofuels? What scientific measure will biofuel producers utilize to verify that there is less than a certain amount of starch remaining in the corn kernel to avoid verifying corn

- based ethanol as an advanced bi ofuel.

## Summary	of	Interage ncy	Working	Comments	on	Draft	Language	under

EO13563	Interagency	Review.		Subject	to	Further	Policy	Review.
From an economics point of view, it will likely be difficult to have a fixed definition of residue if you expand the definition in this manner, as many relevant variables can and do change with different policies, weather, and market factors. Fo r example, wheat gluten is a co

- product (or some may say by

- product) of wheat starch production. The EU subsidized wheat starch production, increasing production of both starch and gluten. The gluten was exported to the US, depressing US gluten markets, while trade barriers protected EU starch from competing starch, including US corn starch. Some analysts thought the gluten market began to drive production more than starch as it became a lucrative export. The issu e is to see how a residue or by

- product can gain higher value under certain conditions. The commenter believe s that the ethanol market and advanced RIN values could create similar distortions. If the cellulosic market is tight, then advanced RIN prices could rise sharply, and create an artific ial market for corn residue. The commenter suggests explaining the difficulty in expecting a “fixed” situation for this resid u e.

 P age 137 & chart on page 55

- This definition and the chart give the suggestion that all bagasse is eligible (sugar cane, ene rgy cane, sorghum) even though separation of the sugar cane and the bagasse does not occur until facility processing. How would EPA propose to discern that the bagasse would not be used for electrical generation instead of liquid fuels, as predominantly m ills incinerate bagasse at this time to produce electricity? This would indicate that there is already a market for the bagasse consumption. Would this also indicate that there would be an impact on the bagasse market ?