## Summary of Interagency Working Comments on Draft Language under EO

12866 and EO 13563 Interagency Review. Subject to Further Policy Review.

EO 12866 Interagency Comments on U.S. Environmental Protec tion Agency (EPA) draft final rule titled, “ Renewable Fuel Standard Program: Standards for 2014, 2015, and 2016 and

Biomass

- Based Diesel Volume for 2017 ,” RIN 2060

- AS22

1. BBD: The commenter would like EPA to consider whether the environmental safeguards written into the law can supersede some of the grandfathered palm oil biodiesel imports. For example, BBD falls into the advanced biofuels category and thus is expected to have a 50 percent reduction in greenhouse gas emissions. With indirect land use change, it is almost certain that imported palm oil biodiesel does not qualify. If the safeguards cannot apply, this

rev iewer strongly suggests reducing the BBD requirement (and the subsequent requirements in higher nests). It is not helping the environment to push these levels and a reasonable read of the legislation suggests that it was not Congress’ intent to encourage p alm oil biodiesel imports.

Response: All fuel that qualifies for the BBD standard (D4) must meet the 50% GHG lifecycle reduction threshold. There is currently no pathway for producing BBD from palm oil, however palm oil may be used in grandfathered bio diesel and renewable facilities to produce conventional (D6) biodiesel and renewable diesel. Reducing the advanced and BBD standards would have no impact on the demand for conventional biodiesel and renewable diesel produced from palm oil. Reducing the t

otal standard may reduce the demand for these fuels, but would also reduce demand for other conventional biofuels such as corn ethanol. Most importantly, reducing the total standard to attempt to reduce the incentive for conventional biodiesel and renewab le diesel is not consistent with EPA’s general waiver authority, which is being exercised on the basis of inadequate domestic supply. All potential sources of biofuel must be considered in this context.

2. Conv entional biofuels: The commenter is concerned about the increase in conventional biofuels implied by the 2016 levels. Given that there is very little environmental benefit from these, the only argument for them is to push the infrastructure development. Yet is very apparent that the

ince ntives in this market are not leading to major additional infrastructure development in E85. There is clear evidence that the passthrough of RIN prices to retail E85 prices is minimal (e.g., see Knittel et al. 2015). Given this, the effect of the higher ma ndate for conventional biofuels will likely be to draw down on the RIN bank. These issues appear to be insufficiently discussed. Mandating fewer conventional biofuels (closer to the value in the NPRM) seems like a logical approach in light of the minimal p assthrough (which implies a limited ability to push through the blendwall with E85). In a future rulemaking, changing the point of obligation may help with this issue, but that is likely too major of a change to make for this final rule.

Response: We d iscuss extensively our assessment of how much ethanol and biodiesel (both advanced and conventional) might be expected to be supplied in 2016 in section II.E. of the preamble. With respect to potential E85 volumes, EPA is including two technical memos for review, one exploring the impact of RIN prices on E85 retail prices and another exploring sales responses to E85 pricing. As a result, we have assumed that the potential growth of E85 in 2016 will be limited, as it requires time for the value of the RIN to impact volumes. Nevertheless, the potential volumes of all renewable fuels, including ethanol sold as E85, in 2016 must be taken into account in setting the total renewable fuel standard, an d we believe the final standard reflects an appropriate consid eration of all of the potential sources as described in section II.E.Changing the point of obligation is beyon d the scope of this rulemaking

.

3. EPA has not provided a sufficient justification that there is adequate domestic supply for the waiver level of 3.8 billion gallons of advanced biofuel, and th erefore the overall 18.1 billion gallo ns of renewable fuel

. If the required volumes of advanced and total biofuel exceed adequate supply, it could potentially lead to significant volatility in the D5 and D4 RIN values in

2016.

The revision in the advanced category (which is primarily accounting for biodiesel and renewable diesel fuel) from 3.4 billion gallons to 3.8 billion gallons would require sufficient production capacity and market and regulatory conditions sufficient to su pport these fuels.

Such conditions existed from 2012 to 2013 and resulted in an increase on the same order as that proposed from 2015 to 2016. At the time, biodiesel was one of the only available market to transportation fuel blenders to readily meet thei r RFS obligation because of the E10 blendwall. Additionally, the biodiesel blenders tax credit was available providing additional incentive to produce and blend biodiesel. On the other hand, the RFS itself could drive improved regulatory

conditions that would spur real world production from the estimated 2.8 billion gallons of existing biodiesel capacity and the expected 375 million gallons of capacity that appears to be planned or under construction. Further, the Senate is currently considering an extens ion of the biodiesel tax credit similar to what was available in the past.

EPA should either change the advanced biofuels volume and overall requirements in 2016 to be consistent with the current justification or update the justification with additional data or other resources to support the higher level and submit the updated justification for interagency

review.

Response: EPA has made updates to the preamble text to justify the production of 2.5 billion gallons of biodiesel in 2016. We note that this would not necessarily require any additional production capacity

; as the comment above states, there is already sufficient biodiesel production

capa city. We expect that once again biodiesel and renewable diesel will be the fuels most available to meet the increasing RFS standards, as the consumption of higher level ethanol blends will once again be limited. We think it is reasonable to assume 2. 1 billion gallons of the biodiesel and renewable diesel is advanced biofuel, accounting for 3. 15 billion advanced RINs. We believe the remaining 45 0 million gallons can be met with a combination of biogas (about 2 10 million gallons), advanced et hanol (about 200 million gallons), and other advanced fuels such as heating oil and naphtha (about 25 million gallons).

4. The commenter recommends strengthening the language to indicate EPA’s intention to continue to set aggressive standards that work towards the statutory targets to provide certainty despite a requirement for annual rulemaking. This serves two purposes. First this

recogn izes the long planning horizon needed for advanced and cellulosic biofuel deployment. In addition, it ensures that the market barriers currently used to justify use of the general waiverare expected to be overcome and will not serve as a permanent cap on the volume of biofuels in

the market.

Response: We have added some text to Section I.D in an attempt to clarify our intentions regarding future standards.

5. The commenter supports the notice of intended action to enable a robust bioprocessing

indus try with co

- processing, in which production can occur at multiple facilities while still generating RINs. This action can enable companies to leverage, share, and co

- fund existing and new infrastructure to reduce cost. With extensive exp erience in GHG LCA analysis, the commenting agency can support EPA in determining GHG implications of co

- processed products to ensure accurate accounting while meeting the intent of the rule.

Response: Support noted.

6. The draft final standard requires 380 million gallon more than the blendwall. The proposed standard from May appears to have only required 310 gallons more than the blendwall. The incremental 70 million gallons is more than what would correspond to the increase in actual gasoline demand (whic h is incorporated into blendwall calculations).

a. How did EPA arrive at the 380 million gallons difference? Why not more/less? How does this correspond to the accounting on page 112 which has a difference of 1.12 vs. 0.84 in the draft? Is

that a better m easure of stringency in the final vs. the draft?

Response: The draft final rule does not indicate that the final standards would result in ethanol volumes that exceed the blendwall by 380 million gallons. While the 2016 volume of conventional

renewable fuel exceeds the blendwall by 58 0 million gallons, this comparison is only a relevant benchmark for parties who view the conventional renewable fuel pool as being composed only of ethanol. As discussed in Section II.E.2.i, the conventional renewable fuel "requirement" is expected

to inc lude some non

- ethanol renewable fuels.

As discussed in Section II.E.3, we considered the contribution that biodiesel and renewable diesel can make to the total supply of renewable fuel, and then determined in Section II.F the portion of that volume which was reasonably attainable as advanced bi ofuel. The difference between the total renewable fuel and advanced biofuel volume requirements is the portion of total renewable fuel that is not required to be advanced biofuel. Based on this approach, we expect that some

biodiesel and renewable diesel would contribute to the conventional renewable fuel "requirement".

The purpose of Table II.G

- 1 in the final rule (corresponding to Table II.D.2

- 1 in the NPRM) is not to demonstrate the stringency of the total renewable fuel volume requirement vis

- a

- vi s the blendwall per se, but rather to describe the options available to the market for supplying volumes of renewable fuel in excess of the blendwall and minimum expected volumes of non

- ethanol renewable fuel.b. What is the purpose of this greater str ingency given that EPA does not expect the standard to

lead to significantly more E85 penetration in 2016, has alternative levers to increase biodiesel production and imports, and wants to maintain a RIN buffer at current levels?

Response: We do not be lieve that the comparison suggested ( 5 80 mill gal in the final rule versus 310 mill gal in the NPRM) suggests greater stringency of the final volume requirements compared to those we proposed. Instead, they reflect a consideration of additional information and analyses that has become available since the NPRM, including comments provided by stakeholders. Based on a consideration of this additional information, we have determined that the market can supply more renewable fuel in 2016 than we had expected when we released the NPRM. In short, the higher volume requirements in the final rule reflect greater opportunities for supply than we had expected.

c. Congress certainly intended the RFS to breech the blendwall, but does EPA have reason to

bel ieve Congress intended to do this with conventional biofuels? How about with imported

conventional biofuels ? If it is not clear, then does EPA support this goal and pushing up total

volumes a climate

- friendly and economically efficient way to accomplish th is?

Response: First, to be clear, the E10 blendwall is an ethanol issue. Since ethanol can be produced as both conventional biofuel (i.e., corn ethanol) and advanced biofuel (i.e. sugarcane ethanol), increases in ethanol production and penetration into the market, either as conventional or

advanced would add to the volume that could breech the E10 blendwall. Similarly, ethanol is also both produced domestically in the U.S. and imported to the U.S. from other countries and the

statute does not allow EPA to discriminate between domestically

- produced and imported biofuels from qualifying under the RFS program.

However, the blendwall is also not just an ethanol issue. The RFS standards can go well beyond the E10 blendwall through the use of other renewable fuels. In fact the total RFS standard is over 4 billion gallons beyond the E10 blendwall, providing tremendous incentive for market growth of

both ethanol and non

- ethanol fuels alike. Furthermore l EPA believes that Congress envisioned the majority of growth over time to come from advanced biofuels, as the non

- advanced (conventional) volumes remain constant in the statutory volume tables starting in 2015 while the advanced volumes continue to grow. Renewable fuels represent an opportunity f or the U.S. to move away from fossil fuels towards a set of lower GHG transportation fuels, and a chance for a still

developing low GHG technology sector to grow.

The standards we are finalizing for 2016 in particular are consistent with the purpose of t he statute: to significantly increase the amount of renewable fuel used in the supply of transportation fuel over time, particularly renewable fuels with the lowest lifecycle GHG emissions. The final volume requirements will push the fuels sector to produ ce and blend more renewable fuels in 2016 in a manner that is consistent with the goals Congress envisioned.

7. The commenter requests EPA to revise the language concerning the Brazilian estimates due to their importance as a trade partner for ethanol. US exports to Brazil surged in 2015. One of theconcerns with the current language is that it implies Brazilian ethanol would be less desirable in

its RIN category in terms of GHG emissions.

Response: All advanced biofuels must meet the same minimum 50% GHG reduction requirements, and we are not in this rule questioning nor making any attempt to modify our previous determination that imported sugarcane ethanol meets this 50% GHG reduction req uirement. However, as discussed in Section II.F, the potential for "circle trade" could negatively impact the expected net GHG benefits of using all forms of ethanol even if it does not directly impact the average 61% reduction in GHGs that we determined for imported sugarcane ethanol. We have modified the language in Section II.F to clarify this.

8. Please provide the following memos to the docket:

Footnote 68 (p. 59) Projection of annual renewable fuel supply in 2015

Footnote 77 (p. 73) analysis o f historical errors in projections of gasoline and distillate demand

from EIA

Footnote 87 (p. 77) estimating e85 consumption in 2013

Footnote 90 (p. 79) an assessment of the impact of RIN prices on the retail price of e85

Footnote 94 (p. 82) estimating e0 use in recreational marine engines

Better yet, you might consider asking Peter thought that these memos are good enough.

Response: We are providing drafts of these memos along with this document.

9. p. 93: Suggest deleting “as relative currency valuations” since firms hedge against currency

fluctuations with financial instruments.

Response: T

he t ext has been deleted from the preamble as requested

10. Based on the discussion presented below, the commenter suggests increasing the conventional gap by 200 million gallons; i.e., setting the conventional gap to 14.5 billion gallons to address

the blendwall issue. EPA may want to consider increasing the non

- advanced total to 14.5 bgal in 2016 to further incentivize pushing beyond the blendwall and a larger increase in the 2017 biodiesel level to provide an easier path to showing continued progress in growing the advanced pot in years beyond 2016. As formula ted now, it is more likely that the D6 RIN price will not be sufficient to encourage additional and growing levels of sales of higher blends nor the investments in infrastructure to facilitate the growing levels of second generation biofuels that are requi red in future years. By increasing the conventional gap by 200 million gallons, there will be increased emphasis on meeting the total with higher levels of blended ethanol.

EPA’s expressed interest in showing strong growth in advanced biofuels in future years paired with their concerns over biodiesel capacity that led to only a 100 million increase in 2017 hasthe potential to significantly limit the ability of EPA to increase the advanced biofuel volumes

for 2017 (not set by the proposed rule) without d riving significant increases in the import of advanced sugar cane ethanol. Without additional incentives to push past the blend wall

– say by increasing the conventional levels (say to 14.5 bgal in 2016)

– the proposed final level by EPA’s own logic will lead to a higher level of D6 renewable diesel (palm) for 2017 and out years to meet the conventional standard and increase exports of domestically produced ethanol.

Response: We see no basis for the statement “as formulated now, it is more likely that the D6 RIN price will not be sufficient...” While no one can predict RIN prices, the current total renewable fuel standard of 18.1 billion gallons is set at the maximum reasonably achievable level and is certainly expected to result in RIN prices that provide the necessary incentives to the marketplace to make the proper investments and take the other actions necessary to achieve the standard. This is as true for conventional biofu els as it is for advanced biofuels. The commenter also appears to be focused on the E10 blendwall, somehow equating it with conventional biofuels. This is not the

case. Growth in renewable fuel volumes beyond the E10 blendwall can and will be met with fuels other than conventional biofuels. In fact, the to tal renewable fuel standard is over 4 billion gallons higher than the E10 blendwall. We are already well beyond the E10 blendwall, and the standards in the final rule will provide a considerable incentive to continue to grow even further beyond it.

Never theless, we have revised the advanced biofuel volume to increase the “conventional gap” by 200 million gallons as requested.

a. The volumes for 2014 and 2015 are set in such a way as to be RIN neutral in terms of carry

- out stocks. This approach, particu larly for 2014, is consistent with their earlier approach as is their approach toward defining ‘available supplies’ as including the ability to retail and consume such fuels. In defining it this way they can, and do, switch between physical availability an d their perception of potential consumption to set the standards for 2016.

Response: We continue to believe that it is both legitimate and important to distinguish between three different elements of supply:

1) Volumes of renewable fuel that can be produced (which includes considerations primarily of production capacity and availability of feedstock), 2) Volumes that can be supplied to retail service stations (which includes considerations of distribution, blending, and dispensing infrastructure), a nd 3) Volumes that can be supplied to vehicles and engines (which includes considerations of the vehicles/engines that can use renewable fuels and the economic incentives associated with customers choosing to use renewable fuels).

Some stakeholders tr eat #1 as "physical availability", while others treat #1 and #2 together as "physical availability." Regardless, #1 and # 2 are not sufficient considerations in determining the supply of renewable fuel to vehicles and engines. #3 reflects the market real ity that supply of renewable fuel to vehicles and engines cannot be assumed to be identical to making renewable fuel available to vehicles and engines as transportation fuel in the United States . Instead, physical availability and the potential for vehicl es and engines to use renewable fuels are both relevant

considerations.b. In setting the total standard, in essence setting the amount of fuel that can be consumed beyond

the advanced mandate, EPA focus’ on ethanol use. From this EPA asserts a limit on E10 consumption, proposes an E85 consumption level. This is in effect set s ‘supply’ as their perceived limits of ‘demand. ’ However, when it comes to the other portions of achieving the

conventional renewable fuel standard of 15.0 billion gallons, they switch to actual physical supplies as the limiting factor.

Table II.B.6

- 2 Meeting a 15.0 Billion Gallon Allowance for Conventional Renewable Fuel

with Both E85 and Biodiesel (million gallons)

E10 138,916 a
E85 400 b

Total ethanol 14,188

Non

- ethanol (ethanol

- equivalent) 812

Non

- ethanol (biodiesel

- equivalent) 540

Total renewable fuel 15,000

a This level is less than the amount of ethanol that can be used as E10 in all 2016 gasoline, because some of that gasoline is used in this scenario to

make E85.

b Assumed to contain 74% denatured ethanol.

Response: This is not entirely accurate. It is true that in estimating the volume of ethanol that could be supplied to vehicles in this exercise , we included both the physical availability of ethanol and the potential for vehicles and engines to use it as E 10 and E85. However, in discussing the additional volume of biodiesel that would be necessary to reach 15.0 bill gal of conventional renewable fuel, the final rule does not focus on only the physical volumes of biodiesel that could be

made available. Ins tead, the text references the many constraints on biodiesel supply that are discussed in Section II.E.3, which includes distribution and dispensing infrastructure, engine warranties, and cold weather operation. However, there was no need to highlight thes e particular constraints on supply in the context of this exercise since the constraints associated with the physical availability of biodiesel were sufficient to demonstrate that the 15.0 bill gal target could

not be reached.

c. This approach t o building up to the conventional volume seems to limit physical availability to US production with more limited import response in the case of D4 imports and an explicit preference not to fill a higher conventional fuel allowance through D6 biodiesel, all of which is imported, despite EPA assertions the fuel origin is irrelevant and instead they appear to seek to limit D6 imports due to lower GHG scores of the fuel. So while it may be ‘obtainable’ they chose to shift these volumes into the advanced categ ory while also citing physical availability of the fuel (before blending) as the constraint on setting mandates at a higher level. So despite thoseD6 fuels being available 1 , this fuel appears not to be allowed to contribute to a higher mandate

despite physical availability. One could argue that the availability of this fuel to the market place should be incorporated into the setting of the total (and therefore conventional g ap) of the

mandate.

Response: The final rule does not seek in any way to determine the volume of conventional renewable fuel that can be supplied in 2016. Instead, in keeping with the nested nature of the RFS

standards the final rule determines the supply of total renewable fuel which can be achieved in 2016, and then determines the portion of the total renewable fuel volume that it is reasonable to expect can be advanced biofuel. The resulting volume of conventional renewable fuel is merely the

out growth of the determination of the total and advanced volumes.

Regarding the estimation of advanced versus conventional biodiesel (and renewable diesel), we have in fact included substantial volumes of conventional biodiesel in our determination of the

t otal renewable fuel volume requirement. As shown in Table II.E.5

- 1, we have determined that a total of 2.5 bill gal of biodiesel can be achieved in 2016. With the revision to the advanced

standard described above , we now dete rmine that 2. 1 bill gal of that biodiesel can reasonably be expected to be advanced , a s shown in Table II.F

- 1 . Effectively, then, the conventional renewable fuel volume is presumed (for the purposes of determining the 2016 volume requirements) to

include 4 00 mill gal of conventional biodiesel. This is considerably higher than the actual volume of conventional biodiesel projected to be supplied in 2015.

d. When it comes to estimated potential consumption of ethanol in 2016 the error correction for 2014, which identified ethanol consumption being nearly 350 million gallons higher than EPA initially estimated, has no effect on EPA’s perception of potential consumption. That is to say, in this instance, estimated future consumption doesn’t seem to be guided by observations of how compliance and consumption are today. For example, in the figure below, expectation s for years beyond 2014 are not influenced by the fact that they had to make a significant (0.2%) increase in their 2014 number from the proposed rule.

1 We know this fuel is available for import, if incentives are right, because it is being produced overseas, generates RINs which are only then available domestically when the fuel is imported. The creation of the RINs validates the fuels physical existence

.Figure II.E.2

- 1

Ethanol Concentration of Gasoline

Source: EIA's Short Term Energy Outlook

Response: The correction for 2014 ethanol exports has essentially no bearing on the determination of the volumes that can be achieved in 2016 because the 2014 correction merely changed our understanding of what actually occurred, not what could have occurred. Moreover, following this correction, the poolwide ethanol concentration in 2014 was still less than 10%. 2 In contrast, the volume requirements for 2016 would result in a poolwide ethanol concentration above 10%.

e. In terms of E85 consumptio n, the EPA uses ‘ demand’ as supply, but here the agency examine s actual E85 consumption at a national level and assert s that RIN prices are not passed through to consumers and therefore the mechanism which would incentivize additional E85 consumption

throu gh RIN prices is ineffective. This discussion which starts on page 74 differs from the proposed rule in that an examination of data from Minnesota 3 , perhaps the most complete E85 consumption data, was abandoned in the text of the final rule. The Minnesota data suggests that at the station level, high RIN prices did lead to discounting E85 to consumers and a significant increase in the volume of sales. As the RIN prices quickly returned to lower levels, the incentives disappeared and sales fell. This suggest s that in fact the mechanism of pass through and consumer response does act as economic theory would suggest despite EPA assertions. 4

2 Also, Figure II.E.2

- 1 is based directly on EIA data, which accounts for all gasoline and ethanol actually consumed in 2014. It likewise shows a poolwide ethanol concentration of less than 10%.

3 https://mn.gov/commerce/energy/images/2015

- 09Sept

- E85.p df

4 EPA states on page 75: EPA examined available data in an attempt to determine whether or not higher RIN prices resulted in lower E85 prices at retail, and whether lower E85 retail prices lead to substantial increases in E85 sales, asThe period over which conditions were sufficient to induce additional E85 consumption was as

short as a few months and in deed not all stations lowered prices. At a national level and over a longer period of time, such actions are likely masked in the data. The EPA seems aware that such response takes time:

( Pg 30 ). “...In the longer term, sustained ambitious volume requ irements are necessary to provide the certainty of a guaranteed future market that is needed by investors; the development of new technology won't occur unless there is clear profit potential, and it requires multiple years to build new production, distrib ution, and consumption capacity...”

Response: EPA has not abandoned consideration of the Minnesota data in this final rule, rather we have considered this data along with sales and pricing data available in several other states in addition to just considering data from Minnesota. Even the Minnesota data suggested that the RIN value was only passed through in part, and reflected in part in the retail pricing of E85. The full value of the RIN was not passed through. The sales volumes, while signifi cant increases in percentage terms, were still very small in absolute terms. This is consistent with the nationwide data. EPA is including two technical memos for review, one exploring the impact of RIN prices on E85 retail prices and another exploring s ales responses to E85 pricing. We agree that increasing sales volumes of E85 will require time, and this is the primary reason we cannot simply assume significant increases in E85 sales volumes in 2016.

f. Such adjustments in the E85 market appear to be judged on a different scale. Further the annualized approach to E85 ‘supply’ (consumption) ignores the significant seasonality in E85 use. If ‘supply’ is evaluated as the ability to consume, then such an ability to consume should be judged on a shorter time frame. E85 consumption in 2013, a year with significant volatility in RIN prices, was three times higher in August (near the highs of RIN prices) than it was in January of the same year. To judge the ability of the market to consume E85 on the average of those 12 months vs the reality of the markets ability to consume E85 at peak demand, further skews the analysis to favor lower estimated E85 ‘supply’. 5 EPA back s away from using E85 to expand renewable fuel use but asserts there is no specific support for it.

( Pg 49 ) “...However, this general responsibility does not require obligated parties to take actions specific to E15 and/or E85 infrastructure, as the RFS program does not require ethanol specifically...”

Response: We are not aware of any data demonstrating that E85 use is consistently seasonal (independent of the impacts that E85/E10 price ratios have on consumer preferences for E85 versus E10).

Our determination of the volumes of E85 that could be achieved in 2 016 is based not on the total, or even average, E85 volumes that were actually achieved in calendar year 2013 (or 2014, for that

economic theory w ould suggest would be the case when FFV owners receive better value for purchasing E85 rather than

E10.

5 EPA states on page 77: All stakeholders agreed that actual sales of E85 in the past have been low. A number of parties

referenced certain E85 estim ates from EIA of about 77 million gallons in 2014.matter). Instead, our estimates of E85 potential were based on a detailed analysis of the near

term potential for increased us e of E85 as a function of the E85/E10 price ratio, which in turn was based on a substantial data set that included, but was not limited to, the aforementioned

Minnesota data.

We disagree that "EPA backs away from using E85 to expand renewable fuel use." On the contrary, we have projected growth in E85 use that is based on a detailed analysis of what the market can accomplish by the end of 2016 with significant expansion of E85 retail stations and reductions in the relative price of E85. It is the data, not EPA, which has resulted in lower E85 estimates for 2016 than policy aspirations might otherwise dictate.

g. The period of analysis for statements by EPA such as “ Although 150 million gallons is about twice as high as the estimate provided by EIA, it still does not indicate an overall preference among FFV owners for E85 when E85 has been available. Indeed, based on other comments received it is clear that the exper ience at retail has been mixed, “ are at too aggregated a level and over to aggregated p eriod of time to fully explore what is a fairly new market dynamic, much of the total and conventional mandate levels are built on this assumption by EPA. EPA also comments on a primary constraint being E85 station availability, here they seem open to

fur ther expansion, noting USDA involvement in infrastructure investment 6

. The concern is of course the circularity of the argument as RFS levels which are insufficient to drive E85 consumption result in low levels of E85 consumption which then lead to lower mandate levels. A closer examination of the economic incentives at a more micro scale may suggest greater consumer response and justify a more aggressive approach. Again the Minnesota data analysis in the proposed rule was dropped in the final. The commen ter suggests that EPA incorporate the distinction about national level and regional level consumption patterns in the final text to allow for the notion that E85 sales can be responsive to RIN prices as evidenced by the MN experience. Note also that EIA p rojects E85 sales in the AEO to be in excess of 300 mgal (or 270+ million gallons of ethanol content).

Response: We will add a clarification to Section II.E.2.iii to make it clear that the Minnesota data was not dropped, but in fact was included with data from other states, as well as data from the Fuels Institute, in determining how E85 use varies with the E85/E10 price ratio. The memo describing this analysis includes a discussion of the fact that it may be possible that stronger

- than

average region al (i.e. State

- specific) customer responses to E85/E10 price ratios might suggest that higher E85 volumes are possible for the nation as a whole. However, since the nation as a whole could just as easily exhibit a weaker

- than

- average customer response to E85/E10 price ratios, and there is no data or information to indicate which is more likely, we are compelled to use the average response in this final rule.

6 EPA states on page 78: A number of stakeholders cited a recent grant program sponsored by USDA that is designed to provide a total of $100 million for updated and expanded infrastructure at retail for higher level ethanol blends. 6 This is an important program that not only demonstrates the U.S. commitment to expanding the use of renewable fuels, but helps to boost private investment in infrastructure by providing matching funds. It will undoubtedly in crease the number of retail stations offering E85, but it is unclear how many new E85 stations would result from it in 2016.h. The availability of biodiesel and renewable diesel from grandfathered plants overseas seems to

factor in the allocation of volumes to mandates (shifting it from conventional to advanced classifications) instead of being additive to the mandates. That is their availability (as determined by RIN generation, not necessarily shipments to the US) is ig nored and not additive to the mandate but instead this fuel availability is now determined by overseas policies, exchange rates and economic incentives to ship to the US.

Figure II.E.3.iii

- 1 Biodiesel and Renewable Diesel Imports and Exports (2011

- 2015)

“...Nevertheless, as evidenced in 2015 we have clearly been experiencing some upward growth in imports of biodiesel and renewable diesel. Much of the increase in biodiesel imports in 2015 has been from grandfathered facilities that are exempt from the 20% lifecycle GHG reduction requirement. Fuel from these facilities qualifies for D6 RINs that can be used to satisfy the total renewable fuel standard...”

On biodiesel imports from Argentina (text below) one has to understand that the data show n

repres ent import da ta, that is the monthly data are for when the product arrived at US ports. One could expect a significant lag from the announcement of a new policy and the arrival of significant volumes.Figure II.E.3.iii

- 1 Imports of Biodiesel from Argentina

Source: Energy Information Administration

“...Additionally, the annualized volume of imported Argentinean biodiesel for 2015, based on data collected through July, is 94 million gallons. This level is far less that the potential volumes proj ected by the National Biodiesel Board and several others. Brazil has also just recently proposed increasing its biodiesel mandate from 7% to 8% in 2016, which may provide another attractive destination for exports of Argentinean biodiesel. 7 Finally, Arge ntina has changed the applicable tax on exported biodiesel several times since the beginning of 2015, highlighting the uncertainty associated with projecting potential future imports into the U.S. 8 Based on these facts, we believe that the volume of biodi esel and renewable diesel imported from Argentina in 2016 is likely to be far less than the several hundred million gallons suggested by some commenters...”

Response: The availability of biodiesel and renewable diesel from foreign markets impacts both

the total supply of renewable fuel, as well as the portion of this renewable fuel that can be advanced biofuel. In our assessment of available supply we began by projecting the total available supply or biodiesel and renewable diesel, including both that whi ch can be produced domestically and that which can be produced internationally (at registered facilities) and imported into the United States. We determined that total biodiesel and renewable diesel supply can increase by approximately 500 million gallons from 2015 to 2016. This was in large part due to the availability of product produced in foreign countries such as Indonesia , Singapore, and Argentina. We next considered how much of this fuel could be advanced. W ith the changes described above to

the advanced biofuel standard in response to these comments we now determine that 2. 1 billion

7 "Brazil Proposes Raising Biodiesel Mandate To B10," docket EPA

- HQ

- OAR

- 2015

- 0111.

8 "Argentina changes biodiesel export tax

- Bi ofuels Digest," docket EPA

- HQ

- OAR

- 2015

- 0111.gallons of the 2.5 billion gallons total biodiesel and renewable diesel could be advanced biofuel.

This number was chosen to try to maximize the GHG benefits of the RFS program by requiring most of the biodiesel and renewable diesel to be advanced biofuel (with a 50% GHG reduction) rather than conventional biofuel (20% lifecycle reduction or grandfathered with less ). When considering potential production from Arg entina, we did not solely rely on the monthly import records, but also considered other factors, such as increasing domestic demand for biodiesel in Argentina and significantly reduced biodiesel production relative to previous years. We do recognize the f

act that there could indeed be a lag between announcement of a policy shift and a response in the market, and we will continue to monitor the level of imports.

i. A comparison of the following tables suggests that the EPA expects imports of 300 million gallons (2,500

- 2,200) of D6 biodiesel and renewable diesel in 2016 (or as much as 450 million D6 RIN equivalents).

1. Table II.E.5

- 1

Volumes Used To Determine Total Renewable Fuel Supply in 2016 Volume (million gallons) Million RINs

Ethanol 14,051 14,051

Biodiesel and renewable diesel 2,500 3,750 Biogas 210 210

Other non

- ethanol renewable fuels 100 100

Total 16,861 18,100 a

a We believe it is reasonable to round the sum of 18.11 to 18.10 bill gal.

Table II.F

- 1 Volumes Used To Determine Advanced Biofuel Supply in 2016 Volume (million gallons) Million RINs

Cellulosic biofuel 230 230

Biodiesel and renewable diesel 2,200 3,300 Imported sugarcane ethanol 200 200

Other non

- ethanol 100 100

Total 2,630 3,800 a

a We believe it is reasonable to round the sum of 3.83 to 3.80 bill gal.

Those levels suggest that meeting the D6 obligation of approximately 14.3 billion gallons, would come from essentially ethanol in E10 that is not advanced, or about 13.85 million gallons, and about 450 million gallons of D6 biodiesel and renewable diesel. Imported sugarcane ethanol would effectively (at 200 million gallons) meet the E85 assumed sales in 2016

--- a lower level than projected by EIA.

Response: While EPA is projecting approximately 200 million gallons of E85 will be used in 2016 to meet our standards, it is inappropriate to characterize this volume of E85 as being filled with only sugarcane ethanol and only corn ethanol as being used to produce E10 . Ethanol produced from these two feedstocks is identical, and it is likely that ethanol from both sources will be used to produce both E10 and E85.While EIA’s AEO may predict more than 200 million gallons of E85, EIA’s most recent STEO (the

data they say we should use for this rulemaking) projects that in 2016 the share of ethanol in gasoline will be 9.9%, which is significantly lower than that assum ed by EPA.

Note that, in response to interagency comments, we have changed the final volume requirement for advanced biofuel to 3.6 billion gallons.

In the process of determining the volume requirements for advanced biofuel and total renewable fuel, w e made estimates of the total volume of biodiesel and renewable diesel that could be supplied in 2016, and the portion of that volume that was reasonably attainable as advanced biofuel. We acknowledge that the implication of these calculations is that 4 0 0 mill gal of conventional biodiesel and renewable diesel ( 600 mill RINs) would be used to meet the implied

14. 5 bill gal conventional renewable fuel volume requirement, and that the remaining portion of

that 14. 5 bill gal implied requirement would be met with ethanol. However, this is not a projection of how the market will respond to the standards that we set. We described in Section II.G that there are many ways that the market could respond, including but not limited to total volumes of

biodiesel and renewable diesel less than the 2.5 bill gal we used in determining the volume requirement for total renewable fuel, and volumes of conventional ethanol higher than those implied by Tables II.E.5

- 1 and II.F

- 1

.

11. (Pg 31) The commenter also suggested deleting the entirety of or the last part of the following

text:

“... Constraints on the availability of biodiesel to U.S. consumers could include competing uses for feedstocks, international competition for biodiesel, the inco nsistent nature of the biodiesel subsidy, limited investments to ensure quantity and quality of biodiesel product, limited infrastructure to distribute and blend biodiesel, and the limited ability of the market to consume biodiesel ...”

Response: We do not believe it would be appropriate to delete the last part of the quoted text, as

these limitations are significant factors in the potential total supply of biodiesel in 2016. This text is important for the legal defensibility of this rule.

12. (Pg 46) Provide additional justification of this statement from the literature. The underlined text seems very particularly speculative as written:

“... Just as importantly, biodiesel volumes on the order of 5.5 billion physical gallons in 2016 are far in excess of what could actually be consumed in this short timeframe. This volume of BBD would constitute about 10% of the diesel pool in 2016. [1] Although most

medium and heavy

- duty engine manufacturers warrant the use of blends up to B20 in their more recent models, some light

- duty engine manufacturers do not, and many highway and nonroad diesel engines that were produced in the past but are still in use today are warrante d for no more than 5% biodiesel. [2] Also, as pointed out byCountryMark Cooperative Holding Corporation, biodiesel concentrations in the winter

months are sometimes kept to l ower levels by engine owners due to cold weather operability and storage concerns, and some parties avoid selling biodiesel at all during

winter months. Constraints on the use of biodiesel at concentrations above 5% due to engine warranty limitations, plus resistance on the part of some parties to using biodiesel in winter months, means that a nationwide average of 10% biodiesel in the diesel pool, for an entire calendar year, is not reasonably achievable in 2016. We acknowledge that the

National Biodiese l Board has extensive efforts underway working with the vehicle and engine manufacturers to continue to expand product offerings capable of operating on B20, working with their membership to improve fuel quality, expanding infrastructure to

address cold te mperature issues, and working with dealers and technicians to clear away obstacles standing in the way of expanding biodiesel acceptance in the marketplace. [3] There are also efforts to increase the use of biodiesel in heating oil. These will continue to bear fruit, allowing the biodiesel volume to continue to rise over time, but not to the levels that would be needed in 2016 if 5.5 billion gallons of biodiesel were to be

req uired ... “

Response: The underlined sentence is merely a summary of the points made in the preceding sentences. If it is the points made in the preceding sentences that are considered speculative, it is unclear why. Manufacturers only began warranting t heir engines to operate on B20 in the last 5

years or so

, so a large portion of the in

- use fleet by definition must have been warranted for only

B5. Cold

- temperature issues with biodiesel are well

- known, which is why much of Canada’s

mandate is met with renewable diesel. W e have cited one stakeholder as explicitly stating that they avoid blending biodiesel in winter months. We will add some additional citations in footnotes to studies discussing cold temperature issues with biodiesel.

13. (Pg 48 ) Same as above. Provide additional justification of these statements:

“... Even if some portion of the increase were supplied from imports, the total volume of biodiesel supplied to diesel engines would more than double in comparison to that supplied in 2014, requiring that distribution, blending, storage, and dispensing routes would need to be expanded in an extremely short period. We do not believe that this is possible in 2016. As a result, we do not believe that the statutory target for advanced

bio fuel can be met in 2016 ...”

Response: A footnote has been added to clarify.

14. (Pg 97) This language seems to contradict

– how can infrastructure be constraining if EPA is simultaneously pointing out examples where the infrastruc ture is clearly not the problem? For example, the background data is not supporting t he statement that “ suggest that increasing the number of refueling stations offering biodiesel blends could be a significant constraining factor to the supply of biodiese l in 2016 .”“... There is some indication that the number of refueling stations willing or able to market

biodiesel may become a factor that constrains the growth of biodiesel supply in the United States, either in 2016 or in future years. A number of reta il locations that market diesel fuel are only offering biodiesel blends that exceed 5% (B5), which is the maximum amount of biodiesel for which many diesel vehicles are warranted. For example, the LOVES truck stop chain is a major retailers of biodiesel. A recent review of their website indicated that 221 of their 354 stations were selling B15. This is despite the fact that many of the newer, and especially the older heavy

- duty diesel truck engines were only designed and warranted for biodiesel blends u p to B5. Similarly, in the state of Illinois nearly all sales of biodiesel blends are reported to be at B11 in order to benefit from the state tax subsidy, despite the fact that not all vehicles and engines have been designed and warranted for its use. T his may suggest that increasing the number of refueling stations offering biodiesel blends could be a significant constraining factor to the supply of biodiesel in 2016. Were more retail outlets willing and able to dispense biodiesel, then, existing volum es of biodiesel could be distributed at concentrations B5 or less without raising any warranty

concerns... ”

Response: We do not believe this language is contradictory. The data shows that the incentive to blend more biodiesel has led to at least one part y selling only B15 blends, despite the fact that a substantial number of their potential customers operate vehicles with engines that are only designed and approved to use up to B5. If biodiesel distribution were not constrained, we think it

much more likely that biodiesel would expand to more stations, rather than higher level blends that are problematic for some customers and may turn them away , as nationwide biodiesel use is still well under 5% of the diesel pool.

15. The GHG benefits of advanced biofuels relative to conventional biofuels are likely overstated. EPA has not updated the analysis of the GHG benefits of conventional biofuels since the RFS was put into place. There have been significant improvements in technology and initial concerns of

GHG from indirect

- l and use change have not materialized.

More generally, the EPA assumption that corn ethanol has lower GHG benefits than advanced biofuels is based on the conclusion of the life cycle analysis (LCA) that it conducted on corn

ethanol in as part of the 2010 Regulatory Impact Analysis of the RFS2. This LCA was done in

2010 and so it reflects a projection of the direct and indirect GHG emissions associated with a

state

- of

- the

- art natural gas powered ethanol refinery in 2022. The LCA pro jected 2022 emissions for the following 11 components of corn ethanol production.

1. Domestic farm inputs and fertilizer N 2 O

2. Domestic land

- use change

3. Domestic rice methane

4. Domestic livestock

5. International land

- use change

6. International farm inputs and fertil izer N 2 O

7. International rice methane

8. International livestock

9. Fuel and feedstock transport

10. Fuel production

11. TailpipeSince 2010,the commenter has new data, improved model capabilities, and empirical studies

that strongly support the position that corn ethan ol is currently on an emissions pathway that is much more positive, and will result in a much improved GHG profile in 2022 than was

determined in EPA’s RIA. For example, with respect to component 5, new data shows that

between 2003 and 2010 deforestation in the Amazon fell four

- fold while U.S. corn ethanol production increased four

- fold (deforestation in Brazil’s Amazon was the largest component of

indirect land

- use change emissions in the LCA). Similarly, with respect to components 1,6,7,9 and 10, emissio ns are estimated using coefficients and other inputs from the Argonne National Laboratory’s GREET model. The GREET model has been significantly revised and updated since 2010. Finally, with respect to components 2 and 5, recent work by Babcock and Iqbal (s ee: ( www.card.iastate.edu/publications/dbs/pdffiles/14sr109.pdf ) conclude the primary land

- use adjustment made by farmers both within the U.S. and internationally to the inc reased U.S. and global demands for (non

- palm oil) biofuels was to use existing cropland more intensively (including increased double cropping and farm chemical use. Intensification of existing cropland was not considered in the EPA 2010 LCA.

USDA suggests EPA provide some caveats indicating that the lifecycle analyses of petroleum fuels and biofuels have likely changed since the 2010 rulemaking and that additional review and study is warranted in the near future to assess changes to key parameters used in the 2010

assessment.

Response: Since the adoption of the RFS program in 2010, a number of studies have been conducted suggesting both higher and lower GHG impact compared to the current estimates. Without conducting a thorough reanalysis, it would be inappropriate to suggest any direct ional trend in GHG performance compared to the existing analyses. An update we have made is to develop the Efficient Producer petition process to allow corn starch and grain sorghum ethanol producers to specifically demonstrate superior process efficiency through reduced onsite energy consumption, increased fuel output and/or use of low greenhouse gas energy sources to reduce process energy greenhouse gas emissions. However , while we continue to review updated data

and LCA modeling capability for potentia l future use it does not have any bearing on this rulemaking

.

1 6

. What does EPA plan for resetting the mandates in the future? Future investment and growth in biofuels capacity and demand will depend on the signals sent by EPA regarding how the statutory levels will be reset sometime in the relatively near future. Section I. D. is missing discussion of waiver requirements and resetting of the statutory standards.

Response: Resetting the statutory volumes would be the focus of a separate rule making and therefore is not addressed in this preamble. Regarding future investment and growth in biofuels capacity, we believe getting the annual standard setting schedule back on track, including for the 2017 standards, goes a long way to providing appr opriate incentive for expanded biofuel production.1 7

. In discussing the reasons why biofuels have not reached the levels mandated in the RFS2, there

is no mention of the large drop in the price of petroleum since 2010 (when EISA was passed) or

the incr eased domestic and Canadian production of natural gas and petroleum. For example,

Table II.E.1

- 1 does not mention petroleum prices. Please provide a discussion of the impact of petroleum prices and compliance with the mandate and sales of higher level ble nds.

Response: We a dded oil price relative to the cost of production of biofuels in Table II.E.1

- 1 and in the text preceding and following the table acknowledging this factor

.

1 8

. With respect to Pg 24, please confirm that USDA has provided EPA the values they plan to insert for the XXX’s in the following:

“... Based on data provided by the USDA, we have estimated that U.S. agricultural land reached XXX million acres in 2014, and thu s did not exceed the 2007 baseline acreage...” (the 2007 baseline acreage was given as 402 million acres on page 23).

“... The total agricultural land in Canada in 2014 is estimated at XXX million acres. The total acreage estimate of XXX million acres does not exceed the trigger point for further investigation ...” (should also add a footnote clarifying this “trigger point”)

Response: EPA received the required information from USDA after the package was sent up for interagency review. T

he relevant sections have now been updated with these numbers (replacing xxx in all instances). We will add a reference to the Canadian baseline and ‘trigger point’ as well.

1 9

. The commenter recently provided the EPA data on land use on Agricultural Cropland (FSA sourced), acres enrolled in the Conservation Reserve Program (CRP and FSA sourced), the Grassland Reserve Program (GRP), the Wetlands Reserve Program (WRP), and the Agriculture Conservation Easement Program for Wetlands Reserve Easements (ACE P

- WRE) and Agriculture Land Easements (ACEP

- ALE). The commenter would like to see the estimates of agriculture land based on the data provided for 2014 and 2015.

Further, the 2014 Farm Bill terminated the WRP and GRP as of 2013 and initiated the Agricult ure Conservation Easement Program with “Wetlands Reserve” and “Agriculture Land” easements. As a consequence the ACEP

- WRE and ACEP

- ALE represent a continuation in basic objectives and goals of the original WRP and GRP and acreage enrolled in the easement

p rograms would represent a good/fair proxy of WRP and GRP acreage. Text should reflect this modification in methodology.

Response: This section has been updated to reflect the agriculture land estimates provided by

USDA. In addition we have included la nguage to address the Farm Bill changes. Both agencies have agreed to work together to assess the impact of these data reporting changes, for the 2017

Annual Rule.20

. (Pg 31) EPA writes that “... Constraints on the availability of biodiesel to U.S. consu mers could

include competing uses for feedstocks, international competition for biodiesel, the inconsistent nature of the biodiesel subsidy, limited investments to ensure quantity and quality of biodiesel product, limited infrastructure to distribute and b lend biodiesel, and the limited ability of the

market to consume biodiesel...” We assume that the biodiesel subsidy referenced here is the Federal excise tax credit for biodiesel blending. The D4, D5, and/or D6 RIN values can function in place of the blend ing tax credit, but only if the volume obligations are set to require high utilization of existing capacity.

Response: The subsidy referenced is the tax credit. We have edited the preamble to make this clear. We agree that higher RIN values can function in place of the tax credit, as the commenter suggested, but they do not fully address the other issues mentioned. It i s for this reason that we have projected growth in biodiesel to be approximately equal to the growth seen in 2013, when standards were beyond the ability of the market to achieve with liquid biofuels even when the tax credit was in place.

21

. (Pg45) Th e scenarios presented in Tables II.B

- 5

- 1 and II.B.5

- 2 do not consider the potential for additional renewable diesel to meet the statutory targets for total renewable fuel and advanced

biofuel. Renewable diesel uses the same raw materials as biodiesel but does not have any cold

weather operability issues and can be used at much higher blend levels (as much as 100%) in existing diesel engines than can use biodiesel. As of September 2015, there are 1.3 billion gallons of renewable diesel capacity worldwide. See http://www.eia.gov/workingpapers/pdf/flightpaths_biojetffuel.pdf , p. 15.

Response: All references to BBD include both biodiesel and renewable diesel. We will add tex t to clarify this point.

22

. (Pg 130) EPA writes that “...Total domestic production of BBD was 1.45 billion gallons (2.19 billion RINs), while imports resulted in an additional 0.34 billion gallons (0.55 billion RINs)...” The volume is EIA’s reported total Biomass

- based Diesel imports for 2013. The resulting number of

RINs is calculated incorrectly. 0.34 billion gallons of biodiesel * 1.5 RINs per gallon = 0.51

billion RINs. Furthermore, EIA uses slightly different names for diesel fuel substitutes than EPA; imports of Biomass

- based Diesel consist only of FAME biodiesel. Diesel fuel from renewable sources other than FAME such as hydrotreated vegetable oil are reported by EIA as

Other Renewable Diesel. To get at EPA’s definition of Biomass

- based Diesel, EIA’s imports of

Other Renewable Diesel needs to be considered as well. EIA reports that imports of renewable diesel, which generated both D4 and D6 RINs, were 207 million gallons in 2013.

Response: The numbers in the cited text were derived from EMTS , not EIA, and include both biodiesel (which has an Equivalence value of 1.5) and renewable diesel (which typically has an Equivalence value of 1.7). We use EMTS because this is the most accurate source of information available on renewable fuels that qua lify under the RFS program.