June 14, 2013

Via Electronic Submission and Certified Mail

Environmental Protection Agency

Air and Radiation Docket and Information Center Environmental Protection Agency

Mailcode: 2822T 1200 Pennsylvania A venue, NW Washington, D.C. 20460 a-and-r-docket@epa.gov

RE: Regulation of Fuels and Fuel Additives: Renewable Fuel Standards:

Docket ID No. EPA-HQ-OAR-2012-0546

In its April 7, 2013 comments on the United States Environmental Protection Agency’s (“EPA”) 2013 volume mandate for the renewa ble fuel standard, Monroe Energy, LLC (“Monroe”) adopted the comment s of the American Fuel and Petrochemical Manufacturers (AFPM). One of AFPM’s comments on the propos ed rule related to the timing of its issuance and the resultant lack of lead time for obligated parties to comply. [AFPM Comments at pages 15-16 (attached)]. AFPM suggested that to a ddress the delay in promulgating the 2013 volume

mandate and the lack of lead time for industr y, EPA should “reduce the 2013 requirements to reflect the number of days the rule will be late in being finalized ”. (Id. at pg. 15).

Monroe Energy also would like to suggest other possible approaches to address the impact of an unprecedented price spike in RINs combined with much shorter than expected notice of compliance obligation levels. First, EP A should grant obligated parties additional time to comply with the 2013 volume mandate once finaliz ed. The additional lead time could be in the form of a waiver of 40 CFR 80.1427(b), which prevents a refiner from carrying a deficit two years in a row or a straight exte nsion of time commensurate with the delay in the issuance of the final rule. For example, if the final rule is issu ed in September, obligated parties could be given an additional ten months to comply with the rule.

Second, EPA should waive the carryover cap on RINs. Section 80.1427(a)(5) limits the

number of 2012 RINs that can be used for compliance with the 2013 RVO. This provision prevents refiners from using more than 20% 2012 RINs for compliance with its 2013 RVO. By waiving the cap, EPA would provide greater flexibility to obliga ted parties to find and apply RINs for compliance without any risk of hoardi ng because the life of th e 2012 RINs will expire

at the end of 2013.- 2 - The spike in the price of RINs has had the unintended effect of creating regulatory winners and losers within the refining industry. The winners are those vertically integrated

refiners that can themselves ble nd or that bought ethanol or biodies el plants (and have RINs that they can sell or trade); and small refiners a nd small refineries that are able to avoid the devastating impact of the increased cost of comp liance by securing hardship relief. The losers are those refiners, like Monroe Energy, that are much smaller operators than the integrated refiners, must purchase virtually all RINs needed for complian ce, and yet do not qualify for small refiner hardship relief.

Monroe competes with all refiners, and cannot unilaterally pass an inflated RIN compliance cost on to consumers through an increas ed price at the pump when competitors have not incurred the same cost and are not passing it along.

EPA should do everything in its power to re duce the burden on those refiners that are disproportionately shouldering the impact of the spike in the pri ce of RINs by: (1) reducing the 2013 volume mandate; (2) extending the timeframe for compliance; and (3) waiving the cap to allow refiners greater flexibility in achieving compliance.

We appreciate your considera tion of Monroe Energy’s additi onal thoughts on the timing of the rule and lead time for obligated partie s to comply. Please contact me if you have any questions.

Respectfully submitted,

Frank A. Pici

Chief Financial & Administrative Officer

cc: David Korotney Korotney.david@Epa.gov

Julia MacAllister Macallister.julia@Epa.govAmerican

Fuel & Petrochemical

Manufacturers Richard Moskowitz

General Counsel

1667 K Street, NW

Suite 700 Washington, DC

20006

202.457.0480 office

202.552.8457 direct

202.457.0486 fax Rmoskowitz@afpm.org

April 8, 2013

COMMENTS OF THE

AMERICAN FUEL & PETROCHEMICAL MANUFACTURERS

Regulation of Fuels and Fuel Add itives: 2013 Renewable Fuel Standards Docket ID No. EPA-HQ-OAR-2012-0546

The American Fuel & Petrochemical Manufacturers (AFPM) 1 submits these comments in response to the Environmental Protection Agency ’s (EPA or Agency) proposed rule entitled Regulation of Fuels and Fuel A dditives: 2013 Renewable Fuel Standards

. 2 As manufacturers of liquid transportation fuel s, AFPM and its members are direc tly regulated by the Proposed Rule. AFPM members are injured by EP A’s proposal, which could incr ease emissions of certain pollutants, alter perceptions of individual members’ trademarks, and require modifications to fuel distribution systems. AFPM members also are impacted on a competitive basis, as EPA’s regulations implementing various biofuel mandate s impact the demand for transportation fuels they produce and distribute.

The Energy Independence and Security Act of 2007 (EISA) provides EPA with “tools” to adjust the volumes of renewable fuels in res ponse to market conditions. Notwithstanding the incompatibility of mid-level ethanol blends with ex isting vehicles and fuel delivery infrastructure and the lack of availability of drop-in cellulosic biofuels, EPA has refused to utilize the flexibility provided under the law to reduce the amount of ethanol that will be mandated under

the RFS.

This proposal is taking place at a critical time for the Renewable Fuel Standard (RFS).

As the mandated annual biofuel volumes continue to increase in an environment of declining gasoline demand, ethanol will soon exceed the 10 % compatibility limit of the overwhelming majority of vehicles and fuel retail infrastructure in the U.S. This is being referred to as the “E10 blendwall.” The E10 blendwall is approaching a nd its early impacts alre ady are being reflected

1 AFPM is a trade association representing high-tech Amer ican manufacturers of virtuall y the entire U.S. supply of gasoline, diesel, jet fuel, other fuels and home heating oil, as well as the petrochemicals used as building blocks for thousands of products vital to everyday life.

2 78 Federal Register 9282 (February 7, 2013) (hereinafter the “Proposed Rule”).American Fuel & Petrochemical Manufacturers Docket No. EPA-HQ-OAR-2012-0546 April 8, 2013

in the exponential increase in RIN prices and volatility. Some obligated parties are finding it impractical to acquire sufficient RINs to cover th eir production or import of gasoline and diesel. Both 2014 and 2015 likely will present circumstances that result in many obligated parties being unable to acquire enough RINs to meet their RFS obligations at current production levels. Sales of E85 will be too little to help largely because consumers have rejected this alternative fuel. 3 In addition, E15 has significant vehicle and refueling infrastructure compatibility problems and will not be available on a widespread basis. To re spond to these changed circumstances, EPA must promulgate the 2013 Renewable Fuel Standards at levels that recognize the significant reduction in gasoline demand and the technological limits on the amount of ethanol that may be blended into the gasoline pool. AFPM proposes that EPA ta ke all necessary steps to ensure that the total renewable fuel standards for 2013 be reduced to avoid a requirement to blend ethanol in quantities that exceed te n percent of the nation’s gasoline poo l. While AFPM believes that EPA

should waive the entire R FS, at a minimum, the Agency must reduce the advanced and total RFS volume so that the quantity of ethanol mandated is less than 10% of gasoline demand. 4

Corn ethanol RIN prices have increased dramatically and this added cost will disadvantage consumers and make the U.S. less competitive in the world gasoline and diesel markets. Moreover, in the face of the E10 bl endwall obligated partie s that cannot acquire sufficient RINs have four options: (1) limit production of gasoline a nd diesel, (2) export gasoline and diesel, (3) use banked RINs (alt hough many obligated parties do not have banked RINs in sufficient quantities to meet their obligat ions), or (4) carry the deficit forward one year (into an even worse situation th e following year where the manda tes are even higher and where a party that carries forward a defi cit must clear the deficit and m eet its RVO in full in the second year). These realities combined with the impacts of the drought on corn prices constitute severe economic harm unforeseen by the Congr ess when the RFS was enacted.

AFPM believes that the RFS is broken a nd EPA should waive the entire mandate for 2013 and 2014 to ensure that Congress has adequate time to address the changed assumptions and unintended consequences caused by the RFS mandates. A recent study by NERA Economic Consulting calculates severe economic harm fo r the U.S. as a result of the blendwall. 5 This severe economic harm is sufficient to trigger EP A’s authority to waive the RFS requirements in the amount necessary to avoid promulgating a mandate that forces the economy to crash into the E10 blendwall. This authority, in combination with EPA’s ability to reduce the advanced and

total volumes commensurate with the reducti on in cellulosic biofue l volumes, provides the Agency with the ability to avoid the se vere impact of the E10 blendwall.

3 See discussion at Section A.2, infra

.

4 Letter dated October 18, 2012 from EIA to EPA, (e stimating gasoline demand of 133.984 billion gallons). Note a more recent estimate appears in the EI A Short Term Annual Energy Outlook (March 12, 2013) (estimating gasoline demand at 8.7 million barrels per day or 133.37 billion gallons in 2013).

5 See NERA Economic Consulting, Economic Impacts Resulting from Implementation of RFS2 Program (October 2012).

2American Fuel & Petrochemical Manufacturers Docket No. EPA-HQ-OAR-2012-0546 April 8, 2013

Against this backdrop, AFPM is concerned with the following aspects of the Proposed

Rule:

• The failure to appropriately consider the E 10 blendwall.

• The rejection of the Court of Appeals’ admonition in API v. EPA to use realistic estimates of cellulosic biofuel produc tion in the proposed 2013 ce llulosic biofuel RFS.

• The refusal to adjust downward the advanced biofuel and total renewable fuel volumes

for 2013 to account for the shortfall in cellulosic biofuel production.

• The incorrect application of the statutory cr iteria used to establish the biomass-based diesel RFS for 2013 and the Agency’s failu re to respond to AFPM’s petition for

reconsideration to correct the de ficiencies in this standard.

• The disregard of the Clean Air Act (CAA) deadline to finalize all four standards by November 30, 2012 and the decision to re troactively apply these standards.

• The delay in proposing the 2014 biomass-base d diesel mandated volumes under the RFS and the resultant retroactive impact of such delay.

We address each of these issues in detail, below.

A. The Fast-Approaching Blendwall is a Wake-up Call that EPA must Heed.

Five years after the enactmen t of the RFS, we face a cr isis that Congress did not anticipate when it passed the En ergy Independence and Security Act of 2007 (EISA). For several years, AFPM has warned that the ethanol blendwall will interfere with the implementation of the RFS. These warnings were largely ignored and as a result of changed circumstances the problems created by th e ethanol blendwall are now upon us.

The fast-approaching E10 blendwall – the prac tical limit on the amount of ethanol that may be blended into the gasoline supply was not an ticipated at the time of enactment. The fact

that the E10 blendwall has become an issue in connection with the establishment of the 2013 RFS is largely the result of changed circumstance s in the gasoline market. At the time EISA was being debated in Congress, the nation consumed 142 billion gall ons of gasoline and demand was expected to grow to 150 billion gallons by 2013. Today, as the result of an economic slowdown

in 2008 and the use of more fuel-efficient auto mobiles, our nation consumes approximately 134 billion gallons of gasoline – an eleven percen t reduction in the amount of gasoline that was anticipated at the time EI SA was enacted in 2007. 6 Had market expectations in 2007 held true,

6 See U.S. Energy Information Administration, “EIA Frequently Asked Questions: How much gasoline does the United States consume,” accessed at http://www.eia.gov/tools/faqs/faq.cfm?id=23&t=10 ; EIA Annual Energy Outlook 2007, DOE/EIA-0383, p. 80 (February 2007), http://www.eia.gov/oiaf/archive/aeo07/pdf/0383(2007).pdf

. See also http://www.eia.gov/dnav/pet/pet_cons_psup_dc_nus_mbbl_a.htm

.

3American Fuel & Petrochemical Manufacturers Docket No. EPA-HQ-OAR-2012-0546 April 8, 2013

we would not be facing the E10 blendwall this year. Indeed, if cellulosi c biofuel producers succeeded in producing adequate quantities of so -called drop in fuels that were completely fungible with the existing slate of transportation fuels, rather than cellulosic ethanol that has compatibility issues with the existing fleet and fu el distribution infrastruc ture, the E10 blendwall may have been avoided in the long term, as well.

The E10 blendwall is not a story woven by ob ligated parties, but rather a very real problem that is confirmed by a documented RIN market imbalance. The following graph illustrates the market’s reaction to the approach ing blendwall and the si gnificant shortage of RINs available for compliance with the RFS.

$0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.201/26/20103/26/20105/26/20107/26/20109/26/201011/26/20101/26/20113/26/20115/26/20117/26/20119/26/201111/26/20111/26/20123/26/20125/26/20127/26/20129/26/201211/26/20121/26/2013 Daily Ethanol RIN Credits

(as of 3/14/2013)

2010 RIN

2011 RIN

2012 RIN

2013 RIN Source: OPIS

Biofuels Update

The graph clearly illustrates th at when the blendwall was not at issue (pre-2013), ethanol RIN prices were typically priced below 4 cents per RIN. This changed at the end of 2012, when it became obvious that there was not enough gasoline available to accommodate the blending of the required amount of ethanol. Th is anticipated scarcity resulted in a meteoric rise in ethanol RIN prices. This rise was fueled by EPA’s Proposed Rule, which showed that EPA was not prepared to use the tools at its disp osal to address the blendwall.

EPA has certain tools to address some of these unintended consequences that have produced a significant market imbalance. EPA ha s the ability to reduce the cellulosic biofuel RFS to reflect historic producti on levels and to reduce the adva nced and total renewable fuel mandates by an equivalent amount. EPA also has the ability to issue a waiver of the 2013 RFS

standards that will ensure that ethanol remains below 10 percent of the gasoline supply based on

4American Fuel & Petrochemical Manufacturers Docket No. EPA-HQ-OAR-2012-0546 April 8, 2013

severe economic harm or inadequate domestic supply. 7 Such harm is clearly evident in the significant increase in the price and volatility of ethanol RINs since late 2012. The dramatic runup in the price of ethanol RINs will have an imp act on the cost of producing transportation fuels. Moreover, high RIN prices create an economic incentive for some oblig ated parties (who are importers) to divert planned imports of gasoline to other nations to avoid having to purchase RINs and other obligated parties to reduce the am ount of gasoline and diesel they produce for the United States, which could have an impact on the available supply of transportation fuels. 8
These market conditions necessitate EPA sending a strong signal that it will do what is necessary to avoid crossing the E10 blendwall.

Proponents of using additional amounts of etha nol have argued that E15 and E85 are viable options for avoiding the blendwall. Thes e alternatives, however, w ill not work in today’s

market.

1. E15 is Not a Realistic Solution to the Blendwall . Although EPA issued a partial waiver to allow E15 to enter the marketpl ace, due to vehicle and refueling infrastructure compatibility issues, E15 will not solve the blendw all problem. EPA concluded that E15 will not damage the emissions control systems of vehi cles produced after 2001; however, subsequent data confirms that E15 will damage other engine components and virtually all of the automobile manufacturers have warned against the use of E15 in the vast majo rity of vehicles on the road. As such, the threat of potential liability from selling E15 stands as a real-world obstacle to the

use of this mid-level blend.

Even if EPA could somehow overcome th e potential liabilities from gasoline engine damage that will be caused by E15, the vast majority of existing fuel storage and dispensing systems are not compatible with blen ds exceeding E10. Moreover, this equipment is

not “certified” to handle E15. 9 This certification is necessa ry for individual dealers and distributors to comply with ex isting regulations governing the storage and dispensing of motor

fuels. Underwriter Laboratories will not recertify this existing equipment, creating state and local legal hurdles to the ability of retail service stations to carry this fuel. This means that the introduction of E15 would require independently-owned service stat ions to replace their storage and dispensing systems. The decision to replace this infrastructure is beyond the control of the obligated parties and likely will not occur, due to the potential vehicle liabilities discussed above, the potential for misfueling, and th e substantial capital investment needed to carry E15. We note that obligated parties own approximately five percent of the retail fu eling stations in the

7 See 42 U.S.C. § 7545(o). We discuss the issue of severe economic harm in more detail below. With respect to inadequate domestic supply, we note that EPA expects the RFS to force the import of 666 million gallons of sugarcane ethanol from Brazil to help meet the Advanced Biofuel requirements. See Proposed Rule at 9298 – 9300. This need to import Brazilian sugarcane ethanol runs counte r to EISA’s stated purpose of furthering U.S. energy independence and stands as an acknowledgement of inadequate domestic supply.

8 See NERA Economic Consulting, Economic Impacts Resulting from Implementation of RFS2 Program (October
2012) (quantifying the severe economic harm that would be caused by the E10 blendwall).

9 The Petroleum Marketers Association of America reports that of the 700,000 gasoline dispensers in use, less than 5,000 have been certified for E15 and more than 3,000 miles of underground piping systems have not been certified

as safe for E15 as well. See Letter from Dan Gilligan to Wall Street Journal, (March 20, 2013).

5American Fuel & Petrochemical Manufacturers Docket No. EPA-HQ-OAR-2012-0546 April 8, 2013

United States; independent marketers examine the co sts and benefits of replacing their refueling

infrastructure.

2. E85 Use is Too Small to Overcome the Blendwall . The ethanol producers and EPA also point to the potenti al to sell E85 as a means to comply with the 2013 RFS. This solution also is inadequate to overcome the blendwall problem. E85 will damage vehicles that are not specially designed to handle high level ethanol blends . There are approximately 11 million flexible fuel vehicles (FFVs) in the Unit ed States – this represents only 5% of the 223 million passenger vehicles in the U.S. 10 While E85 is dispensed at limited locations in the United States, consumers have rejected its us e based primarily on poor fuel economy and higher costs. In fact, consumers with FFVs and reasonab le access to E85 fill up with E85 less than 4%

of the time. 11 This means that E85 represents less th an 0.2% of the gasolin e sold in the United

States and cannot be used to overcome the blendwall.

B. 2013 Cellulosic Biofuel RFS

EPA proposes to establish a cellulosic biof uel mandate of 14 million ethanol-equivalent gallons for calendar year 2013. While this amoun t represents a signifi cant reduction from the statutory volume of 1.0 billion gallons, it exceeds the Energy Information Administration’s (EIA) original projection of 9.6 million gallons (and its more recent projection of 5.0 million gallons) and continues the Agency ’s aspirational pattern of pr omulgating a cellulosic biofuel

mandate that is disconnected from market realities. 12 As such, this aspect of the Proposed Rule would be arbitrary, capricious and an abuse of EPA’s discretion.

AFPM is concerned that EPA is following the same flawed process used to promulgate

the 2011 and 2012 standards. The table below co ntains a representative comparison between

EIA and EPA cellulosic biofuel outlooks for 2011 through 2013 and actual production data for

2011 and 2012. The table focuses on the three ce llulosic producers EPA analyzed in the Proposed Rule along with EPA’s mistaken assumptions for the tw o prior years.

10 See U .S. Energy Information Administration (2012). Annual Energy Outlook 2012, Table 58, available at http://www.eia.gov/for ecasts/aeo/data.cfm

11 See 75 Federal Register 14670

, 14762 (May 26, 2010).

12 Proposed Rule at 9293.

6American Fuel & Petrochemical Manufacturers Docket No. EPA-HQ-OAR-2012-0546 April 8, 2013

2011 Firebright LLC KioR INP BioEnergy Range

Fuels

EIA utilization 46% 25%

EPA utilization in final rule 47% 100% 75% EIA volume (million gallons) 2.8 1.0 EPA volume (million gallons) in final rule 2.8 0.2 3.0 Actual production (million gallons) 0.0 0.0 0.0 0.0

2012 Firebright LLC KioR INP BioEnergy

EIA utilization 25% 25% 25%

EPA utilization in final rule 33% 30% 38% EIA volume (million gallons) 1.6 2.0 3.1 EPA volume (million gallons) in final rule 2.0 3.0 3.0 Actual production (million gallons) 0.0 0.001024 0.0

2013 Firebright LLC KioR INP BioEnergy

EIA utilization 50% 50% EPA utilization in proposed rule 73% 75% EIA volume (million gallons) 5.5 4.0 EPA volume (million gallons) in proposed rule 8.0 6.0

In establishing the 2011 cellulosic biofuel R FS of 6.0 million ethanol-equivalent gallons, EPA relied upon the parochial representations of cellulosic biofuel produc ers whose facilities had not yet begun to produce cellulosic fuel. 13 In doing so, EPA promulgated a standard that exceeded EIA’s projections of 3.94 million gallons for 2011. 14 This methodology proved to be a failure and actual domestic production in 2011 was zero gallons. In 2012, EPA ignored the lack of actual production in 2011 and repeated its erroneous methodology in establishing the

cellulosic biofuel volumet ric standard. Although EPA knew from its own data that no cellulosic biofuels were being produced, the Agency in creased the 2012 mandate by almost 75 percent and promulgated a cellulosic biofuel RFS of 10.45 million ethanol-equivalent gallons for 2012. 15
This standard was determined to be arbitrary and capricious and was va cated by the U.S. Court of Appeals for the District of Columbia Circuit.

In setting the 2013 proposed st andards EPA again chose to in crease the utilization of the two cellulosic plants beyond EIA’s outlook. EPA’s expectation that the plants would be fully operational in 1Q 2013, has not materialized as of this date. Perhaps, more importantly, on February 26, 2013, EIA revised downward its 2013 cellulosic biofuel projections. 16 EIA now expects approximately 5 million gallons of cellulosic biofuels to be produced in 2013. This new estimate amounts to only 36 percent of th e EPA proposed cellulosic biofuel volumetric standard. Given the insignificant amount of cellu losic biofuels production that has occurred so

13 75 Federal Register 76790 (December 9, 2010).

14 See Letter from Richard Newell to Lisa Jackson, EPA-HQ-OAR-0133-0099 (October 20, 2010).

15 77 Federal Register at 1320 (January 9, 2012).

16 See U.S. Energy Information Administration, Today In Energy (February 26, 2013) accessed March 3, 2013: http://www.eia.gov/todayinenergy/detail.cfm?id=10131

.

7American Fuel & Petrochemical Manufacturers Docket No. EPA-HQ-OAR-2012-0546 April 8, 2013

far this year, EPA’s proposal is not a realistic as sessment of the amount of cellulosic biofuel that

will be available in 2013. 17

1. Court Decision . AFPM is troubled by the timing, substance, and rationale that the Agency used in proposing th e 2013 cellulosic biofuel volumetri c standard. For several years AFPM’s complaints that the cellulosic mandate is far too aggressive, was not in compliance with the CAA, and penalizes obligated parties have falle n on deaf ears. As such, we were encouraged by the U.S. Court of Appeals decision in API v. EPA

, 18 which vacated the 2012 cellulosic biofuel standard due to the Agency’s unrealistic projections for cellulo sic biofuel production. Specifically, the court instructed EPA to abandon its role in “promoting growth” in cellulosic biofuel production and to embrace a prediction “t hat aims at accuracy, not at deliberately indulging a greater risk of overshooting than undershooting.” 19

Unfortunately, the Proposed Rule continues to suffer from the very same bias that

the court found to be unlawful. EPA did not a lter the methodology used to predict the amount of

cellulosic biofuel that will be produced in 2013. The proposed 2013 cellulosic biofuel production estimates are two orders of magnitude greater than the histor ical production numbers, exceed EIA’s production estimates, and continue the Agency’s unrealistic reliance upon the subjective predictions of individu al cellulosic biofuel producers.

On January 25, 2013, the U.S. Court of Appeals vacated the 2012 cellulosic biofuel standard and criticized the Agency’s methodology for predicting the amount of cellulosic biofuel that will be produced in the coming y ear. Less than one week following the court’s decision, the Administrator signed the Proposed Rule. There is no indication that EPA altered the methodology used to estab lish the 2013 cellulosic biofuel production estimates in any material way from the methodology the Agency used in establishing the cellulosic biofuel mandates for 2011 and 2012. Indeed, with the ex ception of a passing reference to the court decision, the preamble to the Proposed Rule contains no discussion of the changes EPA made to its methodology following the court’s decision. 20 The Agency’s failure to alter its methodology in accordance with Court of Appeals’ decisi on renders the 2013 cellulosic biofuel proposal legally infirm. EPA cannot ignore this controllin g judicial decision and continue to base the regulatory volume for 2013 on a flawed methodol ogy that was rejected by the court.

2. 2013 Cellulosic Biofuel Production Projection is Inaccurate . EPA utilized the same methodology to predict th e 2013 cellulosic biofuel produc tion as it did for 2011 and 2012. Given the historical inaccuracy of this approac h, we are surprised that the Agency continues to

17 EPA’s EMTS data show zero cellulosic biofuel prod uction in 2013; EMTS last accessed on April 2, 2013.

18 See API v. EPA , Case No. 12-1139 (decided January 25, 2013).

19 Id. at 11.

20 See Proposed Rule at 9294 (noting that the court did not re quire EPA to use EIA’s actual estimate, but failing to discuss any change to the Agency’s methodology for predicting cellulosic biofuel volumes).

8American Fuel & Petrochemical Manufacturers Docket No. EPA-HQ-OAR-2012-0546 April 8, 2013

rely upon this mistaken methodology. EPA continues to believe cellulosic biofuel forecasts from parties who have utterly failed to make a re asonable forecast for three straight years.

Section 211(o) describes the appropri ate methodology EPA must utilize in establishing the cellulosic biofuel mandate for the coming year:

Not later than October 31 of each calendar years 2005 through 2021, the Administrator of the En ergy Information Administration shall provide to the Administrato r of the Environmental Protection Agency an estimate, with respect to the following calendar year, of the volumes of transportation fuel, biomass-based diesel, and cellulosic biofuel projected to be sold or introduced into commerce

in the United States. 21

* * * *

Not later than November 30 of each of calendar years 2005 through 2021, based on the estimate provided under subparagraph (A) , the Administrator of the E nvironmental Protection Agency shall determine and publish in the Fe deral Register, with respect to the following calendar year, the renewable fuel obligation that ensures that the requirements of paragraph (2) are met. 22

* * * *

For the purpose of making the determinations in clause (ii), for each calendar year, the applicable volume of cellulosic biofuel established by the Administrator sh all be based on the assumption

that the Administrator will not ne ed to issue a waiver for such years under paragraph (7)(D). 23

The Renewable Fuel Standard (RFS) clea rly specifies EIA’s cellulosic biofuel production estimates as the starting point in any analysis. EPA is instructed to establish a

cellulosic biofuel mandate that is “based on” EIA’s estimate and that would not require the

issuance of waivers. Given that EIA has historic ally overestimated the amount of cellulosic fuel that will be produced, we think it is imminently reasonable, and ev en statutorily compelled, that

the EPA Administrator shoul d revise that estimate downward to account for the historical challenges and delays that cellulo sic biofuel producers have expe rienced and that render their estimates inaccurate. Yet, EPA consistently revises EIA’s estimate upward, ignoring historical precedent and virtually guaranteeing a cellulosic biof uel shortfall in the marketplace that unfairly

21 42 U.S.C. § 7545(o)(3)(A).

22 42 U.S.C. § 7545 (o)(3)(B)(i) (emphasis added).

23 42 U.S.C. § 7545 (o)(2)(B)(iv).

9American Fuel & Petrochemical Manufacturers Docket No. EPA-HQ-OAR-2012-0546 April 8, 2013

penalizes obligated parties. The Court of App eals recently took issue with the consequences of this approach:

Apart from their role as captive consumers, the refiners are in no position to ensure, or even contri bute to, growth in the cellulosic biofuel industry. ‘Do a good job, cellulosic fuel producers. If you fail, we’ll fine your customers.’ Given this asymmetry in incentives, EPA’s projection is not ‘technology-forcing’ in the

same sense as other innovation-mi nded regulations that we have upheld. 24

EIA originally estimated that there will be 9.6 million gallons of cellulosic biofuel produced in 2013. It has lowered that estimate to 5 million gallons a nd acknowledged that its estimates have proven to be too optimistic as vol umes have been below expectations. In the Proposed Rule, EPA has chosen to reject EIA’ s estimate; however, in stead of lowering the

estimate to reflect historical real ities and avoid the issuance of waivers, EPA again raised EIA’s

estimate based on interviews with cellulosic biof uel producers whose motivation is to persuade EPA to expand the mandate for their product. This methodology has repeatedly failed to produce an accurate estimate and most recently resulted in a ce llulosic biofuel mandate that was vacated by the court.

EPA’s inflated estimate is based prim arily on interviews with individual companies that have indicated their comme rcial cellulosic biofue l production facilities will come on line in the future

. 25 The 2012 rule based the cellulosic mandate on planned production from 6 plants. 26 The production did not materialize, and the company owning one of the plants has recently filed for bankruptcy. Of those six pl ants, two are the basis for the 2013 cellulosic volumes in the proposed rule. Even if they be gin reliable commercial production, EPA continues to make a critical error in assuming that a star t-up plant using new technologies or applying known technologies in new ways will op erate at or near its full capacity. 27 EPA’s predictive methodology is flawed and virtually guarantees that the 2013 cellulosi c mandate will not be met.

3. Cellulosic RIN Carryover . We also note that since there were zero cellulosic gallons produced in 2011 and only 1,741 cellulosic biofuel Rene wable Identification Numbers (RINs) available in the marketplace for all of 2012, there is at best a de minimis ( i.e. , 1,741

24 API v. EPA , Slip Op. at 12.

25 See Proposed Rule at 9290. We note that these same cellulo sic biofuel producers previously indicated that they would produce cellulosic biofuel in 20 11 and 2012, which were the primar y drivers underlying EPA’s inaccurate estimates in the prior two years. See 77 Federal Register 1327 (January 9, 2012) and 75 Federal Register 76797 (December 9, 2010).

26 See 77 Federal Register 1327, 1330-1331 (January 9, 2012).

27 See Proposed Rule at 9294 (table shows planned startups in first quarter, with available volumes at levels implying full capacity production for much of the remaining year).

10American Fuel & Petrochemical Manufacturers Docket No. EPA-HQ-OAR-2012-0546 April 8, 2013

RINs) “carryover” of exce ss cellulosic biofuel RINs that coul d be used for compliance with the

2013 cellulosic biofuel mandate. 28

4. A Realistic Cellulosic Biofuel Standard . Based on the data in the EPA Moderated Transaction System (EMTS), EPA is aware that no cellulosic biofuel was produced in 2011 and very little was produced in 2012. EMTS data show zero cellulosic biofuel production in 2013 to date. These facts suggest caution when prom ulgating the regulatory volume for 2013. The Agency’s mistakes in setting overly aggressive cellulosic biofuel standards have consequences. Refiners should not be required to meet a ma ndate to blend cellulosic biofuels, when the domestic supply is either non-ex istent or inadequate.

No harm will be caused if EPA establishes a conservative, realistic cellulosic biofuel standard and domestic produc tion exceeds the Agency’s mandate. 29 Any excess

cellulosic biofuel RINs could be used to meet the advanced biofuel standard. The statutory volume for advanced biofuels is larger than th e sum of cellulosic biof uels and biomass-based diesel. Congress intended competition between excess cellulosic biofuel RINs, excess biomassbased diesel RINs and other qua lifying renewable biofuels. In fact, excess cellulosic biofuel RINs also can be used for compliance with the total renewable fuel obligation.

There are three options for EPA to consider in its effort to set a realistic cellulosic biofuel standard for 2013 based upon historic production: 30

1. EPA could set the 2013 cellulo sic biofuel obligation at 0 gallons. In 2012, total cellulosic biofuel produc tion was 21,093 gallons, out of which 20,069 gallons were exported. These are very small vol umes corresponding to a cellulosic RFS percentage standard of less than 0.00002%.

2. The Agency could set the 2013 cellulosi c biofuel obligation at 4,092 gallons, which represents the annualized average pr oduction of the last three months of 2012. This methodology would conform to S. 251 31 and H.R. 550, which would

28 In 2012, there were 1,741 RINs that may be available for use in 2013. See 2012 EMTS data at: http://www.epa.gov/otaq/fuels/rfsdata/2012emts.htm

.

29 AFPM believes that the RFS is broken and EPA should wa ive the entire mandate for 2013 and 2014 to ensure that Congress has adequate time to address the changed assumptions and unintended consequences caused by the RFS mandates. Establishing a realistic ce llulosic biofuel standard is required by statute; however, even a complete waiver of this mandate, would not be enough to abate the short term crisis caused by the E10 blendwall. EPA should exercise its authority to reduce the total renewable fuel volumes to ensure that the E10 blendwall is not

breached.

30 See EPA Moderated Transaction System – 2012 RFS2 Data, accessed on April 3, 2013 at:
http://www.epa.gov/otaq/fuels/rfsdata/2012emts.htm

31 http://thomas.loc.gov/cgi-bin/query/z?c113:S.251.IS :

11American Fuel & Petrochemical Manufacturers Docket No. EPA-HQ-OAR-2012-0546 April 8, 2013

establish a cellulosic volumetric standard based on the average monthly volume in the prior year. 32

3. EPA could set the cellulosic volumet ric standard at 21,093 gallons, which represents the total amount of cellulosic bi ofuel recorded in EMTS in 2012.

Considering historical production, the proposed 10.45 million gallon cellulosic biofuel mandate is unrealistic and contrary to EPA’s statutory authorization.

C. Adjustment of Advanced Biofuel and Total Renewable Fuel Volumes

EPA should reduce the regulatory volume for ad vanced biofuels and total renewable fuels mandates in 2013 to reflect the very large reduction in the cellulosic biofuel mandate, as well as

the vehicle and retail fuel distribut ion infrastructure constraints ( i.e. , blendwall). 33

1. Cellulosic Biofuel Shortfall . AFPM urges EPA to adjust the advanced biofuel

and total renewable fuel volumes for 2013 to account for the shortfall in cellulosic biofuel production and the realities of the ethanol blendwa ll. The Agency understands the nested nature of the RFS and correctly points out the following:

Since cellulosic biofuel is also used to satisfy the advanced biofuel

standard and the total renewable fuel standard, any reductions in the applicable volume of cellulosic biofuel will also affect the means through which obligated parties comply with these two

other standards. 34

While both biodiesel and suga rcane ethanol might be used to meet the advanced biofuels mandate, EPA correctly points out that the most likely source of advanced biofuels is imported sugarcane ethanol.

EPA estimates that if biodiesel production in 2013 does not exceed 1.28 bill gallons, and domestic production of other advanced biofuels is about 150 mill gallons , imports of sugarcane ethanol

32 http://thomas.loc.gov/cgi-bin/query/z?c113:H.R.550.IH :

33 AFPM believes that the RFS is broken and EPA should wa ive the entire mandate for 2013 and 2014 to ensure that Congress has adequate time to address the changed assumptions and unintended consequences caused by the RFS mandates. Reducing the advanced biofuel mandate by an amount equal to the reduction in the cellulosic biofuel standard, would not be enough to abate the short term crisis caused by the E10 blendwall and EPA should exercise its authority to reduce the total renewable fuel volumes to ensure that the E10 blendwall is not breached.

34 Proposed Rule at 9295.

12American Fuel & Petrochemical Manufacturers Docket No. EPA-HQ-OAR-2012-0546 April 8, 2013

from Brazil would need to reach 666 mill gal in order for the 2.744 bill gal advanced biofuel requirement to be met. 35

We believe that the market might choose sugarcane ethanol over additional supplies of biodiesel, given the cost differences between these two fuels, but note that the Proposed Rule does not set forth this critical economic analysis for public comment. 36 If this occurs, EPA’s stated need to be consistent with the energy security and greenhouse gas reduction goals of the RFS will be undermined, as additional imported sugarcane etha nol is required and increases in global GHG emissions from additional transportation of corn ethanol exports and sugarcane ethanol imports ( i.e. , fuel shuffling). Given the Agency’s desire to maintain these RFS goals, its failure to reduce the advanced biofuel and total renewable fuel require ments in the face of an inadequate supply of

cellulosic biofuels is inconsistent with its stated environmental goals. Moreover, further incentivizing imported sugarcane ethanol wi ll exacerbate the E10 blendwall problem.

The proposed advanced biofuel standard also includes a 28% annual increase in

biomass based diesel mandate. EPA failed to correct ly apply the statutory cr iteria in setting this limit and has not fully discussed the challenges of producing the mandated 1.28 billion gallons in 2013, points which have been raised in AFPM’s pe tition for reconsideratio n. In its rationale, EPA cites biodiesel nameplate capacity of 2.1 billi on gallons, which includes idled plants. Idled plants may be brought back on line, but given the time required and the very late effective date of this rule, it is unlikely that such additio nal production will occur in time to meet the 2013

advanced biofuels mandate. While the National Biodiesel Board will co mment on that industry’s ability to produce virtually any amount of biodiesel mandated under the RFS, such representations should be scrutinized given inci dents of RIN fraud, high feedstock costs, the drought, and consumers’ general reluctance to embr ace a fuel that costs more, has a lower energy content, poor cold weather performance and incons istent quality. Moreov er, given the high cost

of biodiesel relative to other alternatives, EPA’s assumption that the demand for biodiesel will

exceed the RFS mandated volume is not realistic.

2. Vehicle and Retail Fuel In frastructure Constraints . EPA proposes to reduce the cellulosic biofuel requirement fr om the statutory level of 1.0 b illion gallons in 2013 to 14 million ethanol-equivalent gallons. The proposed reduc tion of the cellulosic biofuel standard for 2013 by almost 1.0 billion gallons should trigger a co rresponding reduction in the advanced biofuels standard for 2013. As such, the Agency shoul d not promulgate 2.75 b illion gallons for the

advanced biofuels volumetric standard in 2013 (the stat utory level).

Adding the EPA’s projection of: (1) 616 m illion gallons of sugarcane ethanol; (2) 49 million gallons of other advanced ethanol (whi ch may be as high as 150 million gallons if other advanced biofuels do not materialize); and (3) 6 million gallons of cellulosic ethanol to the 13.8 billion gallons of conventiona l biofuels required to fulfill the total renewable mandate of 16.55 billion gallons of ethanol equivalent, results in 10.9% of the gasoline volumetric

35 Proposed Rule at 9298.

36 We also raise concerns with EPA’s sugarcane ethanol pathway, discussed in Section H, infra.

13American Fuel & Petrochemical Manufacturers Docket No. EPA-HQ-OAR-2012-0546 April 8, 2013

demand. 37 EPA knows that the vast majority of U. S. vehicles and retail fuel delivery infrastructure to-date are approved for E10 fuel . Proposing a 2013 RFS sta ndard that “crosses” the 10% blendwall is problematic and could result in significant fuel supply disruptions in the

U.S. While AFPM believes that EPA should waiv e the entire RFS, at a minimum the Agency

must reduce the advanced and total RFS volume so that ethanol is le ss than 10% of the 133.37 billion gallons of gasoline demand. 38

Similarly, EPA should reduce the total re newable fuel volume for 2013 to reflect a lower requirement for conventional biofuels. Recently, EIA projected only 13.0 billion gallons of ethanol consumption in 2013. 39 This is 0.8 billion gallons less than the implicit 13.8 billion gallons of conventional biofue ls requirement for 2013. EPA should reduce the total renewable fuel volumetric standard for 2013 from 16.55 billion gallons to 14.75 billion gallons to reflect EIA’s projection and to account for the reduction in cellulosic biofuels and technological limits on ethanol consumption to ensure that the E10 blendwall is not exceeded. 40

D. 2013 Biomass-Based Diesel Standard

The Proposed Rule contains a brief discussi on of the biomass-based diesel volumes for

2013 in the context of EPA’s assessment of av ailable volumes of advanced biofuel. EPA

mentions that it had finalized a biomass-ba sed diesel volume of 1.28 billion gallons for 2013; 41
however, the Agency fails to mention that this final rule is the s ubject of a petition for reconsideration and a petition for review filed in the U.S. Court of Appeals for the DC Circuit. 42
AFPM’s petition for reconsideration was based upon new information that the Agency did not consider in promulgating the 2013 biomass-based diesel standard. Included in AFPM’s petition

for reconsideration is information on the envi ronmental impacts; energy security; cost to consumers; the drought; RIN fraud; and erroneous estimates of job creation.

37 (13.8 + 0.666 +0.049+0.006)/133.37 = 10.9%. See EIA letter to EPA (October 18, 2012) (estimating gasoline demand of 133.984 billion gallons). Note a more recent estimate appears in the EIA Short Term Annual Energy Outlook (March 12, 2013) (estimating gasoline demand at 8.7 million barrels per day or 133.37 billion gallons in 2013).

38 Letter dated October 18, 2012 from EIA to EPA.

39 Energy Information Administration, Short-Term Energy Outlook, Table 8 (February 12, 2013).

40 AFPM believes that the RFS is broken and EPA should wa ive the entire mandate for 2013 and 2014 to ensure that Congress has adequate time to address the changed assumptions and unintended consequences caused by the RFS mandates. Reducing the advanced and total RVOs mandate by an amount equal to the reduction in the cellulosic

biofuel standard is insufficient to abate the short term crisis caused by the E10 blendwall and EPA should exercise its authority to reduce the RVOs to ensure that the E10 blendwall is not breached.

41 77 Federal Register 59458 (September 27, 2012).

42 We note that more than 4 months after filing our pe tition for reconsideration, EPA has failed to post the petition to the docket. Accordingl y, we attach another copy as Exhibit A hereto.

14American Fuel & Petrochemical Manufacturers Docket No. EPA-HQ-OAR-2012-0546 April 8, 2013

Given the Proposed Rule’s discussion of the 2013 biomass-based diesel mandate and the prospects for increasing production of this alternative fuel, we are disappointed that EPA has not yet issued a decision on AFPM’s pe tition for reconsideration and failed to even mention it in the preamble to the Proposed Rule. The failure to discuss the issues raised in AFPM’s petition amounts to the continuation of the Agency’s consid eration of only those factors that could result in an increased biofuel mandate, while ignoring facts and circumstances that could result in a shortfall in production, significant increases in co sts to consumers of transportation fuels, and adverse environmental impacts. The EPA shoul d reconsider the 2013 mandate and amend the September 2012 rulemaking to reduce the 2013 biom ass-based diesel mandate to a realistic amount, such as 1 billion gallons.

E. Failure to Timely Propose 2013 RFS Volumes and Potential Retroactive Application of 2013 Standards

Congress mandated that EPA publish the renewa ble fuel volume obligations for each year by November 30 of the preceding year. 43 EISA requires at least 31 days between the publication of each year’s standards and th e date that volume obligations begin to accrue under those standards. EPA failed to carry ou t this statutory directive. Th e Agency did not issue a proposed or final rule for the 2013 volume obligations du ring 2012 in direct violation of the lead time provisions of the statute. It is illegal and unfair that EP A has continually missed these legislatively-established deadlines and then forc es obligated parties to retroactively comply.

If EPA proceeds with this delayed rulema king, it would result in the accrual of legal obligations before the effective date of the final rule, as obligations are created with each gallon of gasoline and diesel produced for domestic consumption after January 1, 2013. By imposing obligations on transactions occurring before th e rule takes effect, EPA will be engaging in retroactive rulemaking. A rule that imposes ne w obligations on production and importation that has already occurred is clearly retroactive and illegal. The fact that obligated parties have until February 2014 to obtain RINs for compliance wi th the obligations for 2013 does not cure the retroactivity problem.

EPA has recognized the importance of minimum lead time in the RFS2 program. The Agency has announced that “for future standards, we intend to issue a proposed rule by summer and a final rule by November 30 of each year in order to determine th e appropriate standards applicable in the following year.” 44 EPA believes that a notice-and-comment rulemaking for each year’s standards is “appropriate” given “t he implications of these standards and the necessary judgment that can’t be reduced to a formula akin to the RFS1 regulations.” 45

43 See 42 U.S.C. § 7545(o)(2)(B)(i).

44 75 Federal Register 14670, 14675 (March 26, 2010).

45 Id. at 14675.

15American Fuel & Petrochemical Manufacturers Docket No. EPA-HQ-OAR-2012-0546 April 8, 2013

The procedure for the 2013 RFS standards shoul d not be repeated for the 2014 standards. AFPM expects the Agency to issue a NPRM th is summer for the 2014 standards and promulgate a final rule by November 30, 2013.

EPA’s missed statutory deadline undermines the basic rulemaking process established by the Administrative Procedure Act. The familiar sequence is notice, comment, promulgation of a rule, and judicial review. Fo r an administrative agency to delay the final rule for RFS obligations for 2013 and to than apply it retro actively to January 1, 2013 subverts the rulemaking process. In this case, the Ad ministration lost the o pportunity to collect public comments on a proposal during 2012 in order to promulgate an improved rule for 2013 compliance prior to January 1, 2013.

The Agency does not have unbounded discretion to determine the regulatory levels of the RFS to apply for 2013 in a final regulation pr omulgated well after January 1, 2013. AFPM strongly opposes any attempt by EPA to impose re troactive regulatory RFS requirements. EPA also should continue to apply th e 2012 RVO, as revised by the cour t’s decision, until an adjusted final rule is promulgated. 46 To address the delay in promulgating the RVOs, EPA should reduce the 2013 requirements to reflect the number of days the rule will be late in being finalized.

F. 2014 Biomass-Based Diesel Standard

EISA requires EPA to promulgate the volum e for biomass-based diesel for 2014 no later than 14 months before January 1, 2014. The Proposed Rule does not include a proposed volume

for biomass-based diesel for 2014 and instead indi cates that the Agency will issue a separate proposal at a later date. We note that the Ag ency did not publish the biomass-based diesel volume for 2013 until September 2012, providing the i ndustry with less than four months lead time. AFPM is concerned that the Agency continue s to ignore this important statutory deadline.

Based on the substance of AFPM’s petition for reconsideration of the 2013 biomass-based diesel volumetric requirements and the missed statutor y deadline, EPA should propose expeditiously a

2014 biomass-based diesel RVO of no more than 1.0 billion gallons.

G. Procedurally, EPA Has Failed to Use the Most Recent EIA Data Available in Establishing These Proposed Standards.

EIA issued its early release of AEO2013 on December 5, 2012. Since EPA will not issue

the final rule on 2013 Renewable Fuel Standard until sometime in May or late r, it has plenty of

time to consider the more recent fore cast that EIA has made available.

46 AFPM believes that the RFS is broken and EPA should wa ive the entire mandate for 2013 and 2014 to ensure that Congress has adequate time to address the changed assumptions and unintended consequences caused by the RFS mandates. Reducing the RVOs by 40 percent to reflect the delay in promulgating the 2013 requirements would help

ensure that the E10 blendwall is not breached in the 2013-2014 timeframe.

16American Fuel & Petrochemical Manufacturers Docket No. EPA-HQ-OAR-2012-0546 April 8, 2013

H. Sugarcane Ethanol Imports

EPA may waive RFS requirements when dome stic biofuel supplies are insufficient to satisfy the mandate. By leaving the advanced bi ofuel standard at the st atutory volume, EPA is creating an incentive to import sugarcane ethanol (a t least 666 million gallons) into the U.S. from Brazil, contrary to EISA’s purpos e of furthering U.S. energy independence. At the same time, Brazil is replacing these volumes by importing U.S. corn ethanol or gasoline. This real world fuel shuffling was not considered when EPA approved the sugarcane ethanol pathway. In addition to waiving the imported volumes due to insufficient domestic production, EPA needs to delay any increases in the advanced biofuel vol umes until it has reexamined whether the entire Brazilian sugarcane ethanol pa thway actually achieves sufficien t GHG emissions reductions.

CONCLUSION

AFPM members are dedicated to working c ooperatively at all levels to ensure an adequate supply of clean, reliab le and affordable transportation fuels. AFPM members are focused on building a better tomorrow for the American people, continuing our efforts to improve the environment at the same time we manufacture vital products to strengthen our economy and improve the lives of families. We st and ready to work with the Administration to ensure a stable and effective fuels policy that ut ilizes a diversity of resources to improve our national security, benefits consumers and protects our environment.

EISA provides EPA with “tools” to adjust the volumes of renewable fuels under certain circumstances. Given the incompatibility of mid- level ethanol blends with existing vehicles and retail fuel distribution infrastructure (E10 blendw all) and the small amount of cellulosic biofuel production, EPA should utilize the flexibility provid ed by the law to lower the annual volumetric targets, including the 2013 RVOs.

In promulgating a final rule implementing th e 2013 renewable fuel standards, EPA must address the following issues:

• Waive the RFS mandates in their entirety, as the RFS was built on assumptions that are no longer valid and the law is produci ng absurd results. At a minimum, EPA should adjust the advanced and total RFS vol umetric standards to ensure that the E10

blendwall is not breached.

• Promulgate a cellulosic biofuel volumetric standard that accurately reflects the

reduced level of cellulosic bi ofuels that will be availa ble in the U.S. market and appropriately considers the U.S. Court of Appeals recent decision, requiring EPA to change the methodology it uses to predic t cellulosic biofuel production for the coming year. This will requi re a critical look at the current state of cellulosic biofuel production and recognition that it will be at least five months into the compliance year before the rule will be finalized and an acknowledgement that virtually no

17American Fuel & Petrochemical Manufacturers Docket No. EPA-HQ-OAR-2012-0546 April 8, 2013

cellulosic biofuel has been produced in 2013. AFPM recommends a cellulosic

biofuel standard of zero ba sed on EPA’s EMTS data.

• Promulgate standards with reduced adva nced biofuel and total renewable fuel mandates that properly reflect the reduced amou nt of cellulosic biofuels that will be

available in 2013. The failure to make th is corresponding adjustment will increase the cost of complying with the RFS, increas e the amount of biofuels imported into the United States, and increase global GHG emi ssions as a result of ethanol fuel shuffling.

• As soon as practicable, reduce the 2013 bioma ss-based diesel standa rd to one billion gallons and respond to AFPM’s petiti on for reconsideration based on new

information that became available af ter the close of the comment period. 47

• Reduce the 2013 volumetric standards to reflec t the number of days the rule will be late in being finalized.

• Promulgate standards for 2014 that addr ess the blendwall by November 30, 2013 and correct what has evolved into a pattern of illegal retroactive rulemaking, as a result of missed statutory deadlines for establis hing annual requirements under the RFS.

• Suspend the 2013 advanced biofuel standard due to (1) inadequate domestic supply and (2) until a complete reevaluation of the Brazilian sugarcane ethanol pathway

establishes that sufficient GHG emissions reductions are achieved.

If you have any questions concerning these co mments, please contac t the undersigned or Tim Hogan at (202) 457-0480.

Respectfully submitted,

Richard Moskowitz

Attachment

47 AFPM’s petition for reconsideration is attached hereto as Exhibit A.

18American Fuel & Petrochemical Manufacturers Docket No. EPA-HQ-OAR-2012-0546 April 8, 2013

19 EXHIBIT A

AFPM Petition for ReconsiderationAmerican
Fuel & Petrochemical
Manufacturers

**1667 K Street, NW**
**Suite 700 Washington, DC** 

**20006**

**202.457.0480 office**

**202.552.8457 direct**
**202.457.0486 fax Rmoskowitz@afpm.org**  Richard Moskowitz

**General Counsel**

November 20, 2012

The Honorable Lisa Jackson

Administrator U.S. Environmental Protection Agency 1200 Pennsylvania Avenue Washington, DC

RE: Petition for Reconsideration – Docket No. EPA -HQ-OAR-2010-0133

Dear Administrator Jackson:

Pursuant to Section 307(d)(7)(B) of the Clean Air A ct, the American Fuel & Petrochemical Manufacturers (“AFPM”), 1 petitions the Administrator of the U.S. Environmen tal Protection Agency (“Agency” or “EPA”) to reconsider its final rule entitled Regulation of Fuels and Fuel

Additives: 2013 Biomass-Based Diesel Renewable Fue l Volume

. 2

The objections raised in this Petition for Reconsid eration were either impracticable to raise during the public comment period or arose after the close of the public comment period, and they

are of central relevance to the outcome of the Fina l Rule. The Administrator must therefore “convene a proceeding for reconsideration of the ru le and provide the same procedural rights as

would have been afforded had the information been a vailable at the time the rule was proposed.” 3

AFPM submits this Petition based on new facts that are material to EPA’s application of the statutory criteria the agency must apply in establi shing the applicable volume of biomass-based

diesel to be used under the renewable fuel standard for 2013.

BACKGROUND

The federal Renewable Fuel Standard (“RFS”) require s EPA to promulgate a rule establishing a specific amount of biomass-based diesel for 2013. For 2012 and beyond, Congress provided a floor of 1.0 billion gallons that was intended to p rovide an insurance policy to the existing

1 AFPM is a national trade association of more than 400 companies. Its members include virtually all U .S. refiners and petrochemical manufacturers. AFPM members supp ly consumers with a wide variety of products and se rvices used daily in their homes and businesses. These pr oducts include gasoline, diesel fuel, home heating oil, jet fuel,

lubricants and the chemicals that serve as “buildin g blocks” in making diverse products, such as plast ics, clothing, medicine and computers.

2 77 Federal Register

59458 (September 27, 2012) (hereinafter the “Final Rule”).

3 42 U.S.C. § 7607(d)(7)(B).AFPM Petition for Reconsideration

Docket No. EPA-HQ-OAR-2010-0133 November 20, 2012 Page 2

biodiesel industry in the form of a guaranteed mark et for their product. Beyond 2012, EPA was given the discretionary authority to increase the b iomass-based diesel mandate beyond a billion gallons, based on its evaluation of six criteria sp ecifically enumerated in the RFS. As demonstrated below, the facts critical to the analy ses and application of the statutory criteria have materially changed since the close of the comm ent period and warrant a reconsideration of

the Final Rule.

DISCUSSION

A. The Administrator’s Discretion to Increase the Biom ass Based Diesel Requirements Under the RFS is Framed by the Application of Six S pecific Statutory Criteria

In determining the biomass based diesel requirement s for 2013, Congress instructed EPA to establish a minimum requirement of 1.0 billion gall ons. 4 Congress gave the Administrator the discretion to promulgate a rule that goes beyond th e 1.0 billion gallon statutory floor, based on its consideration of the following six factors: (1 ) environmental impact; (2) impact upon energy security; (3) expected rate of commercial productio n of renewable fuels; (4) impact upon fuel delivery infrastructure; (5) cost to consumers; and (6) other factors such as job creation, price and supply of agricultural commodities, rural devel opment, and food prices. 5

The application of these criteria to the Administra tor’s decision requires a fact-based analysis. As demonstrated below, the facts underly ing EPA’s analysis for several of the enumerated statutory factors have changed significa ntly and warrant reconsideration of the Administrator’s decision to promulgate a biomass-ba sed diesel mandate in excess of 1.0 billion gallons.

Before addressing the changed circumstances that wa rrant reconsideration of the Administrator’s decision, it is important to unders tand the rationale underlying the statutory

framework created for biomass-based diesel. At the time that the Energy Independence and Security Act of 2007 (“EISA 2007”)was under debate, the National Biodiesel Board (“NBB”) asked other industries to join them in supporting a specific carve-out for biodiesel that would ensure the viability of its existing brick and mort ar facilities. 6 At least one consumer group who historically opposes government fuel mandates joine d the NBB in supporting a 1.0 billion gallon carve-out that was intended to be an insurance poli cy to protect existing biodiesel facilities. At the time, the NBB represented that going forward bi odiesel would be able to compete with petroleum-based diesel fuel and supported the inclu sion of statutory criteria designed to prevent

an increase in the biodiesel mandate if it would re sult in an increase in diesel fuel costs.

4 See 42 U.S.C. § 7545(o)(2)(B)(iv).

5 See 42 U.S.C. § 7545(o)(2)(B)(ii).

6 There were other elements of this compromise, such as the preemption of state biodiesel mandates, tha t were not included in the final legislation.AFPM Petition for Reconsideration

Docket No. EPA-HQ-OAR-2010-0133 November 20, 2012 Page 3

Biomass-based diesel qualifies under the advanced b iofuel category of the RFS and therefore should compete with other advanced biofuels to ensu re the goals of the RFS are met in the most

cost effective manner. The biomass-based diesel ma ndate is a dedicated carve-out from the advanced biofuel category and increasing it creates a disincentive for investments in other advanced renewable fuels that may overcome some of the performance limitations associated with biodiesel. As such, the increase of the bioma ss based diesel mandate should be approached very cautiously as the EPA is essentially selecting winners and losers without a clear understanding of the impacts upon the capital inves tment in future fuels. The 2.75 billion gallon Advanced Biofuel Mandate provides more than enough incentive to grow the biodiesel industry, provided that the biodiesel industry can live up to the promises it made at the time EISA 2007 was enacted. If the industry cannot meet these exp ectations, then other advanced biofuels should

be used to meet consumers’ needs in the most cost e ffective manner possible. The six statutory criteria are designed to force EPA to consider thes e variables.

B. New Information Critical to the Administrator’s Ana lysis Compels Reconsideration of

the Final Rule

The public comment period for the rulemaking that i s the subject of this Petition closed on August 11, 2011. 7 During the time between the conclusion of the pub lic comment period and the promulgation of the Final Rule, several facts chang ed that significantly impact the statutory

criteria enumerated above. We believe that these f acts compel the promulgation of a lower biomass-based diesel volumetric requirement for 201 3.

1. The Drought

The Agency could not have anticipated the drought o ur Nation is experiencing when the comment period closed in August 2011. This drought has led to a dramatic reduction in corn and soybean supplies, which has increased livestock and food production costs. The drought has made it very difficult for these industries to plan and remain profitable and has led to multiple waiver requests of the ethanol requirements under t he RFS. Soybean crops, the primary feedstock for biodiesel production, have been simil arly impacted and the Administrator’s discretionary decision to increase the biomass-base d diesel component of the RFS mandates

warrants reconsideration.

Millions of tons of soybean oil meal are used annua lly by animal producers. The large increase in soybean oil meal price means hundreds o f millions of dollars in increased production

costs for these industries. This financial hardshi p will be exacerbated by the discretionary 28 percent increase in the requirement for biomass-bas ed diesel. This new fact is directly relevant to the statutory criteria Congress created to infor m EPA’s decision of appropriate biomass-based diesel quantities. At several points in the preamb le to the Final Rule, EPA acknowledged that

7 See 76 Federal Register 38844 (July 1, 2011) (hereinafter the “Proposed Rul e”).AFPM Petition for Reconsideration

Docket No. EPA-HQ-OAR-2010-0133 November 20, 2012 Page 4

the drought will have an impact upon the supply and price of agricultural commodities; however, EPA stopped short of considering its impact in esta blishing the biomass-based diesel volumetric requirement for 2013:

Cost estimates do not account for projections in re cent trends in crop yields and grain prices resulting from drought conditions that are occurring in many areas of the country. 8

* * * *

It should be noted that the projections in Table II I.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 w hich biodiesel can be produced, the ultimate impact of these droug ht conditions

on the mix of biodiesel feedstocks in 2013 is diffi cult to predict at

this time. 9

The agency states that it “cannot predict the exact impact that these increases in soybean and soybean oil prices will have on food prices in gene ral;” however, that is exactly what Congress requires of the agency before it decides to increase the mandate for biomass-bas ed diesel. 10

Setting the biomass-based diesel mandate at 1.0 bil lion gallons for 2013, the statutory minimum, allows fair competition between the biofue ls and livestock/food industries for soybean supplies. The Administration should not favor soyb ean biodiesel producers at the expense of the

livestock/food industries and the U.S. consumer. T he price impacts on agricultural commodities and the current drought are sufficient justificatio n for the Administration to reconsider the

renewable fuel volume for biomass-based diesel in 2 013.

The preamble to the final rule also contains a disc ussion of the price of soy oil in 2013 and estimates that its price will be $0.45 per poun d under the mandate instead of $0.42 under the billion gallons. This 7 percent increase is signif icant and as a food source is a factor that Congress mandated EPA to consider in its establishm ent of the 2013 biomass-based diesel mandate. In the category of new information that i s available since the Administrator made her decision, we note that the soy oil futures prices a re significantly higher (10 percent) for 2013

than the Administrator’s 45 cent estimate. 11 This new information concerning soy oil prices is

8 77 Federal Register at 59459, note 3.

9 Id. at 59463/2.

10 Id. at 59465/1.

11 Soy oil futures prices for 2013 currently vary fro m 49 cents to 50.5 cents. See Commodities Futures prices at:

www.cnbc.com , last accessed on November 8, 2012.AFPM Petition for Reconsideration

Docket No. EPA-HQ-OAR-2010-0133 November 20, 2012 Page 5

directly relevant to the statutory criteria EPA app lies in determining the appropriate amount of

biomass-based diesel for 2013. 12

2. RIN Fraud

EPA is now well aware of the fact that biodiesel pr oducers have inflated the amount of biodiesel actually produced under the RFS mandate. A significant portion of this fraud stems from biodiesel producers generating Renewable Ident ification Numbers (“RINs”) that do not correspond to the gallons of biodiesel they have pr oduced. Another potential source of significant fraud is the failure to retire RINs tha t correspond to the number of gallons of biomassbased diesel that are exported.

To date, EPA has initiated enforcement actions base d on 140 million fraudulent RINs. These RINs represent between 6 and 12 percent of th e entire biodiesel market and raise a serious question as to the true amount of biodiesel that ha s been produced. Moreover, we are aware of several ongoing investigations into additional biod iesel producer fraud that would have a material impact on EPA’s estimate of the amount of gallons actually produced. While the existence of RIN fraud was unknown during the publi c comment period, EPA now recognizes that it is a materially significant problem and is considering regulatory changes to address the predicament. 13 The large number of invalid RINs represents a ser ious disparity in the estimates of expected commercial rate of biodiesel production and also impacts EPA’s conclusion that an increase to 1.28 billion gallons represents only a “moderate” increase in the biomass-based diesel

mandate.

3. Diesel Fuel Exports - Impact on Domestic Energy Sec urity

The Administrator mistakenly concludes that the 201 3 increase in biomass-based diesel beyond the billion gallon statutory floor will impr ove U.S. 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

12 On November 16, 2012, EPA denied multiple petition s to waive the RFS requirements for ethanol based u pon the impact of the drought. We note that the legal stan dard for reviewing RFS waiver petitions differs fro m the statutory criteria EPA must consider in establishing the BBD volumetric requirements for 2013. The standard for waiving the RFS is one of severe economic harm, while the crite ria for establishing the BBD volumes include inter alia an analysis of the supply of agricultural commodities.

13 U.S. Environmental Protection Agency, Public Release of Draft Quality Assurance Plan Requ irements , EPA-420- B-12-063 (October 31, 2012). http://www.epa.gov/otaq/fuels/renewablefuels/docume nts/420b12063.pdf

.AFPM Petition for Reconsideration

Docket No. EPA-HQ-OAR-2010-0133 November 20, 2012 Page 6

risks caused by potential sudden disruptions in the supply of

imported petroleum to the U.S.

This quote represents a fundamental misunderstandin g of the difference between petroleum crude oil and finished transportation fuels. The i ncrease in biomass-based diesel use in the U.S. from 1.0 billion gallons to 1.28 billion gallons wi ll not displace a single barrel of imported crude oil. This is primarily because biomass-based diese l is a substitute for finished diesel fuel and has no impact upon the U.S. demand for gasoline.

Each barrel of oil refined yields approximately 19 gallons of gasoline and 11 gallons of diesel fuel, as well as 12 gallons of other petrole um-derived products. 14 While these proportions can be adjusted on the margins, in manufacturing ga soline the United States generates more diesel fuel than it can consume domestically. 15 As such, the U.S. has become a net exporter of diesel fuel. For this reason, any requirement to b lend biomass-based diesel will not reduce the amount of crude oil imported into the U.S., it simp ly will cause an increase in the amount of exported diesel fuel it displaces. Thus, the Final Rule’s increase in biomass-based diesel of 280 million gallons will result in a corresponding incr ease in the export of petroleum-derived diesel fuel of 280 million gallons. It will have no impac t upon the amount of crude oil imported and therefore will have no impact on domestic energy se curity. These facts have a direct impact on the Administrator’s analysis of the statutory crite rion of energy security and warrants

reconsideration of the decision to extend the bioma ss-based diesel mandate beyond the 1.0 billion gallon statutory threshold.

The preamble to the Final Rule suggests that the Ad ministrator extrapolated perceived energy security benefits from the RFS generally and applied that analysis to this rulemaking.

Thus, on balance, each gallon of fuel saved as a co nsequence of the renewable fuel standards is anticipated to reduce t otal U.S. imports of petroleum by 0.95 gallons. 16

As demonstrated above and based on the fact that we export diesel fuel, this extrapolation produces an erroneous conclusion with respect to th e impact on energy security from increasing

the biomass-based diesel mandate in 2013. 17

14 See Energy Information Administration, Products Made for a Barrel of Crude Oil

, http://www.eia.gov/energyexplained/index.cfm?page=o il_home

.

15 According to the Energy Information Administration , from January 2012 to August 2012, the U.S. export ed more

than 213 million barrels of distillate fuel. http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n =PET&s=MDIEXUS1&f=M

16 77 Federal Register at 59470/2.

17 The Final Rule includes an energy security benefit of $0.15 per gallon derived from the macroeconomic disruption and adjustment costs component of the en ergy security premium. See 77 Federal Register at 59471/3. For the reasons stated herein, this benefit is illu sory.AFPM Petition for Reconsideration

Docket No. EPA-HQ-OAR-2010-0133 November 20, 2012 Page 7

The Agency acknowledges that “the U.S. is projecte d to be a net exporter of diesel fuel in 2013.” Notwithstanding this realization, the Agenc y has ignored Congress’ instruction to analyze the energy security impact of this specific Final Rule.

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 ben efits of overall net petroleum product imports.

Congress did not give the Administrator the authori ty to ignore one of the six statutory criteria in

her determination of whether to increase the biomas s-based diesel mandate beyond the 1.0 billion gallon statutory threshold.

Although we believe that the Agency acted arbitrari ly in extrapolating its overall RFS energy security analysis to the Final Rule affectin g only the biomass-based diesel mandate, we note a significant change in facts underlying the A gency’s original analysis of U.S. energy security. Following the close of the comment period the National Petroleum Council released an 18-month study of North American natural gas and oi l resources. 18 This study demonstrates that the United States has much greater access to North American sources of energy than previously thought and warrants reconsideration of the Adminis trator’s conclusions on the impact this rule and the RFS will have on U.S. energy security.

4. Job Creation

EPA’s conclusions on the employment benefits associ ated with an increase in biomassbased diesel from 1.0 billion gallons to 1.28 billi on gallons are overstated given the recent

closures of certain biodiesel facilities and the un derutilization of facilities that have maintained operations. Here again EPA is using biased informa tion provided by the NBB rather than conducting its own analysis. EPA is aware that man y of the biodiesel producers are operating at a reduced rate, some have been idled, and others ha ve permanently closed. Reliance on a prior study as to the overall benefits to rural employmen t under the RFS ignores some of the current facts concerning biodiesel plant utilization that w ould have a material impact on EPA’s conclusions with respect to job creation. EPA shou ld have reviewed the 200 biodiesel producers provided on the NBB list and determined the status and current utilization rates of these facilities as part of its obligation to analyze the statutory criteria. It is far more economical to expand production at an existing plant that is underutiliz ed than it is to bring idle biodiesel plants back on line. Unfortunately, the number of jobs that wi ll be created by increasing the throughput at an

18 National Petroleum Council, Prudent Development: Realizing the Potential of Nor th America’s Abundant Natural

Gas and Oil Resources , (September 2011).AFPM Petition for Reconsideration

Docket No. EPA-HQ-OAR-2010-0133 November 20, 2012 Page 8

already operational plant is nowhere near the NBB e stimate of 30 to 40 people. 19 Other estimates of employment provided by NBB are similar ly overstated and EPA should independently investigate these facts. For example , some plants are fed by pipeline while most others are located very close to their feedstock so urce, rendering NBB’s estimate of additional transportation workers unrealistic, since it assume s that each driver can make only one delivery per day. 20

We also note, that it is improper to consider only the positive employment benefits

associated with an increase in the biomass-based di esel mandate and simultaneously acknowledge that the corresponding loss in employme nt in other economic sectors is not quantifiable and therefore may be ignored.

5. Costs and the Impact on the Consumer

EPA’s legal requirement to blend biomass-based dies el will result in increased production and/or imports of this fuel, as obligate d parties must comply with the mandate. The question remains, however, at what cost can this fu el be produced under the mandate.

EPA acknowledged the need to restrain the growth of the biomass-based diesel mandate.

In the NPRM we indicated that, based on the limited information available on the current and historical operation o f the RFS program, it would be prudent for 2013 to consider o nly moderate

increases in biomass-based diesel above the statutory minimu m of 1.0 billion gallons.

Notwithstanding this pronouncement, EPA went on to promulgate a 28% increase in the volumetric mandate. This percentage increase durin g a time of slow economic growth is very aggressive and difficult to justify under the banner of moderate growth. 21

EPA estimates that the cost of increasing the bioma ss-based diesel mandate from 1.0
billion to 1.28 billion will add between $253 milli on and $381 million to consumers transportation fuel bill in 2013. We note that thi s addition to the Nation’s transportation fuel bill

comes at a time when economic conditions in the cou ntry are poor and millions who depend upon transportation fuels remain out of work or und eremployed.

At the close of the comment period, EPA had no way to predict the state of the economy in 2013 or whether the $1 per gallon blending credi t would be extended by Congress; however,

19 On a somewhat related issue, our discussions with a well-known biodiesel plant auditor indicate that the average employment is closer to 25 individuals per plant.

20 See 77 Federal Register at 59477/1.

21 77 Federal Register

at 59461/1 (emphasis added).AFPM Petition for Reconsideration

Docket No. EPA-HQ-OAR-2010-0133 November 20, 2012 Page 9

at the time the Final Rule was issued, EPA should h ave done everything in its power to lower the costs of transportation fuels for consumers and und er no circumstances should have exercised its discretion to mandate the use of biodiesel, a fuel that is significantly more expensive than ULSD. Indeed, Congress requires EPA to consider the cost to consumers as one of the statutory criteria

that frames its annual decision to set the biomass- based diesel volumetric requirement.

6. Potential Carbon Reductions

Under the statutory criteria, EPA must consider the environmental impact of its decision to expand the biomass-based diesel mandate by 280 m illion gallons. We note that because biomass-based diesel operates as a requirement nest ed within the advanced biofuels mandate, the likely impact of this decision is to ensure the use of additional biomass-based diesel at the expense of ethanol derived from sugar cane. Focusi ng on the carbon emissions associated with these two fuels, soy-based biodiesel has an average carbon intensity that is ten percent greater than ethanol derived from sugarcane, resulting in t he likely increase in carbon emissions from EPA’s decision to increase biomass-based diesel by 280 million gallons. 22

C. The Statutory Factors Must be Applied Annually

EPA has chosen to downplay the statutory requiremen t to apply these factors annually for each year that it promulgates a biomass-based diese l quantity following 2012 and instead has relied upon the long-term RFS economic analysis, wh ich is contrary to Congress’ intent in specifying the six factors to be examined each year

.

The statute is forward-looking in that it created a program whose energy and environmental benefits are intended to grow over ti me. To evaluate the program on the basis of only one early year’s impacts, as p art of near-term implementation, would be to paint an unbalanced and incomplete pict ure. 23

In substituting the long-term costs and benefits in place of the specific statutory criteria that are to be applied to biomass-based diesel volumes each year following 2012, EPA has ignored the consumer safeguards that Congress wrote into the st atute for each year in which EPA is required to establish a biomass-based diesel volumetric requ irement. To safeguard consumers and other interested parties, Congress intended EPA to adjust the volumetric requirement annually based on factors that change each year. Relying on a lon g-term analysis that ignores the specific variables that change on a more frequent basis is a significant departure from Congressional

intent.

22 See 75 Federal Register 14669, 14790-91 (March 26, 2010).

23 77 Federal Register at 59482/3.AFPM Petition for Reconsideration

Docket No. EPA-HQ-OAR-2010-0133 November 20, 2012 Page 10

Congress intended to provide an insurance policy to the biodiesel producing industry by creating a floor of 1.0 billion gallons of biomass- based diesel that must be blended each year. 24
Any decision to exceed that floor is a discretionar y decision that must be is based upon the annual application of the enumerated statutory fact ors as directed by Congress.

CONCLUSION

At the close of the comment period, EPA could not f oresee whether Congress would eliminate the $1 per gallon biodiesel blending cred it, the impact of the drought on feedstock supplies and prices, the extent of RIN fraud in the biodiesel industry, and the growth of diesel exports ameliorating the energy security benefits f rom biodiesel, all of which have a material impact upon EPA’s analyses of the statutory criteri a underlying the establishment of the annual biomass-based diesel requirement. Based upon these changed facts and new information, the Administrator must reconsider her decision to requi re a 28 percent increase in biomass-based diesel above the statutory minimum established by C ongress.

Respectfully submitted,

Richard Moskowitz

General Counsel

cc: Gina McCarthy

Chris Grundler Byron Bunker

Paul Machiele

24 See 42 U.S.C. § 7545(o)(2)(B)(ii)(v).