Comments on the 8/26/13 version of the NPRM, provided by OMB and 

representing interagency review

Monte Carlo Analysis

A. Please provide analytic justifications for using the Monte Carlo analysis approach using the 

distributions chosen. It strikes the reviewer that this approach doesn’t reduce the arbitrariness 

or the underlying uncertainties better than simply adding up the ranges while making the 

analytics more complicated than necessary.

B. In general, it seems Monte Carlo is the wrong approach for estimating volumes. It might 

forecast a most likely volume, but there is asymmetric risk in this instance. If volumes are too 

low, no harm no foul. If volumes are too high, then the prices of RINs will be high and we will 

face a real problem.

C. Page 79. “...We then used a Monte Carlo process in which each of the six distributions were 

randomly sampled in an iterative fashion. The results of all the iterations were then summed to 

produce a distribution...” The distributions you are drawing on are likely correlated (perhaps 

significantly?) are they not? Thus uncorrelated draws across the distributions may be 

misleading? We might expect correlation because of 1) Correlated response to oil/energy prices 

2) Correlated crop yields within the US 3) Simply correlated based on RIN prices (higher RIN 

prices would increase the availability) again endogenous to the rule making. Please discuss how 

non-independent distributions may affect your results and solicit comment on analyses that 

may provide additional sensitivity to those results.

D. Monte Carlo approach – general comments. The Monte Carlo (MC) approach to 

aggregating results from different distributions is methodologically sound because there 

are not closed-form analytic results for the distribution created as the sum of the random 

variables with the assumed distributions. Additionally, the assumed families of 

distributions seem reasonable. The comment here concerns the implementation of the 

MC aggregation and reporting of results.

The basic concern is that the MC approach is used to set multiple aggregates, and ranges are 

given for comment, however the only internally consistent aggregation method is the mean 

(means add, medians don’t) and the ranges proposed for comment are at different levels of 

aggregation. Addressing this seems important both because comments are solicited on 

measures other than the mean, and because (as is discussed below) there is a compelling 

policy/economic reason to consider measures other than the mean, in particular for the 

estimate of total ethanol that can be reasonably consumed. 

Before making a suggestion, it is useful to lay out the following categories, which are 

intended to be mutually exclusive and exhaustive:

Category Ethanol Non-Ethanol Sum

A. Renewable Fuels

Cellulosic D3E D3N D3

Biodiesel (B100) - D4N D4
Advanced residual D5E D5N D5

Renewable residual D6E - D6

B. End-use fuels

E10 E10-E

E15 E15-E

E85 E85-E

Here, D4N is the ethanol-equivalent volume of B100, etc; E10-E is the ethanol volume 

contained in E10 that is consumed. This omits end-use diesel for convenience because it 

doesn’t enter into the MC calculations.

The following sums are important under option 3:

1. Consumable Ethanol = E10-E + E15-E + E85-E

2. D3 = D3E + D3N

3. D4 = D4N

4. Advanced RVO = D3 + D4 + D5N

5. Total renewable = Consumable Ethanol + D3N + D4N + D5N

The following is an interesting number but not needed for the mandate

“corn + cane ethanol” = Consumable Ethanol – D3E

As a technical matter, the problem is that the only measure of a distribution that satisfies the 

addition constraints 1-5 is the mean. So although comments are solicited about using, say, 

medians or quartiles, if those were deemed preferred, the current methodology would not 

support their use. So the technical challenge is, how to present ranges for comment, but at 

the same time preserve the internal addition constraints. The difficulties this poses are most 

evident in the discussion surrounding Figure IV.D.1.

Here is a proposal for resolving the need for internal consistency while (a) providing ranges 

for comment and (b) making sure the aggregation doesn’t inadvertently cause problems for 

the key feature of the blendwall:

1. Report MC aggregation results at the level of the sub-component cells for renewable 

fuels (D3E, D3N, D4N, D5E, D5N, D6E). Some of these (e.g. D3N) require MC 

aggregation, whereas others are just posited distributions. Report Mean, Mode, 10%, 

25%, 50%, 75%, 90%. (Some of these distributions are degenerate, for example E10-

E is a singleton based on EIA forecasts and E15-E is zero.)

2. Propose using the mean for each of those cells, but solicit comments on other 

measures of the distribution.

3. Based on this single number chosen for each cell (in the NPRM, the mean, but 

possibly based on comments another measure in the final rule), compute the sums. 

4. The cellulosic mandate is D3.
5. The biodiesel mandate is 1.28Bg, however the value for D4 (the mean of the D4N 

distribution) would be carried forward to compute the total renewable volume, so that 

D4-1.28 would be available to meet the D5 or D6 mandate as is proposed.

6. The advanced mandate and the total renewable mandate are also the sum of 

individual numbers (means in the NPRM), not the mean of separate MCs.

A drawback of this approach is that it does not give ranges for, say, the total renewable 

mandate, however as a practical matter comments on that range would not be expected 

because by itself it has no direct implications.

For Consumable Ethanol, it would be appropriate to aggregate this by Monte Carlo and 

report a distribution for consumable renewables. The reason is that, as a policy/economic 

matter, the loss associated with the Consumable Ethanol is asymmetric (see comment 

bubble, p. 59). Thus there is an argument for using a quantile of the distribution other 

than the mean, for example the 25th percentile if the loss of overestimation is three times 

the loss from underestimation. In terms of the internal consistency argument, 

hypothetically choosing the 25th percentile of this distribution would not be a problem in 

terms of the calculations because that value only shows up in sum 5 above, the sum for 

total renewable.

Given the single numerical values for Cellulosic, Biodiesel, Advanced, and Total 

Renewable, which are all now internally consistent, it is possible to compute the 

renewable standards as outlined in the NPRM.

Finally, there might be an argument to carry out the MC for D3 to the D3 level of 

aggregation, not just D3N and D3E, but the “neutral” terminology suggests that the mean 

would be used anyway so this shouldn’t matter much (so OK either way).

As a minor methodological comment we would suggest using many more draws, say 50,000, 

to reflect current professional practice. Also, EPA might consider using the summary table 

above (the D3N, etc table) as a guide to the calculations.

Fuel and RIN Markets

E. What is the target RIN price?

F. What is EPA’s expected RIN price if the numbers in the proposal were the same in the final?

G. There needs to be a buffer volume so that the market has some margin in which to operate 

without sending prices high.

H. We are concerned that lack of a buffer and lack of market transparency also creates an 

opportunity for market manipulation.

I. The estimates of E85 volumes are too high and not substantiated. Similar concerns about the 

estimates of biodiesel.
J. Page 43. “...We also see no need to increase it. We believe that volumes of biomass-based 

diesel above 1.28 billion gallons can, and likely will, be produced in 2014 to meet the 

requirements of the advanced biofuel standard...” Without the $1.00 per gallon blenders credit 

this seems a rather strong statement given the proposed level for the other mandates classes 

and limited need to consume additional undefined advanced, and the resulting volumes we 

might expect to see competition between E85 and bio-based diesel beyond its own mandate. 

Some support to the conclusion of ‘excess’ biodiesel consumption may clarify this statement. 

K. Page 55. “...For purposes of determining the total renewable fuel volume requirement for 2014, 

consistent with the waiver authorities we are proposing to exercise in this action, we have 

assessed the volume of E85 that can reasonably be supplied to and consumed by consumers, 

based on a variety of factors that limit supplying E85 in the transportation sector...” 

“Reasonably” here directly relates to RIN prices and the volume of E85 used is not exogenous to 

this rule making. We can reasonably expect that this rule will push down RIN prices (perhaps 

significantly) which will also reduce the motivation to consume additional E85 volumes. In

subsequent periods this establishes a certain amount of ‘path dependency’ limiting expansion of 

ethanol use in higher level blends. While not mandating this level, the rule has the effect of 

‘centering’ use on this volume and setting a lower E85 and E15 expansion path into the future. 

L. Page 55. “...The low consumption is most likely due primarily to limited access to retail stations 

offering E85 and the fact that the price of E85 was only about 13% lower than the price of E10 in 

2013..” Is this not averages weighted by station and not by volume? If so this is a distorted look 

at E85 pricing. Recent station by station volume and price data out of Minnesota would show 

that volume weighted sales prices have moved much closer to ‘mileage equivalence’ while also 

showing significant volume response to this pricing. 

M. Page 58. “...The price relationship between E85 and E10 is primarily dependent on the prices of 

corn and crude oil, and is reflected in the price of RINs...” This is true at the wholesale level 

based on the blending components when comparing E85 and E10. When comparing the price 

relationship between E10 and E85 at the retail level under a binding mandate, the RIN price is 

endogenous to this relationship. 
N. Page 58. “...Due to the paucity of data correlating E85 sales with its price relative to E10, we 

have turned to other sources to help inform our projections...” See the graphs on MN above for 

examples of demand response to relative E85 pricing. 

O. Page 58. DOE’s analysis of the max sales potential was very limited. Ask for comment on this. 

Suggested change: “... Based on assumptions about E85 tank sizes at retail stations and the 

associated refill frequencies, DOE estimated that the maximum sales of E85 would be 600 mill 

gal. However, this volume assumes that the number of retail stations offering E85 is about 

2,300. We estimate that the number of stations offering E85 will be closer to 3,300 in 2014, 

which would correspond to a maximum E85 throughput of about 860 mill gal. That analysis did 

not consider alternative refill frequencies or refill volumes and so we ask for comment and data 

that would help refine our estimates of the potential maximum sales volumes of E85 for 2014...”

P. Page 59. EPA should acknowledge the impact of lowering the standards will have on RIN prices 

and how that could affect sales of higher blends. Suggested change: “...Therefore we believe 

that 400 mill gal is a reasonable upper end of the range of possible volumes of E85 for 2014. We 

acknowledge that the price of E85 will also be a function of RIN prices. To the extent that the 

proposed volumes lead to lower RIN prices, the incentives for fuel vendors to market E85 and 

other blends of ethanol above E10 will also be lower. We do not know the extent to which 

lower RIN prices will result in diminished incentives for those higher blends, but request 

comment and data from the public that would help estimate the impact of lowering volumetric 

requirements on the incentive to sell higher ethanol blends than E10...”

Q. Page 68. Combining tables IV.B 4-1, Table IV.C.1.a-1 and Table I-1. You can calculate the 

potential market for ethanol imports at approximately 158 million gallons (see below). This is 

less than has been imported this year to date into the US (through June 2013). 

R. Page 76. “...The historical volumes of sugarcane ethanol imports into the U.S. from Brazil are 

indicative of Brazilian production and export capacity, and thus provide several benchmarks for 

the volume that could potentially be imported into the U.S. in 2014...” Many of the reports in 

Implications of 2014 EPA RFS rules (billion gallons)

15.210 Total mandate

1.280 Bio-based diesel

2.210 Adavanced biofuels

0.023 Cellulosic mandate

0.016 Cellulosic likely to be an ethnaol product

0.290 Undefined advanced (advanced mandate less biodiesel carve out)

0.132 non-ethanol advanced per EPA (but not biodiesel qualifying)

0.158 Advanced that could be ethanol (potential sugarcane ethanol imports)

13.162 Implied domestic ethanol consumption of all types (corn, advanced, cellulosic)

13.000 Conventional Gap

0.012 non-ethanol non advanced 

12.988 Corn ethanol potential for domestic consumption (not counting exports)
Table IV.C.1.d-1 show import volumes that are heavily influenced by the mandate levels 

considered. Most of these studies come to these import needs by the level of mandates set, that 

is to say the export volume doesn’t set the mandate rather the reverse occurs in these dynamic 

modeling system. Those are the import levels needed to help meet the undefined advanced gap 

in the most cost effective manner, not an exogenous trade level that is taken as ‘potential 

supplies’ into the US market. Price, heavily influenced by RIN prices (both import ethanol price 

and D5 RIN prices) are important considerations in how much supply will come into the US. This 

makes the last line of Table IV.C.1.e-1 hard to interpret. Please provide accompanying

discussion to that point.

S. Biodiesel costs. Here are the comments on biodiesel costs referred to in the comment 

bubble on pp. 42-43.

There are several difficulties with the discussion of the effect of the biodiesel RFS mandate 

on costs.

First, the fact that prices went up during the drought, and down afterwards, neither proves nor 

disproves anything about the price impact of the RFS on soybeans. It simply proves that 

there is more than one factor that affects soybean prices, in this case rainfall is such an 

additional factor.

Second, as long as there is a nonzero long-run price elasticity, the RFS will have an impact 

on prices. When the RFS is binding, it moves out the demand curve which moves along the 

supply curve and prices go up. It will be binding whenever the cost of using biofuels exceeds 

the cost of B0 or, equivalently, whenever the RIN price is positive. The long-run elasticity is 

nonzero because of limited land. This price effect will be there even with technological 

progress/improved productivity because demand is higher with the RFS than without. This 

logic should be stated squarely. If one wants to estimate cost impacts on soy prices, then 

USDA can provide estimates of soy oil supply elasticities and that should give a 

straightforward estimate of the price effects of the RFS on soy oil (or alternatively this could 

be taken back to the level of soybeans). There is a recent metastudy by NCEE (Condon, 

Klemik, and Wolverton, NCEE WP 2013-05) that discusses many estimates of the effect of 

the RFS on corn prices, perhaps there are some references there that might be useful for the 

biodiesel issue here.

Third, Glauber’s testimony focused on U.S. food prices. Yes, the biodiesel component of the 

RFS will have a small effect on overall food prices, but this is because soy oil is a very small 

fraction of the end-product food price index in the U.S. Whether the RFS has a small impact 

on food prices isn’t the right metric – in theory it could have a large impact on soy prices 

(and thus affect consumers of soy products) but still have a very small effect on an overall 

end-consumption food price index.

Fourth, the previous comment raises the question of what is a large cost and what is a small 

cost. Total dollar impact is one way to approach this but CEA would argue that a better way 

to approach this question is to estimate costs of the biodiesel program in terms of dollars per 

ton of CO2 emissions reduction. Such a metric addresses several of the bullet criteria listed 

on pp. 40-41. The economically “correct” way to do this calculation is to estimate the 

consumer and producer surplus forgone under the mandate as the cost, and to calculate the 
CO2 emissions reduction obtained, and compute from this a cost per ton. However, a backof-the-envelope calculation can be done to give an order of magnitude. 

This back-of-the-envelope calculation is done in the table below. This calculation asks, (a) 

what is the direct dollar cost (not producer/consumer surplus, just dollar cost) of using a 

gallon of B100, in excess of using a gallon of B0, and (b) what is the GHG emissions 

reduction from using that gallon, and (c) dividing (a) by (b) gives an estimate of the cost per 

ton. This calculation is done below and yields an estimate of $314/ton. Note that this 

estimate is an underestimate because it excludes the losses suffered by consumers of food 

soy. It also depends on the price of soy diesel. Also, this calculation is a total cost, because it 

does not net out the biodiesel tax credit. If the biodiesel tax credit is taken as given, the 

marginal cost of the RFS would be less. But, consistent with the NPRM, if one assumes that 

the biodiesel tax credit will not be present for 2014, then this represents a full cost.

Cost/Metric Ton of Substituting Biodiesel for Petroleum Diesel

Day used for blended biodiesel fuel and biodiesel RIN prices 8/8/2013

Mandate year 2013

Price of petroleum diesel (B0) ($/gal) $ 3.040 

Price of biodiesel (B100) ($/gal) $ 4.730 

Price of biodiesel RIN ($/gal) $ 1.118 

Biodiesel share of mandate 0.011

Price of blended biodiesel fuel ($/gal) $ 3.793 

Carbon emissions of petroleum diesel (B0) (kg/gal) 14.200

Carbon emissions of biodiesel (B100) (kg/gal) 5.623

Biodiesel tax credit $ 1.00 

Difference in carbon emissions between petroleum diesel and biodiesel (kg/gal) 8.577

Cost of substituting biodiesel for petroleum diesel ($/kg) $ 0.3136 

Cost of substituting biodiesel for petroleum diesel ($/metric ton) $ 314 

Sources: Bloomberg, Environmental Protection Agency, Biomass Energy Centre

Note: This calculation assumes perfectly competitive markets in the biodiesel 

producer and diesel blender markets, meaning that all subsidies are passed 

directly to the consumer.

The price of B100 is taken from a "Fuel Pricing in 2013.docx" document sent from

the National Biodiesel Board. The price quoted is the price that producers sell for

a gallon of biodiesel. It appears that the price already includes the effect of the 

tax credit. The price of B0 is taken to be the price of home heating oil. 

The calculated price of blended biodiesel fuel includes a mark-up of $0.74.

The cost of approximately $300/ton is large compared with the updated SCC (which, for 

2013 emissions in 2013 dollars with a 3% discount rate, is $43/ton. Viewed this way, the 

cost of using a marginal gallon of biodiesel is significant.

T. Forward guidance. 
o As EPA knows, because of the forward-looking nature of RINs and of biofuels 

investments, it is key that the market have clear forward guidance. The rule uses 

different language on this point, in some places saying that the proposed 2014 

methodology “could also be applied” in later years, in other places, in other places 

saying “we would intend this framework to apply not just to 2014, but to later 

years as well” (p.13), and other wording is used to. To avoid confusion, it would 

be helpful to go through the document to align wording throughout with the 

stronger p. 13 wording.

o The methodology raises the question of how EPA might handle the part of the 

statute requiring resetting the RVOs for 2016 and beyond, subject to the 

20%/two-year trigger. It seems very likely that EPA will confront this at some 

point as it moves along this path. It would seem appropriate to recognize this in 

the preamble and to indicate that the restatement is intended to be addressed 

within the context of the methodology and supply considerations laid out in the 

2014 rule. Some more careful wording than the previous sentence might be in 

order, but again the goal is to provide the market with forward guidance.

Jet Fuel

U. The NPRM states that “[t]he third approach that we evaluated, and the one that we are 

proposing today, includes both a consideration of the capability of the relevant industries 

to make qualifying renewable fuels available, either through domestic production or 

importation, and also the capability of the relevant industries to ensure that those 

renewable fuels are used as transportation fuel, heating oil, or jet fuel” (page 13). Does 

the NPRM affect/impact jet fuel? If so, does section 42 U.S.C. § 7571 et seq. apply?

Additionally, the statement also appears to contradict the statement in the Summary 

paragraph that states that “[t]oday’s action ... would apply to all motor vehicle gasoline 

and diesel produced and imported in the year 2014” (page 1).

Benefit/Cost Analysis of Options

V. The agency doesn’t provide any benefit/cost analysis to ascertain which option maximizes social 

net benefits. Please provide the analysis.

Health Aspects

W. On Page 40 and 41: Are human health outcomes associated with a statutory reduction in the 

volume of renewable biofuel for 2014 and 2015 (which may be manifested through changes in 

water quality, air quality, and climate change) considered? These health outcomes may be 

associated with the reduction of particulate matter, carbon monoxide, and total hydrocarbons 

found with the use of biofuels rather than petroleum.

Editorial/Clarifications

X. Page 42 (second paragraph, 4th line). significntly –> significantly 

Y. Page 43. “...WASDE’s June Outlook Report estimates that for the 2013/2014 marketing year 

(which includes the months of October through December 2013) soybean prices will range from 
$9.75 – $11.75 per bushel...” The SOYBEAN marketing year runs from September – August , the 

SOYBEAN OIL marketing year runs from October- September. This section might take some 

clarification as soybeans still have 50%+ of their value in the meal and presumably you are 

concerned with the oil price share.