MEMORANDUM

TO: Air and Radiation Docket EPA

- HQ

- OAR

- 201 5

- 0 111

FROM: Dallas Burkholder, Office of Transportation and Air Quality, US EPA

DATE: November 2015

SUBJECT: November 2015 Assessment of Cellulosic Biofuel Production from Biogas (2015

-

2016)

Projecting Cellulosic Biofuel Production from Biogas

As discussed in Section IV of the preamble of the final rule to establish volume standards for

2014

- 2016 , EPA projected the generation of cellulosic biofuel RINs for compressed and liquified natural gas (CNG/LNG) derived f r o m biogas for 2015 and 2016 using information from EMTS and projections submitted to EPA from the Coalition for Renewable Natural Gas (CRNG)

.

2015 Projection

The first step of the methodology we used to project the number of cellul osic biofuel RINs generated for CNG/LNG derived from bio gas was to review the RIN generation history for these fuels over the most recent 12 months for which information was available ( October 2014

– September 2015). Unlike in the proposed rule, a pathway for generating cellulosic biofuel RINs for CNG/LNG derived from biogas has been in place throughout this period, so only cellulosic

RINs need to be considered. The monthly production history for RINs generated for CNG/LNG derived from biogas

, and those r etired for reasons other than demonstration of compliance with the annual standards, is shown in Table 1 below.Table 1 Cellulosic Biofuel (D3) RINs Generated for CNG/LNG Derived from Biogas

Month Number of Cellulosic RINs

Generated for CNG/LNG

October 2014 6,617,128

November 2014 6,152,005

December 2014 8,773,943 January 2015 3,994,216 February 2015 7,865,221

March 2015 7,716,541 April 2015 7,542,563 May 2015 9,227,030

June 2015 12,223,962 July 2015 12,651,824 August 2015 13,478,314 September 2015 12,316,744

Total RINs Generated 108,559,491

RINs Retired for

Reasons Other than

Demonstration of Annual Compliance 1 1,122,021

Total RINs Available 107,437,470

Since we have actual data on the generation and retirement of cellulosic biofuel RINs produced for CNG/LNG derived from biogas for the first nine months of 2015, we only need a projection for the remaining three months of the year ( October 2015

– December 2015). Based on available

EMTS information we have determined that 87,016,415 cellulosic biofuel RINs were generated

for CNG/LNG in the first nine months of 2015 and remain available for compliance purposes.

For the last 3 months of 2015, we have calcula ted low and high ends of a range of potential production volumes . We project likely production volumes using a production volume at the

75 th percentile of the range for all facilities that have previously generated cellulosic biofuel RINs for CNG/LNG derived from biogas, and production volume at the 50 th percentile of the range for facilities that have not yet generated cellulosic biofuel RINs.

In our proposed rule we projected volumes from these facilities at the 25 th and 50 th percentile of the projected production ranges respectively, consistent with the way we projected likely production from liquid cellulosic biofuel producers. We received comments that our

meth odology under

- estimated the potential for the generation of cellulosic RINs from biogas, with some commenters claiming that the mature state of the technology required to produce and/or collect biogas and clean it to pipeline quality justified a using a hi gher percentile to projected production from these facilities. In our proposed rule EPA noted the differences in the status of the technologies used to produce liquid cellulosic biofuels and cellulosic biofuel from biogas. We nevertheless proposed to use the same percentiles for both liquid cellulosic biofuels

1 Data is from EMTS. No RINs will need to be retired due to the export of RIN generating CNG/LNG since verification of the fuel’s use as transportation fuel in the United States is a condition of RIN generation.and cellulosic biofuel from biogas due to uncertainties related to the ability of the biogas

production facilities to demonstrate the use of the biogas as transportation fuel and a lack of RIN

gener ation data to compare to previous projections on the part of many of the biogas facilities. After reviewing the fuel production and RIN generation history of these facilities, and with these comments in mind, EPA has decided to use higher percentile value s to project likely production from cellulosic biogas producers as compared to liquid cellulosic biofuel producers.

The low end of the projected production range for CNG/LNG produced from biogas is equal to the number of RINs generated for CNG/LNG produce d from biogas in the most recent 12

months in which data is available

, multiplied by a scaling factor of 0. 25 (the portion of the year for which we are projecting volumes ) . This calculation results in a low end of the projected range for CNG/LNG produced from biogas in the last three months 2015 of 27 million gallons. 2
In deriving the low en d of the projected production range for the last 3 months of 2015 we assume the production rate of RINs generated from CNG/LNG does not increase. While we are

aware of several facilities that have registered with EPA and have not yet begun producing RINs, as well as the intention of several existing facilities to increase production through the end of 2015 we do not believe it is appropriate to consider these addition al volumes in the low end of the projected production range. The production of biogas from landfills and digesters, as well as the volume of CNG/LNG that registered facilities can demonstrate was used as transportation fuel in the United States, are both variable and may fluctuate over time. Any growth in RIN generation from a new or existing facility may be off

- set by a decrease in production from another facility. Additionally, producers of CNG/LNG may decide to sell the CNG/LNG they produce to non

- RIN generating markets, such as electricity generation. This approach to projecting the low end of the range is consistent with the approach taken for cellulosic biofuels

other than CNG/LNG.

To calculate the high end of the projected production range for CN G/LNG derived from biogas

in the last three months of 2015 we primarily relied on cellulosic biofuel RIN generation projections provided by CRNG when available, and facility capacity and RIN production history when other projections were not available. Th e high end of the range is designed to represent the number of cellulosic biofuel RINs that could be generated for CNG/LNG if there are no unexpected interruptions in the production of CNG/LNG from biogas or the verification of the

use of this CNG/LNG as t ransportation fuel within the United States. W e reviewed the data available in EMTS for all facilities registered to produce cellulosic biogas RINs for CNG/LNG derived from biogas. Each of the facilities, along with the cellulosic biofuel production in 2 014 and 2015 (through September 3 0 , 2015) , total permitted capacity and total actual peak capacity

are shown in Table 2 below. At the time of the assessment eight additional facilities had requested registration as producers of cellulosic biofuel from CNG /LNG derived from biogas but their registration applications have not yet been processed . These facilities are also listed in the

Table 2.

2 For the purposes of our projections all v olumes are rounded to the nearest million gallonsTable 2 Registered Producers of Cellulosic Biofuel RINs for CNG/LNG Derived from BiogasUnlike other facilities registered under the RFS program, the volume listed as the total actual

peak capacity for cellulosic biogas producers is not related to a historic production volume. Rather, the volume listed as the total actual peak capacity is eq ual to the sum of all the contracts or affidavits the producer has in place at the time of registration for the use of CNG/LNG derived from biogas for use as a transportation fuel. For producers of RINs for CNG/LNG derived from biogas this is most often t he factor that limits the number of RINs they are able to generate, and it is therefore used as the facility capacity for these producers. Where no value is listed in the

total actual peak capacity field a facility capacity is estimated based on the previ ous RIN generation rates for the facility.

The data in Table 2 serves as a starting point for projecting the number of cellulosic biofuel RINs likely to be generated for CNG/LNG derived form biogas in the last three months of 2015. However, it has t w o m ain limitations. While total peak capacities are listed, historically many biogas producers have generated RINs at rates lower than their listed total actual peak capacities. This suggests that simply using the sum of the capacities for each facility ( 35 2 million gallons) would significantly over

- project the actual likely generation of cellulosic biofuel RINs from

CNG/LNG in 2015 and 2016 . Conversely, Table 2 lists only facilities that are currently registered or in the process of registering

. Consideri ng only facilities that are currently registered or in the process of registering does not include any volume for facilities that may register in the future and would under

- estimat e the potential for RINs generated for CNG/LNG derived from biogas in any new facilities successfully register and begin generating cellulosic

biofuel RINs in 2015 and 2016

.

To address these challenges EPA obtained company specific production estimates from the Coalition for Renewable Natural Gas (CRNG) for 2015 and 201 6. The Coalition for Renewable Natural Gas is made up of members that develop, own, operate, and service renewable natural gas projects. According to the CRNG

, their members produce more than 90% of the transportation fuel grade renewable natural gas in the United States. The company specific projections received from the CRNG are reproduced in Table 3 below.Table 3 Company Projections for CNG/LNG Derived from Biogas from CRNG

* EGE stands for ethanol gallon equivalent. A quantity of CNG/LNG derived from biogas with an energy content of
77,000 BTU

To verify the projections received from CRNG, EPA attempted to li nk the registered facilities to the list of producers or registrants in the projections provided by CRNG 3

. For the remainder of

this memo w e will refer to the entities labeled producer or registrant by CRNG as “parent companies” 4 to avoid confusion with the company and facility names in Table 2 above . We relied on publicly available information as well as comments submitted to EPA on our proposed

2014 volume standards rule to determine which facilities are associated with the listed parent companies

. 5 Table 4 below shows the result of our attempt to link CRNG parent company

information to our list of facilities. There were several regi stered facilities that EPA determined were not affiliated with any of the parent companies in the projections provide to EPA by

CRNG. These facilities are listed in the Unaffiliated (No Parent Company) row in Table 4. Projections for these facilities are based on their production history and total peak capacity as explained in more detail below.

3 EPA requested information on production projections from individual facilities, and information related to the facilities that comprised each larger company’s estimate; however CNRG did not provide this i nformation, indicating that their members were generally unwilling to share this information with EPA.

4 We do not intend to imply that the registered facilities are necessarily owned by the “parent company,” simply that we believe the production estimates of the parent companies include the RINs generated by the registered

facilities associate with them in Table 4.

5 EPA

- HQ

- OAR

- 2013

- 0479Table 4 Registered Facilities in EMTS by Parent Company Parent Company Registered Facility Name(s)

Information Withheld

– Claimed as CBI

After determining which registered facilities were associated with the various parent companies listed in the projections provided by CRNG, EPA calculated the sum of the total actual peak capacities for all of the identified facilities associated with each parent company

. Facility specific projections were made for the f acilities that were determined not to be affiliated with a

parent company . These facilities are listed individually in Tables 5 and 6 below

. 6 We also separately calculated the sum of the t otal actual peak capacities of all registered facilities associated with each parent company that have already generated cellulosic biofuel RINs for

CNG/LNG.

We next used the sum of the total actual peak capacities for all facilities associated with each

parent company that have already generated cellulosic biofuel RINs as an indication of whether the projected production for each parent company was expected to come from new or existing

facilities. If the CNRG projection for a parent company was less tha n the sum of total actual peak capacities for facilities associated with that parent company that have generated cellulosic biofuel RINs, we assumed that the entire CNRG projection was for existing facilities and used that value as the high end of the rang e for our production projection for the last three months of 2015 for the parent company. If the CNRG projection was greater than the sum of total actual peak capacities for facilities associated with a parent company that have generated cellulosic
RINs, we assumed that the portion of the CNRG projection relating to existing facilities was equal to the sum of total actual peak capacities of facilities that have generated cellulosic RINs, and that the additional increment in the CNRG projection was attribut able to new facilities. We used that value to represent the high end of the range for our production projection from new

facilities for the last three months of 2015 for the parent company. We note that because we are trying to project production over the last three months of 2015 and relying on actual data for the first nine months, the high end of the ranges projected here represent the high end of the annualized rate of production for the last three months of 2015, rather than the high end of the range of actual expected production in 2015.

6 Several smaller facilities were combined and listed under the Small Producer categoryEPA did not use a six

- month straight

- line ramp

- up to assess the reasonableness of production

projections from new facilities generating cellulosic bio fuel RINs for CNG/LNG derived from biogas as we did with other cellulosic biofuel producers. This is because the vast majority of “new” facilities generating RINs for CNG/LNG derived from biogas already have a significant history of producing CNG/LNG for non

- transportation markets. All that is necessary for many of these companies to begin generating RINs is to register the facilities and demonstrate that the CNG/LNG being produced is from approved sources and is used as transportation fuel. They do

not face the same ramp

- up schedule or uncertainties as newly constructed facilities operating new technologies. There is, however, still a significant amount of uncertainty related to RIN generation from facilities that have not yet begun generating RINs. RI N generation from these facilities may be delayed or reduced if they are unable to verify that all or a portion of the CNG/LNG they produce is used as transportation fuel, or if they decide to sell the CNG/LNG they produce into non

- transportation markets. These uncertainties can significantly impact the number of RINs generated by a CNG/LNG producer, and we therefore believe that projecting projection from these “new” facilities at the 50 th percentile of the range is appropriate.

For facilities not associ ated with a parent company projection we calculated a projected volume

based on an extrapolation of the cellulosic RIN generation of that facility from January 2015

– September 2015. There were five facilities not associated with a parent company that hav e not yet generated RINs ( [Information Withheld

– Claimed as CBI] ). W e have not projected any production from these facilities in 2015.

T he combined sum of the projected production of all of the companies or registrants and the

unaffiliated facilities was multiplied by a scaling factor of 0. 2 5. This was done to appropriately scale full year estimates of production for use over only the remaining 3 months in 2015 ( October

– December), the time period for which we are projecting volumes. The sum of the projected volumes for new and existing facilities for 2015 from all of the parent companies, as well as the unaffiliated facilities, was used as the high end of the projected range for 2015 for CNG/LNG derived from biogas for new and existing facilities re spectively. These calculations for each company or registrant, as well as the projections for unaffiliated facilities, are shown in

Table 5 below. The sum of the projections for all parent companies and all facilities not associated with a parent company are used as the high end of the range for projecting cellulosic RIN generation for CNG/LNG derived form biogas for the last 3 months of 2015 for existing facilities ( 33 million gallons) and new facilities ( 0 million gallons). See Section IV. E of the

prea mble for more detail on how the high end of these ranges are used to project total cellulosic biofuel production in 2015.Table 5

High End of the Projected Range for CNG/LNG Derived from Biogas in 2015 (Existing and New Facilities)

201 6 Projection

To project the range of production volumes of cellulosic biofuel RINs from CNG/LNG derived from biogas for 2016 we used a similar methodology to the one outlined above for 2015. As

discussed in Section IV. F of the preamble of the final rule, we calculated the low end of the projected range from facilities that are currently generating RINs to be equal to the production

from these facilities in the most recent 12 months for which data is available (October 2014

– September 2015)

. For facilities that have n ot yet generated cellulosic biofuel RINs the low end of the range was set at 0. We believe this methodology produces a reasonable projection of the lowest volume of cellulosic biofuel likely to be produced in 2016, while at the same time reflecting the un certainty related to each individual source of cellulosic biofuel.

We used the same sources of information to project the high end of the range of cellulosic biofuel RIN generation in 2016 as we did for 2015. For 2016 we began with parent company project ions provided by CRNG for 2016. We compared each of these volumes to the sum of the total actual peak capacities for all facilities that have generated cellulosic biofuel RINs associated with that parent company . If the projected volume for the parent co mpany was less

than the sum of the total actual peak capacities for all of the facilities that have generated

cellulosic biofuel RINs associated with the parent company we assumed that the full projected volume for 2016 was from existing facilities. If the projected production volume from a company or registrant for 2016 exceeded the sum of the total actual peak capacities for all of the facilities that have generated cellulosic biofuel RINs associated with the parent company then a production volume equal to the sum of the facility capacities for all of the facilities that have generated cellulosic biofuel RINs associated with the parent company was used as the projected

volume from existing facilities and any volume in excess of that used as the proj ected volume

from new facilities in 2016.

For registered facilities that were not associated with one of the companies or registrants for which EPA had projections we based our projection for 2016 on the historical RIN generation

rate from these facilit ies. Consistent with our approach for facilities affiliated with parentcompanies, a ll of the volume projected from these facilities was categorized as being from

existing facilities since any facility from which we are projecting production in 2016 has a lready generated cellulosic biofuel RINs

. The sum of the projected volumes for new (63 million gallons) and existing facilities (197 million gallons) for 2016 from all of the parent companies, as well as the unaffiliated facilities, was used as the high e nd of the projected range for 2016 for CNG/LNG derived from biogas for new and existing facilities respectively. Table 6 below summarizes these calculations and shows the projected high end of the range for CNG/LNG derived from biogas in 2016 for both exi sting and new facil i ties. See Section IV. F of the preamble for more detail on how the high end of these ranges are used to project total cellulosic biofuel production in 2016.

Table 6 High End of the Projected Range for CNG/LNG Derived from Biogas in 201 6 (Existing and New Facilities)