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: April 27 , 201 5

SUBJECT: 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 proposed rule to establish volume standards

for 2014

- 2016 , EPA projected the generation of cellulosic biofuel RINs for compressed and liquified natural gas (CNG/LN G) derived form 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 cellulosic bio fuel RINs generated for CNG/LNG derived from biomas was to review the RIN generation history for these fuels over the most recent 12 months for which information was available (April 2014

– March 2015). In order to accurately assess the production history of fuels that are now eligible to generate cellulosic biofuel RINs for CNG/LNG from biogas we must consider not only the actual cellulosic biofuel RINs generated and made available for compliance , but also the advanced biofuel RINs generated and made avai lable for compliance for CNG/LNG derived from biogas prior to August 18, 2014, the effective date of the “Pathways II” rulemaking allowing cellulosic biofuel RINs to be generated for CNG/LNG derived from biogas. The monthly production history for RINs gen erated for CNG/LNG derived from biogas

, and those retired for reasons other than demonstration of compliance with the annual standards, is shown in

Table 1 below.Table 1 RINs Generated for CNG/LNG Derived from Biogas

Month Advanced RINs Cellulosic RINs Total RINs April 2014 2,411,989 0 2,411,989 May 2014 2,193,478 0 2,193,478

June 2014 2,514,332 0 2,514,332 July 2014 4,340,962 0 4,340,962 August 2014 1,533,275 3,492,106 5.025.381 September 2014 0 7,552,701 7,552,701

October 2014 0 6,617,128 6,617,128

November 2014 0 6,152,005 6,152,005

December 2014 0 8,773,943 8,773,943 January 2015 0 3,962,483 3,962,483 February 2015 0 7,850,349 7,850,349

March 2015 0 7,712,870 7,712,870

Total RINs Generated 12,994,036 52,113,585 65,107,621

RINs Retired for

Reasons Other than

Demonstration of Annual Compliance 1 47,882 423,260 471,142

Total RINs Available 12,946,154 51,690,325 64,636,479

Since we have actual data on the generation and retirement of cellulosic biofuel RINs produced

for CNG/LNG derived from biogas for the first three months of 2015, we only need a projection for the remaining 9 months of the year (April 2015

– December 2015). Based on available EMTS information we have determined that 19,525,702 cellulosic biofuel RINs were gene rated for CNG/LNG in the first three months of 2015 and remain available for compliance purposes. For the last 9 months of 2015, we have calculated low and high ends of a range of potential production volumes . We project likely production volumes using a production volume at the midpoint of the range (50 th percentile) for all facilities that have previously generated cellulosic biofuel RINs for CNG/LNG derived from biogas, and production volume at the 25 th percentile of the range for facilities that have not yet generated cellulosic biofuel RINs.

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 produced from biogas in the most recent 12

months in which data is available

, multiplied by a scaling factor of 0.75 (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 nine months 2015 of 48 million gallons. 2

In d eriving the low en d of the projected production range for the last 9 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 beg un producing RINs, as well as the intention of several existing facilities to increase production through the end of

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.

2 For the purposes of our projections all v olumes are rounded to the nearest million gallons2015 we do not believe it is appropriate to consider these additional volumes in the low end of

the projected production range. The produc tion 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

p rojecting 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 CNG/LNG derived from biogas in the last nine months of 2015 we primarily r elied on cellulosic biofuel RIN generation projections provided by CRNG when available, and facility capacity and RIN production history when other projections were not available. The 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 transportation fuel within the United States. W e reviewed the data

availa ble 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 2014 and 2015 (through March 31, 2015) , total permitted capacity and total actual peak capacity are

shown in Table 2 below. At the time of the assessment five 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.Table 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 equal 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 the factor that limits the number of RINs they are able to generate, and

it is there fore 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 previous RIN generation rates for the facility.

The data in Table 2 serves as a starti ng point for projecting the number of cellulosic biofuel RINs likely to be generated for CNG/LNG derived form biogas in the last nine months of 2015. However, it has to main limitations. While total peak capacities are listed, historically many biogas pr oducers have generated RINs at rates far lower than their listed total actual peak capacities. This suggests that simply using the sum of the capacities for each facility (281 million gallons) would significantly over

- project the actual likely generation of cellulosic biofuel

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

. Considering only facilities that are currently registered or in the process of registering not incl ude 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

.

To ad dress these challenges EPA obtained company specific production estimates from the Coalition for Renewable Natural Gas (CRNG) for 2015 and 2016. The Coalition for Renewable Natural Gas is made up of members that develop, own, operate, and service renewabl e 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 Producer or Registrant Production Estimate 2015 (EGE) 3 Production Estimate

2016 (EGE)

Information Withheld

– Claimed as CBI

Total: 157,456,726 295,024,824

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 4

. For the remainder of

this memo we will refer to the entities labeled producer or registrant by CRNG as “paren t companies” 5 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. 6 Table 4 below shows the result of our a ttempt to link CRNG parent company information to our list of facilities. There were several registered 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 with N/A as the parent company in Table 4. Projections for these facilities are based on their production history and total peak capacity as explained in more detail below.

3 EGE stands for ethanol gallon equivalent. A quantity of CNG/LNG derived from biogas with an energy content of 77,000 BTU has the same energy value as a gallon ethanol and is considered an ethanol gallon equivalent (EGE). One RIN may be generated for every 77,000 BTUs, or EGE, of CNG/LNG produced from an approved facility and used as transportation fuel in the United States.

4 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 information, indicating that their members were generally unwilling to share this information with EPA.

5 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.

6 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 indiv idually in Tables 5 and 6 below

. 7 We also separately calculated the sum of the total 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 than the sum of total actual peak capacities for facilities associated with that parent company that have generated cellulosic biofuel RINs, we assumed that the en tire CNRG projection was for existing facilities and used that value as the high end of the range for our production projection for the last nine months of 2015 for the parent company. If the CNRG projection was greater than the sum of total actual peak c apacities 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 g enerated cellulosic RINs, and that the additional increment in the CNRG projection was attributable 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 nine months of 2015 for the parent company.

EPA did not use a six

- month straight

- line ramp

- up to assess the reasonableness of production projections from new facilities generating cellulosic biofuel RINs for CNG/LNG derived from biogas as we did with other cellulosic b iofuel producers. This is because the vast majority of

7 Several smaller facilities were combined and listed under the Small Producer category“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 compan ies 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 facili ties 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. RIN generation from these facilities may be delayed or reduced if they are un able 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 25 th percentile of the range is appropriate.

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

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

– March 2015. There were two facilities not associated with a parent company that have not yet generated RINs ( [Information Withheld

– Claimed as CBI] ). Neither o f these facilities has completed the registration process, and therefore we 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 0.75. This was done to appropriately scale full year estimates of production for use over only the rem aining 9 months in 2015 (April

– 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 a s the high end of the projected range for 2015 for CNG/LNG derived from biogas for new and existing facilities respectively. These calculations for each company or registrant, as well as the projections for unaffiliated facilities, are shown in Table 5

be low. 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 9 months of 2015 f or existing facilities (88 million gallons) and new facilities (37 million gallons). See Section IV.D of the preamble 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 t o the one outlined above for 2015 , with modifications to take into account expected activity in 2015 . As discussed in Section IV.E we did not project a low end of the range for CNG/LNG derived from biogas in 2016 independently,

but rather we used the tota l volume of cellulosic biofuel projected to be produced in 2015 as the low end of the range for overall cellulosic biofuel production in 2016. 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 uncertainty 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 projections provided by CRNG for 2016. We compared each of these volumes to the sum of the total actual peak capacities for all of the registered faci lities associated with that parent company

. If the projected volume for the parent company was less than the sum of the total actual peak capacities for all of the registered facilities 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 registered facilities associated with the parent

company then a p roduction volume equal to the sum of the facility capacities for all of the registered facilities associated with the parent company was used as the projected volume from existing facilities and any volume in excess of that used as the projected volume fro m new facilities in 2016. These new facilities could be the result of new construction

, or existinglandfills or digesters that are expected to begin generating cellulosic biofuel RINs for the first

time in 2016. Our approach to attributing 2016 volumes from within the CRNG projection to existing facilities vs. new facilities differs from the approach we used for purposes of the 2015 projection, in that for 2016 we used the sum of actual total peak capacities in our calculations rather than, for 2015, the sum of actual total peak capacities for facilities that have generated cellulosic biofuel RINs for CNG/LNG. We believe this approach is a reasonable method for projecting which facilities will have generated cellulosic biofuel RINs by the end of 2015, and should therefore be considered existing facilities for projecting production volumes in 2016. For the final rule we intend to update our classification production volumes from existing and new facilities based on the available RIN generation data at that time.

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 facilities. If they have not yet begun prod uction we assumed a RIN generation volume for 2016 equal to 50% of their total actual peak capacity

. Consistent with our approach for facilities affiliated with parent companies, a ll of the volume projected from these facilities was categorized as being f rom existing facilities since they have all registered as cellulosic biofuel producers or are in the process of registering

. The sum of the projected volumes for new and existing facilities for 2016 from all of the parent companies, as well as the unaffil iated facilities, was used as the high end 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 existing and new facil i ties.

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 2016 for existing facilities (185 million gallons) and new facilities (120 million gallons). See Section IV.E of the preamble for more detail on how the high end of these ranges are used to project total cellulosic biof uel production in 2016.Table 6

High End of the Projected Range for CNG/LNG Derived from Biogas in 2016 (Existing and New Facilities)