```

[Federal Register Volume 75, Number 236 (Thursday, December 9, 2010)]
[Rules and Regulations]
[Pages 76790-76830]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-30296]

[[Page 76789]]

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Part II

 Environmental Protection Agency

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40 CFR Part 80

Regulation of Fuels and Fuel Additives: 2011 Renewable Fuel Standards; 
Final Rule

Federal Register / Vol. 75 , No. 236 / Thursday, December 9, 2010 / 
Rules and Regulations

[[Page 76790]]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2010-0133; FRL-9234-6]
RIN 2060-AQ16

Regulation of Fuels and Fuel Additives: 2011 Renewable Fuel 
Standards

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: The Environmental Protection Agency is required to set the 
renewable fuel standards each November for the following year based on 
gasoline and diesel projections from the Energy Information 
Administration (EIA). Additionally, EPA is required to set the 
cellulosic biofuel standard each year based on the volume projected to 
be available during the following year, if the projected volume is less 
than the applicable volume provided in the statute. These cellulosic 
biofuel volume projections are to be based in part on EIA projections 
as well as assessments of production capability from industry. This 
action establishes annual percentage standards under Clean Air Act 
section 211(o) for cellulosic biofuel, biomass-based diesel, advanced 
biofuel, and renewable fuels that apply to all gasoline and diesel 
produced or imported in calendar year 2011. We have determined that the 
applicable volume of cellulosic biofuel on which the percentage 
standard should be based is 6.0 million ethanol-equivalent gallons. We 
believe that available volumes of cellulosic biofuel could be 
significantly higher in 2012. This action also finalizes two changes to 
the Renewable Fuel Standard program regulations: modifications to the 
delayed RINs provision which provides a temporary and limited means for 
certain renewable fuel producers to generate RINs after they have 
produced and sold renewable fuel, and a new process for parties to 
petition EPA to authorize use of an aggregate approach to compliance 
with the renewable biomass provision for foreign feedstocks akin to 
that applicable to the U.S. Finally, this action makes two 
administrative announcements, one regarding the price for cellulosic 
biofuel waiver credits for 2011, and another regarding the status of 
the aggregate compliance provision for domestic crops.

DATES: This final rule is effective on December 9, 2010.

ADDRESSES: EPA has established a docket for this action under Docket ID 
No. EPA-HQ-OAR-2010-0133. All documents in the docket are listed on the 
www.regulations.gov website. Although listed in the index, some 
information is not publicly available, e.g., CBI or other information 
whose disclosure is restricted by statute. Certain other material, such 
as copyrighted material, will be publicly available only in hard copy. 
Publicly available docket materials are available either electronically 
through www.regulations.gov or in hard copy at the Air and Radiation 
Docket and Information Center, EPA/DC, EPA West, Room 3334, 1301 
Constitution Ave., NW., Washington, DC. The Public Reading Room is open 
from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal 
holidays. The telephone number for the Public Reading Room is (202) 
566-1744, and the telephone number for the Air Docket is (202) 566-
1742.

FOR FURTHER INFORMATION CONTACT: Julia MacAllister, Office of 
Transportation and Air Quality, Assessment and Standards Division, 
Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor, MI 
48105; Telephone number: 734-214-4131; Fax number: 734-214-4816; E-mail 
address: macallister.julia@epa.gov, or Assessment and Standards 
Division Hotline telephone number: (734) 214-4636; E-mail address: 
asdinfo@epa.gov.

SUPPLEMENTARY INFORMATION: 

I. General Information

A. Does this action apply to me?

    Entities potentially affected by this final rule are those involved 
with the production, distribution, and sale of transportation fuels, 
including gasoline and diesel fuel or renewable fuels such as ethanol 
and biodiesel. Potentially regulated categories include:

------------------------------------------------------------------------
                                                          Examples of
                                 NAICS \1\   SIC \2\      potentially
            Category               codes      codes        regulated
                                                            entities
------------------------------------------------------------------------
Industry.......................     324110       2911  Petroleum
                                                        Refineries.
Industry.......................     325193       2869  Ethyl alcohol
                                                        manufacturing.
Industry.......................     325199       2869  Other basic
                                                        organic chemical
                                                        manufacturing.
Industry.......................     424690       5169  Chemical and
                                                        allied products
                                                        merchant
                                                        wholesalers.
Industry.......................     424710       5171  Petroleum bulk
                                                        stations and
                                                        terminals.
Industry.......................     424720       5172  Petroleum and
                                                        petroleum
                                                        products
                                                        merchant
                                                        wholesalers.
Industry.......................     454319       5989  Other fuel
                                                        dealers.
------------------------------------------------------------------------
\1\ North American Industry Classification System (NAICS).
\2\ Standard Industrial Classification (SIC) system code.

    This table is not intended to be exhaustive, but rather provides a 
guide for readers regarding entities likely to be regulated by this 
final action. This table lists the types of entities that EPA is now 
aware could potentially be regulated by this action. Other types of 
entities not listed in the table could also be regulated. To determine 
whether your activities will be regulated by this action, you should 
carefully examine the applicability criteria in 40 CFR part 80. If you 
have any questions regarding the applicability of this action to a 
particular entity, consult the person listed in the preceding section.

Outline of This Preamble

I. Executive Summary
    A. Statutory Requirements for Renewable Fuel Volumes
    B. Assessment of 2011 Cellulosic Biofuel Production
    C. Advanced Biofuel and Total Renewable Fuel
    D. Final Percentage Standards
    E. 2011 Price for Cellulosic Biofuel Waiver Credits
    F. Assessment of the Aggregate Compliance Approach
II. Volume Production and Import Potential for 2011
    A. Cellulosic Biofuel
    1. Domestic Cellulosic Biofuel
    2. Imports of Cellulosic Biofuel
    3. Projections From the Energy Information Administration
    4. Overall 2011 Volume Projections
    5. Projections of Cellulosic Biofuel for 2012
    B. Advanced Biofuel and Total Renewable Fuel
    C. Biomass-Based Diesel
III. Percentage Standards for 2011
    A. Background
    B. Calculation of Standards
    1. How are the standards calculated?
    2. Small Refineries and Small Refiners

[[Page 76791]]

IV. Cellulosic Biofuel Technology Assessment
    A. What pathways are currently valid for the production of 
cellulosic biofuel?
    B. Cellulosic Feedstocks
    C. Emerging Technologies
    1. Biochemical
    a. Feedstock Handling
    b. Biomass Pretreatment
    c. Hydrolysis
    i. Acid Hydrolysis
    ii. Enzymatic Hydrolysis
    d. Fuel Production
    e. Fuel Separation
    f. Process Variations
    g. Current Status of Biochemical Conversion Technology
    h. Path to Commercialization
    2. Thermochemical
    a. Ethanol Based on a Thermochemical Platform
    b. Diesel and Naphtha Production Based on a Thermochemical 
Platform
    3. Hybrid Thermochemical/Biochemical Processes
    a. Biochemical Step Following Thermochemical Step
    b. Concurrent Biochemical and Thermochemical Steps
    4. Pyrolysis and Depolymerization
    a. Pyrolysis Diesel Fuel and Gasoline
    b. Catalytic Depolymerization
    5. Catalytic Reforming of Sugars to Gasoline
V. Changes to RFS Regulations
    A. Delayed RIN Generation for New Pathways
    B. Aggregate Compliance Approach for Renewable Biomass From 
Foreign Countries
    1. Criteria and Considerations
    2. Applicability of the Aggregate Approach
    3. Data Sources
    4. Petition Submission
    5. Petition Process
VI. Annual Administrative Announcements
    A. 2011 Price for Cellulosic Biofuel Waiver Credits
    B. Assessment of the Domestic Aggregate Compliance Approach
VII. Comments Outside the Scope of This Rulemaking
VIII. Public Participation
IX. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and Review
    B. Paperwork Reduction Act
    C. Regulatory Flexibility Act
    D. Unfunded Mandates Reform Act
    E. Executive Order 13132: Federalism
    F. Executive Order 13175: Consultation and Coordination With 
Indian Tribal Governments
    G. Executive Order 13045: Protection of Children From 
Environmental Health Risks and Safety Risks
    H. Executive Order 13211: Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use
    I. National Technology Transfer Advancement Act
    J. Executive Order 12898: Federal Actions To Address 
Environmental Justice in Minority Populations and Low-Income 
Populations
    K. Congressional Review Act
X. Statutory Authority

I. Executive Summary

    EPA issued comprehensive regulations in 2007 to implement the 
Renewable Fuel Standard (RFS1) program in Section 211(o) of the Clean 
Air Act, as required by the Energy Policy Act of 2005 (EPAct). The 
statutory requirements for the RFS program were subsequently modified 
through the Energy Independence and Security Act of 2007 (EISA), 
resulting in the publication of revised regulatory requirements (RFS2) 
on March 26, 2010.\1\ In general, the transition from the RFS1 
requirements of EPAct to the RFS2 requirements of EISA occurred on July 
1, 2010.
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    \1\ 75 FR 14670.
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    EPA is required to determine and publish the applicable annual 
percentage standards for cellulosic biofuel, biomass-based diesel, 
advanced biofuel and total renewable fuel for each compliance year by 
November 30 of the previous year. The determination of the applicable 
cellulosic biofuel standard under RFS2 requires that EPA first project 
the volume of cellulosic biofuel production for the following year. If 
the projected volume of cellulosic biofuel production is less than the 
applicable volume specified in Section 211(o)(2)(B)(i)(III) of the 
statute, EPA must lower the required volume used to set the annual 
cellulosic biofuel percentage standard to the projected available 
volume. If we lower the applicable cellulosic biofuel volume, we must 
also determine whether the advanced biofuel and/or total renewable fuel 
volumes should be reduced by the same or a lesser amount. We provided 
our volume projections and proposed percentage standards for 2011 in a 
Notice of Proposed Rulemaking (NPRM) on July 20, 2010 (75 FR 42238). 
Today's action provides our final projection of cellulosic biofuel 
production for 2011, and final percentage standards for all four 
categories of renewable fuel for compliance year 2011. The final 2011 
standards have been based upon statutory requirements, comments 
received in response to the NPRM, the estimate of projected gasoline, 
diesel, and biofuel volumes that the EIA provided to EPA on October 20, 
2010, and other relevant information.
    Today's rule does not include an assessment of the impacts of the 
standards we are finalizing for 2011. All of the impacts of the RFS2 
program associated with the applicable volumes of biofuel specified in 
the statute were addressed in the RFS2 final rule published on March 
26, 2010.
    Today's notice also finalizes two changes to the general RFS2 
program regulations. The first change modifies a regulatory provision 
for ``delayed RINs'' that we implemented through a previous action on 
September 28, 2010.\2\ This provision provides a temporary and limited 
means for certain renewable fuel producers to generate RINs after they 
have produced and sold renewable fuel. In today's action we are 
modifying this regulatory provision to be more broadly applicable as 
described more fully in Section V.A. The second regulatory provision we 
are finalizing today establishes a petition process and criteria for 
EPA to use in determining whether to authorize the use of an aggregate 
approach to verify that feedstocks from foreign countries meet the 
definition of renewable biomass that would be akin to that applicable 
to producers using crops and crop residue grown in the United States. 
Further discussion of these provisions can be found in Section V.B.
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    \2\ 75 FR 59622.
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    Finally, in today's rulemaking we are announcing the price for 
cellulosic biofuel waiver credits, and are also announcing the results 
of our annual assessment of the aggregate compliance approach for U.S. 
crops and crop residue. These announcements are provided in Section VI.

A. Statutory Requirements for Renewable Fuel Volumes

    The volumes of renewable fuel that must be used under the RFS2 
program each year (absent an adjustment or waiver by EPA) are specified 
in CAA 211(o)(2)(B). These volumes for 2011 are shown in Table I.A-1.

       Table I.A-1--Required Volumes in the Clean Air Act for 2011
                              [Billion gal]
------------------------------------------------------------------------
                                                                Ethanol
                                                     Actual   equivalent
                                                     volume      volume
------------------------------------------------------------------------
Cellulosic biofuel...............................   \a\ 0.25        0.25
Biomass-based diesel.............................       0.80        1.20
Advanced biofuel.................................       1.35        1.35
Renewable fuel...................................      13.95       13.95
------------------------------------------------------------------------
\a\ This value assumes that all cellulosic biofuel would be ethanol. If
  any portion of the renewable fuel used to meet the cellulosic biofuel
  volume mandate has a volumetric energy content greater than that for
  ethanol, this value will be lower.

    By November 30 of each year, the EPA is required under CAA 
211(o)(3)(B) to determine and publish in the Federal

[[Page 76792]]

Register percentage standards for the following year that will ensure 
that the applicable volumes of renewable fuel are used. These standards 
are to be based in part on transportation fuel (i.e. gasoline and 
diesel) volume estimates provided by the Energy Information 
Administration (EIA). The calculation of the percentage standards is 
based on the formulas in 40 CFR 80.1405(c) which express the required 
volumes of renewable fuel as a volume percentage of gasoline and diesel 
sold or introduced into commerce in the 48 contiguous states plus 
Hawaii.
    The statute requires the EPA to determine whether the projected 
volume of cellulosic biofuel production for the following year is less 
than the minimum applicable volume shown in Table I.A-1. If this is the 
case, then the standard for cellulosic biofuel must be based upon the 
projected available volume rather than the applicable volume in the 
statute. In addition, if EPA reduces the applicable volume of 
cellulosic biofuel below the level specified in the statute, the Act 
also indicates that we may reduce the applicable volume of advanced 
biofuels and total renewable fuel by the same or a lesser volume.

B. Assessment of 2011 Cellulosic Biofuel Production

    To estimate the projected available volume of cellulosic biofuel in 
the U.S. in 2011, we researched potential production sources by company 
and facility. This included sources that were still in the planning 
stages, those that were under construction, and those that are already 
producing some volume of cellulosic ethanol, cellulosic diesel, or some 
other type of cellulosic biofuel. We considered all pilot and 
demonstration plants as well as commercial plants. From this universe 
of potential cellulosic biofuel sources we identified the subset that 
had a possibility of producing some volume of qualifying cellulosic 
biofuel for use as transportation fuel in 2011. Further analysis and 
investigation allowed us to determine which ones were actually in a 
position to produce and make available any commercial volumes of 
cellulosic biofuel in 2011. In this process we also considered factors 
such as the current and expected state of funding, the status of the 
technology and contracts for feedstocks or product sales, and progress 
towards construction and production goals. This assessment formed the 
basis of our projection for potentially available 2011 volumes.
    In our assessment we evaluated both domestic and foreign sources of 
cellulosic biofuel. We determined that five U.S. facilities have the 
potential to make volumes of cellulosic biofuel commercially available 
for transportation use in the U.S. in 2011. We also identified three 
international facilities, two in Canada and one in Germany, that we 
expect will produce cellulosic biofuel in 2011. While these facilities 
may also be able to produce cellulosic volume in 2011, we determined 
that they are unlikely to make the fuel available to the U.S. market. 
Based on our assessment for this rulemaking, we are lowering the 
applicable volume of cellulosic biofuel for 2011 from the statutory 
volume of 250 million gallons to 6.0 million ethanol-equivalent 
gallons. This volume is the basis for the percentage standard we are 
setting for cellulosic biofuel in 2011. As with any projections of 
future production there is some uncertainty associated with these 
volumes. These uncertainties in our 2011 cellulosic volume projection 
are discussed in more detail in Section II.A. Nevertheless, we believe 
that 6.0 million ethanol-equivalent gallons represents a reasonable 
projection of potential 2011 cellulosic production volume for use in 
setting the standard.
    EPA is currently aware of more than 20 facilities representing over 
300 million gallons of production that are targeting commercial 
production of cellulosic biofuels in 2012. As a result, although the 
cellulosic biofuel standard we are setting for 2011 is considerably 
less than the applicable volumes established in EISA, EPA believes 
there is reason for optimism when looking at the plans for the 
cellulosic biofuel industry in 2012 and beyond.

C. Advanced Biofuel and Total Renewable Fuel

    As described in Section I.A above, the statute indicates that we 
may reduce the applicable volume of advanced biofuel and total 
renewable fuel if we determine that the projected volume of cellulosic 
biofuel production for 2011 falls short of the statutory volume of 250 
million gallons. Since we are setting the cellulosic biofuel standard 
significantly below the statutory volume of 250 million gallons, we 
also needed to evaluate whether we should lower the required volumes 
for advanced biofuel and total renewable fuel.
    We first considered whether it appears likely that the required 
biomass-based diesel volume of 0.8 billion gallons can be met with 
existing biodiesel production potential in 2011, as biodiesel is 
currently the predominant form of biomass-based diesel. As discussed in 
Section II.C, we believe that the 0.8 billion gallon standard can 
indeed be met. Since biodiesel has an Equivalence Value of 1.5, 0.8 
billion physical gallons of biodiesel would provide 1.20 billion 
ethanol-equivalent gallons that can be counted towards the advanced 
biofuel standard of 1.35 billion gallons. Of the remaining 0.15 billion 
gallons (150 million gallons), 6.0 million gallons will be met with 
cellulosic biofuel. Based on our analysis as described in Section II.B, 
we believe that there are sufficient sources of other advanced biofuel, 
such as additional biodiesel, renewable diesel, or imported sugarcane 
ethanol, such that the standard for advanced biofuel can remain at the 
statutory level of 1.35 billion gallons. We have also determined that 
there is sufficient qualifying domestic corn ethanol production 
capacity to meet the balance of the total renewable fuel standard that 
is not satisfied with advanced biofuel. Therefore, in today's final 
rule neither the 2011 volumes for advanced biofuel nor total renewable 
fuel are being lowered below the volumes specified in the statute.

D. Final Percentage Standards

    The renewable fuel standards are expressed as a volume percentage, 
and are used by each refiner, blender or importer to determine their 
renewable fuel volume obligations. The applicable percentages are set 
so that if each regulated party meets the percentages, and if EIA 
projections of gasoline and diesel use are accurate, then the amount of 
renewable fuel, cellulosic biofuel, biomass-based diesel, and advanced 
biofuel used will meet the applicable volumes required on a nationwide 
basis. To calculate the percentage standard for cellulosic biofuel for 
2011, we have used the volume of 6.0 million ethanol-equivalent gallons 
(representing 6.6 million physical gallons). We are also specifying 
that the applicable volumes for biomass-based diesel, advanced biofuel, 
and total renewable fuel for 2011 will be those specified in the 
statute. These volumes are shown in Table I.D-1.

[[Page 76793]]

                                       Table I.D-1--Final Volumes for 2011
----------------------------------------------------------------------------------------------------------------
                                                   Actual volume                Ethanol equivalent volume
----------------------------------------------------------------------------------------------------------------
Cellulosic biofuel.......................  6.6 mill gal................  6.0 mill gal.
Biomass-based diesel.....................  0.80 bill gal...............  1.20 bill gal.
Advanced biofuel.........................  1.35 bill gal...............  1.35 bill gal.
Renewable fuel...........................  13.95 bill gal..............  13.95 bill gal.
----------------------------------------------------------------------------------------------------------------

    Four separate standards are required under the RFS2 program, 
corresponding to the four separate volume requirements shown in Table 
I.D-1. The specific formulas we use to calculate the renewable fuel 
percentage standards are contained in the regulations at Sec.  80.1405 
and repeated in Section III.B.1. The percentage standards represent the 
ratio of renewable fuel volume to non-renewable gasoline and diesel 
volume. The projected volumes of gasoline and diesel used to calculate 
the standards are provided by EIA. Because small refiners and small 
refineries are also regulated parties beginning in 2011 \3\, there is 
no small refiner/refinery volume adjustment to the 2011 standard as 
there was for the 2010 standard. Thus, the increase in the percentage 
standards relative to 2010 appears smaller than would otherwise be the 
case, since more obligated parties will be participating in the 
program. The final standards for 2011 are shown in Table I.D-2. 
Detailed calculations can be found in Section III.
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    \3\ The Department of Energy concluded that there is no reason 
to believe that any small refinery would be disproportionately 
harmed by inclusion in the RFS2 program for 2011 and beyond. See DOE 
report ``EPACT 2005 Section 1501 Small Refineries Exemption Study'' 
(January 2009). We will revisit extensions to the exemption for 
small refineries if DOE revises their study and provides a different 
conclusion, or we determine that an individual small refinery has 
demonstrated that it will suffer a disproportionate economic 
hardship under the RFS program.

            Table I.D-2--Final Percentage Standards for 2011
------------------------------------------------------------------------
                                                                Percent
------------------------------------------------------------------------
Cellulosic biofuel...........................................      0.003
Biomass-based diesel.........................................       0.69
Advanced biofuel.............................................       0.78
Renewable fuel...............................................       8.01
------------------------------------------------------------------------

E. 2011 Price for Cellulosic Biofuel Waiver Credits

    Since we are reducing the required volume of cellulosic biofuel for 
2011 below the applicable volume specified in the statute, EPA is 
required to offer biofuel waiver credits to obligated parties that can 
be purchased in lieu of acquiring cellulosic biofuel RINs. These waiver 
credits are not allowed to be traded or banked for future use, and are 
only allowed to be used to meet the 2011 cellulosic biofuel standard. 
Moreover, unlike cellulosic biofuel RINs, waiver credits may not be 
used to meet either the advanced biofuel standard or the total 
renewable fuel standard. For the 2011 compliance period, we are making 
cellulosic biofuel waiver credits available to obligated parties for 
end-of-year compliance should they need them at a price of $1.13 per 
credit. Further discussion is provided in Section VI.A.

F. Assessment of the Aggregate Compliance Approach

    As part of the RFS2 regulations, EPA established an aggregate 
compliance approach for renewable fuel producers who use planted crops 
and crop residue from U.S. agricultural land. This compliance approach 
relieved such producers (and importers of such fuel) of the individual 
recordkeeping and reporting requirements otherwise required of 
producers and importers to verify that feedstocks used in the 
production of RIN-qualifying renewable fuel meet the definition of 
renewable biomass. EPA determined that 402 million acres of U.S. 
agricultural land was available in 2007 (the year of EISA enactment) 
for production of crops and crop residue that would meet the definition 
of renewable biomass, and determined that as long as this total number 
of acres is not exceeded, it is unlikely that new land has been devoted 
to crop production based on historical trends and economic 
considerations. We indicated that we would conduct an annual evaluation 
of total U.S. acreage that is cropland, pastureland, or conservation 
reserve program land, and that if the value exceed 402 million acres, 
producers using domestically-grown crops or crop residue to produce 
renewable fuel would be subject to individual recordkeeping and 
reporting to verify that their feedstocks meet the definition of 
renewable biomass.
    The RFS2 regulations provide that EPA will make a finding 
concerning whether the 2007 baseline amount of U.S. agricultural land 
has been exceeded in a given year and will publish this finding in the 
Federal Register by November 30 of the same year. Based on data 
provided by the USDA, we have estimated that U.S. agricultural land 
reached 398 million acres in 2010, and thus did not exceed the 2007 
baseline acreage.
    We also stated in the preamble to the final RFS2 rule that if, at 
any point, EPA finds that the total agricultural land is greater than 
397 million acres, EPA will conduct further investigations to evaluate 
validity of the domestic aggregate compliance approach. The total 
acreage estimate of 398 million acres exceeds the trigger point for 
further investigation, therefore EPA, with the help of USDA, will 
conduct further investigations into this matter. Additional discussion 
on this matter can be found in Section VI.B of this preamble.

II. Volume Production and Import Potential for 2011

    In order to project production volumes of cellulosic biofuel in 
2011 for use in setting the percentage standards, we collected 
information on individual facilities that have the potential to produce 
qualifying cellulosic biofuel volumes for consumption as transportation 
fuel, heating oil, or jet fuel in the U.S. in 2011. We also evaluated 
the production and import potential for biomass-based diesels, advanced 
biofuels, and other conventional renewable fuels such as corn-ethanol. 
This section describes the volumes that we believe could potentially be 
produced or imported in 2011. As with any projections of future 
production there is some uncertainty associated with these volumes. 
Many of the uncertainties associated with our projected volumes are 
also discussed in this section. Section III describes the derivation of 
the percentage standards that will apply to obligated parties in 2011.
    The 2011 volume projections in today's final rule are based on 
information from a wide spectrum of sources. For instance, EPA received 
input on our assessment of 2011 production and import volumes from 
other government organizations including the Department of Energy 
(DOE), Energy Information

[[Page 76794]]

Administration (EIA), and United States Department of Agriculture 
(USDA). The EIA projections of gasoline, diesel, biomass-based diesel, 
and cellulosic biofuel provided to EPA on October 20, 2010 were 
particularly germane. These EIA projections are discussed in more 
detail in Section II.A.3.
    We also received a number of comments related to our proposed 
volume projections and the associated percentage standards. With regard 
to the proposed cellulosic biofuel projections, most commenters agreed 
that the proposed range of 5--17.1 million gallons (6.5--25.5 million 
ethanol-equivalent gallons) was appropriate, but no commenter suggested 
a specific volume for 2011 or a clear methodology for determining the 
appropriate volume. However, several commenters provided qualitative 
assessments. For instance, refiners suggested that the low end of the 
range would be more appropriate as it would minimize the possibility 
that obligated parties would be unable to procure sufficient cellulosic 
biofuel RINs to meet their obligations. They further stated that the 
cellulosic biofuel volume used to set the 2011 standard should be based 
on existing production volumes rather than a projection of potential 
volume in 2011. In contrast, several proponents of the advanced 
biofuels industry stated that the cellulosic biofuel standard should be 
set as high as possible in order to establish the market demand that 
investors seek before funding cellulosic biofuel projects. They argued 
that the cellulosic biofuels industry is unlikely to grow without 
support in the form of a high cellulosic biofuel standard.
    Since commenters did not provide their own quantitative assessments 
of projected cellulosic biofuel volumes for us to consider, we based 
our assessment of the production capabilities of planned and existing 
biofuel production facilities on projections provided by EIA as well as 
data provided by other government agencies and our own contact with 
many of these companies. In directing EPA to project cellulosic biofuel 
production for purposes of setting the annual cellulosic biofuel 
standard, Congress did not specify what degree of certainty should be 
reflected in the projections. We believe that the cellulosic biofuel 
standard should provide an incentive for the industry to grow according 
to the goals that Congress established through EISA. However, we also 
believe that the cellulosic biofuel standard that we set should be 
within the range of what can be attained based on projected domestic 
production and import potential. Any estimate we use to set the 
cellulosic biofuel standard for 2011 will have some uncertainty in 
terms of actual attainment, and the level of such uncertainty generally 
rises with the volume mandate. Our intention is to balance such 
uncertainty with the objective of providing an incentive for growth in 
the industry. To this end, we explored the 2011 volumes for individual 
companies as projected by EIA to determine not only what volumes might 
be anticipated, but more importantly what volumes were potentially 
attainable. Our final projected available volume of cellulosic biofuel 
for 2011 reflects these considerations. Nevertheless, in the event that 
the biofuel industry ultimately fails to provide sufficient volumes to 
meet the 2011 standard for cellulosic biofuel, obligated parties can 
purchase waiver credits from the EPA under the provisions of Sec.  
80.1456. The price for such waiver credits is being established in 
today's action in Section VI.A.
    In addition to the sources described above, we had intended to use 
information provided through the Production Outlook Reports required 
under Sec.  80.1449 for all registered renewable fuel producers and 
importers. These reports were due to the Agency by September 1, 2010. 
While these reports were informative for the companies that did submit 
them, most potential cellulosic biofuel producers had not yet 
registered under the RFS program and therefore were not required to 
submit Production Outlook Reports. Moreover, only a small percentage of 
the reports were both complete and correct upon initial submission, and 
about one-fourth of all registered producers and importers failed to 
submit a report. These issues are likely the result of this being the 
first time that such reports were due and remedial actions are expected 
to lead to a more complete set of valid reports later in 2010. However, 
the Production Outlook Reports were of limited value for development of 
the biofuel volume projections that we used to set the standards for 
2011.
    In our analysis, we have focused on biofuel production as required 
by Section 211(o)(7)(D)(i) of the Clean Air Act. We have not considered 
the demand for biofuels as a factor in determining the appropriate 
volume of cellulosic biofuel to require in 2011. However, we note that 
the volumes of cellulosic biofuel that we proposed and the required 
volume we are finalizing today are very small in terms of total demand 
for biofuels, and are thus unlikely to impact issues related to demand 
for biofuels such as infrastructure for distributing or consuming 
biofuels.

A. Cellulosic Biofuel

    The task of projecting the volume of cellulosic biofuels that could 
be produced in 2011 is challenging. Announcements of new projects, 
changes in project plans, project delays, and cancellations occur with 
great regularity. Biofuel producers face not only the challenge of the 
scale-up of innovative, first-of-a-kind technology, but also the 
challenge of securing funding in a difficult economy.
    In order to project cellulosic biofuel production volumes for 2011, 
EPA has tracked the progress of over 100 cellulosic biofuel production 
facilities. From this large group of over 100 production facilities we 
identified 35 that had planned to begin cellulosic biofuel production 
by early 2012. From this smaller list of facilities we used publically 
available information, as well as information provided by DOE and USDA, 
to determine which facilities were the most likely candidates to 
produce cellulosic biofuel and make it commercially available in 2011. 
Each of these companies was then contacted to provide the most up to 
date information possible on their current cellulosic biofuel 
production plans for 2011. Our estimate of the projected available 
cellulosic biofuel volume for 2011 is based on the information we 
received in conversations with these companies as well as our own 
assessment of the potential for these facilities to produce cellulosic 
biofuel in the volumes indicated. Throughout this process EPA engaged 
in discussions with EIA to share information and insights into 
potential cellulosic biofuel production in 2011. For more details on 
EIA's cellulosic biofuel projections for 2011 and a discussion of the 
differences between the projections made by EPA and EIA see Section 
II.A.3.
    A brief description of each of the companies we believe has the 
potential to produce cellulosic biofuel and make it commercially 
available can be found below. A more in-depth discussion of the 
technologies used to produce cellulosic biofuels can be found in 
Section IV. Based on this information, EPA projects that 6.6 million 
gallons of cellulosic biofuel (corresponding to 6.0 million ethanol-
equivalent RINs) could be produced and made available in 2011. This is 
the number we used as the basis for the percentage standard for 2011. 
The rest of this section describes the analyses that we used as the 
basis for this projected available production volume.

[[Page 76795]]

1. Domestic Cellulosic Biofuel
    Based on our assessment of the cellulosic biofuel industry, we 
believe that there are four companies in the United States with the 
potential to produce cellulosic alcohol and make it commercially 
available in 2011. These companies are DuPont Danisco, Fiberight, KL 
Energy Corporation, and Range Fuels. EPA also believes that a fifth 
company, KiOR, will be in a position to produce some cellulosic diesel 
fuel in 2011. This section will provide a brief description of each of 
these companies and our assessment of their potential fuel production 
in 2011 based on information we have acquired to date.
    DuPont Danisco Cellulosic Ethanol (DDCE) began start up operations 
at a small demonstration facility in Vonore, Tennessee in early 2010. 
This facility has a maximum production capacity of 250,000 gallons of 
ethanol per year and uses an enzymatic hydrolysis process to convert 
corn cobs into ethanol. DDCE has indicated that they could produce up 
to 150,000 gallons of ethanol in 2011 from the Vonore facility.
    Fiberight is a company planning to convert MSW to ethanol. 
Fiberight purchased a small corn ethanol plant in Blairstown, IA and 
has modified it to produce ethanol from cellulosic biomass. They use an 
enzymatic hydrolysis process to convert the cellulosic waste materials 
to simple sugars and then to ethanol. Fiberight plans to initially use 
a waste cellulose stream from a paper recycling facility as their 
primary feedstock, and eventually complement that with a sorted MSW 
stream. Fiberight started producing ethanol in the summer of 2010 and 
plans to ramp up to full production capacity by late 2011. Fiberight 
has provided month-by-month production targets for 2011 to EPA. Based 
on these targets their projected production potential for 2011 is 2.8 
million gallons of cellulosic ethanol. While there is still some 
uncertainty as to whether their supply of waste cellulose from paper 
recycling meets the regulatory definition of renewable biomass, fuel 
from such feedstock would only account for about one-fifth of the total 
ethanol expected to be produced by Fiberight in 2011. Moreover, 
Fiberight's choice of feedstock for ethanol production could change 
depending on whether waste cellulose from paper recycling is determined 
to meet the regulatory definition of renewable biomass. For the 
purposes of projecting potentially available cellulosic volume for 
2011, therefore, we have included in our estimates the portion that 
could be produced from waste cellulose from paper recycling.
    The third company that EPA is aware of with the potential to 
produce cellulosic ethanol in 2011 is KL Energy Corporation. KL Energy 
has a demonstration facility in Upton, Wyoming that uses an enzymatic 
hydrolysis process to convert wood chips and wood waste to ethanol and 
has just announced a partnership with Petrobras for the construction of 
additional facilities. The demonstration facility has a maximum annual 
production volume of 1.5 million gallons and has been operational since 
the fall of 2007. Since KL Energy completed construction of this 
facility they have been gradually ramping up production and gathering 
information to optimize this and future ethanol production facilities. 
While production levels from this facility have so far been below 
capacity, KL has informed EPA that they intend to produce up to 400,000 
gallons of cellulosic ethanol from their Upton, WY facility in 2011.
    A fourth company that EPA expects will produce cellulosic biofuel 
in 2011 is Range Fuels. Range has a facility in Soperton, Georgia 
capable of processing 125 dry tons of feedstock per day. This facility 
completed commissioning in the second quarter of 2010 and began 
producing cellulosic methanol in the third quarter of 2010. Range 
initially plans to use wood chips as their feedstock, but will also 
investigate using different types of woody biomass and herbaceous 
energy crops. In Phase I of this project, Range will predominantly use 
a commercial methanol catalyst, but they plan to produce some ethanol 
using a proprietary mixed alcohol catalyst. No approved pathway 
currently exists under the RFS program for the generation of RINs for 
methanol, and the opportunities for using methanol in the 
transportation fuel market are limited. However, Range does plan on 
adding capabilities in Phase II that will increase the relative 
production volume of ethanol versus methanol. Moreover, EPA is 
evaluating possible RIN-generating pathways for cellulosic methanol, 
including the potential for cellulosic methanol used in the production 
of biodiesel to qualify for the generation of cellulosic biofuel RINs.
    At this time EPA projects that Range Fuels will produce 0.1 million 
gallons of ethanol and 2.9 million gallons of methanol from this 
facility in 2011. Given a methanol equivalence value of 0.75, this fuel 
represents 2.3 million ethanol equivalent gallons. Based the potential 
for Range to produce larger proportions of ethanol, and the possibility 
that RIN-generating pathways for cellulosic methanol could be 
identified or approved we are projecting production of 2.3 million 
gallons of RIN-generating cellulosic biofuel by Range Fuels in 2011.
    The only company that EPA is aware of that may be a producer of 
cellulosic diesel in 2011 is KiOR. KiOR has developed a catalytic 
pyrolysis technology capable of converting cellulosic biomass directly 
to a bio-crude with a low oxygen content. KiOR currently has a small 
pilot facility capable of producing 10-15 barrels of bio-crude per day 
in Houston, Texas. In order for this fuel to be used as a 
transportation fuel it would have to go through further refining. This 
could either be done at the KiOR facility if the necessary equipment is 
installed, or at an existing refinery. While KiOR is not currently 
producing a finished transportation fuel, this bio-oil could be 
upgraded and be eligible for RIN generation under the RFS program. EPA 
projects that this facility can produce 0.2 million gallons of fuel, 
representing 0.3 million RINs in 2011.
    In the proposed rule we also discussed two other potential 
cellulosic diesel producers, Bell BioEnergy and Cello Energy. Since the 
publication of the proposed rule the project that Bell BioEnergy had 
been working on that EPA had identified as a potential source of 
cellulosic biofuel has been terminated. They are currently exploring 
other options for locations for their first commercial facility, as 
well as potential sources of funding. While we are not counting on any 
volume from Bell BioEnergy for the 2011 projected available volume, it 
is feasible that they could produce cellulosic diesel or jet fuel in 
2011 if they are able to identify a suitable location for their 
facility and secure the necessary funding in the near future.
    The other cellulosic diesel company discussed in the proposed rule 
is Cello Energy. Cello has a structurally complete facility in Bay 
Minette, Alabama with an annual production capacity of 20 million 
gallons of diesel per year. While their facility is structurally 
complete, they have experienced feedstock preparation and handling 
issues that need to be resolved before they will be able to again 
attempt start up and production. Litigation related to contract issues 
has also provided a set-back likely delaying any potential production 
from Cello's facility. On October 20, 2010 Cello Energy filed for 
Chapter 11 bankruptcy, therefore no volume from this facility has been 
included in our projected cellulosic biofuel volume for 2011.

[[Page 76796]]

    We are currently unaware of any companies in the United States 
planning on producing cellulosic biofuel other than ethanol, methanol, 
and diesel and making it commercially available in 2011. EPA is 
currently tracking the efforts of 10 companies that plan to produce 
fuels such as butanol, gasoline, jet fuel, dimethyl ether (DME), and 
others. Many of these companies have reported that they are still 
developing their technologies and waiting for funding, and that they 
are not expecting to make any cellulosic fuel commercially available 
until 2012 at the earliest. There are several companies with small 
demonstration facilities who intend to produce biofuels from cellulosic 
feedstocks, but are currently optimizing their technology with sugar or 
starch feedstocks. EPA anticipates that in the future this may be a 
significant source of cellulosic biofuel, however we have not counted 
these potential volumes in our projections for 2011.
2. Imports of Cellulosic Biofuel
    In addition to the companies located in the United States, EPA is 
also aware of three companies located in other countries with the 
potential for cellulosic biofuel production in 2011. If this fuel is 
produced with renewable biomass and imported into the United States for 
use in transportation fuel, jet fuel, or heating oil, it would be 
eligible to participate in the RFS2 program. However, for the reasons 
described below, we have not included any imported cellulosic biofuel 
in our projections of available U.S. volume for 2011.
    Iogen uses a steam explosion pre-treatment process followed by 
enzymatic hydrolysis to produce cellulosic ethanol from wheat, oat, and 
barley straw. They have a demonstration facility with an annual 
production capacity of 500,000 gallons of ethanol located in Ontario, 
Canada. This facility has been operational and producing small volumes 
of ethanol since 2004. So far all of the ethanol produced by this 
facility has been used locally and in racing and other promotional 
events. In conversations with EPA Iogen has indicated that they do not 
intend to export any fuel to the United States from this facility in 
2011.
    Another Canadian company with the potential to produce cellulosic 
ethanol in 2011 is Enerkem. Enerkem plans to use a thermo-chemical 
process to gasify separated MSW and other waste products and then use a 
catalyst to convert the synthesis (syn) gas into methanol and ethanol. 
Enerkem finished construction on a 1.3 million gallon per year facility 
in Westbury, Quebec in June 2010 and plans to begin producing methanol 
and ethanol later in 2010. They are also planning a 10 million gallon 
per year facility in Edmonton, Alberta, however production from this 
facility is not expected until 2012. Enerkem has informed EPA that they 
plan to market their products locally, and do not intend any exports to 
the United States.
    A third international company that may produce commercial volumes 
of cellulosic biofuel in 2011 is Choren. Choren has completed 
construction of a facility in Freiberg, Germany with a production 
capacity of 3.9 million gallons of diesel fuel. This facility used a 
thermochemical process to convert biomass to syngas and then 
catalytically converts the syngas to diesel fuel. The facility is 
currently undergoing commissioning and it is unclear when they will 
begin commercial production. Additionally, there is likely to be strong 
local demand for the fuel. Due to these factors, EPA is not projecting 
that any fuel produced by Choren will be imported into the U.S. in 
2011.
    While these facilities appear to be the most likely sources of 
imported cellulosic biofuel, it is possible that cellulosic biofuels 
produced by other foreign companies may be imported into the United 
States. One strong candidate as a potential source of cellulosic 
biofuel imports is Brazil, due to its established ethanol industry and 
history of importing ethanol into the United States. EPA is aware of 
several companies planning commercial scale production of cellulosic 
biofuel in Brazil. It is unlikely these projects will be completed in 
time to supply cellulosic biofuel to the United States in 2011; however 
they may be a significant source of cellulosic biofuel imports in 
future years.
3. Projections From the Energy Information Administration
    Section 211(o)(3)(A) of the Clean Air Act requires EIA to ``* * * 
provide to the Administrator 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.'' EIA provided these estimates to us on October 20, 2010.\4\ 
With regard to cellulosic biofuel, the EIA estimated that the available 
volume in 2011 would be 3.94 mill gallons based on their assessment of 
the utilization of production capacity. A summary of the plants they 
considered is shown below in Table II.A.3-1.
---------------------------------------------------------------------------

    \4\ Letter from Richard Newell, EIA Administrator to Lisa 
Jackson, EPA Administrator October 20, 2010.

                                 Table II.A.3-1--EIA's Projected Cellulosic Biofuel Plant Production Estimates for 2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                   Expected      2011
          Company name                  Location            Feedstock               Fuel          Capacity    Facility status    utilization  Production
                                                                                                   (MGY)                           (Percent)      (MG)
--------------------------------------------------------------------------------------------------------------------------------------------------------
DuPont Danisco..................  Vonore, TN.........  Corn cobs, then      Ethanol............       0.25  Online.............          10         0.03
                                                        switchgrass.
Fiberight.......................  Blairstown, IA.....  MSW................  Ethanol............        6.0  Online.............          46         2.76
KL Energy.......................  Upton, WY..........  Wood...............  Ethanol............        1.5  Online.............          10         0.15
Range...........................  Soperton, GA.......  Wood Waste.........  Methanol, Ethanol..          4  Online.............          25          1.0
                                 -----------------------------------------------------------------------------------------------------------------------
    Total.......................  ...................  ...................  ...................  .........  ...................  ...........        3.94
--------------------------------------------------------------------------------------------------------------------------------------------------------

    While EIA's projected cellulosic biofuel production estimate for 
2011 is, with the exception of KiOR, based on an evaluation of the same 
companies that EPA evaluated, the production volume assumed by EIA for 
each company is lower in all cases. We believe that the difference 
reflects EIA's intention to estimate volumes that each company has a 
high certainty of reaching in 2011. As described in Section II.A above, 
we have projected the volume of cellulosic

[[Page 76797]]

biofuel that we believe is attainable given the issues that each 
company faces, while recognizing that there is some uncertainty in the 
projected volumes. We believe that many or all of the uncertainties 
associated with the potential volume production at each company can be 
resolved in a positive direction.
    We have considered EIA's projection of cellulosic biofuel 
production for 2011 in the context of setting the 2011 cellulosic 
biofuel standard, and we believe that it represents a volume that the 
industry is unlikely to fall below. However, we believe that it is 
appropriate to set the applicable volume at a level that provides an 
incentive for developing cellulosic biofuel facilities to come on line 
as expeditiously as possible, and to provide reasonable assurance that 
there will be a market for their product if they do. Moreover, we also 
believe that CAA 211(o)(7)(D) is best interpreted to vest the authority 
for making the projection with EPA, since it provides that the 
projection is ``determined by the Administrator based on the estimate 
provided [by EIA].'' If Congress intended that EPA simply adopt EIA's 
projection without an independent evaluation, it would not have 
specified that the projection is ``determined'' by EPA. Although the 
statute provides that our determination must be ``based on the estimate 
provided'' by EIA, we believe that our consideration of EIA's estimate 
in deriving our own projection satisfies this statutory requirement. 
For the reasons described above, we believe that EPA's projection takes 
into account uncertainties in a manner that best furthers the 
objectives of the statute.
4. Overall 2011 Volume Projections
    The information EPA has gathered on the potential cellulosic 
biofuel producers in 2011, summarized above, allows us to project the 
potential production volume of each facility in 2011. After the 
appropriate equivalence value has been applied to the volumes from 
these facilities, the overall projected ethanol-equivalent volume of 
cellulosic biofuel for 2011 can be totaled. This information is 
summarized in Table II.A.4-1 below.

                                   Table II.A.4-1--Projected Potential Volume of Cellulosic Biofuel Production in 2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                   Projected    Ethanol
                                                                                                    Capacity                       potential  equivalent
           Company name                  Location             Feedstock               Fuel           (MGY)      Facility status      volume     gallons
                                                                                                                                      (MG)       (MG)
--------------------------------------------------------------------------------------------------------------------------------------------------------
DuPont Danisco...................  Vonore, TN..........  Corn cobs, then      Ethanol............       0.25  Online.............       0.15        0.15
                                                          switchgrass.
Fiberight........................  Blairstown, IA......  MSW................  Ethanol............          6  Online.............        2.8         2.8
KL Energy........................  Upton, WY...........  Wood...............  Ethanol............        1.5  Online.............        0.4         0.4
KiOR.............................  Houston, TX.........  Wood Waste.........  Diesel.............        0.2  Online.............        0.2         0.3
Range............................  Soperton, GA........  Wood Waste.........  Methanol, Ethanol..          4  Online.............        3.0         2.3
                                  ----------------------------------------------------------------------------------------------------------------------
    Total........................  ....................  ...................  ...................  .........  ...................        6.6         6.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

    While the production volumes in Table II.A.4-1 have some 
uncertainty, we believe that a total volume of 6.0 million gallons is 
attainable. By basing the 2011 cellulosic biofuel standard on the 
attainable volumes rather than discounting projected volumes to account 
for uncertainty, we aim to avoid the undesirable scenario in which 
cellulosic biofuel production exceeds the mandated volume. Such a 
scenario would result in weak demand for cellulosic biofuels and RINs. 
Additionally, while obligated parties are able to purchase cellulosic 
biofuel waivers credits in the event that production of cellulosic 
biofuel is insufficient to meet the 2011 standard, no mechanism exists 
for this standard to be raised should cellulosic biofuel production 
exceed the 2011 standard. The intent of Congress in establishing the 
RFS program through EISA was to provide a reliable market for renewable 
fuels and in doing so to spur growth in the cellulosic biofuels 
industry. EPA believes the projected available volume finalized in this 
rule best reflects these intentions.
    Three commenters (Abengoa, Growth Energy, and Unica) supported the 
range of 6.5-25.5 million gallons that EPA proposed in the NPRM. The 
Biotechnology Industry Organization and Dupont Danisco Cellulosic 
Ethanol commented that the EPA's proposed range was a reasonable 
estimate, but encouraged EPA to consider ways the RFS program can serve 
a risk mitigation function for the cellulosic biofuel industry. Two 
commenters, American Petroleum Institute and National Petrochemical & 
Refiners Association, suggested that EPA consider only companies that 
have demonstrated, proven production records when setting the 
cellulosic standard for the following year. The Low Carbon Synthetic 
Fuels Association suggested EPA set the standard high enough so that 
any cellulosic biofuel that might be produced in 2011 in the U.S. or 
internationally would be included in the volume projections. They 
suggest that this would mean using the high end of the proposed volume, 
or even some volume above the proposed range.
    Based on our assessment of the potential production capabilities of 
individual companies as described above, EPA is finalizing the 
cellulosic biofuel standard for 2011 at 6.0 million ethanol-equivalent 
gallons of cellulosic biofuel. This number represents the volume of 
RIN-generating cellulosic biofuel that we believe can be made available 
for use as transportation fuel, heating oil, or jet fuel in 2011. It 
incorporates some reductions from the annual production capacity of 
each facility based on when fuel production can begin and assumptions 
regarding a ramp-up period to full production. We believe that a 
production volume of 6.0 mill gal is attainable despite the 
uncertainties, since none of the possible impediments to attaining this 
volume appear insurmountable. Moreover, by setting the standard for 
cellulosic biofuel based on the volumes that are attainable, we are 
providing greater incentives for producers to overcome uncertainties 
and greater opportunities for funding based on an established demand.
    There are also a variety of factors that could lead to production 
volumes greater than those listed in Table II.A.4-1 and make up for 
potential shortfalls elsewhere. For instance:
     For each of the facilities listed, with the exception of 
KiOR, we are projecting that their production will be some

[[Page 76798]]

volume less than the capacity of their facility. It is possible, 
however, that these companies could produce a greater volume of fuel 
than they are currently anticipating or has been projected by EPA.
     It is possible that companies that are currently targeting 
2012 for commercial production may produce cellulosic biofuel ahead of 
schedule and generate RINs in 2011. None of this volume was included in 
our projection for 2011.
     A high demand for cellulosic biofuels may be sufficient to 
cause companies to import fuel into the United States, even if they 
currently have no plans to do so. As described in Section II.A.2 above, 
there are several foreign producers that are either producing 
cellulosic biofuel now, or could potentially produce some cellulosic 
biofuel volume in 2011.
    Finally, we note that if the actual volume of cellulosic biofuel 
RINs that are available in 2011 falls short of the 6.0 million gallon 
RINs used to derive the 2011 cellulosic biofuel standard, obligated 
parties have other recourses:
     Purchase cellulosic biofuel waiver credits from the EPA 
(see further discussion in Section VI.A).
     Carry over a deficit from 2011 into 2012 according to 
Sec.  80.1427(b).
5. Projections of Cellulosic Biofuel for 2012
    In addition to the companies discussed above, EPA also assessed the 
production capabilities of many other companies to determine their 
ability to produce cellulosic ethanol in 2011. Many of these companies 
had at some point planned to produce cellulosic ethanol at commercial 
scale by 2011, but due to a variety of factors have had their plans 
delayed. Despite these delays, the outlook for 2012 and later years 
still looks promising.
    Although the cellulosic biofuel standard we are setting for 2011 is 
considerably below the applicable volumes established in EISA, EPA 
believes there is reason for optimism when looking at the plans for the 
cellulosic biofuel industry in 2012 and beyond. EPA is currently aware 
of more than 20 facilities representing over 300 million gallons of 
production that are targeting commercial production of cellulosic 
biofuels in 2012. Many companies, including Abengoa, AE Biofuels, 
BlueFire Ethanol, Coskata, Fulcrum, POET, and Vercipia, are intending 
to begin bringing large scale facilities online, with physical 
capacities of between 10 and 100 million gallons of cellulosic biofuel 
per year. There is also hope within the industry that as these first-
of-a-kind technologies prove commercially viable that new financing 
opportunities will open up for both new facilities and facility 
expansion alike. This could lead to rapid growth in the cellulosic 
biofuel industry as many companies, in addition to those mentioned 
above, have announced project plans that have been put on hold until 
funding or project partners can be found.

B. Advanced Biofuel and Total Renewable Fuel

    Under CAA 211(o)(7)(D)(i), EPA has the discretion to reduce the 
applicable volumes of advanced biofuel and total renewable fuel in the 
event that the projected volume of cellulosic biofuel production is 
determined to be below the applicable volume specified in the statute. 
As described in Section II.A above, we are indeed projecting the volume 
of cellulosic biofuel production for 2011 at significantly below the 
statutory applicable volume of 250 million gallons. Therefore, we must 
consider whether and to what degree to lower the advanced biofuel and 
total renewable fuel applicable volumes for 2011.
    As described in the NPRM, because cellulosic biofuel is used to 
satisfy both the cellulosic biofuel standard and the advanced biofuel 
standard, it is possible that a required volume of cellulosic biofuel 
for a given year that is less than the volume specified in the statute 
could lead to a situation where there is insufficient volume of 
advanced biofuels to satisfy the applicable volume of advanced biofuel 
volume set forth in the statute. However, it is also possible that 
other advanced biofuels, such biomass-based diesel, sugarcane ethanol, 
or other biofuels, may be available in sufficient volumes to make up 
for the shortfall in cellulosic biofuel. We believe that it would be 
consistent with the energy security and greenhouse gas reduction goals 
of EISA to use the applicable volume of advanced biofuel set forth in 
the statute to derive the advanced biofuel standard if there are 
sufficient volumes of advanced biofuels available, even if those 
volumes do not include the amount of cellulosic biofuel that Congress 
may have desired.
    If we were to maintain the advanced biofuel, biomass-based diesel, 
and total renewable fuel volume requirements at the levels specified in 
the statute, while also lowering the cellulosic biofuel standard to 6.0 
million gallons, then 1,206 million gallons of the 1,350 million gallon 
advanced biofuel mandate would be satisfied automatically through the 
satisfaction of the cellulosic and biomass based diesel standards. An 
additional 144 million ethanol-equivalent gallons of additional 
advanced biofuels would be needed. See Table II.B-1.

  Table II.B-1--Projected Fuel Mix if Only Cellulosic Biofuel Volume is
                            Adjusted in 2011
                             [mill gallons]
------------------------------------------------------------------------
                                          Ethanol-
                                         equivalent     Physical volume
                                           volume
------------------------------------------------------------------------
Total renewable fuel.................          13,950      13,500-13,549
Conventional renewable fuel a........          12,600             12,600
Total advanced biofuel...............           1,350            903-951
Cellulosic biofuel...................             6.0                6.6
Biomass-based diesel.................           1,200                800
Other advanced biofuel b.............             144           c 96-144
------------------------------------------------------------------------
a Predominantly corn-starch ethanol.
b Rounded to nearest million gallons for simplicity.
c Physical volume is a range because other advanced biofuel may be
  ethanol, biodiesel, or some combination of the two.

    The most likely sources of additional advanced biofuel would be 
imported sugarcane ethanol and biodiesel. To determine if there are 
likely to be sufficient volumes of these biofuels to meet the need for 
144 million gallons of other advanced biofuel, we examined historical 
data on ethanol imports and EIA projections for 2011. For instance, as 
shown in Table II.B-2 below, recent annual import volumes of ethanol 
were

[[Page 76799]]

higher than what would be needed in 2011.

     Table II.B-2--Historical Imports of Ethanol (mill gallons) \5\
------------------------------------------------------------------------
 
------------------------------------------------------------------------
2007.......................................................          439
2008.......................................................          530
2009.......................................................          194
------------------------------------------------------------------------

    Brazilian imports have made up a sizeable portion of total ethanol 
imported into the U.S. in the past, and these volumes were 
predominantly produced from sugarcane. These historical import volumes 
demonstrate that Brazil has significant export potential under the 
appropriate economic circumstances. However, as shown above, ethanol 
import volumes decreased significantly in 2009. Moreover, they have 
dropped to nearly zero in the first half of 2010 according to EIA's 
Short Term Energy Outlook. Some have speculated that this decline in 
imports is related to the cessation of the duty drawback that became 
effective on October 1, 2008, and to changes in world sugar prices.\6\ 
However, Brazil is second worldwide in the production of ethanol, 
reaching about 6.5 billion gallons in 2008.\7\ Thus, by establishing an 
increased U.S. demand for 144 million gallons of other advanced biofuel 
in 2011, we believe it may once again be economical for Brazilian 
producers to export at least this volume of sugarcane ethanol to the 
U.S. Moreover, California's Low Carbon Fuel Standard goes into effect 
in 2011, and may compel some refiners to import additional volumes of 
sugarcane ethanol from Brazil into California. These same volumes could 
count towards the federal RFS2 program as well.
---------------------------------------------------------------------------

    \5\ ``Monthly U.S. Imports of Fuel Ethanol,'' EIA, released 4/8/
2010.
    \6\ Lundell, Drake, ``Brazilian Ethanol Export Surge to End; 
U.S. Customs Loophole Closed Oct. 1,'' Ethanol and Biodiesel News, 
Issue 45, November 4, 2008.
    \7\ Renewable Fuels Association (RFA), ``2008 World Fuel Ethanol 
Production,'' http://www.ethanolrfa.org/pages/statistics#E, March 
31, 2009.
---------------------------------------------------------------------------

    We also examined the potential for excess biodiesel to help meet 
the need for 144 million gallons of advanced biofuel. The applicable 
volume of biomass-based diesel established in the statute for 2011 is 
800 million gallons (which corresponds to 1,200 ethanol equivalent 
gallons). As discussed more fully in Section II.C below, we believe 
that the biodiesel industry has the potential for producing significant 
volumes above 800 million gallons if demand for such volume exists.
    Finally, there are also other potential sources of advanced 
biofuels that could contribute to compliance with the advanced biofuels 
standard in 2011, such as diesel fuel additives made from waste cooking 
oil or restaurant grease. Given all of these potential sources, we 
believe that there are likely to be sufficient volumes of advanced 
biofuels such that the advanced biofuel standard need not be lowered 
below the 1.35 billion gallon level specified in the Act. Thus, we are 
not reducing the applicable volume of advanced biofuel for 2011.
    If we were reducing the applicable volume of advanced biofuel for 
2011, it would follow that there could be a shortfall of RINs capable 
of satisfying the general renewable fuel volume requirements. However, 
we are not doing so, and thus there is no need to lower the applicable 
volume of total renewable fuel below the statutory volume of 13.95 
billion gallons.
    In response to the NPRM, biodiesel producers, advanced biofuel 
producers, and UNICA (representing importers of sugarcane ethanol) 
supported our proposal to maintain the applicable volume of advanced 
biofuel at 1.35 bill gallons for 2011. They generally agreed that there 
exists sufficient potential sources of advanced biofuel to make up for 
the reduction of the applicable volume of cellulosic biofuel for 2011, 
and that the very existence of a demand for this volume will lead these 
sources to provide sufficient volume to meet that demand. Other 
commenters, such as refiners and proponents of corn-ethanol, opposed 
our proposal for leaving the 2011 applicable volume of advanced biofuel 
at 1.35 bill gallons on the grounds that other sources of advanced 
biofuel sufficient to make up for the reduction in the applicable 
volume of cellulosic biofuel were too uncertain.
    We disagree with the suggestion that volumes of other advanced 
biofuels are too uncertain and that the applicable volume of advanced 
biofuel should be lowered. As described above, we believe that there 
are sufficient potential sources of other advanced biofuel to make up 
for the reduction in the applicable volume of cellulosic biofuel. 
Moreover, our authority to lower the advanced biofuel and/or total 
renewable fuel applicable volumes is discretionary, and we believe that 
actions to lower these volumes should only be taken if it appears that 
insufficient volumes of qualifying biofuel can be made available, based 
on such circumstances as insufficient production capacity, insufficient 
feedstocks, competing markets, constrained infrastructure, or the like. 
Since this is not the case for 2011, we do not believe that the 
advanced biofuel applicable volume of 1.35 bill gallons or the total 
renewable fuel applicable volume of 13.95 billion gallons should be 
reduced.
    Although refiners and proponents of corn-ethanol agreed on the 
treatment of advanced biofuel for 2011, they differed in their views of 
how the total renewable fuel standard should be treated. Refiners 
stated that the advanced biofuel standard and the total renewable fuel 
standard should be lowered in concert and by the same amount. 
Proponents of corn-ethanol, on the other hand, stated that the total 
renewable fuel standard of 13.95 bill gal should be maintained while 
the advanced biofuel standard should be lowered to reflect the 
projected shortfall. They argued that excess volumes of corn-ethanol 
were more certain than excess volumes of advanced biofuel, and that 
their suggested approach would effectively result in a demand for corn-
ethanol above 12.6 billion gallons (see Table II.B-1). They further 
argued that this approach would generate more GHG reductions than if 
the advanced biofuel and total renewable fuel standards were lowered in 
concert. One commenter explicitly opposed any changes to the advanced 
biofuel and total renewable fuel standards that would increase the 
demand for corn-ethanol under RFS2 above 12.6 billion gallons (see 
Table II.B-1).
    We agree that there is sufficient corn-ethanol production capacity 
and feedstocks to produce more than 12.6 bill gallons in 2011. Indeed 
EIA projects that corn-ethanol production in 2010 will exceed 13 
billion gallons.\8\ However, as described above, we disagree with the 
suggestion that there is insufficient volume of advanced biofuels to 
justify maintaining the advanced biofuel applicable volume at the level 
specified in the statute. Moreover, since there is no need to waive any 
portion of the advanced biofuel applicable volume, there is likewise no 
need to consider the possibility of corn ethanol making up for a 
shortfall in advanced biofuel volumes. As a result, the demand for corn 
ethanol will not be greater as a result of today's action than it would 
be if all applicable volumes as specified in the statute were used in 
deriving the 2011 standards.
---------------------------------------------------------------------------

    \8\ EIA STEO, September 2010, Table 8.
---------------------------------------------------------------------------

C. Biomass-Based Diesel

    While the statutory requirement that we project volumes of 
cellulosic biofuel for next year does not explicitly apply to biomass-
based diesel, we must, as

[[Page 76800]]

discussed above, determine whether the required volumes of advanced 
biofuel and/or total renewable fuel should be reduced at the same time 
that we reduce the required volume of cellulosic biofuel. The amount of 
biomass-based diesel that we project can be available directly affects 
our consideration of adjustments to the volumetric requirements for 
advanced biofuel and total renewable fuel discussed above in Section 
II.B.
    Although there are a variety of potential fuel types that can 
qualify as biomass-based diesel, biodiesel is by far the predominant 
type. To project biodiesel production volumes for 2011, we examined 
historical and recent production and export rates as well as the 
production potential of the industry. As shown in Table II.C-1, 
domestic production of biodiesel in 2007-2009 has ranged from 490 to 
678 million gallons.

          Table II.C-1--Historical Biodiesel Production, Net Exports, and Consumption (Million Gallons)
                                [Source: EIA Monthly Energy Review, August 2010]
----------------------------------------------------------------------------------------------------------------
                                                                     Domestic                        Domestic
                                                                    production      Net exports     consumption
----------------------------------------------------------------------------------------------------------------
2007............................................................             490             132             358
2008............................................................             678             362             316
2009............................................................             505             189             315
----------------------------------------------------------------------------------------------------------------

    The variations in production and net exports appear to be 
correlated to availability of the U.S. tax subsidy that was effective 
from 2004 to 2009, ``splash-and-dash'' activities, and European Union 
(EU) action to impose duties on exported U.S. biodiesel. In splash-and-
dash, biodiesel producers took advantage of the U.S. tax credit for 
biodiesel even though the biodiesel was not consumed in the U.S., 
instead exporting the biodiesel to Europe. As can be seen in Figure 
II.C-1, the EU took action beginning in March 2009 to apply duties/
tariffs to biodiesel from the U.S. Exports of biodiesel from the U.S., 
as well as domestic production volumes, immediately fell following this 
EU action. Production also fell following the expiration of the 
biodiesel tax credit at the end of 2009.

[[Page 76801]]

[GRAPHIC] [TIFF OMITTED] TR09DE10.000

    Although biodiesel production appears to have been significantly 
affected by both the EU tariff on biodiesel from the U.S. and the 
expiration of the biodiesel tax credit, the fact that the U.S. 
biodiesel industry has produced higher volumes when it was economic for 
it to do so suggests that the industry may have the capability to 
produce greater volumes in the future under the appropriate 
circumstances. According to information from the biodiesel industry, 
only 52 biodiesel facilities with a production capacity totalling 600 
million gallons have been idled. The total biodiesel production 
capacity at facilities that are still

[[Page 76802]]

operating is 2.4 billion gallons.\9\ Ramping up production will require 
some time and potentially some reinvestment, but based on feedback from 
industry we nevertheless believe that it can occur in time to meet a 
production goal of 800 million gallons.
---------------------------------------------------------------------------

    \9\ Plant List from Biodiesel Magazine (http://www.biodieselmagazine.com/plant-list.jsp.)
---------------------------------------------------------------------------

    In response to the NPRM, some commenters suggested that the 2011 
volume requirement for biomass-based diesel should be lowered because 
the biodiesel industry is expected to produce insufficient volumes in 
2010 to meet the 2009/2010 biomass-based diesel standard based on an 
applicable volume of 1.15 billion gallons. This, they argued, 
demonstrates that the biodiesel industry cannot be expected to meet 
demand of 800 million gallons in 2011. However, for the first five 
months of 2010, the average production rate was about 32 million 
gallons per month.\10\ If this production rate continued through the 
rest of 2010, the total annual production of biodiesel would be 
approximately 380 million gallons. As described in EPA's Question and 
Answer document,\11\ EPA estimated that the 1.15 bill gal standard for 
biomass-based diesel in 2010 would generate a demand for about 345 mill 
gallons of qualifying biodiesel and renewable diesel in 2010. The 
remaining portion of the 1.15 bill gal standard would be met with 
previous-year RINs. Thus, an annual production volume of 380 million 
gallons should be sufficient to enable obligated parties to meet the 
2010 biomass-based diesel standard if exports are kept to a minimum. In 
fact net exports of biodiesel have gone down every year since 2008, due 
in part to fewer cost-effective opportunities for sale of biodiesel in 
Europe.
---------------------------------------------------------------------------

    \10\ EIA Monthly Energy Review for August 2010, Table 10.4.
    \11\ See question 6.7 in EPA's ``Questions and Answers on 
Changes to the Renewable Fuel Standard Program (RFS2)'', http://www.epa.gov/otaq/fuels/renewablefuels/compliancehelp/rfs2-aq.htm#6.
---------------------------------------------------------------------------

    Moreover, we do not believe that the activities of the biodiesel 
industry in 2009 and 2010 are necessarily an appropriate indicator of 
its potential for 2011. A regulatory mandate for biomass-based diesel 
did not exist in 2009, and the mandate for biomass-based diesel in 2010 
was a unique circumstance that allowed a significant number of 2008 and 
2009 biodiesel RINs to be used for compliance in 2010. Current 
biodiesel production rates actually suggest that the industry is 
positioned to put idled capacity into production when demand for 
greater volumes exist. For instance, despite the expiration of the 
biodiesel tax credit at the end of 2009, monthly domestic consumption 
of biodiesel was actually higher in the first 5 months of 2010 than it 
was during the same period in 2009. One possible reason for this is 
that 2010 was the first year that the biomass-based diesel standard was 
in effect. Moreover, for the three years prior to 2010, the monthly 
average production in the second half of the year was higher than in 
the first half of the year. Thus, although the annual production total 
for 2010 would be projected to be 380 mill gal based on monthly 
production rates between January and May, it could be 500 million 
gallons or more by year's end if production rates increase in the 
second half of the year as they have done in the past. An increase in 
monthly biodiesel production rates later in 2010 would also be 
consistent with the fact that obligated parties are not required to 
demonstrate compliance with the 2010 biomass-based diesel standard 
until February 28, 2011. Thus, the presence of a requirement for 
biomass-based diesel in 2010 seems to be providing the incentive for 
greater consumption of biodiesel, which in turn is encouraging higher 
production volumes.
    In addition to current production rates, the biodiesel industry's 
production potential also supports a finding that it can more than 
satisfy the applicable volume of biomass based diesel specified in the 
statute for 2011. In July of 2010, over 1.8 billion gallons of 
production capacity had been registered under the RFS2 program.\12\ As 
of September 2010, the aggregate production capacity of biodiesel 
plants in the U.S. was estimated at 2.6 billion gallons per year across 
approximately 170 facilities.\13\ Indications from the biodiesel 
industry are that idled facilities can be brought back into production 
with a relatively short leadtime. Imports of biodiesel from foreign 
countries also has the potential to increase the volume available for 
consumption in the U.S.
---------------------------------------------------------------------------

    \12\ Comments from National Biodiesel Board on the July 20, 2010 
NPRM. Submitted to docket EPA-HQ-OAR-2010-0133 on August 19, 2010.
    \13\ Figures taken from National Biodiesel Board's Member Plant 
List as of September 13, 2010. http://biodiesel.org/buyingbiodiesel/plants/showall.aspx.
---------------------------------------------------------------------------

    Finally, we believe that there will be sufficient sources of 
qualifying renewable biomass to more than meet the needs of the 
biodiesel industry in 2011. The largest sources of feedstock for 
biodiesel in 2011 are expected to be soy oil, canola oil, rendered 
fats, and potentially some corn oil extracted during production of fuel 
ethanol, as this technology continues to proliferate. Moreover, 
comments we received from a large rendering company after the May 2009 
RFS2 proposed rule suggest that there will be adequate fats and greases 
feedstocks to supply biofuels production as well as other historical 
uses.\14\
---------------------------------------------------------------------------

    \14\ See Federal Register v.74 n.99 p.24903. Comments are 
available in docket EPA-HQ-OAR-2005-0161.
---------------------------------------------------------------------------

    In order to meet a 2011 biomass-based diesel volume requirement of 
800 million gallons to be consumed in the United States, approximately 
725 million gal of biodiesel would need to be consumed. This value 
accounts for the production of 75 million gallons of renewable diesel 
at one renewable diesel facility in Geismar, Louisiana, set to begin 
operations by 2011.\15\ Assuming net exports continue at a rate 
equivalent to that in the first five months of 2010, biodiesel 
production in the U.S. would need to total approximately 835 million 
gal in 2011. Based on the modeling used by EIA to project volumes for 
its Short-Term Energy Outlook, EIA projects that the 800 mill gallon 
mandate would be binding, and that this level of consumption would be 
unlikely to occur in the absence of a mandate. However, the biodiesel 
industry has demonstrated that it is capable of meeting historic demand 
for biodiesel, and is in a position to produce significantly more than 
it has in recent years.
---------------------------------------------------------------------------

    \15\ Project status updates are available via the Syntroleum Web 
site, http://dynamicfuelsllc.com/wp-news/.
---------------------------------------------------------------------------

    Based on our review of current biodiesel production rates, the 
production potential of the biodiesel industry, and the availability of 
qualifying feedstocks, we believe that substantially more than the 800 
million gallons needed to satisfy the biomass based diesel standard can 
be produced in 2011. Today's rule therefore includes a final biomass-
based diesel standard that, as proposed, is based on the 800 million 
gallon applicable volume specified in the Act. We also believe that the 
excess production capacity can be utilized to help satisfy the 2011 
advanced biofuel standard we are finalizing today.
    In response to the NPRM, several parties supported our proposal to 
set the 2011 standard based on the 800 million gallon applicable volume 
specified in the Act. One party requested that we raise the biomass-
based diesel standard for 2011 above the 800 million gallon statutory 
mandate based on the significantly higher production capacity in the 
industry. However, the statute specifies the applicable volumes of 
biomass based diesel that we are to use

[[Page 76803]]

in setting the annual standards through 2012. We do not have the 
authority to raise the applicable volume above the level specified in 
the statute for 2011.
    Another commenter requested that the standard for biomass-based 
diesel should be tied to the biodiesel tax credit and projections of 
likely consumption in 2011 assuming no mandate. We disagree. Demand for 
biomass-based diesel will be a function of the RFS standard we set for 
2011. The authority provided under CAA 211(o)(7)(A) to waive any 
portion of the statutory biomass-based diesel volume mandate is limited 
to cases in which we determine that the mandate would severely harm the 
economy or environment, or that there is inadequate domestic supply. 
Under CAA 211(o)(7)(E) we may also order a reduction in required use of 
biomass based diesel if we find that there is a significant renewable 
feedstock disruption or other market circumstances that would make the 
price of biomass-based diesel fuel increase significantly. No commenter 
has suggested that any of these conditions exist. The expiration of the 
biodiesel tax credit is, by itself, an insufficient basis for a waiver, 
and we do not have the authority to waive a portion of the standard 
based on projections of what demand would be in the absence of a 
mandate.

III. Percentage Standards for 2011

A. Background

    The renewable fuel standards are expressed as a volume percentage, 
and are used by each obligated party to determine their renewable 
volume obligations (RVO). Since there are four separate standards under 
the RFS2 program, there are likewise four separate RVOs applicable to 
each obligated party. Each standard applies to the sum of all gasoline 
and diesel produced or imported. The applicable percentage standards 
are set so that if each regulated party meets the percentages, then the 
amount of renewable fuel, cellulosic biofuel, biomass-based diesel, and 
advanced biofuel used will meet the volumes required on a nationwide 
basis.
    As discussed in Section II.A.4, the cellulosic biofuel volume 
requirement for 2011 is 6.6 million gallons (6.0 million ethanol 
equivalent gallons). This volume is used as the basis for setting the 
percentage standard for cellulosic biofuel for 2011. We have also 
decided that the advanced biofuel and total renewable fuel volumes will 
not be reduced below the volumes set forth in the statute. The 2011 
volumes used to determine the four percentage standards are shown in 
Table III.A-1.

                                   Table III.A-1--Volume Requirements for 2011
----------------------------------------------------------------------------------------------------------------
                                                   Actual volume                Ethanol equivalent volume
----------------------------------------------------------------------------------------------------------------
Cellulosic biofuel.......................  6.6 mill gal................  6.0 mill gal.
Biomass-based diesel.....................  0.80 bill gal...............  1.20 bill gal.
Advanced biofuel.........................  1.35 bill gal...............  1.35 bill gal.
Renewable fuel...........................  13.95 bill gal..............  13.95 bill gal.
----------------------------------------------------------------------------------------------------------------

B. Calculation of Standards

1. How Are the Standards Calculated?
    The following formulas are used to calculate the four percentage 
standards applicable to producers and importers of gasoline and diesel 
(see Sec.  80.1405):
[GRAPHIC] [TIFF OMITTED] TR09DE10.001

[[Page 76804]]

Where:

StdCB,i = The cellulosic biofuel standard for year i, in 
percent.
StdBBD,i = The biomass-based diesel standard (ethanol-
equivalent basis) for year i, in percent.
StdAB,i = The advanced biofuel standard for year i, in 
percent.
StdRF,i = The renewable fuel standard for year i, in 
percent.
RFVCB,i = Annual volume of cellulosic biofuel required by 
section 211(o) of the Clean Air Act for year i, in gallons.
RFVBBD,i = Annual volume of biomass-based diesel required 
by section 211(o) of the Clean Air Act for year i, in gallons.
RFVAB,i = Annual volume of advanced biofuel required by 
section 211(o) of the Clean Air Act for year i, in gallons.
RFVRF,i = Annual volume of renewable fuel required by 
section 211(o) of the Clean Air Act for year i, in gallons.
Gi = Amount of gasoline projected to be used in the 48 
contiguous states and Hawaii, in year i, in gallons.
Di = Amount of diesel projected to be used in the 48 
contiguous states and Hawaii, in year i, in gallons.
RGi = Amount of renewable fuel blended into gasoline that 
is projected to be consumed in the 48 contiguous states and Hawaii, 
in year i, in gallons.
RDi = Amount of renewable fuel blended into diesel that 
is projected to be consumed in the 48 contiguous states and Hawaii, 
in year i, in gallons.
GSi = Amount of gasoline projected to be used in Alaska 
or a U.S. territory in year i if the state or territory opts-in, in 
gallons.
RGSi = Amount of renewable fuel blended into gasoline 
that is projected to be consumed in Alaska or a U.S. territory in 
year i if the state or territory opts-in, in gallons.
DSi = Amount of diesel projected to be used in Alaska or 
a U.S. territory in year i if the state or territory opts-in, in 
gallons.
RDSi = Amount of renewable fuel blended into diesel that 
is projected to be consumed in Alaska or a U.S. territory in year i 
if the state or territory opts-in, in gallons.
GEi = The amount of gasoline projected to be produced by 
exempt small refineries and small refiners in year i, in gallons, in 
any year they are exempt per Sec. Sec.  80.1441 and 80.1442, 
respectively. For 2011, this value is zero. See further discussion 
in Section III.B.2 below.
DEi = The amount of diesel projected to be produced by 
exempt small refineries and small refiners in year i, in gallons, in 
any year they are exempt per Sec. Sec.  80.1441 and 80.1442, 
respectively. For 2011, this value is zero. See further discussion 
in Section III.B.2 below.

    The four separate renewable fuel standards for 2011 are based in 
part on the 49-state gasoline and diesel consumption volumes projected 
by EIA. The projected volumes of gasoline, ethanol, and biodiesel used 
to calculate the final percentage standards are provided by the EIA's 
Short-Term Energy Outlook (STEO), while the projected volume of 
transportation diesel used to calculate the final percentage standards 
is provided by the most recent Annual Energy Outlook (AEO). In the 
proposal, we used the March 2010 issue of STEO and the Early Release 
version of AEO2010. For this final rule, we have used the volumes of 
transportation fuel provided by EIA under CAA 211(o)(3)(A) in a letter 
dated October 20, 2010.\16\ This letter aggregates volume projections 
from several EIA sources including the most recently available versions 
of STEO and AEO. Gasoline and diesel volumes are adjusted in the 
formulas to account for renewable fuel contained in the STEO and AEO 
projections. Beginning in 2011, gasoline and diesel volumes produced by 
small refineries and small refiners will generally no longer be exempt, 
and thus there is no adjustment to the gasoline and diesel volumes in 
today's final rule to account for such an exemption. However, as 
discussed more fully in Section III.B.2 below, depending upon the 
results of a Congressionally-mandated DOE study, it is possible that 
the exemption for some small refineries could be extended. In addition, 
we may extend the exemption for individual small refineries on a case-
by-case basis if they demonstrate disproportionate economic hardship. 
If any small refinery exemptions for 2011 are approved after this final 
rulemaking, the parties in question would be exempt but we would not 
intend to modify the applicable percentage standards and announce new 
standards for 2011. EPA believes the Act is best interpreted to require 
issuance of a single annual standard in November that is applicable in 
the following calendar year, thereby providing advance notice and 
certainty to obligated parties regarding their regulatory requirements. 
Periodic revisions to the standards to reflect waivers issued to small 
refineries or refiners would be inconsistent with the statutory text, 
and would introduce an undesirable level of uncertainty for obligated 
parties.
---------------------------------------------------------------------------

    \16\ Letter from Richard Newell, EIA Administrator to Lisa 
Jackson, EPA Administrator.
---------------------------------------------------------------------------

    As described in the March 26, 2010 RFS2 final rule, the standards 
are expressed in terms of energy-equivalent gallons of renewable fuel, 
with the cellulosic biofuel, advanced biofuel, and total renewable fuel 
standards based on ethanol equivalence and the biomass-based diesel 
standard based on biodiesel equivalence. However, all RIN generation is 
based on ethanol-equivalence. More specifically, the RFS2 regulations 
provide that production or import of a gallon of biodiesel will lead to 
the generation of 1.5 RINs. In order to ensure that demand for 0.8 
billion physical gallons of biomass-based diesel will be created in 
2011, the calculation of the biomass-based diesel standard provides 
that the required volume be multiplied by 1.5 under the assumption that 
biodiesel will predominate the biomass-based diesel market. The net 
result is that a physical gallon of biodiesel will be worth 1.0 gallons 
toward the biomass-based diesel standard, but worth 1.5 gallons toward 
the other standards.
    The levels of the percentage standards would be reduced if Alaska 
or a U.S. territory chooses to participate in the RFS2 program, as 
gasoline and diesel produced in or imported into that state or 
territory would then be subject to the standard. Neither Alaska nor any 
U.S. territory has chosen to participate in the RFS2 program at this 
time, and thus the value of the related terms in the calculation of the 
standards is zero.
    Note that the equation's terms for projected volumes of gasoline 
and diesel use include gasoline and diesel that has been blended with 
renewable fuel. In the equation, the total renewable fuel volume is 
subtracted from the total gasoline and diesel volume to get total non-
renewable gasoline and diesel volumes (because the gasoline and diesel 
volumes provided by EIA include renewable fuel use), The values of the 
equation variables for 2011 are shown in Table III.B.1-1.\17\ Terms not 
included in this table have a value of zero.
---------------------------------------------------------------------------

    \17\ To determine the 49-state values for gasoline and diesel, 
the amounts of these fuels used in Alaska is subtracted from the 
totals provided by DOE. The Alaska fractions are determined from the 
most recent (2008) EIA State Energy Data, Transportation Sector 
Energy Consumption Estimates. The gasoline and distillate fuel oil 
fractions are approximately 0.2% and 0.7%, respectively. Ethanol use 
in Alaska is estimated at 5% of its gasoline consumption (based on 
the same State data), and biodiesel use is assumed to be zero.

 Table III.B.1-1--Values for Terms in Calculation of the Standards (Bill
                                  Gal)
------------------------------------------------------------------------
                             Term                                Value
------------------------------------------------------------------------
RFVCB,2011...................................................      0.006
RFVBBD,2011..................................................       0.80
RFVAB,2011...................................................       1.35
RFVRF,2011...................................................      13.95
G2011........................................................     139.07
D2011........................................................      49.21
RG2011.......................................................      13.45
RD2011.......................................................       0.71
------------------------------------------------------------------------

    Using the volumes shown in Table III.B.1-1, we have calculated the 
percentage standards for 2011 as shown in Table III.B.1-2.

[[Page 76805]]

             Table III.B.1-2--Percentage Standards for 2011
------------------------------------------------------------------------
                                                                Percent
------------------------------------------------------------------------
Cellulosic biofuel...........................................      0.003
Biomass-based diesel.........................................       0.69
Advanced biofuel.............................................       0.78
Renewable fuel...............................................       8.01
------------------------------------------------------------------------

2. Small Refineries and Small Refiners
    In CAA section 211(o)(9), enacted as part of EPAct, Congress 
provided a temporary exemption to small refineries (those refineries 
with a crude throughput of no more than 75,000 barrels of crude per 
day) through December 31, 2010. In RFS1, we exercised our discretion 
under section 211(o)(3)(B) and extended this temporary exemption to the 
few remaining small refiners that met the Small Business 
Administration's (SBA) definition of a small business (1,500 employees 
or less company-wide) but did not meet the statutory small refinery 
definition as noted above. Because EISA did not alter the small 
refinery exemption in any way, the RFS2 program regulations exempt 
gasoline and diesel produced by small refineries and small refiners in 
2010 from the renewable fuels standard (unless the exemption was 
waived). See 40 CFR Sec.  80.1441.
    Under the RFS program, Congress has provided two ways that small 
refineries can receive an extension of the temporary exemption beyond 
2010. One is based on the results of a study conducted by the 
Department of Energy (DOE) to determine if small refineries would face 
a disproportionate economic hardship under the RFS program. The other 
is based on EPA evaluation of claims of disproportionate economic 
hardship, the DOE study, and other economic factors on a case-by-case 
basis in response to small refinery petitions.
    In January 2009, DOE issued a Small Refineries Exemption Study 
which did not find that small refineries would face a disproportionate 
economic hardship under the RFS program. The conclusions were based in 
part on the expected robust availability of RINs; DOE further noted 
that, if the RIN market were to change, individual refineries still 
have a statutory right to apply for relief on a case-by-case basis. 
Subsequently, the Senate Appropriations Committee ``directed [DOE] to 
reopen and reassess the Small Refineries Exemption Study by June 30, 
2010,'' listing a number of factors that the Committee intended DOE to 
consider in the revised study. The Final Conference Report to the 
Energy & Water Development Appropriations Act added that the conferees 
``support the study requested by the Senate on RFS and expect the 
Department to undertake the requested economic review.'' DOE was 
directed to complete a reassessment and issue a revised report by June 
30, 2010. A revised study had not been issued at the time of the RFS2 
final rulemaking, or at the time of this writing.
    We have received three petitions from small refineries requesting 
an extension of their exemption from the RFS2 requirements. In 
evaluating these petitions, EISA requires that EPA ``* * * consider the 
findings of the [DOE] study * * * and other economic factors.'' 
Although the DOE study issued in January 2009 would satisfy the 
statutory requirement that we consider the DOE study before acting, we 
believe that our evaluation of these three petitions will be better 
informed if we consider the findings of the forthcoming revised DOE 
study. Since the revised study is not yet available, we have assumed 
that all small refineries and small refiners will be subject to the 
RFS2 standards in 2011 for the purposes of calculating those standards. 
If, subsequent to announcing the 2011 standards, we make a 
determination that one or more hardship petitions should be approved, 
we do not intend to revise the 2011 standards applicable to other 
obligated parties to require that they make up for volumes that will 
not be attained by the exempt refineries.
    We received only three comments on the treatment of small 
refineries in the RFS2 program, and all supported the inclusion of 
small refineries and small refiners as obligated parties beginning in 
2011. API additionally requested that any consideration of extending 
the exemption for any small refinery into 2011 also take into account 
the impact that such an action would have on other refineries, 
specifically with regard to the ethanol blendwall. However, we do not 
believe that the extension of any small refinery exemptions into 2011 
will have a significant impact on the ethanol blendwall. Since the 
total volume of renewable fuel required under RFS2 is the same 
regardless of whether any small refineries are exempt or not, such 
exemptions will have no impact on the relative volumes of ethanol and 
gasoline in the nationwide transportation fuels market. Thus, the 
timing of the onset of the nationwide blendwall will not be affected by 
any small refinery exemptions. We do recognize that any exemption for a 
small refinery will result in a proportionally higher percentage 
standard for remaining obligated parties, and that this will affect the 
degree to which individual obligated parties can acquire sufficient 
RINs for compliance through blending ethanol into gasoline that they 
produce. This may be of particular concern to obligated parties whose 
gasoline production volume is higher than the volume of gasoline that 
they market, since such parties may have fewer opportunities to blend 
renewable fuels into their own gasoline and diesel. In such cases, 
obligated parties also have the option of marketing E85 for use in 
FFVs, extending their operations to include more gasoline marketing, or 
purchasing RINs on the open market.

IV. Cellulosic Biofuel Technology Assessment

    In projecting the volumes of cellulosic biofuel for 2011, we 
conducted a technical assessment of the production technologies that 
are under consideration by the broad universe of companies we 
investigated. Many of these companies are still in the research phase, 
resolving outstanding issues with specific technologies, and/or in the 
design phase to implement those technologies for the production of 
commercial-scale volumes of cellulosic biofuel. A subset of the 
companies we investigated have moved beyond the research and design 
phase and are actively preparing for production. This smaller group of 
companies formed the basis for our projection of potential 2011 volumes 
of cellulosic biofuel.
    This section discusses the full range of cellulosic biofuel 
technologies being considered among producers, with reference to those 
individual companies that are focusing on each technology and those we 
project will be most likely to use those technologies to produce 
cellulosic biofuel in 2011.

A. What pathways are currently valid for the production of cellulosic 
biofuel?

    In determining the appropriate volume of cellulosic biofuel on 
which to base the percentage standard for 2011, it is important to 
consider the ability of the biofuel to generate cellulosic RINs under 
the RFS2 program. As of this writing, there are three valid pathways 
available as shown in Table IV.A-1 below.

[[Page 76806]]

                      Table IV.A-1--Cellulosic Biofuel Pathways for Use in Generating RINs
----------------------------------------------------------------------------------------------------------------
                                                                         Production process
            Fuel type                           Feedstock                   requirements            D-Code
----------------------------------------------------------------------------------------------------------------
Ethanol..........................  Cellulosic Biomass from crop         Any................  3 (cellulosic
                                    residue, slash, pre-commercial                            biofuel).
                                    thinnings and tree residue, annual
                                    covercrops, switchgrass, and
                                    miscanthus; cellulosic components
                                    of separated yard waste;
                                    cellulosic components of separated
                                    food waste; and cellulosic
                                    components of separated MSW.
Cellulosic Diesel, Jet Fuel and    Cellulosic Biomass from crop         Any................  7 (cellulosic
 Heating Oil.                       residue, slash, pre-commercial                            diesel).
                                    thinnings and tree residue, annual
                                    covercrops, switchgrass, and
                                    miscanthus; cellulosic components
                                    of separated yard waste;
                                    cellulosic components of separated
                                    food waste; and cellulosic
                                    components of separated MSW.
Cellulosic Naphtha...............  Cellulosic Biomass from crop         Fischer-Tropsch      3 (cellulosic
                                    residue, slash, pre-commercial       process.             biofuel).
                                    thinnings and tree residue, annual
                                    covercrops, switchgrass, and
                                    miscanthus; cellulosic components
                                    of separated yard waste;
                                    cellulosic components of separated
                                    food waste; and cellulosic
                                    components of separated MSW.
----------------------------------------------------------------------------------------------------------------

    Of the five facilities that we currently believe could contribute 
to the volume of commercially available cellulosic biofuel in 2011, 
four would produce alcohols from cellulosic biomass and one would 
produce diesel from cellulosic biomass. None of the facilities we have 
evaluated would produce cellulosic naphtha through a Fischer-Tropsch 
process. In 2011 the primary biofuel Range fuels has indicated will be 
produced from their facility is methanol. While there is currently no 
pathway for cellulosic methanol to generate RINs, Range has engaged EPA 
in discussion regarding the addition of a pathway for cellulosic 
methanol.
    Two of the facilities shown in Table II.A.4-1, KL Energy and Range 
Fuels, intend to use wood as the primary feedstock. The only types of 
wood that are currently allowed as a valid feedstock are those derived 
from various types of waste. If either of these two companies choose to 
use trees from a tree plantation instead of qualifying waste wood, its 
pathway would not fall into the any of the pathways currently listed in 
Table 1 to Sec.  80.1426. However, as described more fully in Section 
V.A, we are currently evaluating the lifecycle GHG impacts of biofuel 
made from pulpwood, including wood from tree plantations. If such a 
pathway is determined to meet the 60% GHG threshold required for 
cellulosic biofuel, it will be added to Table 1 to Sec.  80.1426 and 
producers can then make use of it to generate cellulosic RINs.
    As described in Section II.A, Range Fuels will begin making 
predominantly methanol, and no approved pathway currently exists under 
the RFS program to generate RINs for methanol. However, Range has been 
in discussions with EPA concerning a petition under Sec.  80.1416 for 
the generation of RINs for methanol made from woody biomass as well as 
the generation of cellulosic RINs for the portion of biodiesel made 
from cellulosic methanol. These pathways are similar to pathways we 
have modeled in the past. For the purposes of projecting cellulosic 
volumes for 2011, we believe that the methanol from Range Fuels has the 
potential for being approved for generation of cellulosic RINs and is 
therefore appropriate for being included in the volumes that we believe 
are potentially attainable in 2011.

B. Cellulosic Feedstocks

    Cellulosic biofuel technologies are different from other biofuel 
technologies because they convert the cellulose and other very 
difficult to convert compounds into biofuels. Unlike grain feedstocks 
where the major carbohydrate is starch (very simply combined sugars), 
lignocellulosic biomass is composed mainly of cellulose (40-60%) and 
hemicellulose (20-40%).\18\ Cellulose and hemicellulose are made up of 
sugars linked together in long chains called polysaccharides. Once 
hydrolyzed, they can be fermented into ethanol. The remainder of 
cellulosic feedstocks consists primarily of lignin, a complex polymer 
which serves as a stiffening and hydrophobic (water-repelling) agent in 
cell walls. Currently, lignin cannot be fermented into ethanol, but 
could be burned as a by-product to generate electricity. 
Thermochemical, pyrolysis and depolymerization processing, however, can 
convert some or even most of the lignin, in addition to the cellulosic 
and hemicellulose, into biofuels.
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    \18\ DOE. ``Biomass Program: ABC's of Biofuels''. Accessed at: 
http://www1.eere.energy.gov/biomass/abcs_biofuels.html#content.
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C. Emerging Technologies

    When evaluating the array of biofuel technologies which could 
produce one or more fuels from cellulosic feedstocks that could qualify 
under RFS2, we found that it is helpful to organize them into fuel 
technology categories. Organizing them into categories eases the task 
of understanding the technologies, and also simplifies our evaluation 
of these technologies because similar technologies likely have similar 
cost and lifecycle impacts. The simplest organization is by the fuel 
produced. However, we frequently found that additional subdivisions 
were also helpful. Table IV.C-1 provides a list of technologies, the 
fuels produced, and a list of many of the companies which we learned 
are pursuing the technology (or something very similar to the 
technology listed in the category). EPA is currently tracking the 
progress of more than 100 cellulosic biofuel projects, many of which 
are not listed in the following table. The inclusion of a specific 
company in the table or technical discussion that follows should not be 
interpreted as an endorsement of the listed company. The cellulosic 
biofuel industry continues to progress at a rapid pace and many 
companies not listed in this assessment may still produce significant 
volumes of cellulosic fuel in future years.

[[Page 76807]]

    Table IV.C-1--List of Technology Categories, the Fuels Produced Through Each Type of Technology, and the
                                             Companies Pursuing Them
----------------------------------------------------------------------------------------------------------------
      Technology category             Technology            Fuels produced                  Companies
----------------------------------------------------------------------------------------------------------------
Biochemical...................  Enzymatic Hydrolysis..  Ethanol...............  Abengoa, AE Fuels, DuPont
                                                                                 Danisco, Florida Crystals,
                                                                                 Gevo, Poet, ICM, Iogen, BPI,
                                                                                 Energy, Fiberight, KL Energy.
                                Acid Hydrolysis.......  Ethanol...............  Agresti, Arkenol, Blue Fire,
                                                                                 Pencor, Pangen, Raven Biofuels.
                                Dilute Acid, Steam      Ethanol...............  Verenium, BP, Central Minnesota
                                 Explosion of                                    Ethanol Coop.
                                 Cellulose.
                                Consolidated            Ethanol...............  Mascoma, Qteros.
                                 Bioprocessing (one
                                 step hydrolysis and
                                 fermentation) of
                                 Cellulose.
                                Conversion of           Ethanol, Gasoline, Jet  Terrabon, Swift Fuels.
                                 Cellulose via           Fuel, Diesel Fuel.
                                 carboxylic acid.
                                One step Conversion of  Diesel, Jet Fuel or     Bell Bioenergy, LS9.
                                 Cellulose to            Naphtha.
                                 distillate.
Thermochemical................  Thermochemical/Fischer  Diesel Fuel and         Choren, Flambeau River Biofuels,
                                 Tropsch.                Naphtha.                Baard, Clearfuels, Gulf Coast
                                                                                 Energy, Rentech, TRI, Nature's
                                                                                 Fuel.
                                Thermochemical/Fischer  DME...................  Chemrec, New Page.
                                 Tropsch.
                                Thermochemical/         Ethanol...............  Range Fuels, Pearson
                                 Catalytic conversion                            Technologies, Fulcrum
                                 of syngas to alcohols.                          Bioenergy, Enerkem, and Gulf
                                                                                 Coast Energy.
Hybrid........................  Thermochemical w/       Ethanol...............  Coskata, INEOS Bio, Lanzatech.
                                 Biochemical catalyst.
                                Acid Hydrolysis of      Ethanol, Other          Zeachem.
                                 cellulose to            alcohols.
                                 intermediate;
                                 hydrogenation using
                                 Thermochemical syngas
                                 from non-cellulose
                                 fraction.
Depolymerization..............  Catalytic               Diesel, Jet Fuel or     Cello Energy, Covanta, Green
                                 Depolymerization of     Naphtha.                Power.
                                 Cellulose.
                                Pyrolysis of Cellulose  Diesel, Jet Fuel, or    Envergent (UOP/Ensyn),
                                                         Gasoline.               Dynamotive, Petrobras, Univ. of
                                                                                 Mass, KIOR.
Other.........................  Catalytic Reforming of  Gasoline..............  Virent.
                                 Sugars from Cellulose.
----------------------------------------------------------------------------------------------------------------

    Of the technologies listed above, many of them are considered to be 
``second generation'' biofuels or new biofuel technologies capable of 
meeting either the advanced biofuel or cellulosic biofuel RFS standard. 
The following sections describe specific companies and the new biofuel 
technologies which the companies have developed or are developing. This 
summary is not meant to be a comprehensive list of all new biofuel 
technologies, but rather a description of some of the more prominent of 
the new biofuel technologies that serve to provide a sense of the 
technology categories listed above. The process technology summaries 
are based on information provided by the respective companies. EPA has 
not been able to confirm all of the information, statements, process 
conditions, and the process flow steps necessary for any of these 
processes and companies.
1. Biochemical
    Biochemical conversion refers to a broad grouping of processes that 
use biological organisms to convert cellulosic feedstocks into 
biofuels. While no two processes are identical, many of these processes 
follow a similar basic pathway to convert cellulosic materials to 
biofuel. The general process of most biochemical cellulosic biofuel 
processes consists of five main steps: Feedstock handling, 
pretreatment, hydrolysis, fermentation/fuel conversion, and 
distillation/separation. The feedstock handling step reduces the 
particle size of the incoming feedstock and removes any contaminants 
that may negatively impact the rest of the process. In the pretreatment 
step the structure of the lignin and hemicellulose is disrupted, 
usually using some combination of heat, pressure, acid, or base, to 
allow for a more effective hydrolysis of the cellulosic material to 
simple sugars. In the hydrolysis stage the cellulose and any remaining 
hemicellulose is converted into simple sugars, usually using an enzyme 
or strong acid. In the fermentation or fuel conversion step, the simple 
sugars are converted to the desired fuel by a biological organism. In 
the final step the fuel that is produced is separated from the water 
and other byproducts by distillation or some other means. A basic 
diagram of the biochemical conversion process can be found in Figure 
IV.C.1-1 below.
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    \19\ Image From: http://www.afdc.energy.gov/afdc/ethanol/production_cellulosic.html.
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[[Page 76809]]

While this diagram shows the production of ethanol from cellulosic 
biomass, it is possible to use the same process to produce other fuels 
or specialty chemicals using different biological organisms.

    The following sections will discuss each of these steps in greater 
detail, some of the variations to this general process, and some of the 
advantages and disadvantages of the biochemical process of producing 
biofuel from cellulosic materials as compared to other fuel production 
processes.
    Three of the five companies that EPA believes may produce 
cellulosic biofuel in 2011 plan to use a biochemical process to produce 
biofuels. All three of these companies, Dupont Danisco Cellulosic 
Ethanol, Fiberight, and KL energy, all plan to use an enzymatic 
hydrolysis. One of the biggest appeals of the biochemical pathway is 
the relatively low capital costs of these projects compared to other 
cellulosic biofuel facilities. Biochemical projects are also less 
dependent on economies of scale for profitability, making smaller and 
less capital intensive commercial facilities more feasible.
a. Feedstock Handling
    The first step of the biochemical conversion process is to insure 
that the biomass stream can be utilized by the rest of the conversion 
process. This most often takes the form of size reduction, either by 
grinding or chipping as appropriate for the type of biomass. While this 
is a relatively simple process it is essential to allow the following 
steps of the process to function as designed. It is also a potentially 
energy intensive process. It may be possible for biofuel producers to 
purchase cellulosic material that is already of the appropriate size, 
however we believe that in the near term this is unlikely and most 
biofuel producers will have to invest in equipment to reduce the size 
of the material they receive as needed for their process. In coming 
years, as the market for cellulosic materials expands, purchasing 
feedstock that has already been ground or chipped may be possible and 
cost effective, as these processes increase the density of this 
material and may reduce transportation costs. While this may provide 
financial benefits for the cellulosic biofuel producer, it will not 
impact the lifecycle green house gas emissions of the process.
    In addition to size reduction, steps must also be taken to remove 
any material from the feedstock that might be detrimental to the fuel 
production process. Contaminants in the feedstock, such as dirt, rocks, 
plastics, metals, and other non-biogenic materials, would at best 
travel through the fuel production process unchanged, resulting in 
reduced fuel production capacity. Depending on the type of contaminant 
they may also be converted to undesired byproducts that must be 
separated from the fuel. They could also be toxic to the biological 
organisms being used to convert the sugars to fuel, necessitating a 
shut down and restart of the plant. Any of these scenarios would result 
in a significant cost to the fuel producer. Feedstocks such as 
agricultural residues, wood chips, or herbaceous or woody energy crops 
are likely to contain far fewer contaminants than more heterogeneous 
feedstocks such as municipal solid waste (MSW).
b. Biomass Pretreatment
    The purpose of the biomass pretreatment stage is to disrupt the 
structure of the cellulosic biomass to allow for the hydrolysis of the 
cellulose and hemicellulose into simple sugars. The ideal pretreatment 
stage would allow for a high conversion of the cellulose and 
hemicellulose to simple sugars, minimize the degradation of these 
sugars to undesired forms that reduce fuel yields and inhibit 
fermentation, not require especially large or expensive reaction 
vessels, and be a relatively robust and simple process. No single 
biomass pretreatment method has yet been discovered that meets all of 
these goals, but rather a variety of options are being used by various 
cellulosic fuel producers, each with their own strengths and 
weaknesses. Dilute acid pretreatment and alkaline pretreatment are two 
methods currently being used that attack the hemicellulose and lignin 
portions of the cellulosic biomass respectively. Other methods, such as 
steam explosion and ammonia fiber expansion, seek to use high 
temperature and pressure, followed by rapid decompression to disrupt 
the structure of the cellulosic biomass and allow for a more efficient 
hydrolysis of the cellulose and hemicellulose to simple sugars. Each of 
these methods is discussed in more detail in a technical memo that has 
been added to the docket.\20\ The cost and characteristics of the 
cellulosic feedstock being processed is likely to have a significant 
impact on the pretreatment process that is used.
---------------------------------------------------------------------------

    \20\ Wyborny, Lester. ``In-Depth Assessment of Advanced Biofuels 
Technologies.'' Memo to the docket, November 17, 2010.
---------------------------------------------------------------------------

c. Hydrolysis
    In the hydrolysis step the cellulose and any remaining 
hemicellulose are converted to simple sugars. There are two main 
methods of hydrolysis: acid hydrolysis and enzymatic hydrolysis. Acid 
hydrolysis is the oldest technology for the conversion of cellulosic 
feedstock to ethanol and can only be used following an acid 
pretreatment process. An alternative method is to use a combination of 
enzymes to perform the hydrolysis after the biomass has been 
pretreated. This process is potentially more effective at hydrolyzing 
pretreated biomass but in the past has not been economically feasible 
due to the prohibitively high cost of the enzymes. The falling cost of 
these enzymes in recent years has made the production of cellulosic 
biofuels using enzymatic hydrolysis possible. The lignin is largely 
unaffected by the hydrolysis and fuel production steps but is carried 
through these processes until it is separated out in the fuel 
separation step and burned for process energy or sold as a co-product.
i. Acid Hydrolysis
    Acid hydrolysis is a technique that has been used for over 100 
years to convert cellulosic feedstocks into fuels. In the acid 
hydrolysis process the lignin and cellulose portions of the feedstock 
that remain after the hemicellulose has been dissolved, hydrolyzed, and 
separated during the dilute acid pretreatment process is treated with a 
second acid stream. This second acid treatment uses a less concentrated 
acid than the pretreatment stage but at a higher temperature, as high 
as 215 [deg]C. This treatment hydrolyzes the cellulose into glucose and 
other six-carbon sugars that are then fed to biological organisms to 
produce the desired fuel. It is necessary to hydrolyze the 
hemicellulose and cellulose in two separate steps to prevent the 
conversion of the pentose sugars that result from the hydrolysis of the 
hemicellulose from being further converted into furfural and other 
chemicals. This would not only reduce the total production of sugars 
from the cellulosic feedstock, but also inhibit the production of fuel 
from the sugars in later stages of the process.
    The acidic solution containing the sugars produced as a result of 
the hydrolysis reaction must also be treated so that this stream can be 
fed to the biological organisms that will convert these sugars into 
fuel. In order to operate an acid hydrolysis process cost effectively 
the acid must be recovered, not simply neutralized. Methods currently 
being used to recover this acid include membrane separation and 
continuous ion exchange. The advantages of using an acid hydrolysis are 
that this process is well understood

[[Page 76810]]

and capable of producing high sugar yields from a wide variety of 
feedstocks. Capital costs are high however, as materials compatible 
with the acidic streams must be extensively utilized. The high 
temperatures necessary for acid hydrolysis also result in considerable 
energy costs.
ii. Enzymatic Hydrolysis
    The enzymatic hydrolysis process uses enzymes, rather than acids, 
to hydrolyze the cellulose and any remaining hemicellulose from the 
pretreatment process. This process is much more versatile than the acid 
hydrolysis and can be used in combination with any of the pretreatment 
processes described above, provided that the structure of the 
lignocellulosic feedstock has been disrupted enough to allow the 
enzymes to easily access the hemicellulose and cellulose. After the 
feedstock has gone through pretreatment a cocktail of cellulose enzymes 
is added. These enzymes can be produced by the cellulosic biofuel 
producer or purchased from enzyme producers such as Novozymes, 
Genencor, and others. The exact mixture of enzymes used in the 
enzymatic hydrolysis stage can vary greatly depending on which of the 
pretreatment stages is used as well as the composition of the 
feedstock.
    The main advantages of the enzymatic hydrolysis process are a 
result of the mild operating conditions. Because no acid is used, 
special materials are not required for the reaction vessels. Enzymatic 
hydrolysis is carried out at relatively low temperatures, usually 
around 50[deg] C, and atmospheric pressure and therefore has low energy 
requirements. These conditions also result in less undesired reactions 
that would reduce the production of sugars and potentially inhibit fuel 
production. Enzymatic hydrolysis works best with a uniform feedstock, 
such as agricultural residues or energy crops, where the concentration 
and combination of enzymes can be optimized for maximum sugar 
production. If the composition of the feedstock varies daily, as can be 
the case with fuel producers utilizing MSW or other waste streams, or 
even seasonally, it will be more difficult to ensure that the correct 
enzyme cocktail is being used to carry out the hydrolysis as 
efficiently as possible. The main hurdle to using an enzymatic 
hydrolysis has been and continues to be the costs of the enzymes. 
Recent advances by companies that produce enzymes for the hydrolysis of 
cellulosic materials have resulted in a drastic cost reduction of these 
enzymes. If, as many researchers and cellulosic biofuel producers 
expect, the cost of these enzymes continues to fall it is likely that 
enzymatic hydrolysis will be a lower cost option than acid hydrolysis.
d. Fuel Production
    After the cellulosic biomass has been hydrolyzed to simple sugars, 
this sugar solution is converted to fuel by biological organisms. In 
some biochemical fuel production processes the sugars produced from the 
fermentation of the hemicellulose, which are mainly five-carbon sugars, 
are converted to fuel in a separate reactor and with a different set of 
organisms than the sugars produced from the cellulose hydrolysis, which 
are mainly six-carbon sugars. Others processes, however, produce fuel 
from the five and six-carbon sugars in the same reaction vessel.
    A wide range of biological organisms can be used to convert the 
simple sugars into fuel. These include yeasts, bacteria, and other 
microbes, some of which are naturally occurring and others that have 
been genetically modified. The ideal biological organism converts both 
five and six-carbon sugars to fuel with a high efficiency, is able to 
tolerate a range of conditions, and is adaptable to process sugar 
streams of varying compositions that may result from variations in 
feedstock. Many cellulosic biofuel producers have their own proprietary 
organism or organisms optimized to produce the desired fuel from their 
unique combination of feedstock, pretreatment and hydrolysis processes, 
and fuel conversion conditions. Other cellulosic fuel producers license 
these organisms from biotechnology companies who specialize in their 
discovery and production.
    The different biological organisms being considered for cellulosic 
biofuel production are capable of producing many different types of 
fuels. Most cellulosic biofuel producers are working with organisms 
that produce ethanol. In many ways this is the simplest fuel to produce 
from lignocellulosic biomass as the production of ethanol from simple 
sugars is a well understood process. Others intend to produce butanol 
or other alcohols that have higher energy content. Butanol has the 
potential to be blended into gasoline in greater concentrations than 
ethanol and therefore has a potentially greater market as well as value 
due to its higher energy content. Yields for butanol, however, are 
currently lower per ton of feedstock than ethanol.
    Other cellulosic biofuel producers intend to produce hydrocarbon 
fuels very similar to gasoline, diesel, and jet fuel. These fuels 
command a higher price than alcohols, have a greater energy density, 
and can potentially be blended into conventional gasoline and diesel 
for use in any conventional vehicles without strict blending limits. 
They could also be transported by existing pipelines and utilize the 
same infrastructure as the petroleum industry. Some of the processes 
being researched by fuel producers result in a single compound, such as 
iso-octane, that would need to be blended into petroleum gasoline in 
order to be used as transportation fuel, while others produce a range 
of hydrocarbons very similar to those found in gasoline or diesel fuel 
refined from petroleum and could potentially be used in conventional 
vehicles without blending. The yields of fuel produced by these 
organisms through biochemical processes are currently significantly 
lower than those processes that produce ethanol and other alcohols.
e. Fuel Separation
    In the fuel separation stage the fuel produced is separated from 
the water, lignin, any un-reacted hemicellulose and cellulose, and any 
other compounds remaining after the fuel production stage. The 
complexity of this stage is highly dependent on the type of fuel 
produced. For processes producing hydrocarbon fuels this stage can be 
as simple as a settling tank, where the hydrocarbons are allowed to 
float to the top and are removed. Recovering the ethanol is a much more 
difficult task. To recover the ethanol, a distillation process, nearly 
identical to that used in the grain ethanol industry, is used. The 
ethanol solution is first separated from the solids before being sent 
to a distillation column called a beer column. The overheads of the 
beer column are fed to a second distillation column, called a rectifier 
for further separation. The rectifier produces a stream with an ethanol 
content of approximately 96%. A molecular sieve unit is then used to 
dehydrate this stream to produce fuel grade ethanol with purity greater 
than 99.5%. Gasoline, natural gasoline, or some other approved 
denaturant is then added to the ethanol before the fuel is stored. 
After the fuel has been recovered the remaining lignin and solids are 
dried and either burned on site to provide process heat and electricity 
or sold as a byproduct of the fuel production process. The waste water 
is either recycled or sent to a water treatment facility.
    The distillation of ethanol is a very energy intensive process and 
new technologies, such as membrane separation, are being developed that

[[Page 76811]]

could potentially reduce the energy intensity, and thus the cost, of 
the ethanol dehydration process.
f. Process Variations
    While the process described above outlines the general biochemical 
process used by many cellulosic biofuel producers, there are several 
prominent variations being pursued. These variations usually seek to 
simplify the biochemical fuel production process by combining several 
steps into a single step or using other means to reduce the capital or 
operating costs of the process. Simultaneous Saccharification and 
Fermentation (SSF), Simultaneous Saccharification and Co-Fermentation 
(SSCF), Consolidated Bio-Processing (CBP), and Single Step Fuel 
Production are all production methods being developed by various 
biofuel production companies to combine two or more of the steps 
outlined above. These process variations are discussed in more detail 
in the aforementioned technical memo to the docket. These modifications 
are usually enabled by a proprietary technology or biological organism 
that makes these changes possible.
g. Current Status of Biochemical Conversion Technology
    The biochemical cellulosic fuel production industry is currently 
transitioning from an industry consisting mostly of small scale 
research and optimization focused facilities to one capable of 
producing fuel at a commercial scale. Companies such as Iogen, DuPont 
Danisco Cellulosic Ethanol, Fiberight and KL Energy are just beginning 
to market the fuel they are producing at their first small scale 
commercial fuel production facilities. Many other facilities, including 
some large scale facilities capable of producing tens of millions of 
gallons of fuel are planned to come online starting in 2012 and in the 
following years.
    There are many factors that are likely to continue to drive the 
expansion of the cellulosic biofuel industry. The mandates put into 
place by the RFS2 program have created a demand for cellulosic 
biofuels, and higher crude oil prices can also make cellulosic biofuels 
more economically attractive. The biochemical production process also 
has several important benefits including relatively low capital costs, 
highly selective fuel production, and flexibility in the type of fuel 
produced.
    While the poor worldwide economy and tight credit markets has had a 
negative impact on the biofuel industry as a whole, the cellulosic 
biofuel producers utilizing biochemical processes have not been as hard 
hit as many others in the industry. This is partially due to the 
relatively low capital costs of biochemical production plants as a 
result of the relative simplicity and mild operating conditions of 
these plants. Several companies have been able to purchase distressed 
grain ethanol plants and are in the process of modifying them to 
produce cellulosic ethanol, further reducing the capital costs of their 
initial facilities. Another advantage that biochemical processes have 
over other cellulosic fuel production processes is their high 
selectivity in the fuels they produce. Unlike chemical catalysts, which 
often produce a range of products and byproducts, biological organisms 
often produce a single type of fuel, which leads to very high fuel 
production rates per unit of sugar. Finally, there is a potential to 
further decrease the production costs of cellulosic biofuels using 
biochemical processes. Unlike other production methods such as 
gasification which are relatively mature technologies, biochemical 
production of fuels from cellulosic feedstock is a young technology. 
One of the major costs of the biochemical fuel production processes 
currently are the enzymes. Great strides have been made recently in 
reducing the cost of these enzymes, and as the price of enzymes 
continues to fall so will the operating costs of biochemical fuel 
production processes.
h. Path to Commercialization
    While there are many promising qualities of the biochemical fuel 
production process, we have identified several different aspects of the 
process which can be further improved. The pretreatment process can be 
improved to speed the conversion of cellulose and hemicellulose to 
simple sugars and to minimize the production of other undesired 
compounds, especially those that may inhibit the fuel production 
process. The ability of the biological fuel production organisms to 
process a wide range of both five and six carbon sugars can also be 
improved. Both these improvements will increase the fuel yield per ton 
of cellulosic feedstock, reducing the operating costs of the process. 
Finally, the enzyme production process can be further optimized, which 
would lower the price for enzymes and improve the economics of 
hydrolyzing cellulose to sugars.
    Another opportunity for improvement would be the profitable 
utilization of the lignin portion of the cellulosic feedstock. Unlike 
some of the other cellulosic biofuel production processes, the 
biochemical process does not convert the lignin to fuel. Cellulosic 
feedstock can contain up to 40% lignin, depending on the type of 
feedstock used, so the effective utilization of this lignin is an 
important component of the profitability of the biochemical process. 
One option for the use of the lignin is to burn it to provide process 
heat and electricity, as well as excess electricity to the grid. While 
this would provide value for the lignin, it would require fairly 
expensive boilers and turbines that increase the capital cost of the 
facility. If the lignin cannot be used as part of the fuel production 
process it may be able to be marketed as a solid fuel with high energy 
density and low carbon intensity.
    These various improvements to cellulosic biofuel plants would make 
biochemical processes more cost-competitive with petroleum and other 
cellulosic biofuels. For more details on the potential cost impacts of 
these improvements, see the aforementioned technical memo which has 
been added to the docket of this rule.
2. Thermochemical
    Thermochemical conversion involves biomass being broken down into 
syngas (primarily CO and H2) using heat and upgraded to 
fuels using a combination of heat and pressure in the presence of 
catalysts.\21\ For generating the syngas, thermochemical processes 
partially oxidize biomass in the presence of a gasifying agent, usually 
air, oxygen, and/or steam. It is important to note that these 
processing steps are also applicable to other feedstocks (e.g., coal or 
natural gas); the only difference is that a renewable feedstock is used 
(i.e., biomass) to produce cellulosic biofuel. The cellulosic biofuel 
produced can be mixed alcohols, an optimized process to produce only 
one alcohol such as ethanol, or it can be diesel fuel and naphtha. A 
thermochemical unit can also complement a biochemical processing plant 
to enhance the economics of an integrated biorefinery by converting 
lignin-rich, non-fermentable material left over from high-starch or 
cellulosic feedstocks conversion.\22\ Compared to corn ethanol or 
biochemical cellulosic ethanol plants, the use of biomass gasification 
may allow for greater flexibility to utilize different biomass 
feedstocks at a

[[Page 76812]]

specific plant. Mixed biomass feedstocks may also be used, based on 
availability of long-term suppliers, seasonal availability, harvest 
cycle, and costs.
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    \21\ US. DOE. Technologies: Processing and Conversion. Accessed 
at: http://www1.eere.energy.gov/biomass/processing_conversion.html 
on October 28, 2008.
    \22\ EERE, DOE, Thermochemical Conversion, & Biochemical 
Conversion, Biomass Program Thermochemical R&D. http://www1.eere.energy.gov/biomass/thermochemical_conversion.html. http://www1.eere.energy.gov/biomass/biochemical_conversion.html.
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    The general steps of the gasification thermochemical process 
include: Feedstock handling, gasification, gas cleanup and 
conditioning, fuel synthesis, and separation. Refer to Figure IV.C.2-1 
for a schematic of the thermochemical cellulosic ethanol production 
process through gasification. For greater detail on the thermochemical 
mixed-alcohols route, refer to NREL technical documentation.\23\
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    \23\ Aden, Andy, Mixed Alcohols from Woody Biomass--2010, 2015, 
2022, National Renewable Energy Laboratory (NREL), September 23, 
2009.
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    Figure IV.C.2-2 is a block diagram of a biomass to liquids (BTL) 
process which produces diesel fuel and naphtha through a thermochemical 
process.
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    The first step in a thermochemical plant is feedstock size 
reduction. The particle size requirement for a thermochemical process 
is around 10-mm to 100-mm in diameter.\24\ Once the feed is ground to 
the proper size, flue gases from the char combustor and tar reformer 
catalyst regenerator dry the feed from the as-received moisture level 
of around 30% to 50% moisture to the level required by the gasifier.
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    \24\ Lin Wei, Graduate Research Assistant, Lester O. Pordesimo, 
Assistant Professor Willam D. Batchelor, Professor, Department of 
Agricultural and Biological Engineering, Mississippi State 
University, MS 39762, USA, Ethanol Production from Wood: Comparison 
of Hydrolysis Fermentation and Gasification Biosynthesis, Paper 
Number: 076036, Written for presentation at the 2007 ASABE Annual 
International Meeting. Minneapolis Convention Center, Minneapolis, 
MN, 17-20 June 2007.
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    The dried, ground feedstock is fed to a gasification reactor for 
producing syngas. There are two general classes of gasifiers: Partial 
oxidation (POX) and indirect gasifiers. Partial oxidation 
gasifiers (directly-heated gasifiers) use the exothermic reaction 
between oxygen and organics to provide the heat necessary to 
devolatilize biomass and to convert residual carbon-rich chars. 
Indirect gasifiers use steam to accomplish gasification through heat 
transfer from a hot solid or through a heat transfer surface. Either 
the byproduct char and/or a portion of the product gas can be combusted 
with air (external to the gasifier itself) to provide the energy 
required for gasification. The raw syngas produced from either type of 
gasifier has a low to medium energy content which consists mainly of 
CO, H2, CO2, H2O, N2, and 
hydrocarbons.
    Once the biomass is gasified and converted to syngas, the syngas 
must be cleaned and conditioned, as minor components of tars, sulfur, 
nitrogen oxides, alkali metals, and particulates have the potential to 
negatively affect the syngas conversion steps. Therefore, unwanted 
impurities are removed in a gas cleanup step and the gas composition is 
further modified during gas conditioning. Because this step is a 
necessary part of the thermochemical process, thermochemical plants are 
good candidates for processing municipal solid waste (MSW) which may 
contain a significant amount of toxic material. Gas conditioning steps 
include sulfur polishing to remove trace levels of H2S and a 
water-gas shift reaction to adjust the final H2/CO ratio for 
optimized fuel synthesis.
    After cleanup and conditioning, the ``clean'' syngas is comprised 
of essentially CO and H2. The syngas is then converted into 
a liquid fuel by a catalytic process. The fuel producer has the choice 
of producing diesel fuel or alcohols from syngas by optimizing the type 
of catalyst used and the H2/CO ratio. Diesel fuel has 
historically been the primary focus of such processes by using a 
Fischer Tropsch reactor, as it produces a high quality distillate 
product.
    A carefully integrated conventional steam cycle produces process 
heat and electricity (excess electricity is exported). Pre-heaters, 
steam generators, and super-heaters generate steam that drives turbines 
on compressors and electrical generators. The heat balance around a 
thermochemical unit or thermochemical combined unit must be carefully 
designed and tuned in order to avoid unnecessary heat losses.\25\ These 
facilities greatly increase the thermal efficiency of these plants, but 
they add to the very high capital costs of these technologies.
---------------------------------------------------------------------------

    \25\ S. Phillips, A. Aden, J. Jechura, and D. Dayton, National 
Renewable Energy Laboratory, Golden, Colorado 80401-3393, T. 
Eggeman, Neoterics International, Inc., Thermochemical Ethanol via 
Indirect Gasification and Mixed Alcohol Synthesis of Lignocellulosic 
Biomass, Technical Report, NREL/TP-510-41168, April 2007.
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a. Ethanol Based on a Thermochemical Platform
    Conceptual designs and techno-economic models have been developed 
for ethanol production via mixed alcohol synthesis using catalytic 
processes. The proposed mixed alcohol process produces a mixture of 
ethanol along with higher normal alcohols (e.g., n-propanol, n-butanol, 
and n-pentanol). The by-product higher normal alcohols have value as 
commodity chemicals and fuel additives.
    The liquid from the low-pressure separator is dehydrated in vapor-
phase molecular sieves, producing the dehydrated mixed alcohol feed 
into a methanol/ethanol overhead stream and a mixed, higher molecular 
weight alcohol bottom stream. The overhead stream is further separated 
into a methanol stream and an ethanol stream.
    Two companies which are pursuing ethanol based on a thermochemical 
route are Range Fuels and Enerkem. Range Fuels completed construction 
of their first commercial facility in Soperton, Georgia in the first 
quarter of 2010 and began the production of cellulosic biofuel in the 
third quarter of 2010. In the first phase of operation. Range will use 
wood chips as a feedstock but they also plan to investigate the 
possibility of using other non-food biomass. In its initial phase, the 
Range plant is expected to produce up to 4 million gallons per year of 
primarily methanol as well as a small quantity of ethanol which they 
intend to sell into the transportation fuel market. After the company 
is confident in its operations, Range will begin efforts to expand the 
plant and add additional reaction capacity to increase production of 
ethanol and other alcohols.
    Enerkem is pursuing cellulosic ethanol production via the 
thermochemical route. The Canadian-based company was recently announced 
as a recipient of a $50 million grant from DOE to build a woody 
biomass-to-ethanol plant in Pontotoc, MS. The U.S. plant is not 
scheduled to come online until 2012, but Enerkem's 1.3 MGY 
demonstration plant in Westbury, Quebec is currently operational. 
According to the company, plant construction in Westbury started in 
October 2007 and it began producing syngas in late 2009. After the 
successful testing of the syngas unit, Enerkem added methanol 
production capabilities and began producing methanol in 2010. The last 
step for the Westbury plant will be for Enerkem to add a reactor to 
convert the methanol to ethanol and other higher order alcohols. While 
it is unclear at this time whether any cellulosic ethanol will be 
produced in 2011, Enerkem has informed EPA that they do not intend to 
export any cellulosic fuel to the United States. If Enerkem does export 
some of its cellulosic biofuel to the U.S., however, it could be used 
to help to enable refiners meet the 2011 cellulosic biofuel standard.
b. Diesel and Naphtha Production Based on a Thermochemical Platform
    The cleaned and water-shifted syngas is sent to the Fischer Tropsch 
(FT) reactor where the carbon monoxide and hydrogen are reacted over a 
catalyst. Current FT catalysts include iron-based catalysts and cobalt-
based catalysts. The FT reactor creates a syncrude, which is a variety 
of hydrocarbons that boil over a wide distillation range (a mix of 
heavy and light hydrocarbons) which are separated into various 
components based on their vapor pressure. The primary products 
resulting from this separation are liquid petroleum gas (LPG), naphtha, 
distillate, and wax fractions. The heavier compounds are hydrocracked 
to maximize the production of diesel fuel. Conversely, the naphtha 
material is very low in octane; thus, it would either have to be 
upgraded, blended down with high octane blendstocks (i.e., ethanol), or 
upgraded to a higher octane blendstock to have much value for use in 
gasoline.
    Choren is a European company which is pursuing a thermochemical

[[Page 76815]]

technology for producing diesel fuel and naphtha. The principal aspect 
of Choren's process is their patented three-stage gasification reactor 
which includes low temperature gasification, high temperature 
gasification, and endothermic entrained bed gasification. Choren 
designed its gasification reactor with three stages to more fully 
convert the feedstock to syngas. Choren will be building a commercial 
plant in Freiberg/Saxony, Germany that is expected to be operational in 
2011 or 2012. Initially, the plant will use biomass from nearby 
forests, the wood-processing industry, and straw from farmland. 
Although any fuel produced in 2011 by its Freiberg/Saxony plant and 
marketed commercially would most likely be used in Europe, it is 
possible that some of that fuel could be exported to the U.S. Choren is 
also planning to build a commercial thermochemical/biomass-to-liquids 
(BTL) plant in the U.S. after their Freiberg/Saxony plant is 
operational in Germany.
    Baard Energy is a U.S. company which plans on utilizing a 
thermochemical technology for producing diesel fuel and naphtha. Baard, 
however, plans on primarily combusting coal and cofiring biomass with 
the coal. Cofiring the biomass with the coal will make their first 
plant more like the coal-to-liquids plants which are operating today, 
which may help to convince investors that this technology is already 
tested. Baard's coal and biomass-to-liquids plant is not expected to be 
operational until at least 2012.
    One challenge for the companies pursing the thermochemical route is 
the significant capital costs associated with these technologies. The 
capital costs are very high because there are two significant reactors 
required for each plant--the gasification reactor and the syngas-to-
fuel reactor. Additionally, the syngas must be cleaned to protect the 
catalysts used in the downstream syngas-to-fuel reactor which requires 
additional capital costs. However, because of this cleaning step, this 
technology is a very good candidate for processing MSW which may 
contain toxic compounds. When considering the cost savings for not 
having to pay the tipping fees at municipal dumping grounds, MSW 
feedstocks may avoid almost all the purchase costs for MSW feedstocks 
which would significantly help offset the high capital costs.
3. Hybrid Thermochemical/Biochemical Processes
    Hybrid technologies include process elements involving both the 
gasification stage of a typical thermochemical process, as well as the 
fermentation stage of a typical biochemical process and therefore 
cannot be placed easily into either category. For more specific 
information regarding either biochemical processes or thermochemical, 
please see Sections IV.C.1 and IV.C.2 respectively. Currently, there 
are several strategies for the production of ethanol through hybrid 
processes. These strategies are differentiated by the order in which 
the thermochemical and biochemical steps take place within the process, 
as well as how the intermediate products from each step are used.
    While we do not expect significant commercial production from 
hybrid processes in 2011, there are several companies pursing this 
approach for the future. Examples of the first process strategy, 
described in Section IV.C.3.a below, include both INEOS Bio and 
Coskata. As of December 4, 2009 INEOS Bio (along with partner New 
Planet Energy) has been selected for a $50MM DOE grant for the 
construction of an 8 MGPY plant in River County, Florida. This plant is 
projected to finish construction in late 2011. Coskata is currently 
running a 40,000 gallon per year pilot plant that became operational in 
2009 in Madison, Pennsylvania. Coskata is targeting to design and build 
a 50 MGPY commercial plant that it expects to be operational in 2012. A 
company currently pursuing the second process strategy, described in 
Section IV.C.3.b below, is Zeachem Inc. Zeachem is currently 
constructing a 250 KGPY demonstration plant in Boardman, Oregon. They 
have received a $25MM DOE grant and expect to have a full commercial 
production facility operational in 2013.
a. Biochemical Step Following Thermochemical Step
    One hybrid strategy involves the gasification of all feedstock 
material to syngas before being processed into ethanol using a 
biochemical fermenter. After gasification, the syngas stream is cooled 
and bubbled into a fermenter containing modified microorganisms, 
usually bacteria or yeast. This fermenter replaces the typical 
catalysts found after gasification in a traditional thermochemical 
process. Unlike traditional fermentation (which break down C5 and C6 
sugars), these microorganisms are engineered to convert the carbon 
monoxide and hydrogen contained in the syngas stream directly into 
ethanol. After fermentation, the effluent water/ethanol stream from the 
fermenter is separated similarly to a biochemical process, usually 
using a combination of distillation and molecular sieves. The separated 
water can then be recycled back into the fermentation stage of the 
process. Typical yields of ethanol are predicted to be in the 100-120 
gallon per ton range.
    Since gasification converts all carbonaceous feedstock material to 
a uniform syngas before fermentation, there is a higher flexibility of 
feedstock choices than if these materials were to be fermented 
directly. In addition, processing incoming feedstock with gasification 
does not require the addition of enzymes or acid hydrolysis necessary 
in a biochemical process to aid in the breakdown of cellulosic 
materials. Fermenting syngas also captures all available carbon 
contained in the feedstock, including lignin that would not be 
processed in a typical biochemical fermentation. However, more energy 
is lost as waste heat as well as secondary carbon dioxide production in 
the gasification process than would be lost for biochemical feedstock 
preparation. Using a fermenter in a hybrid process replaces the 
catalyst needed in a typical thermochemical process. These 
microorganisms allow for a higher variation of the incoming syngas 
stream properties, avoid the necessity of a water-shift reaction 
preceding traditional catalytic conversion, and are able to operate at 
lower temperatures and pressures than those required for a catalytic 
conversion to ethanol. Microorganisms, unlike a catalyst, are also 
self-sustaining and do not require periodic replacement. They are; 
however, susceptible to bacterial and viral infections which requires 
periodic cleaning of the fermentation reactors.
b. Concurrent Biochemical and Thermochemical Steps
    Another hybrid production strategy involves gasification of the 
typically unfermentable feedstock fraction (lignin) concurrently with a 
typical fermentation step for the cellulose and hemicellulose fraction. 
These steps are subsequently combined in a hydrogenation reaction of 
the lignin-based syngas with the product of the fermented stream. The 
feedstock first undergoes acid hydrolysis to break down the cellulose 
and hemicellulose. Before fermentation, the unfermentable portion of 
feedstock (lignin, ash and other residue) is fractioned and sent to a 
gasifier. Concurrently, the hydrolyzed cellulose and hemicellulose is 
fermented using an acetogen microorganism. These acetogens occur 
naturally, and therefore do not have to be modified for this process. 
These acetogens convert both five-carbon and six-carbon sugars from the 
hydrolized

[[Page 76816]]

feedstock to acetic acid. This reaction creates no carbon dioxide, 
unlike traditional fermentation using yeast, preserving the maximum 
amount of carbon for the finished fuel. The acetic acid stream then 
undergoes esterification to create ethyl acetate. Meanwhile, the syngas 
stream from the gasification of lignin and other residue is separated 
into its carbon monoxide and hydrogen components. The carbon monoxide 
stream can be further combusted to provide process heat or energy. The 
hydrogen stream is combined with the ethyl acetate in a hydrolysis 
reaction to form ethanol. Acetic acid and ethyl acetate also form the 
precursors to many other chemical compounds and therefore may be sold 
in addition to ethanol or further converted to other compounds for sale 
in the chemicals market. Typical yields for this technology are 
predicted in the 130-150 gallon per ton range.
4. Pyrolysis and Depolymerization
    Pyrolysis and depolymerization are technologies which are capable 
of creating biofuels from cellulose by either thermally or 
catalytically breaking them down into molecules which fall within the 
boiling range of transportation fuels. Pyrolysis technologies are 
usually thought of as being primarily a thermal technology, however, 
newer pyrolysis technologies are being developed which are attempting 
to integrate the use of some catalysts. These are all unique processes, 
typically with single companies developing the technologies, so they 
are discussed separately below.
a. Pyrolysis Diesel Fuel and Gasoline
    Pyrolysis oils, or bio-oils, are produced by thermally cracking 
cellulosic biomass at lower temperatures than the gasification process, 
thus producing a liquid instead of a synthesis gas.\26\ The reaction 
can occur either with or without the use of catalysts, but it occurs 
without any additional oxygen being present. The resulting oil which is 
produced must have particulates and ash removed in filtration to create 
a homogenous ``dirty'' crude oil type of product. This dirty crude oil 
must be further upgraded to hydrocarbon fuels via hydrotreating and 
hydrocracking processing, which reduces its total oxygen content and 
cracks the heaviest of the hydrocarbon compounds. While one of the 
finished fuels produced by the pyrolysis process is diesel fuel, a 
significant amount of gasoline would likely be produced as well. There 
are two main reaction pathways currently being explored: A two step 
pyrolysis pathway, and a one step pyrolysis pathway.
---------------------------------------------------------------------------

    \26\ DOE EERE Biomass Program. ``Thermochemical Conversion 
Processes: Pyrolysis'' http://www1.eere.energy.gov/biomass/thermochemical_processes.html, November 6, 2008.
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    The simplest technology used for the two-step pyrolysis approach is 
called fast pyrolysis. The fast pyrolysis technology uses sand in a 
fluidized bed to transform bio-fuels into bio-oil. This is purely a 
thermal process, where the sand's (or other solid's) role is to 
transfer heat to the biomass. For two reasons, the bio-oils from fast 
pyrolysis technologies must be upgraded. First, fast pyrolysis oil is 
unstable, acidic, viscous and may separate itself into two phases so it 
must be immediately upgraded or it will begin to degrade and 
repolymerize. The second issue is that pyrolysis bio-oil must be 
upgraded or it won't meet transportation fuel specifications.
    Another approach to fast pyrolysis being pursued by several 
companies would be to substitute a catalyst in place of sand and the 
catalyst would be able to stabilize the resulting bio-oil in addition 
to helping depolymerize the biomass to liquids. Although the resulting 
bio-oil is stable, it still has to be upgraded into a transportation 
fuel, since it would still have a high level of oxygenated compounds.
    The National Renewable Energy Laboratory (NREL) is working on a 
``hot filtration'' technology that is intended to stabilize bio-oil 
created using the fast pyrolysis process for a very long period of time 
(years). This would allow the bio-oil to be stored and transported to 
an upgrading facility without significant degradation.
    It may be possible to use a sophisticated catalyst (instead of 
sand) in a single step pyrolysis reaction to create pyrolysis oils that 
exhibit much improved bio-oil properties. The catalysts would not only 
be able to help depolymerize cellulosic feedstocks, but they produce a 
bio-oil which could possibly be used directly as transportation fuel. 
Thus, a second upgrading step may not be necessary. The difficulty 
encountered by this technology is that catalysts which have been used 
in the one step process are relatively expensive and they degrade 
quickly due to the metals which are present in the biomass. Development 
work on the two-step and one-step pyrolysis processes is ongoing.
    Dynamotive Energy Systems Corporation is a Canadian company which 
uses fast pyrolysis to convert dry waste biomass and energy crops into 
different products including bio-oil. The bio-oil produced is polar due 
to its high oxygen content and it contains up to 25% water which is 
intimately mixed and does not easily separate into another phase with 
time. Since the bio-oil contains significant amounts of both oxygen and 
water, it is not directly useable as fuel in conventional vehicles and 
would have to be converted via another catalytic conversion processing 
step. The additional catalytic step envisioned by Dynamotive to upgrade 
the bio-oil into a transportation fuel would combust the material into 
a synthesis gas which would then be converted into diesel fuel or bio-
methanol via a catalytic reaction (the BTL process). The diesel fuel 
produced is expected to be compatible with existing petroleum diesel 
fuels.
    Dynamotive has two small demonstration plants. One demonstration 
plant is located in Guelph, Ontario, Canada and its capacity is 66,000 
dry tons of biomass a year with an energy output equivalent to 130,000 
barrels of oil. The other demonstration plant is located in West Lorne 
Ontario, Canada. Dynamotive continues to work on a technology for 
converting its bio-oil to transportation fuels, although they have not 
announced plans for building such a facility due to funding limits. 
While Dynamotive is expected to continue to sell its fuel into the 
chemicals market, it would be possible for Dynamotive to set up an 
agreement with a refining company which could upgrade its bio-oil to a 
2 fuel oil or diesel fuel using existing refinery hardware so 
that the fuel would qualify under the RFS2 program and contribute to 
meeting the 2011 cellulosic biofuel standard.
    Envergent is a company formed through a joint venture between 
Honeywell's UOP and the Ensyn Corporation. Although Ensyn has been 
using fast pyrolysis for more than a decade to produce specialty 
chemicals, UOP is relying on its decades of experience developing 
refining technologies to convert the pyrolysis oils into transportation 
fuels. Envergent is also working with U.S. National laboratories to 
further their technology. Based on their current technology and 
depending on the feedstock processed, about 70% of the feedstock is 
converted into liquid products. The gasoline range products produced 
are high in octane, while the diesel fuel products are low in cetane. 
Envergen estimates that if it was able to procure cellulosic feedstocks 
at $70 per ton, their technology would be competitive with 2 
fuel oil produced from crude oil priced at about $40 per barrel. 
Envergent is licensing this technology as well as working with a U.S. 
oil company

[[Page 76817]]

to test out this technology in a commercial setting in the U.S.
    Petrobras is a Brazilian oil company also working to develop a 
pyrolysis technology. Because of Petrobas' work in this area (and other 
areas on biofuels), a Memorandum of Understanding was signed by United 
States' Secretary of State and Brazil's External Relations Minister on 
March 9, 2007 to advance the cooperation on biofuels. A second 
Memorandum of Understanding was signed by PETROBRAS and NREL in 
September 2008 aimed at collaborating to maximize the benefit of their 
respective institutional interests in second generation biofuels. 
Petrobras is also negotiating a Cooperation Agreement with NREL to 
develop a two step pyrolysis route to produce biofuels from 
agricultural wastes such as sugar cane bagasse, wood chips or corn 
stover. Petrobras is optimistic that a catalytic pyrolysis technology 
can be developed that will produce a stable bio-oil (pyrolysis oil). 
Petrobras is also hopeful that a one-step pyrolysis technology can be 
developed to convert biomass directly to transportation fuels, but 
believes that the two step process may be more economically attractive.
b. Catalytic Depolymerization
    There are several companies pursuing catalytic depolymerization 
including Covanta, Cello Energy and Green Power.
    Covanta is currently operating 45 energy-from-waste facilities 
which annually convert 20 million tons of municipal solid waste 
materials into 9 million megawatt hours of electricity and 10 billion 
pounds of steam, which is sold to a variety of industries. Covanta has 
secured license rights to a catalytic depolymerization technology 
developed by AlphaKat GmbH. Covanta constructed an AlphaKat 
demonstration plant in West Wareham, Massachusetts designed to process 
45 tons of waste per day into renewable diesel fuel. If successful, the 
total liquid fuel production capacity of this demonstration plant will 
be 1 million gallons per year. This plant started up in mid-2010 and 
after experimenting with the technology to further understand its 
capabilities, Covanta expects to use the liquid distillate fuel 
produced from this demonstration plant within its own plant as heating 
oil and nonroad diesel fuel.
    The Cello-Energy process is also a catalytic depolymerization 
technology. At moderate pressure and temperature, the Cello-Energy 
process catalytically removes the oxygen and minerals from the 
hydrocarbons that comprise finely ground cellulose. This results in a 
mixture of short chain (3, 6 and 9 carbon) hydrocarbon compounds. These 
short chain hydrocarbon compounds are polymerized to form compounds 
that boil in the diesel boiling range, though the process can also be 
adjusted to produce gasoline or jet fuel. The resulting diesel fuel 
meets the ASTM standards, is in the range of 50 to 55 cetane and 
typically contains a very low concentration of sulfur.
    The Cello process is reported to be on the order of 82% efficient 
at converting the feedstock energy content into the energy content of 
the product, which is very high compared to most of today's biochemical 
and thermochemical processes which are on the order of 50% efficient or 
less. Because of the simplicity of the process, the capital costs are 
very low. A 50 million gallon per year plant is claimed to only incur a 
total cost of $45 million. Because of its high efficiency in converting 
feedstocks into liquid fuel, the production and operating costs are 
also estimated to be very low.
    In December 2008, Cello completed construction of a 20 million 
gallon per year commercial demonstration plant. However, they are still 
working to resolve process issues that have arisen upon scaleup from 
their pilot plant. However, we are doubtful that Cello will be able to 
produce any volume of cellulosic biofuel in 2011 as described more 
fully in Section II.
    The Green Power process catalytically depolymerizes cellulosic 
feedstocks at moderate temperatures into liquid hydrocarbon fuels. The 
proposed feedstock is municipal solid waste (MSW) or other waste 
material such as animal waste, plastics, agriculture residue, woody 
biomass and sewage waste. The feedstock is first ground to a size finer 
than 5 mm. The feedstock is placed along with a catalyst, some lime 
which serves as a neutralizing agent, and some fuel which provides a 
liquid medium, into a reactor and heated to around 350 degrees Celsius. 
As described by the company, this technology may fit the description 
for catalyzed pyrolysis reactions described above, but we have 
categorized this as a separate catalytic depolymerization technology 
due to its unique features. In the reactor, the feedstock is 
catalytically converted to liquid fuels which primarily fall within the 
gasoline and diesel fuel boiling ranges, although these fuels may need 
further upgrading. The liquid fuels are separated from any solids which 
are present and are distilled into typical fuel streams including 
naphtha, diesel fuel, kerosene, and fuel oil. According to publically 
available information about this technology, the process reportedly 
produces 120 gallons per ton of feedstock introduced into the process. 
A light hydrocarbon gas, which is mostly methane, is also produced, but 
this gas is expected to be burned in a turbine to generate electricity 
and the waste heat would be used for heating the process. Some carbon 
dioxide may also be formed and released from the process.
    Greenpower completed construction of a demonstration plant located 
in Fife, Washington in March of 2008. Greenpower is working on 
obtaining additional funding and an air permit through the State of 
Washington Environmental Office. While we do not expect that Greenpower 
will have its plant operational in 2011, it is possible that 
outstanding issues could be resolved to allow this company to produce 
renewable fuel that could help refiners comply with the cellulosic 
biofuel volume standard for 2011.
5. Catalytic Reforming of Sugars to Gasoline
    Virent Biorefining is pursuing a process called ``Bioforming'' 
which functions similar to the gasoline reforming process used in the 
refining industry. Hence, this is a significantly different technology 
than the other cellulosic biofuel technologies discussed above. While 
refinery-based catalytic reforming technologies raise natural 
gasoline's octane value and produces aromatic compounds, Bioforming 
reforms biomass-derived sugars into hydrocarbons for blending into 
gasoline and diesel fuel. The process operates at moderate temperatures 
and pressures. In March of 2010, Virent announced that they had begun 
operating a larger pilot plant capable of producing about 30 gallons 
per day of high octane naphtha. Commercialization of the Virent process 
is expected to occur sometime after 2011.
    For this technology to become a cellulosic biofuel technology, it 
will be necessary to link this reforming technology with a technology 
which breaks cellulose down into starch or sugars. In parallel with its 
Bioforming work, Virent is working on a technology to break down 
cellulose into sugars upstream of its technology which reforms sugars 
to gasoline.

V. Changes to RFS Regulations

    EPA proposed two revisions to the general RFS program regulations. 
First, we proposed to allow the generation of ``delayed RINs'' for fuel 
produced between July 1, 2010 and December 31, 2010 using certain fuel 
pathways that were not in Table 1 to Sec.  80.1426 on July

[[Page 76818]]

1, 2010, but which could possibly be added after July 1 if they are 
determined to meet the applicable GHG reduction thresholds. Under the 
proposal, delayed RINs could be generated only if the pathways were 
indeed approved, and only for quantities reflecting fuel produced 
between July 1, 2010 and the effective date of a new RIN-generating 
pathway. In a previous action, we finalized the provision for delayed 
RINs for application only to biodiesel produced from canola oil through 
transesterification using natural gas or biomass for process 
energy.\27\ In today's action we are modifying the delayed RINs 
provision to make it more broadly applicable to other renewable fuel 
production pathways.
---------------------------------------------------------------------------

    \27\ 75 FR 59622, September 28, 2010.
---------------------------------------------------------------------------

    The second program modification that we proposed would establish 
procedures and evaluation criteria for petitions requesting EPA 
authorization of an aggregate compliance approach to renewable biomass 
verification for feedstocks grown in foreign countries, akin to that 
applicable to crops and crop residue grown within the U.S. In today's 
rule we are finalizing amendments to the RFS regulations to implement 
this provision.

A. Delayed RIN Generation for New Pathways

    For the March 26, 2010 RFS2 final rule (75 FR 14670), we attempted 
to evaluate and model the lifecycle GHG emissions associated with as 
many renewable fuel production pathways as possible so that producers 
and importers of qualifying renewable fuels could generate RFS2 RINs 
beginning on July 1, 2010. However, we were not able to complete the 
evaluation of all pathways that we had planned. In the preamble to the 
final RFS2 rule we announced our intention to complete the evaluation 
of three specific pathways after release of the RFS2 final rule: grain 
sorghum ethanol, pulpwood biofuel, and palm oil biodiesel (see Section 
V.C of the RFS2 final rule, 75 FR 14796). To this list we later added 
biodiesel produced from canola oil as this biofuel was produced under 
RFS1 and was also expected to participate in the RFS2 program at the 
program's inception.
    In the NPRM associated with today's final action, we proposed a new 
regulatory provision that could potentially allow RINs to be generated 
for fuel produced on or after July 1, 2010 representing these four fuel 
pathways even though they were not in Table 1 to Sec.  80.1426 as of 
July 1, 2010. Under this proposed provision, RINs could be generated 
only if the pathways were indeed approved as valid RIN-generating 
pathways, and only for volumes of fuel produced between July 1, 2010 
and the effective date of a new RIN-generating pathway added to Table 1 
to Sec.  80.1426. Somewhat different procedures were proposed for the 
generation of delayed RINs for volumes for which RINs had never been 
generated, and those for which RINs with a D code of 6 had been 
generated pursuant to Sec.  80.1426(f)(6) by a grandfathered facility. 
In a final rule published on September 28, 2010, we finalized 
regulatory provisions for these ``delayed RINs'' only for application 
to biodiesel produced from canola oil through transesterification using 
natural gas or biomass for process energy, since that action added only 
this one new pathway to Table 1 to Sec.  80.1426. In that final action 
we also discussed many of the comments received in response to the 
proposed provision for delayed RINs, our response to relevant comments, 
and the resulting modifications we made to the regulatory provisions.
    However, we deferred for future consideration one set of comments 
related to delayed RINs in the September 28, 2010 final rule which 
established a new RIN-generating pathway for biodiesel produced from 
canola oil. In response to the NPRM, two commenters requested that the 
provision for delayed RINs be made applicable to pathways other than 
the four we proposed, such as pathways utilizing camelina and winter 
barley. We agree with these commenters that the delayed RINs provision 
should not necessarily be limited to fuel produced by grain sorghum 
ethanol, pulpwood biofuel, palm oil biodiesel, or canola oil biodiesel 
(assuming they are ultimately approved for RIN generation). As the 
commenters suggested the same rationale that justifies authorization of 
delayed RINs for these pathways could also justify the authorization of 
delayed RINs for other pathways that were commercially viable at the 
start of the RFS2 program, but which EPA was unable to address in time 
for RINs to be generated at the start of the program. Therefore, 
today's final rule does not limit the applicability of the delayed RINs 
provision to any particular pathways, but does include general 
limitations that will ensure that the provision is limited in scope to 
address difficulties related to RFS2 program startup. Among other 
provisions, in today's rule we are specifying that the delayed RINs 
provision is limited to biofuel pathways in use as of July 1, 2010 for 
the primary purpose of producing transportation fuel, heating oil, or 
jet fuel for commercial sale. We believe that this criterion, among 
others discussed below, will properly define those pathways for which 
fuel producers should be accorded flexibility in light of EPA's 
inability to finalize its assessments in time for RFS2 start-up, and 
for which sufficient information likely existed as of July 1, 2010, for 
EPA to make lifecycle GHG emissions determinations.
    The modified provisions will apply equally to EPA approvals of new 
pathways directly in response to petitions submitted pursuant to Sec.  
80.1416, and to those pathways that EPA approves through rulemaking. 
This could include the three pathways that were identified in the RFS2 
final rule (grain sorghum ethanol, pulpwood biofuel, palm oil 
biodiesel) if they are determined to meet the GHG thresholds, or any 
other biofuel produced from a pathway that was in use as of July 1, 
2010 for the primary purpose of producing transportation fuel, heating 
oil, or jet fuel for commercial sale. However, since the delayed RINs 
provision is intended to address program startup issues, we have 
included provisions in this final rule to ensure that the availability 
of the provision will be of limited duration and applicability as 
described below.
    We proposed that delayed RINs would be limited to pathways that are 
approved by December 31, 2010. Under the proposal, delayed RINs would 
have only been available for volume produced or imported in 2010. Since 
we are modifying the delayed RINs provision to make it applicable to 
other biofuel pathways in addition to the four we proposed, we believe 
it would be appropriate to allow additional time for producers and 
importers of biofuels produced as of July 1, 2010 through pathways not 
included in Table 1 to Sec.  80.1426 to both satisfy the eligibility 
requirements of the delayed RINs provision, and to utilize it. 
Accordingly, today's rule makes delayed RINs available for volumes 
produced or imported by eligible parties in either 2010 or 2011. If we 
approve pathways for sorghum ethanol, pulpwood biofuel, or palm oil 
biodiesel in time for delayed 2010 and/or 2011 RINs to be used for RFS2 
compliance, we will specifically add those pathways to the delayed RINs 
provisions at Sec.  80.1426(g) in our final actions adding those fuel 
pathways to Table 1 to Sec.  80.1426. Fuels produced in 2010 or 2010 
through other pathways that EPA adds to Table 1 to Sec.  80.1426 or 
approves pursuant to Sec.  80.1416 will be eligible for delayed RINs 
if:

[[Page 76819]]

    (1) EPA finds that the pathway was in use as of July 1, 2010 for 
the primary purpose of producing transportation fuel, heating oil, or 
jet fuel for commercial sale, and
    (2) A complete petition seeking approval of the pathway is 
submitted to EPA pursuant to Sec.  80.1416 by January 31, 2011.

These requirements are intended to limit the availability of delayed 
RINs to RIN-generating pathways that could have participated in the 
RFS2 program at its inception, and for which producers and importers 
have taken reasonable and timely measures to seek EPA approval action. 
We believe, for example, that parties should not be accorded the 
flexibility to issue delayed RINs if they have not actively pursued EPA 
approval of their pathways in timely manner pursuant to the petition 
process in Sec.  80.1416, and has therefore limited the delayed RINs 
provision to those pathways for which complete petitions are submitted 
to EPA by January 31, 2011.

    The NPRM approach envisioned that all RINs with a D code of 6 that 
are retired, and all delayed RINs that are generated, must be 
designated as 2010 RINs. However, since we are allowing delayed RINs to 
be generated for volumes produced in both 2010 and 2011, we believe 
that this requirement would no longer be appropriate. Therefore, we 
have modified the delayed RINs provision so that the generation year 
associated with delayed RINs must correspond to the year in which the 
corresponding volume was produced. Delayed RINs generated to represent 
volume produced in 2010 must be designated as 2010 RINs and delayed 
RINs generated to represent volume produced in 2011 must be designated 
as 2011 RINs. Delayed RINs that are generated as 2010 RINs will be 
valid for use in complying with the standards for calendar years 2010 
or 2011, according to Sec.  80.1427(a)(6) and under the rollover 
restrictions provided at Sec.  80.1427(a)(5). Likewise, delayed RINs 
that are generated as 2011 RINs will be valid for use in complying with 
the standards for calendar years 2011 or 2012. Since delayed RINs can 
only be generated for volumes produced or imported in 2010 or 2011, and 
a RIN is only valid for compliance for two compliance years, all 
delayed RINs will be invalid for compliance with the requirements of 
calendar year 2013 and later.
    EPA recognizes that the delayed RINs provision may not provide all 
biofuel producers the opportunity to generate RINs for all of their 
biofuel produced on and after July 1, 2010 if, for instance, a new RIN-
generating pathway is not approved until after December 31, 2011. EPA 
has structured the delayed RINs provision in an attempt to reduce the 
impact of EPA's delay on such parties, while maintaining as closely as 
possible the relationship of RINs to actual fuel production. Limiting 
the delayed RINs provision to qualifying fuel produced in 2010 and 2011 
appropriately ties the provision to program start-up, and is consistent 
with the 2-year valid life of RINs. Nevertheless, EPA expects that it 
will be able to complete its lifecycle assessments of pathways for 
which petitions are submitted by January 31, 2010 in time for producers 
using such pathways to avail themselves of the delayed RINs provision 
as structured in today's final rule.
    Today's delayed RIN provision also provides that all requirements 
that apply under the RFS2 rules with respect to identifying fuels for 
which RINs may be generated, the generation and use of RINs, and 
recordkeeping and reporting, also apply in the context of delayed RINs 
unless specifically provided otherwise in Sec.  80.1426(g). For 
example, the existing recordkeeping provisions will require parties to 
maintain documents related to the production and transfer of the 
volumes of renewable fuel for which they are generating delayed RINs. 
The required records are necessary to document that the volumes of fuel 
for which delayed RINs are generated qualify as renewable fuel under 
the RFS2 program, e.g., that the fuel was produced using feedstocks 
that meet the definition of renewable biomass, and using feedstocks, 
process energy, and processes that conform to the applicable pathway in 
Table 1 to Sec.  80.1426 or approved pursuant to Sec.  80.1416. 
Furthermore, the requirements concerning the transfer of renewable fuel 
for which parties are generating delayed RINs is necessary to ensure 
that the fuel was, in fact, transferred by the delayed RIN-generating 
party.

B. Aggregate Compliance Approach for Renewable Biomass From Foreign 
Countries

    As part of the NPRM, we proposed new regulatory provisions to 
establish procedures for submitting petitions to request EPA 
authorization of an aggregate compliance approach to renewable biomass 
verification for feedstocks grown in foreign countries,\28\ akin to 
that applicable to planted crops and crop residue from existing 
agricultural land within the U.S. In the NPRM, we referenced the 
preamble discussion in the final RFS2 regulations in which we indicated 
that, while we did not have sufficient data at the time to make a 
finding that the aggregate compliance approach adopted for 
domestically-grown crops and crop residues would be appropriate for 
foreign-grown feedstocks, we would consider applying the aggregate 
compliance approach for renewable biomass on a country by country basis 
if adequate land use data becomes available.
---------------------------------------------------------------------------

    \28\ 75 FR 42238, 42262, July 20, 2010.
---------------------------------------------------------------------------

    In the NPRM, EPA proposed a process by which entities might 
petition EPA for approval of the aggregate compliance approach for 
renewable fuel feedstocks either in a foreign country as a whole or in 
a specified geographical area within a country. The proposed 
regulations would have allowed petitioners to request authorization of 
the aggregate compliance approach for specific feedstocks or for all 
planted crops and crop residue, and EPA sought comment on these 
options. The proposed regulations also included a general criterion and 
a number of considerations that EPA would use in evaluating petitions, 
and specified a list of elements that would be required in a petition. 
The preamble to the proposed rule included a description of the process 
by which EPA proposed to make decisions concerning any petitions 
received.
    EPA received a number of comments on the proposal and is finalizing 
an approach similar to that which was proposed, with some significant 
modifications, as described below.
1. Criteria and Considerations
    In developing the proposed regulations, EPA relied substantially on 
the approach we used to determine that an aggregate compliance approach 
was appropriate for planted crops and crop residue from U.S. 
agricultural land. EPA is finalizing an approach similar to that which 
was proposed and that which was applied to planted crops and crop 
residue from U.S. agricultural land. Petition approval for application 
of the aggregate compliance approach will be based on a finding by EPA 
that such an approach can provide reasonable assurance that planted 
crops and crop residue from a given foreign country meet the definition 
of renewable biomass and will continue to meet the definition of 
renewable biomass, as demonstrated through the submission of credible, 
reliable and verifiable data. Based on our experience in making a 
comparable finding for U.S.-grown crops and crop residues, we are 
finalizing a number of more specific

[[Page 76820]]

factors that EPA will consider when determining whether this finding 
should be made, as described below.
     Whether there has been a reasonable identification of the 
``2007 baseline area of land,'' defined as the total amount of 
cropland, pastureland, and land that is equivalent to U.S. Conservation 
Reserve Program land in the country in question that was actively 
managed or fallow and nonforested on December 19, 2007, taking into 
account the definitions of terms such as ``cropland,'' ``pastureland,'' 
``planted crop,'' and ``crop residue'' included in the final RFS2 
regulations.
     Whether information on the total amount of cropland, 
pastureland, and land that is equivalent to U.S. Conservation Reserve 
Program land in the country in question for years preceding and 
following calendar year 2007 shows that the 2007 baseline area of land 
is not likely to be exceeded in the future.
     Whether economic considerations, legal constraints, 
historical land use and agricultural practices and other factors show 
that it is likely that producers of planted crops and crop residue will 
continue to use agricultural land within the 2007 baseline area of land 
identified into the future, as opposed to clearing and cultivating land 
not included in the 2007 baseline area of land.
     Whether there is a reliable method to evaluate on an 
annual basis whether the 2007 baseline area of land is being or has 
been exceeded.
     Whether a credible and reliable entity has been identified 
to conduct data gathering and analysis, including annual identification 
of the aggregate amount of cropland, pastureland, and land that is 
equivalent to U.S. Conservation Reserve Program land, that is needed 
for an annual EPA evaluation of the aggregate compliance approach, and 
whether the data, analyses, and methodologies are publicly available.
     Whether the ministry (or ministries) or department(s) of 
the national government with primary expertise in agricultural land use 
patterns, practices, data, and statistics of the country in question 
supports the petition and have verified in writing the accuracy and 
veracity of the information submitted in the petition and agreed to 
review and verify the data submitted on an annual basis to facilitate 
EPA's annual assessment of the 2007 baseline area of land.
    EPA requested comments on the proposed general criteria and 
specific considerations for approving the aggregate compliance approach 
for non-domestically grown feedstocks. EPA received a number of 
comments in support of the proposed general criteria, stating that EPA 
has outlined a straightforward, science-based approach that is 
necessary to avoid unfairly disadvantaging foreign renewable fuel 
producers and to ensure availability of adequate supplies of renewable 
fuel. Commenters noted that the establishment of a petition process for 
applying the aggregate compliance approach to foreign grown feedstocks 
levels the playing field for foreign renewable fuel producers and 
ensures that the U.S. government is not posing a barrier to trade 
contrary to its WTO obligations. EPA also received comments in 
opposition of the proposed petition process that stated that the U.S. 
aggregate compliance approach is not sound, and that the data that 
would be relied on to establish the aggregate compliance approach for 
foreign feedstocks would be even less reliable than that used by EPA to 
support its finding for the domestic aggregate compliance approach. EPA 
also received comments arguing that the use of foreign feedstocks and 
importation of foreign renewable fuels should be disallowed under the 
RFS2 program.
    EPA believes that the aggregate compliance approach for renewable 
biomass is an appropriate tool that, in the right circumstances, can 
fully ensure that the EISA renewable biomass requirements are satisfied 
while easing the burden on renewable fuel producers and their feedstock 
suppliers. The logic for the approach is described in the preamble to 
the RFS2 rule. EPA believes that in applying the criteria adopted today 
for assessing petitions for application of the aggregate approach to 
foreign countries, and considering the factors specified in the rule, 
that EPA will be able to properly identify situations where the 
aggregate compliance approach can be appropriately applied in foreign 
countries. The public will have an opportunity to review petitions, and 
to apprise EPA of any concerns regarding the data relied upon, or the 
logic and rationale for application of the aggregate compliance 
approach to a particular country.
    EPA also believes that establishing the aggregate compliance 
approach petition process for planted crops and crop residue from 
foreign countries is appropriate and fair since the renewable biomass 
verification process is currently streamlined for producers using U.S. 
planted crops and crop residue, and EPA believes that it should clarify 
the process and substantive considerations needed to extend this 
streamlined compliance approach to foreign planted crops and crop 
residue. The aggregate compliance approach petition process for planted 
crops and crop residue from foreign countries is intended to provide 
foreign renewable fuel producers with a similar level of streamlining 
for qualification of renewable biomass as provided to domestic 
producers.
    EPA disagrees with the commenter that argues that the use of 
foreign feedstocks and importation of foreign fuels should be 
disallowed, as nothing in the Clean Air Act (CAA) prevents foreign 
products from being used towards meeting the RFS2 requirements.
2. Applicability of the Aggregate Approach
    The aggregate compliance approach for domestic agricultural 
feedstocks applies to all planted crops and crop residue that could be 
used in renewable fuel production from existing agricultural land in 
the U.S. EPA solicited comment on whether the rules establishing the 
aggregate compliance approach petition process for foreign feedstocks 
should allow petitions and EPA approval for a single, or limited 
number, of feedstocks, or for a limited geographic area within a 
country, or whether we should only allow petitions and EPA approval at 
the national level and for all planted crops and crop residue.
    The proposed rule spoke generally of ``feedstocks,'' and we 
received one comment in support of our proposed approach to allow 
petitions to be submitted for specific feedstocks. In particular, the 
commenter argued that the reduced regulatory burden on U.S.-grown corn 
should be extended to Brazilian-grown sugarcane. We believe that the 
rationale underlying the comment is not fully accurate, as the 
aggregate compliance approach in the U.S. applies to all planted crops 
and crop residue, not just corn. Upon further consideration, EPA 
believes that it is highly unlikely that data and analysis could 
support application of the aggregate approach to feedstocks other than 
crops and crop residue. Furthermore, we believe that the same data and 
analysis would be needed to justify application of the aggregate 
compliance approach to individual crops as would be needed to justify 
its application to all planted crops and crop residue within a given 
geographic area. Thus, it would be most efficient, and most consistent 
with the current approach in the U.S., to authorize the aggregate 
compliance approach for all planted crops and crop residue within a 
geographic area at one time, rather than on a crop-by-crop basis. This 
approach will simplify the regulations, as it permits EPA to specify 
the data,

[[Page 76821]]

analyses and considerations related specifically to supporting the 
aggregate compliance approach for those types of feedstock. We have 
therefore modified the final rule to specify that petitions and EPA 
approval will apply to all planted crops and crop residue from existing 
agricultural land in a foreign country.
    Several commenters supported the application of the aggregate 
compliance approach petition process on a national basis, but not for a 
geographical subset of a foreign country. These commenters argued that 
applying the process on a national basis is fair because it is 
consistent with the U.S. aggregate approach, which was applied on a 
national level. Furthermore, the commenters argue that geographical 
subsets should not be allowed because doing so would promote ``cherry 
picking'' of data by private parties to show that a certain region is 
not experiencing conversion of forest and ecologically sensitive lands, 
even when on a national level, those lands are decreasing. Commenters 
also argue that local governments do not have the enforcement 
capability and land management policies that national governments have.
    In contrast, one commenter believed that parties should be able to 
petition for the aggregate compliance approach to apply to specific 
geographical regions within a foreign country, citing data from Brazil 
implying that almost all sugarcane is harvested from a certain region 
and therefore the aggregate compliance approach could successfully be 
applied to that region only.
    EPA agrees with those commenters that believe that the aggregate 
compliance approach petition process should be allowed only at the 
national level. Applying the petition process on the national level is 
consistent with the U.S. approach and will therefore harmonize 
application of the approach where it has been approved. Moreover, EPA 
believes that national-scale land use data is typically the most 
reliable and transparent, and can more easily be confirmed by the 
national government. Furthermore, national level data most accurately 
reflects the broader effects of renewable fuel feedstock production on 
land use patterns.
3. Data Sources
    To make the aggregate compliance determination for U.S. 
agricultural lands, EPA obtained USDA data from three independently 
gathered national land use data sources (the Farm Service Agency (FSA) 
Crop History Data, the USDA Census of Agriculture (2007), and the 
satellite-based USDA Crop Data Layer (CDL)). Please see Section 
II.C.4.c.iii of the preamble to the final RFS2 rule (75 FR 14701 (March 
26, 2010)) for a more detailed description of the data sources used. 
Using these data sources, EPA was able to assess the area of land 
(acreage) available in 2007 in the United States for production of 
crops and crop residues that meet the CAA definition of renewable 
biomass. In the case of a petition to apply the aggregate compliance 
approach in a foreign country, when considering the information and 
data submitted by the petitioner, EPA proposed and is finalizing a 
requirement that data supporting the petition be credible, reliable and 
verifiable. EPA will evaluate such information on a case-by-case basis, 
but expects that data supporting petitions will be at least as 
credible, reliable, and verifiable as the USDA data used to make the 
determination for U.S. agricultural land.
    EPA noted in the preamble to the proposed rule that when evaluating 
whether the data relied on are credible, reliable, and verifiable, EPA 
would take into account whether the data is submitted by, generated by, 
or approved by the national government of the foreign country in 
question, as well as how comprehensive and accurate the data source is. 
In the proposal, EPA noted that it is important for the national 
government of the country seeking consideration to be involved in the 
petitioning and data submittal process, and sought comment on whether 
participation by a foreign government should be specifically required. 
Commenters generally supported requiring the national government's 
involvement in providing and/or verifying the data used in both the 
initial petition and in the annual reassessments, but most did not 
believe that the national government itself needed to be the 
petitioner. EPA agrees that, in order to ensure a robust and credible 
data set and analysis, the national government of the country from 
which the petition is submitted should be involved in the petition 
process and the annual validation, but need not be the party actually 
submitting the petition. Thus, in today's final rule, EPA is requiring 
that the appropriate ministry or department within the national 
government submit a letter confirming that they have reviewed and 
verified the petition and the data supporting it, and that the data 
support a finding that planted crops and crop residue from the country 
meet the definition of renewable biomass and will continue to do so. 
Furthermore, EPA is requiring that the responsible national government 
ministry or department will review and verify the data submitted on an 
annual basis to facilitate EPA's annual evaluation of the 2007 baseline 
area of land in that country.
    Additionally, EPA indicated in the preamble to the proposed rule 
that it intended to take into consideration whether the data is 
publically available, whether the data collection and analysis 
methodologies and information on the primary data source are available 
to EPA, and whether the data has been generated, analyzed, and/or 
approved or endorsed by an independent third party. Commenters 
generally agreed that data used to support a petition must be publicly 
available and transparent. EPA agrees that this is highly preferable, 
so EPA will consider this factor in determining whether to grant a 
petition. Several commenters suggested that complete transparency 
requires the data itself as well as the data analysis conducted and 
methodology used by the petitioner to be made available to the public. 
EPA agrees that information that is not privileged should be made 
publicly available, and will publish petitioners' data sources, 
statistical methodologies and analyses in the public rulemaking docket 
as part of the public notice and comment process to the extent 
permissible by law (see below for a more detailed description of the 
public participation process).
    EPA also proposed to take into account the quality of the data that 
is available on an annual basis for EPA's annual assessments of any 
approved aggregate compliance approach, as well as whether the 
petitioner has identified an entity who will provide to EPA an analysis 
of the data updates each year following EPA's approval of the aggregate 
compliance approach for that country. EPA believes that the data and 
analyses used for the annual assessments of any approved aggregate 
compliance approach must be just as robust and transparent as the data 
used to establish the original baseline amount of agricultural land. 
Some commenters argue that the national government should be required 
to play a role in the ongoing land use tracking. As described above, 
EPA believes it is important to have the involvement of the national 
government in reviewing the data and analyses for the annual 
assessments. Other commenters argue that the annual verification should 
be conducted wholly by an independent third party to ensure accuracy 
and objectively. EPA has addressed these comments in Section V.B.4. 
below.
    Furthermore, EPA proposed to consider agricultural land use trends

[[Page 76822]]

from several years preceding 2007, as well as the years following 2007 
to the time the petition is submitted in order to evaluate whether or 
not it is likely that a 2007 baseline would be exceeded in the future. 
We also proposed that petitioners submit historical land use data for 
the land in question, such as satellite data, aerial photography, 
census data, agricultural surveys or agricultural economic modeling 
data. EPA did not receive specific comments on the consideration of 
agricultural land use trends or on the requirement to submit data on 
historical land use trends. EPA believes that this information would be 
useful in assessing whether the 2007 baseline area of land would likely 
be exceeded in the future. Thus, as explained further in Section V.B.4 
below, EPA is finalizing that, when evaluating petitions, we will take 
into consideration historical agricultural land use trends in the 
country in question, and we are requiring that petitioners submit 
historical land use data for the land in question.
    Finally, EPA proposed to consider whether there are laws in place 
in the country for which the petition was submitted that might prohibit 
or incentivize the clearing of new agricultural lands, and proposed to 
consider the efficacy of these laws. EPA also proposed to assess 
whether any market factors are expected to drive an increase in the 
demand for agricultural land in the country for which the petition was 
submitted. Commenters generally supported EPA's consideration of these 
factors when evaluating petitions, and thus EPA will take them into 
account when assessing petitions. For further discussion of this issue, 
see Section V.B.4 which follows.
4. Petition Submission
    EPA proposed a requirement that all submittals, including the 
petition, supporting documentation, and annual data and analyses, be 
submitted in English. One commenter argued that the components of the 
petition should be submitted both in English and in the original 
language. We agree that it would be useful and reasonable for EPA to 
receive and make available to the public the petition and all 
supporting documents in English and their original language (if not 
English) in order to verify translation, particularly of technical 
texts and data. Therefore we are finalizing a requirement that all 
petitions and supporting documentation should be submitted in English 
and their original language.
    EPA also proposed that petitioners submit specified information as 
part of their formal petition submission package, or explain why such 
information is not necessary for EPA to consider their petition. EPA is 
finalizing the list of information that will be required, absent an 
explanation by the petitioner as to why any of the information is not 
necessary, with modifications to reflect that petitions will be 
considered only for all planted crops and crop residue from foreign 
countries in their entirety.
    First, petitioners will need to submit an assessment of the total 
amount of land that is cropland, pastureland, or land equivalent to 
USDA's Conservation Reserve Program land that was cleared or cultivated 
prior to December 19, 2007, and that was actively managed or fallow and 
nonforested on that date. For example, in assessing the amount of total 
existing agricultural land in the U.S. on the enactment date of EISA, 
EPA used FSA Crop History data to show that there were 402 million 
acres of agricultural land existing in the U.S. in 2007.
    As part of the assessment, the petitioner will be required to 
submit to EPA land use data that demonstrates that the proposed 2007 
baseline area of land is agricultural land that was cleared or 
cultivated prior to December 19, 2007 and that was actively managed or 
fallow and nonforested on that date. The data may include satellite 
imagery or data, aerial photography, census data, agricultural surveys, 
and/or agricultural economic modeling data. As mentioned above, the FSA 
crop history data used for the U.S. aggregate compliance approach 
determination consists of annual records of farm-level land use data 
that includes all cropland and pastureland in the U.S. EPA also 
considered USDA Census of Agriculture data, which consists of a full 
census of the U.S. agricultural sector once every five years, as well 
as the USDA National Agricultural Statistics Service (NASS) Crop Data 
Layer (CDL), which is based on satellite data.
    In establishing the total amount of existing agricultural land for 
the U.S. aggregate compliance approach determination, EPA relied on the 
RFS2 definitions of the relevant terms, including planted crops, crop 
residue, and agricultural land, which is defined as consisting of 
cropland, pastureland and Conservation Reserve Program (CRP) \29\ land. 
In the proposal, EPA recognized that the CRP is only applicable to U.S. 
agricultural land, and thus solicited comment on whether the final 
rules should allow EPA to consider land that is equivalent or similar 
to US CRP land as existing agricultural land for purposes of RFS2-
compliant feedstock cultivation in a foreign country, and whether EPA 
should be able to make such a determination in the context of a 
petition for application of the aggregate approach to a foreign 
country. Commenters noted that EPA should consider foreign land 
categories similar to CRP. EPA agrees, and has modified the final 
regulation to include specific references to ``land that is equivalent 
to U.S. Conservation Reserve Program'' land. One commenter also 
suggested that EPA consider lands falling outside of the definition of 
``existing agricultural land,'' including degraded land and land not 
under primary forest. However, EPA disagrees that the types of land 
considered should extend beyond those that are equivalent to the land 
types identified in the final RFS2 definition of ``existing 
agricultural land.'' If the land in question does not meet the RFS2 
definitions of ``cropland'' or ``pastureland'' in 40 CFR 80.1401, or it 
is not equivalent to CRP land, then it is not ``existing agricultural 
land'' from which crops or crop residue that meet the definition of 
``renewable biomass'' can be obtained. Therefore, they will not be 
counted towards the total amount of existing agricultural land in a 
petition for application of the aggregate approach to a foreign 
country.
---------------------------------------------------------------------------

    \29\ The CRP program is administered by U.S. Department of 
Agriculture's Farm Service Agency and provides technical and 
financial assistance to eligible farmers and ranchers to address 
soil, water, and related natural resource concerns on their lands in 
an environmentally beneficial and cost-effective manner.
---------------------------------------------------------------------------

    Second, EPA proposed that the petitioner would also be required to 
provide to EPA historical land use data, covering the years from prior 
to 2007 to the current year. For the U.S. aggregate compliance approach 
determination, EPA analyzed the FSA Crop History data from the years 
2005 through 2007 and the USDA Census of Agriculture from 1997 through 
2007, finding that there was an overall trend of contraction of 
agricultural land utilization in the U.S. Commenters generally 
supported this requirement. EPA believes that this will be useful 
information in considering the likelihood that the 2007 baseline area 
of land is likely to be exceeded in the future, and is finalizing a 
requirement that petitioners submit historical land use data as part of 
their petition.
    Third, EPA proposed that the petitioner would need to provide a 
description of any applicable laws, agricultural practices, economic 
considerations, or other relevant factors that had or may have an 
effect on agricultural land use within the foreign country. For the 
U.S. aggregate

[[Page 76823]]

compliance approach determination, EPA took into account the CAA 
renewable fuel obligations, the unsuitability and high cost of 
developing previously undeveloped land for agricultural purposes, as 
well as projected increases in crop yields on existing agricultural 
land. Commenters supported the relevance of this type of information to 
EPA's action on a petition for application of the aggregate approach to 
a foreign country. Furthermore, another commenter recommended that EPA 
consider the efficacy and enforcement of any applicable laws that may 
have an effect on the use of the land in question. EPA agrees, and has 
modified this element in the final rule to require the submission of 
information regarding the efficacy and enforcement of relevant laws.
    One commenter suggested that EPA take into consideration the 
limitations on feedstock growth posed by local climate and soil 
quality. EPA understands that in some circumstances poor soil quality 
could be a factor that influences land use practices and, in 
particular, whether existing croplands continue to be used for crop 
production as opposed to former forestland. One of the factors 
identified for EPA consideration in today's rule is whether historical 
land use and agricultural practices and/or other factors show that it 
is likely that producers will continue to use agricultural land within 
the 2007 baseline area of land. In addition, one of the required 
submission elements is ``agricultural practices, economic 
considerations or other relevant factors that had or may have an effect 
on the use of agricultural land.'' Thus, EPA believes that the 
considerations raised by the commenter can and will be considered by 
EPA in evaluating petition submittals. EPA urges the commenter to 
participate in the public notice and comment process that all petitions 
submitted to EPA will be subject to (see discussion of this subject in 
Section V.B.5), and to provide any information on these issues that the 
commenter believes may be appropriate for EPA evaluation at that time.
    Among the ``other relevant factors'' that a petitioner must 
consider, there are a variety of environmental conditions or 
circumstances that may be relevant. For instance:

 Local variability in weather
 Availability and quality of fresh water as supplied by snow 
pack, rain, runoff and inundations
 Frost and icing
 Severe winds and fires
 Hail and sleet
 Extended periods of rain or drought
 Other extreme events

Predictions on the seasonal to interannual (El Nino/La Nina) are 
available to improve the information included in the petition. Weather 
and water predictions may also be important for shorter term supply 
management and volume production analyses.
    Finally, EPA proposed and is finalizing that the petitioner be 
required to provide a plan describing an entity who will, on a 
continuing yearly basis, conduct any data gathering and analysis 
necessary to assist EPA in its annual assessment of any approved 
aggregate approach. Additionally, EPA proposed that the plan would 
describe the data, the data source, and the schedule on which the data 
would be updated and made available to EPA and the public. One 
commenter argued that the annual verification should be conducted or 
reviewed by an independent third party financed by the petitioner 
through an escrow account. EPA believes that review of the initial and 
annual data by a qualified independent third party would add 
credibility and reliability to the process, but does not believe it 
should be required. EPA believes that providing notice through the 
Federal Register and opportunity for public comment on each petition 
submitted afford the public ample time to analyze and comment on the 
data submitted by the petitioner. Furthermore, EPA is adding a 
requirement, described above, for participation in the process by the 
national government of the country for which a petition is submitted, 
and EPA will thoroughly scrutinize the information submitted in the 
petition prior to making any assessment. Therefore, EPA is not 
finalizing a requirement that the petition and the annual updates be 
analyzed by an independent third party, but EPA is reiterating that 
participation by an independent third party would add credibility to a 
petition and to annual evaluations.
5. Petition Process
    EPA proposed to provide an opportunity for public comment on 
petitions for approval of an aggregate compliance approach for a 
foreign country. EPA proposed to publish a Federal Register notice 
informing the public of incoming petitions, with information on how to 
view the petitions and any supporting information. Additionally, EPA 
proposed to then accept public comment on the petition. Once the public 
comment period closes, EPA proposed to make an assessment, taking into 
account the information submitted in the petition as well as the 
comments received, and then publish a decision in the Federal Register 
to either approve or deny the petitioner's request.
    EPA proposed that, if the petition has been approved, the Federal 
Register notice will specify an effective date at which time producers 
using the specified feedstocks from the specified areas identified in 
EPA's approval will be subject to the aggregate compliance approach 
requirements in 40 CFR 80.1454(g) in lieu of the otherwise applicable 
individualized renewable biomass recordkeeping and reporting 
requirements. For the final rule, EPA has made a minor modification to 
the regulatory language in 40 CFR 80.1454(g) to clarify the 
recordkeeping requirements from which renewable fuel producers are 
exempted if their feedstocks are subject to the aggregate compliance 
approach. Producers using feedstocks subject to the aggregate 
compliance approach are exempted from the renewable biomass 
recordkeeping requirements in 40 CFR 80.1454(g)(2), but remain subject 
to the recordkeeping requirements related to feedstocks in 40 CFR 
80.1454(b).
    EPA sought and received comments on this proposed petition process. 
Most commenters agree that each petition submitted should be subject to 
public notice and comment procedures. Several commenters argued that 
although there should be a public notice and comment period, it should 
not cause undue delays in reviewing and publishing a decision on the 
petitions. One commenter requested that 60 days be provided for public 
review of the incoming petitions. Another commenter also requested that 
EPA specify a timeline for the public comment process and the types of 
issues that will be addressed during the process.
    EPA agrees that public notice and comment is necessary and 
important, and is maintaining that process in today's final rule. 
Furthermore, EPA intends that decisions on petitions will be made 
within an amount of time that is reasonable, yet sufficient to conduct 
a thorough analysis of the incoming data. EPA concurs that 60 days is a 
reasonably practical amount of time for public review and analysis of 
the petition and associated data, so today's rule provides for a 60 day 
comment period on each petition submitted.
    EPA does not agree with the comment that the public comments should 
be restricted to certain issues. EPA will evaluate all comments 
received to determine if they are relevant to its determination. The 
petitions and the supporting data will be included in the rulemaking 
docket in their entirety

[[Page 76824]]

(excepting only material that is claimed to be confidential business 
information or which is otherwise privileged), and the public may 
comment on any aspect of the petitions or the supporting information.
    A commenter argued that the public notice and comment procedure 
should be included in the regulatory language, and that any and all 
data and calculations in the petitions should be available to the 
public. EPA generally agrees, and has included provisions concerning 
public notice and comment in the final regulatory language. 
Furthermore, EPA will make available in the docket all information 
submitted in support of each petition unless the material is claimed to 
be confidential business information or is otherwise legally prohibited 
from disclosure.
    Additionally, EPA proposed three circumstances that could lead EPA 
to withdraw its approval of the aggregate compliance approach for a 
foreign country. We received one comment that argued that EPA must 
withdraw its approval under the three circumstances identified in the 
proposed regulations at Sec.  80.1457(e)(1)(i)-(iii). Although we 
generally agree that the three circumstances identified will likely 
lead EPA to withdraw its approval, we believe it is best to allow EPA 
the discretion to evaluate these circumstances on a case-by-case basis. 
Therefore, we have retained in the final rule the provision stating 
that EPA ``may'' withdraw its approval in the circumstances identified, 
in which case producers using planted crops or crop residue from the 
country in question would be subject to the individual recordkeeping 
and reporting requirements under Sec. Sec.  80.1454(g) and 80.1451(d) 
beginning July 1 of the following year.
    Finally, EPA requested comment on whether the burden associated 
with the proposed petition process is reasonable, and how it might be 
minimized while still remaining adequately robust. One commenter noted 
that the burden of the petition process is reasonable as proposed, and 
could be made more stringent while remaining reasonable. EPA believes 
the level of burden associated with the proposed petition process was 
reasonable and appropriate and believes that the requirements set forth 
in today's final rule do not significantly alter the proposed level of 
burden.

VI. Annual Administrative Announcements

    In the RFS2 final rule, we stated our intent to make two 
announcements each year:

 Set the price for cellulosic biofuel waiver credits that will 
be made available to obligated parties in the event that we reduce the 
volume of cellulosic biofuel below the applicable volume specified in 
the Clean Air Act (CAA), and
 Announce the results of our annual assessment of the aggregate 
compliance approach for U.S. planted crops and crop residue.

The biofuel waiver credit price being announced today was calculated in 
accordance with the specifications in Sec.  80.1456(d). Since the 
manner in which EPA calculates the waiver credit price is precisely set 
forth in EPA regulations (which were issued through a notice-and-
comment process), and since some of the variables necessary to compute 
the price have only recently become available, EPA did not propose a 
waiver credit price for comment. Similarly, because EPA's assessment of 
the aggregate compliance approach announced today was conducted using 
data sources, methodology, and criteria that were identified and 
explained in the preamble to the RFS2 final rule, it was not necessary 
to present a preliminary annual assessment for comment in the NPRM.

A. 2011 Price for Cellulosic Biofuel Waiver Credits

    Section 211(o)(7)(D) of the CAA requires that whenever EPA sets the 
applicable volume of cellulosic biofuel at a level lower than that 
specified in the Act, EPA is to provide a number of cellulosic credits 
for sale that is no more than the EPA-determined applicable volume. 
Congress also specified the formula for calculating the price for such 
waiver credits: Adjusted for inflation, the credits must be offered at 
the price of the higher of 25 cents per gallon or the amount by which 
$3.00 per gallon exceeds the average wholesale price of a gallon of 
gasoline in the United States.\30\ The inflation adjustment is for 
years after 2008. EPA regulations provide that the inflation adjustment 
is calculated by comparing the most recent Consumer Price Index for Al 
Urban Consumers (CPI-U) for the ``All Items'' expenditure category as 
provided by the Bureau of Labor Statistics that is available at the 
time EPA sets the cellulosic biofuel standard to the comparable value 
that was reported soonest after December 31, 2008.\31\
---------------------------------------------------------------------------

    \30\ More information on wholesale gasoline prices can be found 
on the Department of Energy's (DOE), Energy Information 
Administration's (EIA) Web site at: http://tonto.eia.doe.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=A103B00002&f=M.
    \31\ See U.S. Department of Labor, Bureau of Labor Statistics 
(BLS), Consumer Price Index Web site at: http://www.bls.gov/cpi/.
---------------------------------------------------------------------------

    In contrast to its directions to EPA for setting the price of a 
cellulosic biofuel waiver credit, Congress afforded the Agency 
considerable flexibility in designing regulations specifying the 
permissible uses of the credits. The CAA states that EPA regulations 
``shall include such provisions, including limiting the credits' uses 
and useful life, as the Administrator deems appropriate to assist 
market liquidity and transparency, to provide appropriate certainty for 
regulated entities and renewable fuel producers, and to limit any 
potential misuse of cellulosic biofuel credits to reduce the use of 
other renewable fuels, and for such other purposes as the Administrator 
determines will help achieve the goals of this subsection.'' The final 
RFS2 provides a detailed discussion of how we designed the provisions 
for cellulosic biofuel waiver credits in keeping with the statutory 
language. In short, 2011 cellulosic biofuel waiver credits (or ``waiver 
credits'') are only available for the 2011 compliance year. Waiver 
credits will only be made available to obligated parties, and they are 
nontransferable and nonrefundable. Further, obligated parties may only 
purchase waiver credits up to the level of their cellulosic biofuel RVO 
less the number of cellulosic biofuel RINs that they own. A company 
owning cellulosic biofuel RINs and cellulosic waiver credits may use 
both types of credits if desired to meet their RVOs, but unlike RINs 
obligated parties are not permitted to carry waiver credits over to the 
next calendar year. Obligated parties may not use waiver credits to 
meet a prior year deficit obligation. Finally, unlike cellulosic 
biofuel RINs which may also be used to meet an obligated party's 
advanced and total renewable fuel obligations, waiver credits may only 
be used to meet a cellulosic biofuel RVO. An obligated party will still 
need to additionally and separately acquire RINs to meet their advanced 
biofuel and total renewable fuel obligations.
    For the 2011 compliance period, since the applicable volume of 
cellulosic biofuel used to set the annual cellulosic biofuel standard 
is lower than the volume for 2011 specified in the CAA, we are making 
cellulosic waiver credits available to obligated parties for end-of-
year compliance should they need them at a price of $1.13 per gallon-
RIN. To calculate this price, EPA first determined the average 
wholesale

[[Page 76825]]

(refinery gate) price of gasoline using the most recent 12 months of 
data available from the EIA Web site on September 30, 2010. Based on 
this data, we calculated an average price of gasoline for the period 
July 2009 to June 2010 of $1.97. In accordance with the Act, we then 
calculated the difference of the inflation-adjusted value of $3.00, or 
$3.10, and $1.97, which yielded $1.13. Next, we compared the value of 
$1.13 to the inflation-adjusted value of $0.25, or $0.26. The Act 
requires EPA to use the greater of these two values as the price for 
cellulosic biofuel waiver credits.
    The derivation of this value is more fully explained in a 
memorandum submitted to the docket for this rulemaking,\32\ and a more 
complete description of the statutory requirements and their 
application can be found in the RFS2 final rule.\33\ The price for the 
2012 compliance period, if necessary, will be set when we announce the 
2012 cellulosic biofuel standard.
---------------------------------------------------------------------------

    \32\ See memo to docket number EPA-HQ-OAR-2010-0133 from Scott 
Christian, on the subject of ``Calculating the price for cellulosic 
biofuel waiver credits for compliance year 2011,'' dated October 20, 
2010.
    \33\ 75 FR 14726-14728.
---------------------------------------------------------------------------

B. Assessment of the Domestic Aggregate Compliance Approach

    In order to implement the renewable biomass requirements under the 
RFS2 program as set forth in the CAA, EPA established general 
requirements for renewable fuel producers to keep records on the types 
and feedstocks they use to produce their fuel, including specific 
records related to the land from which the feedstocks were harvested or 
otherwise obtained, if they generate RINs for the fuel produced from 
such feedstocks. We also established requirements for renewable fuel 
producers to report on their feedstocks on a quarterly basis. Similar 
requirements apply to importers who generate RINs for fuel produced 
outside of the U.S.
    In response to comments we received on the RFS2 NPRM, we also 
finalized a separate approach for renewable fuel producers who use 
planted crops and crop residue from U.S. agricultural land. Producers 
who use such renewable biomass need not maintain documentation about 
the specific land from which the feedstocks are harvested, relieving 
them of the individual recordkeeping and reporting requirements. To 
enable this approach, EPA established a baseline number of acres for 
U.S. agricultural land in 2007 (the year of EISA enactment) and 
determined that as long as this baseline number of acres was not 
exceeded, it was unlikely that new land outside of the 2007 baseline 
would be devoted to crop production based on historical trends and 
economic considerations. We therefore provided that renewable fuel 
producers using planted crops or crop residue from the U.S. as 
feedstock in renewable fuel production need not comply with the 
individual recordkeeping and reporting requirements related to 
documenting that their feedstocks are renewable biomass, unless EPA 
determines through annual evaluations that the 2007 baseline acreage of 
agricultural land has been exceeded.
    In the final RFS2 regulations, we stated that EPA will make a 
finding concerning whether the 2007 baseline amount of U.S. 
agricultural land has been exceeded in a given year and will publish 
this finding in the Federal Register by November 30 of the same year. 
If the baseline is found to have been exceeded, then producers using 
U.S. planted crops and crop residue as feedstocks for renewable fuel 
production would be required to comply with individual recordkeeping 
and reporting requirements to verify that their feedstocks are 
renewable biomass. We also stated that if, at any point, EPA finds that 
the total agricultural land is greater than 397 million acres, EPA will 
conduct further investigations regarding the validity of the aggregate 
compliance approach.
    Based on data provided by the USDA Farm Service Agency (FSA) and 
Natural Resources Conservation Service (NRCS), we have estimated that 
U.S. agricultural land reached approximately 398 million acres in 2010, 
and thus did not exceed the 2007 baseline acreage.\34\ However, this 
total acreage estimate is greater than the 397 million acre trigger 
point for further investigation, therefore EPA, with the help of USDA, 
will look further into the relevant data and review the factors related 
to U.S. agricultural land use over the coming months.
---------------------------------------------------------------------------

    \34\ See memo to docket number EPA-HQ-OAR-2010-0133 from Megan 
Brachtl, on the subject of ``USDA data used for 2010 U.S. 
agricultural land determination,'' dated November 9, 2010.
---------------------------------------------------------------------------

    The data and methodologies employed to make this determination are 
described below.
1. Methodology
    To set the 2007 baseline acreage for U.S. agricultural land in the 
RFS2 final rulemaking, we used USDA's Farm Service Agency's (FSA's) 
crop history data for 2007, which was the most complete, consistent, 
and reliable dataset available to EPA. From the FSA crop history data 
total acreage of 404.3 million acres, we subtracted 2.75 million acres, 
which represented the amount of land enrolled in USDA's Grasslands 
Reserve Program (GRP) and Wetlands Reserve Program (WRP), neither of 
which qualifies as existing agricultural land. We therefore established 
the 2007 baseline amount of existing U.S. agricultural land at 402 
million acres. This is the amount of land we determined was available 
for the production of planted crops and crop residue in 2007 that would 
satisfy the renewable biomass provisions of the CAA.
    To calculate the 2010 U.S. agricultural land acreage estimate, we 
followed a similar calculation methodology. We started with FSA crop 
history data for 2010, from which we derived a total estimated acreage 
of 401.6 million acres. We then subtracted the amount of land estimated 
to be participating in the GRP and WRP by the end of Fiscal Year 2010, 
3.6 million acres, to yield an estimate of approximately 398.0 million 
acres of U.S. agricultural land in 2010. The USDA data used to make 
this calculation can be found in the docket to this rule.
    In the preamble to the final RFS2 rule, we indicated that we would 
monitor total U.S. agricultural land annually using FSA crop history 
data as a primary determinant and USDA's satellite-based crop data 
layer (CDL) analyses as a secondary source to validate our annual 
assessment. The CDL data for 2009 were released at the beginning of 
2010, and the CDL data for 2010 is similarly expected in early 2011. 
Because the schedule for the release of 2010 data falls after the date 
by which the RFS2 regulations state the annual U.S. agricultural land 
acreage determination must be made, we will use the 2009 and 2010 data, 
as appropriate and feasible, to validate our 2010 assessment, as 
discussed below.
2. Further Investigation
    EPA stated in the final RFS2 rule that if we find that the total 
land used for the production of crops is greater than 397 million 
acres, we will conduct further investigations regarding the validity of 
the aggregate compliance approach. Because we estimate that total U.S. 
agricultural land acreage in 2010 was approximately 398 million acres, 
further inquiry into the aggregate compliance approach is warranted. 
This inquiry, to be carried out by EPA with assistance from USDA, will 
utilize other agricultural data, including USDA's 2009 and 2010 CDL 
data to the extent feasible, to validate the data used to make the U.S. 
agricultural land

[[Page 76826]]

determination for 2010. We will also consider potential uncertainties 
in the data used to make our determination. We anticipate that this 
investigation will be completed well before the deadline for publishing 
next year's agricultural land acreage determination.

VII. Comments Outside the Scope of This Rulemaking

    In their comments responding to the NPRM, a number of parties used 
the opportunity to raise concerns that were not directly related to the 
issues and provisions we were addressing in the NPRM, such as setting 
the cellulosic biofuel standard, the proposed provision for delayed 
RINs, and the proposed provision for aggregate compliance for renewable 
biomass from foreign countries. Neither did these comments address 
setting the price for cellulosic biofuel credits or EPA's annual 
evaluation of the U.S. aggregate compliance approach for renewable 
biomass. Instead, they addressed issues associated with the following:

 EPA's petition process in Sec.  80.1416 for approving new fuel 
pathways
 EPA's ongoing lifecycle GHG assessment for grain sorghum
 EPA's economic analyses related to expanded biofuels use and 
the impact of tax credits and tariffs
 Possible legislative amendments and possible EPA actions 
favored by commenters that would promote biofuel use

Some commenters also made requests for clarification of key definitions 
while others suggested modifications to the provisions regarding the 
use of cellulosic biofuel waiver credits. While we are taking these 
comments under consideration as we continue to implement the RFS2 
program, these comments are outside the scope of today's action, and we 
are not providing substantive responses to them at this time.

VIII. Public Participation

    Many interested parties participated in the rulemaking process that 
culminates with this final rule. This process provided opportunity for 
submitting written public comments following the proposal that we 
published on July 20, 2010 (75 FR 42238), and we considered these 
comments in developing the final rule. Comments and responses for 
issues raised in the public comments are included throughout this 
preamble.

IX. Statutory and Executive Order Reviews

A. Executive Order 12866: Regulatory Planning and Review

    Under Executive Order (EO) 12866 (58 FR 51735, October 4, 1993), 
this action is a ``significant regulatory action'' because it raises 
novel legal or policy issues. Accordingly, EPA submitted this action to 
the Office of Management and Budget (OMB) for review under EO 12866 and 
any changes made in response to OMB recommendations have been 
documented in the docket for this action.
    The economic impacts of the RFS2 program on regulated parties, 
including the impacts of the required volumes of renewable fuel, were 
already addressed in the RFS2 final rule promulgated on March 26, 2010 
(75 FR 14670). This action sets the percentage standards applicable in 
2011 based on the volumes that were analyzed in the RFS2 final rule or, 
for cellulosic biofuel, on a lower volume that reflects EPA's 
projection of cellulosic biofuel production volumes for 2011. The 
delayed RINs provision and the petition process for applying an 
aggregate approach to foreign-grown crops and crop residue have no 
adverse economic impact on regulated parties since they would either 
relieve a current restriction related to generation of RINs, or would 
reduce recordkeeping burdens for parties successfully utilizing the 
petition process. The announcement of cellulosic biofuel waiver credit 
price and EPA's annual assessment of the U.S. aggregate compliance 
approach also impose no adverse economic impact. The availability of 
cellulosic biofuel waiver credits provides increased flexibility to 
regulated parties, at a price established by a formula set forth in the 
CAA.

B. Paperwork Reduction Act

    This rule contains new information collection requirements which 
will be submitted for approval to the Office of Management and Budget 
(OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. These 
information collection requirements are not enforceable until OMB 
approves them. The EPA ICR number 2398.02.
    Specifically, this rule has a petition provision that EPA will use 
to authorize renewable fuel producers using foreign-grown feedstocks to 
use an aggregate approach to comply with the renewable biomass 
verification provisions, similar to that applicable to producers using 
crops and crop residue grown in the United States. See discussion in 
Section V.B. For this authorization, foreign based entities may 
petition EPA for approval of the aggregate compliance approach for 
crops and crop residue in a foreign country. If approved by EPA, such a 
petition will allow crops and crop residue produced in the foreign 
country to be counted as feedstock to make renewable fuel under the 
RFS2 program without the otherwise applicable recordkeeping 
requirements. Other provisions in this regulation will not impose any 
new information collection burdens on regulated entities beyond those 
already required under RFS2. The RFS2 information collections are 
identified by the following OMB control numbers: 2060-0637 (expiring 
March 31, 2013) and 2060-0640 (expiring July 31, 2013).
    The information collection related to this final rule is required 
in order for EPA to evaluate and act on the petitions. Respondents may 
assert claims of business confidentiality (CBI) for any or all of the 
information they submit. We do not believe that most respondents will 
characterize the information they submit to us under this information 
collection as CBI. However, any information claimed as confidential 
will be treated in accordance with 40 CFR Part 2 and established Agency 
procedures. Information that is received without a claim of 
confidentiality may be made available to the public without further 
notice to the submitter under 40 CFR 2.203.
    EPA estimates that there will be a total of 15 respondents 
(petitioners), each submitting one petition, for a total of 15 
responses (petitions). The estimated burden annual burden, assuming 15 
respondents, will be 200 hours and annual cost is estimated at $14,197. 
On a per respondent basis, EPA estimates a total annual hour burden per 
respondent of 13.33 hours and a total annual cost burden per respondent 
is $946.43. Burden is defined at 5 CFR 1320.3(b).
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a 
currently valid OMB control number. The OMB control numbers for EPA's 
regulations in 40 CFR are listed in 40 CFR part 9.

C. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires an agency 
to prepare a regulatory flexibility analysis of any rule subject to 
notice and comment rulemaking requirements under the Administrative 
Procedure Act or any other statute unless the agency certifies that the 
rule will not have a significant economic impact on a substantial 
number of small entities. Small entities

[[Page 76827]]

include small businesses, small organizations, and small governmental 
jurisdictions.
    For purposes of assessing the impacts of today's rule on small 
entities, small entity is defined as: (1) A small business as defined 
by the Small Business Administration's (SBA) regulations at 13 CFR 
121.201; (2) a small governmental jurisdiction that is a government of 
a city, county, town, school district or special district with a 
population of less than 50,000; and (3) a small organization that is 
any not-for-profit enterprise which is independently owned and operated 
and is not dominant in its field.
    After considering the economic impacts of today's rule on small 
entities, we certify that this action will not have a significant 
economic impact on a substantial number of small entities. This rule 
sets the annual standards for four types of renewable fuel, modifies 
the regulatory provision for the generation of delayed RINs, and 
establishes a process for parties to petition EPA to allow an aggregate 
approach to compliance with the renewable biomass provision for 
foreign-grown crops and crop residue that would be similar to that used 
in the U.S. Today's action also includes two administrative 
announcements: The price in 2011 for cellulosic biofuel waiver credits, 
and the results of EPA's annual assessment of the U.S. aggregate 
compliance approach. The impacts of the RFS2 program on small entities 
were already addressed in the RFS2 final rule promulgated on March 26, 
2010 (75 FR 14670), and today's action does not impose any additional 
requirements or burdens on small entities.

D. Unfunded Mandates Reform Act

    This action contains no Federal mandates under the provisions of 
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), 2 U.S.C. 
1531-1538 for State, local, or tribal governments or the private 
sector. The action imposes no enforceable duty on any State, local or 
tribal governments or the private sector. Therefore, this action is not 
subject to the requirements of sections 202 or 205 of the UMRA.
    This action is also not subject to the requirements of section 203 
of UMRA because it contains no regulatory requirements that might 
significantly or uniquely affect small governments.

E. Executive Order 13132: Federalism

    This rule does not have federalism implications. It will not have 
substantial direct effects on the States, on the relationship between 
the national government and the States, or on the distribution of power 
and responsibilities among the various levels of government, as 
specified in Executive Order 13132. Thus, Executive Order 13132 does 
not apply to this rule.

F. Executive Order 13175: Consultation and Coordination With Indian 
Tribal Governments

    This action does not have tribal implications, as specified in 
Executive Order 13175 (65 FR 67249, November 9, 2000). This rule does 
not have tribal implications, as this rule will be implemented at the 
Federal level and impose compliance costs only on transportation fuel 
refiners, blenders, marketers, distributors, importers, and exporters. 
Tribal governments would be affected only to the extent they purchase 
and use regulated fuels. Thus, Executive Order 13175 does not apply to 
this action.

G. Executive Order 13045: Protection of Children From Environmental 
Health Risks and Safety Risks

    EPA interprets EO 13045 (62 FR 19885, April 23, 1997) as applying 
only to those regulatory actions that concern health or safety risks, 
such that the analysis required under section 5-501 of the EO has the 
potential to influence the regulation. This action is not subject to EO 
13045 because it does not establish an environmental standard intended 
to mitigate health or safety risks and because it implements specific 
standards established by Congress in statutes.

H. Executive Order 13211: Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use

    This rule is not a ``significant energy action'' as defined in 
Executive Order 13211, ``Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use'' (66 FR 28355 
(May 22, 2001)) because it is not likely to have a significant adverse 
effect on the supply, distribution, or use of energy.

I. National Technology Transfer and Advancement Act

    Section 12(d) of the National Technology Transfer and Advancement 
Act of 1995 (``NTTAA''), Public Law 104-113, 12(d) (15 U.S.C. 272 note) 
directs EPA to use voluntary consensus standards in its regulatory 
activities unless to do so would be inconsistent with applicable law or 
otherwise impractical. Voluntary consensus standards are technical 
standards (e.g., materials specifications, test methods, sampling 
procedures, and business practices) that are developed or adopted by 
voluntary consensus standards bodies. NTTAA directs EPA to provide 
Congress, through OMB, explanations when the Agency decides not to use 
available and applicable voluntary consensus standards.
    This action does not involve technical standards. Therefore, EPA is 
not considering the use of any voluntary consensus standards.

J. Executive Order 12898: Federal Actions To Address Environmental 
Justice in Minority Populations and Low-Income Populations

    Executive Order (EO) 12898 (59 FR 7629 (Feb. 16, 1994)) establishes 
federal executive policy on environmental justice. Its main provision 
directs federal agencies, to the greatest extent practicable and 
permitted by law, to make environmental justice part of their mission 
by identifying and addressing, as appropriate, disproportionately high 
and adverse human health or environmental effects of their programs, 
policies, and activities on minority populations and low-income 
populations in the United States.
    EPA has determined that this rule will not have disproportionately 
high and adverse human health or environmental effects on minority or 
low-income populations because it does not affect the level of 
protection provided to human health or the environment. This action 
does not relax the control measures on sources regulated by the RFS2 
regulations and therefore will not cause emissions increases from these 
sources.

K. Congressional Review Act

    The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the 
Small Business Regulatory Enforcement Fairness Act of 1996, generally 
provides that before a rule may take effect, the agency promulgating 
the rule must submit a rule report, which includes a copy of the rule, 
to each House of the Congress and to the Comptroller General of the 
United States. EPA will submit a report containing this rule and other 
required information to the U.S. Senate, the U.S. House of 
Representatives, and the Comptroller General of the United States prior 
to publication of the rule in the Federal Register. A major rule cannot 
take effect until 60 days after it is published in the Federal 
Register. This action is not a ``major rule'' as defined by 5 U.S.C. 
804(2) and therefore it is not subject to the Congressional Review Act. 
Therefore, this rule will be effective on the date of publication.

[[Page 76828]]

X. Statutory Authority

    Statutory authority for the rule finalized today can be found in 
section 211 of the Clean Air Act, 42 U.S.C. 7545. Additional support 
for the procedural and compliance related aspects of today's rule, 
including the recordkeeping requirements, come from Sections 114, 208, 
and 301(a) of the Clean Air Act, 42 U.S.C. 7414, 7542, and 7601(a).

List of Subjects in 40 CFR Part 80

    Environmental protection, Air pollution control, Diesel fuel, Fuel 
additives, Forest and forest products, Gasoline, Oil imports, Labeling, 
Motor vehicle pollution, Penalties, Petroleum, Reporting and 
recordkeeping requirements.

    Dated: November 24, 2010.
Lisa P. Jackson,
Administrator.

0
For the reasons set forth in the preamble, 40 CFR part 80 is amended as 
follows:

PART 80--REGULATION OF FUELS AND FUEL ADDITIVES

0
1. The authority citation for part 80 continues to read as follows:

    Authority:  42 U.S.C. 7414, 7542, 7545, and 7601(a).

0
2. Section 80.1405 is amended by revising paragraph (a) to read as 
follows:

Sec.  80.1405  What are the Renewable Fuel Standards?

    (a) Renewable Fuel Standards for 2011.
    (1) The value of the cellulosic biofuel standard for 2011 shall be 
0.003 percent.
    (2) The value of the biomass-based diesel standard for 2011 shall 
be 0.69 percent.
    (3) The value of the advanced biofuel standard for 2011 shall be 
0.78 percent.
    (4) The value of the renewable fuel standard for 2011 shall be 8.01 
percent.
* * * * *

0
3. Section 80.1426 is amended by revising paragraph (g) to read as 
follows:

Sec.  80.1426  How are RINs generated and assigned to batches of 
renewable fuel by renewable fuel producers or importers?

* * * * *
    (g) Delayed RIN generation.
    (1) Parties who produce or import renewable fuel may elect to 
generate delayed RINs to represent renewable fuel volumes that have 
already been transferred to another party if those renewable fuel 
volumes meet all of the following requirements.
    (i) The renewable fuel volumes can be described by a new pathway 
that has been added to Table 1 to Sec.  80.1426, or approved by 
petition pursuant to Sec.  80.1416, after July 1, 2010.
    (A) For new pathways that EPA approves in response to petitions 
submitted pursuant to Sec.  80.1416, complete petitions must be 
received by EPA by January 31, 2011.
    (B) [Reserved]
    (ii) The renewable fuel volumes can be described by a pathway that:
    (A) Is biodiesel that is made from canola oil through 
transesterification using natural gas or biomass for process energy; or
    (B) EPA has determined was in use as of July 1, 2010, for the 
primary purpose of producing transportation fuel, heating oil, or jet 
fuel for commercial sale.
    (iii) The renewable fuel volumes were not designated or intended 
for export from the 48 contiguous states plus Hawaii by the renewable 
fuel producer or importer, and the producer or importer of the 
renewable fuel volumes does not know or have reason to know that the 
volumes were exported from the 48 contiguous states plus Hawaii.
    (2) When a new pathway is added to Table 1 to Sec.  80.1426 or 
approved by petition pursuant to Sec.  80.1416, EPA will specify in its 
approval action the effective date on which the new pathway becomes 
valid for the generation of RINs and whether the fuel in question meets 
the requirements of paragraph (g)(1)(ii) of this section.
    (i) The effective date for the pathway describing biodiesel that is 
made from canola oil through transesterification using natural gas or 
biomass for process energy is September 28, 2010.
    (ii) [Reserved]
    (3) Delayed RINs can only be generated to represent renewable fuel 
volumes produced in the 48 contiguous states plus Hawaii or imported 
into the 48 contiguous states plus Hawaii between July 1, 2010, and the 
earlier of either of the following dates:
    (i) The effective date (identified pursuant to paragraph (g)(2) of 
this section) of the new pathway through which the fuel in question was 
produced; or
    (ii) December 31, 2011.
    (4) Delayed RINs must be generated no later than 60 days after the 
effective date (identified pursuant to paragraph (g)(2) of this 
section) of the pathway by which the fuel in question was produced.
    (5) A party authorized pursuant to paragraph (g)(1) of this section 
to generate delayed RINs, and electing to do so, who generated RINs 
pursuant to 80.1426(f)(6) for fuel produced through a pathway described 
in paragraph (g)(1) of this section, and transferred those RINs with 
renewable fuel volumes between July 1, 2010 and the effective date 
(identified pursuant to paragraph (g)(2) of this section) of that 
pathway, must retire a number of gallon-RINs prior to generating 
delayed RINs.
    (i) The number of gallon-RINs retired by a party pursuant to this 
paragraph must not exceed the number of gallon-RINs originally 
generated by the party to represent fuel described in paragraph (g)(1) 
of this section that was produced in the 48 contiguous states plus 
Hawaii or imported into the 48 contiguous states plus Hawaii, and 
transferred to another party, between July 1, 2010 and the earlier of 
either of the following dates:
    (A) The effective date (identified pursuant to paragraph (g)(2) of 
this section) of the new pathway through which the fuel in question was 
produced; or
    (B) December 31, 2011.
    (ii) Retired RINs must have a D code of 6.
    (iii) Retired RINs must have a K code of 2.
    (iv) Retired RINs must have been generated in the same year as the 
gallon-RINs originally generated by the party to represent fuel 
described in paragraph (g)(1) of this section.
    (A) For gallon-RINs originally generated in 2010 to represent fuel 
described in paragraph (g)(1) of this section, the generation year of 
retired RINs shall be 2010.
    (B) For gallon-RINs originally generated in 2011 to represent fuel 
described in paragraph (g)(1) of this section, the generation year of 
retired RINs shall be 2011.
    (6) For parties that retire RINs pursuant to paragraph (g)(5) of 
this section, the number of delayed gallon-RINs generated shall be 
equal to the number of gallon-RINs retired in accordance with paragraph 
(g)(5) of this section.
    (7) A party authorized pursuant to paragraph (g)(1) of this section 
to generate delayed RINs, and electing to do so, who did not generate 
RINs pursuant to Sec.  80.1426(f)(6) for renewable fuel produced in the 
48 contiguous states plus Hawaii or imported into the 48 contiguous 
states plus Hawaii between July 1, 2010 and the effective date 
(identified pursuant to paragraph (g)(2) of this section) of a new 
pathway for the fuel in question, may generate a number of delayed 
gallon-RINs for that renewable fuel in accordance with paragraph (f) of 
this section.
    (i) The standardized volume of fuel (Vs) used by a party 
to determine the RIN volume (VRIN) under paragraph (f) of 
this section shall be the standardized

[[Page 76829]]

volume of the fuel described in paragraph (g)(1)(i) of this section 
that was produced in the 48 contiguous states plus Hawaii or imported 
into the 48 contiguous states plus Hawaii by the party, and transferred 
to another party, between July 1, 2010 and the earlier of either of the 
following dates:
    (A) The effective date (identified pursuant to paragraph (g)(2) of 
this section) of the new pathway through which the fuel in question was 
produced; or
    (B) December 31, 2011.
    (ii) [Reserved]
    (8) The renewable fuel for which delayed RINs are generated must be 
described by a pathway that satisfies the requirements of paragraph 
(g)(1) of this section.
    (9) All delayed RINs generated by a renewable fuel producer or 
importer must be generated within EMTS on the same date.
    (10) The generation year of delayed RINs as designated in EMTS 
shall be the year that the renewable fuel volumes they represent were 
either produced or imported into the 48 contiguous states plus Hawaii.
    (i) For renewable fuel volumes produced or imported in 2010, the 
generation year of delayed RINs shall be 2010 and the production date 
specified in EMTS shall be 07/01/2010.
    (ii) For renewable fuel volumes produced or imported in 2011, the 
generation year of delayed RINs shall be 2011 and the production date 
specified in EMTS shall be 01/01/2011.
    (11) Delayed RINs shall be generated as assigned RINs in EMTS with 
a batch number that begins with ``DRN'', and then immediately separated 
by the RIN generator.
    (12) The D code that shall be used in delayed RINs shall be the D 
code which corresponds to the new pathway.
    (13) Except as provided in this paragraph (g), all other provisions 
in this Subpart M that pertain to the identification of fuels for which 
RINs may be generated, the generation and use of RINs, and 
recordkeeping and reporting, are also applicable to delayed RINs.

0
4. Section 80.1454 is amended as follows:
0
a. By revising paragraph (g) introductory text.
0
b. By revising paragraph (g)(1).
0
c. By revising paragraph (g)(2) introductory text.

Sec.  80.1454  What are the recordkeeping requirements under the RFS 
Program?

* * * * *
    (g) Aggregate compliance with renewable biomass requirement. Any 
producer or RIN-generating importer of renewable fuel made from planted 
crops or crop residue from existing U.S. agricultural land as defined 
in Sec.  80.1401, or from planted crops or crop residue from existing 
agricultural land in a country covered by a petition approved pursuant 
to Sec.  80.1457, is covered by the aggregate compliance approach and 
is not subject to the recordkeeping requirements for planted crops and 
crop residue at Sec.  80.1454(g)(2) unless EPA publishes a finding that 
the 2007 baseline amount of agricultural land in the U.S. has been 
exceeded or, for the aggregate compliance approach in a foreign 
country, that the withdrawal of EPA approval of the aggregate 
compliance approach is warranted pursuant to Sec.  80.1457(e).
    (1) EPA will make findings concerning whether the 2007 baseline 
amount of agricultural land in the U.S. or other country covered by a 
petition approved pursuant to Sec.  80.1457 has been exceeded and will 
publish these findings in the Federal Register by November 30 of the 
year preceding the compliance period.
    (2) If EPA finds that the 2007 baseline amount of agricultural land 
in the U.S. or other country covered by a petition approved pursuant to 
Sec.  80.1457 has been exceeded, beginning on the first day of July of 
the compliance period in question any producer or RIN-generating 
importer of renewable fuel made from planted crops or crop residue in 
the country for which such a finding is made must keep all the 
following records:
* * * * *

0
5. Section 80.1457 is added to read as follows:

Sec.  80.1457  Petition process for aggregate compliance approach for 
foreign countries.

    (a) EPA may approve a petition for application of the aggregate 
compliance approach to planted crops and crop residue from existing 
agricultural land in a foreign country if EPA determines that an 
aggregate compliance approach will provide reasonable assurance that 
planted crops and crop residue from the country in question meet the 
definition of renewable biomass and will continue to meet the 
definition of renewable biomass, based on the submission of credible, 
reliable, and verifiable data.
    (1) As part of its evaluation, EPA will consider all of the 
following:
    (i) Whether there has been a reasonable identification of the 
``2007 baseline area of land,'' defined as the total amount of 
cropland, pastureland, and land that is equivalent to U.S. Conservation 
Reserve Program land in the country in question that was actively 
managed or fallow and nonforested on December 19, 2007.
    (ii) Whether information on the total amount of cropland, 
pastureland, and land that is equivalent to U.S. Conservation Reserve 
Program land in the country in question for years preceding and 
following calendar year 2007 shows that the 2007 baseline area of land 
identified in paragraph (a)(1)(i) of this section is not likely to be 
exceeded in the future.
    (iii) Whether economic considerations, legal constraints, 
historical land use and agricultural practices and other factors show 
that it is likely that producers of planted crops and crop residue will 
continue to use agricultural land within the 2007 baseline area of land 
identified in paragraph (a)(1)(i) of this section into the future, as 
opposed to clearing and cultivating land not included in the 2007 
baseline area of land.
    (iv) Whether there is a reliable method to evaluate on an annual 
basis whether the 2007 baseline area of land identified in paragraph 
(a)(1)(i) of this section is being or has been exceeded.
    (v) Whether a credible and reliable entity has been identified to 
conduct data gathering and analysis, including annual identification of 
the aggregate amount of cropland, pastureland, and land that is 
equivalent to U.S. Conservation Reserve Program land, needed for the 
annual EPA evaluation specified in Sec.  80.1454(g)(1), and whether the 
data, analyses, and methodologies are publicly available.
    (2) [Reserved]
    (b) Any petition and all supporting materials submitted under 
paragraph (a) of this section must be submitted both in English and its 
original language (if other than English), and must include all of the 
following or an explanation of why it is not needed for EPA to consider 
the petition:
    (1) Maps or electronic data identifying the boundaries of the land 
for which the petitioner seeks approval of an aggregate compliance 
approach.
    (2) The total amount of land that is cropland, pastureland, or land 
equivalent to U.S. Conservation Reserve Program land within the 
geographic boundaries specified in paragraph (b)(1) of this section 
that was cleared or cultivated prior to December 19, 2007 and that was 
actively managed or fallow and nonforested on that date, and
    (3) Land use data that demonstrates that the land identified in 
paragraph (b)(1) of this section is cropland, pastureland or land 
equivalent to U.S. Conservation Reserve Program land that was cleared 
or cultivated prior to December 19, 2007, and that was

[[Page 76830]]

actively managed or fallow and nonforested on that date, which may 
include any of the following:
    (i) Satellite imagery or data.
    (ii) Aerial photography.
    (iii) Census data.
    (iv) Agricultural survey data.
    (v) Agricultural economic modeling data.
    (4) Historical land use data for the land within the geographic 
boundaries specified in paragraph (b)(1) of this section to the current 
year, which may include any of the following:
    (i) Satellite imagery or data.
    (ii) Aerial photography.
    (iii) Census data.
    (iv) Agricultural surveys.
    (v) Agricultural economic modeling data.
    (5) A description of any applicable laws, agricultural practices, 
economic considerations, or other relevant factors that had or may have 
an effect on the use of agricultural land within the geographic 
boundaries specified in paragraph (b)(1) of this section, including 
information regarding the efficacy and enforcement of relevant laws and 
regulations.
    (6) A plan describing how the petitioner will identify a credible 
and reliable entity who will, on a continuing basis, conduct data 
gathering, analysis, and submittal to assist EPA in making an annual 
determination of whether the criteria specified in paragraph (a) of 
this section remains satisfied.
    (7) A letter, signed by a national government representative at the 
ministerial level or equivalent, confirming that the petition and all 
supporting data have been reviewed and verified by the ministry (or 
ministries) or department(s) of the national government with primary 
expertise in agricultural land use patterns, practices, data, and 
statistics, that the data support a finding that planted crops and crop 
residue from the specified country meet the definition of renewable 
biomass and will continue to meet the definition of renewable biomass, 
and that the responsible national government ministry (or ministries) 
or department(s) will review and verify the data submitted on an annual 
basis to facilitate EPA's annual evaluation of the 2007 baseline area 
of land specified in Sec.  80.1454(g)(1) for the country in question.
    (8) Any additional information the Administrator may require.
    (c) EPA will issue a Federal Register notice informing the public 
of receipt of any petition submitted pursuant to this section and will 
provide a 60-day period for public comment. If EPA approves a petition 
it will issue a Federal Register notice announcing its decision and 
specifying an effective date for the application of the aggregate 
compliance approach to planted crops and crop residue from the country. 
Thereafter, the planted crops and crop residue from the country will be 
covered by the aggregate compliance approach set forth in Sec.  
80.1454(g), or as otherwise specified pursuant to paragraph (d) of this 
section.
    (d) If EPA grants a petition to establish an aggregate compliance 
approach for planted crops and crop residue from a foreign country, it 
may include any conditions that EPA considers appropriate in light of 
the conditions and circumstances involved.
    (e)(1) EPA may withdraw its approval of the aggregate compliance 
approach for the planted crops and crop residue from the country in 
question if:
    (i) EPA determines that the data submitted pursuant to the plan 
described in paragraph (b)(6) of this section does not demonstrate that 
the amount of cropland, pastureland and land equivalent to U.S. 
Conservation Reserve Program land within the geographic boundaries 
covered by the approved petition does not exceed the 2007 baseline area 
of land;
    (ii) EPA determines based on other information that the criteria 
specified in paragraph (a) of this section is no longer satisfied; or
    (iii) EPA determines that the data needed for its annual evaluation 
has not been collected and submitted in a timely and appropriate 
manner.
    (2) If EPA withdraws its approval for a given country, then 
producers using planted crops or crop residue from that country will be 
subject to the individual recordkeeping and reporting requirements of 
Sec.  80.1454(b) through (d) in accordance with the schedule specified 
in Sec.  80.1454(g).

[FR Doc. 2010-30296 Filed 12-8-10; 8:45 am]
BILLING CODE 6560-50-P
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