```

[Federal Register Volume 80, Number 111 (Wednesday, June 10, 2015)]
[Proposed Rules]
[Pages 33099-33153]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-13956]

[[Page 33099]]

Vol. 80

Wednesday,

No. 111

June 10, 2015

Part III

Environmental Protection Agency

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 Animal and Plant Health Inspection Service

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40 CFR Part 80

Renewable Fuel Standard Program: Standards for 2014, 2015, and 2016 and 
Biomass-Based Diesel Volume for 2017; Proposed Rule

Federal Register / Vol. 80 , No. 111 / Wednesday, June 10, 2015 / 
Proposed Rules

[[Page 33100]]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2015-0111; FRL-9927-28-OAR]
RIN 2060-AS22

Renewable Fuel Standard Program: Standards for 2014, 2015, and 
2016 and Biomass-Based Diesel Volume for 2017

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: Under section 211 of the Clean Air Act, the Environmental 
Protection Agency (EPA) is required to set renewable fuel percentage 
standards every year. This action proposes annual percentage standards 
for cellulosic biofuel, biomass-based diesel, advanced biofuel, and 
total renewable fuel that apply to all motor vehicle gasoline and 
diesel produced or imported in the years 2014, 2015, and 2016. The EPA 
is establishing a cellulosic biofuel volume for all three years that is 
below the applicable volume specified in the Act, and is also proposing 
to rescind the cellulosic biofuel standard for 2011. Relying on 
statutory waiver authorities, the EPA is proposing to adjust the 
applicable volumes of advanced biofuel and total renewable fuel for all 
three years. The 2015 and 2016 proposed standards are expected to spur 
further progress in overcoming current constraints in renewable fuel 
distribution infrastructure, which in turn is expected to lead to 
substantial growth over time in the production and use of higher-level 
ethanol blends and other qualifying renewable fuels. In this action, we 
are also proposing the applicable volume of biomass-based diesel for 
2014, 2015, 2016, and 2017. Finally, we are proposing compliance and 
attest reporting deadlines for the years 2013, 2014, and 2015, as well 
as proposing regulatory amendments to clarify the scope of the existing 
algal biofuel pathway.

DATES: Comments must be received on or before July 27, 2015.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-
OAR-2015-0111, to the Federal eRulemaking Portal: http://www.regulations.gov. Follow the online instructions for submitting 
comments. Once submitted, comments cannot be edited or withdrawn. The 
EPA may publish any comment received to its public docket. Do not 
submit electronically any information you consider to be Confidential 
Business Information (CBI) or other information whose disclosure is 
restricted by statute. If you need to include CBI as part of your 
comment, please visit http://www.epa.gov/dockets/comments.html for 
instructions. Multimedia submissions (audio, video, etc.) must be 
accompanied by a written comment. The written comment is considered the 
official comment and should include discussion of all points you wish 
to make.
    For additional submission methods, the full EPA public comment 
policy, and general guidance on making effective comments, please visit 
http://www.epa.gov/dockets/comments.html.

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; email address: 
macallister.julia@epa.gov.

SUPPLEMENTARY INFORMATION:

I. General Information

A. Does this action apply to me?

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

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                                          NAICS \1\
               Category                     Codes       SIC \2\ Codes                      Examples of potentially regulated entities
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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.............................          221210            4925  Manufactured gas production and distribution.
Industry.............................          454319            5989  Other fuel dealers.
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\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 
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 would 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 FOR FURTHER INFORMATION 
CONTACT section.

Outline of This Preamble

I. Executive Summary
    A. Purpose of This Action
    B. Summary of Major Provisions in This Action
    1. Proposed Approach to Setting Standards for 2014, 2015, and 
2016
    2. Advanced Biofuel and Total Renewable Fuel
    3. Biomass-Based Diesel
    4. Cellulosic Biofuel
    5. Annual Percentage Standards
    6. Response to Requests for a Waiver of the 2014 Standards
    7. Proposed Changes to Regulations
    C. Authority for Late Action and Applicability of the Standards
    D. Outlook for 2017 and Beyond
II. Proposed Advanced Biofuel and Total Renewable Fuel Volumes for 
2014-2016
    A. Statutory Authorities for Reducing Volumes To Address 
Renewable Fuel Availability and the E10 Blendwall
    1. Cellulosic Waiver Authority
    2. General Waiver Authority
    3. Assessment of Past Versus Future Supply
    4. Combining Authorities for Reductions in Total Renewable Fuel
    5. Inability of the Market To Reach Statutory Volumes
    B. Overview of Approach To Determining Volume Requirements
    1. Fulfilling Congressional Intent To Increase Use of Renewable 
Fuels

[[Page 33101]]

    2. RFS Program Mechanisms and Their Role in Supporting Growth in 
Renewable Fuel Use
    3. Current and Future Shortfalls in Supply
    C. Proposed Volume Requirements
    1. 2014
    2. 2015
    3. 2016
    D. Market Response To Proposed Volume Requirements for 2016
    1. E10 Blendwall
    2. Volume Scenarios
    E. Treatment of Carryover RINs
    F. Impacts of Proposed Standards on Costs
III. Proposed Biomass-Based Diesel Volumes for 2014-2017
    A. Statutory Requirements.
    B. BBD Production and Compliance in Previous Years
    C. Applicable Volume of Biomass-Based Diesel for 2014
    D. Determination of Applicable Volume of Biomass-Based Diesel 
for 2015-2017
    1. Implication of Nested Standards
    2. Biomass-Based Diesel as a Fraction of Advanced Biofuel
    3. Ensuring Growth in Biomass-Based Diesel and Other Advanced 
Biofuel
    4. Proposed Volumes for 2015-2017
    E. Consideration of Statutory Factors for 2014-2017
    1. Primary and Supplementary Statutory Factors Assessment for 
2015-2017 Biomass-Based Diesel Applicable Volumes
    2. Assessment for 2014 Biomass-Based Diesel Applicable Volume
IV. Proposed Cellulosic Biofuel Volume for 2014-2016
    A. Statutory Requirements
    B. Cellulosic Biofuel Industry Assessment
    1. Potential Domestic Producers
    2. Potential Foreign Sources of Cellulosic Biofuel
    3. Summary of Volume Projections for Individual Companies
    C. Cellulosic Biofuel Volume for 2014
    D. Cellulosic Biofuel Volume for 2015
    E. Cellulosic Biofuel Volume for 2016
    F. Rescission of the 2011 Cellulosic Biofuel Standards
V. Percentage Standards
    A. Background
    B. Calculation of Standards
    1. How are the standards calculated?
    2. Small Refineries and Small Refiners
    3. Proposed Standards
VI. Proposed Amendments to Regulations
    A. Proposed Changes to the Algal Biofuel Pathways
    B. Annual Compliance Reporting and Attest Engagement Deadlines 
Under the RFS Program
VII. Public Participation
    A. How do I submit comments?
    B. How should I submit CBI to the Agency?
VIII. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and Review and 
Executive Order 13563: Improving Regulation and Regulatory Review
    B. Paperwork Reduction Act (PRA)
    C. Regulatory Flexibility Act (RFA)
    D. Unfunded Mandates Reform Act (UMRA)
    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 and Advancement Act (NTTAA)
    J. Executive Order 12898: Federal Actions To Address 
Environmental Justice in Minority Populations, and Low-Income 
Populations
IX. Statutory Authority

I. Executive Summary

    The Renewable Fuel Standard (RFS) program began in 2006 pursuant to 
the requirements in Clean Air Act (CAA) section 211(o) that were added 
through 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 major revisions to the regulatory requirements on March 
26, 2010.1 2 Since the initial promulgation of the RFS 
program regulations in 2007, domestic production and use of renewable 
fuel volumes in the U.S. has increased substantially. According to the 
Energy Information Administration (EIA), fuel ethanol production in the 
U.S. doubled in volume from approximately 6.5 billion gallons in 2007 
to about 14.3 billion gallons in 2014.\3\ Growth in biodiesel and 
renewable diesel production in the U.S. has increased more than two and 
a half times, from approximately 0.5 billion gallons in 2007 to 1.46 
billion gallons in 2014.\4\ Today, nearly all of the approximately 138 
billion gallons of gasoline used for transportation purposes contains 
10 percent ethanol (E10).
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    \1\ 75 FR 14670, March 26, 2010.
    \2\ A full description of the statutory basis of the RFS program 
and EPA's actions to develop and implement the regulatory program 
are provided in a memorandum to the docket. See, ``Statutory basis 
of the RFS program and development of the regulatory program,'' 
memorandum from Madison Le to EPA docket EPA-HQ-OAR-2015-0111.
    \3\ EIA's Monthly Energy Review, April 21015, Table 10.3.
    \4\ 2007 volume represents biodiesel only, from EIA's Monthly 
Energy Review, April 2015, Table 10.4. 2014 volume represents 
biodiesel and renewable diesel production from EMTS.
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    The fundamental objective of the RFS provisions under the Clean Air 
Act is clear: To increase the use of renewable fuels in the U.S. 
transportation system every year through at least 2022. These fuels 
include corn starch ethanol, the predominant biofuel in use to date, 
but Congress envisioned the majority of growth over time to come from 
advanced biofuels as the non-advanced (conventional) volumes remain 
constant starting in 2015 while the advanced volumes continue to grow. 
Advanced biofuels are required to have lower greenhouse gas (GHG) 
emissions on a lifecycle basis than conventional biofuels. Increased 
use of renewable fuels means less use of fossil fuels, which results in 
lower GHG emissions over time as advanced biofuel production and use 
becomes more commonplace. By aiming to diversify the country's fuel 
supply, Congress also intended to increase the nation's energy 
security. Renewable fuels represent an opportunity for the U.S. to move 
away from fossil fuels towards a set of lower GHG transportation fuels, 
and a chance for a still-developing low GHG technology sector to grow.
    The law establishes annual volume targets,\5\ and requires EPA to 
translate those volume targets (or alternative volume requirements 
established by EPA in accordance with statutory waiver authorities) 
into compliance obligations that refiners and importers must meet every 
year. Over the past few years, we have seen analysis concluding that 
the ambitious statutory targets in the Clean Air Act exceed real world 
conditions.\6\ Despite significant efforts by the U.S. Departments of 
Agriculture (USDA) and Energy (DOE) to promote the use of renewable 
fuels, real-world limitations, such as the slower than expected 
development of the cellulosic biofuel industry, less growth in gasoline 
use than was expected when Congress enacted these provisions in 2007, 
and constraints in supplying certain biofuels to consumers, have made 
the timeline laid out by Congress extremely difficult to achieve. These 
challenges remain, even as we recognize the success of the program over 
the past decade in boosting renewable fuel use, and the recent 
significant signs of progress towards development of increasing volumes 
of advanced, low-emitting GHG fuels, including cellulosic biofuels and 
``drop-in'' biofuels (those that are made from renewable sources but 
are otherwise essentially indistinguishable from the fossil-based fuels 
they displace).
---------------------------------------------------------------------------

    \5\ CAA 211(o)(2)(B).
    \6\ See, for example, ``Renewable Fuel Standard Potential 
Economic and Environmental Effects of U.S. Biofuel Policy (2011),'' 
National Research Council.
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    And so the challenge EPA faces in developing this proposal is 
increasing renewable fuels over time to address climate change and 
increase energy security while also accounting for the

[[Page 33102]]

real-world limitations that have slowed progress towards such goals, 
and that have made the volume targets established by Congress for 2014, 
2015, and 2016 effectively beyond reach. This proposal attempts to find 
an approach that achieves these objectives.
    We believe that the RFS program can drive renewable fuel use, and 
that it is appropriate to consider the ability of the market to respond 
to the standards we set when we assess the amount of renewable fuel 
consumption that can be achieved. While we are proposing to use the 
tools Congress provided to make adjustments to the law's volume targets 
in recognition of the constraints that exist today, we are proposing 
standards for 2015 and 2016 that will drive growth in renewable fuels, 
particularly those fuels that are required to achieve the lowest 
lifecycle GHG emissions. We believe that over time use of both higher 
ethanol blends and non-ethanol biofuels can and will increase, 
consistent with Congress' intent in enacting EPAct and EISA. In our 
view, while Congress recognized that supply challenges may exist as 
evidenced by the various waiver provisions, it did not intend growth in 
the renewable fuels market to be ultimately prevented by those 
challenges, including such constraints as the ``E10 blendwall'' \7\ or 
demand for gasoline or diesel. The fact that Congress chose to mandate 
increasing and substantial amounts of renewable fuel clearly signals 
that it intended the RFS program to create incentives to increase 
renewable fuel supplies and overcome limitations in the market. The 
standards we are proposing are forward-leaning and reflect those 
incentives.
---------------------------------------------------------------------------

    \7\ The ``E10 blendwall'' represents the volume of ethanol that 
can be consumed domestically if all gasoline contains 10% ethanol 
and there are no higher-level ethanol blends consumed such as E15 or 
E85.
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    The proposed volume requirements would push the fuels sector to 
produce and blend more renewable fuels in 2015 and 2016 in a manner 
that is consistent with the goals Congress envisioned. The proposed 
volumes are less than the statutory targets for 2015 and 2016 but 
higher than what the market would produce and use in the absence of 
such market-driving standards. The 2015 and 2016 standards are expected 
to spur further progress in overcoming current constraints and lead to 
continued growth in the production and use of higher ethanol blends and 
other qualifying renewable fuels. In this regard the proposed standards 
are intended to fulfill the spirit and intent of Congress and provide 
guidance to market participants. Once finalized, this rule would put 
renewable fuel production and use on a path of steady, ambitious 
growth.
    This proposal comes during a period of transition for the RFS 
program. In the program's early years, compliance with the advanced 
biofuel and total renewable volume requirements could be readily 
achieved in large part by blending increasing amounts of ethanol into 
gasoline and biodiesel into diesel fuel. As the program progresses, 
however, significantly increasing renewable fuel volumes will require 
pushing beyond current constraints on blending more ethanol into 
gasoline and will require sustained growth in the development and use 
of advanced, non-ethanol renewable fuels, including drop-in renewable 
fuels. This proposed rule acknowledges this transition by proposing 
volume requirements based not only on the volumes of renewable fuels 
that have already been achieved in 2014 and the first part of 2015, but 
also on the additional volumes that can be supplied later in 2015 and 
in 2016 as the market addresses infrastructure and other constraints. 
Our proposal includes volumes of renewable fuel that will require 
either ethanol use at levels significantly beyond the level of the E10 
blendwall, or significantly greater use of non-ethanol renewable fuels 
than has occurred to date, depending on how the market responds to the 
standards we set. The standards we are proposing for 2015 and 2016 in 
particular would drive growth in renewable fuels by providing 
appropriate incentives to overcome current constraints and challenges 
to further the goals of Congress in establishing the RFS program. The 
approach we propose taking for 2015 and 2016 is forward-looking and 
consistent with the purpose of the statute to significantly increase 
the amount of renewable fuel used as transportation fuel over time, 
particularly renewable fuels with the lowest lifecycle GHG emissions, 
in the transportation fuel supply.
    Since the amount of renewable fuel that can be produced and 
imported is larger than the volume that can be consumed due to overall 
demand for transportation fuel and constraints on supply to vehicles 
and engines, there is necessarily competition among biofuels for retail 
consumption in the United States. In this proposed rule we have worked 
to achieve an appropriate and reasonable balance between setting volume 
requirements that would provide support for biofuels that are more 
established, while also providing opportunities under those volume 
requirements for emerging biofuels. The approach we have used to 
determine the proposed volumes is consistent with Congressional intent 
in establishing the RFS program in that it provides an opportunity for 
a diverse array of renewable fuel types to be used for compliance. 
Competition is good for obligated parties and consumers, as it permits 
the market to determine the most efficient, lowest cost, best 
performing fuels for meeting the increasingly higher volume 
requirements anticipated year to year under the program. However, it is 
also important to provide support to existing successful biofuels and 
to provide incentives for those fuels, especially advanced biofuels 
that produce the greatest reductions in greenhouse gases. As discussed 
in Section III, we are proposing that the specific volume requirement 
for biomass-based diesel (BBD) should be increased over 2013 levels 
through 2017 to provide additional support for that industry in a way 
that furthers the statutory goal of increasing the use of renewable 
fuel and reducing lifecycle GHGs. At the same time, the increase in the 
required BBD volume that we are proposing still leaves a substantial 
volume under the advanced biofuel standard open for competition among 
all qualifying advanced biofuels.
    We recognize that our delay in issuing standards for 2014 and 2015 
has created additional uncertainty in the marketplace. We are committed 
to returning our standard-setting process to the statutory schedule, to 
provide the certainty that will allow the biofuels sector and the RFS 
program to succeed. The first step in providing this certainty is 
finalizing the volume requirements for 2014, 2015, and 2016 by November 
30, 2015. For 2014, the compliance year is now over, and any standard 
EPA sets for 2014 can no longer influence renewable fuel production or 
use in that year. This is a significant change in circumstances from 
those at the time of the November 2013 proposal for volume requirements 
that would have applied in 2014. Therefore, we are issuing this new 
proposal for 2014 that reflects late issuance of the rule and those 
volumes of renewable fuel that were actually used in 2014. Details 
regarding how we calculated such ``actual'' volumes used in 2014 for 
purposes of this proposal are discussed in Section II.C.1 below. For 
2015, our proposed approach combines a consideration of those volumes 
of renewable fuel that were actually used in the past with a forward-
leaning approach for the future that is intended to promote renewable 
fuel use. For 2016, our approach to determining the volumes to propose 
is, as discussed, forward-leaning and consistent with the

[[Page 33103]]

statute's intent to promote growth in renewable fuel use over time.
    This proposal represents EPA's commitment to continued support for 
steady growth in renewable fuel use. However, we recognize that the RFS 
standards are only one element among many that factor into the success 
of renewable fuel development and use over time. The standards that EPA 
sets each year are an important part of the overall picture, but this 
program is complemented and supported by programs managed by the U.S. 
Departments of Agriculture (USDA) and Energy (DOE), as well as myriad 
efforts and initiatives at the regional and local level and within the 
private sector. DOE has invested considerable resources to help deploy 
the advanced technologies needed to achieve the statutory aims of lower 
carbon fuels, and DOE has leveraged several billion dollars more in 
private support for development of advanced renewable fuels. USDA's 
Biorefinery Assistance Program has provided loan guarantees for the 
development and construction of commercial scale biorefineries with a 
number of the new projects focused on producing fuels other than 
ethanol. Greater GHG benefits are expected to be realized as the 
production and use of advanced biofuels accelerates, and the volume 
requirements that we are proposing support this goal.

A. Purpose of This Action

    The national volume targets of renewable fuel that are intended to 
be achieved under the RFS program each year (absent an adjustment or 
waiver by EPA) are specified in CAA section 211(o)(2). The statutory 
volumes for 2014, 2015, and 2016 are shown in Table I.A-1. The 
cellulosic biofuel and BBD categories are nested within the advanced 
biofuel category, which is itself nested within the total renewable 
fuel category. This means, for example, that each gallon of cellulosic 
biofuel or BBD that is used to satisfy the individual volume 
requirements for those fuel types can also be used to satisfy the 
requirements for advanced biofuel and renewable fuel.

     Table I.A-1--Applicable Volumes Specified in the Clean Air Act
                [Billion ethanol-equivalent gallons] \a\
------------------------------------------------------------------------
                                                   2014    2015    2016
------------------------------------------------------------------------
Cellulosic biofuel..............................    1.75     3.0    4.25
Biomass-based diesel............................   >=1.0   >=1.0   >=1.0
Advanced biofuel................................    3.75     5.5    7.25
Renewable fuel..................................   18.15    20.5   22.25
------------------------------------------------------------------------
\a\ All values are ethanol-equivalent on an energy content basis, except
  values for BBD which are given in actual gallons.

    Under the RFS program, EPA is required to determine and publish 
annual percentage standards for each compliance year. The percentage 
standards are calculated so as to ensure use in transportation fuel of 
the national ``applicable volumes'' of the four types of biofuel 
(cellulosic biofuel, BBD, advanced biofuel, and total renewable fuel) 
that are either set forth in the Clean Air Act or established by EPA in 
accordance with the Act's requirements. The percentage standards are 
used by obligated parties (generally, producers and importers of 
gasoline and diesel fuel) to calculate their individual compliance 
obligations. Each of the four percentage standards is applied to the 
volume of non-renewable gasoline and diesel that each obligated party 
produces or imports during the specified calendar year to determine 
their individual volume obligations with respect to the four renewable 
fuel types.
    EPA is proposing annual applicable volume requirements for 
cellulosic biofuel, advanced biofuel, and total renewable fuel for 
2014, 2015, and 2016, and for BBD for 2014, 2015, 2016, and 2017. Table 
I.A-2 lists the statutory provisions and associated criteria relevant 
to determining the national applicable volumes used to set the 
percentage standards in this proposed rule.
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    \8\ Section 211(o)(7)(E) also authorizes EPA to issue a 
temporary waiver of applicable volumes of BBD where EPA determines 
that there is a significant feedstock disruption or other market 
circumstance that would make the price of BBD fuel increase 
significantly.

                    Table I.A-2--Statutory Provisions for Determination of Applicable Volumes
----------------------------------------------------------------------------------------------------------------
                                                                             Criteria provided in statute for
          Applicable volumes               Clean Air Act  reference         determination of applicable volume
----------------------------------------------------------------------------------------------------------------
Cellulosic biofuel...................  211(o)(7)(D)(i).................  Required volume must be lesser of
                                                                          volume specified in CAA
                                                                          211(o)(2)(B)(i)(III) or EPA's
                                                                          projected volume in coordination with
                                                                          other federal agencies.
                                       211(o)(7)(A)....................  EPA may waive the statutory volume in
                                                                          whole or in part if implementation
                                                                          would severely harm the economy or
                                                                          environment of a State, region, or the
                                                                          United States, or if there is an
                                                                          inadequate domestic supply.
Biomass-based diesel \8\.............  211(o)(2)(B)(ii) and (v)........  Required volume for years after 2012
                                                                          must be at least 1.0 billion gallons,
                                                                          and must be based on a review of
                                                                          implementation of the program,
                                                                          coordination with other federal
                                                                          agencies, and an analysis of specified
                                                                          factors.
                                       211(o)(7)(A)....................  EPA may waive the statutory volume in
                                                                          whole or in part if implementation
                                                                          would severely harm the economy or
                                                                          environment of a State, region, or the
                                                                          United States, or if there is an
                                                                          inadequate domestic supply.
Advanced biofuel.....................  211(o)(7)(D)(i).................  If applicable volume of cellulosic
                                                                          biofuel is reduced below the statutory
                                                                          volume to the projected volume, EPA
                                                                          may reduce the advanced biofuel and
                                                                          total renewable fuel volumes in CAA
                                                                          211(o)(2)(B)(i)(I) and (II) by the
                                                                          same or lesser volume. No criteria
                                                                          specified.
                                       211(o)(7)(A)....................  EPA may waive the statutory volume in
                                                                          whole or in part if implementation
                                                                          would severely harm the economy or
                                                                          environment of a State, region, or the
                                                                          United States, or if there is an
                                                                          inadequate domestic supply.
Total renewable fuel.................  211(o)(7)(D)(i).................  If applicable volume of cellulosic
                                                                          biofuel is reduced below the statutory
                                                                          volume to the projected volume, EPA
                                                                          may reduce the advanced biofuel and
                                                                          total renewable fuel volumes in CAA
                                                                          211(o)(2)(B)(i)(I) and (II) by the
                                                                          same or lesser volume. No criteria
                                                                          specified.
                                       211(o)(7)(A)....................  EPA may waive the statutory volume in
                                                                          whole or in part if implementation
                                                                          would severely harm the economy or
                                                                          environment of a State, region, or the
                                                                          United States, or if there is an
                                                                          inadequate domestic supply.
----------------------------------------------------------------------------------------------------------------

[[Page 33104]]

    In November 2013, we proposed standards for cellulosic biofuel, 
BBD, advanced biofuel, and total renewable fuel for calendar year 
2014.\9\ We received over 340,000 comments representing widely 
diverging views on such topics as opportunities and constraints 
associated with the E10 blendwall, the ability of the market to respond 
to forward-leaning standards, the permissible interpretation of 
statutory waiver authorities, and the intent of Congress. In December 
2014, we published a Federal Register notice in which we noted the 
substantial number of comments and the concerns of commenters, and 
stating that EPA had been evaluating the issues raised in light of the 
purposes of the statute and the Administration's commitment to the 
goals of the statute to increase the use of renewable fuels.\10\ We 
further indicated in that notice that finalization of the 2014 
standards rule had been significantly delayed and that, due to this 
delay and given ongoing consideration of the issues presented by the 
commenters, EPA would not be in a position to finalize the 2014 RFS 
standards before the end of 2014. We concluded that the approach in the 
November 2013 proposal, projecting volume growth into the-then future, 
was not an appropriate way to set standards in late 2014, for a year 
that was largely over. Since the approach we proposed in November 2013 
would need to be substantially modified to reflect the delay in issuing 
the rule and actual renewable fuel use during the earlier part of 2014, 
the action indicated that we intended to finalize the 2014 standards in 
2015.
---------------------------------------------------------------------------

    \9\ 78 FR 71732, November 29, 2013.
    \10\ 79 FR 73007, December 9, 2014.
---------------------------------------------------------------------------

    Not only is 2014 over, but this proposal is being released well 
into 2015. We believe that the standards we set should take these facts 
into account as we make an effort to return to the annual standard-
setting schedule in the statute. Therefore, we plan on finalizing the 
applicable standards for 2014, 2015, and 2016 by November of this year. 
Moreover, the terms of a proposed consent decree to resolve pending 
litigation concerning EPA's failure to establish standards for 2014 and 
2015 by the statutory deadline include a requirement for EPA to 
promulgate final standards for 2014 and 2015 by November 30, 2015.\11\ 
By re-proposing the 2014 standards along with a proposal for the 2015 
and 2016 standards, we are not only able to formulate a proposal for 
public comment that takes into account the fact that 2014 is over and 
the specific approach described in the November 2013 Notice of Proposed 
Rulemaking (NPRM) is no longer applicable, but we can also coordinate 
the proposed treatment of 2014 with the proposed treatment of 2015 
wherein part of the year has likewise already passed. We are therefore 
withdrawing the November 2013 NPRM; this proposal replaces and 
supersedes that earlier proposal. While the many comments we received 
on the November 2013 NPRM informed the development of this proposal, we 
do not intend to specifically respond to comments on the prior 
proposal, and we encourage members of the public to submit new comments 
that are tailored to this new proposal. Given the substantial task 
before the Agency to issue a final rule applicable to three calendar 
years by November 30, 2015, we encourage commenters to submit concise 
comments, and not to re-submit comments submitted on the withdrawn 
proposal except to the extent that they have determined them to be 
relevant under this proposal.
---------------------------------------------------------------------------

    \11\ See American Fuel and Petrochemical Manuf. et al v. EPA 
(No. 15-cv-394, D.D.C.).
---------------------------------------------------------------------------

    As shown in Table I.A-2, the statutory authorities that provide 
direction to EPA for how to modify or set the applicable standards 
differ for the four categories of renewable fuel. Under the statute, 
EPA must annually determine the projected 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 applicable volume used to set the annual cellulosic biofuel 
percentage standard to the projected volume of production during the 
year. In Section IV of this proposed rule, we present our analysis of 
cellulosic biofuel production and proposed volumes for 2014, 2015, and 
2016. This analysis is based on our evaluation of producers' production 
plans and progress to date following discussions with cellulosic 
biofuel producers.
    With regard to BBD, CAA section 211(o)(2)(B) specifies the 
applicable volumes of BBD to be used in the RFS program only through 
year 2012. For subsequent years the statute sets a minimum volume of 1 
billion gallons, and directs EPA to set the required volume after 
consideration of a number of factors. In Section III of this preamble 
we discuss our proposed volume requirements for BBD for 2014, 2015, 
2016, and 2017.
    Regarding advanced biofuel and total renewable fuel, Congress 
provided several mechanisms through which those volumes could be 
reduced if necessary. If we lower the applicable volume of cellulosic 
biofuel below the volume specified in CAA 211(o)(2)(B)(i)(III), we also 
have the authority to reduce the applicable volumes of advanced biofuel 
and total renewable fuel by the same or a lesser amount. We may also 
reduce the applicable volumes of any of the four renewable fuel types 
under the general waiver authority provided at CAA 211(o)(7)(A) if EPA 
finds that implementation of the statutory volumes would severely harm 
the economy or environment of a State, region, or the United States, or 
if there is inadequate domestic supply. Section II of this proposed 
rule describes our intended use of both the cellulosic waiver authority 
and the general waiver authority to reduce volumes of advanced biofuel 
and total renewable fuel to address three important realities:
     Substantial limitations in the supply of cellulosic 
biofuel,
     Insufficient supply of other advanced biofuel to offset 
the shortfall in cellulosic biofuel, and
     Practical and legal constraints on the supply of ethanol 
blends to the vehicles that can use them (in the form of E10, E15, and 
higher level ethanol blends), driven in part by lower gasoline 
consumption than was expected in 2007 when the target statutory volumes 
were established.
    We believe these realities justify the exercise of the authority 
Congress provided us to waive the statutory volumes. At the same time, 
we believe our exercise of the waiver authorities should be consistent 
with the objectives of the statute to grow renewable fuel use over 
time. We are proposing to use the waiver authorities to derive 
applicable volumes that reflect the maximum volumes that can reasonably 
be expected to be produced and consumed. Thus, while the standards that 
we set must be achievable, we believe that they must also reflect the 
power of the market to respond to the standards we set to drive 
positive change in renewable fuel production and use.
    We are proposing to exercise our authority to reduce volumes of 
advanced biofuel and total renewable fuel only to the extent necessary 
to remove the inadequacy in supply. That is, our objective in 
exercising the general waiver authority is to set the volume 
requirements at the boundary between an adequate domestic supply and an 
inadequate domestic supply.\12\ One way of expressing this

[[Page 33105]]

objective is to say we are seeking to determine the maximum volumes of 
renewable fuel that can be expected to be achieved in light of supply 
constraints. This is a very challenging task not only in light of the 
myriad complexities of the fuels market and how individual aspects of 
the industry might change in the future, but also because we cannot 
precisely predict how the market will respond to the volume-driving 
provisions of the RFS program. Thus the determination of the maximum 
achievable volumes is one that we believe necessarily involves 
considerable exercise of judgment. To this end, we are proposing 
``maximum achievable'' volumes of advanced biofuel and total renewable 
fuel in this package that reflect our judgment as to where the boundary 
between adequate domestic supply and inadequate domestic supply might 
fall, particularly for 2015 and 2016.
---------------------------------------------------------------------------

    \12\ As discussed in Section II.A, EPA has considerable 
discretion in exercising the cellulosic waiver authority, and is not 
constrained to consider any particular factor or list of factors in 
doing so. Nevertheless, EPA is proposing to base its exercise of the 
cellulosic waiver authority on the same general considerations 
justifying its use of the general waiver authority--availability of 
renewable fuel and the legal and practical constraints on their 
supply to vehicles and other qualifying uses. We invite comment on 
this approach.
---------------------------------------------------------------------------

    On the basis of the authorities provided in the statute, we have 
evaluated the supply of qualifying advanced biofuel and total renewable 
fuels in light of the three limitations described above and other 
relevant factors. Based on this evaluation, and after consultation with 
the Departments of Agriculture and Energy, we believe that adjustments 
to the statutory volumes of advanced biofuel and total renewable fuel 
are warranted for 2014, 2015, and 2016. The proposed volumes for 
advanced biofuel and total renewable fuel for 2015 and 2016 would lead 
to growth in supply beyond 2014 based on the expectation that the 
market can and will respond to the standards we set. Similarly, we are 
proposing growth in the required volume of BBD in such a way that both 
the biodiesel market and other advanced biofuels would grow.\13\ The 
volumes that we are proposing for 2014, 2015, and 2016 are shown below.
---------------------------------------------------------------------------

    \13\ In addition to the volume requirements shown in Table I.A-3 
for 2014, 2015, and 2016 for all four categories of renewable fuel, 
this action also proposes a volume requirement of 1.9 billion 
gallons for BBD in 2017.

              Table I.A-3--Proposed Volume Requirements \a\
------------------------------------------------------------------------
                                                  2014    2015     2016
------------------------------------------------------------------------
Cellulosic biofuel (million gallons)...........  33      106      206
Biomass-based diesel (billion gallons).........   1.63     1.70     1.80
Advanced biofuel (billion gallons).............   2.68     2.90     3.40
Renewable fuel (billion gallons)...............  15.93    16.30    17.40
------------------------------------------------------------------------
\a\ All values are ethanol-equivalent on an energy content basis, except
  for BBD which is biodiesel-equivalent.

B. Summary of Major Provisions in This Action

    This section briefly summarizes the major provisions of this 
proposal. We are proposing applicable volume requirements for 
cellulosic biofuel, BBD, advanced biofuel, and total renewable fuel for 
2014, 2015, and 2016, as well as the applicable volume requirement for 
BBD for 2017. The following sub-section summarizes our approach to 
determining the proposed requirements. This action also includes a 
proposed response to several requests we received in 2013 for a waiver 
of the 2014 standards. We are also proposing an amendment to the 
regulations designed to clarify the scope of the algal biofuel pathway. 
Finally, we are proposing new deadlines for annual compliance reporting 
and attest reporting for the 2013, 2014 and 2015 compliance years.
1. Proposed Approach To Setting Standards for 2014, 2015, and 2016
    Because 2014 has passed, the final rule cannot alter the volumes of 
renewable fuel produced and consumed during 2014. We believe it is 
appropriate, therefore, that the standards we establish for 2014 
reflect the actual supply in 2014. Similarly, this rulemaking can only 
have a partial impact on the volumes of renewable fuel produced and 
consumed in 2015. Although we believe that the standards we set for 
advanced biofuel and total renewable fuel must be ambitious to be 
consistent with the intent of Congress in establishing the RFS program, 
we also recognize that the standards we set cannot affect the past. 
Therefore, in this action we are proposing to base the applicable 
volume requirements for 2014 on actual renewable fuel use, as 
determined by data on the number of Renewable Identification Numbers 
(RINs) generated from the EPA-Moderated Transaction System (EMTS), 
minus the number of RINs retired to account for renewable fuel export 
as reported by the Energy Information Administration (EIA) or retired 
for other purposes unrelated to demonstrating compliance with the 
annual standards as reported through EMTS.\14\ While this approach 
would result in exactly the number of 2014 RINs available for 
compliance that would be needed for compliance with the 2014 standards, 
we recognize that it does not guarantee that every individual obligated 
party will have the exact number of 2014 RINs needed for compliance 
with its individual RVOs. Thus there may be some costs associated with 
the reallocation of 2014 RINs to those obligated parties that need 
them. However, such disproportionate RIN holdings can occur in any 
year. We do not believe it would be appropriate to exercise our waiver 
authority to reduce the 2014 standards below the number of 2014 RINs 
available for compliance. Rather, we believe that we should rely on the 
market to sort out the distribution of RINs among obligated parties.
---------------------------------------------------------------------------

    \14\ A RIN is a unique number generated by the producer and 
assigned to each gallon of a qualifying renewable fuel under the RFS 
program, and is used by refiners and importers to demonstrate 
compliance with the volume requirements under the program. RINs may 
be retired for a number of reasons, including to account for 
renewable fuel spills or to correct for RIN generation errors.
---------------------------------------------------------------------------

    Similarly for 2015, we are proposing to account for the fact that 
the final standards will be limited in their ability to affect supply 
prior to the final rule. For 2016, our proposed volume requirements are 
based on the expectation that the entire calendar year will be 
available for obligated parties and the fuels markets to plan for and 
come into compliance.
    We are proposing the same approach to assessing past supply in the 
standard-setting process for all four renewable fuel categories. 
However, we are proposing that projections of supply for months after 
issuance of the NPRM would be determined differently for the four 
renewable fuel categories. For advanced biofuel and total renewable 
fuel, assessment of future supply would simultaneously reflect the 
statute's purpose to drive growth in renewable fuels, while also 
accounting for constraints in the market that make the volumes 
specified in the statute beyond reach, as described more fully in 
Section II. For the BBD standard, growth would be based on an analysis 
of a set of factors stipulated in CAA 211(o)(2)(B)(ii), as described in 
more detail in Section III. Finally, as described in Section IV, the 
applicable volume of cellulosic biofuel would be based on a projection 
of production that reflects a neutral aim at accuracy as

[[Page 33106]]

required by the United States Court of Appeals for the District of 
Columbia Circuit in API v. EPA, 706 F.3d 474 (January 25, 2013).
2. Advanced Biofuel and Total Renewable Fuel
    Since the EISA-amended RFS program began in 2010, we have reduced 
the applicable volume of cellulosic biofuel each year in the context of 
our annual RFS standards rulemakings to the projected production 
levels, and we have considered whether to also reduce the advanced 
biofuel and total renewable fuel statutory volumes pursuant to the 
waiver authority in section 211(o)(7)(D)(i). In the past we have 
focused primarily on the availability of advanced biofuels in 
determining whether reductions in the required volume of cellulosic 
biofuel should be accompanied by reductions in the required volumes of 
advanced biofuel and total renewable fuel. The total volume of 
renewable fuel in the form of ethanol that could realistically be 
supplied to vehicles as either E10 or higher ethanol blends given 
various constraints was not a limiting factor in the standard-setting 
process in prior years. Furthermore, the availability of non-cellulosic 
advanced biofuels was determined to be sufficient to overcome the 
shortfall in cellulosic biofuel. However, for 2014 and later years, 
neither of these two factors remains true, and as a result we are 
proposing reductions for these categories of renewable fuel for 2014, 
2015, and 2016 using the waiver authorities provided in CAA 211(o)(7).
    Our determination in this proposal that the required volumes of 
advanced biofuel and total renewable fuel should be reduced from the 
statutory targets is based on a consideration of the ability of the 
market to supply such fuels through domestic production or import and 
the ability of available renewable fuels to be used as transportation 
fuel, heating oil, or jet fuel.\15\ For example, the potential use of 
renewable fuels as transportation fuel, heating oil, or jet fuel 
depends in part on the infrastructure available for distributing, 
blending, and dispensing renewable fuels, as well as the vehicles in 
the fleet capable of consuming various renewable fuels. As described in 
more detail in Section II.A, we believe that the availability of 
qualifying renewable fuels and constraints on their supply to vehicles 
that can use them are valid considerations under both the cellulosic 
waiver authority under section 211(o)(7)(D)(i) and the general waiver 
authority under section 211(o)(7)(A). We are proposing to use the 
waiver authorities in a limited way that reflects our understanding of 
how to reconcile real marketplace constraints with Congress' intent to 
promote growth in renewable fuel use over time.
---------------------------------------------------------------------------

    \15\ While the fuels that are subject to the percentage 
standards are currently only non-renewable gasoline and diesel, 
renewable fuels that are valid for compliance with the standards 
include those used as transportation fuel, heating oil, or jet fuel.
---------------------------------------------------------------------------

    We have projected applicable volumes for advanced biofuel and total 
renewable fuel for 2015 and 2016 that would result in significant 
volume growth over the levels supplied in previous years, and which in 
our judgment are as ambitious as can reasonably be justified. The 
proposed volume requirements for 2015 and 2016 reflect the growth rates 
in both categories of renewable fuel that can be attained under a 
program explicitly designed to be ``market-driving,'' and that would 
not be expected to occur in the absence of those volume requirements.
3. Biomass-Based Diesel
    A key issue before the Agency in considering the appropriate 
biomass-based diesel (BBD) applicable volume is the extent to which a 
portion of the advanced biofuel volume requirement should be set aside 
exclusively for BBD. In EISA, Congress chose to set aside a portion of 
the advanced biofuel standard for BBD, but only through 2012. Beyond 
2012 Congress stipulated that EPA, in coordination with other agencies, 
was to establish the BBD volume taking into consideration the history 
of the program and various specified factors, providing that the 
required volume could not be less than 1.0 billion gallons. For 2013, 
EPA established an applicable volume of 1.28 billion gallons. The BBD 
standards in practice only establish the minimum volume required; 
substantially higher volumes have been used in past years to help 
satisfy the advanced biofuel standard. If BBD outcompetes other 
advanced biofuels in the marketplace as occurred in 2013, then the BBD 
standard serves as a floor and not a ceiling. Indeed, only 1.28 billion 
gallons of BBD were required in 2013, yet 1.55 billion gallons were 
supplied by the market.\16\ Furthermore, the total renewable standard 
can provide an incentive for even more BBD and other advanced biofuels 
to be supplied than is actually required, as also occurred in 2013: 
While the applicable advanced biofuel volume requirement was 2.75 
billion ethanol-equivalent gallons, the market actually supplied 3.02 
billion ethanol-equivalent gallons, and most of this was BBD.
---------------------------------------------------------------------------

    \16\ In 2013 1.55 billion gallons of BBD were supplied to the 
U.S. market. This reflects the sum of domestically produced BBD plus 
imported BBD minus domestically produced BBD that was exported. This 
number was developed using the EPA Moderated Transaction System 
(EMTS) data available at http://www.epa.gov/otaq/fuels/rfsdata/2013emts.htm (last accessed May 20, 2015)
---------------------------------------------------------------------------

    To preserve the important role that BBD plays in the RFS program, 
as well as to ensure that higher volume requirements for advanced 
biofuel can be reached, we believe that it would be appropriate to 
increase the BBD volume requirement for each year in the 2015 to 2017 
time period. However, we also believe that it is of ongoing importance 
that opportunities for other types of advanced biofuel be expanded, 
such as renewable diesel co-processed with petroleum, renewable 
gasoline blendstocks, and heating oil, as well as others that are under 
development. Thus, based on a review of the implementation of the 
program to date and all the factors required under the statute, we are 
not only proposing to set the 2014 BBD volume requirement at the actual 
volume of 1.63 billion gallons, but we are also proposing increases in 
the applicable volume of BBD to 1.7, 1.8, and 1.9 billion gallons for 
the years 2015, 2016, and 2017, respectively. We believe that these 
increases would support the overall goals of the program while also 
maintaining the incentive for development and growth in production of 
other advanced biofuels. We believe establishing the volumes at these 
levels will encourage BBD producers to manufacture higher volumes of 
fuel that will contribute to the advanced biofuel and total renewable 
fuel requirements, while also leaving considerable opportunity within 
the advanced biofuel mandate for investment in and production of other 
types of advanced biofuel with comparable or potentially superior 
environmental or other benefits.
4. Cellulosic Biofuel
    The cellulosic biofuel industry continues to transition from 
research and development (R&D) and pilot scale operations to commercial 
scale facilities, leading to significant increases in production 
capacity. RIN generation from the first commercial scale cellulosic 
biofuel facility began in March 2013. Cellulosic biofuel production 
increased substantially in 2014, with over 33 million gallons in that 
year. Last year also saw the grand openings of multiple new large 
commercial scale cellulosic ethanol facilities, and a significant 
number of

[[Page 33107]]

cellulosic biofuel RINs generated using cellulosic biogas through a new 
pathway approved by EPA in 2014. For 2014 we are proposing a cellulosic 
biofuel standard of 33 million gallons, consistent with the total 
number for RINs generated in 2014 that may be used toward satisfying an 
obligated party's cellulosic biofuel obligation (both cellulosic 
biofuel (D3) and cellulosic diesel (D7) RINs.) We are also proposing a 
cellulosic biofuel standard of 106 million ethanol-equivalent gallons 
for 2015 and 206 million ethanol-equivalent gallons in 2016 based on 
the information we have received regarding individual facilities' 
capacities, production start dates and biofuel production plans, as 
well as input from other government agencies, and EPA's own engineering 
judgment.
    As part of estimating the volume of cellulosic biofuel that would 
be made available in the U.S. in 2015 and 2016, we researched all 
potential production sources by company and facility. This included 
sources that were still in the planning stages, facilities that are 
under construction, facilities that are in the commissioning or start-
up phases, and facilities that are already producing some volume of 
cellulosic biofuel. Facilities primarily focused on research and 
development were not the focus of our assessment, as production from 
these facilities represents very small volumes of cellulosic biofuel, 
and these facilities typically have not generated RINs for the fuel 
they have produced. From this universe of potential cellulosic biofuel 
sources, we identified the subset that is expected to produce 
commercial volumes of qualifying cellulosic biofuel for use as 
transportation fuel, heating oil, or jet fuel by the end of 2016. To 
arrive at projected volumes, we collected relevant information on each 
facility. We then developed projected production ranges based on 
factors such as the current and expected state of funding, the status 
of the technology being used, progress towards construction and 
production goals, facility registration status, production volumes 
achieved, and other significant factors that could potentially impact 
fuel production or the ability of the produced fuel to qualify for 
cellulosic biofuel RINs. We also used this information to group these 
companies based on production history and to select a value within the 
aggregated projected production ranges that we believe best represents 
the most likely production volumes from each group for each year. 
Further discussion of these factors and the way they were used to 
determine our proposed cellulosic biofuel projections for 2014, 2015, 
and 2016 can be found in Section IV.
5. Annual Percentage Standards
    The renewable fuel standards are expressed as a volume percentage 
and are used by each refiner and importer of fossil-based gasoline or 
diesel to determine their renewable fuel volume obligations. The 
percentage standards are set so that if each obligated party meets the 
standards, and if EIA projections of gasoline and diesel use for the 
coming year prove to be accurate, then the amount of renewable fuel, 
cellulosic biofuel, BBD, and advanced biofuel actually used will meet 
the volumes required on a nationwide basis.
    Four separate percentage standards are required under the RFS 
program, corresponding to the four separate renewable fuel categories 
shown in Table I.A-1. The specific formulas we use in calculating the 
renewable fuel percentage standards are contained in the regulations at 
40 CFR 80.1405 and repeated in Section V.B.1. The percentage standards 
represent the ratio of renewable fuel volume to projected non-renewable 
gasoline and diesel volume. The volume of transportation gasoline and 
diesel used to calculate the proposed percentage standards was derived 
from EIA projections. The proposed standards for 2014, 2015, and 2016 
are shown in Table I.B.5-1. Detailed calculations can be found in 
Section V, including the projected gasoline and diesel volumes used.

              Table I.B.5-1--Proposed Percentage Standards
------------------------------------------------------------------------
                                                      2014   2015   2016
                                                      (%)    (%)    (%)
------------------------------------------------------------------------
Cellulosic biofuel.................................  0.019  0.059  0.114
Biomass-based diesel...............................  1.42   1.41   1.49
Advanced biofuel...................................  1.52   1.61   1.88
Renewable fuel.....................................  9.02   9.04   9.63
------------------------------------------------------------------------

6. Response To Requests for a Waiver of the 2014 Standards
    Concurrently with the November 29, 2013 proposal for 2014 RFS 
standards, we also published a separate Federal Register Notice \17\ 
indicating that the American Petroleum Institute (API) and the American 
Fuel & Petrochemical Manufacturers (AFPM) had submitted a joint 
petition requesting a partial waiver of the 2014 applicable RFS 
volumes, and that several individual refining companies had also 
submitted similar petitions. We noted that any additional similar 
requests would also be docketed and considered together with requests 
already received. EPA has subsequently received additional waiver 
petitions, including those submitted by nine Governors.\18\
---------------------------------------------------------------------------

    \17\ 78 FR 71732 (November 29, 2013) and 78 FR 71607 (November 
19, 2013), respectively.
    \18\ EPA has received, to date, waiver petitions from Governors 
Deal (GA), Fallin (OK), Perry (TX), Otter (ID), LePage (ME), 
Martinez (NM), McCrory (NC), Herbert (UT), and Haley (SC). In 
addition to the waiver petition from API/AFPM, EPA has also received 
waiver petitions from the following companies: Delek, ExxonMobil, 
Holly Frontier, Lion Oil Petroleum, Marathon Oil, NCRA, PBF Holding 
Company, Phillips 66, and Tesoro.
---------------------------------------------------------------------------

    The petitions generally asserted that for 2014 there is an 
inadequate domestic supply of renewable fuel and therefore RINs, due 
both to E10 blendwall constraints, and limitations on the supply of 
higher level ethanol blends, and of non-ethanol renewable fuels. 
Certain of the petitioners argued that this inadequate supply of 
renewable fuel (and RINs) will lead to an inadequate supply of gasoline 
and diesel, because refiners and importers, faced with a shortage of 
RINs, will reduce their production of gasoline and diesel for the 
domestic market. They argued that this will in turn severely harm the 
economy.
    As calendar year 2014 has passed, we believe it is appropriate to 
set the applicable volume requirements at the volumes that were 
actually supplied in 2014. We do not believe that use of 2014 renewable 
fuel volumes severely harmed the economy, and we believe that it is 
straightforward to conclude that there was an adequate supply of the 
volumes of renewable fuel that were actually used in 2014. Therefore, 
we do not believe that adequate justification exists for setting the 
2014 volume requirements at levels below those actually supplied. We 
propose that our final action in this rulemaking will resolve the 
extent to which waivers are appropriate for 2014 and, therefore, will 
identify the scope of relief that should be accorded petitioners.
7. Proposed Changes to Regulations
    In addition to proposing the aforementioned volume requirements and 
associated percentage standards, we are also proposing amendments to 
the RFS requirements to address two issues. First, we are proposing 
changes with respect to the existing algal oil pathway to clarify that 
only biofuels produced from oil from algae grown photosynthetically 
qualify for the RFS program under this pathway. We are aware of several 
companies that plan to produce biofuels from algae that use non-
photosynthetic types of

[[Page 33108]]

metabolism. Companies wishing to produce biofuels from algae grown with 
a non-photosynthetic stage of growth must apply to EPA for approval of 
their pathway pursuant to 40 CFR 80.1416. Since EPA assumed that algae 
would be grown photosynthetically when it evaluated the lifecycle 
greenhouse gas emissions associated with the existing algal oil 
pathway, we are clarifying the regulatory description of the pathway to 
align with EPA's technical assessment and interpretation of the scope 
of this pathway.
    We are also proposing to revise the annual compliance reporting 
deadlines for obligated parties and renewable fuel exporters, and the 
attest engagement reporting deadlines for obligated parties, RIN-
generating renewable fuel producers and importers, other parties 
holding RINs, renewable fuel exporters, and independent third-party 
auditors for the 2013, 2014 and 2015 compliance years. The proposed 
deadlines would vary for each of these parties depending on the 
applicable compliance period, and some parties would be required to 
submit partial annual reports representing a portion of the 2014 
compliance year. A detailed description of our proposed changes to 
reporting deadlines can be found in Section VI.B.

C. Authority for Late Action and Applicability of the Standards

    Under CAA 211(o)(3)(B)(i), EPA must determine and publish the 
annual percentage standards by November 30 of the preceding year, and 
it must establish applicable volumes for biomass-based diesel 14 months 
in advance of the compliance year. EPA did not meet the statutory 
deadline for the 2014 or the 2015 percentage standards, nor the 2014, 
2015, and 2016 biomass-based diesel applicable volumes. Nevertheless, 
we are proposing that the percentage standards established through this 
rulemaking would apply to all gasoline and diesel produced or imported 
in calendar years 2014, 2015, or 2016 as applicable.
    We acknowledge that this rule is being proposed later than the 
statutory deadlines noted above. However, this delay does not deprive 
EPA of authority to issue applicable volumes and standards for these 
calendar years. The United States Court of Appeals for the District of 
Columbia Circuit recently upheld the 2013 RFS standards even though 
they were issued more than eight months after statutory deadline. 
Monroe Energy v. EPA, 750 F.3.d 909 (D.C. Cir. 2014). The court noted 
that it had resolved the question of EPA's authority to issue RFS 
standards after the statutory deadline for issuing the annual RFS 
standards in NPRM v. EPA, 630 F.3d 145 (D.C. Cir. 2010). In that case, 
the court explained that courts have declined to treat a statutory 
direction that an agency ``shall'' act within a specified time period 
as a jurisdictional limit that precludes action later. Id. at 154 
(citing Barnhart v. Peabody Coal, 537 U.S. 149, 158 (2003)). Moreover, 
the court noted that the statute here requires that EPA regulations 
``ensure'' that transportation fuel sold or introduced into commerce 
``on an annual average basis, contains at least the volumes of 
renewable fuel'' that are required pursuant to the statute. Id. at 152-
153. This statutory directive requires EPA action, even if late. 
Therefore EPA believes it has authority to issue RFS standards for 
calendar years 2014 and 2015, and biomass-based diesel applicable 
volumes for 2014-2016, notwithstanding EPA's delay.
    EPA proposes to exercise its authority to issue standards 
applicable to past time periods in a reasonable way. Thus, for 2014, 
EPA is proposing to establish renewable fuel obligations that reflect 
actual renewable fuel used as transportation fuel, heating oil, or jet 
fuel during that time period, and the proposed compliance deadline for 
2014 allows time for obligated parties to complete necessary 
transactions. For 2015 we are similarly proposing to take into account 
actual renewable fuel use during the time that has already passed in 
2015. Renewable fuel producers generated RINs throughout 2014, and have 
also been generating 2015 RINs since the beginning of the calendar 
year. To varying degrees, obligated parties have been acquiring RINs 
since the beginning of 2014 in anticipation of the publication of final 
volume requirements and standards. While we acknowledge the uncertainty 
that the market has experienced due to the delay, our proposal to 
determine the applicable requirements to account for past production 
for both 2014 and 2015 means that there will be an adequate quantity of 
RINs available to satisfy those portions of the proposed 
requirements.\19\ In addition, there are a number of program 
flexibilities that will facilitate compliance. There is a considerable 
bank of carryover RINs that can be used to comply with up to 20% of the 
2014 RVOs, and to the extent it is not used, that bank of carryover 
RINs can be rolled forward to assist in compliance with 2015 and 2016 
requirements. We acknowledge that there is a theoretical possibility 
that parties that accumulate RINs through their own blending activities 
could decide to bank the maximum quantity of RINs for their own future 
use or for future sale, and that if this practice were widespread that 
there could be a shortfall in available RINs for parties who do not 
engage in renewable fuel blending activities themselves and have not 
entered into sufficient contracts with blenders or other parties to 
acquire sufficient RINs. Such practices are possibilities in any 
competitive marketplace, and we believe that obligated parties have had 
sufficient experience with the RFS program to have taken precautionary 
measures to avoid such results and to be prepared to comply with 
applicable standards potentially as high as the statute requires. Even 
where they have not done so, and find compliance with a given year's 
standards infeasible, they may avail themselves of the option of 
carrying a compliance deficit forward for that compliance year to the 
next. In sum, we believe that EPA's proposed approach is authorized and 
reasonable, though late.
---------------------------------------------------------------------------

    \19\ Furthermore, although EPA is late in establishing 
applicable volumes for biomass-based diesel for 2015 and 2016, we 
are proposing to set the applicable volumes of BBD for these years 
at levels below what we anticipate can actually be produced and used 
for compliance with the advanced biofuel requirements. Therefore, 
there should be a more than adequate supply of BBD RINs for 
compliance with the standards proposed.
---------------------------------------------------------------------------

D. Outlook for 2017 and Beyond

    We recognize that a number of challenges must be overcome in order 
to fully realize the potential for greater use of renewable fuels in 
the United States. We also recognize that the RFS program plays a 
central role in creating the incentives for realizing that potential. 
The standards being proposed would require that significant progress is 
made in overcoming those challenges. We expect future standards to both 
reflect and anticipate progress of the industry and market in providing 
for continued expansion in the supply of renewable fuels.
    We believe that the supply of renewable fuels can continue to 
increase in the coming years despite the constraints associated with 
shortfalls in cellulosic biofuel production and other advanced 
biofuels, and constraints associated with supplying renewable fuels to 
the vehicles and engines that can use them. As described in Section 
II.B, we believe that the market is capable of responding to ambitious 
standards by expanding infrastructure and modifying fuel pricing to 
provide incentives for the production and use of renewable fuels. While 
we do not believe that the statutory volumes can be reached within the 
next several years, the market is capable of attaining

[[Page 33109]]

volumes significantly higher than in the past.
    In future years, we would expect to use the most up-to-date 
information available to project the growth that can realistically be 
achieved considering the ability of the RFS program to spur growth in 
the volume of ethanol, biodiesel, and other renewable fuels that can be 
supplied and consumed by vehicles. In particular we will focus on the 
emergence of advanced biofuels including cellulosic biofuel. Many 
companies are continuing to invest in efforts ranging from research and 
development to the construction of commercial-scale facilities to 
increase the production potential of next generation biofuels. We will 
continue to evaluate new pathways especially for advanced biofuels and 
respond to petitions, expanding the availability of feedstocks, 
production technologies, and fuel types eligible under the RFS program.
    In addition to ongoing efforts to evaluate new pathways for 
advanced biofuel production, we are aware that other actions can also 
play a role in improving incentives provided by the RFS program to 
overcome challenges that limit the potential for increased volumes of 
renewable fuels. Such actions could potentially include amendments to 
program regulations that would help enable and potentially accelerate 
growth in renewable fuel volumes over time. We are currently 
considering ideas and various options for such actions. The details of 
such actions are beyond the scope of this current rulemaking, but we 
will continue to engage interested stakeholders as we move forward.
    There are also other approaches to determining volume requirements 
for future years that have been suggested as potentially helping to 
ensure growth in supply of renewable fuel. For instance, our proposed 
approach to determining the volume requirements for advanced biofuel 
and total renewable fuel in 2015 and 2016 is one of determining the 
maximum achievable supply by acknowledging constraints on supply to 
consumers resulting from the E10 blendwall, limitations in production 
and import capabilities, and the ability of the market to respond to 
the standards we set. As described in Section II.D.2, there are a 
variety of ways that the market could respond to our proposed 
standards.
    However, we recognize that since the majority of renewable fuel 
today is currently consumed as 10 percent ethanol blends, changes in 
demand for gasoline can have a significant impact on the ability of the 
marketplace to blend fixed volumes of renewable fuels. As such, an 
alternative approach to characterizing expected growth in renewable 
fuels would be to project the share of the fuel pool that can 
reasonably be expected to be comprised of renewable fuel over time. In 
this way, increases or decreases in gasoline demand would be reflected 
in corresponding increases or decreases in mandated renewable fuel 
volumes. The distinction between volumes and renewable share (share of 
the market, expressed as a percentage) is not important once the annual 
standards are established because the volumes are converted to shares 
(percentage standards) and changes in gasoline and diesel fuel volume 
then automatically lead to corresponding changes in renewable fuel 
volumes. However, future gasoline consumption depends on many factors 
and is highly uncertain; there may be unanticipated changes in fuel 
consumption compared to current EIA projections, as there have been in 
the past. For example, if EPA were to adopt an outlook for future years 
based on a growth rate for the renewable share of the fuel pool, it 
would be easier to maintain such a growth rate--rather than maintaining 
an outlook for specific volumes--if gasoline consumption becomes 
unexpectedly low. We recognize that projections of expected future 
growth in renewable fuels can be expressed in terms of either absolute 
volumes or as a share of the transportation fuel pool, that 
stakeholders may see advantages in the latter, and we expect there may 
be additional conversation on this issue in the future.

II. Proposed Advanced Biofuel and Total Renewable Fuel Volumes for 
2014-2016

    The national volume targets of advanced biofuel and total renewable 
fuel to be used under the RFS program each year are specified in CAA 
section 211(o)(2). However, two statutory provisions authorize EPA to 
reduce these volumes under certain circumstances. EPA may reduce these 
volumes to the extent that we reduce the applicable volume for 
cellulosic biofuel, or if the criteria are met under the general waiver 
authority.\20\ We have evaluated the capabilities of the market and 
have determined that the volumes for advanced biofuel and total 
renewable fuel specified in the statute cannot be achieved in 2014--
2016. As a result we are proposing to exercise our discretion under 
these statutory provisions to reduce the applicable volumes of advanced 
biofuel and total renewable fuel to address limitations in production 
or importation of these fuels, and factors that limit supplying them to 
vehicles that can consume them.
---------------------------------------------------------------------------

    \20\ See CAA section 211(o)(7)(D) and (A).
---------------------------------------------------------------------------

    While we are proposing to use our waiver authorities under the law 
to reduce applicable volumes from the statutory levels, the proposed 
volume requirements are nevertheless intended to drive significant 
growth in renewable fuel use beyond what would occur in the absence of 
such requirements. The proposed volume requirements are intended to be 
market-driving while staying within the limits of feasibility. The net 
impact of these proposed volume requirements is that the necessary 
volumes of both advanced biofuel and conventional (non-advanced) 
renewable fuel would increase over levels used in the past. The volumes 
that we are proposing are shown below.

                Table II-1--Proposed Volume Requirements
                            [Billion gallons]
------------------------------------------------------------------------
                                                   2014    2015    2016
------------------------------------------------------------------------
Advanced biofuel................................    2.68    2.90    3.40
Total renewable fuel............................   15.93   16.30   17.40
------------------------------------------------------------------------

A. Statutory Authorities for Reducing Volumes To Address Renewable Fuel 
Availability and the E10 Blendwall

    Congress specified increasing annual volume objectives in the 
statute for total renewable fuel, advanced biofuel, and cellulosic 
biofuel for every year through 2022, and for biomass-based diesel (BBD) 
through 2012, and authorized EPA to set volume objectives for 
subsequent years after consideration of several specified factors. 
However, Congress recognized that circumstances could arise that might 
require a reduction in the volume objectives specified in the statute 
as evidenced by the waiver provisions in CAA 211(o)(7). As described 
below, we believe that limitations in production or importation of 
qualifying renewable fuels, and factors that limit supplying those 
fuels to the vehicles that can consume them, both constitute 
circumstances that warrant a waiver under section 211(o)(7). The 
decrease in total gasoline consumption in recent years which resulted 
in a corresponding and proportional decrease in the maximum amount of 
ethanol that can be consumed if all gasoline was E10, the limited 
number and geographic distribution of retail stations that offer higher 
ethanol blends such as E15 and E85, the number of FFVs that have access 
to E85, as well

[[Page 33110]]

as other market factors, combine to place significant restrictions on 
the volume of ethanol that can be supplied to vehicles at the present 
time. Based on our assessment of the maximum amount of renewable fuel 
that can be supplied in 2014, 2015 and 2016 in light of these 
constraints, we believe that circumstances exist that warrant a 
reduction in the statutory applicable volumes of advanced biofuel and 
total renewable fuel for 2014, 2015 and 2016.
    EPA is proposing to use two separate and complementary legal 
authorities to set required volumes of advanced biofuel and total 
renewable fuel to levels below the volume objectives described in the 
statute: The cellulosic waiver authority under CAA section 
211(o)(7)(D)(i), and the general waiver authority under CAA section 
211(o)(7)(A). This section discusses both of these statutory 
authorities and briefly describes our proposed use of the authorities 
to determine appropriate reductions in advanced biofuel and total 
renewable fuel in comparison to the statutory volumes.
    As described in Section I, EPA has withdrawn its November 29, 2013 
proposed rule to establish 2014 RFS standards, and is re-proposing 
standards for 2014 that reflect consideration of actual renewable fuel 
use during 2014. Since the current proposal is substantially different 
than the previous one, we are generally not providing at this time, and 
do not intend to provide at the time of our final action on this 
proposal, a response to comments that were submitted in response to our 
earlier proposal. However, since this proposal envisions interpretation 
and use of RFS waiver authorities in essentially the same manner as 
proposed in the withdrawn NPRM, and since we received a substantial 
number of comments on that NPRM related to how the waiver authorities 
should be interpreted and used, we are providing a general response to 
the major comments we have received from stakeholders on these issues--
either in direct response to our November 29, 2013 NPRM or in 
subsequent dialogue. We have not attempted to respond to all comments 
on these issues, but instead hope to advance stakeholders' ability to 
meaningfully comment on this proposal by discussing our consideration 
to date of the most common comments we have received on these issues.
1. Cellulosic Waiver Authority
    Under CAA section 211(o)(7)(D)(i), if EPA determines that the 
projected volume of cellulosic biofuel production for the following 
year is less than the applicable volume provided in the statute, then 
EPA must reduce the applicable volume of cellulosic biofuel to the 
projected volume available during that calendar year.
    Section 211(o)(7)(D)(i) also provides that ``[f]or any calendar 
year in which the Administrator makes such a reduction, the 
Administrator may also reduce the applicable volume of renewable fuel 
and advanced biofuels requirement established under paragraph (2)(B) by 
the same or a lesser volume.'' Using this authority, the reductions in 
total renewable fuel and advanced biofuel can be less than or equal to, 
but no more than, the amount of reduction in the cellulosic biofuel 
volume. In prior actions EPA has interpreted this provision as 
authorizing EPA to reduce both total renewable fuel and advanced 
biofuel, by the same amount, if EPA reduces the volume of cellulosic 
biofuel.\21\
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    \21\ See 74 FR 24914-15, and 78 FR 49794, August 15, 2013.
---------------------------------------------------------------------------

    The cellulosic waiver provision was recently discussed by the 
United States Court of Appeals for the District of Columbia Circuit, in 
the context of its review of EPA's 2013 annual RFS rule. As the Court 
explained,

[T]he Clean Air Act provides that if EPA reduces the cellulosic 
biofuel requirement, as it did here, then it ``may also reduce'' the 
advanced biofuel and total renewable fuel quotas ``by the same or a 
lesser volume.'' 42 U.S.C. 7545(o)(7)(D)(i). There is no requirement 
to reduce these latter quotas, nor does the statute prescribe any 
factors that EPA must consider in making its decision. See id. In 
the absence of any express or implied statutory directive to 
consider particular factors, EPA reasonably concluded that it enjoys 
broad discretion regarding whether and in what circumstances to 
reduce the advanced biofuel and total renewable fuel volumes under 
the cellulosic biofuel waiver provision. Monroe v. EPA, 750 F.3d 
909, 915 (D.C. Cir. 2014).

    For the 2013 RFS rule, the Court determined that EPA had reasonably 
declined to use the cellulosic waiver authority to reduce the advanced 
and total renewable fuel statutory applicable volumes by analyzing 
``the availability of renewable fuels that would qualify as advanced 
biofuel and renewable fuel, the ability of those fuels to be consumed, 
and carryover RINs from 2012.'' Id. at 916.
    Some stakeholders have suggested that EPA may only exercise the 
cellulosic waiver authority in circumstances described in Section 
211(o)(7)(A) (that is, where there is inadequate domestic supply or 
severe harm to the environment or economy), or that it must in 
considering use of the cellulosic waiver authority consider the factors 
specified in Section 211(o)(2)(B)(ii) that are required considerations 
when EPA sets applicable volumes for years in which the statute does 
not do so. Contrary to these comments, the DC Circuit found in Monroe 
that the statute does not prescribe any factors that EPA must consider 
in making its decision; EPA has broad discretion under Section 
211(o)(7)(D)(i) to determine when and under what circumstances to 
reduce the advanced and total renewable fuel volumes when it reduces 
the statutory applicable volume of cellulosic biofuel.
    In general, we do not believe that it would be consistent with the 
energy security and greenhouse gas reduction goals of the statute to 
reduce the applicable volumes of renewable fuel set forth in the 
statute absent a substantial justification for doing so. When using the 
cellulosic waiver authority, we believe that there would be a 
substantial justification in circumstances where qualifying renewable 
fuels either are not available, or legal and practical constraints 
limit their supply to vehicles and other qualifying uses. In addition 
we may on a case-by-case basis consider additional factors on our own 
initiative, if we determine that such factors may present substantial 
justification for reducing the statutory volumes, or additional 
justification for not reducing them, and we will also consider all 
comments on the matter. Factors considered by EPA in exercising the 
cellulosic waiver authority may include those specified in Section 
211(o)(2)(B)(ii), or other factors that EPA deems relevant in the 
context of the statutory objectives and program structure. We will 
identify and evaluate any such factors on a case-by-case basis. For 
this proposed rulemaking, we have identified the availability of 
renewable fuels and the legal and practical constraints on their supply 
to vehicles and other qualifying uses as the factors that justify the 
proposed exercise of our cellulosic waiver authority. We solicit 
comment on other relevant factors, and whether the relevant factors 
would justify reducing advanced and renewable fuel volumes by different 
amounts.
    As discussed in Section IV, we are proposing to reduce the 
applicable volume of cellulosic biofuel for 2014, 2015 and 2016. We are 
also proposing to use our cellulosic waiver authority under section 
211(o)(7)(D)(i) to reduce the applicable volumes of advanced biofuel 
and total renewable fuel for these years as a first step in determining 
the volume requirements to propose. Our proposed justification for 
doing so is a limitation in the availability of

[[Page 33111]]

qualifying advanced biofuel and constraints on the ability to supply 
qualifying renewable fuels to the vehicles that use them. We have 
considered the possible role of carryover RINs in avoiding the need to 
reduce the statutory applicable volumes, as we did in setting the 2013 
RFS standards, but have decided that the availability of carryover RINs 
should not preclude reducing the applicable volumes for the reasons 
described in Section II.F. We are proposing to use the cellulosic 
waiver authority to reduce the advanced biofuel volume to the level of 
available supply, and are also proposing to use this authority to 
reduce total renewable volumes by the same amount. However, doing so 
is, we believe, insufficient to address all the supply limitations 
applicable to total renewable fuel. Therefore, we are proposing to use 
the general waiver authority as supplemental authority for the 
reductions in advanced biofuel and as the sole authority for further 
reductions in total renewable fuel volumes.\22\
---------------------------------------------------------------------------

    \22\ Assuming EPA finalizes a volume reduction for the advanced 
biofuels that is no larger than the final reduction in the 
applicable volume of cellulosic biofuel, EPA could rely on only the 
cellulosic waiver authority for its final action with respect to 
advanced biofuel.
---------------------------------------------------------------------------

2. General Waiver Authority
    CAA 211(o)(7)(A) provides that EPA, in consultation with the 
Secretary of Agriculture (USDA) and the Secretary of Energy (DOE), may 
waive the applicable volume requirements of the Act in whole or in part 
based on a petition by one or more States, by any person subject to the 
requirements of the Act, or by the EPA Administrator on her own motion. 
Such a waiver must be based on a determination by the Administrator, 
after public notice and opportunity for comment, that:
     Implementation of the requirement would severely harm the 
economy or the environment of a State, a region, or the United States; 
or
     There is an inadequate domestic supply.
    We are proposing to use the general waiver authority based on the 
statute's authorization for the Administrator to act on her own motion 
on a finding of inadequate domestic supply.\23\ We propose to use this 
authority in a supplemental fashion with respect to the volumes we 
propose waiving using the cellulosic waiver authority, and as the sole 
authority for an additional increment of volume reduction for total 
renewable fuel.
---------------------------------------------------------------------------

    \23\ We note that there are also pending requests pursuant to 
CAA 211(o)(7(A) from a number of parties for EPA to exercise its 
waiver authorities to reduce applicable volumes for 2014. While the 
Administrator is acting on her own motion, she also proposes that to 
resolve those petitions through and/or consistent with the final 
rule establishing 2014 volume requirements.
---------------------------------------------------------------------------

    Because the general waiver provision provides EPA the discretion to 
waive the volume requirements of the Act ``in whole or in part,'' we 
interpret this section as granting EPA authority to waive any or all of 
the four applicable volume requirements in appropriate circumstances. 
Thus, for example, unlike the cellulosic waiver authority, a reduction 
in total renewable fuel pursuant to the general waiver authority is not 
limited by the reduction in cellulosic biofuel.
    EPA has had only limited opportunity to date to interpret and apply 
the waiver provision in CAA section 211(o)(7)(A)(ii) related to 
``inadequate domestic supply,'' and has never before done so in the 
context of deriving an appropriate annual RFS standard. As explained in 
greater detail below, we believe that this ambiguous provision is 
reasonably and best interpreted to encompass the full range of 
constraints that could result in an inadequate supply of renewable fuel 
to the ultimate consumers, including fuel infrastructure and other 
constraints. This would include, for instance, factors affecting the 
ability to produce or import qualifying renewable fuels as well as 
factors affecting the ability to distribute, blend, dispense, and 
consume those renewable fuels in vehicles.
    The waiver provision at CAA 211(o)(7)(A)(ii) is ambiguous in 
several respects. First, it does not specify what the general term 
``supply'' refers to. The common understanding of this term is an 
amount of a resource or product that is available for use by the person 
or place at issue.\24\ Hence the evaluation of the supply of renewable 
fuel, a product, is best understood in terms of the person or place 
using the product. In the RFS program, various parties interact across 
several industries to make renewable fuel available for use by the 
ultimate consumers as transportation fuel. Supplying renewable fuel to 
obligated parties and terminal blenders is one part of this process, 
while supplying renewable fuel to the ultimate consumer as part of 
their transportation fuel is a different and later aspect of this 
process. For example, the renewable fuels ethanol and biodiesel are 
typically supplied to obligated parties or blenders as a neat fuel, but 
in almost all cases are supplied to the consumer as a blend with 
conventional fuel (ethanol blended in gasoline or biodiesel blended in 
diesel). The waiver provision does not specify what product is at issue 
(for example, neat renewable fuel or renewable fuel that is blended 
with transportation fuel) or the person or place at issue (for example, 
obligated party, blender or ultimate consumer), in determining whether 
there is an ``inadequate domestic supply.''
---------------------------------------------------------------------------

    \24\ For example, see http://oxforddictionaries.com/us/definition/american_english/supply (a stock of a resource from which 
a person or place can be provided with the necessary amount of that 
resource: ``There were fears that the drought would limit the 
exhibition's water supply.''); http://www.macmillandictionary.com/us/dictionary/american/supply (``A limited oil supply has made gas 
prices rise.'' and ``Aquarium fish need a constant supply of 
oxygen.'').
---------------------------------------------------------------------------

    The waiver provision also does not specify what factors are 
relevant in determining the adequacy of the supply. Adequacy of the 
supply would logically be understood in terms of the parties who use 
the supply of renewable fuel. Adequacy of supply could affect various 
parties, including obligated parties, blenders, and consumers. Adequacy 
of supply with respect to the consumer might well involve consideration 
of factors different from those involved when considering adequacy of 
supply to the obligated parties. We believe that interpreting this 
waiver provision as authorizing EPA to consider the adequacy of supply 
of renewable fuel to all of the relevant parties, including the 
adequacy of supply to the ultimate consumer of renewable fuel blended 
into transportation fuel, is consistent with the common understanding 
of the terms used in this waiver provision, especially in the context 
of a fuel program that is aimed at increasing the use of renewable fuel 
by consumers. In our view, this is the most reasonable and appropriate 
construction of this ambiguous language in light of the overall policy 
goals of the RFS program.
    EPA has reviewed other fuel related provisions of the Clean Air Act 
with somewhat similar waiver provisions, and they highlight both the 
ambiguity of the RFS general waiver provision and the reasonableness of 
applying it broadly to include adequacy of supply to the ultimate 
consumer of transportation fuel. For example, CAA section 211(k)(6) 
contains provisions allowing EPA to defer the application of 
reformulated gasoline (RFG) in states seeking to opt-in to the program. 
There are two categories of states that may opt-in: Those with 
nonattainment classifications indicating a more serious and/or 
longstanding air quality problem (leading to classification as a 
Marginal, Moderate, Serious or Severe nonattainment area) and those 
that do not have such serious concerns, but which are nevertheless 
within the ``ozone transport region'' established by CAA section 
184(a). For the states with

[[Page 33112]]

more serious problems that seek to opt-in to the RFS program, section 
211(k)(6)(A)(ii) allows EPA to defer application of RFG requirements if 
EPA determines that ``there is insufficient domestic capacity to 
produce reformulated gasoline.'' (Emphasis added.) However, for states 
with less serious ozone nonattainment concerns that are part of the 
ozone transport region, EPA may defer application of RFG requirements 
if EPA finds that there is ``insufficient capacity to supply 
reformulated gasoline.'' (Emphasis added.) We believe Congress likely 
intended the ``capacity to supply'' RFG as being broader in scope than 
the ``capacity to produce'' RFG. This is consistent with the common 
understanding of the word ``supply' noted above as the amount of a 
resource or product that is available for use by the person or place at 
issue. Thus, while a source can have a ``capacity to produce,'' 
regardless of whether it has a market for its product, the concept of 
``supply'' does not occur in isolation, but in reference to the person 
intending to make use of the product. The term ``capacity to supply'' 
would therefore be expected to include consideration of the 
infrastructure needed to deliver RFG to vehicles in the state within 
the ozone transport region that is seeking to opt in to the program. 
This distinction in the context of CAA section 211(k)(6) is logical, 
since Congress can be expected to have put a higher premium on use of 
RFG in states with the more serious ozone nonattainment issues, thereby 
constraining EPA discretion to defer RFG requirements to the limited 
situation where there is ``insufficient capacity to produce'' RFG. For 
states with less serious problems, it would be logical for Congress to 
have provided EPA with somewhat more latitude to defer application of 
RFG, and Congress referred to this broader set of circumstances as 
situations where there is an ``insufficient capacity to supply'' RFG. 
The language of the RFS general waiver provision, in comparison, 
involves use of a single ambiguous phrase, ``inadequate domestic 
supply,'' without elaboration or clarification as to whether it refers 
solely to production capacity or also includes additional factors 
relevant to the ability to supply the fuel to various persons such as 
the ultimate consumer. As in the RFG provision, however, the adequacy 
of supply referred to in the RFS general waiver provision can 
logically--and we believe should--be read to include factors beyond 
capacity to produce that impact the ability of consumers to use the 
fuel as a transportation fuel.\25\ This would be consistent with 
Congress's apparent intent in using the term ``supply'' in the context 
of the RFG provision.
---------------------------------------------------------------------------

    \25\ The reasons why we believe the statute should be 
interpreted in this way can be illustrated by examining the 
differences between the RFG opt-in situation and the RFS program. 
Limiting EPA's consideration to ``capacity to produce'' in the 
context of deferring RFG implementation in a state with serious air 
quality concerns is not likely to cause implementation problems 
because:
    1. Infrastructure upgrades necessary to shift from use of 
conventional gasoline to RFG are relatively modest,;
    2. The statute provides for up to one year between EPA's receipt 
of an opt-in request and the effective date of a rule requiring use 
of RFG, allowing time for the needed infrastructure upgrades; and
    3. Opt-ins typically occur one state at a time, allowing 
available infrastructure expansion resources to be focused in a 
relatively small geographic area.
    In contrast, allowing RFS waivers only where there is 
insufficient ``capacity to produce'' renewable fuel would be 
extremely problematic because:
    1. The ethanol industry has the ability to produce far more 
ethanol than can currently be consumed in the U.S.;
    2. Ethanol is already being supplied at E10 levels, and any 
further growth in ethanol use requires the time consuming 
installation of costly new E15 or E85 pumps and tanks;
    3. The number of vehicles that can use higher ethanol bends is 
limited;
    4. The statute envisions only one month between establishment of 
annual standards and the start of a compliance year, allowing 
limited time for infrastructure enhancements; and
    5. The RFS is a nationwide program, and infrastructure 
improvements would be needed throughout the country at the same time 
to increase the nation's ability to consume renewable fuels at 
levels corresponding with production capacity.
---------------------------------------------------------------------------

    CAA section 211(c)(4)(C)(ii) provides EPA with waiver authority to 
address ``extreme and unusual fuel or fuel additive supply 
circumstances . . . which prevent the distribution of an adequate 
supply of the fuel or fuel additive to consumers.'' The supply 
circumstances must be the result of a natural disaster, an Act of God, 
a pipeline or refinery equipment failure or another event that could 
not reasonably have been foreseen, and granting the waiver must be ``in 
the public interest.'' In this case, Congress clearly specified that 
the adequacy of the supply is judged in terms of the availability of 
the fuel or fuel additive to the ultimate consumer, and includes 
consideration of the ability to distribute the required fuel or fuel 
additive to the ultimate consumer. Although the RFS waiver provision 
does not contain any such explicit clarification from Congress, its 
broad and ambiguous wording provides EPA the discretion to reasonably 
interpret the scope of the RFS waiver provision as relating to supply 
of renewable fuel (in neat or blended form) to the ultimate consumer.
    CAA section 211(m)(3)(C) allows EPA to delay the effective date of 
oxygenated gasoline requirements for certain carbon monoxide 
nonattainment areas if EPA finds ``an inadequate domestic supply of, or 
distribution capacity for, oxygenated gasoline. . . . or fuel 
additives'' needed to make oxygenated gasoline. Here, Congress chose to 
expressly differentiate between ``domestic supply'' and ``distribution 
capacity,'' indicating that each of these elements was to be considered 
separately. This would indicate that the term inadequate supply, 
although ambiguous for the reasons discussed above, could in 
appropriate circumstances be read as more limited in scope. In contrast 
to the RFS waiver provision, the section 211(m) waiver provision 
includes additional text that makes clear that EPA's authority includes 
consideration of distribution capacity--reducing the ambiguity inherent 
in using just the general phrase ``inadequate domestic supply.'' 
Presumably this avoids a situation where ambiguity would result in an 
overly narrow administrative interpretation. The oxygenated gasoline 
waiver provision is also instructive in that it clarifies that it 
applies separately to both finished oxygenated fuel and to oxygenated 
fuel blending components. That is, there could be an adequate supply of 
the oxygenate, such as ethanol, but not an adequate supply of the 
blended fuel which is sold to the consumer. The RFS waiver provision 
employs the phrase ``inadequate domestic supply'' without further 
specification or clarification, thus providing EPA the discretion to 
determine whether the adequacy of the supply of renewable fuel can 
reasonably be judged in terms of availability for use by the ultimate 
consumer, including consideration of the capacity to distribute the 
product to the ultimate consumer. In contrast to the section 211(m) 
waiver provision, Congress arguably did not mandate that the RFS waiver 
provision be interpreted as providing authority to address problems 
affecting the supply of renewable fuel to the ultimate consumer. 
However, given the ambiguity of the RFS provision, we believe that it 
does provide EPA the discretion to adopt such an interpretation, 
resulting in a policy approach consistent with that required by the 
less ambiguous section 211(m) waiver provision.\26\
---------------------------------------------------------------------------

    \26\ In CAA section 211(h)(5)(C)(ii), Congress authorized EPA to 
delay the effective date of certain changes to the federal 
requirements for Reid vapor pressure in summertime gasoline, if the 
changes would result in an ``insufficient supply of gasoline'' in 
the affected area. As with the RFS general waiver provision, 
Congress did not specify what considerations would warrant a 
determination of insufficient supply. EPA has not been called upon 
to apply this provision to date and has not interpreted it.

---------------------------------------------------------------------------

[[Page 33113]]

    As the above review of various waiver provisions in Title II of the 
Clean Air Act makes clear, Congress has used the terms ``supply'' and 
``inadequate supply'' in different waiver provisions. In the RFS 
general waiver provision, Congress spoke in general terms and did not 
address the scope of activities or persons or places that are the focus 
in determining the adequacy of supply. In other cases, Congress 
provided, to varying degrees, more explicit direction. Overall, the 
various waiver provisions lend support to the view that it is 
permissible, where Congress has used just the ambiguous phrase 
``inadequate domestic supply'' in the general waiver provision, to 
consider supply in terms of distribution and use by the ultimate 
consumer, and that the term ``inadequate supply'' of a fuel need not be 
read as referring to just the capacity to produce renewable fuel or the 
capacity to supply it to obligated parties and blenders.
    We are aware that prior to final adoption of the Energy 
Independence and Security Act of 2007, Congress had before it bills 
that would have provided for an EPA waiver in situations where there 
was ``inadequate domestic supply or distribution capacity to meet the 
requirement.'' \27\ EPA is not aware of any conference or committee 
reports, or other legislative history, explaining why Congress 
ultimately enacted the language in EISA in lieu of this alternative 
formulation. There is no discussion, for example, of whether Congress 
did or did not want EPA to consider distribution capacity, whether 
Congress believed the phrase ``inadequate domestic supply'' was 
sufficiently broad that a reference to distribution capacity would be 
unnecessary or superfluous, or whether Congress considered the 
alternative language as too limiting, since it might suggest that 
constraints other than ``distribution capacity'' on delivering 
renewable fuel to the ultimate consumer should not be considered for 
purposes of granting a waiver.\28\ Given the lack of interpretive value 
typically given to a failure to adopt a legislative provision, and the 
lack of explanation in this case, we find the legislative history to be 
uninformative with regard to Congressional intent on this issue. It 
does not change the fact that the text adopted by Congress, whether 
viewed by itself or in the context of other fuel waiver provisions, is 
ambiguous.
---------------------------------------------------------------------------

    \27\ H.R. 6 and S. 606 as reported by Senate Envt. & Public 
Works in Senate Report 109-74.
    \28\ There are, for example, legal constraints on the amount of 
certain renewable fuels that may be blended into transportation 
fuels. These are discussed in Section II.D.1 for ethanol.
---------------------------------------------------------------------------

    We believe that it is permissible under the statute to interpret 
the term ``inadequate domestic supply'' to authorize EPA to consider 
the full range of constraints, including legal, fuel infrastructure and 
other constraints, that could result in an inadequate supply of 
renewable fuels to consumers. Under this interpretation, we would not 
limit ourselves to consideration of the capacity to produce or import 
renewable fuels but would also consider practical and legal constraints 
affecting the volume of qualifying renewable fuel supplied to the 
ultimate consumer.
    We believe that our proposed interpretation is consistent with the 
language of section 211(o), and Congressional intent in enacting the 
program. It is evident from section 211(o) that Congress's intent was 
not simply to increase production of renewable fuel, but rather to 
provide that certain volumes of renewable fuel be used by the ultimate 
consumer as a replacement for the use of fossil based transportation 
fuel. The very definition of ``renewable fuel'' requires that the fuel 
be ``used to replace or reduce the quantity of fossil fuel present in a 
transportation fuel.'' CAA section 211(o)(1)(I); see also CAA 
211(o)(1)(A) (definition of ``additional renewable fuel''). The RFS 
program does not achieve the desired benefits of the program unless 
renewable fuels are actually used to replace fossil based 
transportation fuels in the United States.\29\ For example, the 
greenhouse gas reductions and energy security benefits that Congress 
sought to promote through this program are realized only through the 
use by consumers of renewable fuels that reduce or replace fossil fuels 
present in transportation fuel. Imposing RFS volume requirements on 
obligated parties without consideration of the ability of the obligated 
parties and other parties to deliver the renewable fuel to the ultimate 
consumers would achieve no such benefits and would fail to account for 
the complexities of the fuel system that delivers transportation fuel 
to consumers. We do not believe it would be appropriate to interpret 
the RFS general waiver provision in such a narrow way and limit EPA's 
consideration of the distribution and use of renewable fuels by the 
ultimate consumers of these fuels.
---------------------------------------------------------------------------

    \29\ For this reason, EPA's implementing regulations require 
that fuels with multiple possible end uses, such as biogas or 
electricity, are not considered to be renewable fuels absent a 
demonstration that they will be used by the ultimate consumers as 
transportation fuel. For instance, see 40 CFR 80.1426(f)(10)(i)(C) 
and (f)(10)(ii)(C). Similarly, our regulations require the 
retirement of RINs representing renewable fuel that is exported as 
they are not supplied as transportation fuel in the U.S.
---------------------------------------------------------------------------

    As described in more detail in Section II.A.5 below, although at 
least for 2014 and possibly 2015 and 2016, there is no shortage of 
ethanol and other types of renewable fuel that could be used to satisfy 
the statutory applicable volume of total renewable fuel, there are 
practical and legal constraints on the ability of ethanol to be 
delivered to and used as transportation fuel by vehicles. Legal 
requirements limit ethanol content of most gasoline to 10% (which is 
delivered as E10), but for subsets of vehicles allow up to either 15% 
ethanol (for 2001 and newer light-duty vehicles) or up to 85% ethanol 
(for flex fuel vehicles).\30\ In addition there are marketplace and 
infrastructure constraints that limit the use of higher level (>10%) 
ethanol blends. These considerations prevent the fuel market from 
supplying vehicles the volumes of ethanol needed to meet the statutory 
level of total renewable fuel, and as such they create an inadequate 
domestic supply of renewable fuel that can actually be delivered to 
consumers and used as transportation fuel. EPA has evaluated this 
situation, and in this proposed rule is using the general waiver 
authority, together with our cellulosic waiver authority, to address 
this inadequate domestic supply situation.
---------------------------------------------------------------------------

    \30\ See, e.g., EPA partial waiver decisions at 75 FR 68094 
(Nov. 4, 2010) and 76 FR 4662 (Jan. 26, 2011).
---------------------------------------------------------------------------

    We proposed the same interpretation of our general waiver authority 
in the November, 2013 NPRM for the 2014 RFS standards (which we are 
withdrawing in light of this re-proposal of 2014 standards) and we 
received many comments addressing our proposed interpretation. Although 
we are not generally responding to comments on the withdrawn 2014 RFS 
proposal, to aid the public in their evaluation of this proposal we 
discuss below the most common themes of comments received and our 
current assessment of them.
    A number of stakeholders disagreed that a review of other CAA 
waiver authorities supports the conclusion that the term ``inadequate 
domestic supply'' is ambiguous, and that it can be interpreted to 
include consideration of infrastructure and other constraints related 
to the delivery and use of renewable fuel by vehicles. Most such 
stakeholders focused on section

[[Page 33114]]

211(m)(3)(C)(i), which provides for a waiver of the requirement to use 
oxygenated gasoline in certain carbon monoxide nonattainment areas 
where there is ``an inadequate domestic supply of, or distribution 
capacity for, oxygenated gasoline.'' They argued that this provision 
demonstrates that infrastructure considerations are distinct from 
supply, and that Congress would have used similar language in section 
211(o)(7)(A) if it intended EPA to consider infrastructure and other 
constraints as a basis for an RFS waiver. These stakeholders asserted 
that there can be no inadequate domestic supply if there is sufficient 
qualifying renewable fuel produced and available for purchase by 
obligated parties and, consequently, that any difficulty that obligated 
parties may experience in delivering renewable fuels to consumers is 
irrelevant under CAA section 211(o)(7)(A). However, EPA believes that 
these stakeholders' analysis has merit only when sections 
211(m)(3)(C)(i) and 211(o)(7)(A) are viewed in isolation, and that 
their argument is not persuasive when all of the CAA provisions 
containing similar waiver provisions are considered. For example, as 
discussed above, in section 211(k)(6) Congress used the term ``capacity 
to produce'' in one RFG waiver context for opt-in states and ``capacity 
to supply'' in another context. This suggests that the term ``supply' 
does not unambiguously mean the same thing as ``produce,'' as these 
commenters argue. The term ``supply'' can mean something different, and 
logically does in the context of section 211(k)(6) where the two waiver 
provisions at issue use these different terms and apply in different 
contexts, to states with considerably different levels of air quality 
concern. The different ways that the term ``supply'' is used in the 
various CAA provisions indicates that in section 211(o)(7)(A), where 
the term is used in isolation, the word ``supply'' is ambiguous and may 
reasonably be interpreted consistent with the Act's objectives.
    Some stakeholders have asserted that interpreting the general 
waiver authority to allow consideration of all constraints on the use 
of ethanol by the ultimate consumer would amount to focusing on 
``demand'' rather than ``supply'' and would, therefore, be 
impermissible under the Act. EPA does not agree that a broad 
consideration of such factors as physical limitations in infrastructure 
(e.g., availability of E15 and E85 pumps), legal barriers to use of 
renewable fuel, or ability of vehicles to use renewable fuel at varying 
concentrations, represent consideration of `demand' rather than 
``supply.' These factors operate as practical and legal limits to how 
much renewable fuel can be distributed to and used by consumers, and 
therefore clearly relate to how much renewable fuel can be ``supplied'' 
to them. Although there may be some element of consumer preference 
reflected in the historic growth patterns of renewable fuel 
infrastructure and the current status of the infrastructure, it is 
nevertheless the case as of today that there are a limited number of 
fueling stations selling high-ethanol blends, and as a result, the 
number of stations operates as a constraint on how much ethanol can be 
delivered. Similarly, only flex fuel vehicles (FFVs) can legally use 
fuel with ethanol concentrations greater than 15 percent. The 
population of FFVs has grown considerably in recent years, but is still 
only a small fraction of the passenger vehicle fleet and there is an 
even smaller number of FFVs that have ready access to an E85 retail 
outlet. As a result, the number of FFVs with access to E85 also 
operates as a constraint on how much ethanol can be delivered. These 
constraints limit the supply of ethanol to vehicles in the 2014-2016 
time period and, we believe, are appropriately considered in evaluating 
the need for an RFS waiver under section 211(o)(7)(A).
    Some stakeholders have stated that even if the term ``inadequate 
domestic supply,'' were ambiguous, EPA's proposed interpretation is not 
reasonable because it would either reward obligated parties for their 
intransigence in planning to supply the volumes set forth in the 
statute, or because EPA's interpretation would effectively enshrine the 
status quo, and would prevent the growth in renewable fuel use that 
Congress sought to achieve in establishing the program. We agree that 
obligated parties have had years to plan for the E10 blendwall and that 
there clearly are steps that obligated parties could take to increase 
investments needed to increase renewable fuel use above current levels, 
as we have noted in prior actions.\31\ We also note, however, that 
biofuel producers could also have taken appropriate measures, and that 
nothing precludes biofuel producers from independently marketing E85 or 
increasing the production of non-ethanol renewable fuels. EPA agrees 
that its approach to interpreting the term `inadequate domestic supply' 
should be consistent with the objectives of the statute to grow 
renewable fuel use over time by placing appropriate pressure on all 
stakeholders to act within their powers to increase renewable fuel 
production and use, while also providing the relief to obligated 
parties that was intended through the statutory waiver authorities to 
address supply difficulties that cannot be remedied in the time period 
over which a waiver would apply. We believe that the approach we have 
proposed today provides an appropriate balance, and that the proposed 
applicable volumes are ambitious yet achievable, as described in 
Section II.D.
---------------------------------------------------------------------------

    \31\ See, for instance, 77 FR 70773 (November 27, 2012), column 
1.
---------------------------------------------------------------------------

3. Assessment of Past Versus Future Supply
    In the context of a forward-looking annual RFS standards rulemaking 
issued consistent with the statutory schedule, we propose that the 
evaluation of ``supply'' for purposes of determining whether 
``inadequate domestic supply'' exists pursuant to section 
211(o)(7)A)(ii), should involve an assessment of the maximum renewable 
fuel volumes that can reasonably be expected to be produced and 
consumed, and a comparison of those volumes to statutory volumes. This 
is the approach to the assessment of ``supply'' that we are proposing 
today for purposes of the 2016 RFS standards. However, the factual 
situation is different for 2014, since neither this proposed rule nor 
the final rule we expect to issue later in 2015 can influence the 
volumes of renewable fuel produced and consumed in the past. 
Accordingly, our assessment of the ``supply'' available for RFS 
compliance during 2014 must necessarily focus on the number of RINs 
generated in 2014 that are available for compliance with the applicable 
standards. To set the volume requirements at a higher level would 
require either noncompliance, which EPA deems an unreasonable approach, 
or the drawdown of the bank of carryover RINs. Although the 
availability of carryover RINs is a relevant consideration in 
determining the extent to which a waiver is justified, see Monroe 750 
F.3d at 917, we believe that carryover RINs serve an important function 
under the program, including providing a means of compliance when 
natural disasters cause unexpected supply limitations, and that in the 
current circumstances EPA should not set the annual standards for 2014-
2016 at levels that would clearly necessitate a reduction in the 
current bank of carryover RINs. See Section II.F for further discussion 
of our consideration of carryover RINs in this proposal.
    For 2015, the situation is essentially a hybrid of the fact 
patterns for 2014

[[Page 33115]]

and 2016. A number of months have passed prior to issuance of this 
NPRM, and during those months this rulemaking could not influence 
renewable fuel use. Accordingly, this proposal accounts for actual 
renewable fuel use in the earlier part of 2015, and projects renewable 
fuel use only for future months. We are therefore proposing to use the 
same approach towards projecting renewable fuel growth in the latter 
part of 2015 as we are using for 2016.
4. Combining Authorities for Reductions in Total Renewable Fuel
    EPA is today proposing reductions in the applicable volumes of 
advanced biofuel and total renewable fuel based on limitations in the 
availability of qualifying renewable fuels and factors that constrain 
supplying available volumes to the vehicles that can consume them. 
These two factors are both relevant forms of inadequate domestic 
supply, which authorize reductions under the general waiver authority 
and also justify reductions under the cellulosic waiver authority. We 
believe that reducing both total renewable and advanced biofuel are 
appropriate responses to these circumstances. We are proposing to use 
both the cellulosic biofuel waiver authority and the general waiver 
authority to reduce the statutory volumes for both advanced biofuel and 
total renewable fuel by 2.6 billion gallons in 2015 and 3.85 billion 
gallons in 2016. These two authorities are exercised individually, in a 
complementary fashion, and each justify our action. In addition, as the 
volume reduction required for total renewable fuel is greater than that 
needed for advanced biofuel, we are proposing to use the general waiver 
authority exclusively as the basis for further reducing the applicable 
volume of total renewable fuel by 1.6 billion gallons in 2015 and 1.0 
billion gallons in 2016.
5. Inability of the Market To Reach Statutory Volumes
    In order to use the general waiver authority in CAA 211(o)(7)(A) to 
reduce the applicable volumes of advanced biofuel and total renewable 
fuel, we must make a determination that there is either ``inadequate 
domestic supply'' or that implementation of the statutory volumes would 
severely harm the economy or environment of a State, a region or the 
United States. This section summarizes our proposed determination that 
there is an inadequate domestic supply of advanced biofuel and total 
renewable fuel in the time period 2014-2016, and thus that the 
statutory volume targets are not achievable.
    As described in Section II.C.1 below, actual supply of renewable 
fuel in 2014 was 2.22 billion gallons below the applicable volume 
target in the statute (15.93 versus 18.15 billion gallons). Since the 
requirements we establish for 2014 cannot change what occurred in the 
past, our assessment of the ``supply'' available for RFS compliance 
during 2014 must necessarily focus on actual renewable fuel use, which 
we propose to be based on the volume of RINs actually generated in 2014 
and available for use in complying with the applicable standards.\32\ 
While we could also consider the availability of carryover RINs in 
assessing supply (as we did in the context of establishing the 2013 RFS 
annual standards), we have determined that in the current circumstances 
it would be imprudent and contrary to the long term objectives of the 
program to assess supply, and then set corresponding renewable fuel 
volume requirements, at levels that would necessitate a significant 
reduction in the current bank of carryover RINs. Further discussion of 
our evaluation of carryover RINs is presented in Section II.F.\33\ 
Since we have determined that actual 2014 advanced biofuel and total 
renewable fuel use was less than the statutory applicable volume 
targets, we believe we are authorized to use the general waiver 
authority to address the ``inadequate domestic supply'' in 2014.
---------------------------------------------------------------------------

    \32\ RINs available for use in complying with the standards 
represent ethanol-equivalent gallons actually used. Some RINs 
generated in 2014 may not be available for compliance purposes if 
they are retired for exports, spills, invalidity, or similar 
circumstances.
    \33\ Although we do not believe that carryover RINs should be 
relied on to set a higher volume requirement for 2014 than is 
reflected by actual 2014 renewable fuel use, we note that even if 
the entire estimated bank of 1.8 billion carryover RINs were used 
for 2014 compliance, a waiver from statutory applicable volumes 
would still be required for 2014.
    \34\ Non-ethanol supply other than BBD was 238 mill gal in 2013 
and 175 mill gal in 2014. Details of actual supply in 2013 and 2014 
can be found in the docket.
---------------------------------------------------------------------------

    The statute sets targets of 20.5 billion gallons of renewable fuel 
in 2015 and 22.25 billion gallons of renewable fuel in 2016. We have 
determined that these volumes cannot be achieved under even the most 
optimistic assumptions given current circumstances. To make this 
determination, we first assumed that every gallon of gasoline would 
contain 10% ethanol, and also assumed production and use of BBD volumes 
at the highest historical level, which occurred in 2014. When these 
supplies of renewable fuel are taken into account, a significant 
additional volume of renewable fuel would still be needed for the 
statutory volume targets to be met.

 Table II.A.5-1--Additional Volumes Needed To Meet Statutory Targets for
                          Total Renewable Fuel
                  [Million ethanol-equivalent gallons]
------------------------------------------------------------------------
                                                    2015         2016
------------------------------------------------------------------------
Statutory target for total renewable fuel.....       20,500       22,250
Maximum ethanol consumption as E10 \a\........      -13,780      -13,690
Historical maximum biomass-based diesel supply       -2,500       -2,500
 \b\..........................................
Additional volumes needed.....................        4,220        6,060
------------------------------------------------------------------------
\a\ Derived from projected gasoline energy demand from EIA's Short-Term
  Energy Outlook (STEO) from May 2015.
\b\ Represents the 1.63 billion gallons of biodiesel and renewable
  diesel supplied in 2014.

    Based on the current and near-future capabilities of the industry, 
we expect that only a relatively small portion of the additional 
volumes needed would come from non-ethanol cellulosic biofuel, non-
ethanol advanced biofuels other than BBD, and non-ethanol conventional 
renewable fuels. In total these sources could account for several 
hundred million gallons, as demonstrated by supply of these sources in 
2013 and 2014.\34\ The more likely sources of additional renewable fuel 
that could fulfill the need for 4.22 billion gallons in 2015 or 6.06 
billion gallons in 2016 are BBD in addition to the 1.63 billion gallons 
supplied in 2014, or ethanol consumed as higher ethanol blends such as 
E15 and E85. In either case, more than 70% of those additional ethanol-
equivalent volumes

[[Page 33116]]

would need to be advanced biofuel in order to meet the statutory volume 
requirement for advanced biofuel.\35\
---------------------------------------------------------------------------

    \35\ Assumes that all ethanol consumed as E10 in Table II.A.5-1 
is conventional (non-advanced).
---------------------------------------------------------------------------

    If all of the additional volumes needed were biodiesel, the 
industry would need to supply a total of about 4.5 billion gallons in 
2015 and 5.7 billion physical gallons in 2016. There currently exists 
only about 2.8 billion gallons of registered biodiesel production 
capacity in the U.S., though total production capacity considering 
unregistered facilities may be as high as 3.6 billion gallons. In 
addition to expanding the registered production capacity, the industry 
would need to restart all idled facilities, secure sufficient 
feedstocks including diverting them from current uses, implement 
significantly expanded distribution, blending, and retail sales 
infrastructure, and establish new contracts for distribution and sales. 
Based on current market circumstances, including the biodiesel sector's 
current production capacity and broader infrastructure limitations, we 
do not believe that an expansion in production and use of this 
magnitude is possible in 2015 or 2016. Just as importantly, volumes on 
the order of 4.5 billion gallons in 2015 and 5.7 billion physical 
gallons in 2016 are far in excess of what could actually be consumed in 
this short timeframe. This volume of BBD would constitute about 8% of 
the diesel pool in 2015 and 10% in 2016.\36\ Although most medium and 
heavy-duty engine manufacturers warrant the use of blends up to B20 in 
their more recent models, some light-duty engine manufacturers do not, 
and the majority of highway and nonroad diesel engines in use today are 
warranted for no more than 5% biodiesel. Also, biodiesel concentrations 
in the winter months are sometimes kept to lower levels by engine 
owners due to cold weather operability and storage concerns. The 
National Biodiesel Board has extensive efforts underway working with 
the vehicle and engine manufacturers to continue to expand product 
offerings capable of operating on B20, working with their membership to 
improve fuel quality, expanding infrastructure to address cold 
temperature issues, and working with dealers and technicians to clear 
away obstacles standing in the way of expanding biodiesel acceptance in 
the marketplace.\37\ There are also efforts to increase the use of 
biodiesel in heating oil. These will continue to bear fruit, allowing 
the biodiesel volume to continue to rise over time, but not to the 
levels that would be needed in 2015 and 2016 if the additional volumes 
shown in Table II.A.5-1 were met with biodiesel.
---------------------------------------------------------------------------

    \36\ Based on EIA's May 2015 Short-Term Energy Outlook (online 
interactive table), nationwide diesel consumption is projected to be 
57.5 bill gal in 2015 and 58.9 bill gal in 2016.
    \37\ ``NBB Technical Update for EPA, April 30, 2015'' in docket 
EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------

    Alternatively, if all of the additional volumes were ethanol, the 
U.S. would need to consume volumes of E85 far higher, in our 
estimation, than the market is capable of supplying: in 2015 the 
required volume of E85 would need to be about 6.4 billion gallons, 
while in 2016 it would need to be about 9.2 billion 
gallons.38 39 These volumes are 30-50 times higher than 
actual E85 consumption in 2014, and would require many of those FFVs 
that do not have an E85 retail outlet anywhere close by to use it.\40\ 
Moreover, a majority of this additional ethanol would need to be 
advanced, and currently the only substantial source of advanced ethanol 
is imported sugarcane ethanol from Brazil which has recently increased 
its own ethanol use requirements. In order to meet the statutory volume 
requirement for advanced biofuel, the U.S. would need to import at 
least 3.0 billion gallons in 2015 and 4.7 billion gallons in 2016.\41\ 
Such volumes would be on the order of ten times higher than actual 
annual imports in the past. The highest volume of Brazilian sugarcane 
ethanol that has ever been imported was 680 million gallons in 2006, 
and in recent years ethanol imports have been considerably lower.\42\ 
In 2014, imports were only 64 million gallons.\43\ While production of 
sugarcane ethanol in Brazil has increased, demand for ethanol in Brazil 
has also increased. For instance, Brazil recently increased the 
required ethanol content of gasoline from 25% to 27.5%.\44\ As a 
result, we believe that exports of 3.0--4.7 billion gallons from Brazil 
to the U.S. in the 2015--2016 timeframe are infeasible.
---------------------------------------------------------------------------

    \38\ In general when discussing efforts to increase the use of 
ethanol beyond the blendwall we focus on the volume of E85 that is 
consumed, since volumes of E15 are likely to be small in 2016. See 
additional discussion of this issue in Section II.D.1 below.
    \39\ Due to relative ethanol content and the fact that E85 
displaces some E10, each gallon of ethanol above the E10 blendwall 
requires the use of 1.51 gallons of E85.
    \40\ Further discussion of the E10 blendwall can be found in 
Section II.D.1.
    \41\ The balance of the additional volumes needed, as shown in 
Table II.A.5-1, would most likely be corn-ethanol.
    \42\ 42 Ethanol import data from EIA, representing imports 
directly from Brazil and indirectly through the Caribbean Basin 
Initiative (CBI) and the Central America Free Trade Agreement 
(CAFTA). http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_epooxe_im0_mbbl_m.htm.
    \43\ Based on import data from EMTS.
    \44\ ``Brazil Hikes Ethanol Blend in Gasoline to 27%,'' 
DownstreamBusiness.com, March 12, 2015.
---------------------------------------------------------------------------

    The additional volume of 4.22 billion gallons in 2015 or 6.06 
billion gallons in 2016 could also be satisfied through production and 
use of a combination of BBD and E85. However, even in this case the 
volumes are untenable. Figure II.A.5-1 shows the range of possibilities 
for both 2015 and 2016.

[[Page 33117]]

[GRAPHIC] [TIFF OMITTED] TP10JN15.002

We recognize that the market could potentially reach higher total 
volumes than those reached in 2014 by using a combination of biodiesel 
and E85. Even so, we believe that the market could not reach the 
volumes specified in the statute. For instance, one possible 
combination for 2016 would be 4.5 billion gallons of E85 and 3.7 
billion gallons of biodiesel. While both of these volumes are 
considerably less than the maximums that would be required if the 
market supplied only one or the other, nevertheless both levels appear 
to be beyond the reach of the market under current circumstances. Based 
on this assessment, we do not believe that the statutory volumes for 
advanced biofuel and total renewable fuel can be met in 2015 or 2016.

B. Overview of Approach to Determining Volume Requirements

    Although the statute does not require that EPA issue a waiver of 
the statutory applicable volumes when EPA determines that there is an 
inadequate domestic supply of renewable fuel, we are in fact proposing 
to do so.\45\ However, we are proposing to exercise that authority only 
to the extent necessary to remove the inadequacy in supply. That is, 
our objective in exercising the general waiver authority is to set the 
volume requirements at the boundary between an adequate domestic supply 
and an ``inadequate domestic supply.'' \46\ One way of expressing this 
objective is to say we are seeking to determine the maximum volumes of 
renewable fuel that are achievable in light of supply constraints. This 
is a very challenging task not only in light of the myriad complexities 
of the fuels market and how individual aspects of the industry might 
change in the future, but also the fact that we cannot precisely 
predict how the market will respond to the volume-driving provisions of 
the RFS program. Thus the determination of the maximum achievable 
volumes is one that we believe necessarily involves considerable 
exercise of judgment. To this end, we are proposing ``maximum 
achievable'' volumes of advanced biofuel and total renewable fuel in 
this package that reflect our judgment as to where the intersection 
between adequate domestic supply and inadequate domestic supply might 
fall. There are a number of indications, described below, that the 
volumes we are proposing today represent a reasonable estimate of the 
maximum volumes achievable.
---------------------------------------------------------------------------

    \45\ 211(o)(7)(A) says, ``The Administrator . . . may waive the 
requirements . . .'' [emphasis added]
    \46\ As discussed in Section II.A, EPA has considerable 
discretion in exercising the cellulosic waiver authority, and is not 
constrained to consider any particular factor or list of factors in 
doing so. Nevertheless, EPA is proposing to base its exercise of the 
cellulosic waiver authority on the same general considerations 
justifying its use of the general waiver authority--availability of 
renewable fuel and the legal and practical constraints on their 
supply to vehicles and other qualifying uses. We invite comment on 
this approach.
---------------------------------------------------------------------------

    In the November 2013 NPRM we projected achievable volumes by 
following an approach wherein we first projected future volumes for 
each of the various components of the renewable fuel pool and then 
combined them using a statistical approach to arrive at overall totals. 
By considering each possible source of renewable fuel in isolation, we 
had intended to reduce the generation of the proposed standards to a 
collection of more easily estimated components. We acknowledged that 
each source of renewable fuel was not independent from other sources 
under the influence of the RFS program, but we nevertheless treated 
them as such. However, because the projected volume of each individual 
source was uncertain, there needed to be flexibility in the proposed 
volume requirements so that excesses of one source could compensate for 
potential shortfalls in another source. To account for this fact, and 
also for the fact that the uncertainty associated with each individual 
source was compounded when those sources were added together, we 
targeted the mean of the projected range of potentially achievable 
volumes rather than some higher value as the basis for the proposed 
volume requirements.
    After further consideration, we believe that the approach we took 
in the November 2013 NPRM underestimated achievable volumes and did not 
fully account for the potential of the market to respond to the 
standards that we set. We have determined that considering each 
potential source of renewable fuel in isolation, adding those sources 
together, and then using the mean of the resulting range was more 
suited to taking a neutral aim at accuracy of supply, rather than 
estimating the maximum volumes that can be achieved from a responsive 
market as implicitly required by the statute. The applicable

[[Page 33118]]

volumes established by Congress in the statute were very ambitious, and 
even in cases where we have determined that the statutory volumes 
cannot be met we are under an obligation to set volume requirements 
that are achievable but still ambitious. Therefore, for this proposal 
we have found it more straightforward and more in keeping with the 
statute's goals to estimate the total maximum achievable volumes for 
both advanced biofuel and total renewable fuel based on the market 
potential for overcoming the various constraints at play. In this 
process was have considered the contributions from individual sources 
of renewable fuel, including E15 and E85, in the aggregate rather than 
individually, and in the context of a market that is responsive to the 
standards that we set.
    Section II.A above lays out the rationale and justification for 
exercising our waiver authority under the Clean Air Act's relevant 
provisions. In determining the specific volumes to propose, we have 
considered not only the current circumstances and limitations in the 
ability to supply renewable fuels to the consumer, but also historic 
renewable fuel growth patterns and maximum supplies, the intent of 
Congress to use the RFS program to drive growth in renewable fuel use, 
and our assessment (based on years of regulating the fuel production 
and distribution industry) of the ability of the RFS program to effect 
changes that will result in growth. As a result, our proposed approach 
envisions growth in supply beyond historical levels as envisioned by 
the statute. This section provides an overview of our approach to 
determining the proposed volume requirements.
1. Fulfilling Congressional Intent To Increase Use of Renewable Fuels
    Although there is scant legislative history for the Energy 
Independence and Security Act (EISA) to confirm the facts that were 
considered by Congress at the time of enactment, we believe that when 
Congress specified the renewable fuel volume targets that the RFS 
program was to attain, that it likely was with the understanding that 
the growth reflected in the statutory tables of applicable volumes 
would be beyond any previously demonstrated ability of the industry to 
produce, distribute, and consume renewable fuels. For example, the 
annual average growth reflected in the statutory volumes for the time 
period between 2009 and 2022 is 1.6 billion gallons per year for 
advanced biofuel and 1.9 billion gallons per year for total renewable 
fuel. However, in the period 2001 to 2007 leading up to enactment of 
EISA, annual average growth rates were lower: 0.8 billion gallons per 
year for ethanol, which was not advanced biofuel, and 0.07 billion 
gallons per year for biodiesel. The supply of other renewable fuels 
during this timeframe was essentially zero. In other words, Congress 
set targets that envisioned growth at a pace that far exceeded 
historical growth and prioritized that growth as occurring principally 
in advanced biofuels (contrary to historical growth patterns). It is 
apparent, therefore, that Congress intended to require changes that 
would be unlikely to occur absent the new program.
    Moreover, it is highly unlikely that Congress expected the very 
high volumes that it specified in the statute to be reached only 
through the consumption of E10; indeed the statute does not explicitly 
require the use of ethanol at all. At the time EISA was passed in 2007, 
EIA's Annual Energy Outlook for 2007 projected that 17.3 billion 
gallons of ethanol is the maximum that could be consumed in 2022 if all 
gasoline contained E10 and there was no E0, E15, or E85.\47\ However, 
17.3 billion gallons is far less than the 35 billion gallons of 
renewable fuel other than BBD that Congress targeted for use in 2022. 
Thus, if the statutory targets were to be achieved, 17.7 billion 
gallons of renewable fuel would need to be consumed in 2022 either as 
higher level ethanol blends (E11--E85), or as non-ethanol fuels. Such 
levels were far beyond the industry's abilities at the time of EISA's 
enactment, strongly suggesting that Congress expected the RFS program 
to compel the industry to make dramatic changes in a relatively short 
period of time.
---------------------------------------------------------------------------

    \47\ Assumes that AEO2007's 2022 demand for gasoline energy was 
fulfilled entirely by E10. AEO2007 however, projected that 
considerably less gasoline used in 2022 would be E10. We have 
converted the projected 2022 gasoline energy demand into an 
equivalent volume of E10 to determine the maximum volume of ethanol 
that could have been consumed in 2022, based on the AEO2007, if all 
gasoline was E10.
---------------------------------------------------------------------------

    Congress did not explicitly indicate, in EISA or in any other 
document associated with it, the sort of changes that may have been 
expected to occur to reach 36 billion gallons by 2022. Instead, there 
was an implicit assumption that the market would respond appropriately 
to overcome those obstacles to significant growth that might exist. 
Today we know that the changes needed to significantly expand renewable 
fuel use fall into a select number of areas, including:
 Increased production and/or importation of ethanol, primarily 
advanced ethanol
 Increased use of E15 in model year 2001 and later vehicles
 Increased use of E85 or other higher level ethanol blends in 
flex-fuel vehicles (FFVs)
 Increased production and/or importation of non-ethanol 
biofuels (e.g., biodiesel, renewable diesel, renewable gasoline, and 
butanol) for use in conventional vehicles and engines
 Increased use of biogas in CNG vehicles
 Increased use of renewable jet fuel and heating oil
 Increased use of non-food based feedstocks
 Co-development of new technology vehicles and engines 
optimized for new fuels

In the near term we expect that increases in E85 and biodiesel will 
dominate efforts to increase the use of renewable fuel, with smaller 
roles played by other avenues (e.g., increased E15 use). In the longer 
term, sustained ambitious volume requirements are necessary to provide 
the certainty of a guaranteed future market that is needed by 
investors; the development of new technology won't occur unless there 
is clear profit potential, and it requires multiple years to build new 
production, distribution, and consumption capacity. We believe that the 
approach we take to setting the standards must be consistent with 
Congress' clear goal of compelling the industry to make dramatic 
changes to increase renewable fuel use. To this end, the approach 
presented in this action makes use of the statutory waiver authorities 
only to the degree necessary to ensure that the resulting volumes of 
advanced biofuel and total renewable fuel are within reach of the 
market.
    We believe that over time use of both higher level ethanol blends 
and non-ethanol biofuels can and will increase, consistent with 
Congress' intent in enacting EPAct and EISA. As stated above, while 
Congress provided waiver authority to account for supply challenges, we 
do not believe that Congress intended the renewable fuels market to be 
ultimately constrained by the E10 blendwall or any other particular 
limitation that may exist in supplying renewable fuels. The fact that 
Congress set volume targets reflecting increasing and substantial 
amounts of renewable fuel use clearly signals that it intended the RFS 
program to create incentives to increase renewable fuel supplies and 
overcome supply limitations. Notwithstanding these facts,

[[Page 33119]]

Congress also authorized EPA to adjust statutory volumes as necessary 
to reflect situations where only partial progress had been made towards 
eliminating supply limitations, as well as to address situations 
involving unexpected severe economic or environmental harm resulting 
from program implementation.
2. RFS Program Mechanisms and Their Role in Supporting Growth in 
Renewable Fuel Use
    Congress charged EPA with implementing a program whose explicit 
goal is increased renewable fuel use over time, and EPA, in developing 
an implementation framework, sought to achieve this goal in a fashion 
that maximizes flexibility and the power of the marketplace, while at 
the same time recognizing the complex and disaggregated structure of 
the fuel production and distribution systems. EPA created a system 
whereby renewable fuel producers generate RINs for each gallon of 
renewable fuel produced. These RINs, under certain conditions, can be 
separated from the renewable fuel and bought and sold by registered 
parties. They are ultimately used by obligated parties as a means of 
demonstrating compliance with their renewable volume obligations. In 
establishing a compliance approach based on RINs, EPA sought to 
encourage efficient, market-based solutions to the challenges 
associated with increasing the production, distribution, and 
consumption of renewable fuels.
    The RIN system is the mechanism established by EPA for obligated 
parties to demonstrate compliance with the standards, and is designed 
to provide obligated parties flexibility in the means they use to 
demonstrate compliance. The RFS program, acting through the mechanism 
of the RIN system, operates to provide an incentive for renewable fuel 
producers to increase the production of renewable fuels by, in effect, 
increasing the price blenders and obligated parties are willing to pay 
for renewable fuels. Under the RFS program, renewable fuel producers 
sell not only the fuels they produce, such as ethanol or biodiesel, but 
also the RINs that are ``assigned'' to the renewable fuel. As the 
demand for RINs increases, the willingness of the market to pay for 
renewable fuels and the RINs assigned to them also increases. When 
working efficiently, this system allows renewable fuel producers to 
continue to profitably market renewable fuel at times that would 
otherwise result in negative margins, such as when the price of 
feedstock or other inputs are unusually high, the price of the 
petroleum fuels that renewable fuels replace is unusually low, or when 
market demand for renewable fuel is low. In this way the RFS program, 
through the RIN system, also assists renewable fuel producers seeking 
to finance the construction of new facilities, especially facilities 
capable of producing cellulosic or advanced biofuels, by providing 
certainty that there will be a market for increasing volumes of 
renewable fuels.
    The RIN system should also incentivize the development of the 
renewable fuel distribution infrastructure by helping to decrease the 
net cost of renewable fuels. As mentioned, when fuel blenders or 
obligated parties purchase renewable fuel directly from renewable fuel 
producers this fuel generally comes with an assigned RIN. When a fuel 
blender blends the renewable fuel with petroleum-based fuel to create 
finished transportation fuel, the blender is able to separate and sell 
the RIN that was previously assigned to the renewable fuel. Whatever 
price the fuel blender or obligated party receives for the RIN can be 
thought of as reducing the net purchase price of the renewable fuel. 
For example, if a fuel blender purchases a gallon of ethanol with an 
attached RIN for $1.50 and, after blending the ethanol to create 
transportation fuel, sells the RIN for $0.50, the blender has 
effectively paid $1.00 for the gallon of ethanol without the RIN. The 
higher the price received for the RIN, the lower the effective cost of 
the renewable fuel. Higher RIN prices therefore enable fuel blenders to 
market finished fuels that contain renewable fuel components at lower 
prices by allowing them to purchase renewable fuels for a lower 
effective price. A fuel blender can choose not to reduce the price of 
the blended fuel and keep the value associated with the RIN as profit, 
or they can attempt to increase their market share by passing along the 
lower effective purchase price of the renewable fuel to the customers 
in the price of their fuel blends.\48\ By increasing the potential 
profitability of blending renewable fuels, higher RIN prices can 
incentivize the build out of the infrastructure necessary to blend and 
distribute renewable fuel blends as parties seek to enter or expand 
their position within this market.\49\
---------------------------------------------------------------------------

    \48\ In competitive markets, such as the market for E10, fuel 
blenders must reflect the lower effective prices of renewable fuel 
(ethanol) in the price of the E10. For emerging markets, such as 
E85, there may be greater opportunities for fuel blenders to 
withhold profit due to a lack of market competition until such a 
time as other parties enter the E85 market.
    \49\ Although not directly relevant to the establishment of the 
proposed standards, for further background information on EPA's 
understanding of the RIN and renewable fuel market dynamics see ``A 
Preliminary Assessment of RIN Market Dynamics, RIN Prices, and Their 
Effects,'' Dallas Burkholder, Office of Transportation and Air 
Quality, US EPA. May 14, 2015, EPA Air Docket EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------

    Finally, the RFS program, operating through the RIN system should 
increase the consumption of renewable fuels by ultimately decreasing 
the cost of renewable fuel blends to consumers relative to the cost of 
fuel blends that do not contain renewable fuels. RIN prices can be used 
by blenders to decrease the effective cost of renewable fuel used to 
create transportation fuel. As more market participants enter the 
renewable fuel blending and distribution marketplace, and consumers 
learn to accurately compare the cost of E10 and other higher-level 
ethanol blends, over some period of time the competition among 
renewable fuel blenders and distributors should result in a greater 
portion of the reduced effective cost of renewable fuel blends enabled 
by the sale of the RIN to be passed on to fuel consumers. 
Transportation fuel that contains renewable fuels should then reflect 
these cost reductions relative to transportation fuel containing lower 
volumes of renewable fuel (or no renewable fuel) in proportion to their 
renewable fuel content; transportation fuel containing a greater 
percentage of renewable fuels should be priced lower than 
transportation fuel containing a lesser percentage of renewable fuel. 
Motivated by the lower fuel prices for transportation fuel containing 
greater renewable fuel content (such as E85) relative to fuels 
containing less renewable fuel (such as E10), consumers will then 
choose to purchase increasing volumes of renewable fuel. If the price 
discount for renewable fuels is great enough for a long enough period 
of time, they may also be motivated to purchase vehicles capable of 
utilizing fuels containing higher percentages of renewable fuels, such 
as flexible fuel vehicles.
    While economic theory and the illustration in the preceding 
paragraphs support the idea that RINs can serve as a mechanism to 
increase the production, distribution, and consumption of renewable 
fuels, it is important to note that this is dependent on the 
marketplace working efficiently. In reality, there is a timing 
component associated with each of the steps outlined above. Renewable 
fuel producers and investors must see a sustained, profitable market 
for renewable fuels before they will be willing to invest in the 
construction of additional fuel production capacity,

[[Page 33120]]

which may take years to construct and bring online. Fuel blenders and 
distributors must see sustained profit opportunities before they are 
willing to invest in new infrastructure to increase their capacity to 
blend and distribute renewable fuels. Market competition must increase 
before fuel blenders and distributors are willing to pass along the 
reduced effective price of renewable fuel to consumers. New fueling 
infrastructure may need to be built to facilitate the sales of fuels 
containing an increasing percentage of renewable fuel. Consumers will 
need to learn to be able to identify value in fuel blends containing 
higher proportions of renewable fuels, as well as their vehicle's 
ability to handle these fuel blends and where they are available for 
purchase.
    This suggests that while the RFS program established by EPA can be 
effective at increasing the renewable content of transportation fuels 
over time, it likely cannot substantially increase the available supply 
of renewable fuels to consumers to the volumes envisioned by Congress 
in the short term. The program, as Congress clearly indicated, is 
intended to grow over a period of years. EPA remains committed to 
promoting renewable fuel production and use in the United States, and 
we believe the RFS program will be effective in achieving this end. Due 
to the current state of the renewable fuel production, distribution, 
and consumption marketplace, we believe the required volumes of 
renewable fuel must be reduced below the statutory levels in the 
immediate near term. An approach that provides volume targets that 
balances aggressive growth with marketplace realities is necessary, is 
consistent with the statute and Congressional intent, and is the 
intended outcome of this proposed action.
3. Current and Future Shortfalls in Supply
    In 2013 and 2014, the market supplied less renewable fuel to the 
domestic transportation sector than the statutory targets for those 
years. While the standards for 2013 were not finalized until August 15, 
2013 and the standards for 2014 have not yet been finalized, we do not 
believe that these delays are the only reasons that actual supply fell 
short of the statutory volumes. Shortfalls in production and import 
capability of non-ethanol renewable fuels and constraints on the supply 
of ethanol to vehicles were also significant factors in not meeting the 
statutory volume targets, and we expect these factors to continue in 
2015 and beyond.
    Supplies of BBD and advanced biofuel in 2013 exceeded the statutory 
requirements for these two categories of renewable fuel by a wide 
margin. In addition, there was a record high of about 250 million 
ethanol-equivalent gallons of non-advanced biodiesel and renewable 
diesel imported in 2013. However, supply of total renewable fuel fell 
far short of the statutory target of 16.55 billion gallons, reaching 
only 15.54 billion gallons. The most likely source of additional 
renewable fuel that could have made it possible to reach a total of 
16.55 billion gallons was corn-ethanol. Consuming an additional 1 
billion gallons of ethanol would have required consumption of E85 to 
increase to more than 1.5 billion gallons.\50\ The fact that the market 
only achieved about 130 million gallons of E85 in 2013 despite 
substantial increases in the production and import of non-ethanol 
blends and the substantial draw-down in the bank of carryover RINs 
indicates that E85 consumption was constrained.\51\ We believe these 
constraints included those related to infrastructure (e.g., 
availability of E85 at retail and the number of FFVs in the fleet) and 
poor pricing of E85 relative to E10 that fails to overcome the lower 
energy content of E85 and any inclinations that FFV owners may have to 
opt to use gasoline.\52\
---------------------------------------------------------------------------

    \50\ E85 is assumed to contain 74% ethanol, consistent with the 
concentration assumed by EIA. Each gallon of E85 displaces some E10. 
The net result of these two factors is that every gallon of ethanol 
that must be consumed above the E10 blendwall requires 1.51 gallons 
of E85.
    \51\ Because the applicable volume requirement for total 
renewable fuel in 2013 was 16.55 bill gal, but actual supply was 
only 15.54 bill gal, there was a shortfall of about 1 bill RINs 
needed for compliance.
    \52\ For a further discussion of the ability of the RFS program, 
acting through the RIN system, to impact E85 infrastructure and 
pricing as well as the limitations of the RFS program see Section 
II.B.2.
---------------------------------------------------------------------------

    A similar situation existed in 2014, except that both the advanced 
biofuel and total renewable fuel volumes supplied fell short of the 
statutory volume targets. We recognize that the market may have been 
influenced by the proposed volume requirements for 2014 specified in 
the November 2013 Notice of Proposed Rulemaking (NPRM) which included 
proposed reductions from the statutory levels.\53\ However, there are 
reasons to believe that the November 2013 NPRM was not the only factor 
resulting in actual supply falling short of the statutory volumes. Not 
only did we request comment on volume requirements higher than those we 
proposed, but there was an inherent possibility that we might finalize 
the statutory volumes for 2014. Indeed, we received over 340,000 
comments on the November 2013 NPRM, many of which requested that we set 
the 2014 volume requirements at the statutory levels. We believe that 
obligated parties would likely act prudently to minimize the risk that 
they would be out of compliance regardless of the outcome in the final 
rule. The fact that total demand for gasoline was about the same in 
2014 as it was in 2013 suggests that the E10 blendwall also played a 
role in limiting the supply of renewable fuel. Thus the facts suggest 
that factors other than the NPRM were principally responsible for 
renewable fuel use being considerably below the statutory volume 
levels. In particular, we believe these factors include insufficient 
production and import of non-ethanol renewable fuels, and constraints 
on the supply of ethanol to vehicles that can consume it.
---------------------------------------------------------------------------

    \53\ 78 FR 71732, November 29, 2013.
---------------------------------------------------------------------------

    Our view that factors other than the November 2013 NPRM were 
responsible for renewable fuel use being considerably below the 
statutory volume levels in 2014 is also supported by the fact that the 
supply of advanced biofuel was insufficient to fill the gap created by 
the shortfall in cellulosic biofuel. Under the statute, cellulosic 
biofuel was intended to fill 1.75 billion gallons out of the 3.75 
billion gallons advanced biofuel applicable volume target. In reality, 
cellulosic biofuel was only 0.03 billion gallons. The market did 
increase the supply of other advanced biofuel, but those increases were 
insufficient to reach the statutory volume target. Specifically, the 
market supplied 1.63 billion gallons (2.5 billion ethanol-equivalent 
gallons) of BBD but only 143 million gallons of other advanced biofuel. 
We expect the gap created by the shortfall in cellulosic biofuel to 
widen further in 2015 and 2016 as the statutory volume targets quickly 
increase but the supply potential of the market increases at a slower 
rate.
    Supply of ethanol in higher level ethanol blends, primarily E15 and 
E85, also fell far short of what would have been needed to reach the 
statutory volumes of total renewable fuel in 2014. While the total 
volume of ethanol that could in theory have been consumed in 2014 in 
the form of E15 and E85 was about 26 billion gallons \54\ based on the

[[Page 33121]]

consumption capacity of vehicles that are legally permitted to use 
these fuels, constraints such as those imposed by blending and 
dispensing infrastructure and poor pricing relative to E10 resulted in 
only about 100--200 million gallons of ethanol actually being consumed 
as E15 and E85 in 2014.\55\ Use of E15 in 2014 was limited by the very 
small number of stations choosing to market it, which numbered less 
than 100 by the end of 2014 out of a total of more than 150,000 
stations nationwide. Similarly, the number of retail stations offering 
E85 was about 3,000 by the end of 2014, representing only about 2% of 
stations nationwide.\56\ There were about 14 million FFVs in the fleet 
in 2014, representing about 6% of all light-duty cars and trucks. 
However, with only about 2% of retail stations offering E85, only a 
minority of those FFVs had an E85 refueling station nearby. The 
relative pricing of E15 and E85 compared to E10 at the retail level 
also likely played a role in sales of these higher level ethanol blends 
falling far below the available consumption capacity; while some 
retailers passed savings associated with high ethanol RIN value along 
to consumers, increasing demand for higher level ethanol blends, this 
was not typical across the nationwide market.\57\
---------------------------------------------------------------------------

    \54\ 26 bill gal estimate assumes that FFVs in the fleet in 2014 
had a cumulative consumption capacity of about 13 billion gallons of 
E85, that E85 would average 74% ethanol, and that model year 2001 
and later conventional vehicles had a cumulative consumption 
capacity of about 110 billion gallons of E15 which would contain 15% 
ethanol.
    \55\ Low actual consumption compared to consumption capacity may 
also be a function of vehicle warranties which do not explicitly 
permit the use of E15.
    \56\ Source: DOE's Alternative Fuels Data Center.
    \57\ The largest nationwide average discount for E85 relative to 
gasoline reported in the Department of Energy's quarterly Clean 
Cities Alternative Fuel Price Report in 2014 was 13.8% (October 
2014; the average gasoline price was $3.34 per gallon and the 
average E85 price was $2.88 per gallon). The Energy Information 
Administration estimates that E85 contains 74% ethanol on average, 
requiring a discount of approximately 22% per gallon for E85 
relative to gasoline for E85 to priced equal to gasoline on a dollar 
per BTU basis. Price discounts for E85 relative to gasoline were 
higher or lower for individual regions, states, and stations.
---------------------------------------------------------------------------

    Since 2013, the number of FFVs in the fleet and the number of 
retail stations offering E15 and E85 have grown, and we believe that 
this growth has been influenced in part by the RFS program. However, 
this growth has been very modest. Similarly, growth in the ability of 
the market to supply advanced biofuel other than cellulosic biofuel and 
BBD has also been modest. Current indications are that growth in all of 
these areas will continue, and the capability exists for growth to 
accelerate. However, growth is very unlikely to reach a level that 
would enable the statutory volume targets to be met in the near term. 
As a result, we believe that there will continue to be constraints on 
the total volume of renewable fuel that can be consumed in 2015 and 
2016.

C. Proposed Volume Requirements

    The purpose of the RFS program is to ensure that renewable fuels 
are increasingly used to replace or reduce the use of fossil-fuel based 
transportation fuel. Ethanol is currently the most widely used 
renewable fuel for this purpose, with biodiesel being the second most 
common renewable fuel and other fuels making up a significantly smaller 
portion of the pool. For non-ethanol renewable fuels, the primary 
supply constraint at present is the projected shortfall in domestic 
production or importation of qualifying volumes. For ethanol blends, 
there are both legal and practical constraints on the amount of ethanol 
that can be supplied to the vehicles that can use it, notwithstanding 
the considerable volumes that can be produced and/or imported. 
Gasoline-powered vehicles and engines have for many years been designed 
and warranted to use gasoline with ethanol up to 10%, and only blends 
up to 10% ethanol have historically been legal for use. There are, 
however, two other avenues through which gasoline with higher 
concentrations of ethanol can be used. In 2010 and 2011, EPA granted 
partial waivers that together allow 2001 and later model year light-
duty motor vehicles to use gasoline containing up to 15% ethanol.\58\ 
While such fuels are legal, retail service stations have been slow to 
offer them. In addition, manufacturers have been increasingly 
warranting their new vehicles to operate on E15 and have for some time 
also been designing and marketing FFVs capable of operating on 
denatured ethanol concentrations as high as 85%. These vehicles 
represent about 7% of the in-use fleet in 2015. However, like the use 
of E15 in 2001 and later model year vehicles, use of E85 in FFVs has 
been limited in part by the relatively small number of retail stations 
offering it.
---------------------------------------------------------------------------

    \58\ 75 FR 68,094 (Nov. 4, 2010) (First E15 Partial Waiver 
Decision); 76 FR 4662 (Jan. 26, 2011) (Second E15 Partial Waiver 
Decision).
---------------------------------------------------------------------------

    While there are constraints on expansion of renewable fuel use, 
markets have a demonstrated ability to overcome constraints with the 
appropriate policy drivers in place, as discussed in Section II.B.2 
above. We believe that the RFS program can drive renewable fuel use, 
and that it is appropriate to consider the potential of the market to 
respond to the standards we set when we assess the amount of renewable 
fuel consumption that can be achieved. Thus, we are proposing volume 
requirements for advanced biofuel and total renewable fuel that take 
into account both the constraints on supply and the ability of the RFS 
program to drive consumption.
1. 2014
    Since 2014 has passed, we are proposing to base the applicable 
volume requirements for that year on the number of RINs supplied in 
2014 that are expected to be available for use in complying with the 
standards. These RINs would include those that were generated for 
renewable fuel produced or imported in 2014 as recorded in the EPA-
Moderated Transaction System (EMTS), minus any RINs that have already 
been retired for non-compliance reasons or would be expected to be 
retired to cover exports of renewable fuels.\59\ RINs that have already 
been retired for non-compliance purposes include those retired to 
correct for invalidly generated RINs, volumes for renewable fuel that 
was spilled after RIN generation, etc. These RINs are recorded in EMTS 
on an ongoing basis. However, the total number of RINs that would be 
expected to be retired to cover exports of renewable fuel in 2014 will 
only be recorded in EMTS after the compliance demonstration deadline 
for 2014 has passed. Since the compliance deadline for all 2014 RIN 
exports has not yet passed, we are proposing to estimate likely RIN 
retirements for renewable exports using renewable fuel export 
information from EIA.\60\ If RINs retired for exports are recorded in 
EMTS prior to issuance of the final rule, we will use EMTS data instead 
of EIA data in determining supply for 2014 in the final rule.
---------------------------------------------------------------------------

    \59\ Although we estimate that there are approximately 1.8 
billion carryover RINs available, we are proposing not to count 
those RINs as part of the ``supply'' for 2014 or later years, for 
the reasons described in Section II.F.
    \60\ http://www.eia.gov/dnav/pet/pet_move_expc_a_EPOORDB_EEX_mbbl_m.htm.
---------------------------------------------------------------------------

    Actual supply in 2014 is shown in Table II.C.1-1 below. Further 
details are provided in a memorandum to the docket.\61\ Since EIA does 
not distinguish exports by D code, we assumed based on past practice 
that all ethanol exports represent D6 ethanol, and all biodiesel 
exports represent D4 BBD. We expect

[[Page 33122]]

that any errors introduced by this assumption will be very small.
---------------------------------------------------------------------------

    \61\ ``Summary of data on 2014 RIN Generation and Consumption,'' 
memorandum from David Korotney to EPA docket EPA-HQ-OAR-2015-0111.

                                       Table II.C.1-1--2014 Actual Supply
                                                 [Million RINs]
----------------------------------------------------------------------------------------------------------------
                                                     Domestic
                     D code                         production        Imports         Exports     Net supply \a\
----------------------------------------------------------------------------------------------------------------
3 & 7...........................................              33               0               0              33
4...............................................           2,131             496             124           2,502
5...............................................              79              64               0             143
6...............................................          13,759             336             846          13,250
All advanced biofuel (D3+D4+D5+D7)..............           2,243             560             124           2,679
All Renewable fuel (D3+D4+D5+D6+D7).............          16,002             896             970          15,929
----------------------------------------------------------------------------------------------------------------
\a\ Totals may not add up due to rounding.

Based on these volumes, we are proposing the applicable volume 
requirements for advanced biofuel and total renewable fuel for 2014, as 
shown in Table II.C.1-2 below. Discussion of the proposed cellulosic 
biofuel and BBD volume requirements for 2014 can be found in Sections 
IV.C and III.C, respectively.

          Table II.C.1-2--Proposed Volume Requirements for 2014
                            [Billion gallons]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Advanced biofuel...............................................     2.68
Renewable fuel.................................................    15.93
------------------------------------------------------------------------

2. 2015
    Despite the fact that this proposal is being released well into 
2015, we believe that the market can achieve growth this year in 
comparison to the volumes that were supplied in 2014 (though the rate 
of growth will not be as high as compared to a scenario under which the 
market is given the full lead time envisioned by the statute). To this 
end, we are proposing that the volume requirement for advanced biofuel 
in 2015 be 2.90 billion gallons. The market has already demonstrated 
that this level is achievable, having reached 2.92 billion gallons in 
2013. Nevertheless, it would be a significant increase from actual 
supply in 2014 of 2.68 billion gallons and would recognize the lower 
volumes already supplied to date in 2015. The primary reason that 2014 
advanced biofuel volumes were below 2013 volumes is that imports of 
sugarcane ethanol were 435 million gallons in 2013 but only 64 million 
gallons in 2014.\62\ If this reduction had not occurred in 2014, total 
advanced biofuel volumes could have been above 3.00 billion gallons. 
Therefore, we believe that 2.90 billion gallons of advanced biofuel is 
within reach of the market in 2015, despite late issuance of this 
proposal. While it would require the market to supply more advanced 
biofuel in 2015 than was actually supplied in 2014, supplies that 
increase annually is exactly what Congress expected the RFS program to 
compel. Indeed, an examination of the volumes of advanced biofuel set 
forth in the Clean Air Act shows that Congress intended that the rate 
of growth accelerate every single year between 2009 and 2015, though 
cellulosic biofuel represents the majority of this growth.
---------------------------------------------------------------------------

    \62\ Based on import data from EMTS.
---------------------------------------------------------------------------

    A 2015 volume requirement of 2.90 billion gallons for advanced 
biofuel would be a substantial reduction from the statutory volume 
target of 5.50 billion gallons. As discussed in Section II.A.4, we 
believe that a reduction from the statutory volumes is necessary given 
the limitations on production and import capabilities and constraints 
imposed by the ability of vehicles and engines to use renewable fuels, 
particularly ethanol. Growth in advanced biofuel supply from 2014 to 
2015 would be about 220 million gallons, substantially less than the 
growth in the statutory volume target of 1,750 million gallons. 
However, growth of 220 million gallons from 2014 to 2015 would require 
the market to respond to the standard we set by supplying more advanced 
biofuel than would be expected absent the RFS program, and to do so in 
substantially less than a full calendar year. Indeed without the RFS 
program, actual supply in 2015 may be no different than it was in 2014. 
Nevertheless, we believe that 2.90 billion gallons of advanced biofuel 
is possible given the potential for higher volumes of domestic and 
imported advanced biofuels, including biodiesel and sugarcane ethanol, 
among others, and would achieve both the intent of Congress to drive 
the market forward and also acknowledge the clear limitations on supply 
that exist. We believe that 2.90 billion gallons represents the maximum 
amount of advanced biofuel that can be supplied in 2015.
    Similarly, for total renewable fuel, we are proposing a reduction 
in the 2015 statutory volume target of 20.50 billion gallons to 16.30 
billion gallons. While the statutory volume target for total renewable 
fuel cannot be achieved in 2015 as discussed in Section II.A.4, we 
believe that some growth can be expected in 2015 as the annual volume 
requirement we set in the RFS program drives expansion in production 
and import capabilities and infrastructure, and incentivizes more 
favorable pricing of renewable fuels in the marketplace. Much of the 
increase from 2014 of about 370 million gallons would result from the 
increase in the advanced biofuel standard of 2.90 billion gallons 
discussed above, with the remainder resulting from growth in the use of 
conventional renewable fuel such as corn ethanol. We believe that the 
market has already demonstrated that this increment of growth is 
possible. For instance, growth in total renewable fuel in 2014 was 390 
million gallons, and in 2013 it was even higher, despite the fact that 
in both years the gasoline pool was essentially saturated with 
ethanol.\63\ Thus, growth of 370 million gallons is within reach of a 
responsive market even though 2015 is partially over.
---------------------------------------------------------------------------

    \63\ According to EIA's Short-Term Energy Outlook (May 2015), 
pool-wide ethanol content was about 9.75% in 2013 and 9.85% in 2014.
---------------------------------------------------------------------------

    We request comment on our proposal for 2.90 billion gallons of 
advanced biofuel and 16.30 billion gallons of total renewable fuel for 
2015. Specifically, we request comment on whether these proposed 
volumes appropriately reflect constraints on supply resulting from the 
E10 blendwall and limitations in production and import capabilities, as 
well as the ability of the market to respond to the standards we set in 
the time available. Since we recognize that these proposed volumes 
represent our

[[Page 33123]]

proposed judgment as to the maximum amount of renewable fuel that can 
be supplied in 2015, and commenters may have information that supports 
a different assessment, we request comment on whether higher or lower 
volume requirements for advanced biofuel and total renewable fuel for 
2015 would be more appropriate. For example, some commenters may view 
the market as unable to overcome barriers such as significant 
availability of E85 to consumers in the 2015 timeframe or significantly 
higher volumes of BBD than were supplied in 2014, and would therefore 
suggest applicable volumes for 2015 closer to what we are proposing for 
2014. Other commenters may be more optimistic about the ability of the 
market to respond to this NPRM and the final rule in the time period 
remaining in 2015, and may suggest that once we have exercised our 
authority to waive volumes of advanced biofuel and total renewable fuel 
under the cellulosic waiver authority, additional volume waivers under 
the general waiver authority for total renewable fuel for 2015 are 
unnecessary. Finally, while we believe that growth in advanced biofuel 
should be a priority in light of the lifecycle greenhouse gas emissions 
reductions goals of the statute, and have reflected this view in our 
proposed volume requirements, we also request comment on whether a 
different relative growth in advanced biofuel and conventional 
renewable fuel would be appropriate.
3. 2016
    We intend to finalize the volume requirements for 2016 by November 
30 of this year, in accordance with the schedule set forth in the 
statute. As a result, obligated parties and other stakeholders in the 
marketplace will have the full compliance year to respond to the 
standards that we set for 2016, unlike for 2015 when they will only 
have part of the year to respond to the standards. We believe, 
therefore, that the supply of renewable fuels to vehicles can grow more 
dramatically in 2016 than in 2015. Moreover, as for the 2015 proposal, 
we believe that this growth should emphasize advanced biofuels, as 
Congress envisioned that all renewable fuel growth after 2014 would 
arise from growth in advanced biofuel as opposed to conventional fuels. 
Advanced biofuels are required to have substantially greater GHG 
benefits than conventional renewable fuel. As a program designed not 
only to increase the nation's energy security position but also 
contribute to efforts to reduce impacts of climate change, we believe 
that a focus on growth in advanced biofuel is appropriate. However, we 
also acknowledge that the volume of non-advanced biofuel production and 
use that has been achieved to date falls short of the volumes that 
Congress envisioned. Therefore we believe it is appropriate to provide 
for the continued growth of conventional renewable fuels at this time 
as well.
    We are proposing that the advanced biofuel volume requirement would 
grow by 500 million gallons in 2016, as compared to 2015, while the 
remainder (the non-advanced portion) of the total renewable fuel 
requirement would grow by 600 million gallons in the same timeframe. As 
a result, the 2016 advanced biofuel and total renewable fuel 
requirements would be 3.40 billion gallons and 17.40 billion gallons, 
respectively. The corresponding amount of conventional renewable fuel 
that would be needed would be 14.0 billion gallons. These proposed 
volumes for both advanced biofuel and total renewable fuel represent 
substantial reductions from the volumes specified in the statute for 
2016. While we do expect the market to respond to the standards we set 
to drive changes in production and consumption infrastructure as well 
as more favorable relative pricing, we do not have confidence that 
those changes could occur fast enough to attain volumes larger than we 
are proposing for 2016.
    While the reductions in the statutory volumes that we are proposing 
are substantial, the volume requirements that we are proposing for 2016 
would nevertheless be significantly larger than any previous volume 
requirements. The market would need to respond by increasing domestic 
production and/or imports of renewable fuel, by significantly expanding 
the infrastructure for distributing and consuming that renewable fuel, 
and by improving the relative pricing of renewable fuels and 
conventional transportation fuels at the retail level to ensure that 
they are attractive to consumers. As described more fully in the next 
section, we believe that the market has the capability of doing this in 
2016 and thus reaching the volumes that we are proposing.
    We request comment on our proposal for 3.40 billion gallons of 
advanced biofuel and 17.40 billion gallons of total renewable fuel for 
2016; in particular we request comment on whether these proposed 2016 
volumes appropriately reflect constraints on supply resulting from the 
E10 blendwall and limitations in production and import capabilities, as 
well as the ability of the market to respond to the standards we set in 
the time available. Our intent is to set volumes at the maximum level 
that in our judgment can be supplied to consumers, and we request 
comment on whether higher or lower volume requirements for advanced 
biofuel and total renewable fuel for 2016 would be more appropriate. As 
for 2015, we request comment on whether volumes closer to those we are 
proposing for 2014 would be more appropriate for 2016, or alternatively 
whether it would be appropriate to only waive volumes of advanced 
biofuel and total renewable fuel under the cellulosic waiver authority 
for 2016 without waiving volumes of advanced biofuel or total renewable 
fuel under the general waiver authority. Finally, while we believe that 
growth in advanced biofuel should be a priority and have reflected this 
view in our proposed volume requirements, we also request comment on 
whether a different relative growth in advanced biofuel and 
conventional renewable fuel would be appropriate.

D. Market Response to Proposed Volume Requirements for 2016

    In recognition of the fact that the various constraints on supply 
that exist today were not as significant in years past, the volumes of 
advanced biofuel and total renewable fuel that we are proposing for 
2016 would require increases from 2014 levels that, while substantial, 
are less than the increases that actually occurred in 2013. Moreover, 
as shown in Figures II.D-1, II.D-2, and II.D-3, the volume requirements 
in 2015 and 2016 would follow an upward trend consistent with that from 
2012-2014, extending the market activities that produced increases in 
past years to the near future.

[[Page 33124]]

[GRAPHIC] [TIFF OMITTED] TP10JN15.003

     
---------------------------------------------------------------------------

    \64\ As described in Section II.C.2, 2014 advanded biofuel 
bolumes were below 2013 volumes primarily because imports of 
sugarcane ethanol were 435 million gallons in 2013 but only 64 
million gallons in 2014. BBD volumes were slightly higher in 2014 
than they were in 2013.

---------------------------------------------------------------------------

[[Page 33125]]

[GRAPHIC] [TIFF OMITTED] TP10JN15.004

    We believe the required volumes being proposed for advanced biofuel 
and total renewable fuel for 2015 and 2016 reflect the maximum volumes 
that can reasonably be expected to be produced and consumed for those 
years. While we acknowledge that there is considerable judgment 
involved in identifying the appropriate volumes, we note that each 
increment is increasingly difficult for the market to accommodate. For 
instance, the use of ethanol in gasoline increased dramatically between 
2000 and 2009, but by 2010 nearly all gasoline contained ethanol. 
Additional volumes of ethanol use in 2010 and thereafter increased much 
more slowly as the market approached the E10 blendwall.
[GRAPHIC] [TIFF OMITTED] TP10JN15.005

[[Page 33126]]

    This trend suggests that increases in renewable fuel use after 2014 
will require more dramatic efforts than in the past. Implementation of 
the RFS program to date has led to ethanol use that is essentially at 
the E10 blendwall today. Any further growth in ethanol volumes must 
entail the use of higher-ethanol blends such as E15 and E85. As the 
volume requirements we are proposing for 2016 represent significant 
increases from 2014, we believe it would be unreasonable to expect the 
market to supply more than the proposed volumes.
    In order to demonstrate that the volume requirements that we are 
proposing are achievable, we investigated a number of scenarios 
involving different types and sources of renewable fuel. Each of these 
scenarios differs in terms of the volumes of higher ethanol blends that 
would be supplied and the relative volumes of such fuels as BBD, 
imported sugarcane ethanol, corn-ethanol, renewable diesel, and other 
non-ethanol renewable fuel. While we cannot predict precisely how the 
market would respond to the standards we are proposing, the fact that 
at least some of the scenarios fall within the reasonably expected 
capabilities of the market demonstrates that the volume requirements we 
are proposing are achievable.
    Section II.D.1 below describes the E10 blendwall, while Section 
II.D.2 uses estimates of ethanol volumes associated with the E10 
blendwall as the basis for a number of volume scenarios that include 
possible volumes of E85 use and the associated need for other renewable 
fuels to meet the proposed volume requirements. While we have focused 
this discussion on our proposal for volumes for 2016, a similar pattern 
would exist with respect to our proposal for 2015 volumes.
1. E10 Blendwall
    In 2007 when Congress enacted the Energy Independence and Security 
Act with provisions for the current RFS program, the gasoline pool was 
composed of about half E10 and half E0. Today it is almost entirely 
E10. While the E0 pool has been shrinking, the pools of E10, E15, and 
higher level ethanol blends up to E85 have been increasing. In the 
context of determining the total volume of ethanol that can be supplied 
to vehicles in 2016, all of these gasoline-ethanol blends could 
potentially play a role.
    For 2016, the portion of the statutory applicable volume for total 
renewable fuel that may be satisfied with non-advanced biofuel (e.g., 
conventional renewable fuel, which is primarily ethanol) is 15.0 
billion, and this amount is 67% of the total renewable fuel volume 
target of 22.25 billion gallons specified by the statute for 2016.\65\ 
However, the ability of the market to use ethanol in 2016 is 
constrained by the E10 blendwall, the volume of ethanol that could be 
used if all gasoline contained 10% ethanol and there were no higher 
level ethanol blends. The amount of ethanol associated with the E10 
blendwall is driven by the total demand for gasoline, and thus ethanol 
consumption will tend to increase if gasoline consumption increases and 
ethanol consumption will tend to decrease if gasoline consumption 
decreases. However, gasoline consumption is in fact declining. Prior to 
EISA's passage, EIA in its AEO 2007 projected that U.S. gasoline 
consumption would rise to about 159 billion gallons in 2016.\66\ 
Instead, gasoline consumption has declined considerably, and EIA now 
predicts that approximately 137 billion gallons of gasoline will be 
consumed in 2016.\67\ If all of the gasoline currently projected to be 
consumed contained 10% ethanol, a total of 13.7 billion gallons of 
ethanol would be used. For the RFS program, the decline in gasoline 
consumption has meant that the E10 blendwall has become constraining 
sooner and at a lower overall volume of ethanol than was expected in 
2007. The trend of declining gasoline consumption is projected to 
continue for a number of reasons, including the increasingly stringent 
GHG and fuel economy standards set by EPA and NHTSA for on-road 
vehicles.
---------------------------------------------------------------------------

    \65\ Notably, by 2015 no more than 15 billion gallons of non-
advanced biofuel may be used for compliance with RFS standards. The 
statute requires that advanced biofuel account for all the growth in 
renewable fuels used to comply with RFS standards beyond 2015.
    \66\ EIA's Annual Energy Outlook 2007: http://www.eia.gov/forecasts/archive/aeo07/pdf/0383(2007).pdf.
    \67\ EIA's May 2015 Short-Term Energy Outlook (STEO).
---------------------------------------------------------------------------

    In the face of declining gasoline consumption, using greater 
volumes of ethanol beyond the E10 blendwall is a function of several 
factors, some legal, and some market-driven. The ability to go beyond 
the E10 blendwall is a function of actions taken by various fuel market 
participants, including obligated parties, renewable fuel producers, 
distributors and marketers, gasoline and diesel retailers, and 
consumers. In this regard, the market has significant potential 
flexibility and opportunities, and we believe that it can respond to 
the standards we set to drive the use of higher ethanol blends, the E10 
blendwall notwithstanding.
    Another constraint on the volume of ethanol that can be consumed is 
the demand for E0. While there will undoubtedly be some volumes of E0 
in 2016, we expect such volumes to be lower than they were in the past 
as the market strives to expand consumption of ethanol under the 
influence of the RFS program. The primary context in which E0 might 
continue to be used is in recreational marine engines or other small 
nonroad engines. As described in a memorandum to the docket, we expect 
that the use of E0 rather than E10 would only reduce the total volume 
of ethanol that can be consumed by about 13 million gallons out of the 
13.69 billion gallons we estimated above.\68\ We have recently been 
made aware of E0 being marketed in some locations, such as Florida 
where recreational marine is a significant market, and in parts of the 
Midwest such as Iowa where concerns over ethanol's impact on other 
small engines may be at play. Nevertheless, we anticipate such E0 
marketing to remain fairly limited given the widening use of ethanol 
overall. As a result, we do not anticipate the volume of E0 having a 
significant impact on ethanol consumption in 2016, particularly in 
light of the offsetting effect of E15 volumes as described below. 
Therefore, we have omitted from the scenarios described below the small 
expected impact of E0 use on total ethanol consumption.
---------------------------------------------------------------------------

    \68\ ``Estimating E0 Volume Sold in the U.S. at marinas'', 
memorandum from Lester Wyborny to EPA docket EPA-HQ-OAR-2015-0111
---------------------------------------------------------------------------

    Efforts to increase the use of ethanol beyond the blendwall is 
primarily a function of the volume of E85 that is consumed, since 
volumes of E15 are likely to continue to be small in 2016. Over the 
last several years, EPA has taken a series of regulatory steps to 
enable E15 to be sold in the U.S. In 2010 and 2011, EPA issued partial 
waivers to enable use of E15 in model year 2001 and newer motor 
vehicles, and in June of 2011, EPA finalized regulations to prevent 
misfueling of vehicles, engines, and equipment not covered by the 
partial waiver decisions. However, growth in the number of retail 
stations offering E15 has been slow--currently there are only about 100 
stations offering it. Even if this number grows more quickly in 2015 
and 2016 than it did previously, such increases would probably not 
increase total ethanol consumption by more than 5-10 million gallons in 
comparison to the use of ethanol in E10.\69\ In the context of the

[[Page 33127]]

offsetting effect of E0 volumes on ethanol use that is described above, 
therefore, we have omitted this small impact on total ethanol 
consumption from the scenarios described below. However, in discussing 
the volume of E85 that might need to be consumed to meet the volume 
requirements we are proposing today, we acknowledge that there may also 
be some E15.
---------------------------------------------------------------------------

    \69\ ``Projection of potential E15 consumption and its impacts 
on total ethanol consumption'', memorandum from David Korotney to 
EPA Air Docket EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------

    We have assumed that E10 contains 10.0% denatured ethanol. This is 
consistent with survey data collected by the Alliance of Automobile 
Manufacturers--indicating that the average ethanol content of all 
gasoline containing at least 5% ethanol is about 9.74%. This estimate 
is based on the use of ASTM International (ASTM) test method D-5599, 
which measures only the alcohol portion of the gasoline, not any 
denaturant that would have been included with the ethanol before it was 
blended into gasoline. Since the denaturant portion of ethanol is at 
least 2%, ethanol that is blended into gasoline contains no more than 
98% ethanol. When blended into gasoline, therefore, the E98 would 
result in a gasoline-ethanol blend containing no more than 9.8% pure 
ethanol, or 10.0% denatured ethanol. Since all RFS ethanol volumes and 
RINs are also calculated on a denatured ethanol basis, it is thus 
appropriate to assume 10.0 percent denatured ethanol. Similarly, all 
references to ``ethanol'' in this NPRM mean denatured ethanol.
2. Volume Scenarios
    The transportation fuel market is dynamic and complex, and the RFS 
program is only one of many factors that determine the relative types 
and amounts of renewable fuel that will be used. Thus, while we set the 
applicable volume requirements for advanced biofuel and total renewable 
fuel, we cannot precisely predict how the market will choose to meet 
those requirements. We can, however, delineate a range of 
possibilities, and doing so provides a means for judging whether the 
proposed volume requirements are attainable.
    For our proposed 2016 total renewable fuel volume requirement of 
17.40 billion gallons, there would be about 0.84 billion ethanol-
equivalent gallons needed beyond that supplied by E10, the proposed BBD 
volume requirement of 1.8 billion actual gallons (equivalent to 2.7 
billion D4 RINs as described in Section III.D.4), and that portion of 
the cellulosic biofuel volume which we would expect to be derived from 
non-ethanol biofuel (see Section IV.E).

    Table II.D.2-1--Breakdown of Renewable Fuel Use in 2016 Based on
                            Proposed Volumes
                  [Billion ethanol-equivalent gallons]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Total renewable fuel..........................................     17.40
Ethanol consumed as E10 \a\...................................    -13.69
Non-ethanol cellulosic biofuel................................     -0.17
Biomass-based diesel \b\......................................     -2.70
Additional renewable fuel that must be used...................      0.84
------------------------------------------------------------------------
\a\ Includes all sources of ethanol (cellulosic, advanced, and
  conventional)
\b\ Represents 1.80 billion physical gallons.

The E10 blendwall and limitations in production capabilities for non-
ethanol biofuels are the primary factors that constrain renewable fuel 
supply. Other factors include the relative pricing of renewable fuels 
and conventional (fossil-based) fuels, engine warranty limitations on 
the use of biodiesel for the current in-use fleet, and the need for 
distribution system improvements. All of these factors could play a 
role in determining how the market chooses to supply the additional 
0.84 billion gallons needed as shown in Table II.D.2-1. The options 
available to the market to fulfill the need for 0.84 billion gallons of 
renewable fuel include the following:

     Increase the production and use of BBD above the proposed 
standard of 1.80 billion gallons
     Increase import and use of sugarcane ethanol and/or 
domestic production of corn-ethanol, which would result in a 
corresponding increase in E85
     Increase production and/or imports of conventional (D6) 
biodiesel and renewable diesel
 Increase the production of other non-ethanol advanced 
biofuels, such as heating oil, jet fuel, naphtha, butanol, and 
renewable fuels coprocessed with petroleum

In determining the amounts of each type of renewable fuel, the market 
would also need to satisfy the proposed advanced biofuel standard of 
3.40 billion gallons.
    To illustrate the possible outcomes, we evaluated a number of 
scenarios with varying levels of E85, imported sugarcane ethanol, 
advanced biodiesel and other non-ethanol advanced biofuels, and 
imported conventional biodiesel (likely to be made from palm oil). In 
doing so we sought to capture the range of possibilities for each 
individual source. For imported conventional biodiesel we examined 
volumes up to and slightly higher than the level that was actually 
imported in 2014--225 million gallons.\70 \The range of other non-
ethanol advanced biofuels is based on the range of volumes achieved 
over the last several years. Each of the rows in Table II.D.2-2 
represent a scenario in which the proposed total renewable fuel and 
advanced biofuel volume requirements would be satisfied.
---------------------------------------------------------------------------

    \70\ Actual imports of conventional non-ethanol renewable fuels 
in 2014 were 53 million gallons of biodiesel and 151 million gallons 
of renewable diesel. They have been represented here in biodiesel-
equivalents for simplicity.

      Table II.D.2-2--Volume Scenarios Illustrating Possible Compliance With 3.40 Bill Gal Advanced Biofuel and 17.40 Bill Gal Total Renewable Fuel
                                                                 [Million gallons] \a b\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             Biomass-based     Sugarcane ethanol   Other non-ethanol     Conventional
                         E85                           Total ethanol \c\    diesel (D4) \d\          (D5)            advanced (D5)      biodiesel (D6)
--------------------------------------------------------------------------------------------------------------------------------------------------------
100.................................................              13,760               1,997                 102                 100                 250
100.................................................              13,760               2,030                 102                  50                 250
100.................................................              13,760               2,063                 102                   0                 250
100.................................................              13,760               2,131                   0                   0                 182
200.................................................              13,826               1,952                 168                 100                 250
200.................................................              13,826               1,986                 168                  50                 250

[[Page 33128]]

 
200.................................................              13,826               2,019                 168                   0                 250
200.................................................              13,826               2,065                   0                 100                 138
400.................................................              13,959               1,898                 301                  50                 250
400.................................................              13,959               1,989                 113                 100                 125
400.................................................              13,959               2,056                 113                   0                 125
400.................................................              13,959               2,098                   0                  50                  50
600.................................................              14,091               1,800                 433                  64                 250
600.................................................              14,091               1,901                 245                 100                 125
600.................................................              14,091               2,026                  58                 100                   0
600.................................................              14,091               2,093                  58                   0                   0
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Assumes that the cellulosic biofuel proposed standard for 2016 is 206 mill gal, of which 33 mill gal is assumed to be ethanol for the purposes of
  these scenarios and the remainder is primarily biogas.
\b\ Biomass-based diesel and conventional biodiesel are given as biodiesel-equivalent volumes. Others are given as ethanol-equivalent volumes. Biodiesel-
  equivalent volumes can be converted to ethanol-equivalent volumes by multiplying by 1.5.
\c\ For the range of total ethanol shown in this table, the nationwide poolwide average ethanol content would range from 10.05% to 10.28%. The majority
  of gasoline will contain 10% ethanol, and some gasoline will contain higher levels of ethanol such as E15 or E85.
\d\ Includes supply from both domestic producers as well as imports.

    The scenarios in the table above are clearly not the only ways that 
the market could choose to meet the total renewable fuel and advanced 
biofuel volume requirements that we are proposing today, but they are 
illustrative of many ways that it could play out. While we are not in a 
position to predict how the market would respond to the volume 
requirements we are proposing today, we believe that the range of 
possibilities for E85, BBD, and other sources is a clear indication 
that the standards we are proposing are achievable.
    With regard to E85, according to EIA there will be about 16 million 
FFVs in the in-use fleet in 2016 with a total consumption capacity of 
about 14 billion gallons of E85.\71\ While only about 2% of retail 
stations nationwide currently offer E85, the fraction of FFVs with 
access to E85 is higher than 2% since the vast majority of vehicles are 
within reasonable range of more than one retail station on typical 
trips. If only 5% of all FFVs had a retail station nearby that offered 
E85, they could consume 800 million gallons of E85 in 2016 under 
favorable consumer pricing conditions. We recognize that the market 
would need to compel E85 prices to be increasingly favorable relative 
to E10 in order to provide the incentive for FFV owners to purchase 
E85, but this is exactly how a fully functional market will react to 
standards designed to drive growth in renewable fuel as Congress 
intended. Thus we believe it is possible for the market to reach 
volumes perhaps as high as 600 million gallons under favorable pricing 
conditions (i.e., where consumers believe they are obtaining an 
economic advantage through purchase of E85).

    \71\ According to AEO2015, Table 42, total vehicle miles 
travelled by FFVs in 2016 will be about 7.95% of all light-duty 
gasoline-powered vehicles, equivalent to about 10.9 bill gal of E10 
or 13.9 bill gal of E85.
---------------------------------------------------------------------------

    We also believe that it is possible for the market to exceed 1.8 
billion gallons of BBD in 2016. As of 2013, the total production 
capacity for all registered and unregistered biodiesel facilities was 
about 3.6 billion gallons,\72\ substantially more than the actual 
domestic production in 2014 of 1.46 billion gallons.\73\ More than 2.7 
billion gallons of this production capacity has already been registered 
under the RFS program. Moreover, the U.S. imported several hundred 
million gallons of biodiesel and renewable diesel in 2014. The combined 
volumes of soybean oil, corn oil, and waste oils produced annually is 
far more than would be needed to produce 2.1 billion gallons of 
biodiesel. It is possible that the market could divert additional 
feedstocks from food and other domestic uses or exports to the 
production of biodiesel. For instance, in 2014 exports of soy oil were 
250 million gallons and exports of rendered fats and greases was 440 
million gallons.74 75
---------------------------------------------------------------------------

    \72\ A complete list of biodiesel plants and their capacities as 
of 2-6-13 has been placed in the docket. We are not aware of 
significant changes to the industry profile since this list was 
compiled.
    \73\ 1.46 bill gal represents total domestic production of both 
D4 biodiesel and renewable diesel.
    \74\ USDA Economic Research Service, Oil Crops Yearbook, Table 
5, ``Soybean oil: Supply, disappearance, and price'', updated 3/30/
2015. Assumes 7.68 lb/gal.
    \75\ Render Magazine, April 2015. Table 2. Assumes 7.68 lb/gal.
---------------------------------------------------------------------------

    As Table II.D.2-2 illustrates, the proposed standards could result 
in the consumption of as much as 2.3 billion gallons of D4 and D6 
biodiesel and renewable diesel, representing an increase of about 600 
million gallons over the historical high. While this would be a 
substantial increase, we believe that it is possible. A portion of this 
increase is likely to be renewable diesel which is indistinguishable 
from conventional diesel fuel and thus would experience no impediments 
related to cold temperatures or manufacturer warranties; in both 2013 
and 2014, the market supplied about 300 million gallons of renewable 
diesel. Even if there were no renewable diesel, 2.3 billion gallons of 
biodiesel would represent less than 4% of the nationwide pool of diesel 
fuel in 2016. Because essentially all engine manufacturer warranties 
permit up to 5% biodiesel to be used in their engines, and most medium 
and heavy-duty engine manufacturers warrant the use of blends up to B20 
in their more recent models,\76\ the use of biodiesel in 4% of the 
overall diesel pool should be possible from a consumption viewpoint. 
For instance, most diesel fuel could contain 5% biodiesel while still 
allowing some diesel fuel to contain no biodiesel to accommodate that 
used in northern states during the coldest months of the year. Also, 
B20 could be used in a number of centrally-fuelled fleets composed of 
newer engines without violating manufacturer warranties, and additional 
volumes of biodiesel could be used in heating oil. It is reasonable to 
expect that the

[[Page 33129]]

infrastructure that already exists to distribute and blend such fuels 
could be expanded to accommodate this additional volume in the time 
available.
---------------------------------------------------------------------------

    \76\ ``OEM Support,'' fact sheet from National Biodiesel Board, 
August 2014.
---------------------------------------------------------------------------

    While the scenarios in Table II.D.2-2 are intended to demonstrate 
the flexibility that the market has to respond to the volumes we are 
proposing, and indeed many additional scenarios could be generated, we 
do not believe that all scenarios are equally likely. Certainly some 
are more likely than others. However, we are not in a position to 
identify those that are most likely and we are not in a position to 
predict what will actually occur. In particular, those scenarios that 
represent reliance on one source without taking advantage of supply 
from other sources are, we believe, least likely to occur.
    The market can be expected to choose the lowest cost path to 
compliance, but regulated parties may also respond to the standards we 
set with investments in production, distribution, and consumption 
infrastructure that is focused on longer term growth. Such investments 
could result in the selection of higher cost options in the near term, 
but would enable lower costs in the longer term. Other activities that 
result in more favorable pricing between renewable fuels and fossil-
based fuels will also play a role in determining the actual mix of 
types and amounts of biofuels used to meet the final standards, and 
such activities cannot be predicted. Because of these complexities in 
market dynamics, we do not believe it would be appropriate to identify 
a specific scenario from Table II.D.2-2 as being most representative of 
how the market will respond to the proposed volume requirements.
    Further, it would be inappropriate to construct new scenarios based 
on the highest volumes in each category that are shown in Table II.D.2-
2 in order to argue for higher volume requirements than we have 
proposed. Doing so would presume that the specific volumes for each 
type of renewable fuel, and thus the underlying scenarios, are all 
equally likely or equally achievable. We have more confidence in the 
ability of the market to achieve 3.40 billion gallons of advanced 
biofuel through some combination of different types of renewable fuel 
than we have in the ability of the market to achieve a specific level 
of, say, BBD. Thus, for instance, while the highest BBD volume shown in 
Table II.D.2-2 is 2,131 million gallons, we are not able to say whether 
this specific level of BBD is one that the market could be expected to 
achieve in 2016, notwithstanding our belief that such volumes are 
theoretically possible as described earlier. The same is true for the 
highest level of E85 shown in Table II.D.2-2 of 600 million gallons, or 
the highest level of sugarcane ethanol of 433 million gallons. In 
addition, the consumption of each fuel in Table II.D.2-2 is not 
independent of the consumption of the other fuels in the table. For 
example, greater BBD production reduces the likelihood of large imports 
of palm biodiesel because these two fuels compete against one another. 
The probability that the upper limits of all sources shown in Table 
II.D.2-2 could be achieved simultaneously is extremely unlikely.
    The range of options available to the market to attain compliance 
with the proposed volume requirements provide us with confidence that 
they are achievable. Nevertheless, we recognize that to the extent that 
the proposed waivers rely on a finding of ``inadequate domestic 
supply'', our objective is to set the volume requirements as precisely 
as possible at the intersection between an ``inadequate supply'' and 
supply that is adequate. Given the complexities of the fuels market, 
this is a very challenging task, and one that necessarily involves 
considerable judgment. Based on our assessment of both the current 
capabilities of the industry and the power of the market to respond to 
ambitious volume requirements, we believe that our proposed volumes are 
the best possible estimate of the intersection between ``inadequate 
supply'' and supply that is adequate.
    Because the standards that we are proposing would compel the market 
to supply higher volumes than would occur in the absence of an RFS 
program and indeed higher volumes than are currently being supplied, 
RIN prices are likely to be higher than historical levels. RIN price 
increases are an expected market response to an increased renewable 
fuel mandate that is pushing volumes beyond levels that the market 
would otherwise use. Furthermore, high RIN prices help to promote 
growth in renewable fuel supply. For instance, higher RIN prices would 
likely increase the incentive to import renewable fuels. Both ethanol 
and biodiesel/renewable diesel worldwide could be diverted from their 
current markets given a sufficiently high RIN price. High RIN prices 
can also provide the potential for reductions in the retail selling 
prices of E85 and E15 if distributors, blenders, and retailers pass the 
value of those RINs to end users. Finally, sustained high RIN prices 
create the incentives needed to spur investment in new technologies and 
production capacity, a critical need if the market is going to continue 
expanding in future years according to Congress' intentions.
    Given the variability in potential compliance scenarios that 
exists, we believe that regulated parties have the ability to meet the 
proposed standards for 2016. Stakeholders have the ability to overcome 
market barriers to expanded use of renewable fuels, making the 
standards we are proposing today attainable. Potential actions that 
stakeholders can take include:

 Working with vehicle manufacturers to increase the number of 
FFVs in the fleet
 Increasing the number of retail stations offering E15 and E85 
through direct installation of new equipment or providing grants to 
retail owners, and locating those stations offering E15/E85 closest to 
higher populations of vehicles than can use those fuels
 Developing contractual mechanisms to ensure favorable pricing 
of E15 and E85 at retail compared to E10 to boost sales volumes
 Increased production and/or imports of non-ethanol renewable 
fuels (e.g., greater production of drop-in biofuels)
 Expanded co-production of non-ethanol renewable fuels with 
petroleum at new and existing facilities

    Finally, the RFS program contains two other provisions that provide 
additional flexibility to obligated parties in the event that they 
choose not to invest in increasing the supply of renewable fuels. The 
first is the option to carry a deficit into 2017. This option would 
provide the industry additional time to increase supply. The second 
available flexibility is carryover RINs, discussed in more detail in 
Section II.F.

E. Treatment of Carryover RINs

    Neither the statute nor EPA regulations specify how or whether EPA 
should consider the availability of carryover RINs in exercising its 
waiver authorities either in the standard-setting context or in 
response to petitions for a waiver during a compliance year. As 
described in the 2007 rulemaking establishing the RFS regulatory 
program,\77\ carryover RINs are intended to provide flexibility in the 
face of a variety of circumstances that could limit the availability of 
RINs, including weather-related damage to renewable fuel feedstocks and 
other circumstances affecting the supply of renewable fuel that is 
needed to meet the standards. In the 2010-2012 time period, obligated 
parties collectively surpassed the RFS renewable fuel blending 
requirements,

[[Page 33130]]

and were able to accumulate 2.6 billion carryover RINs.
---------------------------------------------------------------------------

    \77\ 72 FR 23900, May 1, 2007.
---------------------------------------------------------------------------

    The potential role of carryover RINs in minimizing waivers of the 
statutory applicable volume targets was first addressed in the context 
of the rule establishing RFS standards for 2013. In the context of that 
rulemaking, we estimated that 14.5 billion gallons of ethanol would be 
needed to meet the total statutory total renewable fuel volume target 
of 16.55 billion gallons, assuming that no BBD was produced above the 
1.28 billion gallons required by the BBD standard. We also determined 
that the total amount of ethanol the market could absorb as E10 in 2013 
was 13.1 billion gallons, leaving a potential gap of 1.4 billion 
gallons. We then described how BBD production in excess of the BBD 
standard, increased production of other non-ethanol renewable fuels, 
and use of E85 could contribute to the needed gallons. We also pointed 
out that about 2.6 billion carryover RINs would be available in 2013, 
which was more than enough to cover the potential gap of 1.4 billion 
gallons if other approaches to compliance were not realized. We 
decided, therefore, that a waiver of the statutory applicable volume of 
total renewable fuel was not needed in 2013.\78\ Our approach was 
challenged in court, and upheld in Monroe Energy v. EPA.\79\
---------------------------------------------------------------------------

    \78\ 78 FR 49794, August 15, 2013.
    \79\ Monroe Energy v. EPA, 750 F.3d 909 (D.C. Cir. 2014).
---------------------------------------------------------------------------

    We are not now in a position to confidently assess the volume of 
carryover RINs currently available, since obligated parties and 
exporters have not yet submitted their compliance demonstrations for 
2013. However, based on the number of RINs generated in 2013 and 
available data on renewable fuel exports and RIN retirements in 2013, 
we estimate that 800 million carryover RINs will need to be used for 
compliance with the 2013 RFS standards. This will reduce the bank of 
carryover RINs to approximately 1.8 billion RINs. For purposes of our 
proposed volume requirements for 2014, 2015, and 2016, we considered 
whether some specific number of carryover RINs below the current level 
of 1.8 billion would be sufficient for the critical compliance 
flexibility, market liquidity, and program buffer functions served by 
carryover RINs, such that we could effectively require some use of 
carryover RINs by setting applicable volume requirements at levels 
higher than could be achieved through actual renewable fuel blending 
and use in these years.
    We believe, however, that it would be prudent, and would advance 
the long-term objectives of the Act, not to set standards for 2014, 
2015, and 2016 so as to intentionally draw down the current bank of 
carryover RINs. We believe that the availability of this full volume of 
carryover RINs will be important for both obligated parties and the RFS 
program itself in addressing significant future uncertainties and 
challenges, particularly since compliance with the proposed advanced 
and total renewable fuel standards is expected to require significant 
progress in growing and sustaining production of advanced biofuels and 
using ethanol in quantities that exceed the E10 blendwall.\80\
---------------------------------------------------------------------------

    \80\ As previously explained in this action, the ``E10 
blendwall'' is the volume of ethanol that can be consumed 
domestically as E10. We expect that compliance with the total 
renewable fuel volume requirements will require more ethanol use 
than is possible through widespread use of E10.
---------------------------------------------------------------------------

    Although the issue in this proposed rulemaking is whether to waive 
statutory applicable volumes in the context of establishing new 
standards, we note that the availability of carryover RINs is an 
important factor in deciding whether to waive standards already in 
effect. Each year, obligated parties make significant efforts to comply 
with RFS requirements, and participants in the renewable fuels market 
make significant efforts to supply the renewable fuels needed for 
compliance. Changing those requirements during the compliance year to 
address unforeseen supply disruptions or for other reasons would be 
disruptive to businesses and therefore to the long-term objectives of 
the RFS program to provide incentives to industry to increase the 
production and use of renewable fuels. Preserving the current bank of 
carryover RINs at this time will reduce the risk that waivers may be 
needed after the 2014, 2015 and 2016 standards are in place to address 
unforeseen circumstances.\81\
---------------------------------------------------------------------------

    \81\ The statute and EPA's regulations provide another means of 
compliance flexibility--obligated parties may carry forward a 
compliance deficit for one year. But the statute and regulations 
also require that any deficit be paid back in the following year and 
that the standards applicable in the following year be met. Given 
that our proposed standards increase year to year, it may be 
increasingly difficult for an obligated party to both repay a 
deficit and meet higher standards in the same year. Thus, this 
provision does not replace carryover RINs as an important compliance 
tool to address increasingly challenging requirements and unforeseen 
circumstances.
---------------------------------------------------------------------------

    In addition, the RIN system was developed in part to implement the 
statutory requirement for obligated parties to earn ``credits'' for 
overcompliance that could be used in another year or sold to others. 
The RFS standards are a mandate with serious ramifications to obligated 
parties that fail to comply. As intended by Congress, carryover RINs 
help provide compliance flexibility. We appreciate that obligated 
parties make individual decisions about whether and how many RINs to 
acquire for their compliance management purposes, and that a decision 
by EPA to effectively ``draw down'' their bank of carryover RINs in 
calculating future volume requirements may decrease their compliance 
flexibility, increase their risk of noncompliance, and affect their 
incentives to build-up carryover RIN balances. We understand that 
obligated parties in many instances acquire RINs for carryover to 
provide just that kind of flexibility, and that assuming use of 
carryover RINs in setting the RFS standards may in the future 
discourage that kind of responsible behavior.
    Finally, we appreciate that with the increasing renewable fuel 
volume targets established in the Act for the future, combined with the 
projected decreasing use of gasoline and diesel fuel resulting from 
more stringent vehicle emission and mileage requirements, the ability 
of obligated parties to increase the bank of carryover RINs through 
additional overcompliance in the future will be much more difficult. 
Therefore, any draw-down in the bank of carryover RINs required through 
setting volume requirements at levels higher than can be achieved 
through actual renewable fuel use could not likely be reversed in the 
future. Given the importance of carryover RINs noted above, this 
consideration suggests that a deliberate draw-down of the RIN bank 
would not be prudent.
    For all of the reasons noted above, EPA is not proposing to set 
renewable fuel volume requirements at levels that would envision the 
draw-down in the bank of carryover RINs. We welcome comments on this 
analysis and thoughts on how EPA should consider carryover RINs in 
establishing renewable fuel volume requirements for 2014, 2015, and 
2016.

F. Impacts of Proposed Standards on Costs

    In the following sections we provide cost estimates for three 
illustrative scenarios--one, if the entire change in the advanced 
standards is met with soybean oil BBD; two, if the entire change in the 
advanced standards is met with sugarcane ethanol from Brazil; and 
three, if the entire change in the conventional standards (i.e., non-
advanced) is met with corn ethanol. While a variety of biofuels could 
help fulfill the advanced standard beyond soybean oil BBD and sugarcane 
ethanol

[[Page 33131]]

from Brazil, these two biofuels have been most widely used in the past. 
We believe these scenarios provide illustrative costs of meeting the 
proposed standards. For this analysis, we estimate the per gallon costs 
of producing biodiesel, sugarcane ethanol and corn ethanol relative to 
the petroleum fuel they replace at the wholesale level, then multiply 
these per gallon costs by the applicable volumes established in this 
rule for the advanced and total renewable fuel categories. More 
background information on this section, including details of the data 
sources used and assumptions made for each of the scenarios, can be 
found in a memorandum submitted to the docket.\82\
---------------------------------------------------------------------------

    \82\ ``Illustrative Costs Impact of the Proposed Annual RFS2 
Standards, 2014-2017,'' Memorandum from Michael Shelby to EPA Air 
Docket EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------

    A number of different scenarios could be considered the 
``baseline'' for the assessment of the costs of this rule. For the 
purposes of showing illustrative overall costs of this rulemaking, we 
are proposing to use the preceding year's standard as the baseline 
(e.g., the baseline for the 2016 advanced standard is the proposed 
applicable 2015 advanced standard, etc.), an approach consistent with 
past practices.
    The 2014 standards were not finalized in 2014 so it is difficult to 
estimate what their costs may have been. Market participants may have 
anticipated a final 2014 standard would require higher levels of 
biofuels than the market would provide in the absence of the standard, 
which would contribute to the positive RIN prices witnessed in 2014. In 
contrast, the 2014 standards being proposed in this rulemaking 
represent reductions in both the advanced and conventional volumes 
compared to the 2013 standards, suggesting a reduction in costs for 
this proposed 2014 rule compared to the 2013 standards. Finally, the 
2014 standards being proposed in this rulemaking are based on actual 
production levels in 2014, suggesting that the 2014 standards we are 
proposing are what would have happened in the marketplace absent a 
rulemaking. Given the complexity of this issue, we have not attempted 
to estimate the costs of the 2014 standards. Therefore, we only provide 
illustrative costs for the 2015 and 2016 advanced biofuel standards and 
total renewable fuel standards.
    Because we are focusing on the wholesale level in each of the three 
scenarios, these comparisons do not consider taxes, retail margins, and 
any other costs or transfers that occur at or after the point of 
blending (i.e., transfers are payments within society and not 
additional costs). Further, we do not attempt to estimate potential 
costs related to infrastructure expansion with increased biofuel 
volumes. In addition, because more ethanol gallons must be consumed to 
go the same distance as gasoline and more biomass-based diesel must be 
consumed to go the same distance as petroleum diesel due to each of the 
biofuels' lesser energy content, we consider the costs of ethanol and 
biomass-based diesel on an energy equivalent basis to their petroleum 
replacements (i.e., per energy equivalent gallon (EEG)).
    For our first scenario, we consider the costs of soybean-based 
biodiesel to meet the entire change in the advanced standards. The 
proposed 2014 standard is being set at the actual level of advanced 
biofuels produced in 2014, 2.68 billion gallons. The total advanced 
biofuel volumes are being proposed for 2015 at 2.90 billion gallons and 
3.40 billion gallons in 2016. Comparing the difference in costs between 
biomass-based diesel and petroleum-based diesel, we estimate a cost 
difference that ranges from $1.48 to $1.56/EEG in 2015 and from $1.45 
to $2.09/EEG in 2016. Multiplying the per gallon cost estimates by the 
volume of fuel displaced by the advanced standard, on an energy 
equivalent basis, results in an overall annual cost of $218 to $229 
million in 2015 and $483 to $697 million in 2016.
    For our second scenario, we provide illustrative estimates of what 
the potential costs might be if all additional volumes used to meet the 
2015 and 2016 advanced biofuel standards above the previous year's 
advanced biofuel standard are met with imported Brazilian sugarcane 
ethanol. Comparing the difference in costs between sugarcane ethanol 
and the wholesale gasoline price on a per gallon basis, we estimate 
cost differences that range from $1.04 to $2.80/EEG in 2015 and from 
$0.85 to $2.61/EEG in 2016. Taking the difference in per gallon costs 
for sugarcane ethanol and the wholesale gasoline price and multiplying 
that by the volume of petroleum displaced on an energy equivalent basis 
from the advanced standard results in an overall estimated annual cost 
of $228 to $615 million for 2015 and $424 to $1,303 million for 2016.
    For the third scenario, we assess the difference in cost associated 
with a change in the implied volumes available for conventional (i.e., 
non-advanced) biofuels for 2015 and 2016. We provide illustrative 
estimates of what the potential costs might be if corn ethanol is used 
to meet the entire conventional renewable fuel volumes. The implied 
2014 volume allowance for conventional renewable fuel is 13.25 billion 
gallons, 13.40 billion gallons in 2015, and 14.00 billion gallons in 
2016. If corn ethanol is used to meet the difference between the 
implied 2014 to 2015 and 2015 to 2016 conventional renewable fuel 
volume increases, an increase of 150 million gallons of corn ethanol 
would be required in 2015 and 600 million gallons in 2016. Comparing 
the difference in costs between corn ethanol and the wholesale gasoline 
price, we estimate cost differences that range from $0.81 to $0.92/EEG 
in 2015 and from $0.58 to $0.90/EEG in 2016. Taking the difference in 
per gallon costs between the corn ethanol and the wholesale gasoline 
price estimates and multiplying that by the volume of petroleum 
displaced on an energy equivalent basis by the conventional standard 
results in an overall estimated annual cost of $122 to $138 million for 
2015 and $348 to $541 million for 2016.
    An alternative way of looking at the illustrative costs in 2016, 
given the fact that this is a three year rule and the 2015 standards 
may change, is to consider a volume change relative to the 2014 
proposed standard. The cost estimate for meeting the 2016 standard 
would range from $695 to $1,003 million if the entire advanced standard 
were to be met with soybean-based diesel. The cost estimates would 
range from $610 to $1,877 million if the entire advanced standard were 
met with sugarcane ethanol. The cost estimate for meeting the entire 
conventional standard in 2016 with corn ethanol would range from $435 
to $676 million.
    The short time frame provided for the annual renewable fuel rule 
process does not allow sufficient time for EPA to conduct a 
comprehensive analysis of the benefits of the 2015 and 2016 standards 
and the statute does not require it. Moreover, as discussed in the 
proposed rule establishing the 1.28 billion gallon requirement for BBD 
in 2013, the costs and benefits of the RFS program as a whole are best 
assessed when the program is fully mature in 2022.\83\ We continue to 
believe that this is the case, as the annual standard-setting process 
encourages consideration of the program on a piecemeal (i.e., year to 
year) basis, which may not reflect the long-term economic effects of 
the program. Therefore, for the purpose of this annual rulemaking, we 
have not quantified benefits for the 2015 and 2016 proposed standards. 
We do not have a quantified estimate of the GHG impacts for the

[[Page 33132]]

single year (e.g., 2015, 2016). When the RFS program is fully phased 
in, the program will result in considerable volumes of renewable fuels 
that will reduce GHG emissions in comparison to the fossil fuels which 
they replace. EPA estimated greenhouse gas, energy security and air 
quality impacts and benefits for the 2010 Proposed RFS Rule for 2022.
---------------------------------------------------------------------------

    \83\ 77 FR 59477, September 27, 2012.
---------------------------------------------------------------------------

III. Proposed Biomass-Based Diesel Volumes for 2014-2017

    In this section we discuss the proposed biomass-based diesel (BBD) 
applicable volumes for 2014 through 2017. It is important to note that 
the BBD volume requirement is nested within both the advanced biofuel 
and the total renewable fuel volume requirements; so that any 
``excess'' BBD produced beyond the mandated BBD volume can be used to 
satisfy both these other applicable volume requirements. Therefore, in 
assessing what is the appropriate applicable BBD volume for 2014-2017, 
it is important to consider not only the volume for BBD, which 
effectively guarantees a minimum amount that will be produced, but also 
the advanced biofuel and total renewable fuel volume requirements, 
which historically have played a significant role in determining demand 
for BBD as well.
    In proposing an applicable volume for 2017 we are addressing the 
volume requirement but not the percent standards, in order to satisfy a 
statutory requirement that when EPA sets the applicable volumes in the 
absence of a statutory volume target, that we do so no later than 14 
months before the first year for which such applicable volume will 
apply.\84\ Since the statute does not specify a BBD volume target for 
2017, we plan to finalize the applicable volume by this November. Since 
the statute includes applicable volume targets for advanced biofuel, 
total renewable fuel and cellulosic biofuel for 2017, we are not 
required to establish 2017 applicable volumes for them at this time. We 
believe it is prudent to delay establishing such volume targets until 
the statutory deadline of November 30, 2016, to enable EPA to use the 
most up-to-date information prior to the start of the calendar year.
---------------------------------------------------------------------------

    \84\ CAA 211(o)(2)(B)(ii).
---------------------------------------------------------------------------

A. Statutory Requirements

    The statute establishes applicable volume targets for years through 
2022 for cellulosic biofuel, advanced biofuel, and total renewable 
fuel. For BBD, applicable volume targets are specified in the statute 
only through 2012. For years after those for which applicable volumes 
are specified in the statute, EPA is required under CAA section 
211(o)(2)(B)(ii) to determine the applicable volume, in coordination 
with the Secretary of Energy and the Secretary of Agriculture, based on 
a review of the implementation of the program during calendar years for 
which the statute specifies the applicable volumes and an analysis of 
the following factors:
    1. The impact of the production and use of renewable fuels on the 
environment, including on air quality, climate change, conversion of 
wetlands, ecosystems, wildlife habitat, water quality, and water 
supply;
    2. The impact of renewable fuels on the energy security of the 
United States;
    3. The expected annual rate of future commercial production of 
renewable fuels, including advanced biofuels in each category 
(cellulosic biofuel and BBD);
    4. The impact of renewable fuels on the infrastructure of the 
United States, including deliverability of materials, goods, and 
products other than renewable fuel, and the sufficiency of 
infrastructure to deliver and use renewable fuel;
    5. The impact of the use of renewable fuels on the cost to 
consumers of transportation fuel and on the cost to transport goods; 
and
    6. The impact of the use of renewable fuels on other factors, 
including job creation, the price and supply of agricultural 
commodities, rural economic development, and food prices.

The statute also specifies that the applicable volume for BBD cannot be 
less than the applicable volume for calendar year 2012, which is 1.0 
billion gallons. The statute does not, however, establish any other 
numeric criteria, or provide any guidance on how the EPA should weigh 
the importance of the often competing factors, and the overarching 
goals of the statute when the EPA sets the applicable volumes in years 
after those for which the statute specifies applicable volumes. In the 
period 2013-2022, the statute specifies increasing applicable volumes 
of cellulosic biofuel, advanced biofuel, and total renewable fuel, but 
provides no guidance on the extent to which BBD volumes should grow.

B. BBD Production and Compliance in Previous Years

    Due to the delayed issuance of the major regulatory revisions 
necessary to implement changes enacted through the Energy Independence 
and Security Act of 2007, EPA established a 2010 BBD standard that 
reflected volume requirements for both 2009 and 2010, and allowed RINs 
generated as early as 2008 to be used for compliance with that 
standard. Given the complexity associated with the 2010 BBD standard, 
we begin our review of implementation of the program with the 2011 
compliance year. Reviewing the implementation of the BBD standards in 
previous years is required by the CAA, and also provides insight into 
the capabilities of the BBD industry to produce and import fuel. It 
also helps us to understand what factors, beyond the BBD standard, may 
incentivize the production and import of BBD. The number of BBD RINs 
generated, along with the number of RINs retired for reasons other than 
compliance with the annual BBD standards, are shown in Table III.B-1 
below.
---------------------------------------------------------------------------

    \85\ Net BBD RINs Generated and BBD RINs Retired for Non-
Compliance Reasons information from EMTS. Biodiesel Export 
information from EIA (http://www.eia.gov/dnav/pet/pet_move_expc_a_EPOORDB_EEX_mbbl_a.htm).
    \86\ Each gallon of biodiesel generates 1.5 RINs due to its 
higher energy content per gallon than ethanol. Renewable diesel 
generates between 1.5 and 1.7 RINs per gallon.

                                         Table III.B-1--Biomass-Based RIN Generation and Standards in 2011-2013
                                                                 [Million gallons] \85\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                      BBD RINs
                                                  BBD RINs        Exported BBD      retired, non-     Available BBD     BBD standard      BBD standard
                                                  generated          (RINs)          compliance           RINs            (Gallons)        (RINs) \86\
                                                                                       reasons
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011........................................             1,692               110                97             1,484               800             1,200
2012........................................             1,737               193                80             1,465             1,000             1,500
2013........................................             2,739               295                94             2,350             1,280             1,920
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 33133]]

In reviewing historical BBD RIN generation and use we see that the 
number of RINs available for compliance purposes exceeded the BBD 
standard by a significant margin in 2011 and 2013. Additional demand 
for biodiesel may have been driven by a number of factors, including 
demand to satisfy the advanced biofuel and total renewable fuels 
standards, the biodiesel tax credit, and favorable blending economics. 
In 2012 the available BBD RINs were slightly less than the BBD 
standard. There are many reasons this may have been the case, including 
the lapse of the biodiesel tax credit at the end of 2011.\87\
---------------------------------------------------------------------------

    \87\ The biodiesel tax credit was reauthorized in January 2013. 
It applied retroactively for 2012 and for the remainder of 2013. It 
was once again extended in December 2014 through the end of 2014.
---------------------------------------------------------------------------

    While total BBD volume produced and imported in 2013 was 1.79 
billion gallons (2.74 billion BBD RINs), it is also instructive to 
review the data on volumes that were produced domestically, imported, 
exported, and retired for reasons other than compliance. Total domestic 
production of BBD was 1.45 billion gallons (2.19 billion RINs), while 
imports resulted in an additional 0.34 billion gallons (0.55 billion 
RINs).\88\ This volume was not entirely available for compliance 
purposes, however, since some of the BBD produced domestically was 
exported and some RINs had to be retired for purposes other than 
compliance. Based on EIA export data, we estimate that 0.196 billion 
gallons (0.295 billion RINs) of BBD was exported in 2013.\89\ A 
corresponding number of BBD RINs will eventually be retired by 
exporters, as required by the RFS regulations, and therefore are not 
available for use by refiners and importers in satisfying their 2013 
obligations.\90\ Additionally, 0.094 billion BBD RINs were retired for 
reasons other than compliance, such as volume error corrections, 
contaminated or spoiled fuel, or fuel used for purposes other than 
transportation fuel, heating oil, or jet fuel. Based on this 
information, the actual amount of BBD available for compliance in 2013 
totaled 2.36 billion RINs, representing approximately 1.55 billion 
gallons of BBD. This is 430 million more BBD RINs than were required 
for compliance with the BBD standard in 2013.
---------------------------------------------------------------------------

    \88\ ``Summary of data on 2013 RIN generation and consumption'', 
memorandum from David Korotney to EPA Air Docket EPA-HQ-OAR-2015-
0111.
    According to the U.S. Energy Information Administration (EIA), 
Annual import data for BBD (Biodiesel and Renewable diesel countries 
contributing to BBD imports (million gallons) were Argentina = 132, 
Aruba = 6, Australia = 1, Belgium = 5, Canada = 45, Finland = 36, 
Germany = 61, Indonesia = 52, Netherlands = 8, Norway = 9, South 
Korea = 20, Panama = 3, Singapore = 164, Spain = 4, Taiwan = 1. (See 
http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_EPOORDB_im0_mbbl_a.htm and http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_EPOORDO_im0_mbbl_a.htm 
(last accessed April 6, 2015).
    Note that not all of the imported volumes generated BBD (D4) 
RINs. Some of this volume may have generated Renewable Fuel (D6) 
RINs or no RINs at all.
    \89\ U.S. Energy Information Administration (EIA). Annual export 
data for Biodiesel (2013). See http://www.eia.gov/dnav/pet/pet_move_expc_a_EPOORDB_EEX_mbbl_a.htm (last accessed April 6, 
2015).
    \90\ EMTS includes data on RINs retired for export, but the 
values are incomplete as of this writing since the 2013 compliance 
deadline has not yet passed.
---------------------------------------------------------------------------

C. Applicable Volume of Biomass-Based Diesel for 2014

    For 2014 we are proposing to base the applicable volume 
requirements on the number of RINs supplied in 2014. We propose to 
define supply for 2014 as the number of BBD RINs that were available 
for compliance in 2014. Supply would thus include RINs that were 
generated for renewable fuel produced or imported in 2014 as recorded 
in the EMTS, minus any RINs that have already been retired or would be 
expected to be retired to cover exports of renewable fuels or for any 
purpose other than compliance. RINs that have already been retired for 
such circumstances as RINs being invalid, spills, corrected and 
replaced RINs, etc. are recorded in EMTS on an ongoing basis. However, 
complete information on RINs that are retired to cover exports of 
renewable fuel is not available through EMTS until after the compliance 
demonstration deadline for a given calendar year has passed. Since 
compliance cannot occur until the standards are set, we propose to use 
biodiesel export information from EIA in 2014 to estimate the number of 
2014 BBD RINs that will be retired to satisfy obligations associated 
with exported BBD.
    Actual supply of BBD in 2014 is shown in Table III.C-1 below. 
Further details are provided in a memorandum to the docket.\91\ Since 
EIA does not distinguish exports by D code, we assumed that all 
biodiesel exports represent D4 BBD. We expect that any errors 
introduced by this assumption will be very small.
---------------------------------------------------------------------------

    \91\ ``Summary of data on 2014 RIN Generation and Consumption,'' 
memorandum from David Korotney to EPA docket EPA-HQ-OAR-2015-0111.

                            Table III.C-1--2014 Actual Supply of Biomass-Based Diesel
----------------------------------------------------------------------------------------------------------------
                                                                                     BBD RINs
                                                     Domestic                      retired, non-
                                                  production and      Exports       compliance      Net supply
                                                      imports                         reasons
----------------------------------------------------------------------------------------------------------------
Million RINs....................................           2,709             124              82           2,502
Million gallons.................................           1,763              83              48           1,631
----------------------------------------------------------------------------------------------------------------

While the actual physical volume of D4 BBD supplied in 2014 was 1.63 
billion gallons, we have used a physical volume of 1.67 billion gallons 
as the 2014 volume requirement because the formula for calculating the 
BBD percentage standard in 40 CFR 80.1405(c) includes a factor of 1.5, 
presuming that all BBD is biodiesel. In reality, a significant portion 
of BBD in 2014 was renewable diesel (328 million gallons), which 
generally has an equivalence value of 1.7 rather than 1.5. The use of a 
physical volume of 1.67 billion gallons ensures that the applicable 
percentage standard for BBD accounts for the higher equivalence value 
of the volume of renewable diesel produced and imported in 2014 and 
results in a requirement for 2.50 billion RINs, consistent with supply.

D. Determination of Applicable Volume of Biomass-Based Diesel for 2015-
2017

    The statute requires that, in determining the applicable volume of 
BBD, we review the implementation of the program in previous years. 
Based on the fact that the industry made more BBD available in 2011 and 
2013 than volume requirements for those years, we conclude that the BBD 
standard is not the sole driver for the amount of BBD produced or 
imported into the United

[[Page 33134]]

States.\92\ We believe that the advanced biofuel and total renewable 
fuel standards are significant factors in the amount of biodiesel 
produced and imported into the United States. We also believe that the 
advanced and/or total renewable fuel standards can continue to drive 
BBD supply in 2015-2017. As described in more detail in Section II.C, 
we are proposing volumes of advanced biofuel and total renewable fuel 
for 2015-2016 that require substantial growth beyond the volumes 
supplied in 2014. We expect that the advanced biofuel and total 
renewable fuel standards will continue to provide incentives for BBD 
supply that exceeds the BBD standard.
---------------------------------------------------------------------------

    \92\ The blenders tax credit for biodiesel likely also 
incentivized additional biodiesel blending in these years.
---------------------------------------------------------------------------

    However, we recognize that in addition to being a component of 
advanced biofuel and total renewable fuel, Congress also intended that 
BBD have its own specific standard. Given that the statute requires 
annual increases in advanced biofuel through 2022, it may be 
appropriate for BBD to play an increasing role in supplying advanced 
biofuels to the market, especially in light of the fact that BBD does 
not contribute to the E10 blendwall. This proposal seeks to balance the 
goals of supporting the BBD industry and incentivizing the production 
of non-BBD advanced biofuels by providing a guaranteed, increasing 
market for BBD and allowing all advanced biofuels to compete for market 
share within the advanced biofuel category. In doing so we have 
considered the ability of the advanced biofuel and total renewable fuel 
standards to incentivize an increasing supply of BBD, the 
implementation of the RFS program to date, and the statutory factors 
listed in CAA 211(o)(2)(B) (discussed in further detail in Section 
III.E below).
1. Implication of Nested Standards
    The BBD standard is nested within the advanced biofuel and total 
renewable fuel standards. This means that when an obligated party 
retires a BBD RIN (D4) to satisfy their obligation, this RIN also 
counts towards meeting their advanced biofuel and total renewable fuel 
obligations. It also means that obligated parties may use BBD RINs in 
excess of their BBD obligations to satisfy their advanced biofuel and 
total renewable fuel obligations. Higher advanced biofuel and total 
renewable fuel standards, therefore, can create demand for BBD if there 
is an insufficient supply of other advanced or conventional renewable 
fuels to satisfy the standards, or if BBD RINs can be acquired at or 
below the price of other advanced or conventional biofuel RINs.
    In reviewing the implementation of the RFS program to date, it is 
apparent that the advanced and/or total renewable fuel requirements 
were in fact helping to provide a market for volumes of biodiesel above 
the BBD standard. Table III.D.1-1 below shows the number of BBD RINs 
generated and available for use towards demonstrating compliance \93\ 
in each year from 2011-2013. As can be seen from the table, in 2011 and 
2013 the number of BBD RINs available for use exceeds the BBD standard. 
In 2013 the number of advanced RINs generated from fuels other than BBD 
is not large enough to satisfy the implied standard for ``other 
advanced'' biofuel (advanced biofuel that is not BBD or cellulosic 
biofuel). In fact, the amount by which the available BBD RINs exceed 
the BBD standard (421 million RINs) is slightly larger than the amount 
by which the non-BBD RINs fall short of the ``other advanced'' biofuel 
implied standard (285 million RINs). This supports the theory that the 
advanced biofuel standard provided an incentive to support BBD 
production and import into the United States in excess of the BBD 
standard.
---------------------------------------------------------------------------

    \93\ RINs available for use is number of RINs generated minus 
the number of RINs retired (or that we anticipate will be retired) 
for any reason other than a demonstration of annual compliance, such 
as RINs retired for exported biofuel, volume error corrections, 
enforcement actions, fuel used in applications other than 
transportation fuel, heating oil, or jet fuel, etc.

             Table III.D.1-1--Biomass-Based Diesel and Advanced Biofuel RIN Generation and Standards
                                                [Million gallons]
----------------------------------------------------------------------------------------------------------------
                                                                            Available  non-   ``Other'' Advanced
                                  Available BBD RINs     BBD standard          biodiesel            biofuel
                                                            (RINs)         advanced biofuel       requirement
----------------------------------------------------------------------------------------------------------------
2011............................               1,484               1,200                 225                 150
2012............................               1,465               1,500                 597                 500
2013............................               2,360               1,920                 552                 830
----------------------------------------------------------------------------------------------------------------

    The prices paid for advanced biofuel and BBD RINs also support the 
theory that advanced biofuel and/or total renewable fuel standards 
provided sufficient incentive for additional biodiesel production and 
import. Because the BBD standard is nested within the advanced biofuel 
and total renewable fuel standards, we would expect the price of BBD 
RINs to exceed that of advanced and renewable RINs. If, however, BBD 
RINs are being used by obligated parties to satisfy their advanced 
biofuel and/or total renewable fuel obligations, above and beyond the 
BBD standard, we would expect the price of renewable fuel, advanced 
biofuel, and BBD RINs to converge. When examining RIN prices data from 
2011 through 2014, shown in Figure III.D.1-1 below, we see that until 
January 2013 there is a consistent price differential between the price 
of BBD and the relatively cheaper advanced biofuel and renewable fuel 
RINs. Beginning in 2013 the price of BBD RINs and advanced biofuel RINs 
converge, and remain at a similar price throughout 2014. This is more 
evidence that suggests that the advanced biofuel standard and/or total 
renewable fuel standard is capable of incentivizing increased 
production and importation of BBD beyond the BBD standard, and that it 
in fact operated in this manner in 2013 and 2014.

[[Page 33135]]

[GRAPHIC] [TIFF OMITTED] TP10JN15.006

2. Biomass-Based Diesel as a Fraction of Advanced Biofuel
    Another implication of the fact that the BBD standard is nested 
within the advanced biofuel standard is that, for any given advanced 
biofuel standard, the higher the BBD standard is, the lower the 
opportunity for other non-BBD fuels to compete for market share within 
the context of the advanced biofuel standard. The statutory volumes of 
renewable fuel established by Congress in CAA section 211(o)(2)(B) 
allow for an opportunity for other advanced biofuels (advanced biofuels 
that do not qualify as cellulosic biofuel or BBD) to be used to satisfy 
the advanced biofuel standard after the cellulosic biofuel and BBD 
standards have been met. This unspecified advanced biofuel volume 
starts at 0.25 billion gallons in 2013 and grows to 3.5 billion gallons 
in 2022. It is, however, heavily dependent on EPA actions. Increasing 
the BBD standard above 1 billion gallons, as we did in 2013, reduces 
the potential market for other advanced biofuels to contribute towards 
meeting the advanced biofuel standard. Conversely, reducing the 
cellulosic biofuel standard while simultaneously maintaining the 
advanced biofuel standard (or reducing it by a lesser amount), as we 
have done each year since 2010, increases the potential market for 
other advanced biofuels.
    Both BBD and other advanced biofuels achieve estimated greenhouse 
gas reductions of at least 50% relative to the petroleum fuels they 
replace. Increasing the guaranteed market for BBD, rather than allowing 
excess BBD to compete for market share with other advanced biofuels 
within the advanced biofuel standard, would likely reduce competition 
and thus result in increased costs associated with the RFS program with 
no additional GHG reductions. It will also have a negative impact on 
investment in the development and deployment of other advanced 
biofuels, as these fuels will have a lower potential market if the BBD 
standard is increased. The long term success of the RFS program will 
depend on the growth in a variety of advanced biofuels. The standards 
we set today must therefore provide an incentive for the ongoing 
research, development, and commercialization of a variety of types of 
advanced biofuels beyond just BBD. We note again, however, that 
allowing for a greater use of other advanced biofuels by setting a 
lower BBD standard does not limit the amount of BBD that may be used 
towards satisfying the advanced biofuel standard. If BBD can be 
supplied at a lower cost than other advanced biofuels it can--and we 
expect would--be used to satisfy the majority or even all of the 
unspecified volume of advanced biofuels. Allowing for a larger portion 
of the advanced biofuel standard to be unspecified, by setting a lower 
BBD standard, maintains an incentive for the development and deployment 
of other advanced biofuels, while at the same time allowing a level of 
competition that can reduce compliance costs while also allowing growth 
in the supply of BBD and maintaining the greenhouse gas emissions 
reductions achieved by the use of advanced biofuels in the RFS program. 
We believe these are important considerations in determining the 
required BBD volumes in the 2015-2017 time period, as well as in future 
years.
3. Ensuring Growth in Biomass-Based Diesel and Other Advanced Biofuel
    While the ability of the advanced and total renewable fuel 
standards to incentivize increasing production of BBD and the desire to 
allow other advanced biofuels to compete with BBD for market share 
under the advanced standard suggest that a flat or even decreasing BBD 
volume requirement may be the optimal solution, these are not the only 
considerations. Despite many of these same issues being present

[[Page 33136]]

in 2013, EPA decided to increase the BBD standard in 2013 to 1.28 
billion gallons. EPA's decision to establish the higher 1.28 billion 
gallon BBD volume for 2013 was made against the backdrop of the BBD 
industry having increased production from about 400 million gallons in 
2010 to over 1 billion gallons in 2011.\94\ At that time, we were not 
confident in the ability of other advanced biofuels to be able to 
supply all the necessary volume of advanced biofuel needed to offset 
the shortfall in cellulosic biofuel and to meet the statutory volume 
target of 2.75 billion gallons for advanced biofuel. EPA was also not 
completely confident in the ability of the BBD industry to further 
increase production without an increased BBD standard. While BBD 
production had performed well in 2011 and the early part of 2012, the 
biodiesel industry had gone through a period of instability in 2009 and 
2010.\95\
---------------------------------------------------------------------------

    \94\ 77 FR 59461 col. 1, September 27, 2012.
    \95\ Regulations of Fuels and Fuel Additives: 2013 BBD Renewable 
Fuel Volume; Proposed Rule. 77 FR 59458, 59460-59461. http://www.epa.gov/otaq/fuels/renewablefuels/regulations.htm (last accessed 
May 20, 2014).
---------------------------------------------------------------------------

    During the development of the 2013 standards rulemaking, we were 
also concerned that the cellulosic biofuel standard, also nested within 
the advanced biofuel requirement, was lagging significantly behind the 
1 billion gallon statutory volume target. The shortfall in cellulosic 
biofuel volume meant that either other sources of advanced biofuel 
would be necessary to fulfill the specified volumes in the statute for 
the advanced biofuel standard, or EPA would need to waive a portion of 
the advanced biofuel standard. It is in this context that EPA 
determined that raising the BBD requirement to 1.28 billion gallons was 
appropriate. Most importantly, an applicable volume requirement of 1.28 
billion gallons was expected to encourage continued investment and 
innovation in the BBD industry, providing necessary assurances to the 
industry to increase production for 2013 while also serving the long 
term goal of the RFS statute to increase volumes of advanced biofuels 
over time.\96\
---------------------------------------------------------------------------

    \96\ 77 FR 59458, 59462 and 59483.
---------------------------------------------------------------------------

    There are also advantages to increasing the BBD standard in order 
to help provide stability to the BBD industry. This industry is 
currently the single largest contributor to the advanced biofuel pool, 
one that to date has been largely responsible for providing the growth 
in advanced biofuels envisioned by Congress. Nevertheless, there has 
been variability in the number of biodiesel facilities in production 
over the last few years, as well as the percent utilization of 
individual facilities, both of which contribute uncertainty in the rate 
of production in the near future, and which can be mitigated to some 
degree with an increase in the BBD applicable volume. Increasing the 
BBD standard should help to provide market conditions that allow these 
BBD production facilities to operate with greater certainty. This 
result would be consistent with the goals of the Act to increase the 
production and use of renewable fuels.
4. Proposed Volumes for 2015-2017
    With these considerations in mind, as well as our analysis of the 
factors specified in the statute and described below, and in 
coordination with the Departments of Agriculture and Energy, we are 
proposing to increase the applicable volume of BBD to 1.70 billion 
gallons for 2015, and to further increase the BBD volume requirement by 
0.1 billion gallons in 2016 and 2017, respectively. We believe this 
proposal strikes the appropriate balance between providing a market 
environment where other advanced biofuels can compete, and achieving 
the benefits associated with increasing the required volume of BBD. 
Given our proposed volumes for advanced biofuel in these years, setting 
the BBD standard in this manner continues to allow a considerable 
portion of the advanced biofuel volume to be satisfied by either 
additional gallons of BBD or by other unspecified types of qualifying 
advanced biofuels (see Table III.D.4-1 below). While we have not yet 
determined the applicable volume of advanced biofuel for 2017, we 
anticipate the continued growth in the advanced biofuel standard such 
that the advanced biofuel standard will provide an incentive for both 
increasing volumes of BBD and other advanced biofuels. We believe 
maintaining this unspecified or other advanced biofuel volume will 
provide the incentive for development and growth in other types of 
advanced biofuels. At the same time, allowing the portion of the 
advanced biofuel volume requirement that is dedicated to BBD to 
increase concurrently with the increase in the overall advanced biofuel 
volume requirement will contribute to market certainty for both the BBD 
industry and the renewable fuels program in general.

  Table III.D.4-1--Proposed Biomass-Based Diesel, Cellulosic Biofuel, and Advanced Biofuel Standards: 2015-2017
                                                [Billion gallons]
----------------------------------------------------------------------------------------------------------------
                                                                    Cellulosic       Advanced       Unspecified
                                  BBD  (gallons)    BBD  (RINs)       biofuel         biofuel        advanced
----------------------------------------------------------------------------------------------------------------
2015............................            1.70            2.55            0.11            2.90            0.24
2016............................            1.80            2.70            0.20            3.40            0.50
2017............................            1.90            2.85             TBD             TBD             TBD
----------------------------------------------------------------------------------------------------------------

    In proposing these standards for BBD for 2015-2017 EPA has taken 
into account the statutory requirements found in CAA section 
211(o)(2)(B)(ii), including coordination with the Departments of Energy 
and Agriculture, review of the implementation of the renewable fuels 
program to date, and analysis of the statutory factors specified in CAA 
section 211(o)(2)(B)(ii)(I)-(VI). Of particular relevance in our review 
of the implementation of the renewable fuels program to date were the 
circumstances and context that led us to increase the BBD standard from 
1.0 billion gallons in 2012 to 1.28 billion gallons for 2013, and the 
biofuel industry's successful performance in 2013. We have also 
reviewed the statutory factors in the context that the BBD volume 
requirement is nested within the advanced biofuels and total renewable 
fuels volume requirements. This discussion of the statutory factors is 
found in Section III.E., below.
    In deciding to propose an applicable volume of 1.70 billion gallons 
of BBD for 2015, with annual increases of 0.10 billion gallons for 2016 
and 2017, we

[[Page 33137]]

considered not only the short-term impacts, but also the potential 
long-term impacts of our action on the RFS program. We took into 
account the competitive impact such an increase in the BBD set-aside 
would likely have on other advanced biofuel producers already in the 
marketplace as well as on potential new market entrants. This increase 
in the BBD set-aside through 2017 should result in a requirement for 
unspecified advanced biofuel sufficient to provide opportunity for 
continued investment in and growth of advanced biofuels other than BBD.
    Raising the guaranteed BBD volume beyond the proposed volumes to a 
volume that approaches the maximum possible supply of BBD could result 
in a less competitive advanced biofuels market, increasing RIN prices, 
and a less efficient market-driven renewable fuels program. Our 
decision today to propose increasing the BBD volume in 2015-2017 by 100 
million gallons per year would not be expected to lead to such adverse 
result. We believe that the proposed increases for 2015-2017 will both 
contribute to market stability for the renewable fuels program and 
continue to promote a growing and competitive advanced biofuels 
marketplace, one which encourages the growth and development of diverse 
biofuels along with additional volumes of BBD beyond the volumes 
required by the BBD standard. We request comment on our proposal for 
increasing the BBD applicable volumes in 2015-2017 and whether higher 
or lower volume requirements for BBD for 2015-2017 would be more 
appropriate.

E. Consideration of Statutory Factors for 2014-2017

    In this section we discuss our considerations of the statutory 
factors set forth in CAA section 211(o)(2)(B)(ii)(I)-(VI). As discussed 
earlier in Section III.D.1, the BBD volume requirement is nested within 
both the advanced biofuel and the total renewable fuel volume 
requirements; so that any BBD produced beyond the mandated BBD volume 
can be used to satisfy both these other applicable volume requirements. 
The result is that in considering the statutory factors when setting 
the biomass-based standard we must consider the potential impacts of 
increasing BBD in comparison to other advanced biofuels,\97\ not to 
diesel fuel. Greater or lesser applicable volumes of BBD do not change 
the amount of advanced biofuel used to displace petroleum fuels; 
rather, increasing the BBD applicable volume may result in the 
displacement of other types of advanced biofuels that could have been 
used to meet the advanced biofuels volume requirement.
---------------------------------------------------------------------------

    \97\ While BBD can be used to satisfy the total renewable fuel 
requirement we anticipate that it will be used to satisfy the 
advanced biofuel volume requirement in 2015-2017. See Table II.D.2-
2, ``Volume Scenarios Illustrating Possible Compliance with 3.40 
Bill Gal Advanced Biofuel\a\ and 17.40 Bill Gal Bill Gal Total 
Renewable Fuel''.
---------------------------------------------------------------------------

1. Primary and Supplementary Statutory Factors Assessment for 2015-2017 
Biomass-Based Diesel Applicable Volumes
    EPA's primary assessment of the statutory factors for years 2015 
through 2016 is that because the proposed advanced biofuel volume 
requirements for 2015-2016 reflect the maximum volumes of all advanced 
biofuels (including BBD) that can reasonably be expected to be produced 
and consumed, and because the BBD requirement is nested within the 
advanced biofuel volume requirement, we expect that the advanced 
biofuel volume requirement will determine the level of BBD production 
and import; the same volume of BBD will be produced and imported 
regardless of the BBD applicable volumes that we require for 2015-2016. 
This assessment is based in part on our review of implementation of the 
RFS program to date, as discussed in Sections III. B and D. Since our 
decision on the BBD applicable volumes for 2015-2016 is not expected to 
impact the volume of BBD produced and imported during this time period, 
we do not expect our decision to result in a difference in any of the 
factors we are required to evaluate pursuant to CAA section 
211(o)(2)(B)(ii)(I)-(VI), with the exception, that in considering 
statutory factor 211(o)(2)(B)(ii)(III), we believe that our decision on 
the level of the nested BBD volume requirement can have an impact on 
the future development and marketing of non-BBD advanced biofuels and 
can also be seen as sending a supportive or non-supportive signal to 
potential investors in BBD.
    Similarly for 2017, even though we are proposing only the 2017 BBD 
requirement at this time and not the 2017 advanced biofuel requirement, 
we believe this same primary assessment is appropriate since, as in 
previous years, the 2017 advanced biofuel requirement will be set to 
reflect the maximum volumes of all advanced biofuels (including BBD) 
that can reasonably be expected to be produced and consumed for 2017, 
and it is the advanced standard that can be expected to drive BBD 
production and use.
    As an additional supplementary assessment, we have considered the 
potential impacts of modifying the applicable volume of BBD from the 
proposed levels of 1.70 billion gallons in 2015, 1.80 billion gallons 
in 2016, and 1.90 billion gallons in 2017, based on the assumption that 
in guaranteeing BBD volumes at any given level there could be greater 
use of BBD and a corresponding decrease in the use of other types of 
advanced biofuels for years 2015-2017. However, setting a higher or 
lower BBD volume requirement than the levels proposed would only be 
expected to impact BBD volumes on the margin, protecting to varying 
degrees this advanced biofuel from being outcompeted by other advanced 
biofuels. This assessment analyzes all of the statutory factors, and is 
described in a memorandum to the docket.\98\ Overall, the supplemental 
assessment does not appear, based on available information, to provide 
a good reason for setting a higher or lower nested standard for BBD 
than 1.70 billion gallons in 2015, 1.80 billion gallons in 2016, and 
1.90 billion gallons in 2017.
---------------------------------------------------------------------------

    \98\ ``Memorandum to docket: Statutory Factors Assessment for 
2015-2017 BBD Applicable Volumes'' EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------

2. Assessment for 2014 Biomass-Based Diesel Applicable Volume
    Given the fact that the 2014 compliance year has passed, we believe 
that our action in setting the 2014 BBD volume requirement will result 
in no real-world impacts, including no impacts with respect to the 
factors listed under CAA section 211(o)(2)(B)(ii)(I)-(VI). For example, 
there is no longer any ability for other advanced biofuels to compete 
with BBD for a greater share of the advanced biofuel pool in 2014, so 
there would be no marginal benefit in terms of incentivizing production 
of such fuels in setting a lower volume requirement than the volume of 
BBD that was actually produced and imported and available for 
compliance in 2014. Setting the applicable volume at a higher level 
would require a draw-down in the bank of carryover RINs, which EPA does 
not consider prudent for the reasons discussed in Section II.E. of this 
preamble. In light of these considerations, we propose to establish the 
2014 applicable volume as equal to the volume actually produced and 
imported, which is available for compliance.

[[Page 33138]]

IV. Proposed Cellulosic Biofuel Volume for 2014-2016

    In the past several years the cellulosic biofuel industry has made 
significant progress towards commercial scale production. Quad County 
Corn Processors produced the first cellulosic biofuel RINs from corn 
kernel fiber at a corn ethanol plant in 2014. In addition, in 2014 two 
large scale cellulosic ethanol facilities owned and operated by the 
experienced biofuel production companies Abengoa and Poet completed 
construction. EPA also determined that compressed natural gas (CNG) and 
liquefied natural gas (LNG) produced from biogas from landfills, 
municipal waste-water treatment facility digesters, agricultural 
digesters, and separated municipal solid waste (MSW) digesters is 
eligible to generate cellulosic RINs. This determination lead to a 
significant increase in cellulosic RIN generation, as fuel that 
previously had been qualified to generate advanced biofuel RINs began 
to be used to generate cellulosic RINs. Efforts continue to be made at 
facilities across the country to reduce both capital costs and 
production costs associated with cellulosic biofuel production through 
technology advances and the development of best practices gained 
through operating experience. EPA also continues to support the ongoing 
development of cellulosic biofuels through actions such as the 
evaluation of new pathways with the potential to generate cellulosic 
biofuel RINs.\99\ This section describes the available supply of 
cellulosic biofuel RINs in 2014, the volumes that we project will be 
produced or imported in 2015 and 2016, and some of the uncertainties 
associated with those volumes.
---------------------------------------------------------------------------

    \99\ Additionally, on April 3rd, 2015 EPA published a direct 
final rule modifying the process by which the cellulosic waiver 
credit prices are established, and indicating the prices for these 
credits in 2014 and 2015 using the regulations modified by this rule 
(80 FR 18136, April 3, 2015).
---------------------------------------------------------------------------

    In order to project the volume of cellulosic biofuel production in 
2015 and 2016 we considered data reported to EPA through the EPA 
Moderated Transaction System (EMTS) and information we collected 
regarding individual facilities that have produced or have the 
potential to produce qualifying volumes for consumption as 
transportation fuel, heating oil, or jet fuel in the U.S. in 2014, 
2015, or 2016. New cellulosic biofuel production facilities projected 
to be brought online in the United States over the next few years would 
significantly increase the production capacity of the cellulosic 
industry. Operational experience gained at the first few commercial 
scale cellulosic biofuel production facilities should also lead to 
increasing production of cellulosic biofuel from existing production 
facilities. The following section discusses the companies the EPA 
reviewed in the process of projecting qualifying cellulosic biofuel 
production in the United States in 2015 and 2016. Information on these 
companies forms the basis for our production projections of cellulosic 
biofuel that will be produced for use as transportation fuel, heating 
oil, or jet fuel in the United States in these years (see Table IV-1 
below). We request comment on the projected volumes of cellulosic 
biofuel production for each of these years, as well as the methodology 
used to project these volumes.

            Table IV-1--Proposed Cellulosic Biofuel Standards
------------------------------------------------------------------------
                                                       Volume (million
                       Year                               gallons)
------------------------------------------------------------------------
2014..............................................                    33
2015..............................................                   106
2016..............................................                   206
------------------------------------------------------------------------

A. Statutory Requirements

    The volumes of renewable fuel to be used under the RFS program each 
year (absent an adjustment or waiver by EPA) are specified in CAA 
section 211(o)(2). The volumes of cellulosic biofuel specified in the 
statute for 2014, 2015, and 2016 are shown in Table IV.A-1 below. The 
statute provides that if EPA determines, based on EIA's estimate, that 
the projected volume of cellulosic biofuel production in a given year 
is less than the statutory volume, then EPA is to reduce the applicable 
volume of cellulosic biofuel to the projected volume available during 
that calendar year.\100\
---------------------------------------------------------------------------

    \100\ On January 25, 2013, the United States Court of Appeals 
for the District of Columbia Circuit issued its decision concerning 
a challenge to the 2012 cellulosic biofuel standard. In this 
decision the Court stated that in projecting potentially available 
volumes of cellulosic biofuel EPA must apply a ``neutral 
methodology'' aimed at providing a prediction of ``what will 
actually happen,'' as required by the statute.

          Table IV.A-1--Statutory Volumes of Cellulosic Biofuel
------------------------------------------------------------------------
                                                      Volume  (million
                       Year                               gallons)
------------------------------------------------------------------------
2014..............................................                 1,750
2015..............................................                 3,000
2016..............................................                 4,250
------------------------------------------------------------------------

    In addition, if EPA reduces the required volume of cellulosic 
biofuel below the level specified in the statute, the Act also 
indicates that we may reduce the applicable volumes of advanced 
biofuels and total renewable fuel by the same or a lesser volume, and 
we are required to make cellulosic waiver credits available. Our 
consideration of the 2014, 2015, and 2016 volume requirements for 
advanced biofuels and total renewable fuel is presented in Section II.

B. Cellulosic Biofuel Industry Assessment

    In order to project cellulosic biofuel production for 2015 and 2016 
we have tracked the progress of several dozen potential cellulosic 
biofuel production facilities. As we did in establishing the 2013 
annual volumes, we have focused on facilities with the potential to 
produce commercial volumes of cellulosic biofuel rather than small R&D 
or pilot-scale facilities. We did so because the larger commercial-
scale facilities are much more likely to generate RINs for the fuel 
they produce and the volumes they produce will have a far greater 
impact on the cellulosic biofuel standards for 2015--2016. From this 
list of facilities we used information from EMTS and publically 
available information, and information provided by representatives of 
potential cellulosic biofuel producers, to make a determination of 
which facilities are the most likely candidates to produce cellulosic 
biofuel and generate cellulosic biofuel RINs in 2015 and 2016. Each of 
these companies was investigated further in order to determine the 
current status of its facilities and its likely cellulosic biofuel 
production and RIN generation volumes for 2015 and 2016. Both in our 
discussions with representatives of each company \101\ and as part of 
our internal evaluation process we gathered and analyzed information 
including, but not limited to, the funding status of these facilities, 
current status of the production technologies, anticipated construction 
and production ramp-up periods, facility registration status, and 
annual fuel production and RIN generation targets.
---------------------------------------------------------------------------

    \101\ In determining appropriate volumes for CNG/LNG producers 
we did not contact individual producers but rather relied primarily 
on discussions with industry associations, and information on likely 
production facilities that are already registered under the RFS 
program. In some cases where further information was needed we did 
speak with individual companies.
---------------------------------------------------------------------------

    EPA is proposing to use a slightly different methodology for 
projecting the available volume of cellulosic biofuel for each of the 
three years. Our approach to each of these years can

[[Page 33139]]

broadly be described as one that seeks to use actual production volumes 
where they are available (such as for all of 2014 and several months of 
2015) and to project production volumes from likely production 
facilities for future months in which actual production volumes are not 
available. In previous projections of cellulosic biofuel production 
EPA, as directed by the CAA, has considered information provided by EIA 
in making our projections. EPA received a letter from EIA on February 
19, 2014 containing cellulosic biofuel projections for 2014,\102\ but 
to date have not received any projections of cellulosic biofuel 
production for 2015 or 2016. As discussed in more detail below EPA now 
has data, through EMTS, on the actual number of cellulosic RINs 
generated in 2014 and we are proposing to establish the 2014 cellulosic 
biofuel standard using this data rather than EIA's projection from 
early 2014. We anticipate that for the final rule EIA will provide EPA 
with projected production volumes of cellulosic biofuel in 2015 and 
2016 and we intend to consider these projections in our final rule.
---------------------------------------------------------------------------

    \102\ Letter from Adam Sieminski, EIA Administrator to Gina 
McCarthy, EPA Administrator February 19, 2014.
---------------------------------------------------------------------------

    Our approach for each of the three years is discussed in more 
detail in Sections IV.D-IV.F below. The remainder of this Section 
discusses the current status of the companies and facilities EPA 
expects may be in a position to produce commercial scale volumes of 
cellulosic biofuel by the end of 2016. This information forms the basis 
for our proposed standards for cellulosic biofuel for 2014, 2015, and 
2016.
1. Potential Domestic Producers
    There are a number of companies and facilities \103\ located in the 
United States that have either already begun producing cellulosic 
biofuel for use as transportation fuel, heating oil, or jet fuel at a 
commercial scale, or are anticipated to be in a position to do so by 
the end of 2016. The financial incentive provided by cellulosic biofuel 
RINs, combined with the fact that all these facilities intend to 
produce fuel for domestic consumption using approved pathways, gives us 
a high degree of confidence that cellulosic biofuel RINs will be 
generated for any fuel produced. In order to generate RINs, each of 
these facilities must be registered under the RFS program and comply 
with all the regulatory requirements. This includes using an approved 
RIN-generating pathway and verifying that their feedstocks meet the 
definition of renewable biomass. Many of the companies and facilities 
have already successfully completed facility registration, and several 
have successfully generated RINs. A brief description of each of the 
companies that EPA believes may produce commercial scale volumes of RIN 
generating cellulosic biofuel by the end of 2016 can be found in a 
memorandum to the docket for this proposed rule.\104\ These 
descriptions are based on a review of the publicly available 
information and information provided to EPA in conversations with 
company representatives. The key data for each of these companies used 
in our projection of the potentially available volume of cellulosic 
biofuel in 2015 and 2016 is summarized in Table IV.B.3-1 below.
---------------------------------------------------------------------------

    \103\ The volume projection from CNG/LNG producers does not 
represent production from a single company or facility, but rather a 
group of facilities utilizing the same production technology.
    \104\ ``Cellulosic Biofuel Producer Company Descriptions'', 
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2015-
0111.
---------------------------------------------------------------------------

2. Potential Foreign Sources of Cellulosic Biofuel
    In addition to the potential sources of cellulosic biofuel located 
in the United States, there are several foreign cellulosic biofuel 
companies that may produce cellulosic biofuel in 2015 or 2016. These 
include facilities owned and operated by Beta Renewables, Enerkem, 
GranBio, and Raizen. All of these facilities use fuel production 
pathways that have been approved by EPA for cellulosic RIN generation 
provided eligible sources of renewable feedstock are used. These 
companies would therefore be eligible to register these facilities 
under the RFS program and generate RINs for any qualifying fuel 
imported into the United States. While these facilities may be able to 
generate RINs for any volumes of cellulosic biofuel they import into 
the United States, demand for the cellulosic biofuels they produce is 
expected to be high in local markets. EPA is charged with projecting 
the volume of cellulosic biofuel that will be produced or imported into 
the United States. Based on information available to EPA at the time of 
this proposed rulemaking, including the lack of cellulosic biofuel 
imports to date, we do not believe cellulosic biofuel will be imported 
into the United States from foreign cellulosic biofuel production 
facilities other than the Ensyn facility in Ontario, Canada. As such, 
production volumes from foreign facilities (with the exception of 
Ensyn) have not been included in our projection of potentially 
available volume for 2014-2016. EPA plans to continue to monitor the 
progress of foreign cellulosic biofuel facilities and may include 
volumes from foreign facilities in future rulemakings if appropriate 
and supported by new information.
3. Summary of Volume Projections for Individual Companies
    The information we have gathered on cellulosic biofuel producers, 
described above, along with the data collected through EMTS forms the 
basis for our projected volumes of cellulosic biofuel production for 
each facility in 2015 and 2016. As in 2013, we have focused on 
commercial scale cellulosic biofuel production facilities. This focus 
is appropriate, as the volume of cellulosic biofuel produced from R&D 
and pilot scale facilities is quite small in relation to that expected 
from the commercial scale facilities. R&D and demonstration scale 
facilities have also generally not generated RINs for any fuel they 
have produced.
    By 2016 there are a number of cellulosic biofuel production 
facilities that have the potential to produce fuel at commercial scale. 
Each of these facilities is discussed in a memorandum to the 
docket,\105\ and the relevant information used to project a likely 
production range for each company is summarized in Table IV.B.3-1 
below.\106\ We will continue to monitor the status of these facilities 
and will update this information for the final rule.\107\ If we receive 
information that suggests facilities not currently included in this 
table, either foreign or domestic, may produce commercial-scale volumes 
of cellulosic biofuel for use as transportation fuel, heating oil, or 
jet fuel in the United States by 2016 we will include them in our 
projections for our final rule as appropriate. We will also remove 
facilities from our projections if new information suggests

[[Page 33140]]

they will not produce cellulosic by 2016.
---------------------------------------------------------------------------

    \105\ ``Cellulosic Biofuel Producer Company Descriptions'', 
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2015-
0111.
    \106\ For the purpose of the preamble discussion we have grouped 
together all facilities expected to produce cellulosic CNG/LNG. The 
individual facilities included in our assessment are listed in 
``Assessment of Cellulosic Biofuel Production from Biogas (2015-
2016)'', memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-
OAR-2015-0111.
    \107\ Given timing constraints for issuing a final rule, EPA 
does not anticipate providing an opportunity for comment on any 
updated data. Commenters may therefore wish to focus their comments 
both on the types of data we are proposing be used, as well as EPA's 
proposed approach for using the data.

                                            Table IV.B.3-1--Projected Producers of Cellulosic Biofuel by 2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                            Facility
         Company name                Location          Feedstock            Fuel         capacity (MGY)     Construction       First production \109\
                                                                                              \108\          start date
--------------------------------------------------------------------------------------------------------------------------------------------------------
Abengoa.......................  Hugoton, KS......  Corn Stover......  Ethanol.........  25..............  September 2011..  April 2015.
Cool Planet...................  Alexandria, LA...  Wood Waste.......  Gasoline........  1...............  2Q 2015.........  Late 2016.
CNG/LNG Producers \110\.......  Various..........  Biogas...........  CNG/LNG.........  Various.........  N/A.............  August 2014.
DuPont........................  Nevada, IA.......  Corn Stover......  Ethanol.........  30..............  November 2012...  3Q 2015.
Edeniq........................  Various..........  Corn Kernel Fiber  Ethanol.........  Various.........  Various.........  2nd Half 2015.
Ensyn.........................  Renfrew, ON......  Wood Waste.......  Heating Oil.....  3...............  N/A.............  2014.
INEOS Bio.....................  Vero Beach, FL...  Vegetative Waste.  Ethanol.........  8...............  February 2011...  2Q 2015.
Poet..........................  Emmetsburg, IA...  Corn Stover......  Ethanol.........  24..............  March 2012......  3Q 2015.
QCCP..........................  Galva, IA........  Cork Kernel Fiber  Ethanol.........  2...............  Late 2013.......  October 2014.
--------------------------------------------------------------------------------------------------------------------------------------------------------

C. Cellulosic Biofuel Volume for 2014
---------------------------------------------------------------------------

    \108\ The Facility Capacity is generally equal to the nameplate 
capacity provided to EPA by company representatives or found in 
publicly available information. If the facility has completed 
registration and the total permitted capacity is lower than the 
nameplate capacity then this lower volume is used as the facility 
capacity. For companies generating RINs for CNG/LNG derived from 
biogas the Facility Capacity is equal to the lower of the annualized 
rate of production of CNG/LNG from the facility or the sum of the 
volume of contracts in place for the sale of CNG/LNG for use as 
transportation fuel (reported as the actual peak capacity for these 
producers).
    \109\ Where a quarter is listed for the first production date 
EPA has assumed production begins in the middle month of the quarter 
(i.e. August for the 3rd quarter) for the purposes of projecting 
volumes
    \110\ For more information on these facilities see ``Assessment 
of Cellulosic Biofuel Production from Biogas (2015-2016)'', 
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2015-
0111.
---------------------------------------------------------------------------

    EPA is charged with projecting the available volume of cellulosic 
biofuel for each year, and to reduce the applicable volume of 
cellulosic biofuel to the level projected to be available for years in 
which the projected available volume falls below the cellulosic biofuel 
applicable volume target specified in the CAA 211(o)(2). EPA believes 
that for any historical time period, the required projection is best 
calculated as the sum of the cellulosic biofuel RINs (D3) and the 
cellulosic diesel RINs (D7) generated, adjusted for RINs that are 
retired for purposes other than compliance with the annual standards. 
EPA publishes the number of cellulosic biofuel and cellulosic diesel 
RINs generated on a month by month basis on our Web site.\111\ The 
number of cellulosic biofuel and cellulosic diesel RINs generated for 
each month of 2014 can be found in Table IV.C-1 below. From this total, 
we subtract the number of cellulosic biofuel and cellulosic diesel RINs 
retired for reasons other than compliance with the annual standards, as 
these RINs are not available to obligated parties.\112\ In calculating 
the number of cellulosic biofuel RINs available for compliance with the 
annual standards for 2014 we have assumed that there were no exports of 
cellulosic biofuel.\113\ EPA proposes to establish the cellulosic 
biofuel requirement for 2014 at 33 million gallons. We believe this 
number, calculated by subtracting the total number of cellulosic 
biofuel RINs (D3 and D7) retired for reasons other than compliance with 
the annual standards from the total number of cellulosic biofuel RINs 
generated in 2014 (D3 and D7), represents the total available supply of 
cellulosic biofuel RINs for 2014.
---------------------------------------------------------------------------

    \111\ http://www.epa.gov/otaq/fuels/rfsdata/index.htm.
    \112\ In 2014 Cellulosic Biofuel and Cellulosic Diesel RINs were 
retired for Remedial Actions and Invalid RINs.
    \113\ The vast majority of cellulosic biofuel RINs generated in 
2014 (approximately 32 or the 33 million RINs) were for CNG or LNG. 
These fuels require verification that the CNG/LNG was used as 
transportation fuel in the United States in order for RINs to be 
generated.

      Table IV.C-1--Cellulosic Biofuel RIN Generation in 2014 \114\
------------------------------------------------------------------------
                                         Cellulosic        Cellulosic
                                        biofuel (D3)       diesel (D7)
------------------------------------------------------------------------
January 2014........................            58,415                 0
February 2014.......................             7,072                 0
March 2014..........................             6,624               472
April 2014..........................               643            10,950
May 2014............................                 0                 0
June 2014...........................                 0                 0
July 2014...........................             4,156             1,248
August 2014.........................         3,492,106             5,532
September 2014......................         7,555,432            17,073
October 2014........................         7,047,762            24,030
November 2014.......................         6,325,080                 0
December 2014.......................         8,863,270                 0
                                     -----------------------------------
    Total...........................        33,360,560            59,305
RINs retired for reasons other than            346,318             4,997
 compliance with the annual
 standards..........................
RINs Available......................        33,014,242            54,308
                                     -----------------------------------
Available Cellulosic RINs (D3 and
 D7)................................              33,068,550
------------------------------------------------------------------------

[[Page 33141]]

D. Cellulosic Biofuel Volume for 2015
---------------------------------------------------------------------------

    \114\ All numbers from EPA Web site: http://www.epa.gov/otaq/fuels/rfsdata/index.htm. Accessed February 9, 2015.
---------------------------------------------------------------------------

    To project the volume of cellulosic biofuel in 2015, EPA has relied 
on a combination of production information reported to EPA through EMTS 
for months in which we have data available and facility or company 
specific estimates of likely production for months for which EMTS data 
is not available. For months in which information on the production of 
cellulosic biofuel is available we have used the methodology discussed 
in Section IV.C, subtracting the number of RINs retired for reasons 
other than compliance in 2015 from the total number of RINs produced in 
2015 that are eligible to be used towards satisfying the cellulosic 
biofuel standard (D3 and D7 RINs). We have again assumed that no 
cellulosic biofuel was exported in the first three months of 2015. This 
data is shown in Table IV.D-1 below.

      Table IV.D-1--Cellulosic Biofuel RIN Generation in Early 2015
------------------------------------------------------------------------
                                         Cellulosic        Cellulosic
                                        biofuel (D3)       diesel (D7)
------------------------------------------------------------------------
January 2015........................         4,076,744                 0
February 2015.......................         7,935,446                 0
March 2015..........................         7,799,749                 0
                                     -----------------------------------
    Total...........................        19,811,939                 0
RINs retired for reasons other than             76,942                 0
 compliance.........................
RINs Available......................        19,734,997                 0
                                     -----------------------------------
        Total Available Cellulosic
         RINs (D3 and D7)...........              19,734,997
------------------------------------------------------------------------

    For months in which information is unavailable EPA has updated our 
projection methodology from the methodology used in previous 
rulemakings and our proposed rule for 2014. Our projection methodology 
starts with estimating a range of potential production volumes for each 
company for the portion of 2015 where production data is not 
available.\115\ EPA has established a range of potential production 
volumes for each company such that it is possible, but unlikely, that 
the actual production will be above or below the range. We believe that 
it is more appropriate to project a range of potential production 
volumes rather than a single point estimate due to the highly uncertain 
and variable nature of biofuel production at cellulosic biofuel 
facilities, especially those in the early stages of production. The 
projected production ranges for each facility are used to generate a 
single point estimate for the total production of cellulosic biofuel 
from all companies in 2015 for the months in which actual production 
volumes through EMTS are not available.
---------------------------------------------------------------------------

    \115\ For the purposes of projecting RIN generation from CNG/LNG 
projections were made for parent companies, generally representing 
multiple companies. For more detail see ``Assessment of Cellulosic 
Biofuel Production from Biogas (2015-2016)'', memorandum from Dallas 
Burkholder to EPA Air Docket EPA-HQ-OAR-2015-0111.
---------------------------------------------------------------------------

    In establishing a range for each company, we began by determining 
an appropriate low end of the range. The low end of the range for each 
company is designed to represent the volume of fuel EPA believes each 
company would produce if they are unable to begin fuel production on 
their expected start-up date and/or if they experience challenges that 
result in reduced production volumes or a longer than expected ramp-up 
period. In this proposal EPA has set the low end of the production 
range for each company based on the volume of RIN-generating cellulosic 
biofuel the company has produced in the most recent 12 months for which 
data is available.\116\ Because we are not attempting to determine a 
low end of a likely production range for a full year, but rather only 
the months in 2015 for which data is not available, this number is then 
multiplied by a scaling factor \117\ to appropriately scale this annual 
production volume for use as the low end of the range over the number 
of months of 2015 for which actual production data is unavailable.
---------------------------------------------------------------------------

    \116\ For the final rule we intend to update this information 
and use the data available for the most recent 12 months at the time 
of the final rule.
    \117\ The scaling factor is 0.75; equal to the 9 months for 
which production data is being projected divided by 12.
---------------------------------------------------------------------------

    This approach provides us with an objective methodology for 
calculating the low end of the potential production range for each 
company that we believe is appropriate in light of the history of 
start-up delays and missed production targets in the cellulosic biofuel 
industry. If a company has not yet begun producing RIN-generating 
volumes of cellulosic biofuel, our experience suggests that they may 
experience challenges in progressing toward commercial-scale production 
that would result in the delay of the production of cellulosic biofuel. 
We acknowledge that in the majority of cases cellulosic companies that 
have begun producing fuel and are currently in the start-up and ramp-up 
phases of production will increase their production of cellulosic 
biofuel from one year to the next as they work towards production rates 
at or near the facility capacity. Fuel production by these companies 
may, however, be interrupted, either intentionally or unexpectedly, and 
these interruptions may hinder the ability of these companies to 
increase biofuel production year over year. We will account for the 
likelihood of increasing production in developing the high end of each 
company's production range. Finally, there may be cases in which 
information is available that suggests a company is unlikely to meet 
the production volumes achieved in the previous 12 months for which 
data is available, due to technical, financial, or legal difficulties. 
We do not believe this is the case with any of the companies projected 
to produce cellulosic biofuel in 2015.
    It is important to note that the low end of the range does not 
necessarily represent a worst-case scenario. The worst-case scenario 
for any of these facilities for the months in which we are projecting 
production is no production, as it is always possible that extreme 
circumstances or natural disasters may result in extended delays, 
facility damages, or liquidation. While not denying such a possibility, 
we nevertheless believe it is generally appropriate to use the 
production over the previous 12 months as the low end of the range, 
with exceptions made where available information indicates that such 
production may be unlikely. In situations where a company has not

[[Page 33142]]

produced any cellulosic biofuel in the previous 12 months, we believe 
it is appropriate to use zero as the low end of the projected 
production range given the many uncertainties and challenges associated 
with the commissioning and start-up of a new cellulosic biofuel 
production facility we have observed to date.
    To determine the high end of the range of expected production 
volumes for each company we considered a variety of factors, including 
the expected start-up date and ramp-up period, facility capacity, and 
fuel off-take agreements. As a starting point, EPA calculated a 
production volume using the expected start-up date, facility capacity, 
and a benchmark of a six-month straight-line ramp-up period 
representing an optimistic ramp-up scenario.\118\ We then compared the 
volume calculated using this methodology to the company's own 
expectations for the period in which we are projecting production where 
they were available. We are proposing that any company projection that 
exceeds our benchmark volume not be used for developing the high end of 
the range of expected production volumes. If the production estimate 
EPA received from a company was lower than the volume calculated using 
the projected start-up date, facility capacity, and six month straight-
line ramp-up period, EPA used the company production targets instead. 
While we understand that many of these company projections represent 
the company's actual expectations for production, rather than a goal or 
high end of an expected production range, we do not believe it would be 
appropriate to ignore the history of the cellulosic biofuel industry. 
In previous years EPA has gathered information, including volume 
production projections, from companies with the potential to produce 
cellulosic biofuel. Each of these companies supported these projections 
with successful pilot- and demonstration-scale facilities as well as 
other supporting documentation. In each of these cases the companies 
were unable to meet their own volume projections, and in many cases 
were unable to produce any RIN-generating cellulosic biofuel.
---------------------------------------------------------------------------

    \118\ We did not assume a six-month straight-line ramp-up period 
in determining the high end of the projected production range for 
CNG/LNG producers. This is because these facilities generally have a 
history of CNG/LNG production prior to producing RINs, and therefore 
do not face many of the start-up and scale-up challenges that impact 
new facilities. For further information on the methodology used to 
project cellulosic RIN generation from CNG/LNG producers see 
``Assessment of Cellulosic Biofuel Production from Biogas (2015-
2016)'', memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-
OAR-2015-0111.
---------------------------------------------------------------------------

    The inability of cellulosic biofuel producers in previous years to 
achieve their projection production targets does not provide a 
sufficient basis for completely discounting production of cellulosic 
biofuel in future years, either for these same facilities that were 
previously unable to achieve their target projections or from new 
facilities expected to start-up in 2015 or 2016. Each of these 
companies is an individual case, with their own production 
technologies, construction and operations staffs, and financial 
situations, and we do not believe it is appropriate to dismiss all 
future potential cellulosic biofuel production because of the failure 
of several facilities to successfully operate at commercial scale. We 
do believe it strongly suggests that we should view the individual 
company projections as something other than the most likely outcomes. 
In order to take a ``neutral aim at accuracy'' in projecting cellulosic 
biofuel production volumes, as directed by the United States Court of 
Appeals for the DC Circuit, we have decided to treat these company 
projections as the high end of a potential production range unless this 
volume exceeds the volume calculated using our six-month straight-line 
ramp-up period methodology, suggesting that these company projections 
are unreasonably high. We will continue to monitor the progress and 
experience of the cellulosic biofuel industry and may adjust our 
approach as appropriate in light of additional experience.
    We believe our range of projected production volumes for each 
company represents the range of what is likely to actually happen for 
each company. A brief overview of each of the companies we believe will 
produce cellulosic biofuel and make it commercially available in 2015 
can be found in a memorandum to the docket.\119\ In the case of 
cellulosic biofuel produced from CNG/LNG we have discussed the 
production potential from these facilities as a group rather than 
individually. EPA believes it is appropriate to discuss these 
facilities as a group since they are utilizing a proven production 
technology and face many of the same challenges related to 
demonstrating that the fuel they produce is used as transportation fuel 
and therefore eligible to generate RINs under the RFS program.\120\
---------------------------------------------------------------------------

    \119\ ``Cellulosic Biofuel Producer Company Descriptions'', 
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2015-
0111.
    \120\ For individual company information see ``Cellulosic 
Biofuel Individual Company Projections for 2014-2016 (CBI)'', 
memorandum from Dallas Burkholder to EPA Air Docket EPA-HQ-OAR-2015-
0111.
---------------------------------------------------------------------------

    After establishing a projected production range for each facility 
(or group of facilities for CNG/LNG producers), we must then determine 
a method for using these projected production ranges to project the 
volume of cellulosic biofuel most likely to be produced by the 
cellulosic biofuel industry as a whole in 2015. As discussed above, the 
high and the low end of the range for each company represents values 
such that it is possible but unlikely that actual volumes would fall 
outside of those ranges. At present, data does not exist to allow EPA 
to develop a unique production probability distribution for each 
company based on the available information. Even if EPA were able to 
undertake such a task there is no evidence that the distributions we 
developed would necessarily be more accurate than a standardized 
distribution curve as the cellulosic biofuel industry is still in its 
infancy and there is a high degree of uncertainty associated with many 
of the factors that will impact production at each individual facility. 
This is supported by the poor accuracy of the individual company 
estimates in previous years, which were made by individuals with 
significant technical expertise and knowledge of each individual 
company and technology.
    Rather than attempting to develop a unique probability distribution 
curve that represents likely cellulosic biofuel production for each 
company, EPA has instead separated the list of potential cellulosic 
biofuel producers into two groups; those who have already achieved 
consistent commercial-scale production and those who have not. We 
believe grouping the potential cellulosic biofuel producers using the 
criteria of whether or not they have achieved consistent commercial-
scale production is appropriate for the purposes of projecting a likely 
production volume. While each of these groupings contains a diverse set 
of companies with their own production technologies and challenges, we 
believe there is sufficient commonality in the challenges related to 
the funding, construction, commissioning, and start-up of commercial-
scale cellulosic biofuel facilities to justify aggregating these 
company projections into a single group for the purposes of projecting 
the most likely production volume of cellulosic biofuel. The challenges 
new production facilities face are also significantly different than 
those of facilities ramping up production volumes to the facility

[[Page 33143]]

capacity and maintaining consistent production. After separating the 
companies into these two groups we then summed the low and high ends of 
each of the ranges for each individual company (or group of companies 
for CNG/LNG producers) within the group to calculate an aggregate 
projected production range for each group of companies. The ranges for 
each group of companies are shown in Tables IV.D-2 and IV.D-3 below.

  Table IV.D-2--2015 Production Ranges for Companies Without Consistent
                       Commercial Scale Production
                            [Million gallons]
------------------------------------------------------------------------
                                       Low end of the    High end of the
                                           range a           range a
------------------------------------------------------------------------
Abengoa.............................                 0                12
CNG/LNG Producers (New Facilities)..                 0                37
CoolPlanet..........................                 0                 0
DuPont..............................                 0                 5
Edeniq..............................                 0                 1
Ineos BIO...........................                 0                 4
Poet................................                 0                 4
                                     -----------------------------------
    Total...........................                 0                63
------------------------------------------------------------------------
a Rounded to the nearest million gallons.

   Table IV.D-3--2015 Production Ranges for Companies With Consistent
                       Commercial Scale Production
                            [Million gallons]
------------------------------------------------------------------------
                                       Low end of the    High end of the
                                          range a            range a
------------------------------------------------------------------------
CNG/LNG Producers (Currently                      b X                 88
 generating RINs)..................
Ensyn..............................               b X                  1
Quad County Corn Processors........               b X                  2
                                    ------------------------------------
    Total..........................              c 49                 91
------------------------------------------------------------------------
a Rounded to the nearest million gallons.
b The low end of the range for each individual company is based on
  actual production volumes and is therefore withheld to protect
  information claimed to be confidential business information.
c This number includes all cellulosic biofuel and cellulosic diesel RINs
  generated in the previous 12 months, as well as all advanced biofuel
  RINs generated for CNG/LNG derived from biogas prior to August 18,
  2014 and within the last 12 months.

    Because the cellulosic biofuel industry is still in its infancy and 
it is therefore not possible to predict with any degree of certainty 
the precise production volume each individual company will achieve, we 
believe that it would not be appropriate to choose a specific value 
within the projected range for each individual company/source. We 
believe it is more appropriate to identify a specific value within the 
aggregated ranges from Tables IV.D-2 and IV.D-3 that best reflects the 
likely production volume for each group of companies. For companies 
that have not yet achieved consistent commercial-scale production 
(Table IV.D-2) we are proposing to use the 25th percentile of the 
projected production range. We believe this volume is appropriate as, 
in addition to the uncertainties listed above, there is also 
significant technology risk as these facilities attempt to operate 
their technologies at commercial scale. In the early years of the 
cellulosic biofuel industry several companies, including Cello Energy, 
Range Fuels, and KiOR experienced significant technical difficulties in 
scaling up their technologies and were able to produce little, if any, 
volumes of cellulosic biofuels. It is necessary to consider this 
history when projecting production volumes from companies who have not 
yet achieved consistent production at commercial scale.\121\
---------------------------------------------------------------------------

    \121\ While ``new'' CNG/LNG facilities may not face the same 
challenges related to start-up and scale-up there is still a 
significant amount of uncertainty related to RIN generation from 
facilities that have not yet begun generating RINs. RIN generation 
from these facilities may be delayed or reduced if they are unable 
to verify that all or a portion of the CNG/LNG they produce is used 
as transportation fuel, or if they decide to sell the CNG/LNG they 
produce into non-transportation markets. These uncertainties can 
significantly impact the number of RINs generated by a CNG/LNG 
producer, and we therefore believe that projecting projection from 
these ``new'' facilities at the 25th percentile of the range is 
appropriate.
---------------------------------------------------------------------------

    For the group of companies that have achieved consistent 
commercial-scale production (Table IV.D-3) we are proposing to use the 
mid-point (50th percentile) of the projected range. We believe that 
this point accounts for the uncertainty related to the scale-up of 
production from the volume produced in the previous 12 months (through 
March 2015) as well as other uncertainties related to the generation of 
RINs such as documenting that the fuel is used as transportation fuel, 
heating oil, or jet fuel. This is not to say that we anticipate that 
each of these facilities within each group will produce at the 25th or 
50th percentile, but rather that as a group the 25th and 50th 
percentile, respectively, are realistic projections for each group of 
companies. We believe this methodology accounts for the fact that some 
individual company may be able to deliver the volume of cellulosic 
biofuel they expect and produce at or near the high end of the range, 
while others may experience difficulty transitioning to commercial 
production and produce closer to the low end of the range. The result 
of applying this methodology is shown in Table IV.D-4 below.

[[Page 33144]]

         Table IV.D-4--Projected Volume of Cellulosic Biofuel in 2015 for Months Without Production Data
                                               [Million gallons] a
----------------------------------------------------------------------------------------------------------------
                                                  Low end of the    High end of                      Projected
                                                      range b       the range b     Percentile       volume b
----------------------------------------------------------------------------------------------------------------
Companies without consistent commercial-scale                  0              63            25th              16
 production.....................................
Companies with consistent commercial-scale                    49              91            50th              70
 production.....................................
                                                 ---------------------------------------------------------------
    Total.......................................             N/A             N/A             N/A              86
----------------------------------------------------------------------------------------------------------------
a The projections in this table are for April 2015--December 2015. The low end of the range is equal to the
  number of RINs produced by the companies over the most recent 12 months for which data is available multiplied
  by a factor of 0.75 (since it is only a projection for 9 months of the year). The high end of the range is
  based on projected production for the final 9 months of 2015.
b Rounded to the nearest million gallons.

    EPA anticipates that if the same methodology is used in future 
years that as cellulosic biofuel companies successfully achieve 
commercial scale production, application of this methodology will 
appropriately generate increasing volume projections, both for the 
individual companies and for the industry as a whole. This will happen 
in two ways. First, as companies successfully produce cellulosic 
biofuel the low end of the range (which is based on the most recent 12 
months of production for which data is available) will increase. 
Second, we would use the 50th percentile value, rather than the 25th 
percentile, for all companies who have achieved consistent commercial-
scale production. If merited by the available data, we will also 
consider using a higher (or lower) percentile for both new facilities 
and facilities that have already achieved consistent commercial-scale 
production. We will consider comments on this matter, and after 
establishing percentile values for use in this rulemaking we expect we 
will annually review the percentile values and adjust them as 
appropriate, taking into account the success of past projections, to 
ensure that our methodology produces a production projection that takes 
a neutral aim at accuracy. As new pathways for the production of 
cellulosic biofuel are approved, we will also consider volumes produced 
using these pathways in our projections.
    The final step in projecting the potentially available volume of 
cellulosic biofuel in 2015 is to combine the volumes of cellulosic 
biofuel actually produced in months for which data is available with 
the projected production volumes for the remaining months of 2015. This 
is shown in Table IV.D-5 below. For 2015 we are proposing a cellulosic 
biofuel standard of 106 million gallons. We request comment on the 
methodology used to project cellulosic biofuel volumes in 2015, as well 
as the general methodology used to project future cellulosic biofuel 
production.

      Table IV.D-5--Projected Available Cellulosic Biofuel in 2015
------------------------------------------------------------------------
                                                              Million
                                                              gallons
------------------------------------------------------------------------
Cellulosic Biofuel Production (Jan. 2015-March 2015)....              20
Projected Cellulosic Biofuel Production (April 2015-                  86
 December 2015).........................................
Projected Available Volume of Cellulosic Biofuel in 2015             106
------------------------------------------------------------------------

E. Cellulosic Biofuel Volume for 2016

    To project the volume of potentially available cellulosic biofuel 
in 2016 we are proposing to use a methodology very similar to the one 
proposed for projecting cellulosic biofuel production in 2015 for 
months in which actual production data was not available. For 2016 we 
separated the list of potential producers of cellulosic biofuel into 
two groups according to whether or not the facilities have already 
begun producing commercial-scale volumes of cellulosic biofuel or who 
are expected to do so by July 1, 2015 (See Table IV.E-1 and Table IV.E-
2).\122\ We next defined a range of likely production volumes for each 
group of potential cellulosic biofuel producers. The low end of the 
range for each group of producers is intended to reflect actual 
production data. Rather than simply use the most recent 12 months for 
which information is currently available for each company, however, we 
are proposing to project what that data will be at the time of our 
final rule. We used zero as the low end of the aggregated projected 
production range for 2016 for facilities expected to begin producing 
fuel after July 1, 2015 (Table IV.E-1). We used our projected 
production volume for 2015 (106 million gallons) as the low end of the 
aggregated range for facilities expected to be producing commercial-
scale volumes of cellulosic biofuel on or before July 1, 2015 (Table 
IV.E-2). This is consistent with the approach we used to project 
volumes for 2015 where we set the low end of the range for each group 
of companies at the volume produced over the preceding 12 months, as we 
believe very little of the volume produced in 2015 will come from 
facilities starting up after July 1, 2015 and the vast majority of 
cellulosic biofuel production in 2016 will come from facilities that 
begin before this date. We also believe this will align our proposed 
rule more closely with the final rule than would be the case if we 
based our proposal only on the data from the most recent 12 months of 
data available to EPA at this time. For our final rule, we intend to 
update the low end of the projected production range for each company 
using data from the most recent 12 months for which data is available.
---------------------------------------------------------------------------

    \122\ We are projecting that facilities that begin producing 
commercial-scale volumes by July 2015 will achieve consistent 
production by the end of 2015. This is consistent with the approach 
used to project volumes for 2015 where we separated companies into 
two groups based on whether or not they have achieved consistent 
commercial-scale production. For the final rule we intend to assess 
whether or not the facilities in our projected volumes have achieved 
consistent commercial-scale production and will re-categorize them 
as necessary.
---------------------------------------------------------------------------

    To calculate the high end of the projected production range for 
each group of companies we considered each company individually (with 
the exception of the CNG/LNG producers) and used the same methodology 
in 2016

[[Page 33145]]

as for the months in 2015 for which actual past production data was not 
available (this methodology is covered in further detail in Section 
IV.D above). The high end of the range for each company within each 
group was added together to calculate the high end of the projected 
production range for that group.
    After defining likely production ranges for each group of companies 
we projected a likely production volume from each group of companies 
for 2016. We projected a total production volume from the companies 
that we do not anticipate will begin commercial-scale production by 
July 1, 2015 using the 25th percentile of the projected production 
range (Table IV.E-1). For the companies that have already achieved 
consistent commercial-scale production or anticipate starting 
commercial-scale production by July 1, 2015, we used the 50th 
percentile of the aggregate projected production range (Table IV.E-2). 
This is consistent with the approach we used for projecting volumes in 
2015, which is discussed in more detail in the preceding section. We 
intend to re-evaluate our categorization of the companies for the final 
rule using the most up to date information available.

 Table IV.E-1--2016 Production Ranges for Companies With Start-Up Dates
                           After July 1, 2015
                            [Million gallons]
------------------------------------------------------------------------
                                       Low end of the    High end of the
                                           range a           range a
------------------------------------------------------------------------
CNG/LNG Producers (New Facilities)..                 0               120
CoolPlanet..........................                 0                 0
DuPont..............................                 0                29
Edeniq..............................                 0                14
Poet................................                 0                20
Aggregate Range.....................                 0               183
                                     -----------------------------------
Projected Production (25th
 Percentile of Range)...............                  46
------------------------------------------------------------------------
a Rounded to the nearest million gallons.

   Table IV.E-2--2016 Production Ranges for Companies With Consistent
    Commercial Scale Production or Start-Up Dates Before July 1, 2015
                            [Million gallons]
------------------------------------------------------------------------
                                       Low end of the    High end of the
                                           range a           range a
------------------------------------------------------------------------
Abengoa.............................               N/A                19
CNG/LNG Producers (Existing                        N/A               185
 Facilities)........................
Ensyn...............................               N/A                 3
Ineos BIO...........................               N/A                 6
Quad County Corn Processors.........               N/A                 2
Aggregate Range.....................               106               215
                                     -----------------------------------
Projected Production (50th
 Percentile of Range)...............                  161
------------------------------------------------------------------------
a Rounded to the nearest million gallons

    The final step in projecting the potentially available volume of 
cellulosic biofuel in 2016 is to combine the volumes of cellulosic 
biofuel projected to be produced from each of the two groups discussed 
above (shown in Table IV.E-3 below). For 2016 we are proposing a 
cellulosic biofuel volume requirement of 204 million gallons. For our 
final rule we will use the most recent production data and company 
information available to update our projections. We request comment on 
the methodology and data used to project cellulosic biofuel volumes in 
2016.

                          Table IV.E-3--Projected Volume of Cellulosic Biofuel in 2016
                                                [Million gallons]
----------------------------------------------------------------------------------------------------------------
                                                  Low end of the    High end of                      Projected
                                                      range a       the range a     Percentile       volume a
----------------------------------------------------------------------------------------------------------------
Companies beginning production after July 1,                   0             183            25th              46
 2015...........................................
Companies beginning production before July 1,                106             215            50th             161
 2015...........................................
                                                 ---------------------------------------------------------------
    Total.......................................             N/A             N/A             N/A             206
----------------------------------------------------------------------------------------------------------------
a Volumes rounded to the nearest million gallons.

F. Rescission of the 2011 Cellulosic Biofuel Standards

    On January 25, 2013, the United States Court of Appeals for the 
District of Columbia Circuit issued its decision concerning a challenge 
to the 2012 cellulosic biofuel standard.\123\ The Court found that in 
establishing the applicable volume of cellulosic biofuel for 2012, EPA 
had used a methodology in which ``the risk of overestimation [was] set 
deliberately to outweigh the risk of underestimation.'' The Court held 
EPA's

[[Page 33146]]

action to be inconsistent with the statute because EPA had failed to 
apply a ``neutral methodology'' aimed at providing a prediction of 
``what will actually happen,'' as required by the statute. As a result 
of this ruling, the Court vacated the 2012 cellulosic biofuel standard, 
and we removed the 2012 requirement from the regulations in a previous 
action. Industry had also challenged the 2011 cellulosic biofuel 
standard by, first, filing a petition for reconsideration of that 
standard, and then seeking judicial review of our denial of the 
petition for reconsideration. This matter was still pending at the time 
of the DC Circuit's ruling on the 2012 cellulosic biofuel standard. 
Since we used essentially the same methodology to develop the 2011 
cellulosic biofuel standard as we did to develop the 2012 standard, we 
requested, and the Court granted, a partial voluntary remand to enable 
us to reconsider our denial of the petition for reconsideration of the 
2011 cellulosic biofuel standard. Given the Court's ruling that the 
methodology EPA used in developing the 2012 cellulosic biofuel standard 
was flawed, we are proposing to rescind the 2011 cellulosic biofuel 
applicable standard and refund the money paid by obligated parties to 
purchase cellulosic waiver credits to comply with the standard.
---------------------------------------------------------------------------

    \123\ API v. EPA, 706 F 3d 474 (D.C. Cir. January 25, 2013).
---------------------------------------------------------------------------

V. Percentage Standards

A. Background

    The renewable fuel standards are expressed as volume percentages 
and are used by each obligated party to determine their Renewable 
Volume Obligations (RVO). Since there are four separate standards under 
the RFS 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 percentage standards are set so 
that if every obligated party meets the percentages, then the amount of 
renewable fuel, cellulosic biofuel, biomass-based diesel (BBD), and 
advanced biofuel used will meet the applicable volumes established in 
this rule on a nationwide basis.
    Sections II, III, and IV provide our rationale and basis for the 
proposed volumes for advanced biofuel and total renewable fuel, BBD, 
and cellulosic biofuel, respectively. The volumes to be used to 
determine the four proposed percentage standards are shown in Table 
V.A-1.

              Table V.A-1--Proposed Volumes for Use in Setting the Applicable Percentage Standards
----------------------------------------------------------------------------------------------------------------
                                                                       2014            2015            2016
----------------------------------------------------------------------------------------------------------------
Cellulosic biofuel (million gallons)............................           33             106             206
Biomass-based diesel (billion gallons) a........................            1.63            1.70            1.80
Advanced biofuel (billion gallons)..............................            2.68            2.90            3.40
Renewable fuel (billion gallons)................................           15.93           16.30           17.40
----------------------------------------------------------------------------------------------------------------
a Represents physical volume.

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 40 CFR 80.1405):
[GRAPHIC] [TIFF OMITTED] TP10JN15.007

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.

[[Page 33147]]

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. This value 
excludes diesel used in ocean-going vessels.
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 = 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.
DEi = 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.

    The formulas used in deriving the annual percentage standards rely 
on estimates of the volumes of gasoline and diesel fuel, for both 
highway and nonroad uses, that are projected to be used in the year in 
which the standards will apply.\124\ The projected gasoline and diesel 
volumes obtained from EIA include ethanol and biodiesel used in 
transportation fuel, which are subtracted out as indicated in the 
equations above. Production of other transportation fuels, such as 
natural gas, propane, and electricity from fossil fuels, is not 
currently subject to the standards, and volumes of such fuels are not 
used in calculating the annual standards. Since under the regulations 
the standards apply only to producers and importers of gasoline and 
diesel, these are the transportation fuels used to set the standards, 
as well as to determine the annual volume obligations of an individual 
gasoline or diesel producer or importer.
---------------------------------------------------------------------------

    \124\ Monthly values from EIA's May 2015 Short-Term Energy 
Outlook (STEO) were used to project gasoline and diesel volumes for 
this proposal.
---------------------------------------------------------------------------

2. Small Refineries and Small Refiners
    In CAA section 211(o)(9), enacted as part of the Energy Policy Act 
of 2005, Congress provided a temporary exemption to small refineries 
\125\ through December 31, 2010. Congress provided that small 
refineries could receive a temporary extension of the exemption beyond 
2010 based on an EPA determination of disproportionate economic 
hardship on a case-by-case basis in response to refiner petitions. EPA 
has granted some exemptions pursuant to this process in the past, and 
has granted exemptions for three small refineries for 2014. The 
proposed applicable percentage standards for 2014 reflect the fact that 
the gasoline and diesel volumes associated with these three small 
refineries has been exempted. However, at this time, no exemptions have 
been approved for 2015 or 2016, and we have calculated the percentage 
standards for these years without a small refinery/small refiner 
adjustment. Any requests for exemptions for 2014, 2015 or 2016 that are 
approved prior to the final rule will be reflected in the relevant 
standards in the final rule, as provided in the formulas described in 
the preceding section. Any requests for exemption that are approved 
after the release of the final 2014, 2015, and 2016 standards will not 
affect those standards.
3. Proposed Standards
    As specified in the RFS2 proposed rule,\126\ the percentage 
standards are based on energy-equivalent gallons of renewable fuel, 
with the cellulosic biofuel, advanced biofuel, and total renewable fuel 
standards based on ethanol equivalence and the BBD standard based on 
biodiesel equivalence. However, all RIN generation is based on ethanol-
equivalence. For example, the RFS regulations provide that production 
or import of a gallon of qualifying biodiesel will lead to the 
generation of 1.5 RINs. In order to ensure that demand for the required 
physical volume of BBD will be created in each year, the calculation of 
the BBD standard provides that the applicable physical volume be 
multiplied by 1.5. The net result is a BBD gallon being worth 1.0 
gallon toward the BBD standard, but worth 1.5 gallons toward the other 
standards.
---------------------------------------------------------------------------

    \126\ 75 FR 14716, March 26, 2010.
---------------------------------------------------------------------------

    The levels of the percentage standards would be reduced if Alaska 
or a U.S. territory chooses to participate in the RFS 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 RFS program at this 
time, and thus the value of the related terms in the calculation of the 
standards is zero.
    Note that because the gasoline and diesel volumes estimated by EIA 
include renewable fuel use, we must subtract the total renewable fuel 
volumes from the total gasoline and diesel volumes to get total non-
renewable gasoline and diesel volumes. The values of the variables 
described above are shown in Table V.B.3-1.\127\
---------------------------------------------------------------------------

    \127\ 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 
June 27, 2014 EIA State Energy Data System (SEDS), Energy 
Consumption Estimates.

Table V.B.3-1--Values for Terms in Calculation of the Proposed Standards
                                   128
                            [Billion gallons]
------------------------------------------------------------------------
                   Term                       2014      2015      2016
------------------------------------------------------------------------
RFVCB.....................................     0.033     0.106     0.206
RFVBBD....................................   a 1.67      1.70      1.80
RFVAB.....................................     2.68      2.90      3.40
RFVRF.....................................    15.93     16.30     17.40
G.........................................   136.49    138.37    137.58
D.........................................    55.21     56.77     58.13

[[Page 33148]]

 
RG........................................    13.43     13.36     13.46
RD........................................     1.54      1.44      1.53
GS........................................     0         0         0
RGS.......................................     0         0         0
DS........................................     0         0         0
RDS.......................................     0         0         0
GE........................................     0.01      0.00      0.00
DE........................................     0.04      0.00      0.00
------------------------------------------------------------------------
a Represents the biodiesel-equivalent volume of actual 2014 supply,
  which was 2.50 bill D4 RINs. Actual physical volume was 1.63 billion
  physical gallons, composed of 1.35 bill gal of biodiesel and 0.28 bill
  gal renewable diesel.

    Although the Act specifies that EIA provide EPA with gasoline and 
diesel demand for the following year ``no later than October 31'', we 
believe it is appropriate to use EIA demand projections that are more 
recent than October 31 for a given year when such projections are 
available.\129\ For this proposed rule, we have used gasoline, diesel, 
and renewable fuel consumption estimates available in the most recent 
version of EIA's Short-Term Energy Outlook. For the final rule we will 
use projections provided by EIA as required by the statute.
---------------------------------------------------------------------------

    \128\ Details of volumes and calculations are available in the 
docket.
    \129\ The use of post-October 31 data for previous years was 
addressed in our 2013 Cellulosic Biofuel Standard rulemaking.\129\ 
As stated in that rulemaking, ``. . . we believe it is appropriate 
to rely on EIA's most recent reports of actual gasoline and diesel 
consumption . . . Doing so allows a more accurate assessment of a 
percentage standard that will help to ensure that the volume of 
cellulosic biofuel we have determined should be used for compliance 
. . . will in fact be required.''
---------------------------------------------------------------------------

    Using the volumes shown in Table V.B.3-1, we have calculated the 
proposed percentage standards for 2014, 2015, and 2016 as shown in 
Table V.B.3-2.

              Table V.B.3-2--Proposed Percentage Standards
------------------------------------------------------------------------
                                      2014      2015      2016
                                       (%)       (%)       (%)
----------------------------------------------------------------
Cellulosic biofuel................     0.019     0.059     0.114
Biomass-based diesel..............     1.42    a 1.41      1.49
Advanced biofuel..................     1.52      1.61      1.88
Renewable fuel....................     9.02      9.04      9.63
------------------------------------------------------------------------
a Although the proposed BBD volume requirement for 2015 is higher than
  it is for 2014, projected volumes of gasoline and diesel are also
  higher in 2015 than they were for 2014. The result is that the
  percentage standard, rounded to two decimal places, is the same for
  both years.

VI. Proposed Amendments to Regulations

    We are proposing several revisions to the RFS regulations, which 
are described below. The first proposed revision relates to the 
definition of terms in Table 1 to 40 CFR 80.1426, which describes 
approved biofuel production pathways. The second set of revisions would 
address annual compliance reporting and associated attest reporting 
deadlines. We request comment on all aspects of these proposed 
amendments.

A. Proposed Changes to the Algal Biofuel Pathways

    In the March 2010 RFS rule (75 FR 14670), EPA established two 
pathways for biofuels derived from algae to generate D-Code 4 (Biomass-
Based Diesel) or 5 (Advanced) RINs. The pathways approved in the March 
2010 RFS rule assumed that algae would be grown photosynthetically 
(i.e., using predominantly sunlight and CO2 as inputs) and harvested 
for their oil.\130\ Biofuel produced with algae grown through other 
means is likely to have different lifecycle GHG emissions impacts. The 
EPA has recently received an inquiry regarding production of biofuel 
from algae grown non-photosynthetically, and we believe it would be 
appropriate to clarify that the algal oil pathways adopted as part of 
the March 2010 RFS rule do not apply to such algae. Therefore, we are 
proposing to replace ``algal oil'' as a feedstock in Table 1 to 40 CFR 
80.1426 with ``oil from algae grown photosynthetically.'' We are also 
proposing to add a new definition for ``algae grown 
photosynthetically'' to 40 CFR 80.1401. We do not anticipate this 
definition will impact current renewable fuel production under the 
existing pathway. Companies wishing to produce biofuels from algae 
grown with a non-photosynthetic stage of growth must apply to EPA for 
approval of their pathway pursuant to 40 CFR 80.1416. We invite comment 
on these proposed changes.\131\
---------------------------------------------------------------------------

    \130\ See 75 FR 14696 (March 26, 2010).
    \131\ EPA is not proposing a regulartory definition of 
``algae.'' Any comments related to the definition of ``algae'' will 
be considered beyond the scope of this rulemaking.
---------------------------------------------------------------------------

    We also note that any companies wishing to produce fuel using 
genetically modified algae must conform to all other appropriate EPA 
regulations. For example, EPA's Office of Pollution Prevention and 
Toxics (OPPT) Biotechnology Program regulates the use of new 
genetically-engineered microorganisms (including bacteria, fungi, 
algae, viruses, protozoa, etc.) that are used in the production of 
biofuels under Section 5 of the Toxic Substances Control Act 
(TSCA).\132\
---------------------------------------------------------------------------

    \132\ Microbial Products of Biotechnology; Final Regulation 
Under the Toxic Substance Control Act; Final Rule. 62 FR 17910 
(April 11, 1997).
---------------------------------------------------------------------------

B. Annual Compliance Reporting and Attest Engagement Deadlines Under 
the RFS Program

    The RFS regulations establish deadlines for parties with renewable 
volume obligations (obligated parties and renewable fuel exporters) to 
submit

[[Page 33149]]

annual compliance demonstration reports to the EPA, and later deadlines 
for the same parties to submit associated attest engagement reports. A 
number of other regulated parties, including RIN-generating renewable 
fuel producers, RIN-generating renewable fuel importers, other parties 
owning RINs and 3rd party auditors, are also required to submit annual 
attest engagement reports according to a schedule specified in the 
regulations. As a result of the delay in issuing the RFS annual rules 
for 2014 and 2015, the EPA is proposing to amend certain reporting 
deadlines applicable to the 2013, 2014 and 2015 compliance years.
1. Obligated Parties and Renewable Fuel Exporters
a. Background.
    Under existing RFS regulations (40 CFR 80.1451(a) and 80.1464(d)), 
obligated parties and renewable fuel exporters must submit compliance 
demonstration reports for each calendar year by March 31 of the 
following year, and associated attest engagements by June 1 of the 
following year. The EPA has recognized that it is important for 
obligated parties preparing a compliance demonstration report for a 
given calendar year to have an understanding of their RFS obligations 
for the next compliance year.\133\ Therefore, in light of the delay in 
issuing the 2014 RFS annual standards, the EPA previously amended the 
regulations to provide that the annual compliance demonstration reports 
for obligated parties and exporters for the 2013 compliance year would 
not be due until 30 days after publication in the Federal Register of 
the 2014 RFS percentage standards. 40 CFR 80.1451(a)(1)(xiv). 
Similarly, the EPA extended the deadline for attest engagement reports 
for 2013 compliance demonstrations to 90 days after publication in the 
Federal Register of the 2014 RFS percentage standards. 40 CFR 
80.1464(g). Because the EPA has not yet issued the 2014 RFS standards, 
2013 compliance demonstration reports and associated attest engagement 
reports from obligated parties and renewable fuel exporters are not yet 
due.
---------------------------------------------------------------------------

    \133\ 78 FR 49823, August 15, 2013.
---------------------------------------------------------------------------

    Although the EPA has not yet issued a final 2014 RFS annual rule, 
and the generally-applicable March 31 deadline for compliance 
demonstration reports for the 2014 compliance year has now passed, the 
EPA has not adopted amendments to the regulations applicable to 2014 
compliance demonstration and attest engagement reporting as it did with 
respect to the 2013 compliance year. Instead the EPA issued an 
Enviroflash on March 17, 2015 to clarify that obligated parties are not 
required to submit compliance demonstration reports or associated 
attest engagements for the 2014 compliance year until the EPA issues a 
final rule establishing the final 2014 RFS standards and sets (in that 
action) deadlines for 2014 compliance demonstrations and associated 
attest engagements for obligated parties. We noted in the Enviroflash 
our interpretation of the current regulatory deadlines as being 
inoperative for obligated parties for the 2014 compliance year because 
final 2014 RFS standards have not been established and it is therefore 
impossible for obligated parties to assess and demonstrate their 
compliance with the applicable standards. However, in that same 
Enviroflash we clarified that the situation is different for exporters 
of renewable fuel. Exporter renewable volume obligations are based on 
renewable fuel export volume, not on the RFS percentage standards. 
Therefore we stated in the Enviroflash that renewable fuel exporters 
must comply with the operative deadlines in the regulations for 2014 
reporting, although precise obligations may differ depending on the 
portion of the year during which exports occurred, in light of 
regulatory amendments related to the deadline for exporter RIN 
retirements that were adopted in the July 18, 2014 RFS Quality 
Assurance Plan rule.\134\ The details are explained in the March 17 
Enviroflash.
---------------------------------------------------------------------------

    \134\ 79 FR 42078.
---------------------------------------------------------------------------

b. Proposal.
    The Agency now believes that setting a firm calendar date for 2013 
compliance and attest engagement reports is preferable to the current 
approach of tying the deadlines for 2013 reporting to the date of 
publication of the 2014 annual rule in the Federal Register. The EPA 
seeks to establish reporting deadlines for three calendar years, and 
establishing firm deadlines for 2013 reporting will allow the EPA to 
sequence and time reports for subsequent years in a reasonable manner 
that reduces uncertainty.
i. Obligated Parties
    We are proposing that compliance demonstration reports for 
obligated parties be submitted no later than January 31, 2016 for the 
2013 compliance year, June 1, 2016 for the 2014 compliance year, and 
December 1, 2016 for the 2015 compliance year. Associated attest 
engagement reports would be due no later than June 1, 2016 for the 2013 
compliance year, December 1, 2016 for the 2014 compliance year, and 
June 1, 2017 for the 2015 compliance year. We believe that this 
sequencing of reports, and the time allowed between them will allow 
obligated parties to proceed in a logical and orderly fashion to submit 
required reports, with sufficient intervening time so as not to pose an 
unreasonable burden.
ii. Exporters
    For exporters of renewable fuel, we are proposing the same 
amendments to 2013 compliance year reporting deadlines as for obligated 
parties--annual compliance demonstration reports would be due no later 
than January 31, 2016, and associated attest engagement reports would 
be due no later than June 1, 2016. For 2014, the issue is more complex. 
For the 2014 compliance period from January 1, 2014 through September 
16, 2014, partial annual compliance reports containing an exporter's 
name, registration number, and renewable volume obligation (ERVO) for 
that period were required to be submitted no later than March 31, 2015 
as currently proscribed in the regulations under Sec.  
80.1451(a)(1).\135\ For the 2014 compliance period from January 1, 2014 
through September 16, 2014, we are proposing that full annual 
compliance reports containing an exporter's name, registration number, 
ERVO, as well as RINs retired to satisfy the ERVO and any cellulosic 
waiver credits used for that period be submitted no later than January 
31, 2016, and that associated attest engagements be due no later than 
June 1, 2016. For the 2015 compliance year, full compliance reports 
will be due on March 31, 2016, as required by existing Sec.  
80.1451(a)(1), and associated attest engagements will be due by June 1, 
2016 as required by Sec.  80.1464(d).
---------------------------------------------------------------------------

    \135\ We are not amending the regulations as they pertain to 
exporters of renewable fuel for the 2014 compliance period from 
September 17, 2014 through December 31, 2014. We reiterate that 
under current regulations at Sec.  80.145l(a)(1), reports containing 
an exporter's name, registration number, ERVO, as well as RINs 
retired to satisfy the ERVO and any cellulosic waiver credits used 
for that period were due March 31, 2015.
---------------------------------------------------------------------------

2. Other Parties
a. Background
    Following issuance of the March 17, 2015 Enviroflash to address 
reporting deadlines for obligated parties and renewable fuel exporters 
for the 2014 compliance year, the Agency received comments from attest 
engagement

[[Page 33150]]

auditors concerning the June 1, 2015 attest engagement deadline for 
RIN-generating renewable fuel producers, RIN-generating renewable fuel 
importers, other parties holding RINs, and independent third-party 
auditors. The auditors stated that it is impractical for them to 
perform the 2014 compliance year attestations before completing the 
2013 compliance year attestations. The auditors explained that they 
generally rely on the beginning balance of RINs based on attest 
procedures performed in the previous year. They asserted that if they 
have not attested to the ending balance of RINs for the 2013 compliance 
year, they cannot effectively attest to the beginning balance of RINs 
for the 2014 compliance year.
    The auditors also cited other reasons for why the 2013 and 2014 
compliance year attestations should be revised. The auditors stated 
that there is confusion and uncertainty in industry about whether the 
June 1, 2015 deadline still applies to RIN-generating renewable fuel 
producers, RIN-generating renewable fuel importers, other parties 
holding RINs, and independent third-party auditors because they were 
not explicitly mentioned in the March 17, 2015 Enviroflash and because 
the Agency previously issued a broader attest extension related to 
reporting deadlines for the 2013 compliance year and thus, any 
subsequent communication by the Agency would be expected to address all 
regulated parties. Since many parties have not yet completed their 2013 
compliance year attestations because they are not required to do so, 
they do not have any expectation that the attestations for the 2014 
compliance year are due June 1, 2015.
    In 2014, the EPA changed the annual reporting deadline for all 40 
CFR part 80 fuel programs from February 28 to March 31 and the attest 
deadline from May 31 to June 1. This is the first year that these new 
deadlines are in effect. The effects of the shorter time period between 
the annual reporting deadline and the deadline for attest engagement 
reports are exacerbated this year by the confusion surrounding the June 
1, 2015 attest reporting deadline for RIN-generating renewable fuel 
producers, RIN-generating renewable fuel importers, other parties 
holding RINs, and independent third-party auditors. Auditors need a 
reasonable amount of time to plan and execute any type of assurance 
engagement. The planning phase involves the evaluation of independence, 
execution of engagement letters, and scheduling of resources.
    In light of the confusion surrounding the reporting deadlines for 
the 2014 compliance year for RIN-generating renewable fuel producers, 
RIN-generating renewable fuel importers, other parties holding RINs, 
and independent third-party auditors, the EPA's Assistant Administrator 
for Air and Radiation sought a no action assurance from the Assistant 
Administrator for the Office of Enforcement and Compliance Assurance 
regarding enforcement of the 2014 reporting deadlines for these 
parties. In response, the Office of Enforcement and Compliance 
Assurance issued a conditional no action assurance on May 21, 2015 that 
provides, in part, as follows:

the EPA will exercise its enforcement discretion not to pursue 
enforcement actions against a RIN-generating renewable fuel producer 
(domestic and foreign), a RIN-generating importer, any other party 
owning RINs, and an independent third-party auditor solely for 
violations of the 2014 attest engagement reporting deadline at 40 
CFR Sec. Sec.  80.1464(d). This No Action Assurance does not apply 
to the June 1, 2015 deadline for exporters of fuel to submit their 
reports for the 2014 compliance year, nor does it extend to any 
other RFS-related requirement.\136\ Furthermore, as applied to an 
individual regulated party, this No Action Assurance is conditioned 
upon the regulated party complying with all other RFS requirements 
applicable to it. This No Action Assurance will remain in effect 
until either (1) 11:59 p.m. EST, January 30, 2016, or (2) the 
effective date of a final rule addressing the 2014 attest engagement 
deadlines, whichever occurs earlier.
---------------------------------------------------------------------------

    \136\ The EPA provided guidance regarding the 2014 attest 
engagement reporting deadlines for renewable fuel exporters in its 
March 17, 2015 Enviroflash.
---------------------------------------------------------------------------

b. Proposal
    In this action, we are proposing a new attest engagement reporting 
deadline for the 2013 compliance period for RIN-generating renewable 
fuel producers, RIN-generating renewable fuel importers, and other 
parties owning RINs of no later than January 31, 2016. Additionally, we 
are proposing the same attest engagement reporting deadline of January 
31, 2016 for these parties and for independent third-party auditors for 
the 2014 compliance year.\137\ With respect to the 2015 compliance 
year, the EPA is not proposing to amend the current regulations; attest 
engagement reports for these parties for the 2015 compliance year are 
due on June 1, 2016.
---------------------------------------------------------------------------

    \137\ Regarding independent third-party auditors, we permitted 
some independent third-party auditors to begin compliance with the 
final RFS Quality Assurance Program requirements before the January 
1, 2015 effective date for the Q-RIN program. These independent 
third-party auditors were allowed to participate in the Q-RIN 
program beginning September 16, 2014 and would have been required to 
report RIN verification activities to the EPA by March 31, 2015. 
Since the information collection request was not approved prior to 
the March 31, 2015 deadline, the EPA has allowed independent third-
party auditors that adopted the Q-RIN program early to report RIN 
verification activities to the EPA with the first quarter 2015 
reports due June 1, 2015. Therefore, since independent third-party 
auditor annual attest requirements are dependent upon the submission 
of the RIN verification reports to the EPA, the EPA is proposing 
that for independent third-party auditors, for the 2014 compliance 
year, the attest engagement reporting deadline be no later than 
January 31, 2016.
---------------------------------------------------------------------------

    Given the many different reporting schedules across the 2013, 2014, 
and 2015 compliance years that the Agency is proposing for obligated 
parties, exporters, RIN generating renewable fuel producers and 
importers, independent third-party auditors, and other parties owning 
RINs, and the multiple considerations the Agency is trying to balance 
across regulated parties, we seek comment on whether the proposed 
deadlines are appropriate and for whether there are other specific 
considerations that the Agency should evaluate when establishing the 
2013, 2014, and 2015 annual compliance and attest engagement reporting 
deadlines.

VII. Public Participation

    We request comment on all aspects of this proposal. This section 
describes how you can participate in this process.

A. How do I submit comments?

    We are opening a formal comment period by publishing this document. 
We will accept comments during the period indicated under the DATES 
section. If you have an interest in the proposed standards, we 
encourage you to comment on any aspect of this rulemaking. We also 
request comment on specific topics identified throughout this proposal.
    Your comments will be most useful if you include appropriate and 
detailed supporting rationale, data, and analysis. Commenters are 
especially encouraged to provide specific suggestions for any changes 
that they believe need to be made. You should send all comments, except 
those containing proprietary information, to our Air Docket (see 
ADDRESSES section) by the end of the comment period.
    You may submit comments electronically, by mail, or through hand 
delivery/courier. To ensure proper receipt by EPA, identify the 
appropriate docket identification number in the subject line on the 
first page of your comment. Please ensure that your comments are 
submitted within the specified comment period. Comments

[[Page 33151]]

received after the close of the comment period will be marked ``late.'' 
EPA is not required to consider these late comments. If you wish to 
submit Confidential Business Information (CBI) or information that is 
otherwise protected by statute, please follow the instructions in 
Section VII.B below.

B. How should I submit CBI to the Agency?

    Do not submit information that you consider to be CBI 
electronically through the electronic public docket, 
www.regulations.gov, or by email. Send or deliver information 
identified as CBI only to the following address: U.S. Environmental 
Protection Agency, Assessment and Standards Division, 2000 Traverwood 
Drive, Ann Arbor, MI, 48105, Attention Docket ID EPA-HQ-OAR-2013-0479. 
You may claim information that you submit to EPA as CBI by marking any 
part or all of that information as CBI (if you submit CBI on disk or CD 
ROM, mark the outside of the disk or CD ROM as CBI and then identify 
electronically within the disk or CD ROM the specific information that 
is CBI). Information so marked will not be disclosed except in 
accordance with procedures set forth in 40 CFR part 2.
    In addition to one complete version of the comments that include 
any information claimed as CBI, a copy of the comments that does not 
contain the information claimed as CBI must be submitted for inclusion 
in the public docket. This non-CBI version of your comments may be 
submitted electronically, by mail, or through hand delivery/courier. If 
you submit the copy that does not contain CBI on disk or CD ROM, mark 
the outside of the disk or CD ROM clearly that it does not contain CBI. 
Information not marked as CBI will be included in the public docket 
without prior notice. If you have any questions about CBI or the 
procedures for claiming CBI, please consult the person identified in 
the FOR FURTHER INFORMATION CONTACT section.

VIII. Statutory and Executive Order Reviews

A. Executive Order 12866: Regulatory Planning and Review and Executive 
Order 13563: Improving Regulation and Regulatory Review

    This action is an economically significant regulatory action that 
was submitted to the Office of Management and Budget (OMB) for review. 
Any changes made in response to OMB recommendations have been 
documented in the docket. The EPA prepared an analysis of the potential 
costs and benefits associated with this action. This analysis is 
presented in Sections II.G and III.E of this preamble.

B. Paperwork Reduction Act (PRA)

    This action does not impose any new information collection burden 
under the PRA. OMB has previously approved the information collection 
activities contained in the existing regulations and has assigned OMB 
control numbers 2060-0637 and 2060-0640. The proposed standards would 
not impose new or different reporting requirements on regulated parties 
than already exist for the RFS program.

C. Regulatory Flexibility Act (RFA)

    I certify that this action will not have a significant economic 
impact on a substantial number of small entities under the RFA. In 
making this determination, the impact of concern is any significant 
adverse economic impact on small entities. An agency may certify that a 
rule will not have a significant economic impact on a substantial 
number of small entities if the rule relieves regulatory burden, has no 
net burden, or otherwise has a positive economic effect on the small 
entities subject to the rule. The small entities directly regulated by 
the RFS program are small refiners, which are defined at 13 CFR 121.201 
as refiners with 1,500 employees or less company-wide.
    EPA has conducted a screening analysis to assess whether it should 
make a finding that there would be no significant economic impact on a 
substantial number of small entities. We discuss this analysis below. 
The impacts of the RFS program on small entities were already addressed 
in the March 26, 2010 RFS2 rulemaking (75 FR 14670), which was a rule 
that implemented the entire program required by the Energy Independence 
and Security Act of 2007 (EISA 2007). As such, the Small Business 
Regulatory Enforcement Fairness Act (SBREFA) panel process that took 
place prior to the 2010 rule was also for the entire RFS program and 
looked at impacts on small refiners through 2022.
    For the SBREFA process for the March 26, 2010 RFS2 rulemaking, EPA 
conducted outreach, fact-finding, and analysis of the potential impacts 
of the program on small refiners which are all described in the Final 
Regulatory Flexibility Analysis, located in the rulemaking docket (EPA-
HQ-OAR-2005-0161). This analysis looked at impacts to all refiners, 
including small refiners, through the year 2022 and found that the 
program would not have a significant economic impact on a substantial 
number of small entities, and that this impact was expected to decrease 
over time, even as the standards increased. The analysis included a 
cost-to-sales ratio test, a ratio of the estimated annualized 
compliance costs to the value of sales per company, for gasoline and/or 
diesel small refiners subject to the standards. From this test, it was 
estimated that all small entities would have compliance costs that are 
less than one percent of their sales over the life of the program (75 
FR 14862).
    This proposed rule would not impose any additional requirements on 
small entities beyond those already analyzed, since the impacts of this 
proposed rule are not greater or fundamentally different than those 
already considered in the analysis for the March 26, 2010 rule assuming 
full implementation of the RFS program. As shown above in Tables I.A-1 
and I.A-3 (and discussed further in Sections II and IV), this rule 
proposes to establish the 2014, 2015, and 2016 volume requirements for 
cellulosic biofuel, advanced biofuel, and total renewable fuel at 
levels significantly below the statutory volume targets. This exercise 
of EPA's waiver authorities reduces burdens on small entities, as 
compared to the burdens that would be imposed under the volumes 
specified in the Clean Air Act in the absence of waivers. Regarding the 
biomass-based diesel standard, we are proposing to increase the volume 
requirements for 2014-2016 over the statutory minimum value of 1 
billion gallons. However, this is a nested standard within the advanced 
biofuel category, for which we are proposing significant reductions 
from the statutory volume targets. As discussed in Section III, we are 
setting the biomass-based diesel volume requirement at a level below 
what is anticipated will be produced and used to satisfy the reduced 
advanced biofuel requirement. The net result of our proposed actions 
are a reduction in burden as compared to implementation of the 
statutory volume targets, as was assumed in the March 26, 2010 
analysis. Furthermore, available information shows that the impact on 
small entities from implementation of this rule will not be 
significant. Using the maximum values of the illustrative costs 
discussed in Section II.F., the gasoline and diesel fuel volume 
projections in Table V.B.3-1, and current wholesale fuel prices, a 
simple cost-to-sales ratio test shows that the costs to small entities 
of the RFS standards remain less than 1% of the value of their sales.
    The program also includes compliance flexibilities that can reduce 
impacts on small entities. These flexibilities include RIN trading, 20%

[[Page 33152]]

RIN rollover allowance (up to 20% of an obligated party's RVO can be 
met using previous-year RINs), and deficit carryforward (the ability to 
carry over a deficit from a given year into the following year, 
providing that the deficit is satisfied together with the next year's 
RVO). In the March 26, 2010 final rule, we discussed other potential 
small entity flexibilities that had been suggested by the SBREFA panel 
or through comments, but we did not adopt them since they are 
inconsistent with EPA's authority under the CAA (see 75 FR 14737). Our 
statutory authority to issue relief to small entities has not changed 
since that time. Additionally, as specified by the statute, the RFS 
regulations (at 40 CFR 80.1441(e)(2)) allow for a small refinery \138\ 
to petition for case-by-case hardship relief.
---------------------------------------------------------------------------

    \138\ A small refinery, as defined by the statute, is a refinery 
with an average daily crude throughput of 75,000 barrels or less. As 
this is a facility-based definition, not company-based as SBA's 
small refiner definition is, it follows that not all small refiners' 
facilities meet the definition of a small refinery.
---------------------------------------------------------------------------

    Given that this proposed rule would not impose additional 
requirements on small entities, would decrease burden via a reduction 
in required volumes as compared to statutory volume targets, and would 
not change the compliance flexibilities currently offered to small 
entities under the RFS program, we have therefore concluded that this 
action would not have a significant impact on a substantial number of 
directly regulated small entities.

D. Unfunded Mandates Reform Act (UMRA)

    This action does not contain any unfunded mandate as described in 
UMRA, 2 U.S.C. 1531-1538, and does not significantly or uniquely affect 
small governments. The action implements mandates specifically and 
explicitly set forth in CAA section 211(o) without the exercise of any 
policy discretion by the EPA.

E. Executive Order 13132: Federalism

    This action 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.

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

    This action does not have tribal implications as specified in 
Executive Order 13175. This proposed rule will be implemented at the 
Federal level and affects transportation fuel refiners, blenders, 
marketers, distributors, importers, exporters, and renewable fuel 
producers and importers. Tribal governments would be affected only to 
the extent they produce, 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

    The EPA interprets Executive Order 13045 as applying only to those 
regulatory actions that concern environmental health or safety risks 
that the EPA has reason to believe may disproportionately affect 
children, per the definition of ``covered regulatory action'' in 
section 2-202 of the Executive Order. This action is not subject to 
Executive Order 13045 because it implements specific standards 
established by Congress in statutes (CAA section 211(o)).

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

    This action is not a ``significant energy action'' because it is 
not likely to have a significant adverse effect on the supply, 
distribution, or use of energy. This action simply proposes the annual 
standards for renewable fuel under the RFS program for 2014, 2015, and 
2016.

I. National Technology Transfer and Advancement Act (NTTAA)

    This rulemaking does not involve technical standards.

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

    The EPA believes that this action will not have potential 
disproportionately high and adverse human health or environmental 
effects on minority, low-income, or indigenous populations. This 
proposed rule does not affect the level of protection provided to human 
health or the environment by applicable air quality standards. This 
action does not relax the control measures on sources regulated by the 
RFS regulations and therefore will not cause emissions increases from 
these sources.

IX. Statutory Authority

    Statutory authority for this action comes from section 211 of the 
Clean Air Act, 42 U.S.C. 7545. Additional support for the procedural 
and compliance related aspects of this proposed rule 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, Environmental protection, Administrative 
practice and procedure, Air pollution control, Diesel fuel, Fuel 
additives, Gasoline, Imports, Oil imports, Petroleum, Renewable fuel.

    Dated: May 29, 2015.
Gina McCarthy,
Administrator.

    For the reasons set forth in the preamble, EPA proposed to amend 40 
CFR part 80 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, 7521, 7542, 7545, and 7601(a).

Subpart M--Renewable Fuel Standard

0
2. Section 80.1401 is amended by adding in alphabetical order the 
definition for ``Algae grown photosynthetically'' to read as follows:

Sec.  80.1401  Definitions.

* * * * *
    Algae grown photosynthetically are algae that are grown such that 
their energy and carbon are predominantly derived from photosynthesis.
* * * * *
0
3. Section 80.1405 is amended by:
0
a. Removing and reserving paragraph (a)(2)(i); and
0
b. Adding paragraphs (a)(5), (6), and (7).
    The additions read as follows:

Sec.  80.1405  What are the Renewable Fuel Standards?

    (a) * * *
    (5) Renewable Fuel Standards for 2014.
    (i) The value of the cellulosic biofuel standard for 2014 shall be 
0.019 percent.
    (ii) The value of the biomass-based diesel standard for 2014 shall 
be 1.42 percent.
    (iii) The value of the advanced biofuel standard for 2014 shall be 
1.52 percent.
    (iv) The value of the renewable fuel standard for 2014 shall be 
9.02 percent.
    (6) Renewable Fuel Standards for 2015.
    (i) The value of the cellulosic biofuel standard for 2015 shall be 
0.059 percent.
    (ii) The value of the biomass-based diesel standard for 2015 shall 
be 1.41 percent.

[[Page 33153]]

    (iii) The value of the advanced biofuel standard for 2015 shall be 
1.61 percent.
    (iv) The value of the renewable fuel standard for 2015 shall be 
9.04 percent.
    (7) Renewable Fuel Standards for 2016.
    (i) The value of the cellulosic biofuel standard for 2016 shall be 
0.114 percent.
    (ii) The value of the biomass-based diesel standard for 2016 shall 
be 1.49 percent.
    (iii) The value of the advanced biofuel standard for 2016 shall be 
1.88 percent.
    (iv) The value of the renewable fuel standard for 2016 shall be 
9.63 percent.
* * * * *
0
4. Section 80.1426, paragraph (f)(1) is amended by revising ``Table 1 
to Sec.  80.1426'', entries F and H to read as follows:

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

* * * * *
    (f) * * *
    (1) * * *

         Table 1 to Sec.   80.1426--Applicable D Codes for Each Fuel Pathway for Use in Generating RINs
----------------------------------------------------------------------------------------------------------------
                                                                                 Production process
                             Fuel type                  Feedstock                   requirements          D-code
----------------------------------------------------------------------------------------------------------------
 
                                                  * * * * * * *
F...................  Biodiesel, renewable     Soy bean oil;..............  One of the following:......        4
                       diesel, jet fuel and    Oil from annual covercrops;  Trans-Esterification.......
                       heating oil.            Oil from algae grown         Hydrotreating..............
                                                photosynthetically;.        Excluding processes that co-
                                               Biogenic waste oils/fats/     process renewable biomass
                                                greases;.                    and petroleum..
                                               Non-food grade corn oil;...
                                               Camelina sativa oil;.......
 
                                                  * * * * * * *
H...................  Biodiesel, renewable     Soy bean oil;..............   One of the following:.....        5
                       diesel, jet fuel and    Oil from annual covercrops;  Trans-Esterification.......
                       heating oil.            Oil from algae grown         Hydrotreating..............
                                                photosynthetically;.        Includes only processes
                                               Biogenic waste oils/fats/     that co-process renewable
                                                greases;.                    biomass and petroleum..
                                               Non-food grade corn oil;...
                                               Camelina sativa oil;.......
 
                                                  * * * * * * *
----------------------------------------------------------------------------------------------------------------

* * * * *
0
5. Section 80.1451 is amended by revising paragraph (a)(1)(xiv) to read 
as follows:

Sec.  80.1451  What are the reporting requirements under the RFS 
program?

    (a) * * *
    (1) * * *
    (xiv)(A) For the 2013 compliance year, annual compliance reports 
shall be submitted no later than January 31, 2016.
    (B) For obligated parties, for the 2014 compliance year, annual 
compliance reports shall be submitted no later June 1, 2016.
    (C) For exporters of renewable fuel, for the 2014 compliance period 
from January 1, 2014, through September 16, 2014, full annual 
compliance reports (containing the information specified in paragraphs 
(a)(1)(i), (ii), (vi), (viii), and (x) of this section) for that period 
shall be submitted no later than January 31, 2016.
    (D) For obligated parties, for the 2015 compliance year, annual 
compliance reports shall be submitted no later than December 1, 2016.
* * * * *
0
6. Section 80.1464 is amended by revising paragraph (g) and adding 
paragraph (i)(3) to read as follows.

Sec.  80.1464  What are the attest engagement requirements under the 
RFS program?

* * * * *
    (g)(1) For obligated parties and exporters of renewable fuel, for 
the 2013 compliance year, reports required under this section shall be 
submitted to the EPA no later than June 1, 2016.
    (2) For RIN-generating renewable fuel producers, RIN-generating 
importers of renewable fuel, and other parties owning RINs, for the 
2013 compliance year, reports required under this section shall be 
submitted to the EPA no later than January 31, 2016.
    (3) For obligated parties, for the 2014 compliance year, reports 
required under this section shall be submitted to the EPA no later than 
December 1, 2016.
    (4) For exporters of renewable fuel, for the 2014 compliance period 
from January 1, 2014, through September 16, 2014, full reports for that 
period required under this section shall be submitted no later than 
June 1, 2016.
    (5) For RIN-generating renewable fuel producers, RIN-generating 
importers of renewable fuel, and other parties owning RINs, for the 
2014 compliance year, reports required under this section shall be 
submitted to the EPA no later than January 31, 2016.
    (6) For obligated parties, for the 2015 compliance year, reports 
required under this section shall be submitted to the EPA no later than 
June 1, 2017.
* * * * *
    (i) * * *
    (3) Reporting requirements. For the 2014 compliance year, reports 
required under paragraph (i) of this section shall be submitted to the 
EPA no later than January 31, 2016. For the 2015 compliance year and 
each subsequent year, reports required under paragraph (i) of this 
section shall be submitted pursuant to paragraph (d) of this section.

[FR Doc. 2015-13956 Filed 6-9-15; 8:45 am]
 BILLING CODE 6560-50-P
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