```

[Federal Register Volume 76, Number 127 (Friday, July 1, 2011)]
[Proposed Rules]
[Pages 38844-38890]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-16018]

[[Page 38843]]

Vol. 76

Friday,

No. 127

July 1, 2011

Part IV

Environmental Protection Agency

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

40 CFR Part 80

Regulation of Fuels and Fuel Additives: 2012 Renewable Fuel Standards; 
Proposed Rule

Federal Register / Vol. 76 , No. 127 / Friday, July 1, 2011 / 
Proposed Rules

[[Page 38844]]

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

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2010-0133; FRL-9324-3]
RIN 2060-AQ76

Regulation of Fuels and Fuel Additives: 2012 Renewable Fuel 
Standards

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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

SUMMARY: Under the Clean Air Act Section 211(o), the Environmental 
Protection Agency is required to set the renewable fuel standards each 
November for the following year. In general the standards are designed 
to ensure that the applicable volumes of renewable fuel specified in 
the statute are used. However, the statue specifies that EPA is to 
project the volume of cellulosic biofuel production for the upcoming 
year and must base the cellulosic biofuel standard on that projected 
volume if it is less than the applicable volume set forth in the Act. 
EPA is today proposing a projected cellulosic biofuel volume for 2012 
and annual standards for cellulosic biofuel, biomass-based diesel, 
advanced biofuel, and renewable fuels that would apply to all gasoline 
and diesel produced or imported in year 2012. In addition, today's 
action proposes an applicable volume of biomass-based diesel that would 
apply in 2013. This action also presents a number of proposed changes 
to the RFS2 regulations that are designed to clarify existing 
provisions and to address several unique circumstances that have come 
to light since the RFS2 program became effective on July 1, 2010. 
Finally, today's rule also proposes to make a minor amendment to the 
gasoline benzene regulations regarding inclusion of transferred 
blendstocks in a refinery's early benzene credit generation 
calculations.

DATES: Comments must be received on or before August 11, 2011.
    Hearing: We intend to hold a public hearing on July 12, 2011 in the 
Washington, DC area, Details of the time and location of the hearing be 
announced in a separate notice.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-
OAR-2010-0133, by one of the following methods:
    http://www.regulations.gov: Follow the on-line 
instructions for submitting comments.
     E-mail: asdinfo@epa.gov.
     Mail: Air and Radiation Docket and Information Center, 
Environmental Protection Agency, Mailcode: 2822T, 1200 Pennsylvania 
Ave., NW., Washington, DC 20460.
     Hand Delivery: EPA Docket Center, EPA West Building, Room 
3334, 1301 Constitution Ave., NW., Washington, DC 20460. Such 
deliveries are only accepted during the Docket's normal hours of 
operation, and special arrangements should be made for deliveries of 
boxed information.
    Instructions: Direct your comments to Docket ID No. EPA-HQ-OAR-
2010-0133. EPA's policy is that all comments received will be included 
in the public docket without change and may be made available online at 
http://www.regulations.gov, including any personal information 
provided, unless the comment includes information claimed to be 
Confidential Business Information (CBI) or other information whose 
disclosure is restricted by statute. Do not submit information that you 
consider to be CBI or otherwise protected through http://www.regulations.gov or e-mail. The http://www.regulations.gov Web site 
is an ``anonymous access'' system, which means EPA will not know your 
identity or contact information unless you provide it in the body of 
your comment. If you send an e-mail comment directly to EPA without 
going through http://www.regulations.gov your e-mail address will be 
automatically captured and included as part of the comment that is 
placed in the public docket and made available on the Internet. If you 
submit an electronic comment, EPA recommends that you include your name 
and other contact information in the body of your comment and with any 
disk or CD-ROM you submit. If EPA cannot read your comment due to 
technical difficulties and cannot contact you for clarification, EPA 
may not be able to consider your comment. Electronic files should avoid 
the use of special characters, any form of encryption, and be free of 
any defects or viruses. For additional information about EPA's public 
docket visit the EPA Docket Center homepage at http://www.epa.gov/epahome/dockets.htm. For additional instructions on submitting 
comments, go to Section I.B of the SUPPLEMENTARY INFORMATION section of 
this document.
    Docket: All documents in the docket are listed in the http://www.regulations.gov index. Although listed in the index, some 
information is not publicly available, e.g., CBI or other information 
whose disclosure is restricted by statute. Certain other material, such 
as copyrighted material, will be publicly available only in hard copy. 
Publicly available docket materials are available either electronically 
in http://www.regulations.gov or in hard copy at the Air and Radiation 
Docket and Information Center, EPA/DC, EPA West, Room 3334, 1301 
Constitution Ave., NW., Washington, DC. The Public Reading Room is open 
from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal 
holidays. The telephone number for the Public Reading Room is (202) 
566-1744, and the telephone number for the Air Docket is (202) 566-
1742.

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

SUPPLEMENTARY INFORMATION:

I. General Information

A. Does this action apply to me?

    Entities potentially affected by this 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 and biodiesel. Potentially regulated categories include:

------------------------------------------------------------------------
                                                         Examples of
          Category            NAICS \1\   SIC \2\        potentially
                                codes      codes     regulated entities
------------------------------------------------------------------------
Industry....................     324110       2911  Petroleum
                                                     Refineries.
Industry....................     325193       2869  Ethyl alcohol
                                                     manufacturing.
Industry....................     325199       2869  Other basic organic
                                                     chemical
                                                     manufacturing.
Industry....................     424690       5169  Chemical and allied
                                                     products merchant
                                                     wholesalers.
Industry....................     424710       5171  Petroleum bulk
                                                     stations and
                                                     terminals.
Industry....................     424720       5172  Petroleum and
                                                     petroleum products
                                                     merchant
                                                     wholesalers.

[[Page 38845]]

 
Industry....................     454319       5989  Other fuel dealers.
------------------------------------------------------------------------
\1\ North American Industry Classification System (NAICS).
\2\ Standard Industrial Classification (SIC) system code.

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

B. What should I consider as I prepare my comments for EPA?

1. Submitting CBI
    Do not submit confidential business information (CBI) to EPA 
through http://www.regulations.gov or e-mail. Clearly mark the part or 
all of the information that you claim to be CBI. For CBI information in 
a disk or CD ROM that you mail to EPA, 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 claimed as CBI. In addition to one 
complete version of the comment that includes information claimed as 
CBI, a copy of the comment that does not contain the information 
claimed as CBI must be submitted for inclusion in the public docket. 
Information so marked will not be disclosed except in accordance with 
procedures set forth in 40 CFR part 2.
2. Tips for Preparing Your Comments
    When submitting comments, remember to:
     Identify the rulemaking by docket number and other 
identifying information (subject heading, Federal Register date and 
page number).
     Follow directions--The agency may ask you to respond to 
specific questions or organize comments by referencing a Code of 
Federal Regulations (CFR) part or section number.
     Explain why you agree or disagree, suggest alternatives, 
and substitute language for your requested changes.
     Describe any assumptions and provide any technical 
information and/or data that you used.
     If you estimate potential costs or burdens, explain how 
you arrived at your estimate in sufficient detail to allow for it to be 
reproduced.
     Provide specific examples to illustrate your concerns, and 
suggest alternatives.
     Explain your views as clearly as possible, avoiding the 
use of profanity or personal threats.
     Make sure to submit your comments by the comment period 
deadline identified.

Outline of This Preamble

I. Executive Summary
    A. Standards For 2012
    1. Assessment Of 2012 Cellulosic Biofuel Volume
    2. Advanced Biofuel And Total Renewable Fuel In 2012
    3. Proposed Percentage Standards For 2012
    B. Proposed 2013 Biomass-Based Diesel Volume
    C. Proposed Regulatory Changes
    D. Petition For Reconsideration
II. Projection Of Cellulosic Volume Production And Imports For 2012
    A. Statutory Requirements
    B. Cellulosic Biofuel Volume Assessment
    1. Existing Cellulosic Biofuel Facilities
    2. Potential New Facilities In 2012
    3. Imports Of Cellulosic Biofuel
    4. Summary Of Volume Projections
    C. Potential Limitations In 2012
    D. Advanced Biofuel And Total Renewable Fuel In 2012
    E. Biomass-Based Diesel In 2012
III. Proposed Percentage Standards For 2012
    A. Background
    B. Calculation Of Standards
    1. How Are The Standards Calculated?
    2. Small Refineries And Small Refiners
    3. Proposed Standards
IV. Biomass-Based Diesel Volume For 2013
    A. Statutory Requirements
    B. Factors Considered In Assessing 2013 Biomass-Based Diesel 
Volumes
    1. Demand For Biomass-Based Diesel
    2. Availability Of Feedstocks To Produce 1.28 Billion Gallons Of 
Biodiesel
    3. Production Capacity
    4. Consumption Capacity
    5. Biomass-Based Diesel Distribution Infrastructure
    C. Impacts Of 1.28 Billion Gallons Of Biomass-Based Diesel
    1. Climate Change
    2. Energy Security 4
    3. Agricultural Commodities And Food Prices
    4. Air Quality
    5. Transportation Fuel Cost
    6. Deliverability And Transport Costs Of Materials, Goods, And 
Products Other Than Renewable Fuel
    7. Wetlands, Ecosystems, And Wildlife Habitats
    8. Water Quality And Quantity
    a. Impacts On Water Quality And Water Quantity Associated With 
Soybean Production
    b. Impacts On Water Quality And Water Quantity Associated With 
Biodiesel Production
    9. Job Creation And Rural Economic Development
    D. Proposed 2013 Volume For Biomass-Based Diesel
    E. 2014 And Beyond
V. Proposed Changes To Rfs2 Regulations
    A. Summary Of Amendments
    B. Technical Justification For Equivalence Value Application
    C. Changes To Definitions Of Terms
    1. Definition Of Annual Cover Crop
    2. Definition Of ``Naphtha''
    D. Technical Amendments Related To Rin Generation And Separation
    1. Rin Separation Limit For Obligated Parties
    2. Rin Retirement Provision For Error Correction
    3. Production Outlook Reports Submission Deadline
    4. Attest Procedures
    5. Treatment Of Canola And Rapeseed
    E. Technical Amendments Related To Registration
    1. Construction Discontinuance & Completion Documentation
    2. Third-Party Engineering Reviews
    3. Foreign Ethanol Producers
    F. Additional Amendments And Clarifications
    1. Third-Party Engineering Review Addendum
    2. Rin Generation For Fuel Imported From A Registered Foreign 
Producer
    3. Bond Posting
    4. Acceptance Of Separated Yard Waste And Food Waste Plans
    5. Transferred Blendstocks In Early Benzene Credit Generation 
Calculations
VI. Petition For Reconsideration
    A. Legal Considerations Of Petition
    B. Advanced Biofuel Standard And Delayed Rins
    C. 2011 Cellulosic Biofuel Requirement
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
    C. Regulatory Flexibility Act
    D. Unfunded Mandates Reform Act
    E. Executive Order 13132: Federalism

[[Page 38846]]

    F. Executive Order 13175: Consultation And Coordination With 
Indian Tribal Governments
    G. Executive Order 13045: Protection Of Children From 
Environmental Health Risks And Safety Risks
    H. Executive Order 13211: Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, Or Use
    I. National Technology Transfer Advancement Act
    J. Executive Order 12898: Federal Actions To Address 
Environmental Justice In Minority Populations And Low-Income 
Populations
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) which 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 
promulgation of revised regulatory requirements on March 26, 2010.\1\ 
The transition from the RFS1 requirements of EPAct to the RFS2 
requirements of EISA generally occurred on July 1, 2010.
---------------------------------------------------------------------------

    \1\ 75 FR 14670.
---------------------------------------------------------------------------

    Under RFS2, EPA is required to determine and publish the applicable 
annual percentage standards for each compliance year by November 30 of 
the previous year. As part of this effort, EPA must 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. When we lower the applicable volume of cellulosic 
biofuel in this manner, we are also authorized to lower the applicable 
volumes of advanced biofuel and/or total renewable fuel by the same or 
a lesser amount. Since these evaluations will be based on evolving 
information about emerging segments of the biofuels industry, and may 
result in the applicable volumes differing from those in the statute, 
we believe that it is appropriate to establish the applicable volumes 
through a notice-and-comment rulemaking process. Today's notice 
provides our proposed evaluation of the projected production of 
cellulosic biofuel for 2012, our proposed evaluation of whether to 
lower the applicable volumes of advanced biofuel and total renewable 
fuel, and the proposed percentage standards for compliance year 2012. 
We will complete our evaluation based on comments received in response 
to this proposal, the estimate of projected biofuel volumes that the 
EIA is required to provide to EPA by October 31, and other information 
that becomes available, and will make final determinations of 
applicable volumes and percentage standards for 2012 by November 30, 
2011.
    The statute also requires EPA to determine and promulgate the 
applicable volume of biomass-based diesel that will be required in 2013 
and beyond, as the statute does not specify the applicable volumes for 
years after 2012. This determination must be made at least 14 months 
prior to the year in which the volume will be required. Thus, for the 
2013 compliance year, we must specify the applicable volume of biomass-
based diesel by November 1, 2011. The statute identifies a number of 
factors that EPA must take into consideration in establishing the 
applicable volume of biomass-based diesel for years after 2012. Today's 
notice includes our proposed assessment of these factors and proposed 
applicable volume of biomass-based diesel for 2013.
    Today's proposed rule does not include an assessment of the 
environmental impacts of the percentage standards we are proposing for 
2012. All of the impacts of the RFS2 program were addressed in the RFS2 
final rule published on March 26, 2010, including impacts of the 
biofuel standards specified in the statute. Today's rulemaking simply 
proposes the standards for 2012 whose impacts were already analyzed 
previously. However, as described more fully in Section IV.A, we are 
required to analyze a specified set of environmental and economic 
impacts for the biomass-based diesel volume we are proposing for 2013.
    Today's notice also proposes a number of changes to the RFS2 
regulations. These changes are designed to reduce confusion among 
regulated parties and streamline implementation by clarifying certain 
terms and phrases and addressing unique circumstances that came to 
light after the RFS2 program went into effect on July 1, 2010. 
Additionally, this notice also proposes to make a minor amendment to 
the gasoline benzene regulations regarding inclusion of transferred 
blendstocks in a refinery's early benzene credit generation 
calculations. Further discussion of all of these proposed changes can 
be found in Section V.
    Finally, we note that in the RFS2 final rule we also stated our 
intent to make two announcements each year:
     Set the price for cellulosic biofuel waiver credits that 
will be made available to obligated parties in the event that we reduce 
the volume of cellulosic biofuel below the volume required by EISA.
     Announce the results of our assessment of the aggregate 
compliance approach for verifying renewable biomass requirements for 
U.S. crops and crop residue, and our conclusion regarding whether the 
aggregate compliance provision will continue to apply.

For both of these determinations, EPA will use specific sources of data 
and a methodology laid out in the RFS2 final rule. Since the necessary 
data for these determinations are not yet available, and the 
methodology for making them is specified by rule or statute, we are not 
including proposed determinations in this Notice. We will present the 
results of both of these determinations in the final rule without a 
prior proposal.

A. Standards for 2012

1. Assessment of 2012 Cellulosic Biofuel Volume
    To estimate the volume of cellulosic biofuel that could be made 
available in the U.S. in 2012, we researched all potential production 
sources by company and facility. This included sources that were still 
in the planning stages, those that were under construction, and those 
that are already producing some volume of cellulosic ethanol, 
cellulosic diesel, or some other type of cellulosic biofuel. Facilities 
primarily focused on research and development work with no intention of 
marketing any fuel produced were not considered for this assessment. 
From this universe of potential cellulosic biofuel sources we 
identified the subset that had a possibility of producing some volume 
of qualifying cellulosic biofuel for use as transportation fuel in 
2012. For the final rule, we will specify the projected available 
volume for 2012 that will be the basis for the percentage standard for 
cellulosic biofuel. To determine this final projected available volume, 
we will consider additional factors such as the current and expected 
state of funding, the status of the technology, and progress towards 
construction and production goals along with any other significant 
factors that could potentially impact fuel production or the ability of 
the produced fuel to generate cellulosic RINs. This information, to the 
extent that it is publically available, is

[[Page 38847]]

discussed in further detail in Section II.B.
    In our assessment we focused on domestic sources of cellulosic 
biofuel. While imports of cellulosic biofuels are possible and would be 
eligible to generate RINs, we believe this is unlikely due to local 
demand for cellulosic biofuels in the countries in which they are 
produced as well as the cost associated with transporting these fuels 
to the U.S. Of the domestic sources, we estimated that nine facilities 
have the potential to make volumes of cellulosic biofuel available for 
transportation use in the U.S. in 2012. These facilities are listed in 
Table I.A.1-1 along with our estimate of the potentially available 
volume.

                 Table I.A.1-1--Potentially Available Cellulosic Biofuel Plant Volumes for 2012
----------------------------------------------------------------------------------------------------------------
                                                                                                     Potentially
                                                                                                      available
                                                                                                        volume
                 Company                             Location                    Fuel type             (million
                                                                                                       ethanol-
                                                                                                      equivalent
                                                                                                       gallons)
----------------------------------------------------------------------------------------------------------------
DuPont Danisco Cellulosic Ethanol........  Vonore, TN.................  Ethanol....................         0.25
Fiberight................................  Blairstown, IA.............  Ethanol....................         3.0
Fulcrum Bioenergy........................  McCarran, NV...............  Ethanol....................         0.5
INEOS Bio................................  Vero Beach, FL.............  Ethanol....................         3.0
KiOR.....................................  Houston, TX................  Gasoline, Diesel...........         0.3
KiOR.....................................  Columbus, MS...............  Gasoline, Diesel...........         6.4
KL Energy Corp...........................  Upton, WY..................  Ethanol....................         1.0
Terrabon.................................  Port Arthur, TX............  Gasoline...................         1.0
ZeaChem..................................  Boardman, OR...............  Ethanol....................         0.25
                                          ----------------------------------------------------------------------
    Total................................  ...........................  ...........................        15.7
----------------------------------------------------------------------------------------------------------------

    The volumes in Table I.A.1-1 for each facility represent the volume 
that would be produced in 2012 based upon the owner's expected month of 
startup and an assumed period of production rampup to full capacity for 
testing and process validation purposes. However, none of the 
facilities we evaluated are currently producing cellulosic biofuel at 
the rates they project for 2012. Moreover, there are other 
uncertainties associated with each facility's projected volume that 
could result in less production volume in 2012 than the potentially 
available values shown in Table I.A.1-1. Therefore, we are proposing a 
range of volumes for cellulosic biofuel for 2012, with 15.7 million 
ethanol-equivalent gallons as the upper end of the range. For the lower 
end of the range, we believe that a volume of 3.55 million ethanol-
equivalent gallons could be justified based on currently available 
information. This volume is based on consideration of only those 
facilities that are structurally complete at the time of this proposal 
and that anticipate commercial production of cellulosic biofuels by the 
end of 2011. More complete information on the progress of the industry 
in 2011 will be available for the final rule, and will allow us to make 
a more accurate projection of cellulosic biofuel volume for 2012. A 
more detailed discussion of these uncertainties is presented in Section 
II.B.
2. Advanced Biofuel and Total Renewable Fuel in 2012
    The statute indicates that we may reduce the applicable volume of 
advanced biofuel and total renewable fuel if we determine that the 
projected volume of cellulosic biofuel production for 2012 falls short 
of the statutory volume of 500 million gallons. As shown in Table 
I.A.1-1, we are proposing a determination that this is the case. 
Therefore, we also must evaluate the need to lower the applicable 
volumes for the advanced biofuel and total renewable fuel.
    To address the need to lower the advanced biofuel standard, we 
first consider whether it appears likely that the biomass-based diesel 
volume of 1.0 billion gallons specified in the statute can be met in 
2012. As discussed in Section II.E, we believe that the 1.0 billion 
gallon standard can indeed be met. Since biodiesel has an Equivalence 
Value of 1.5, 1.0 billion physical gallons of biodiesel would provide 
1.5 billion ethanol-equivalent gallons that can be counted towards the 
advanced biofuel standard of 2.0 billion gallons. Of the remaining 0.5 
bill gallons, up to 0.016 bill gallons would be met with the proposed 
volume of cellulosic biofuel. Based on our analysis as described in 
Section II.D, it appears likely that there will be sufficient volumes 
of other advanced biofuels, such as imported sugarcane ethanol, 
additional biodiesel, or renewable diesel, such that the standard for 
advanced biofuel could remain at the statutory level of 2.0 billion 
gallons. However, uncertainty in the potential volumes of these other 
advanced biofuels coupled with the range of potential production 
volumes of cellulosic biofuel could provide a rationale for lowering 
the advanced biofuel standard. If we lowered the applicable volume of 
advanced biofuel without simultaneously lowering the applicable volume 
for total renewable fuel, the result would be that additional volumes 
of conventional renewable fuel, such as corn-starch ethanol, would be 
produced, effectively replacing some advanced biofuels. In today's NPRM 
we are proposing that neither the required 2012 volumes for advanced 
biofuel nor total renewable fuel be lowered below the statutory 
volumes. However, we request comment on whether the advanced biofuel 
and/or total renewable fuel volume requirements should be lowered if, 
as we propose, EPA lowers the required cellulosic biofuel volume from 
that specified in the Act.
3. Proposed Percentage Standards for 2012
    The renewable fuel standards are expressed as a volume percentage, 
and are used by each refiner, blender or importer to determine their 
renewable fuel volume obligations. The applicable percentages are set 
so that if each regulated party meets the percentages, and if EIA 
projections of gasoline and diesel use are accurate, then the amount of 
renewable fuel, cellulosic biofuel, biomass-based diesel, and advanced

[[Page 38848]]

biofuel used will meet the volumes required on a nationwide basis.
    To calculate the percentage standard for cellulosic biofuel for 
2012, we have used a potential volume range of 3.55-15.7 million 
ethanol-equivalent gallons (representing 3.45-12.9 million physical 
gallons). For the final rule, EPA intends to pick a single value from 
within this range to represent the projected available volume on which 
the 2012 percentage standard for cellulosic biofuel will be based. We 
are also proposing that the applicable volumes for biomass-based 
diesel, advanced biofuel, and total renewable fuel for 2012 will be 
those specified in the statute. These volumes are shown in Table I.A.3-
1.

                Table I.A.3-1--Proposed Volumes for 2012
------------------------------------------------------------------------
                                                      Ethanol equivalent
                                     Actual volume        volume \a\
------------------------------------------------------------------------
Cellulosic biofuel..............  3.45-12.9 mill gal  3.55-15.7 mill
                                                       gal.
Biomass-based diesel............  1.0 bill gal......  1.5 bill gal.
Advanced biofuel................  2.0 bill gal......  2.0 bill gal.
Renewable fuel..................  15.2 bill gal.....  15.2 bill gal.
------------------------------------------------------------------------
\a\ Biodiesel and cellulosic diesel have equivalence values of 1.5 and
  1.7 ethanol equivalent gallons respectively. As a result, ethanol-
  equivalent volumes are larger than actual volumes for cellulosic
  biofuel and biomass-based diesel.

    Four separate standards are required under the RFS2 program, 
corresponding to the four separate volume requirements shown in Table 
I.A.3-1. The specific formulas we use to calculate the renewable fuel 
percentage standards are contained in the regulations at Sec.  80.1405 
and repeated in Section III.B.1. The percentage standards represent the 
ratio of renewable fuel volume to projected non-renewable gasoline and 
diesel volume. The projected volume of gasoline used to calculate the 
standards in today's proposal is provided by EIA's Short-Term Energy 
Outlook (STEO).\2\ The projected volume of transportation diesel used 
to calculate the standards in today's proposal is provided by EIA's 
2011 Annual Energy Outlook (early release version). For the final rule, 
we will use updated projections of gasoline and diesel provided by EIA.
---------------------------------------------------------------------------

    \2\ The April 2011 issue of STEO was used for today's proposal.
---------------------------------------------------------------------------

    Because DOE's 2009 analysis \3\ concluded that small refineries 
would not be disproportionately harmed by inclusion in the RFS program, 
beginning in 2011, small refiners and small refineries participated in 
the RFS program as full regulated parties, and there was no small 
refiner/refinery volume adjustment to the 2011 standard as there was 
for the 2010 standard. However, DOE recently re-evaluated the impacts 
of the RFS program on small entities and concluded that some small 
refineries would suffer a disproportionate hardship if required to 
participate in the program.\4\ As a result, we are required to exempt 
these few refineries from being obligated parties for a minimum of two 
years, and must also exempt their gasoline and diesel volumes from the 
calculation of the annual percentage standards. The proposed standards 
for 2012 are shown in Table I.A.3-2 and include the adjustment for 
exempt small refineries (which constitute about 2.5% of both gasoline 
and diesel pools). Detailed calculations can be found in Section III.
---------------------------------------------------------------------------

    \3\ DOE report ``EPACT 2005 Section 1501 Small Refineries 
Exemption Study'', (January, 2009).
    \4\ ``Small Refinery Exemption Study: An Investigation into 
Disproportionate Economic Hardship,'' U.S. Department of Energy, 
March 2011.

          Table I.A.3-2--Proposed Percentage Standards for 2012
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel........................  0.002 to 0.010%.
Biomass-based diesel......................  0.91%.
Advanced biofuel..........................  1.21%.
Renewable fuel............................  9.21%.
------------------------------------------------------------------------

B. Proposed 2013 Biomass-Based Diesel Volume

    While section 211(o)(2)(B) specifies the volumes of biomass-based 
diesel (BBD) through year 2012, it directs the EPA to establish the 
applicable volume of BBD for years after 2012 no later than 14 months 
before the first year for which the applicable volume will apply. In 
today's action we are proposing an applicable volume of 1.28 bill 
gallons for biomass-based diesel (BBD) for 2013. This is the volume 
that was projected for 2013 in the RFS2 final rulemaking, and we are 
proposing it for 2013 based on consideration of the factors specified 
in the statute, including a consideration of biodiesel production, 
consumption, and infrastructure issues. As required under the statute, 
we also assessed the likely impact of BBD production and use in a 
variety of areas, including climate change, energy security, the 
agricultural sector, air quality, and others. Section IV provides 
additional discussion of our assessment of the proposed volume of 1.28 
bill gallons of BBD.

C. Proposed Regulatory Changes

    In today's action we are also proposing a number of changes to the 
RFS2 regulations. These proposed changes are intended to:
     Clarify certain provisions because we have learned that 
there is some confusion among some regulated parties
     Clarify the application of certain provisions to unique 
circumstances
     Provide greater specificity in the definition of certain 
terms
     Correct regulatory language that inadvertently 
misrepresented our intent

Today's rule also proposes to make a minor amendment to the gasoline 
benzene regulations regarding inclusion of transferred blendstocks in a 
refinery's early benzene credit generation calculations. A detailed 
discussion of these proposed regulatory changes is provided in Section 
V.

D. Petition for Reconsideration

    The American Petroleum Institute (API) and the National 
Petrochemical and Refiners Association (NPRA) jointly submitted a 
Petition for Reconsideration of EPA's final rule establishing the RFS 
standards for 2011. The petition requests that we lower the 2011 
cellulosic biofuel standard to no more than 3.94 mill gallons, lower 
the 2011 advanced biofuel standard in concert with the reduction in the 
cellulosic biofuel standard from 250 mill gallons, and reconsider the 
regulatory provision for delayed RINs. We are proposing to deny this 
petition. See Section VI for further discussion.

II. Projection of Cellulosic Volume Production and Imports for 2012

    In order to project production volume of cellulosic biofuel in 2012 
for use in setting the percentage standard, we collected information on 
individual facilities that have the potential to produce qualifying 
volumes for

[[Page 38849]]

consumption as transportation fuel, heating oil, or jet fuel in the 
U.S. in 2012. This section describes the range of volumes that could be 
produced and imported in 2012 as well as some of the uncertainties 
associated with those volumes. For today's NPRM we have assessed the 
range of potentially available volumes for 2012. Despite significant 
advances in cellulosic biofuel production technology in recent years 
the production of cellulosic biofuel remains highly uncertain. While we 
expect that the volume we select in the final rule for use in setting 
the 2012 cellulosic biofuel percentage standard will be within our 
proposed range of volumes, we recognize the possibility that updated 
information at the time of the final rule could result in the final 
volume falling outside of the proposed range. Section III describes the 
conversion of our proposed range of volumes for cellulosic biofuel into 
a range of possible percentage standards.
    While the proposed 2012 volume projections in today's NPRM were 
based on our own assessment of the cellulosic biofuel industry, by the 
time we announce the final 2012 volumes and percentage standards we 
will have additional information. First, in addition to comments in 
response to today's proposal, we will have updated and more detailed 
information about how the industry is progressing in 2011. Second, all 
registered producers and importers of renewable fuel must submit 
Production Outlook Reports describing their expectations for new or 
expanded biofuel supply for the next five years, according to Sec.  
80.1449. Finally, by October 31, 2011, the Energy Information 
Administration (EIA) is required by statute to provide EPA with an 
estimate of the volumes of transportation fuel, biomass-based diesel, 
and cellulosic biofuel that they project will be sold or introduced 
into commerce in the U.S. in 2012.

A. Statutory Requirements

    The volumes of renewable fuel to be used under the RFS2 program 
each year (absent an adjustment or waiver by EPA) are specified in CAA 
211(o)(2). These volumes for 2012 are shown in Table II.A-1.

 Table II.A-1--Required Volumes in the Clean Air Act for 2012 (bill gal)
------------------------------------------------------------------------
                                                               Ethanol
                                                   Actual     equivalent
                                                   volume       volume
------------------------------------------------------------------------
Cellulosic biofuel............................       0.5\a\          0.5
Biomass-based diesel..........................          1.0          1.5
Advanced biofuel..............................       2.0\a\          2.0
Renewable fuel................................      15.2\a\         15.2
------------------------------------------------------------------------
\a\ These values assume that the biofuels would be ethanol. If any
  portion of the biofuels used to meet these applicable volumes has a
  volumetric energy content greater than that for ethanol, these values
  will be lower.

    By November 30 of each year, the EPA is required under CAA 211(o) 
to determine and publish in the Federal Register the renewable fuel 
percentage standards for the following year. These standards are to be 
based in part on transportation fuel volumes estimated by the Energy 
Information Administration (EIA) for the following year. The 
calculation of the percentage standards is based on the formulas in 
Sec.  80.1405(c) which express the required volumes of renewable fuel 
as a volume percentage of gasoline and diesel sold or introduced into 
commerce in the 48 contiguous states plus Hawaii.
    The statute requires that if EPA determines that the projected 
volume of cellulosic biofuel production for the following year is less 
than the applicable volume shown in Table II.A-1, then EPA is to reduce 
the applicable volume of cellulosic biofuel to the projected volume 
available during that calendar year. 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 
volume of advanced biofuels and total renewable fuel by the same or a 
lesser volume.
    As described in the final rule for the RFS2 program, we intend to 
examine EIA's projected volumes, comments on this proposal, production 
outlook reports, and other available data in making a final 
determination of the appropriate cellulosic biofuel volumes to require 
for 2012.

B. Cellulosic Biofuel Volume Assessment

    The task of projecting the volume of cellulosic biofuel production 
for 2012 remains a difficult one. Currently there are very few, if any, 
facilities consistently producing cellulosic biofuel for commercial 
sale. Announcements of new projects and project funding, changes in 
project plans, project delays, and cancellations occur frequently. 
Biofuel producers face not only the challenge of the scale up of 
innovative, first-of-a-kind technology, but also the challenge of 
securing funding in a difficult economy. The cellulosic biofuel 
industry also is influenced by various tax credits and subsidies, and 
changes to these programs could have an impact on cellulosic biofuel 
production.
    In order to project cellulosic biofuel production for 2012, EPA has 
tracked the progress of over 100 biofuel production facilities. From 
this list of facilities we used publically available information, as 
well as information provided by DOE and USDA, to make a preliminary 
determination of which facilities are the most likely candidates to 
produce cellulosic biofuel and make it commercially available in 2012. 
Each of these companies was investigated further in order to determine 
the current status of their facilities and their likely cellulosic 
biofuel production volumes for the coming years. Information such as 
the funding status of these facilities, announced construction and 
production ramp up periods, and annual fuel production targets were 
taken into account. Our projection of the range of cellulosic biofuel 
production in 2012 is based on this information as well as our own 
assessment of the likelihood of these facilities successfully producing 
cellulosic biofuel in the volumes indicated. A brief description of 
each of the companies we believe may produce cellulosic biofuel and 
make it commercially available in 2012 can be found below. We will 
continue to gather more information to help inform our decision on the 
final cellulosic biofuel standard for 2012, and we will specify a 
single volume in the final rule that will be the basis for the 
cellulosic biofuel percentage standard for 2012.
1. Existing Cellulosic Biofuel Facilities
    The rule that established the required 2011 cellulosic biofuel 
volume identified five production facilities that we projected would 
produce cellulosic biofuel and make the fuel commercially available in 
2011. Each of these production facilities are now structurally 
complete, however they are in various stages of biofuel production. All 
of these facilities have either produced some volume of cellulosic 
biofuel in 2011, or are on schedule to do so later in the year. Only 
Range Fuels, however, has completed its registration as a cellulosic 
biofuel production facility under the RFS2 program and as such they are 
currently the only facility of the five listed here currently eligible 
to generate cellulosic biofuel RINs. For

[[Page 38850]]

more background information on each of these facilities see the 2011 
standards rule.\5\
---------------------------------------------------------------------------

    \5\ 75 FR 76790, December 9, 2010.
---------------------------------------------------------------------------

    DuPont Danisco Cellulosic Ethanol (DDCE) successfully started up 
their small demonstration facility in Vonore, Tennessee in late 2010. 
This facility has a maximum production capacity of 250,000 gallons of 
ethanol per year and uses an enzymatic hydrolysis process to convert 
corn cobs into ethanol. In conversations with EPA in early 2011 DDCE 
indicated that they had not encountered any unexpected difficulties in 
their production of cellulosic ethanol and were on target to meet their 
2011 production goal of 150,000 gallons of cellulosic ethanol. It is 
likely that in 2012 cellulosic biofuel production at this facility will 
approach the production capacity of 250,000 gallons of cellulosic 
ethanol.
    Fiberight uses an enzymatic hydrolysis process to convert the 
biogenic portion of separated municipal solid waste (MSW) into ethanol. 
Construction on the first stage of Fiberight's Blairstown, Iowa 
facility was completed in the summer of 2010. The production capacity 
of the first stage of this project is 2 million gallons of ethanol per 
year. Fiberight had planned to begin production of cellulosic biofuel 
from this facility in late 2010 but poor economic conditions, due in 
part to low cellulosic RIN values in 2010, caused them to postpone fuel 
production. Fiberight had also planned to begin construction on an 
expansion of this facility in late 2010 that would increase the 
production potential to 6 million gallons of ethanol per year, but were 
unable to secure funding to carry out the construction as planned. They 
have since secured funding and began construction on the expansion of 
their Blairstown facility in April 2011. Fiberight anticipates that 
they will begin fuel production in the late summer of 2012 and will 
ramp up production at this facility throughout 2012, producing 
approximately 3 million gallons of cellulosic ethanol in 2012.
    KiOR continues to produce a small volume of renewable crude from 
agricultural residue at their demonstration facility in Houston, Texas 
using a technology they call Biomass Catalytic Cracking (BCC). This 
technology uses heat and a proprietary catalyst to convert biomass to a 
renewable crude with a relatively low oxygen content. This facility 
currently lacks the infrastructure to upgrade this renewable crude to 
finished transportation fuel, however KiOR plans to add this capability 
at this facility in late 2011. While KiOR has not yet registered under 
the RFS2 program, their fuel, if refined to gasoline or diesel fuel 
would be eligible to generate RINs. EPA currently projects a production 
volume of 200,000 gallons of cellulosic fuel from KiOR, which could 
potentially generate 300,000 RINs.
    KL Energy has developed a process to convert cellulose and 
hemicelluloses into cellulosic sugars using a thermal-mechanical 
pretreatment process followed by an enzymatic hydrolysis. They had 
initially planned to used woody biomass as their feedstock for 
cellulosic biofuel production; however their production process is 
versatile enough to allow for a wide variety of cellulosic feedstocks 
to be used. In August 2010 KL Energy announced a joint development 
agreement with Petrobras America Inc. As part of the agreement 
Petrobras will invest $11 million to modify KL Energy's facility in 
Upton, Wyoming to allow it to process bagasse and other waste products. 
These modifications are expected to be completed in 2011, and fuel 
production is likely to begin soon after. If successful, Petrobras and 
KL Energy plan to work together to integrate the technology into 
currently existing ethanol production facilities in Brazil. KL Energy 
has also indentified several sites in the United States for possible 
future expansion. EPA currently projects that KL Energy could produce 
up to 1 million gallons of cellulosic ethanol in 2012 in the United 
States.
    Range Fuels began production of methanol at their Soperton, Georgia 
facility in the third quarter of 2010. This facility uses a 
thermochemical technology to produce syngas (consisting of mostly 
hydrogen and carbon monoxide) from a woody biomass feedstock. The 
syngas is then converted into fuel with the aid of a chemical catalyst 
developed by Range. Range has developed the capability to produce both 
methanol and ethanol, depending on the catalyst used. In January 2011, 
after producing a small volume of ethanol from this facility and 
proving this capability, Range Fuels shut down the Soperton facility in 
order to work through technical difficulties they had been 
experiencing. No timeline has been given for the restart of this 
facility. EPA will continue to gather information and monitor progress 
at the Soperton facility. At this time, however, since no timeline has 
been provided for production from this facility, we are not projecting 
any volume from this facility in 2012.
2. Potential New Facilities in 2012
    EPA is also aware of five new cellulosic biofuel production 
facilities that are currently planning to begin commercial production 
at some point in 2012. These facilities are at various stages in the 
construction process, and as such have various degrees of uncertainty 
associated with any projected 2012 commercial production. While it is 
possible that several of these facilities will not begin production of 
cellulosic biofuels until 2013, they are nevertheless considered here 
since some commercial volumes can potentially be produced in 2012.
    Fulcrum Bioenergy is planning to build a facility capable of 
producing 10.5 million gallons of cellulosic ethanol and 16 megawatts 
of renewable electricity per year. They have developed a thermochemical 
technology to produce ethanol from separated MSW via syngas using a 
chemical catalyst. In November 2010 Fulcrum announced that they had 
received a term sheet for a $80 million loan guarantee from DOE and 
were entering into the final phase of the loan guarantee program. Prior 
to that Fulcrum had announced that they had signed long term feedstock 
supply contracts for this facility as well as engineering, procurement, 
and construction contracts. In January 2011 Fulcrum announced they had 
closed on a $75 million Series C financing that would provide the 
remaining necessary capital for the construction of their first 
commercial production facility pending the closing of their DOE loan 
guarantee. They announced that they are now planning to begin 
construction in the second quarter of 2011 and complete the facility by 
late 2012. EPA currently projects a potential production volume of up 
to 0.5 million gallons of cellulosic ethanol from this facility in 
2012.
    INEOS Bio has developed a process for producing cellulosic ethanol 
by first gasifying feedstock material into a syngas and then using 
naturally occurring bacteria to ferment the syngas into ethanol. In 
January 2011 USDA announced a $75 million loan guarantee for the 
construction of INEOS Bio's first commercial facility to be built in 
Vero Beach, Florida. This facility will be capable of producing 8 
million gallons of cellulosic biofuel as well as 6 megawatts of 
renewable electricity from a variety of feedstocks including yard, 
agricultural, and wood waste, as well as separated MSW. On February 9, 
2011 INEOS Bio broke ground on this facility. INEOS Bio expects to 
complete construction on this facility in April 2012 and plans to begin 
commercial production of cellulosic ethanol soon

[[Page 38851]]

after construction is complete. EPA currently projects a potential 
production volume of up to 3 million gallons of cellulosic ethanol from 
this facility in 2012.
    After successful operation of their demonstration plant in Houston, 
Texas KiOR is planning to begin construction on their first commercial 
scale facility in early 2011. This facility, located in Columbus, 
Mississippi, will convert biomass to a low oxygen biocrude using a 
process KiOR calls Biomass Catalytic Cracking (BCC). BCC uses a 
catalyst developed by KiOR in a process similar to Fluid Catalytic 
Cracking currently used in the petroleum industry. KiOR's Columbus 
facility will also be capable of upgrading this biocrude into finished 
gasoline and diesel as well as a small quantity of fuel oil. KiOR plans 
to begin production from this facility sometime in the first half of 
2012. KiOR has also announced plans to construct several more 
commercial scale biofuel production facilities in Mississippi and 
across the southeastern United States. However, it is unlikely any of 
these facilities will begin production of biofuel in 2012. Given this 
timeline EPA currently projects a potential production of up to 4.0 
million gallons of gasoline and diesel (6.4 million ethanol equivalent 
gallons) from the Columbus facility in 2012.
    Terrabon completed construction of a small demonstration scale 
facility for the conversion of MSW and other waste materials into 
gasoline in 2010 and is planning to begin production at their first 
commercial scale facility in 2012. Terrabon utilizes a unique 
production process that can be used to produce gasoline, diesel, or jet 
fuel. Feedstock is first fermented into carboxylic acids by a variety 
of micro organisms. These carboxylic acids are then neutralized to form 
carboxylate salts that are dewatered, dried, and thermally converted to 
ketones. Finally, the ketones are hydrogenated to form alcohols which 
can then be refined into gasoline, diesel, or jet fuel. While currently 
no pathway exists for the generation of RINs representing cellulosic 
gasoline in the RFS2 regulations, EPA is planning to initiate a 
rulemaking to create such a pathway in our regulations. This would 
allow for facilities such as Terrabon and others who may produce 
cellulosic gasoline in the future to register and generate RINs under 
the RFS2 program (provided they meet the fuel registration, renewable 
biomass, and other requirements of the program as well). EPA currently 
projects the production of up to 0.7 million gallons (1.0 million 
ethanol equivalent gallons) of cellulosic gasoline in 2012 from 
Terrabon's first commercial facility.
    ZeaChem has begun construction on a small demonstration scale 
facility in Boardman, Oregon capable of producing 250,000 gallons of 
cellulosic ethanol per year. Their production process uses a 
combination of biochemical and thermochemical technologies to produce 
ethanol and other renewable chemicals from cellulosic materials. The 
feedstock is first fractionated into two separate streams containing 
cellulosic sugars and lignin. The cellulosic sugars are fermented into 
ethyl acetate using a naturally occurring acetogen, which can then be 
hydrogenated into ethanol. The hydrogen necessary for this process is 
produced by gasifying the lignin stream from the cellulosic biomass. 
ZeaChem's process is flexible and is capable of producing a wide range 
of renewable chemical and fuel molecules in addition to ethanol. 
ZeaChem plans to begin production of cellulosic ethanol from their 
facility in Boardman, Oregon in late 2011, and EPA currently projects a 
potential production volume of up to 0.25 million gallons of ethanol 
from this facility in 2012.
    Another potential source of cellulosic biofuel in 2012 is a 
technology being developed by EdeniQ. EdeniQ is developing a suite of 
enzymes capable of breaking down cellulose into simple sugars that can 
then be fermented into ethanol. Rather than build their own production 
facilities EdeniQ plans to license their enzymes to existing corn 
ethanol facilities. Such licensing would be accompanied by the 
Cellunator, an advanced milling device they have developed to reduce 
the particle size of corn kernels to enable greater conversion of 
starch to ethanol as well as the conversion of cellulose to simple 
sugars. EdeniQ claims that their technology would allow corn ethanol 
facilities to increase ethanol production by 1-2% by converting the 
cellulosic portion of the corn kernel into ethanol. They are also 
working to increase the effectiveness of their enzymes in order to 
enable ethanol production increases of 3-4% from the cellulose in the 
corn kernel in the future. EdeniQ plans to begin commercial trials of 
their technology in the second half of 2011. This technology has the 
potential to be implemented rapidly and produce significant amounts of 
cellulosic ethanol in 2012 as it requires relatively small capital 
additions to already existing corn ethanol facilities. While this 
technology is promising, there is currently no pathway in the RFS2 
regulations for the generation of cellulosic biofuel RINs using the 
cellulosic portion of the corn kernel as a feedstock. Moreover, EdeniQ 
has not announced any agreements with corn ethanol producers to install 
this technology to enable the production of cellulosic ethanol. For 
these reasons, EPA has not included any cellulosic ethanol production 
from EdeniQ's technology in our 2012 projections. We will continue to 
monitor their process in the coming months for signs of progress 
towards commercialization of their technology and will consider adding 
production volumes from EdeniQ into our final projections if 
appropriate.
    In addition to the facilities mentioned above, EPA is also aware of 
three companies planning to begin the production of cellulosic biofuels 
in early 2013. Coskata, Enerkem, and Poet are planning on completing 
construction on their first commercial scale cellulosic biofuel 
facilities in late 2012 or early 2013 and producing commercial volumes 
of biofuels in 2013. While it is possible that construction of any of 
these facilities could be completed ahead of schedule and a small 
volume of fuel could be produced in 2012, history in this industry 
suggests that this is unlikely. EPA has therefore not projected that 
any volume of cellulosic biofuel will be produced from these facilities 
in 2012. These facilities, along with several other commercial 
cellulosic biofuel facilities planning to begin production in 2013, 
notably the first commercial scale facilities from Abengoa and Mascoma, 
indicate that the potential exists for the rapid expansion of 
production volumes in future years.
3. Imports of Cellulosic Biofuel
    While domestically produced cellulosic biofuels are the most likely 
source of cellulosic biofuel available in the United States, producers 
and/or importers of cellulosic biofuel produced in other countries may 
also generate RINs and participate in the RFS2 program. While the RFS2 
program does provide a financial incentive for companies to import 
cellulosic biofuels into the United States, the combination of local 
demand, financial incentives from other governments, and transportation 
costs for the cellulosic biofuel has resulted in no cellulosic biofuel 
being imported to the United States thus far. EPA believes this 
situation is likely to continue in the near future. Additionally, the 
majority of internationally based cellulosic biofuel facilities that 
currently exist or plan to complete construction by the end of 2012 are 
small research and development or pilot facilities not designed for the 
commercial production of fuel.

[[Page 38852]]

    Two notable exceptions, both located in Canada, are Enerkem and 
Iogen. Enerkem has a currently existing commercial production facility 
in Westbury, Quebec and is expecting to complete construction on a 
second facility in Edmonton, Alberta in late 2011. Iogen has a small 
demonstration facility in Ottawa and is currently exploring the 
possibility of building their first commercial facility near Prince 
Albert, Saskatchewan. The large expected production volumes and 
relatively small distance this fuel would have to be transported to 
reach the United States make these facilities the most likely 
candidates to import cellulosic biofuel into the United States. In 
conversations with EPA, however, both companies indicated that they had 
no current intentions of importing fuel from their Canadian production 
facilities into the United States. On September 1, 2010 the government 
of Canada finalized regulations requiring all gasoline sold in Canada 
to have a renewable content of 5% and all diesel fuel and heating oil 
to have a renewable content of 2%. These regulations will further 
increase local demand for any cellulosic biofuel produced from these 
two facilities and decrease the likelihood of any of this fuel being 
exported to the United States. For these reasons we have not included 
any cellulosic biofuel production from foreign facilities in our 
projections of cellulosic biofuel availability in 2012.
4. Summary of Volume Projections
    The information EPA has gathered on the potential cellulosic 
biofuel producers in 2012, described above, allows us to identify 
potential volumes that could be achieved by each facility in 2012. This 
information is summarized in Table II.B.4-1 below.

                                          Table II.B.4-1--Cellulosic Biofuel 2012 Potentially Available Volume
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                  2012
                                                                                                      Capacity    Earliest     Potentially     Ethanol
          Company name                  Location              Feedstock                Fuel            (MGY)     production     available    equivalent
                                                                                                                               volume (MG)  gallons (MG)
--------------------------------------------------------------------------------------------------------------------------------------------------------
DuPont Danisco Cellulosic        Vonore, TN...........  Corn Stover..........  Ethanol.............       0.25     Online             0.25          0.25
 Ethanol.
Fiberight \a\..................  Blairstown, IA.......  MSW..................  Ethanol.............          6     Online             3.0           3.0
Fulcrum Bioenergy..............  McCarran, NV.........  MSW..................  Ethanol.............       10.5  Late 2012             0.5           0.5
INEOS Bio......................  Vero Beach, FL.......  Ag Residue, MSW......  Ethanol.............          8   May 2012             3.0           3.0
KiOR...........................  Houston, TX..........  Ag Residue...........  Gasoline, Diesel....        0.2     Online             0.2           0.3
KiOR...........................  Columbus, MS.........  Pulp Wood............  Gasoline, Diesel....         10   Mid 2012             4.0           6.4
KL Energy......................  Upton, WY............  Wood Waste...........  Ethanol.............        1.5     Online             1.0           1.0
Terrabon.......................  Port Arthur, TX......  MSW..................  Gasoline............        1.3       2012             0.7           1.0
ZeaChem........................  Boardman, OR.........  Planted Trees........  Ethanol.............       0.25       2011             0.25          0.25
                                                                                                    ----------------------------------------------------
    Total......................  .....................  .....................  ....................  .........  ............         12.9          15.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Based on company estimate.

    The potentially available volume of 12.9 million gallons of 
cellulosic biofuel, or 15.7 million ethanol equivalent gallons, 
represents the higher end of the range of cellulosic biofuel volumes 
that EPA believes at this time could reasonably be expected to be 
produced or imported and made available for use as transportation fuel, 
heating oil, or jet fuel in 2012. It incorporates reductions from the 
annual production capacity of each facility based on when the 
facilities anticipate fuel production will begin and assumptions 
regarding a ramp up period to full production. Other factors such as 
the funding status, risks associated with new technologies, and the 
current status of project construction were considered for each 
facility.
    For the lower end of the range, we believe that a volume of 3.55 
million ethanol-equivalent gallons could be justified based on 
currently available information. This volume is based on a 
consideration of only those facilities that are structurally complete 
at the time of this proposal and which have indicated that they 
anticipate commercial production of cellulosic biofuels by the end of 
2011. The production facilities meeting these criteria include Dupont 
Danisco Cellulosic Ethanol, Fiberight (2 million gallon per year first 
stage), KiOR (Houston, TX facility), and KL Energy. While there is 
still some uncertainty regarding the projected volumes from these 
facilities, by completing construction and anticipating fuel production 
by the end of 2011 there is less uncertainty associated with these 
facilities than for the others listed as potential cellulosic biofuel 
producers for 2012.
    Therefore, in today's NPRM we are proposing a range of values, from 
3.55 million ethanol equivalent gallons to 15.7 million ethanol 
equivalent gallons for the 2012 cellulosic biofuel standard. The low 
end of the range represents a projection of higher confidence and less 
uncertainty, with greater emphasis placed on established/demonstrated 
production capacity. The high end of the range represents a projection 
of less confidence and higher uncertainty, with greater emphasis placed 
on productions plans. As time progresses and we are able to track 
whether or not the cellulosic biofuels producers are able to meet the 
construction and ramp up schedules they have presented, and as we 
consider public comments on this proposal and the EIA estimated 2012 
volume of cellulosic biofuel production that they are required to 
provide to us by October 31 of this year, we will have a better idea of 
the appropriate volume of fuel that we can reasonably expect to be 
produced and made commercially available in 2012. Congress did not 
specify the degree of certainty that should be reflected in our 
projections of cellulosic biofuel volumes. We expect that the volume 
that we project in the final rule for 2012 will represent a reasonable 
balance of the degree of uncertainty or confidence in the projected 
production volume and the risk of unnecessarily reducing the applicable 
volumes set forth in the Act.
    Although we are proposing a range of values from 3.55 to 15.7 
million ethanol equivalent gallons based on information available at 
the time of this NPRM, we also request comment on alternative

[[Page 38853]]

options for setting the 2012 cellulosic biofuel volume requirement at a 
higher level. It is possible that a cellulosic biofuel volume 
requirement which reduces less of the 500 mill gallon applicable volume 
from the statute could spur additional near and longer-term cellulosic 
biofuel production capacity. We recognize that any method must take 
into account the uncertainty in estimating future production potential. 
Nevertheless, the purpose of setting a mandate is to stimulate more 
rapid increases in the rate of production than the cellulosic biofuel 
industry would likely experience in the absence of the mandate. We 
request comment on whether a higher volume requirement for cellulosic 
biofuel than we are proposing today would provide additional 
stimulation of production volumes of cellulosic biofuel, and the basis 
for setting such a higher volume requirement.

C. Potential Limitations in 2012

    In addition to production capacity, a variety of other factors have 
the potential to limit the amount of cellulosic biofuel that can be 
produced and used in the U.S. For instance, there may be limitations in 
the availability of qualifying cellulosic feedstocks at reasonable 
prices. Most of the cellulosic biofuel producers that we anticipate 
will produce commercial volumes in 2012 have indicated that they will 
use some type of cellulosic waste, such as separated municipal solid 
waste, wastes from the forestry industry, and agricultural residues. 
Based on the analyses of cellulosic feedstock availability in the RFS2 
final rule, we believe that there will be significantly more than 
enough sources of these feedstocks for 2012. For producers that intend 
to use dedicated energy crops, we do not believe that the amount of 
qualifying cropland for renewable fuel production under RFS2 will limit 
production in 2012. We plan to continue to evaluate the availability of 
valid feedstocks in future years as the required volumes of cellulosic 
biofuel increase.
    We anticipate that the relatively small incremental increase in 
total biofuel volumes in 2012 that would be attributed to cellulosic 
biofuels can be accommodated by the fuel distribution system. The RFS2 
final rule analysis concluded that biofuel distribution challenges as 
the RFS2 volume requirements ramp up could be overcome in a timely 
fashion. In the RFS2 final rule analysis, we assumed that most 
cellulosic biofuel production facilities would be constructed in the 
nation's heartland similar to corn ethanol production facilities. Based 
on more recent information, we now believe that cellulosic production 
facilities will be more geographically dispersed. This is the case for 
the specific cellulosic biofuels production facilities that we expect 
would produce fuel in 2012. The greater geographic dispersion would 
tend to lessen the distance to transport biofuels to petroleum 
terminals, thereby reducing the overall distribution burden. We believe 
that the cellulosic biofuel volumes that would be produced in 2012 
could be accommodated by fuel retailers without necessitating the 
installation of new refueling infrastructure such as that which would 
be needed for E85.

D. Advanced Biofuel and Total Renewable Fuel in 2012

    Under CAA 211(o)(7)(D)(i), EPA has the discretion to reduce the 
applicable volumes of advanced biofuel and total renewable fuel in the 
event that the projected volume of cellulosic biofuel production is 
determined to be below the applicable volume specified in the statute. 
As described in Section II.B above, we are indeed projecting the volume 
of cellulosic biofuel production for 2012 at significantly below the 
statutory applicable volume of 500 million gallons. Because cellulosic 
biofuel is used to satisfy the cellulosic biofuel standard, the 
advanced biofuel standard, and the total renewable fuel standard, any 
reductions in the applicable volume of cellulosic biofuel will also 
affect the means through which obligated parties comply with the 
advanced biofuel standard and the total renewable fuel standard. 
Therefore, we have considered whether and to what degree to propose 
lowering the advanced biofuel and total renewable fuel applicable 
volumes for 2012.
    If the required volume of cellulosic biofuel for a given year is 
less than the volume specified in the statute, it is important to 
evaluate whether there would be sufficient volume of advanced biofuels 
to satisfy the applicable volume of advanced biofuel volume set forth 
in the statute. Even with a reduced volume of cellulosic biofuel, other 
advanced biofuels, such as biomass-based diesel, sugarcane ethanol, or 
other biofuels, may be available in sufficient volumes to make up for 
the shortfall in cellulosic biofuel. We believe that it would be 
consistent with the energy security and greenhouse gas reduction goals 
of EISA to not reduce the applicable volume of advanced biofuel set 
forth in the statute if there are sufficient volumes of advanced 
biofuels available, even if those volumes do not include the amount of 
cellulosic biofuel that Congress may have desired. Our authority to 
lower the advanced biofuel and/or total renewable fuel applicable 
volumes is discretionary, and in general we believe that actions to 
lower these volumes should only be taken if insufficient volumes of 
qualifying biofuel can be made available, based on such circumstances 
as insufficient production capacity, insufficient feedstocks, competing 
markets, constrained infrastructure, or the like. As discussed below, 
we project that sufficient volumes of advanced biofuel can be made 
available in 2012 such that the 2.0 bill gallon advanced biofuel 
requirement need not be reduced.
    If we were to maintain the advanced biofuel, biomass-based diesel, 
and total renewable fuel volume requirements at the levels specified in 
the statute, while also lowering the cellulosic biofuel standard to 
3.55-15.7 million ethanol-equivalent gallons, then 1,504-1,516 million 
gallons of the 2.0 billion gallon advanced biofuel mandate would be 
satisfied automatically through the satisfaction of the cellulosic and 
biomass based diesel standards. An additional 484-496 million ethanol-
equivalent gallons of additional advanced biofuels would be needed. See 
Table II.D-1.

  Table II.D-1--Projected Fuel Mix If Only Cellulosic Biofuel Volume is
                            Adjusted in 2012
                             [Mill gallons]
------------------------------------------------------------------------
                                  Ethanol-equivalent
                                        volume          Physical volume
------------------------------------------------------------------------
Total renewable fuel............              15,200       14,536-14,701
Conventional renewable fuel \a\.              13,200              13,200
Total advanced biofuel..........               2,000         1,336-1,501
Cellulosic biofuel..............           3.55-15.7           3.45-12.9
Biomass-based diesel............               1,500               1,000

[[Page 38854]]

 
Other advanced biofuel \b\......             484-496         \c\ 323-496
------------------------------------------------------------------------
\a\ Predominantly corn-starch ethanol.
\b\ Rounded to nearest million gallons for simplicity.
\c\ Physical volume is a range because other advanced biofuel may be
  ethanol, biodiesel, or some combination of the two.

    The most likely sources of additional advanced biofuel would be 
imported sugarcane ethanol and biomass-based diesel, though there may 
also be some volumes of other types of advanced biofuel available as 
discussed below. To determine if there are likely to be sufficient 
volumes of these biofuels to meet the need for 484-496 million gallons 
of other advanced biofuel, we first examined historical data on ethanol 
imports and projections from EIA and USDA for 2012. Brazilian imports 
have made up a sizeable portion of total ethanol imported into the U.S. 
in the past, and these volumes were predominantly produced from 
sugarcane. Ethanol imports averaged about 380 million gallons per year 
over the last five years, and reached an all-time high of 730 million 
gallons in 2006.\6\ These historical import volumes demonstrate that 
Brazil has significant export potential under the appropriate economic 
circumstances. However, ethanol imports were significantly lower in 
2010 than in previous years. This decline in imports may be related to 
the cessation of the duty drawback that became effective on October 1, 
2008, or to changes in world sugar prices.\7\ However, Brazil continues 
to be second worldwide in the production of ethanol, producing a total 
of 6.9 bill gallons in 2009.\8\ By establishing an increased U.S. 
demand for 484-496 million gallons of other advanced biofuel in 2012, 
we would be re-establishing an export market for Brazillian sugarcane 
ethanol that could compete with the use of sugarcane to produce sugar, 
and thus it can once again be economical for Brazilian producers to 
export higher volumes of sugarcane ethanol to the U.S. Moreover, 
California's Low Carbon Fuel Standard went into effect in 2010, and may 
result in some refiners importing additional volumes of sugarcane 
ethanol from Brazil into California in 2012. These same volumes could 
count towards the Federal RFS2 program as well.
---------------------------------------------------------------------------

    \6\ ``Monthly U.S. Imports of Fuel Ethanol,'' EIA, released 3/
30/2011.
    \7\ Lundell, Drake, ``Brazilian Ethanol Export Surge to End; 
U.S. Customs Loophole Closed Oct. 1,'' Ethanol and Biodiesel News, 
Issue 45, November 4, 2008.
    \8\ Portal Brasil, Energy Matrix for Ethanol, http://www.brasil.gov.br/sobre/economy/energy-matrix/ethanol/br_model1?set_language=en.
---------------------------------------------------------------------------

    Future projections from other sources also suggest that a large 
portion of the 484-496 million gallons of advanced biofuel needed could 
be supplied by imported sugarcane ethanol. For instance, in the Early 
Release of its Annual Energy Outlook 2011, EIA projects ethanol imports 
of approximately 400 million gallons for 2012.\9\ Similarly, the 
university-based Food and Agricultural Policy Research Institute 
(FAPRI) released its 2010 U.S. and World Agricultural Outlook report in 
which it projects 2012 ethanol imports of 317 million gallons.\10\ The 
volumes of imported ethanol projected by both of these sources is very 
likely to be sugarcane ethanol, since this is by far the predominant 
form of imported ethanol to date and is expected to continue to be so 
for the foreseeable future.
---------------------------------------------------------------------------

    \9\ Table 11 of AEO2011 Early Release, Report Number DOE/EIA-
0383ER(2011). http://www.eia.doe.gov/forecasts/aeo/tables_ref.cfm.
    \10\ Table ``Ethanol trade'', World Biofuels, FAPRI 2010 U.S. 
and World Agricultural Outlook. http://www.fapri.iastate.edu/outlook/2010/.
---------------------------------------------------------------------------

    We also examined the potential for excess biodiesel to help meet 
the need for 484-496 million gallons of advanced biofuel. The 
applicable volume of biomass based diesel established in the statute 
for 2012 is 1.0 billion gallons (which corresponds to 1500 ethanol-
equivalent gallons). As discussed more fully in Section II.E below, we 
believe that the biodiesel industry has the potential for producing 
volumes above 1.0 billion gallons if demand for such volume exists, 
potentially up to an additional several hundred million gallons.
    Another potential source of advanced biofuels is electricity 
generated from renewable biomass that is used as a transportation fuel. 
EIA data indicates that in 2009, the most recent year for which data is 
available, 35.6 million megawatt-hours of electricity was generated 
from wood and wood derived fuels, and an additional 18.4 million 
megawatt-hours was generated from other biomass in the United 
States.\11\ If all of this electricity were used as a transportation 
fuel it would represent nearly 2.4 billion ethanol equivalent gallons 
of advanced biofuel. While not all the feedstocks used to generate the 
electricity included in these totals would meet the RFS2's renewable 
biomass definition this remains a very large potential source of 
advanced biofuel RINs.
---------------------------------------------------------------------------

    \11\ Table ES1 of Electric Power Industry 2009: Year in Review. 
Available online: http://www.eia.doe.gov/cneaf/electricity/epa/epayir.pdf.
---------------------------------------------------------------------------

    In addition to verifying that the feedstocks used to generate 
renewable electricity meet the renewable biomass definition producers 
would also be required to document that the electricity they produce is 
used as a transportation fuel in order to be eligible to generate RINs. 
Until recently there were very few vehicles capable of using 
electricity as a transportation fuel. Expected increases in the number 
of vehicles with this capability, such as electric vehicles and plug in 
hybrids, has the potential to dramatically increase the degree to which 
electricity is able to be used as a transportation fuel. Verifying that 
the renewable electricity produced is used as a transportation fuel 
would still remain a challenge, however the potential for capitalizing 
on the RIN value, without the necessity of making major changes in the 
areas of fuel production, distribution, or end use, may be a large 
enough incentive to overcome this challenge. While the many 
uncertainties associated with the generation of advanced biofuel RINs 
from renewable electricity prevent EPA from making a quantitative 
projection for 2012, such RINs may nevertheless play a role in meeting 
the advanced biofuel standard.
    Finally, there are also other potential sources of advanced 
biofuels. For instance, several companies are making progress on 
opening advanced biofuel production facilities as early as 2012. Gevo 
purchased a dry mill corn ethanol plant in Minnesota and is in the 
process of converting it to produce up to 10 million gallons of 
biobutanol per year. Solazyme produced over 150,000

[[Page 38855]]

gallons of algal oil in 2010-2011 that was then converted to jet fuel 
by UOP and is planning for increased production in 2012. LS9 purchased 
a fermentation facility in Florida that will enable them to produce 
50,000 to 100,000 gallons of diesel fuel per year and plan to have this 
facility full operational by 2012. Several other companies are also 
planning on producing advanced biofuels using a variety of feedstocks, 
including sugars, sweet sorghum, waste cooking oil or restaurant 
grease, algal oils, and many others that have the potential to achieve 
commercial production by the end of 2012. Insofar as such fuels are 
registered under 40 CFR part 79 and meet all the requirements for RIN 
generation under the RFS program, they could contribute to compliance 
with the advanced biofuels standard in 2012.
    By adding up the potential volumes of imported sugarcane ethanol, 
excess biodiesel, and other sources of advanced biofuel, there are 
likely to be sufficient volumes of advanced biofuels to meet the need 
for 484-496 million gallons. As a result, we do not believe that the 
advanced biofuel standard need be lowered below the 2.0 billion gallon 
level specified in the Act. Thus, we are not proposing to reduce the 
applicable volume of advanced biofuel for 2012. In addition, since we 
are not proposing to lower the advanced biofuel standard for 2012, we 
do not believe that there is a need to lower the total renewable fuel 
standard. Nevertheless, since there is some uncertainty in both the 
availability of advanced biofuels in 2012 and the market conditions 
which would support their availability, we request comment on whether 
the advanced biofuel and total renewable fuel standards should be 
lowered, and the basis for such a reduction in the applicable volumes 
from the statute.

E. Biomass-Based Diesel in 2012

    As described more fully in Section II.D above, we must determine 
whether the required volumes of advanced biofuel and/or total renewable 
fuel should be reduced if we reduce the required volume of cellulosic 
biofuel. The amount of biomass-based diesel that we project will be 
available directly affected our proposed consideration for this NPRM of 
adjustments to the volumetric requirements for advanced biofuel and 
total renewable fuel.
    To evaluate whether the applicable volume of 1.0 bill gallons for 
biomass-based diesel is achievable in 2012, and whether even greater 
volumes could be produced, we examined recent production rates, 
production capacity of the industry, and projections for future 
production. Although there are a variety of potential fuel types that 
can qualify as biomass-based diesel, biodiesel is by far the 
predominant type. Thus, our assessment focused primarily on biodiesel, 
though we also investigated potential volumes of renewable diesel.
    According to the Energy Information Administration, biodiesel 
production in 2010 reached 311 mill gallons.\12\ However, we believe 
that this value underestimates the volume of biomass-based diesel 
actually produced in 2010 since it is based primarily on feedstocks 
used in the production of biodiesel. Based on information from the EPA-
Moderated Transaction System (EMTS) and RIN generation reports 
submitted to EPA from producers, we estimate that the volume of 
biomass-based diesel produced in 2010 was about 380 mill gallons. While 
this is higher than the 345 mill gallons that we projected would be 
needed for compliance with the 2010 biomass-based diesel standard,\13\ 
there were also exports of biodiesel that would have reduced the 
availability of RINs for compliance purposes. To the degree that the 
volume of biomass-based diesel fell short of the 345 mill gallons that 
we estimated would be needed, obligated parties would have needed to 
carry a deficit into 2011.
---------------------------------------------------------------------------

    \12\ Monthly Energy Review, May 2011. http://www.eia.doe.gov/emeu/mer/pdf/pages/sec10_8.pdf.
    \13\ See question 6.7 in EPA's ``Questions and Answers on 
Changes to the Renewable Fuel Standard Program (RFS2)'', http://www.epa.gov/otaq/fuels/renewablefuels/compliancehelp/rfs2-aq.htm#6.
---------------------------------------------------------------------------

    However, many of the activities of the biodiesel industry in 2010 
were due to unique circumstances that may not apply in 2012. It is 
likely that a contributing factor to the lower production volumes in 
2010 was the expiration of the biodiesel tax credit at the end of 2009, 
and the uncertainty throughout 2010 regarding whether and when it might 
be reinstated. This situation may have led to hesitation on the part of 
obligated parties for establishing binding contracts for purchases of 
biodiesel.
    Historical production of biodiesel has varied significantly 
depending on market demand as shown in Figure II.E-1 below.

[[Page 38856]]

[GRAPHIC] [TIFF OMITTED] TP01JY11.000

The fact that the U.S. biodiesel industry has produced higher volumes 
when demand for it existed suggests that the industry has the 
capability to produce greater volumes than it did in 2010 under the 
appropriate circumstances. For instance, information from the EPA-
Moderated Transaction System (EMTS) indicates that monthly production 
volumes of biodiesel have increased steadily in the first few months of 
2011, reaching 74 mill gallons by April.\14\ This trend demonstrates 
that the industry is responding to the higher demand created by the 800 
mill gal biomass-based diesel volume requirement under the RFS program 
in 2011.
---------------------------------------------------------------------------

    \14\ 2011 RIN Generation and Renewable Fuel Volume Production, 
http://www.epa.gov/otaq/fuels/renewablefuels/compliancehelp/rfsdata.htm.
---------------------------------------------------------------------------

    The biodiesel industry's production potential supports the view 
that it can more than satisfy the applicable volume of biomass-based 
diesel specified in the statute for 2012. As of January, 2011, the 
aggregate production capacity of biodiesel plants in the U.S. was 
estimated at 2.8 billion gallons per year across approximately 170 
facilities. \15\ Of this aggregate production capacity, at least 1.8 
billion gallons of production capacity has been registered under the 
RFS2 program.\16\ Although some facilities are currently idle, and 
ramping up production will require some time and potentially some 
reinvestment, based on feedback from industry we nevertheless believe 
that it can occur in time to meet a production goal of 1.0 billion 
gallons in 2012.
---------------------------------------------------------------------------

    \15\ Figures taken from National Biodiesel Board's Member Plant 
List as of January 27, 2011. http://biodiesel.org/buyingbiodiesel/plants/showall.aspx.
    \16\ Comments from National Biodiesel Board on the July 20, 2010 
NPRM proposing the RFS standards for 2011. See Docket EPA-HQ-OAR-
2010-0133.
---------------------------------------------------------------------------

    Projections of production for 2012 strongly suggest that 1.0 bill 
gallons of biomass-based diesel is achievable. For instance, the U.S. 
Department of Agriculture projects that over 400 mill gallons of 
biodiesel will be produced from soybean oil in 2012, and adds that 
``Although some other first-use vegetable oils are also used to produce 
biodiesel, most of the remaining biodiesel production needed to reach 
the 1-billion-gallon mandate of the 2007 Energy Act uses animal fats or 
recycled vegetable oil as the feedstock.'' \17\ This projection is 
further supported by the Agricultural Marketing Resource Center at Iowa 
State University, which projects that soy-oil biodiesel production may 
reach as high as 470 mill gallons and that non-soy biodiesel may reach 
as high as 460 mill gallons.\18\ Both of these sources project more 
growth in non-soy oil feedstock volumes than soy oil. Finally, EIA 
projects that the total volume of biodiesel in 2012 would be about 840 
mill gallons.\19\ While all of these projections suggest that volumes 
of biodiesel may fall short of 1.0 bill gallons, we believe that 
sufficient additional volumes of renewable diesel can also be available 
to meet the 1.0 bill gal requirement for biomass-based diesel. For 
instance, Dynamic Fuels has constructed one plant in Geismar, Louisiana 
that started production of renewable diesel in November, 2010.\20\ In 
the final RFS2 rule, we projected that annual renewable diesel 
production could reach 150 mill gallons based on feedstock 
availability. Since renewable diesel can also be produced at existing 
refineries with little or no modification to processing equipment, we 
believe

[[Page 38857]]

that 150 mill gallons of renewable diesel could be produced in 2012. 
Thus, we currently believe that the total production volume of both 
biodiesel and renewable diesel can reach 1.0 bill gal in 2012.
---------------------------------------------------------------------------

    \17\ USDA Agricultural Projections to 2020, Long-Term 
Projections Report OCE-2011-1, February 2011. See Table 24. Assumes 
7.68 lb/gal.
    \18\ Soybean Oil and Biodiesel Usage Projections and Balance 
Sheet, updated 2/18/2011. http://www.extension.iastate.edu/agdm/crops/outlook/soybeanbalancesheet.pdf. Values cited are for the 
``High'' case.
    \19\ Short-Term Energy Outlook, February 2011. Table 8.
    \20\ Project status updates are available via the Syntroleum Web 
site, http://dynamicfuelsllc.com/wp-news/.
---------------------------------------------------------------------------

    We also believe that there will be sufficient sources of qualifying 
renewable biomass to more than meet the needs of the biodiesel industry 
in 2012. The largest sources of feedstock for biodiesel in 2012 are 
expected to be soy oil, canola oil, rendered fats, and potentially some 
corn oil extracted during production of fuel ethanol, as this 
technology continues to proliferate. Moreover, information we received 
from a large rendering company suggests that there will be adequate 
fats and greases feedstocks to supply biofuels production as well as 
other historical uses.\21\
---------------------------------------------------------------------------

    \21\ See Federal Register v. 74 n. 99 p. 24903. Comments are 
available in docket EPA-HQ-OAR-2005-0161.
---------------------------------------------------------------------------

    Based on our review of the production potential of the biodiesel 
industry, and projections from several sources, and our assessment of 
available feedstocks, we believe that the 1.0 billion gallons needed to 
satisfy the applicable volume of biomass-based diesel specified in the 
statute can be produced in 2012. Therefore, we are not proposing to 
lower the biomass-based diesel standard of 1.0 billion gallons that is 
specified in the Act. Moreover, based on production capacity and 
availability of feedstocks, we believe that volumes of biomass-based 
diesel in excess of 1.0 bill gallons could be made available given 
sufficient market demand.

III. Proposed Percentage Standards for 2012

A. Background

    The renewable fuel standards are expressed as a volume percentage, 
and are used by each refiner, blender or importer to determine their 
renewable volume obligations (RVO). Since there are four separate 
standards under the RFS2 program, there are likewise four separate RVOs 
applicable to each obligated party. Each standard applies to the sum of 
all gasoline and diesel produced or imported. The applicable percentage 
standards are set so that if each regulated party meets the 
percentages, then the amount of renewable fuel, cellulosic biofuel, 
biomass-based diesel, and advanced biofuel used will meet the volumes 
required on a nationwide basis.
    As discussed in Section II.B.4, we are proposing a required volume 
of cellulosic biofuel for 2012 in the range of 3.45-12.9 million 
gallons (3.55-15.7 million ethanol equivalent gallons). The single 
volume we select for the final rule will be used as the basis for 
setting the percentage standard for cellulosic biofuel for 2012. We are 
also proposing that the advanced biofuel and total renewable fuel 
volumes would not be reduced below the applicable volumes specified in 
the statute. The proposed 2012 volumes used to determine the four 
percentage standards are shown in Table III.A-1.

                                    Table III.A-1--Proposed Volumes for 2012
----------------------------------------------------------------------------------------------------------------
                                                   Actual volume                  Ethanol equivalent volume
----------------------------------------------------------------------------------------------------------------
Cellulosic biofuel....................  3.45-12.9 mill gal.................  3.55-15.7 mill gal.
Biomass-based diesel..................  1.0 bill gal.......................  1.5 bill gal.
Advanced biofuel......................  2.0 bill gal.......................  2.0 bill gal.
Renewable fuel........................  15.2 bill gal......................  15.2 bill gal.
----------------------------------------------------------------------------------------------------------------

    The formulas used in deriving the annual renewable fuel standards 
are based in part on estimates of the volumes of gasoline and diesel 
fuel, for both highway and nonroad uses, that will be used in the year 
in which the standards will apply. Producers of other transportation 
fuels, such as natural gas, propane, and electricity from fossil fuels, 
are not subject to the standards, and volumes of such fuels are not 
used in calculating the annual standards. Since the standards apply to 
producers and importers of gasoline and diesel, these are the 
transportation fuels used to set the standards, and then again to 
determine the annual volume obligations of an individual gasoline or 
diesel producer or importer.

B. Calculation of Standards

1. How are the standards calculated?
    The following formulas are used to calculate the four percentage 
standards applicable to producers and importers of gasoline and diesel 
(see Sec.  80.1405):

[[Page 38858]]

[GRAPHIC] [TIFF OMITTED] TP01JY11.004

Where:

StdCB,i = The cellulosic biofuel standard for year i, in 
percent.
StdBBD,i = The biomass-based diesel standard (ethanol-
equivalent basis) for year i, in percent.
StdAB,i = The advanced biofuel standard for year i, in 
percent.
StdRF,i = The renewable fuel standard for year i, in 
percent.
RFVCB,i = Annual volume of cellulosic biofuel required by 
section 211(o) of the Clean Air Act for year i, in gallons.
RFVBBD,i = Annual volume of biomass-based diesel required 
by section 211(o) of the Clean Air Act for year i, in gallons.
RFVAB,i = Annual volume of advanced biofuel required by 
section 211(o) of the Clean Air Act for year i, in gallons.
RFVRF,i = Annual volume of renewable fuel required by 
section 211(o) of the Clean Air Act for year i, in gallons.
Gi = Amount of gasoline projected to be used in the 48 
contiguous states and Hawaii, in year i, in gallons.
Di = Amount of diesel projected to be used in the 48 
contiguous states and Hawaii, in year i, in gallons.
RGi = Amount of renewable fuel blended into gasoline that 
is projected to be consumed in the 48 contiguous states and Hawaii, 
in year i, in gallons.
RDi = Amount of renewable fuel blended into diesel that 
is projected to be consumed in the 48 contiguous states and Hawaii, 
in year i, in gallons.
GSi = Amount of gasoline projected to be used in Alaska 
or a U.S. territory in year i if the state or territory opts-in, in 
gallons.
RGSi = Amount of renewable fuel blended into gasoline 
that is projected to be consumed in Alaska or a U.S. territory in 
year i if the state or territory opts-in, in gallons.
DSi = Amount of diesel projected to be used in Alaska or 
a U.S. territory in year i if the state or territory opts-in, in 
gallons.
RDSi = Amount of renewable fuel blended into diesel that 
is projected to be consumed in Alaska or a U.S. territory in year i 
if the state or territory opts-in, in gallons.
GEi = The amount of gasoline projected to be produced by 
exempt small refineries and small refiners in year i, in gallons, in 
any year they are exempt per Sec. Sec.  80.1441 and 80.1442, 
respectively. For 2012, this value is 3.27 bill gal. See further 
discussion in Section III.B.2 below.
DEi = The amount of diesel projected to be produced by 
exempt small refineries and small refiners in year i, in gallons, in 
any year they are exempt per Sec. Sec.  80.1441 and 80.1442, 
respectively. For 2012, this value is 1.23 bill gal. See further 
discussion in Section III.B.2 below.

    The four separate renewable fuel standards for 2012 are based on 
the 49-state gasoline and diesel consumption volumes projected by EIA. 
The Act requires EPA to base the standards on an EIA estimate of the 
amount of gasoline and diesel that will be sold or introduced into 
commerce for that year. The projected volume of gasoline used to 
calculate the final 2012 percentage standards will be provided directly 
by EIA. For the purposes of this proposal, we have used the April 2011 
issue of STEO for the gasoline projection. The projected volume of 
transportation diesel used to calculate the final 2012 percentage 
standards will be provided by EIA. For the purposes of this proposal, 
we have used the Early Release version of AEO2011. Gasoline and diesel 
volumes are adjusted to account for renewable fuel contained in the EIA 
projections. The projected volumes of ethanol and biodiesel used to 
calculate the final percentage standards will be provided by EIA; for 
2011, the final values were based on EIA's Short-Term Energy Outlook 
(STEO). For the purposes of this proposal, we have used the April 2011 
values for ethanol and biodiesel provided in the STEO. Although EIA 
will be providing fuel consumption projections for the final rule, 
using the most recent available EIA data for purposes of this proposal 
allows us to provide the affected industries with a reasonable estimate 
of the standards for planning purposes.
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 
(those refineries with a crude throughput of no more than 75,000 
barrels of crude per day) through December 31, 2010. In RFS1, we 
exercised our discretion under section 211(o)(3)(B) and extended this 
temporary exemption to the few remaining small refiners that met the 
Small Business Administration's (SBA) definition of a small business 
(1,500 employees or less company-wide) but did not meet the statutory 
small refinery definition as noted above. Because EISA did not alter 
the small refinery exemption in any way, the RFS2 program regulations 
exempted gasoline and diesel produced by small refineries and small 
refiners in 2010 from the

[[Page 38859]]

renewable fuels standard (unless the exemption was waived), see 40 CFR 
80.1141.
    Under the RFS program, Congress provided two ways that small 
refineries can receive a temporary extension of the exemption beyond 
2010. One is based on the results of a study conducted by the 
Department of Energy (DOE) to determine if small refineries would face 
a disproportionate economic hardship under the RFS program. The other 
is based on EPA determination of disproportionate economic hardship on 
a case-by-case basis in response to refiner petitions.
    In January 2009, DOE issued a study which did not find that small 
refineries would face a disproportionate economic hardship under the 
RFS program.\22\ The conclusions were based in part on the expected 
robust availability of RINs and EPA's ability to grant relief on a 
case-by-case basis. As a result, beginning in 2011 small refiners and 
small refineries were required to participate in the RFS program as 
obligated parties, and there was no small refiner/refinery volume 
adjustment to the 2011 standard as there was for the 2010 standard.
---------------------------------------------------------------------------

    \22\ DOE report ``EPACT 2005 Section 1501 Small Refineries 
Exemption Study'', (January, 2009).
---------------------------------------------------------------------------

    Following the release of DOE's 2009 small refinery study, Congress 
directed DOE to complete a reassessment and issue a revised report. DOE 
recently re-evaluated the impacts of the RFS program on small entities 
and concluded that some small refineries would suffer a 
disproportionate hardship if required to participate in the 
program.\23\ As a result, these refineries will be exempt from being 
obligated parties for a minimum of two additional years, 2011 and 
2012.\24\ The proposed 2012 standards reflect the exemption of these 
refineries. In addition, and separate from the DOE determination, EPA 
may extend the exemption for individual small refineries on a case-by-
case basis if they demonstrate disproportionate economic hardship. A 
few refineries have satisfactorily made this demonstration, and EPA has 
acted on their requests. The gasoline and diesel volumes of those 
refineries have been appropriately accounted for in the development of 
the proposed standards. If additional individual refinery requests for 
exemptions are approved following the release of this NPRM, the final 
standards will be adjusted to account for those exempted volumes of 
gasoline and diesel. However, any requests for exemptions that are 
approved after the release of the final 2012 RFS standards will not 
affect the 2012 standards. As stated in the final rule establishing the 
2011 standards, ``EPA believes the Act is best interpreted to require 
issuance of a single annual standard in November that is applicable in 
the following calendar year, thereby providing advance notice and 
certainty to obligated parties regarding their regulatory requirements. 
Periodic revisions to the standards to reflect waivers issued to small 
refineries or refiners would be inconsistent with the statutory text, 
and would introduce an undesirable level of uncertainty for obligated 
parties.'' Thus, after the 2012 standards are finalized, any additional 
exemptions issued will not affect those standards.
---------------------------------------------------------------------------

    \23\ ``Small Refinery Exemption Study: An Investigation into 
Disproportionate Economic Hardship,'' U.S. Department of Energy, 
March 2011.
    \24\ Since the standards are applied on an annual basis, the 
exemptions are likewise on an annual basis even though the 
determination of which refineries would receive an extension to 
their exemption did not occur until after January 1, 2011.
---------------------------------------------------------------------------

3. Proposed Standards
    As finalized in the March 26, 2010 RFS2 rule, the standards are 
expressed in terms of energy-equivalent gallons of renewable fuel, with 
the cellulosic biofuel, advanced biofuel, and total renewable fuel 
standards based on ethanol equivalence and the biomass-based diesel 
standard based on biodiesel equivalence. However, all RIN generation is 
based on ethanol-equivalence. More specifically, the RFS2 regulations 
provide that production or import of a gallon of biodiesel will lead to 
the generation of 1.5 RINs. In order to ensure that demand for 1.0 
billion physical gallons of biomass-based diesel will be created in 
2012, the calculation of the biomass-based diesel standard provides 
that the required volume be multiplied by 1.5. The net result is a 
biomass-based diesel gallon being worth 1.0 gallons toward the biomass-
based diesel standard, but worth 1.5 gallons toward the other 
standards.\25\
---------------------------------------------------------------------------

    \25\ 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 RFS2 program, as 
gasoline and diesel produced in or imported into that state or 
territory would then be subject to the standard. Neither Alaska nor any 
U.S. territory has chosen to participate in the RFS2 program at this 
time, and thus the value of the related terms in the calculation of the 
standards is zero.
    Note that the terms for projected volumes of gasoline and diesel 
use include gasoline and diesel that has been blended with renewable 
fuel. Because the gasoline and diesel volumes estimated by EIA include 
renewable fuel use, we must subtract the total renewable fuel volume 
from the total gasoline and diesel volume to get total non-renewable 
gasoline and diesel volumes. The values of the variables described 
above are shown in Table III.B.3-1.\26\ Terms not included in this 
table have a value of zero.
---------------------------------------------------------------------------

    \26\ To determine the 49-state values for gasoline and diesel, 
the amounts of these fuels used in Alaska is subtracted from the 
totals provided by DOE. The Alaska fractions are determined from the 
most recent (2009) EIA State Energy Data, Transportation Sector 
Energy Consumption Estimates. The gasoline and transportation 
distillate fuel oil fractions are approximately 0.2% and 0.8%, 
respectively. Ethanol use in Alaska is estimated at 8.4% of its 
gasoline consumption (based on the same State data), and biodiesel 
use is assumed to be zero.

    Table III.B.3-1--Values for Terms in Calculation of the Standards
                               [Bill gal]
------------------------------------------------------------------------
                         Term                                 Value
------------------------------------------------------------------------
RFVCB,2012............................................    0.00355-0.0157
RFVBBD,2012...........................................               1.0
RFVAB,2012............................................               2.0
RFVRF,2012............................................             15.20
G2012.................................................            139.98
D2012.................................................             44.47
RG2012................................................             14.17
RD2012................................................              0.83
------------------------------------------------------------------------

    Using the volumes shown in Table III.B.3-1, we have calculated the 
proposed percentage standards for 2012 as shown in Table III.B.3-2.

         Table III.B.3-2--Proposed Percentage Standards for 2012
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel........................  0.002% to 0.010%.
Biomass-based diesel......................  0.91%.
Advanced biofuel..........................  1.21%.
Renewable fuel............................  9.21%.
------------------------------------------------------------------------

IV. Biomass-Based Diesel Volume for 2013

    In today's action we are proposing an applicable volume for 
biomass-based diesel for 2013, based on the statutory requirement to 
establish the applicable volume of biomass-based diesel for years after 
2012 no later than 14 months before the first year for which the 
applicable volume will apply. To do this, we have reviewed RFS program 
implementation to date and analyzed a number of factors specified in 
the statute as part of this effort. We have investigated what the 
demand for biomass-based diesel is likely to be in 2013 taking into 
consideration the applicable advanced biofuel volume specified in the 
statute, the analyses we

[[Page 38860]]

conducted in the RFS2 final rulemaking, and a consideration of 
biodiesel production, consumption, and infrastructure issues. In these 
investigations, biodiesel was the primary focus since it is expected to 
be the predominant type of biomass-based diesel through at least the 
next few years. However, renewable diesel may also play a role in 
meeting the biomass-based diesel standard. When appropriate, we have 
discussed renewable diesel separately from biodiesel.
    Note that, in proposing the 2013 applicable volume of biomass-based 
diesel, we are not at this time proposing the percentage standards that 
would apply to obligated parties in 2013. Instead, the percentage 
standards will be determined after projections of gasoline and diesel 
volume are provided by the Energy Information Administration (EIA) in 
the fall of 2012, and will be announced by November 30, 2012. Moreover, 
in today's proposal we are not addressing potential exemptions for 
small refineries and/or small refiners in 2013, since such exemptions 
are only relevant in the context of specifying the percentage standards 
and their applicability. Finally, we are not proposing any applicable 
volumes of biomass-based diesel for 2014 or later years.

A. Statutory Requirements

    Section 211(o)(2)(B)(i) of the Clean Air Act specifies the 
applicable volumes of renewable fuel on which the annual percentage 
standards must be based, unless the applicable volumes are waived or 
adjusted by EPA in accordance with specific authority and directives 
specified in the statute.\27\ Applicable volumes are provided in the 
statute for years through 2022 for cellulosic biofuel, advanced 
biofuel, and total renewable fuel. For biomass-based diesel, applicable 
volumes are provided through 2012. For years after those specified in 
the statute (i.e. 2013+ for biomass-based diesel and 2023+ for all 
others), EPA is required 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:
---------------------------------------------------------------------------

    \27\ For example, EPA may waive a given standard in whole or in 
part following the provisions at 211(o)(7).
---------------------------------------------------------------------------

     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;
     The impact of renewable fuels on the energy security of 
the United States;
     The expected annual rate of future commercial production 
of renewable fuels, including advanced biofuels in each category 
(cellulosic biofuel and biomass-based diesel);
     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;
     The impact of the use of renewable fuels on the cost to 
consumers of transportation fuel and on the cost to transport goods; 
and
     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.

While EPA is given the authority to determine the appropriate volume of 
renewable fuel for those years that are not specified in the statute 
based on a review of program implementation and analysis of the factors 
listed above, the statute also specifies that the applicable volume of 
biomass-based diesel cannot be less than the applicable volume for 
calendar year 2012, which is 1.0 bill gallons.
    It is useful to note that the statutory provisions described above 
are silent in two important areas. First, the statute does not provide 
numerical criteria or thresholds that must be attained in the 
determination of applicable volumes (other than specifying a minimum 
volume of 1.0 bill gal), nor does it describe any overarching goals 
such as maximizing GHG or energy security benefits or minimizing cost. 
The EPA, in coordination with DOE and USDA, is thus effectively charged 
with making a determination of the applicable volumes based on a 
judgment of their reasonableness in the context of a review of program 
implementation and analysis of the factors described above. Second, the 
statute does not provide authority to raise the applicable volumes of 
advanced biofuel or total renewable fuel above those specified in the 
statute for years up to and including 2022. Thus, any increase in the 
biomass-based diesel volume requirement above that specified for 2012 
would not have any impact on the advanced biofuel or total renewable 
fuel volume requirements. Rather, increasing the biomass-based diesel 
volume requirement above 1.0 bill gallons would likely result in a 
change in the makeup of biofuels used to meet the advanced biofuel and 
the total renewable fuel standards, but would not change the total 
required volumes of those fuels (in terms of ethanol-equivalent 
gallons).
    Finally, the statute also specifies the timeframe within which 
these volumes must be promulgated: The rules establishing the 
applicable volumes must be finalized no later than 14 months before the 
first year for which such applicable volume will apply. For the 
biomass-based diesel volume that would apply beginning on January 1, 
2013, then, we must finalize the applicable volume by November 1, 2011.

B. Factors Considered in Assessing 2013 Biomass-Based Diesel Volumes

    As described in Section IV.A, we are required to review the 
implementation of the RFS program for years prior to 2013, and to use 
information from this review in determining the applicable volume of 
biomass-based diesel for 2013. However, given the short history of the 
RFS program, we believe this review is of limited value. Prior to the 
beginning of the RFS2 program on July 1, 2010, the RFS1 program had no 
volume requirement specific to biomass-based diesel. Although RINs were 
generated for biodiesel under the RFS1 program and those RINs were 
available for use in satisfying obligated parties' RFS1 total renewable 
fuel Renewable Volume Obligation (RVO), we do not believe that the RFS1 
program contributed significantly to producers' production decisions. 
Rather, biodiesel production was driven by market demand apart from the 
RFS program requirements coupled with a tax credit for biodiesel 
blends. We believe that little can be discerned from the RFS1 history 
about the operation of the biodiesel industry under a future RFS2 
volume mandate.
    In the short time since the RFS2 program went into effect, 
biodiesel production volumes have not increased substantially above 
historical levels due most likely to factors such as the availability 
of carryover RINs from 2008 and 2009 and the expiration of the 
biodiesel tax credit (which was reinstituted at the end of 2010). 
Domestic biodiesel consumption varied little in the 2008-2010 
timeframe, averaging about 330 mill gallons each year.
    Given the increases in the biomass-based diesel volumes that are 
required in the statute for 2011 and 2012, we expect production and 
consumption volumes of biodiesel to increase

[[Page 38861]]

substantially above these recent historic levels. A review of the RFS 
program during 2011 and 2012 will, therefore, provide more relevant 
information regarding implementation of the RFS program for purposes of 
helping us to evaluate how the industry, as well as feedstock supplies 
and infrastructure, can respond to potential requirements in 2014 and 
beyond. For the purposes of proposing the 2013 biomass-based diesel 
applicable volume in today's NPRM, however, this information is not 
available.
    With the limited information available on the current and 
historical operation of the RFS program, we believe it would be prudent 
for 2013 to consider only moderate increases above the statutory 
minimum of 1.0 bill gallons. One possible benchmark is provided by the 
increments and growth pattern of those increments that Congress 
established for the years 2009-2012, shown in Table IV.B-1.

   Table IV.B-1--Incremental Increases in Biomass-Based Diesel in the
                                 Statute
                               [Bill gal]
------------------------------------------------------------------------
                                               Applicable     Increment
                                               volume of        from
                                             biomass-based    previous
                                                 diesel         year
------------------------------------------------------------------------
2009.......................................           0.5            n/a
2010.......................................           0.65          0.15
2011.......................................           0.80          0.15
2012.......................................           1.0           0.20
------------------------------------------------------------------------

These increments provide a precedent for evaluating a reasonable 
mandatory minimum growth pattern for 2013. The increments increased in 
magnitude over the four-year period specified in the statute, 
increasing from 0.15 bill gal to 0.20 bill gal. If this trend were to 
continue, the 2013 volume could be more than 0.20 bill gal higher than 
the 2012 volume. Thus our intention is to consider an incremental 
increase in the applicable volume of biomass-based diesel between 2012 
and 2013 that is not a dramatic change from the trend in increments 
shown above.
    In the final rulemaking establishing the RFS2 program, we developed 
renewable fuel volume scenarios for all years between 2010 and 2022. 
For 2013, we estimated a biomass-based diesel volume of 1.28 bill 
gallons. This volume was based primarily on a projection of the 
qualifying feedstocks that could be available. Our analyses of 
feedstock availability in the RFS2 final rule concluded that the 2013 
minimum biomass-based diesel volume of 1.0 bill gallons could be met 
and, indeed, that 1.28 billion gallons could be reasonably 
produced.\28\ The value of 1.28 bill gallons assumed for 2013 in the 
RFS2 final rule appears to roughly follow the pattern in incremental 
growth shown in Table IV.B-1 above. Moreover, this biomass-based diesel 
volume has already been partially evaluated in the RFS2 rule. 
Therefore, EPA decided to evaluate the appropriateness of proposing an 
applicable volume for 2013 of 1.28 bill gallons. To this end, we 
considered whether 1.28 bill gal of biomass-based diesel was reasonable 
given likely market demand, availability of feedstocks, production 
capacity, limitations related to storage and consumption, 
infrastructure, and the impacts of biomass-based diesel in a variety of 
areas as required under the statute. These impacts are discussed in the 
subsequent Section IV.C.
---------------------------------------------------------------------------

    \28\ Renewable Fuel Standard Program (RFS2) Regulatory Impact 
Analysis. EPA-420-R-10-006, February 2010. See Table 1.2-3.
---------------------------------------------------------------------------

1. Demand for Biomass-Based Diesel
    The demand for biomass-based diesel in 2013 will be a function of 
not only the biomass-based diesel standard, but also the advanced 
biofuel standard, since the standards under the RFS2 program are 
nested. That is, every RIN that is valid for meeting the biomass-based 
diesel standard is also valid for meeting the advanced biofuel 
standard. Moreover, there are currently only a small number of biofuels 
that are likely to be available for meeting the advanced biofuel 
standard. In addition to biomass-based diesel, these would include any 
RINs used to meet the cellulosic biofuel standard, coprocessed 
renewable diesel, and sugarcane ethanol. To the degree that there are 
limits in these other advanced biofuels, additional biomass-based 
diesel may be needed to make up any shortfall.
    Since the advanced biofuel standard is an important factor in 
determining the demand for biomass-based diesel in 2013, we considered 
how it should be treated in light of the fact that we must determine 
the applicable 2013 volume for biomass-based diesel this year, but we 
will not set the 2013 standards (including the advanced biofuel 
standard for 2013) until next year. EPA has the authority to reduce the 
applicable volume of advanced biofuel in the event that it reduces the 
applicable volume of cellulosic biofuel. EPA will consider using this 
authority at the time it evaluates whether the 2013 applicable volume 
of cellulosic biofuel set in the statute should be lowered in light of 
projected production volumes. In both 2010 and 2011 EPA lowered the 
applicable volume of cellulosic biofuel without lowering the applicable 
volume of advanced biofuel. EPA is today proposing the same approach 
for 2012. In light of this history, and the fact that EPA cannot 
finally evaluate the issue of potentially lowering the applicable 
volume of advanced biofuel for 2013 until it sets the 2013 standards in 
November of 2012, we assume for purposes of today's evaluation of 
biomass-based diesel demand in 2013 that the applicable volume of 2.75 
bill gallons of advanced biofuel specified in the statute for 2013 will 
be used in setting the 2013 advanced biofuel standard.
    As described in Section II, the cellulosic biofuel industry 
continues to develop, with numerous projects under development, planned 
or underway. Nevertheless, the actual production volumes continue to 
fall far below the applicable volumes specified in the statute. For 
instance, we are proposing a cellulosic biofuel volume of 3.55-15.7 
mill gallons for 2012, compared to the applicable volume of 500 mill 
gal specified in the statute. In 2013, the applicable volume doubles to 
1.0 bill gallons. While we have not projected specific volumes of 
cellulosic biofuel that may be available in 2013, it is highly likely 
that they will fall significantly short of 1.0 bill gallons, and are 
likely to comprise only a small portion of the 2.75 bill gal applicable 
volume for advanced biofuel in 2013.
    Imported sugarcane ethanol can also be used to meet the advanced 
biofuel standard. Between years 2000 and 2009, the volume of ethanol 
imported into the U.S. has ranged from 46-730 million gallons per year, 
or on average, approximately 200 million gallons per year. These 
volumes were comprised almost exclusively of sugarcane ethanol from 
Brazil. In 2010, imports of ethanol into the U.S. were among the lowest 
in the past 10 years, reaching only 17 million gallons.\29\ Some of 
this recent decline in ethanol imports may be due to extremely wet 
weather in 2009/10 and dry conditions in 2010/11 which cut into 
Brazilian supplies of sugarcane and reduced sugar content. In addition, 
some Brazilian sugarcane mills have the ability to switch between 
producing sugars for sweetener markets and extracting sugars for 
ethanol markets. The international price of sweetener was so attractive 
in 2010 that mills may have given greater priority to sugar. Another 
factor is the expanding sales of flex fuel vehicles in Brazil, which 
has

[[Page 38862]]

continued to increase Brazilian domestic ethanol demand, thus likely 
limiting amounts available for exports. Therefore, history shows that 
the volume of imported ethanol can fluctuate greatly due to a variety 
of market influences.
---------------------------------------------------------------------------

    \29\ Official Statistics of the U.S. Department of Commerce U.S. 
International Trade Commission. Data only available from January-
November 2010.
---------------------------------------------------------------------------

    Longer-term market projections can help to better understand the 
potential outlook for imports of sugarcane ethanol as a function of 
international agricultural and energy markets. One source that 
evaluates trends and issues for U.S. energy markets is the U.S. Energy 
Information Administration's (EIA) Annual Energy Outlook (AEO).\30\ 
This report projects U.S. net ethanol imports in 2013 to be 332 million 
gallons. Another source for U.S. and world commodity projections is the 
Food and Agricultural Policy Research Institute's (FAPRI) U.S. and 
World Agricultural Outlook. The most current version of the outlook, 
the FAPRI 2010 Agricultural Outlook, projects for the year 2013 that 
the U.S. will have net ethanol imports of 333 million gallons.\31\ In 
comparison, for the RFS2 final rulemaking, we assumed 190 million 
gallons of imported sugarcane ethanol could be available in 2013 based 
on EIA's AEO2007.
---------------------------------------------------------------------------

    \30\ U.S. Energy Information Administration (EIA). ``AEO2011 
Early Release,'' December 2010. http://www.eia.doe.gov/forecasts/aeo/index.cfm.
    \31\ Food and Agricultural Policy Research Institute. ``FAPRI 
2010 U.S. and World Agricultural Outlook: World Biofuels,'' http://www.fapri.iastate.edu/outlook/2010/text/15Biofuels.pdf.
---------------------------------------------------------------------------

    Since ethanol supplies can flow to countries other than the U.S., 
an important part of understanding potential imports into the U.S. are 
the current and future biofuel mandates and goals of other nations. 
Such mandates include, for instance, Canada's 5% fuel ethanol mandate 
which started in late 2010, requiring approximately 500 million gallons 
per year. Another goal is that of the EU, the renewable energy 
directive, which includes a minimum target of 10% renewable energy use 
in transport by 2020, a portion of which is expected to be met with 
ethanol. Other countries with ethanol mandates and goals are India, 
Indonesia, Philippines, Costa Rica, Peru, and Argentina, to name a few. 
According to Hart Energy Consulting, most countries will be in a 
potential supply deficit for ethanol by 2020, and the primary country 
in a position to supply the global ethanol market will be Brazil.\32\ 
Chief competitors for the U.S. to receive Brazilian ethanol are 
expected to be the EU, China, and Japan. This increasing international 
demand for biofuels may limit export supplies available for the U.S. in 
2013.
---------------------------------------------------------------------------

    \32\ Hart Energy Consulting. ``Global Biofuels Outlook: 2010-
2020,'' October 2010.
---------------------------------------------------------------------------

    The demand for ethanol in Brazil is also increasing, further 
limiting volumes that will likely be exported. For instance, the sales 
share of flex-fuel vehicles (FFVs) in Brazil are reported to have risen 
dramatically in the last decade, contributing to an in-use fleet that 
is increasingly capable of operating on pure ethanol. By 2014, 70% of 
the in-use fleet is expected to be FFVs, compared to only 33% in 2009. 
While the aforementioned FAPRI report projected that 2013 Brazilian 
demand for ethanol could be 7.7 billion gallons, S&D estimated that 
2013 demand could potentially reach as high as 11 billion gallons, 
outpacing Brazilian production capacity.\33\
---------------------------------------------------------------------------

    \33\ Sucres et Denr[eacute]es (S&D), ``Ethanol Report,'' 
November 2010.
---------------------------------------------------------------------------

    We believe that given the discussions above, it is reasonable to 
conclude that Brazilian sugarcane ethanol will continue to provide 
limited volumes of advanced biofuel in the U.S. in the near term due to 
other competitive uses. While imports of sugarcane ethanol into the 
U.S. in 2013 could exceed the 190 million gallons estimated in RFS2, 
they are unlikely to reach the historical high of 730 mill gallons for 
the reasons described above.
    In addition to cellulosic biofuel and imported sugarcane ethanol, 
there is also some potential for other advanced biofuels that could be 
used to meet the advanced biofuel standard of 2.75 bill gallons. The 
most likely of these is sugar-based ethanol from domestic sugarcane. 
Several companies have announced plans for sugar-based ethanol 
production in California, Louisiana, and Florida. Two of these 
companies have announced plans for multiple ethanol production 
facilities, however none of these companies have yet begun 
construction. In addition, coprocessed renewable diesel is uncertain, 
though there could conceivably be up to a hundred million gallons by 
2013. Potential production of other advanced biofuels such as renewable 
butanol or ethanol from non-corn starches in biomass-fueled facilities 
is even less certain for 2013. However, as described in Section II.D, 
companies such as Gevo, Solazyme, and LS9 are in the process of 
building or converting facilities to produce advanced biofuels in the 
form of butanol, jet fuel, and renewable diesel, respectively, that may 
count as advanced biofuel. We expect all these other sources of 
advanced biofuel to contribute about one or two hundred million gallons 
in 2013.
    In summary, we believe that the total volume of cellulosic biofuel, 
imported sugarcane ethanol, and other advanced biofuels that may be 
available in 2013 is likely to be less than about 1 billion gallons. In 
order to reach an advanced biofuel volume of 2.75 billion gallons, 
then, it is likely that more than 1.0 bill gallons of biomass-based 
diesel (representing more than 1.5 billion ethanol-equivalent gallons) 
will be needed. The volume of biomass-based diesel that may be needed 
in excess of 1.0 bill gallons could potentially be on the order of 
hundreds of millions of gallons. This result is similar to the 
assumption made by IHS Global Insight in their recent report, in which 
they assume that an additional 300 million gallons of biodiesel will be 
needed over and above the 1.0 billion gallons mandate for biomass-based 
diesel in order for the advanced biofuel standard to be met.\34\
---------------------------------------------------------------------------

    \34\ ``Biodiesel Production Prospects for the Next Decade,'' IHS 
Global Insight, March 11, 2011.
---------------------------------------------------------------------------

    As mentioned above, we do not believe it would be prudent to set 
the biomass-based diesel applicable volume for 2013 such that the 
increment over 2012 volumes is excessive in comparison to the 
increments, and trajectory of increments, established by Congress for 
the years 2009-2012. As a result, we believe that a biomass-based 
diesel volume of 1.28 bill gallons would both reflect likely increased 
demand for biomass-based diesel in 2013 and provide an increment that 
is not excessive when compared to those established by Congress.
2. Availability of Feedstocks to Produce 1.28 Billion Gallons of 
Biodiesel
    As described above, in the final rulemaking establishing the RFS2 
program we developed renewable fuel volume scenarios for all years 
between 2010 and 2022. For 2013, we estimated a biomass-based diesel 
volume of 1.28 bill gallons. This volume was based primarily on a 
projection of the qualifying feedstocks that could be available, as 
summarized in Table IV.B.2-1.

 Table IV.B.2-1--Feedstocks Contributing to 2013 Volume of 1.28 Bill Gal
------------------------------------------------------------------------
                                                                 Volume
                            Source                               (mill
                                                                  gal)
------------------------------------------------------------------------
Yellow grease and other rendered fats........................        380
Corn oil.....................................................        300

[[Page 38863]]

 
Virgin vegetable oil.........................................        600
                                                              ----------
    Total....................................................      1,280
------------------------------------------------------------------------

    We continue to believe that the feedstock volumes shown in Table 
IV.B.2-1 are reasonable projections for 2013. For instance, according 
to the U.S. Census Bureau, the total volume of yellow grease and other 
greases (most likely trap grease) produced in 2010 was about 340 mill 
gallons.\35\ The volume of inedible tallow produced in the same period 
was over 400 mill gallons. Other potential sources could include edible 
tallow, lard, and poultry fats. Taken together, the total volume of 
available grease and fats for use in producing biomass-based diesel is 
in excess of the 380 mill gallons we projected in the RFS2 final rule.
---------------------------------------------------------------------------

    \35\ Current Industrial Reports, U.S. Census Bureau, M311K--Fats 
and Oils: Production, Consumption, and Stocks, Table 2b. Assumes 7.5 
lb/gal. December projection based on the average of January-
November. http://www.census.gov/manufacturing/cir/historical_data/m311k/index.html.
---------------------------------------------------------------------------

    The 300 million gallons of biodiesel produced from corn oil 
extracted from distillers grains produced at ethanol facilities is 
based on projections of the percentage of the ethanol industry using 
corn oil extraction technology and the amount of oil extracted per 
bushel of corn in 2013. The RFS2 final rule projected that by 2013, 34% 
of all dry mill ethanol facilities would extract corn oil from the by-
products of ethanol production. A recent survey of the ethanol industry 
found that by 2008 over 30% of all dry mill ethanol plants were already 
extracting corn oil from their co-products.\36\ EPA expects that the 
percentage of dry mill ethanol facilities using some form of corn oil 
extraction technology will increase to 60% by 2013. The corn oil 
extraction technology currently being used at most dry mill ethanol 
facilities is capable of extracting approximately one third of the oil 
contained in the corn kernel from the whole stillage and/or its 
derivatives (a significantly reduced rate than the two thirds of oil 
extracted assumed to be technically feasible by 2022 in the RFS2 final 
rule). If 60% of all dry mill corn ethanol facilities were extracting 
one third of the oil in the corn kernel in 2013 the amount of corn oil 
available for biodiesel production would be approximately 270 million 
gallons. As corn oil extraction technology develops and higher oil 
extraction rates are achieved, corn ethanol producers are likely to 
adopt this new technology. EPA expects that by 2013 these technology 
improvements will increase corn oil production levels to the 300 
million gallons projected in the RFS2 rule. Alternatively, additional 
corn oil could come from ethanol production facilities using corn 
fractionation or wet milling technology. This corn oil was not 
considered as a biodiesel feedstock in the RFS2 rule, but market 
conditions may result in its availability to the biodiesel industry. 
The high adoption rate of corn oil extraction and the promise of ever 
increasing oil extraction yields indicate that the 300 million gallons 
of corn oil extraction projected in the RFS2 rule in 2013 remains a 
reasonable projection.
---------------------------------------------------------------------------

    \36\ Mueller, Steffen. ``Detailed Report: 2008 National Dry Mill 
Corn Ethanol Survey.'' University of Illinois at Chicago Energy 
Resources Center (May 4, 2010). Available online: http://ethanolrfa.3cdn.net/2e04acb7ed88d08d21_99m6idfc1.pdf.
---------------------------------------------------------------------------

    With regard to virgin vegetable oil, the modeling we conducted for 
the RFS2 final rule assumed that it would be composed entirely of 
soybean oil. For the purposes of today's proposal we examined recent 
and historical soybean oil production and consumption volumes from the 
U.S. Census Bureau to verify that 600 million gallons was a reasonable 
potential volume for biodiesel production in 2013. As shown in Figure 
IV.B.2-1, soy oil production has increased steadily over the last 30 
years, reaching 2.5 bill gal in 2009. If these production trends 
continue, domestic soy oil production could reach nearly 2.9 bill gal 
by 2013.

[[Page 38864]]

[GRAPHIC] [TIFF OMITTED] TP01JY11.002

    To determine what portion of domestically produced soy oil could be 
available for use in the production of biomass-based diesel in 2013, we 
also examined recent historical trends for domestic consumption and 
exports. Domestic consumption of soy oil for purposes other than 
biofuel has also increased steadily over the last 30 years, but was 
notably lower in the period 2007-2009 compared to previous years. If 
consumption returns to historical trends for years after 2009, 
consumption could be as high as 2.5 bill gal by 2013. However, as shown 
in Figure IV.B.2-2 below, this would require a significant increase in 
consumption from 2009 to 2010. Thus 2013 consumption could be lower 
than 2.5 bill gal.

[[Page 38865]]

[GRAPHIC] [TIFF OMITTED] TP01JY11.003

    Based on these projections, then, the volume of soy oil that would 
be available for the production of biomass-based diesel would be at 
least 400 million gallons (2.9-2.5 bill gal). However, soy oil that has 
historically been exported represents another potential source of soy 
oil for biodiesel production. Exports of soy oil have followed only a 
very weak increasing trend, averaging about 230 mill gal/year over the 
same 30 year period, and about 250 mill gal/year over the last 10 
years. If these exports were diverted to the production of biomass-
based diesel, the total volume of soy oil available for the production 
of biodiesel and/or renewable diesel would exceed 600 mill gallons.
    Although we assumed that all virgin vegetable oils used in biomass-
based diesel production would be soy oil in the RFS2 final rule, in 
fact other seed oils may contribute meaningful volumes to the pool 
available for the production of biomass-based diesel. For instance, on 
September 28, 2010 we approved a RIN-generating pathway for biodiesel 
made from canola oil.\37\ The volume of biodiesel made from canola oil 
was 96 mill gallons in 2008.\38\ In addition, we are evaluating other 
pathways for the production of biodiesel from oilseeds, such as 
camelina, which could potentially be approved for RIN generation by 
2013. Algal oil could also provide additional feedstocks if promising 
technologies for production are commercialized.
---------------------------------------------------------------------------

    \37\ 75 FR 59622.
    \38\ EPA memorandum, ``Summary of Modeling Input Assumptions for 
Canola Oil Biodiesel for the Notice of Supplemental Determination 
for Renewable Fuels Produced Under the Final RFS2 Program,'' 
Document  EPA-HQ-OAR-2010-0133-0049.
---------------------------------------------------------------------------

    IHS Global Insight recently released an independent report in which 
they conducted macroeconomic modeling to investigate biodiesel growth 
scenarios and related impacts on commodities such as oilseed crops. 
Their agricultural modeling indicated that a slightly more diverse mix 
of feedstocks would be used to meet a total domestic biodiesel 
production volume of 1.3 bill gallons in 2013. These volumes are shown 
in Table IV.B.2-2.

 Table IV.B.2-2--Feedstocks Contributing to 2013 Volume of 1.3 Bill Gal
                    From IHS Global Insight Modeling
------------------------------------------------------------------------
                                                                 Volume
                            Source                               (mill
                                                                  gal)
------------------------------------------------------------------------
Yellow grease and other rendered fats........................        272
Corn oil.....................................................        185
Soybean oil..................................................        624
Canola oil...................................................         68
Palm oil.....................................................          7
Other........................................................        185
    Total....................................................      1,340
------------------------------------------------------------------------
Source: Table 2, ``Biodiesel Production Prospects for the Next Decade,''
  IHS Global Insight, March 11, 2011.

This modeling concluded that soy oil production would be lower than the 
trends shown in Figure IV.B.2-1, with a correspondingly lower volume of 
soy oil being used for domestic non-biofuel consumption as well. 
Nevertheless, their modeling concluded that soy oil availability for 
biodiesel production would be 624 mill gallons, slightly higher than 
what we assumed in the RFS2 final rule. While their modeling

[[Page 38866]]

concluded that the volumes of greases, fats, and corn oil would be 
somewhat less than what we assumed in the RFS2 final rule, they were 
able to quantify the available volumes of other feedstocks that we did 
not explicitly investigate in the RFS2 final rule. As a result, this 
report supports our finding that sufficient feedstocks will be 
available to produce 1.28 bill gallons of biomass-based diesel in 2013.
3. Production Capacity
    Total production capacity of the biodiesel industry has exceeded 
1.28 bill gallons for a number of years. As of January 2011, total 
production capacity was more than 2.8 bill gallons for 168 plants \39\. 
According to the National Biodiesel Board, 90 of these plants had 
registered with the EPA under the RFS2 program as of February 4, 2011, 
and these plants had a combined production capacity of over 1.9 bill 
gallons. The remaining plants are either producing extremely low 
volumes that fall under the regulatory threshold for RIN generation, 
are producing products other than biodiesel such as soaps or cosmetics, 
or have shut down until such time as the demand for biodiesel rises.
---------------------------------------------------------------------------

    \39\ USA Plants, biodieselmagazine.com, as of January 27, 2011.
---------------------------------------------------------------------------

    Most of the 90 registered plants are currently producing at 
significantly under capacity, as evidenced by the fact that total 
production volumes in 2010 were 300-400 million gallons, and the 
registered plants have a capacity of over 1.9 billion gallons. If these 
plants increase production to meet the 800 million gallon volume 
requirement for 2011, on average, then, registered biodiesel producers 
will be producing at about half of their capacity this year. 
Nevertheless, we believe based on the registered capacity of existing 
plants and the relative ease of expanding current production within 
this capacity that the biodiesel industry can produce at least 1.28 
bill gallons in 2013 with little leadtime needed for facilities to ramp 
up to higher production levels, and/or for currently idle facilities to 
come back online.
4. Consumption Capacity
    Biodiesel is registered with the EPA under 40 CFR part 79 as a 
legal fuel for use in highway vehicles. Under this registration, it can 
legally be used at any blend level, from 1% (B1) to 100% (B100). 
However, other factors typically limit the concentration of biodiesel 
in conventional diesel fuel. Since the consumption of biodiesel at 
lower blend levels would tend to increase the geographic areas where 
biodiesel must be marketed, it is an important consideration in how 
much biodiesel can be consumed in the U.S. as a whole as well as how 
the infrastructure may need to change to accommodate 1.28 bill gallons 
in 2013.
    Most engine manufacturers have explicit statements in their engine 
warranties regarding acceptable biodiesel blend levels. Although a few 
permit B100 to be used in their engines without any adverse impact on 
their warranties, most limit biodiesel blends to B20 or less, and about 
half allow no more than B5 \40\. For specific applications where a 
party knows which engines will be using biodiesel blends, higher 
concentrations of biodiesel may be possible. However, for general 
distribution such as at retail facilities, these warranty conditions 
create a disincentive to blend or sell biodiesel at higher 
concentrations, and would tend to drive most blends towards low 
concentrations of biodiesel such as B5.
---------------------------------------------------------------------------

    \40\ ``Automaker's' and Engine Manufacturers' Positions of 
Support for Biodiesel Blends,'' Biodiesel.org.
---------------------------------------------------------------------------

    Cold weather operability represents another reason for preferential 
use of B5 and even B2. The most common measure of cold weather 
operability is the fuel cloud point. The cloud point is the temperature 
at which gelling begins (as indicated by solid crystals beginning to 
form in the fuel), and thus is an indicator of when potential engine 
filter plugging issues could arise. The higher the cloud point 
temperature of the fuel, the more likely such problems are to be 
experienced in cold weather. Biodiesel generally has a higher cloud 
point than conventional, petroleum-based diesel fuel, with fat-based 
biodiesel such as tallow having a higher cloud point than virgin oil-
based biodiesel such as a fuel made with soybean and canola oil. While 
cloud point issues with conventional, petroleum-based diesel are 
generally mitigated through blending with lighter grades (i.e. 
1 diesel fuel), the cloud point of biodiesel generally 
requires more dramatic interventions such as heated storage tanks, 
lines, and blending equipment, as well as heating rail cars and tank 
trucks. However, some of these biodiesel cloud point mitigation efforts 
may be reduced through the use of low biodiesel blend levels such as B2 
or B5, since cloud point is strongly correlated with biodiesel 
concentration in the final blend. Insofar as biodiesel is blended into 
conventional diesel before being transported to its final destination 
for sale, low biodiesel blend levels may reduce the need for heated 
equipment at the final destination.
    Based on highway and nonroad diesel consumption projections for 
2013 from the EIA, a biodiesel volume of 1.28 bill gallons would 
represent about 2.8% of all diesel fuel.\41\ If all biodiesel were to 
be blended as B5, just over half of the diesel fuel consumed nationwide 
in 2013 would contain biodiesel. However, today some biodiesel is 
blended at concentrations higher than B5, and we expect that at least 
these same volumes would be blended at concentrations higher than B5 in 
the future. This would reduce the amount of diesel fuel that would 
contain some biodiesel, and thus would also reduce the geographical 
areas where biodiesel must be distributed.
---------------------------------------------------------------------------

    \41\ Annual Energy Outlook (AEO) 2011 Early Release, Table 2.
---------------------------------------------------------------------------

    We believe that distributing and consuming 1.28 bill gallons of 
biodiesel in 2013 is achievable. A number of states already have 
mandates for the use of biodiesel in 2013, and efforts are underway to 
ensure that these mandates can be met. These include Minnesota, Oregon, 
Washington, Pennsylvania, New Mexico, and Louisiana. Collectively, 
these states account for approximately 13 percent of the nationwide 
consumption of diesel. Other states have implemented other forms of 
incentives as shown in Table IV.B.4-1.
---------------------------------------------------------------------------

    \42\ U.S. Department of Energy, Alternative Fuels and Advanced 
Vehicles Data Center.

   Table IV.B.4-1--States With Rebates, Refunds, Reduced Tax Rates, or
            Credits for Biodiesel Production or Blending \42\
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                                     Illinois
                                     Indiana
                                     Kansas
                                     Kentucky
                                     Maine
                                     Maryland
                                     Michigan
                                     Montana
                                     North Dakota
                                     Oklahoma
                                     Rhode Island
                                     South Carolina
                                     South Dakota
                                     Texas
                                     Virginia
                                     Washington
------------------------------------------------------------------------
* Conditions and exemptions for all incentive programs vary by state.

    Collectively, these states account for approximately 37% of the 
nationwide consumption of biodiesel. A variety of states also have 
requirements for the use of biodiesel in state fleets, provisions that 
allow biodiesel to be used as an alternative to meeting alternative 
fuel vehicle mandates, and credits/rebates

[[Page 38867]]

for the installation of biodiesel dispensing and blending equipment.
    Altogether, therefore, more than half of the states in the U.S. 
have mandates and/or incentives that will induce them to address 
biodiesel infrastructure issues. Efforts in these areas will 
directionally help the nation to meet a 1.28 bill gal biomass-based 
diesel requirement in 2013.
5. Biomass-Based Diesel Distribution Infrastructure
    Biodiesel/petroleum based diesel fuel blends have limited ability 
to be transported using the existing petroleum product distribution 
system. There has been limited transportation of up to B5 blends by 
certain pipelines that do not carry jet fuel. However, concerns over 
potential contamination of jet fuel with biodiesel currently prevent 
biodiesel blends from being transported by the majority of 
pipelines.\43\ The predominant means of biodiesel distribution is to 
transport it separately by rail car, tank truck, or barge to a 
petroleum terminal where it is blended with petroleum diesel fuel to 
make B2, B5, B20 blends that are then transported by truck to retail or 
fleet operators. For this analysis, we have assumed that all biodiesel 
is transported in a segregated fashion to petroleum terminals. To the 
extent that biodiesel is transported by pipeline, this may tend to 
reduce the burden on the fuel distribution system.
---------------------------------------------------------------------------

    \43\ Biodiesel contamination of jet fuel can contribute to fuel 
gelling and engine deposits which can lead to jet engine operability 
problems.
---------------------------------------------------------------------------

    Heated and insulated rail cars, tank trucks, barges, storage tanks, 
and blending equipment are required for biodiesel distribution to 
protect against fuel gelling during the cold season. Following are the 
cloud points of biodiesel manufactured from various feedstocks: Canola 
oil biodiesel 32F, soy biodiesel 34F, yellow grease biodiesel 41F, 
jatropha oil biodiesel 46F, tallow biodiesel 54F-63F, and palm oil 
biodiesel 63F.\44\ Based on a review of these properties, climactic 
data, and the likelihood that downstream parties will need to 
accommodate biodiesel produced from various feedstocks, we believe that 
heated/insulated biodiesel infrastructure would be needed throughout 
most of the U.S.\45\
---------------------------------------------------------------------------

    \44\ The cloud point refers to the temperature at which 
biodiesel begins to gell. Biodiesel cloud points are taken from the 
NC State University and A&T State University Cooperative Extension 
Web page, updated December 9, 2010, http://www.extension.org/pages/Biodiesel_Cloud_Point_and_Cold_Weather_Issues, and the 
Biodiesel cold weather blending study, Cold Flow Blending 
Consortium, National Biodiesel Board, 2001, http://www.nrel.gov/vehiclesandfuels/npbf/pdfs/cftr_72805.pdf.
    \45\ The ASTM International ``Standard Specification for Diesel 
Fuel Oils'', ASTM D975, contains tenth percentile minimum ambient 
air temperatures for the U.S.
---------------------------------------------------------------------------

    Approximately 82 petroleum terminals blended biodiesel into 
petroleum-based diesel fuel in 2010.\46\ Our evaluation of the changes 
to the fuel distribution infrastructure that would be needed to support 
the use of 920 mill gallons/yr of biodiesel in 2012 and 1,200 mill 
gallons/yr in 2013 is based on the analysis conducted for the RFS2 
final rule.\47\ See Table IV.B.5-1.
---------------------------------------------------------------------------

    \46\ Communication from Larry Schafer of the National Biodiesel 
Board, March 2, 2011.
    \47\ Renewable Fuels Standard Program (RFS2), Regulatory Impact 
Analysis (RIA), EPA-420-R-10-006, February 2010.

            Table IV.B.5-1--Additional Infrastructure Needed To Distribute Biodiesel in 2012 and 2013
----------------------------------------------------------------------------------------------------------------
                                                                    Additional                         Total
                                                    Additional     distribution        Total       distribution
                                                   distribution    assets needed   distribution    assets needed
                                                   assets needed   in 2013 (with   assets needed    to support
                                                      in 2012     1.28 bill gal)  to support the   1.28 bill gal
                                                    relative to     relative to   2012 biodiesel     biodiesel
                                                       2011            2012            volume         volume
----------------------------------------------------------------------------------------------------------------
Petroleum Product Terminals with Biodiesel                    74             130             428             558
 Blending Capability \*\........................
Rail Cars.......................................             131             230             754             984
Tank Trucks.....................................              14              25              83             108
Barges..........................................               4               7              23              29
----------------------------------------------------------------------------------------------------------------
* There are approximately 853 petroleum terminals that offer diesel fuel in the U.S.

    The RFS2 final rule estimated that additional manifest rail and 
barge receipt facilities would be needed to accept shipments of 
biofuels of all types including biodiesel.\48\ We concluded that 
manifest rail and barge shipments of biodiesel would be able to utilize 
the manifest rail and barge receipt facilities that were initially 
constructed to handle increased ethanol volumes.
---------------------------------------------------------------------------

    \48\ Manifest rail refers to the shipment of a product in rail 
cars in a train that includes rail cars containing other products.
---------------------------------------------------------------------------

    We assume that terminals adding biodiesel capability would install 
segregated biodiesel storage, in-line biodiesel blending equipment, and 
facilities to receive shipments of biodiesel by tank truck. In-line 
blending refers to the process of blending biodiesel into petroleum-
based diesel fuel in the delivery line that feeds into the tank truck 
from the terminal storage tanks. This process ensures an accurate blend 
ratio and a fully mixed biodiesel/petroleum diesel batch. We also 
assume that all equipment at terminals as well as the vessels used to 
transport biodiesel would be heated and insulated to prevent gelling 
during the cold season. We anticipate that some terminals may splash 
blend biodiesel before installing in-line biodiesel injection 
equipment. Splash blending refers to the process of first loading 
petroleum-based diesel fuel into a tank truck followed by biodiesel so 
that the final blend meets the desired blend ratio. However, we expect 
that this approach will be temporary due to the heightened concerns 
over achieving a correct blend ratio and a fully mixed biodiesel blend 
that accompanies splash blending. Some terminals may also delay the 
need to install segregated/heated biodiesel storage by storing 50/50 
blends of biodiesel/petroleum-based diesel fuel that is subsequently 
used to manufacture B2/B5/B20 blends for distribution to end users. 
These practices may provide additional flexibility if some terminals 
wish to temporarily defer installing in-line blending equipment and 
segregated biodiesel storage equipment.
    The RFS2 FRM analysis concluded that industry would have the 
capability to add the necessary facilities to distribute biodiesel in a 
timely fashion to meet the envisioned volumes.\49\ Based on industry 
input, we continue to believe that this is the case. Industry 
activities are currently progressing to ramp up biodiesel consumption 
from the approximately 380 mill gallons estimated to be used in the 
U.S. in 2010 to the 760 mill gallons that is estimated

[[Page 38868]]

to be used in 2011 to meet the biomass-based diesel volume requirement. 
For example, Kinder Morgan and the Renewable Energy Group opened a 
substantial biodiesel distribution facility to serve the Chicago area 
in December of 2010.\50\ Magellan also recently announced that it plans 
to complete its biodiesel blending facility in Sioux Falls Minnesota in 
2011.\51\ In addition, just as there has been considerable biodiesel 
production capacity idled due to lack of demand which will be brought 
back on line as biodiesel volumes ramp up, we believe that there are 
also substantial idled biodiesel distribution assets that could be 
readily brought back into service.
---------------------------------------------------------------------------

    \49\ See sections 1.6 and 4.2.3 of the RIA to the RFS2 final 
rule.
    \50\ Biodiesel Magazine, November 17, 2010. http://www.biodieselmagazine.com/articles/4568/chicago-area-terminal-soon-to-offer-biodiesel.
    \51\ Report to the Legislature, Annual Report on Biodiesel, 
Minnesota Department of Agriculture, January 15, 2011. http://
www.mda.state.mn.us/en/news/government/~/media/Files/news/
govrelations/legrpt-biodiesel2011.ashx.
---------------------------------------------------------------------------

    Renewable diesel/petroleum diesel fuel blends can be transported in 
existing petroleum product transportation infrastructure from the point 
of production to the end-user.\52\ The production facility that we 
expect will account for the renewable diesel produced through 2013 
currently ships its product short distances by tank truck to facilities 
that produce blends with petroleum-based diesel fuel. To estimate the 
infrastructure impacts of renewable diesel, we used the estimate from 
the RFS2 final rule of 80 mill gallons of renewable diesel in 2013.\53\ 
This volume is close to the production volume estimated for the Dynamic 
Fuels facility in Geismar, Louisiana that we referenced in the final 
rulemaking setting the 2011 RFS standards. However, more recently the 
U.S. Department of Energy awarded a $241 million loan guarantee for the 
construction of a renewable diesel facility by Diamond Green. 
Construction on this 137 million gallon per year project is scheduled 
to begin in Norco, LA this year and fuel production is scheduled for 
the first quarter of 2013. EPA does not expect that the production from 
this facility will have a significant impact on overall biomass-based 
diesel distribution infrastructure in the U.S. given that the renewable 
diesel blends can be transported in existing petroleum product 
transportation infrastructure. For the purposes of this analysis we 
assumed 80 mill gallons of renewable diesel for consistency with the 
RFS2 final rule and the final rule setting the RFS standards for 2011.
---------------------------------------------------------------------------

    \52\ Colonial Pipeline began allowing shipment of 5% renewable 
diesel fuel blends beginning January 3, 2011. Colonial pipeline 
codes and specifications: http://www.colpipe.com/pdfs/Sect%203%20Prod%20Spec%20Jan%201%202011%20update%20ver%202.pdf.
    \53\ Renewable Fuel Standard Program (RFS2) Regulatory Impact 
Analysis, EPA-420-R-10-006, February 2010, Table 1.2-3.
---------------------------------------------------------------------------

    We estimate that a total of 5 tank trucks will be needed to 
transport 80 mill gallons/yr of renewable diesel to the locations where 
it is blended with petroleum-based diesel fuel in 2012 and 2013.\54\ 
For the purposes of this analysis, we assumed that approximately one 
half of this volume will be produced in 2011. We estimate that an 
additional 2-3 tank trucks would be needed to transport renewable 
diesel fuel in 2012/2013 compared to 2011. Once renewable diesel fuel 
blends are created, further distribution is accomplished in the same 
fashion as petroleum-based diesel fuel. In the future, the renewable 
diesel fuel production facility identified may be connected by a short 
pipeline directly to the Colonial pipeline and/or begin shipping by 
barge/rail. If shipment by pipeline develops, then no additional 
transportation vessels would be needed to ship renewable diesel fuel 
compared to petroleum-based diesel fuel. We anticipate that the 
infrastructure at petroleum terminals necessary to blend the 80 mill 
gallons/yr of renewable diesel fuel projected for 2012/2013 with 
petroleum-based diesel fuel will have been put in place by 2011.\55\
---------------------------------------------------------------------------

    \54\ This is based on each tank truck carrying 7,800 gallons of 
renewable diesel fuel making 6 deliveries per day. We anticipate 
that the renewable diesel fuel will be blended directly into storage 
tanks containing petroleum-based diesel fuel.
    \55\ To manufacture a renewable diesel fuel blend at a petroleum 
terminal, renewable diesel fuel may be delivered directly into 
storage tanks that contain petroleum-based diesel fuel or injected 
into a petroleum-based diesel fuel stream during delivery into a 
tank truck or pipeline.
---------------------------------------------------------------------------

    Based in the above discussion, we believe that sufficient fuel 
distribution infrastructure will be available to support the use of 1 
bill gal of biomass-based diesel in 2012 and 1.28 bill gal in 2013.

C. Impacts of 1.28 Billion Gallons of Biomass-Based Diesel

    In order to evaluate the impacts of a biomass-based diesel volume 
of 1.28 bill gal in the areas required under the statute (see Section 
IV.A), we first considered what the appropriate reference would be. 
Since the statute requires that the biomass-based diesel volume we set 
for 2013 be no lower than 1.0 bill gal, this would appear to be a 
reasonable reference point. Therefore, in the discussion that follows, 
we have focused on either a volume of 1.28 bill gal biomass-based 
diesel, or an increment of 0.28 bill gal biomass-based diesel, 
depending on the specific sources of information and analyses 
available.
    As described in Section IV.B.1 above, even if we set the applicable 
volume for biomass-based diesel at 1.0 bill gal, the demand for 
biomass-based diesel in 2013 is likely to be on the order of 1.28 bill 
gal or more due to the limited projected availability of other advanced 
biofuels (including cellulosic biofuel, imported sugarcane ethanol, and 
others). Since the actual demand for biomass-based diesel would likely 
be 1.28 bill gal or higher regardless of whether we set the biomass-
based diesel requirement at 1.0 or 1.28 bill gal, the net impact of 
setting the biomass-based diesel volume requirement at 1.28 bill 
gallons in 2013 could be seen as zero.
    We recognize that this conclusion is based on an applicable 
advanced biofuel volume of 2.75 bill gallons. While we will be 
considering the possibility of lowering the 2013 advanced biofuel 
applicable volume below 2.75 bill gal in next year's rulemaking, we 
have not presumed any such reduction in today's NPRM. Such reductions 
in advanced biofuel must occur in the context of determining the 
applicable volume of cellulosic biofuel for 2013, and using information 
available at that time regarding advanced biofuel volumes that are 
projected to be available in 2013.
    Nevertheless, the statute requires that we analyze specified 
environmental and other impacts in deriving an applicable biomass-based 
diesel volume for 2013 and other years, and these analyses can be 
conducted for 1.28 bill gal biomass-based diesel (or an increment of 
0.28 bill gal). Most of the areas we are required to analyze were 
covered in the RFS2 final rule in some form, and we believe that we can 
use this information in satisfying our statutory obligations to analyze 
specified factors in determining the applicable volume of biomass-based 
diesel for 2013.
    Some of the analyses presented in the RFS2 final rule were for the 
specific case of 1.28 bill gallons in 2013. These analyses included an 
investigation of the expected annual rate of commercial production of 
biomass-based diesel in 2013, impacts on agricultural commodity supply 
and price, and the cost to consumers of transportation fuel. Some of 
these were discussed in Section IV.B above. Most of the analyses in the 
RFS2 final rule, however, were conducted to represent full 
implementation of the RFS2 program in 2022. In these analyses, the 
biomass-based diesel volume was estimated to be 1.82 bill gallons, and 
was compared to

[[Page 38869]]

a reference case in which biodiesel volume was 380 mill gallons. These 
cases are shown in Table IV.C-1.

                             Table IV.C-1--Primary Reference and Control Cases From RFS2 Final Rulemaking (Billion Gallons)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         Advanced biofuel                                                              Non-
-----------------------------------------------------------------------------------------------------------------------------------  advanced
                                                                  Cellulosic biofuel    Biomass-based diesel     Other advanced      biofuel
                                                               ----------------------------------------------        biofuel       -----------   Total
                                                                                                             ----------------------            renewable
                                                                Cellulosic  Cellulosic   FAME \a\               Other                  Corn       fuel
                                                                  ethanol     diesel    biodiesel   NCRD \b\  biodiesel   Imported   ethanol
                                                                                                                 \c\      ethanol
--------------------------------------------------------------------------------------------------------------------------------------------------------
Reference.....................................................        0.25           0       0.38          0          0       0.64      12.29      13.56
Control.......................................................        4.92        6.52       0.85       0.15       0.82       2.24      15.00      30.50
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Fatty acid methyl ester (FAME) biodiesel.
\b\ Non-Co-processed Renewable Diesel (NCRD).
\c\ Other Biodiesel is biodiesel produced in addition to the amount needed to meet the biomass-based diesel standard.

The biomass-based diesel volume of 1.82 bill gallons analyzed for 2022 
in the RFS2 final rule is higher than the 1.28 bill gallons we chose to 
evaluate for today's NPRM for 2013. More importantly, the change in 
biodiesel production due to EISA mandates for biomass-based diesel plus 
other diesel anticipated to meet the advanced biofuel volume (a total 
increase of 1.44 billion gallons compared to the reference case without 
the EISA mandates) is much larger than the change we are evaluating for 
2013 (0.28 billion gallons). Additionally, many of the impacts analyzed 
for the RFS2 final rule reflected the whole biofuel mandate, not the 
relatively smaller portion just due to biodiesel. Other changes in 
renewable fuels analyzed for 2022 were also larger than what would 
likely occur in 2013. Therefore, the impacts we would expect in 2013 
compared to a case without RFS2 in place would likely be similar to or 
smaller than those we estimated for 2022. Given these considerations, 
we believe that the impacts assessments in the RFS2 final rule can be 
used to determine the directional impacts, and therefore the 
reasonableness, of a 1.28 billion gallon volume requirement for 
biomass-based diesel in 2013.
1. Climate Change
    Since biodiesel has a GHG benefit exceeding 50% compared to the 
petroleum-based diesel it is replacing, an increase in biomass-based 
diesel of 0.28 Bill gal from 2012 to 2013 would lead to a displacement 
of conventional diesel fuel, with corresponding GHG emissions 
reductions. This increased use of biomass-based diesel will contribute 
to lower climate change impacts in comparison to the petroleum-based 
diesel it is replacing.
    However, due to the nested nature of the RFS2 standards, biomass-
based diesel is also used to meet the advanced biofuel standard. 
Moreover, both biomass-based diesel and advanced biofuel must meet a 
GHG reduction threshold of 50%. If the 2013 advanced biofuel standard 
were to remain at the 2.75 bill gal specified in the statute, an 
increase in the biomass-based diesel volume requirement from 1.0 to 
1.28 bill gal would not change the total volume of advanced biofuel, 
and thus the total volume of biofuels that must meet a 50% reduction in 
GHGs would remain unchanged. Under such circumstances, a standard of 
1.28 bill gal of biomass-based diesel would have essentially no impact 
on climate change in the context of the full mix of biofuels used to 
meet the RFS2 requirements.
2. Energy Security4
    An analysis of the energy security impacts of the increased use of 
renewable fuels was conducted in support of the RFS2 rulemaking. Based 
on that analysis, increasing usage of renewable fuels including 
biomass-based diesel helps to reduce U.S. petroleum imports. A 
reduction of U.S. petroleum imports reduces both financial and 
strategic risks associated with a potential disruption in supply or a 
spike in cost of a particular energy source. This reduction in risks is 
a measure of improved U.S. energy security. In the RFS2 final rule, we 
described in detail the methodology and the Agency's estimate of the 
energy security impacts of the RFS2 rule. While EPA's analysis of 
energy security benefits of the RFS2 volumes considered the full volume 
of biofuels mandated by 2022 (of which biodiesel was only a part), the 
production of biodiesel is largely from domestic feedstocks. In 
contrast, the diesel fuel displaced is produced from petroleum sources 
which are increasingly from foreign sources. Therefore biodiesel 
production and use will contribute to a U.S. energy security benefit.
3. Agricultural Commodities and Food Prices
    For the RFS2 rule, we examined the impacts of increased renewable 
fuels production on commodity prices, food prices and trade in 
agricultural products. This analysis considered the impacts of all the 
biofuel feedstock sources anticipated to meet the 2022 biofuel volume 
requirements, not just biodiesel. For the RFS2, EPA used two primary 
models for its agricultural economic impacts analysis, the Food and 
Agriculture Sector Optimization Model (FASOM), and the Food and 
Agricultural Policy Research Institute-Center for Agriculture and Rural 
Development (FAPRI-CARD) models. The FASOM model is a long-term 
economic model of the U.S. forest and agriculture sectors that 
maximizes the net present value of the sum of producer and consumer 
surplus across the two sectors over time subject to market, technology, 
and other constraints. The FAPRI-CARD models are a system of 
econometric models covering many agricultural commodities in the U.S. 
and internationally. They are based on historical data analysis, 
current academic research, and a reliance on accepted economic, 
agronomic, and biological relationships in agricultural production and 
markets.\56\
---------------------------------------------------------------------------

    \56\ (Add reference to FAPRI description document used in RFS2 
FRM.)
---------------------------------------------------------------------------

    To meet the RFS2 renewable fuel volumes, a number of price effects 
on the agricultural commodities were estimated for 2022. For instance, 
FASOM estimates that an increase in renewable fuel volumes to meet the 
RFS2 would result in an increase in the U.S. soybean prices of $1.02 
per bushel (10.3 percent) above the Reference Case price in 2022. FASOM 
also projected the price of soybean oil would increase by $183 per ton 
(37.9 percent) over the 2022 Reference Case price (all prices are

[[Page 38870]]

in 2007$). Most of the additional soybeans needed for increased 
biodiesel production are diverted from U.S. exports to the rest of the 
world. In FASOM, soybean exports decrease by 135 million bushels (-13.6 
percent) in 2022 relative to the AEO2007 Reference Case. This change 
represents a decrease of $453 million (-4.6 percent) in the total value 
of U.S. soybean exports in 2022. However, these price effects are not 
attributed to the demand for biodiesel feedstocks alone, rather the 
compounding affect of all changes in feedstock demand estimated to 
result from the total biofuel mandate in 2022. Since the impact on 
soybeans due to biodiesel demand was only a portion of this total 
feedstock impact and since the impact in 2013 will be less than 
considered in 2022 (since the 2013 biodiesel volumes anticipated are 
less than those for 2022), the impact on soybean prices and exports 
from an increase to 1.28 bill gall in 2013 could also be less.
    A recent report by IHS Global Insight \57\ also discusses potential 
agricultural and economic impacts from increasing vegetable oil demand 
for biodiesel production. According to this study, existing soybean 
yield technologies are expected to be applied increasingly across the 
U.S., resulting in roughly a 10% higher growth rate in soybean yields 
than USDA's projections from 2010-2016 which were used by EPA in its 
RFS2 analyses. Similarly, Global Insight predicts these higher yield 
technologies to be implemented in other large soybean-producing 
countries, such as Brazil and Argentina. If higher yields than modeled 
for RFS2 indeed are realized, then it is likely the price increases for 
soybean oil will be less than estimated for RFS2. Likewise, other price 
impacts, such as those on food prices, would still move in the same 
direction (i.e., an increase in price resulting from an increase in 
demand) but could be smaller than in the RFS2 analysis.
---------------------------------------------------------------------------

    \57\ ``Biodiesel Production Prospects for the Next Decade,'' IHS 
Global Insight, March 11, 2011.
---------------------------------------------------------------------------

    For the analyses performed for the RFS2 final rule, EPA estimated a 
$10 per person per year increase in food costs due to the total annual 
impact of the RFS2 program by 2022 compared to a Reference case that 
assumed no RFS2 renewable fuel requirements. Again, the biodiesel 
impacts would represent only a small portion of these overall impacts 
and would like be even smaller in 2013 due to the smaller volume of 
feedstock required.
4. Air Quality
    This section discusses our assessment of the impacts of 1.28 bill 
gal of biomass-based diesel on emissions and air quality. We are 
relying on the analyses of renewable fuel impacts conducted in support 
of the RFS2 rule \58\ to qualitatively discuss the expected impacts of 
this biomass-based diesel volume. The RFS2 analyses reflect EPA's most 
current assumptions regarding biodiesel emission impacts.\59\
---------------------------------------------------------------------------

    \58\ 75 FR 14670, March 26, 2010.
    \59\ U.S. EPA 2010, Renewable Fuel Standard Program (RFS2) 
Regulatory Impact Analysis. EPA-420-R-10-006. February 2010. Docket 
EPA-HQ-OAR-2009-0472-11332. Section 3.1.1.2.4
---------------------------------------------------------------------------

    In the RFS2 rule, we analyzed both changes in pollutant emissions 
(measured in tons) and changes in ambient air quality associated with 
the changes in pollutant emissions. The changes in pollutant emissions 
were calculated by comparing the 2022 RFS2 renewable fuel volumes to 
volumes if the RFS2 mandate was not in place (the reference 
scenario).\60\ The analysis reflected full implementation of the RFS2 
program in 2022 and accounted for impacts from multiple types of 
renewable fuels, of which biodiesel was only one type. Specifically, 
the RFS2 emissions inventory analysis assumed 1.82 bill gal of 
biodiesel in the RFS2 scenario compared to 0.38 bill gal of biodiesel 
in the reference scenario, reflecting a 1.44 bill gal increase in 
biodiesel with the rule in place.
---------------------------------------------------------------------------

    \60\ In the RFS2 Regulatory Impact Analysis, we analyzed the 
mandated 2022 RFS2 renewable fuel volumes relative to volumes 
required by two reference scenarios: RFS1 mandate (7.1 billion 
gallons of renewable fuels) and AEO 2007 (13.6 billion gallons of 
renewable fuels). Both reference scenarios assumed the same volume 
of biodiesel, so the emission and air quality impacts described in 
this section are the same for both reference scenarios.
---------------------------------------------------------------------------

    Biodiesel emission impacts from the RFS2 rule emissions inventory 
analysis are presented in Table IV.C.4-1. A complete discussion of the 
emissions inventory analysis conducted for the RFS2 rule can be found 
in Chapter 3 of the RFS2 Regulatory Impact Analysis (RIA).\61\ These 
biomass-based diesel emission impacts, which reflect a 1.44 bill gal 
increase in biodiesel, are all less than 1% of the total U.S. emissions 
inventory for each pollutant. We expect the impacts of the 1.28 bill 
gal of biomass-based diesel, as compared to the 1.0 bill gal statutory 
minimum volume, to be smaller.
---------------------------------------------------------------------------

    \61\ U.S. EPA 2010, Renewable Fuel Standard Program (RFS2) 
Regulatory Impact Analysis. EPA-420-R-10-006. February 2010. Docket 
EPA-HQ-OAR-2009-0472-11332.

  Table IV.C.4-1--Biodiesel Emission Impacts of the RFS2 Renewable Fuel Volumes (1.82 Bill Gal) Relative to the
                                         Reference Case (0.38 Bill Gal)
----------------------------------------------------------------------------------------------------------------
                                                     Biodiesel impacts of RFS2 rule emissions
                                                     inventory analysis ([Delta] 1.44 bill gal
                                                                    Biodiesel)                     Percent RFS2
                                                 ------------------------------------------------   total U.S.
                                                   Upstream \a\   Downstream \b\                     inventory
                                                      (tons)          (tons)       Total (tons)
----------------------------------------------------------------------------------------------------------------
VOC.............................................          -1,049          -2,422          -3,471          -0.03%
CO..............................................             913          -4,104          -3,191          -0.01%
NOx.............................................            -290           1,346           1,056           0.01%
PM10............................................           4,268            -569           3,699           0.10%
PM2.5...........................................             632            -315             317           0.01%
SO2.............................................           1,580               0           1,580           0.02%
NH3.............................................           4,171               0           4,171           0.10%
Benzene.........................................              10             -30             -20          -0.01%
Ethanol.........................................               0               0               0           0.00%
1,3-Butadiene...................................               0             -16             -17          -0.10%
Acetaldehyde....................................               2             -66             -65          -0.14%
Formaldehyde....................................               1            -182            -181          -0.21%
Naphthalene.....................................              -1               0              -1          -0.01%

[[Page 38871]]

 
Acrolein........................................              63              -9              54           0.84%
----------------------------------------------------------------------------------------------------------------
\a\ U.S. EPA 2010, Renewable Fuel Standard Program (RFS2) Regulatory Impact Analysis. EPA-420-R-10-006. February
  2010. Docket EPA-HQ-OAR-2009-0472-11332. Table 3.2-11. Note: units in Table 3.2-11 were mislabeled as tons/
  mmBTU. Actual units are tons.
\b\ U.S. EPA 2010, Renewable Fuel Standard Program (RFS2) Regulatory Impact Analysis. EPA-420-R-10-006. February
  2010. Docket EPA-HQ-OAR-2009-0472-11332. Table 3.2-9.

    The air quality analysis for the RFS2 rule used photochemical 
modeling to characterize primary pollutants that are emitted directly 
into the atmosphere and secondary pollutants that are formed as a 
result of complex chemical reactions within the atmosphere. Included in 
the air quality modeling scenarios for the RFS2 rule were large volumes 
of ethanol as well as other renewable fuels, and the nature of these 
complex chemical interactions makes it difficult to determine the air 
quality impacts of biodiesel alone. Specifically, the RFS2 air quality 
analysis reflects a roughly 21 bill gal increase in ethanol, far 
outweighing the volume increase in biodiesel (0.43 bill gal). A 
complete discussion of the RFS2 air quality analysis and its 
limitations can be found in Chapter 3 of the RFS2 Regulatory Impact 
Analysis (RIA).\62\
---------------------------------------------------------------------------

    \62\ U.S. EPA 2010, Renewable Fuel Standard Program (RFS2) 
Regulatory Impact Analysis. EPA-420-R-10-006. February 2010. Docket 
EPA-HQ-OAR-2009-0472-11332.
---------------------------------------------------------------------------

    The RFS2 air quality analysis was completed earlier than the final 
emissions inventory analysis because of the length of time needed to 
conduct photochemical modeling.\63\ The air quality analysis assumed 
0.81 bill gal of biodiesel in the RFS2 scenario compared to 0.38 bill 
gal of biodiesel in the reference scenario, reflecting a 0.43 bill gal 
increase in biodiesel use with the rule in place.
---------------------------------------------------------------------------

    \63\ Emissions serve as inputs to the air quality modeling 
analysis. However, the final fuel volume assumptions (upon which the 
emission estimates were based) increased between the time that 
emissions were estimated to support the air quality modeling 
analysis and the time emissions were estimated to reflect the final 
rulemaking.
---------------------------------------------------------------------------

    Given the small emissions impact of a 0.43 bill gal increase in 
biodiesel on the total U.S. emissions inventory (the basis for our air 
quality modeling scenarios), we would expect the portion of air quality 
impacts attributable to a move from 1.0 to 1.28 bill gal (a 0.28 bill 
gal biodiesel increase) to be small enough that on a nationwide basis 
the air quality impact would likely not be noticeable.
    We note that Clean Air Act section 211(v) requires EPA to analyze 
and mitigate, to the greatest extent achievable, adverse air quality 
impacts of the renewable fuels required by the RFS2 rule. We intend to 
address any potential adverse impacts from increased renewable fuel use 
through that study and will promulgate appropriate mitigation measures 
separate from today's NPRM.
5. Transportation Fuel Cost
    For the RFS2 final rulemaking, we estimated the year-by-year per-
gallon costs for diesel fuel due to the RFS2 biofuel requirements. For 
2013, we based our diesel fuel cost estimate on the production and use 
of biodiesel, renewable diesel fuel and some cellulosic diesel fuel. 
The unsubsidized cost increase is 0.2 cents per gallon, but accounting 
for the subsidy, we estimated a cost savings to consumers for diesel 
fuel of 1.7 cents per gallon. This assumes a crude oil price of 81 
dollars per barrel, which is within the range of crude oil prices over 
the last several years which have ranged from $35 per barrel to $147 
per barrel.
6. Deliverability and Transport Costs of Materials, Goods, and Products 
Other Than Renewable Fuel
    EPA evaluated in the RFS2 final rule the impacts on the U.S. 
transportation network from the distribution of the total additional 
volume of biofuels that would be used to meet the RFS2 standards. 
Oakridge National Laboratory (ORNL) conducted an analysis of biofuel 
transportation activity from production plants to petroleum terminals 
by rail, barge, and tank truck to identify potential distribution 
constraints to help support the assessment in the RFS2 final rule.\64\ 
The ORNL analysis concluded that the increase in biofuel shipments due 
to the RFS2 standards would have a minimal impact on U.S. 
transportation infrastructure. The majority of biofuel transportation 
is projected to be accomplished by rail. Nevertheless, it was estimated 
that the biofuels transport would constitute only 0.4% of the total 
freight tonnage for all commodities transported by the rail system 
through 2022.\65\ Given the small increase in freight shipments due to 
the transport of biofuels to meet the RFS2 standards, we believe that 
the distribution of biofuels will not adversely impact the 
deliverability and transport costs of materials, goods, and products 
other than renewable fuels.
---------------------------------------------------------------------------

    \64\ ``Analysis of Fuel Ethanol Transportation Activity and 
Potential Distribution Constraints'', Oakridge National Laboratory, 
March 9, 2009. To simplify the ORNL analysis, biomass-based diesel 
volumes were assumed to originate at the same points of production 
and to be shipped to the same petroleum terminals as the ethanol 
projected to be used to meet the RFS2 standards. This may tend to 
overstate the potential impact on the transportation system from the 
shipment of biomass-based diesel fuels since biomass-based diesel 
production plants were projected to be more geographically dispersed 
than ethanol production facilities. In any event, the simplifying 
assumption was assessed to have little impact on the results from 
the analysis given that biomass-based diesel represented only 8% of 
the total projected biofuel volumes.
    \65\ See sections 1.6.4 and 1.6.5 of the RFS2 RIA.
---------------------------------------------------------------------------

7. Wetlands, Ecosystems, and Wildlife Habitats
    As directed by CAA section 211(o)(2)(B)(ii), in setting the 2013 
biodiesel volume requirements, EPA is to consider the impacts of 
biodiesel production and use on wetlands, ecosystems and wildlife 
habitat.
    The most complete and up-to-date assessment of these impacts is 
contained in the draft analysis prepared by EPA in response to the 
requirements set out in CAA section 204. This report has been released 
in draft form in order to allow interested parties to provide comments 
on the analyses and policy implications. Concluding this review and the 
peer review, updates will be made to the report, and then the final 
report will be published in 2012 on the EPA Biofuels Web site. 
Nevertheless, since this draft report includes an assessment of the 
impact of biofuels on a number of the areas that we are required to 
analyze in the process of determining the 2013 biomass-based

[[Page 38872]]

diesel volume, we believe it is appropriate to make use of this 
information as it represents the most current EPA assessments 
available.\66\
---------------------------------------------------------------------------

    \66\ U.S. EPA. Biofuels and the Environment: the First Triennial 
Report to Congress (External Review Draft). U.S. Environmental 
Protection Agency, Washington, DC, EPA/600/R-10/183A, 2011. http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid=217443.
---------------------------------------------------------------------------

    This draft report relies on information available as of July 2010. 
The report does not attempt to quantify the impacts of biofuel 
production and use as these impacts are dependent on local or regional 
conditions. Nevertheless the draft provides qualitative assessments and 
reasonable expectations of trends which can be used to consider the 
environmental impacts of increases in biodiesel production and use. 
These trends are only summarized here while the draft report provides 
extensive detail.
    The draft assessment focuses on the use of oil from soy beans as 
the feedstock for biodiesel production. Other oil seed feedstock 
sources represent a very small portion of biofuel production in 2013 so 
would be expected to have much less of an impact than soy oil. Corn oil 
extracted during the ethanol production process is increasing, adds a 
very small increment of process GHG and will offset demands for soy and 
other oil seed crops, thus reducing potential agricultural impact of 
biodiesel production and adding to the net reduction in GHG emissions. 
Finally, waste fats, oils and greases would be expected to have 
negligible environmental impact as a feedstock since they do not impact 
agricultural land use and would otherwise be used for some lower value 
purpose or simply discarded.
    Wetlands can be adversely affected by agricultural production 
through runoff that can result in nutrient loading (particularly from 
fertilizers) or from sedimentation (from erosion). Soy production tends 
to use less fertilizer than corn production (the most likely 
alternative crop) and can reduce the amount of fertilizer required for 
corn when planted in rotation with corn. However, compared to other 
crops, erosion can be higher from fields planted in row crops such as 
corn and soy beans. While the impacts of nutrient loading and erosion 
tend to be site specific, good farming practices including the optimum 
fertilizer use and the set aside of sensitive lands via the CRP program 
can significantly help control these adverse affects. Wetlands can also 
be adversely affected through diversion of surface and ground water for 
agricultural irrigation. Soy bean production less frequently relies on 
irrigation than corn and some other crops. More discussion on water 
usage is included below in the section on water use and water quality 
impacts.
    Ecosystems and wildlife habitat can be adversely affected if CRP 
lands are converted to crop production, if row crops such as soy beans 
replace grassy crops and in general if new lands with diverse 
vegetation are converted to crop production. As noted in the RFS2 rule, 
we do not expect the RFS program production to result in an increase in 
total acres of agricultural land under production in the US compared to 
a reference case without the impact of the RFS2 volumes. The relatively 
small increase of 0.28 bill gall should not appreciably affect the 
amount of land devoted to oil seed production. Further, since soy beans 
are traditionally planted in rotation with other crops such as corn, 
this small increase in soy oil demand for biodiesel production is 
unlikely to replace grassy crops or result in the indirect increase in 
land under crop production. Additionally, the USDA commitment to 
support the CRP program should minimize the likelihood of any 
significant change in the amount of CRP land. Therefore, while some 
very local changes may result due to an individual farmer's planting 
decisions, since no new crop land are expected in the U.S. due to this 
increase in biodiesel production and sensitive lands will be protected 
via programs such as CRP, no measureable impact in aggregate ecosystems 
or wildlife habitat is expected.
8. Water Quality and Quantity
    The water quality and quantity impacts of biodiesel are primarily 
related to the type of feedstock and the production practices used to 
both produce the feedstock and to convert the feedstock into biodiesel. 
Soybeans are the principal feedstock used for biodiesel production and 
are predicted to account for 600 million gallons of the 1.28 billion 
gallons evaluated for 2013. Non-food grade corn oil extracted during 
ethanol production, animal fats and recycled fats account for most of 
the remaining biodiesel feedstocks. Since these fats are the byproduct 
of another use and not produced specifically for biodiesel manufacture 
and since corn oil extracted is a by-product of corn ethanol 
production, this analysis will focus on soybeans.
    From a water quality perspective, the primary pollutants of concern 
from soybean production are fertilizers (nitrogen and phosphorus) and 
sediment. There are three major pathways for these potential pollutants 
to reach water from agricultural lands: runoff from the land's surface, 
subsurface tile drains, or leaching to ground water. Climate, 
hydrological, and management factors influence the potential for these 
contaminants to reach water from agricultural lands.
a. Impacts on Water Quality and Water Quantity Associated With Soybean 
Production
    After corn, soybeans are the second largest agricultural crop in 
terms of acreage in the U.S. As with the production of any agricultural 
crop, the impact on water quality depends on a variety of factors 
including production practices, use of conservation practices and crop 
rotations by farmers, and acreage and intensity of tile drained lands. 
Additional factors outside agricultural producers' control include soil 
characteristics, climate, and proximity to water bodies.
    Soybeans are typically grown in the same locations as corn since 
farmers commonly rotate between the two crops. In 2005, the latest year 
for which USDA collected data, the U.S. average nitrogen fertilization 
rate for soybeans was 16 pounds per acre. In contrast, the average 
nitrogen fertilization rate for corn was 138 pounds per acre.\67\ 
Soybeans fix nitrogen, so they do not require substantial added 
fertilizer for adequate yields. Only 18 percent of soybean acres are 
fertilized with nitrogen compared to 96 percent of corn acres.\68\ 
Since significantly less nitrogen fertilizer is applied to soybeans, 
less nitrogen is available for runoff or leaching into water. Water 
quality generally benefits when soybeans are rotated with corn, since 
the next corn crop requires less fertilizer and fewer pesticides. 
Therefore, crop rotation is one practice that is part of an effective 
system to limit water quality impacts. However, soybeans have less 
residue remaining on the field after harvest compared to corn, so 
sediment runoff could be more of a concern.
---------------------------------------------------------------------------

    \67\ U.S. Department of Agriculture, Economic Research Service. 
Fertilizer Use and Price. http://www.ers.usda.gov/Data/FertilizerUse.
    \68\ U. S. Department of Agriculture, National Agricultural 
Statistics Service. 2007. Agricultural chemical usage 2006 field 
crops summary. Available at: http://usda.mannlib.cornell.edu/usda/nass/AgriChemUsFC//2000s/2007/AgriChemUsFC-627 05-16-2007--
revision.pdf.
---------------------------------------------------------------------------

    Agricultural conservation systems can reduce the impact of soybean 
production on the environment. The systems components include (1) 
controlled application of nutrients and pesticides through proper rate, 
timing, and method of application, (2) controlling erosion in the field 
(i.e.,

[[Page 38873]]

reduced tillage, terraces, or grassed waterways), and (3) trapping 
losses of soil and fertilizer runoff at the edge of fields or in fields 
through practices such as cover crops, riparian buffers, controlled 
drainage for tile drains, and constructed/restored wetlands.\69\
---------------------------------------------------------------------------

    \69\ Dinnes, DL; Karlen, DL; Jaynes, DB; Kaspar, TC; Hatfield, 
JL; Colvin, TS; Cambardella, CA. 220 2002. Nitrogen management 
strategies to reduce nitrate leaching in tile-drained 221 midwestern 
soils. Agronomy Journal 94(1): 153-171.
---------------------------------------------------------------------------

    The effectiveness of conservation practices, however, depends upon 
their adoption. The USDA`s Conservation Effects Assessment Project 
(CEAP) quantified the effects of conservation practices used on 
cultivated cropland in the Upper Mississippi River Basin. It found 
that, while erosion control practices are commonly used, there is 
considerably less adoption of proper nutrient management to mitigate 
nitrogen loss to water bodies.\70\ However, as noted above, the 
relatively low amount of fertilizer used for soy bean production tends 
to lessen the potential for nitrogen loss to water bodies
---------------------------------------------------------------------------

    \70\ U.S. Department of Agriculture, National Resources 
Conservation Service. 2010. Assessment of the effects of 
conservation practices on cultivated cropland in the Upper 
Mississippi River Basin. Available at: http://www.nrcs.usda.gov/technical/NRI/ceap/umrb/index.html.
---------------------------------------------------------------------------

    Water for soybean cultivation predominately comes from rainfall, 
although about 11 percent of soybean acres in the U.S. are 
irrigated.\71\ Water use for irrigated soybean production in the U.S. 
varies from 0.2 acre-feet per acre in Pennsylvania to about 1.4 acre-
feet per acre in Colorado, with a national average of 0.8 acre-feet of 
water.\72\
---------------------------------------------------------------------------

    \71\ U.S. Department of Agriculture. 2010. 2007 Census of 
agriculture, Farm and ranch irrigation survey (2008). http://www.agcensus.usda.gov/Publications/2007/Online_Highlights/Farm_and_Ranch_Irrigation_Survey/fris08.pdf.
    \72\ U. S. Department of Energy. 2006. Energy demands on water 
resources: Report to Congress on the interdependency of energy and 
water. Available at: http://www.sandia.gov/energy-water/docs/121-RptToCongress-EWwEIAcomments-FINAL.pdf.
---------------------------------------------------------------------------

b. Impacts on Water Quality and Water Quantity Associated With 
Biodiesel Production
    Biological oxygen demand (BOD), total suspended solids, and 
glycerin pose the major water quality concerns in wastewater discharged 
from biodiesel facilities. Actual impacts depend on a range of factors, 
including the type of feedstock processed, biorefinery technology, 
effluent controls, and water re-use/recycling practices, as well as the 
facility location and source and receiving water.
    Despite the existing commercial market for glycerin and the likely 
expanded uses for glycerin as discussed in the RFS2 final rule, the 
rapid development of the biodiesel industry has caused a temporary glut 
of glycerin production, resulting in some instances of facilities 
disposing glycerin. Glycerin disposal may be regulated under several 
EPA programs, depending on the practice. However, there have been 
incidences of glycerin dumping, including an incident in Missouri that 
resulted in a large fish kill.\73\ Some biodiesel facilities discharge 
their wastewater to municipal wastewater treatment systems for 
treatment and discharge. There have been several cases of municipal 
wastewater treatment plant upsets due to high BOD loadings from 
releases of glycerin.\74\ To mitigate wastewater issues, some 
production systems reclaim glycerin from the wastewater. Closed-loop 
systems in which water and solvents can be recycled and reused can 
reduce the quantity of water that must be pretreated before discharge.
---------------------------------------------------------------------------

    \73\ U.S. EPA. 2010b. Renewable fuel standard program (RFS2) 
regulatory impact analysis. EPA-420-R-10-006. Available at: http://www.epa.gov/otaq/renewablefuels/420r10006.pdf.
    \74\ U.S. EPA. 2010b. Renewable fuel standard program (RFS2) 
regulatory impact analysis. EPA-420-R-10-006. Available at: http://www.epa.gov/otaq/renewablefuels/420r10006.pdf.
---------------------------------------------------------------------------

    Biodiesel can also impact water bodies as a result of spills. 
However, biodiesel degrades approximately four times faster than 
petroleum diesel including in aquatic environments.\75\ Results of 
aquatic toxicity testing of biodiesel indicate that it is less toxic 
than regular diesel.\76\ Biodiesel does have a high oxygen demand in 
aquatic environments, and can cause fish kills as a result of oxygen 
depletion. Water quality impacts associated with spills at biodiesel 
facilities generally result from discharge of glycerin, rather than 
biodiesel itself.
---------------------------------------------------------------------------

    \75\ Kimble, J. n.d. Biofuels and emerging issues for emergency 
responders. U.S. EPA. Available at: http://www.epa.gov/oem/docs/oil/fss/fss09/kimblebiofuels.pdf.
    \76\ Kahn, N; Warith, MA; Luk, G. 2007. A comparison of acute 
toxicity of biodiesel, biodiesel blends, and diesel on aquatic 
organisms. Journal of the Air and Waste Management Association 
57(3): 286-296.
---------------------------------------------------------------------------

    Biodiesel facilities use much less water than ethanol facilities to 
produce biofuel. The primary consumptive water use at biodiesel plants 
is associated with washing and evaporative processes. Water use is 
variable, but is usually less than one gallon of water for each gallon 
of biodiesel produced; some facilities recycle wash water, which 
reduces overall water consumption.\77\
---------------------------------------------------------------------------

    \77\ Renewable Fuels Standard Program (RFS2), Regulatory Impact 
Analysis (RIA). EPA-420-R-10-006. Available at: http://www.epa.gov/otaq/renewablefuels/420r10006.pdf.
---------------------------------------------------------------------------

9. Job Creation and Rural Economic Development
    The RFS2 is anticipated to increase employment and spur income 
expansion in rural areas and farming communities. Income expansion in 
rural areas from renewable fuel production will contribute to rural 
economic development. As mentioned above, industry activities are 
currently progressing to ramp up biodiesel consumption from the 
approximately 380 mill gallons estimated to be used in the U.S. in 2010 
to the 800 mill gallons that is estimated to be used in 2011 to meet 
the RFS2 biomass-based diesel volume requirement. In addition, it is 
anticipated that biodiesel production capacity idled due to lack of 
demand will be brought back on line as biodiesel volumes ramp up. Also, 
expansions to the fuel distribution infrastructure (i.e., more fuel 
terminals, rail cars, tank trucks, barges etc.) will be needed to 
support the use of 1 bill gal/yr of biodiesel in 2012 and 1.28 bill 
gal/yr in 2013 based on the analysis conducted for the RFS2 final 
rule.\78\ Bringing online idle biodiesel plants and expanding biodiesel 
distribution infrastructure in the U.S. will increase both employment 
and promote rural economic development. These increases in employment 
are similar to what EPA anticipated when it analyzed the RFS2 rule.
---------------------------------------------------------------------------

    \78\ Renewable Fuels Standard Program (RFS2), Regulatory Impact 
Analysis (RIA), EPA-420-R-10-006, February 2010. Available at: 
http://www.epa.gov/otaq/renewablefuels/420r10006.pdf.
---------------------------------------------------------------------------

D. Proposed 2013 Volume for Biomass-Based Diesel

    We are proposing an applicable volume of 1.28 bill gal biomass-
based diesel for 2013, consistent with our projection for 2103 in the 
RFS2 final rule. The 0.28 bill gal increment over the 2012 applicable 
volume that is reflected in this proposal does not deviate 
substantially from the trend in annual increments that Congress 
established in specifying applicable volumes for biomass-based diesel 
for 2009 through 2012. As noted in Section IV.B, because we are not 
proposing to change the 2013 advanced biofuel applicable volume in this 
rulemaking, we have used the 2.75 bill gallon applicable volume for the 
analyses in today's proposal. Given an advanced biofuel applicable 
volume of 2.75 bill gallons for 2013, the proposed 1.28 bill gal 
biomass-based diesel volume requirement is not expected to force any 
additional biomass-based diesel

[[Page 38874]]

volumes into the market in 2013. As a result, the increase in biomass-
based diesel from the statutory minimum of 1.0 bill gal to 1.28 bill 
gal could be seen as not having any impact beyond what is anticipated 
to result from meeting the current 2.75 bill gal advanced biofuel 
applicable volume.
    However, compared to a reference case without the RFS2 mandates, 
1.28 bill gal of biomass-based diesel will lead to displacement of 
fossil-based fuel, which will result in reduced GHG emissions from the 
transportation sector and increased energy security. There are likely 
to be some negative consequences associated with increased air and 
water pollution, increased food prices, impacts to wetlands, etc., as 
discussed above. However, EPA does not believe that these impacts 
outweigh the benefits of moving to an applicable volume of 1.28 bill 
gal for 2013. By requiring somewhat more biomass based diesel use in 
2013 than the statutory minimum, we are also making it more likely that 
we will not need to modify the advanced biofuel mandate in 2013 and, 
therefore, that the Congressional goal for advanced biofuel use in 2013 
can either be satisfied, or at least come closer to satisfaction. EPA 
solicits comment on all issues related to this proposal.

E. 2014 and Beyond

    EPA is directed under CAA 211(o)(2) to determine the required 
biomass-based diesel volumes no less than 14 months ahead of the first 
year that they would be applicable, and thus we could propose biomass-
based diesel volumes for 2014 and beyond in today's NPRM. Doing so 
would provide certainty for the industry and stability for future 
investments and contracts. However, we are not proposing biomass-based 
diesel standards for 2014 and beyond in today's NPRM since we believe 
we will be in a better position in the future to evaluate all of the 
factors related to establishing an applicable volume for 2014 and later 
years.
    We are aware of two sources that provide projections of biomass-
based diesel for years after 2013: the RFS2 final rulemaking, and a 
recent report released by the IHS Global Insight.\79\ The projections 
from both of these sources are shown in Table IV.E-1
---------------------------------------------------------------------------

    \79\ ``Biodiesel Production Prospects for the Next Decade,'' IHS 
Global Insight, March 11, 2011.

   Table IV.E-1--Projections of Biomass-Based Diesel After 2012 (Bill
                                Gallons)
------------------------------------------------------------------------
                                                              IHS global
                                                 RFS2 final    insight
                                                    rule        report
------------------------------------------------------------------------
2013..........................................         1.28         1.34
2014..........................................         1.39         1.50
2015..........................................         1.53         1.81
2016..........................................         1.56         2.18
2017..........................................         1.60         2.53
2018..........................................         1.64         2.74
2019..........................................         1.68         3.00
2020..........................................         1.72         3.14
2021..........................................         1.77         3.23
2022..........................................         1.82         3.30
------------------------------------------------------------------------

We will consider these and other sources when we determine the required 
biomass-based diesel volumes for 2014 and beyond, whether in this or a 
future rulemaking.

V. Proposed Changes to RFS2 Regulations

    As the RFS2 program got underway in the second half of 2010, we 
discovered that a number of regulatory provisions were causing 
confusion among regulated parties. In some cases the confusion was due 
to a lack of specificity in terms, while in others it was due to unique 
circumstances that were not sufficiently addressed in the RFS2 
regulations. A few amendments are being proposed in order to correct 
regulatory language that inadvertently misrepresented our intent as 
reflected in the preamble to the final RFS2 regulations. Finally, as we 
have worked with regulated parties to ensure that the RFS program is 
operating as intended, we identified areas in the regulations that 
could benefit from clarification and/or streamlining. We also 
identified one provision in the gasoline benzene regulations that 
misrepresented our intent as stated in the preamble. As a result, we 
are proposing a number of amendments to the RFS regulations, and one 
amendment to the gasoline benzene regulations, in 40 CFR part 80.

A. Summary of Amendments

    Below is a table listing the provisions that we are proposing to 
amend in today's action. We have provided additional explanation for 
several of these amendments in Sections V.B through V.F below.

              Table V.A-1--Summary of Technical Amendments
------------------------------------------------------------------------
           Section                            Description
------------------------------------------------------------------------
80.1275(d)(3)................  Removed to allow for the inclusion of
                                transferred blendstocks in the
                                calculation of benzene early credits.
80.1401......................  Amended definition of ``annual cover
                                crop'' to clarify that the crop has no
                                existing market to which it can be sold
                                except for its use as feedstock for the
                                production of renewable fuel.
80.1401......................  Amended definition of ``naphtha'' to
                                clarify that it applies to hydrocarbons
                                only, must be commonly or commercially
                                known as naphtha, and is used for
                                producing gasoline.
80.1405(a), (b), and (d).....  Amended to state the standards for 2012
                                and the date of the annual standards
                                calculation.
80.1405(c)...................  Amended terms ``GEi'' and ``DEi'' to
                                reference the amount of gasoline and/or
                                diesel produced by small refineries and
                                small refiners that are exempt pursuant
                                to Sec.  Sec.   80.1441 and 80.1442.
80.1415(c)(2)................  Amended to state the specific
                                requirements needed for technical
                                justifications for applications for
                                Equivalence Values.
80.1426, Table 1.............  Amended to add ID letters to pathways to
                                facilitate references to specific
                                pathways and to change the reference to
                                ``canola'' to ``canola/rapeseed''.
80.1426(f)(1)................  Corrected typographical error in cross
                                reference to paragraph (f)(6) of Sec.
                                80.1426.
80.1426(f)(5)(ii)............  Amended requirements so that the
                                separated yard waste plans and separated
                                food waste plans need not be approved by
                                EPA, but instead only need to be
                                accepted by EPA under the registration
                                provisions.
80.1429(b)(2)................  Amended to clarify that ``fossil-based''
                                diesel fuel is different from renewable
                                diesel fuel.
80.1429(b)(9)................  Amended to include RIN separation
                                limitations on parties whose non-export
                                RVOs are solely related to imports of
                                gasoline and diesel or the use of
                                blendstocks to produce gasoline or
                                diesel.
80.1449(a)...................  Amended Production Outlook Report due
                                date; added allowance for unregistered
                                renewable fuel producers and importers
                                to submit Production Outlook Reports.

[[Page 38875]]

 
80.1450(b)(1)(vi)............  Amended to require submission of
                                additional evidence as part of
                                registration to verify eligibility for
                                exemptions in Sec.   80.1403(c) or (d).
80.1450(d)(1)-(d)(3).........  Amended to add more specificity on when
                                updates, addenda, or resubmittals are
                                required for engineering reviews and to
                                include references to foreign ethanol
                                producers.
80.1451(a)(1)(xi)............  Amended to clarify that this section
                                references RFS1 RINs retired for
                                compliance.
80.1452(b)(2)................  Corrected typographical error.
80.1452(b)(4)................  Amended to clarify that a RIN-generating
                                importer must submit to EMTS the EPA
                                facility registration number of the
                                facility at which the renewable fuel
                                producer or foreign ethanol producer
                                produced the batch.
Sec.   80.1452(b)(5).........  Amended to clarify that for imports of
                                renewable fuel, the RIN-generator must
                                submit to EMTS the EPA facility
                                registration number of the importer that
                                imported the batch.
80.1460(b)(6)................  Added to clarify that RINs cannot be
                                generated more than once for a single
                                batch of renewable fuel.
80.1464(a)(2)(iii),            Added to clarify that auditors must
 (a)(2)(iv), (b)(2)(iii),       verify that product transfer documents
 (b)(2)(iv), (c)(1)(iii), and   for RIN transactions contain the
 (c)(1)(iv).                    required information for obligated
                                parties/exporters and for renewable fuel
                                producers/importers.
80.1464(a)(2)(i), (a)(3)(ii),  Amended to clarify that auditors must
 (b)(2)(i), (b)(3)(ii).         validate RIN separations for obligated
                                parties/exporters and for renewable fuel
                                producers/importers; amended to correct
                                typographical error.
80.1465(h)(2); 80.1466(h)(2);  Amended to remove the option of using an
 and 80.1467(e)(1), (e)(2),     alternative commitment in lieu of paying
 and (g)(2).                    a bond and to clarify the amount of bond
                                a foreign entity must post.
------------------------------------------------------------------------

B. Technical Justification for Equivalence Value Application

    A producer or importer of renewable fuels is required to submit an 
equivalence value (EV) application in accordance with Sec.  80.1415(c) 
for any renewable fuel that does not have an EV listed in Sec.  
80.1415(b). In addition, a producer or importer could apply for an 
alternative EV if the producer or importer has reason to believe that a 
different EV than that listed in Sec.  80.1415(b) is warranted. Section 
80.1415(c) provides the calculation equation for the EV of the 
renewable fuel and the requirements for the technical justification to 
be submitted in the EV application.
    We have received many inquiries from producers and importers of 
renewable fuels requesting clarification of the specific requirements 
for the technical justification listed in Sec.  80.1415(c). In 
addition, based on the many EV applications we have evaluated, we have 
found that we needed to request additional information from producers 
and importers to better understand the composition of the renewable 
fuel they produced, such as intermediate steps and energy inputs in 
production process, sources of renewable and non-renewable feedstock, 
and so forth, to better evaluate and assign the correct EV to the 
producer or importer's renewable fuel.
    Therefore, we are proposing to amend Sec.  80.1415(c)(2) to provide 
clarification to the current requirements and to include additional 
requirements for the technical justification to be submitted in the EV 
application. The proposed amendments to Sec.  80.1415(c)(2) include:

--A calculation for the requested equivalence value according to the 
equation in Sec.  80.1415(c)(1), including supporting documentation for 
the energy content (EC) of the renewable fuel such as a certificate of 
analysis from a laboratory that verifies the lower heating value in Btu 
per gallon of the renewable fuel produced.
--For each feedstock, component or additive used to make the renewable 
fuel, provide a description, the percent input and identify whether or 
not it is renewable biomass or is derived from renewable biomass.
--For each feedstock that could independently qualify as a renewable 
fuel, state whether or not RINs have been previously generated for the 
feedstock.
--A description of renewable fuel and the production process, including 
a block diagram that shows quantities of all inputs and outputs 
required at each step of the production process for the production of 
one batch of renewable fuel.

C. Changes to Definitions of Terms

1. Definition of Annual Cover Crop
    As explained in the preamble of the RFS2 final rulemaking, EPA 
extended modeling for cellulosic biofuel made from corn stover and 
biodiesel/renewable diesel made from waste oils/fats/greases to annual 
cover crops, based on the expectation that cultivation of annual cover 
crops, as defined in Sec.  80.1401, will have little impact on the 
agricultural commodity markets and therefore little or no land use 
impact associated with them. Therefore, certain fuels (as specified in 
Table 1 to Sec.  80.1426) derived from annual cover crop feedstocks 
qualify for D-codes under the advanced biofuel, biomass-based diesel, 
and cellulosic renewable fuel categories.
    Section 80.1401 of the final RFS2 rule defines ``annual cover 
crop.'' We are proposing to amend the definition of annual cover crop 
in order to more clearly define those feedstocks that meet the intent 
of including cover crops in several pathways in Table 1 to Sec.  
80.1426.
    In order to extend our modeling to cover crops, we used the 
rationale that annual cover crops would have no land use impact since 
they are planted on land otherwise used for crop production. Greenhouse 
gas emissions would only be associated with growing, harvesting and 
transporting the cover crop, and then processing into biofuel. (See 75 
FR 14794 col. 3.) Thus, we assumed that no additional land would be 
required to plant annual cover crops, that cover crops would not 
displace primary crop production, and that the use of the cover crop as 
a feedstock for renewable fuels would not have secondary impacts on 
other agricultural commodity markets. This implies that annual cover 
crops would not be planted and harvested for the purpose of being sold 
to existing markets. If a cover crop already had an existing market, 
then the increased use of cover crops as feedstocks for renewable fuel 
production could potentially impact the existing markets. Therefore, we 
propose to amend the current definition for ``annual cover crop'' to 
clarify that for purposes of the RFS program the term only includes 
crops that have no existing market to which they can be sold except for 
the use of the feedstock

[[Page 38876]]

for renewable fuel. This will ensure that no unintended land use or 
significant indirect effects result from the use of annual cover crops 
as feedstocks for renewable fuel production.
    EPA recognizes that there may be additional fuel pathways requiring 
lifecycle greenhouse gas (GHG) assessments and the assignment of 
appropriate RIN D-Codes, including those using feedstocks that do not 
meet the proposed amended definition of annual cover crop. For further 
guidance on the process for requesting EPA evaluation of new fuel 
pathways, please refer to the following sites:

http://www.epa.gov/otaq/fuels/renewablefuels/compliancehelp/rfs2-lca-pathways.htm. 
http://www.epa.gov/otaq/fuels/renewablefuels/compliancehelp/lca-petition-instructions.htm#1.
2. Definition of ``Naphtha''
    In the RFS2 final rule, we included several RIN-generating pathways 
in Table 1 for naphtha made from renewable biomass. We also provided a 
definition of naphtha in Sec.  80.1401. However, the definition we 
finalized was overly broad and did not adequately represent our intent 
to limit naphtha to gasoline blendstocks. As a result, some biofuel 
producers have expressed interest in interpreting the term ``naphtha'' 
to include materials that, while falling within the boiling range of 
gasoline, are not used as a blendstock to produce gasoline.
    To remedy this situation, we are proposing to revise the definition 
of naphtha to also specify that it applies only to blendstocks which 
are composed of only hydrocarbons, are commonly or commercially known 
as naphtha, and are used to produce gasoline.

D. Technical Amendments Related to RIN Generation and Separation

1. RIN Separation Limit for Obligated Parties
    We propose to amend section 80.1429 to limit the amount of RINs a 
company who is an obligated party solely by virtue of importation of 
obligated fuel can separate to their Renewable Volume Obligation (RVO). 
This change would address the instance where a party may import a small 
amount of obligated volumes and then separate all the RINs that it 
owns. This change is designed to prevent abuse of the obligated party 
RIN separation provision by a company that imports a relatively small 
amount of an obligated volume, but then separates a large amount of 
RINs. The proposed provision is also designed to help prevent the 
hoarding of RINs by parties that do not need them for compliance 
purposes, and to generally increase liquidity of RINs.. EPA structured 
the original RFS1 separation regulations around facilitating compliance 
by obligated parties meeting their RVOs. The proposed change keeps with 
the original design and also ensures that importers can separate enough 
RINs to meet their obligations.
2. RIN Retirement Provision for Error Correction
    In some instances, renewable fuel producers or importers may 
improperly generate RINs in EMTS as a result of calculation errors, 
meter malfunctions or clerical errors. Pursuant to Sec.  80.1431(a), 
improperly generated RINs are invalid, and cannot be used to achieve 
compliance with any Renewable Volume Obligations (RVOs). The 
regulations also prohibit any party from creating or transferring 
invalid RINs. These invalid RIN provisions apply regardless of the good 
faith belief of a party that the RINs are valid. Because of the ``buyer 
beware'' aspect of the RIN program, RIN generators should take all 
appropriate actions to ensure that they are properly generating RINs, 
and all parties in the RIN distribution system should take all 
appropriate actions to ensure that they are not trading invalid RINs or 
using invalid RINs for compliance purposes.
    The ``buyer beware'' aspect of the RIN program provides an 
important incentive for the regulated community to comply with the 
regulations. Although EPA believes that these self-policing mechanisms 
are a critical component of the RFS2 regulations, we seek comment on 
the possibility of amending Sec.  80.1431 to provide the regulated 
community with limited flexibility to allow certain RINs that were 
improperly generated to nevertheless be transferred and used for 
compliance. We envision that this type of flexibility could reduce 
disruptions to the RIN market while, if appropriately limited, 
continuing to apply appropriate pressure on parties that generate, 
transfer and use RINs to comply with the regulations. Parties that 
improperly generate RINs would remain liable for generating invalid 
RINs.
    We believe that the following general limitations should apply to 
any flexibility to allow improperly generated RINs to be transferred 
and used for compliance: (1) The RINs must have been improperly 
generated as a result of an inadvertent error, (2) the improperly 
generated RINs must have the correct D code, (3) the RIN generator must 
correct the information submitted to EMTS and retire an equivalent 
number and type of any excess RINs that were generated as a result of 
the error within fixed time period, (4) the flexibility to allow 
improperly generated RINs to be used for compliance would only apply if 
the number of excess RINs generated for a particular batch exceeds the 
number of RINs that should have been generated by some fixed 
percentage, and (5) the flexibility to allow improperly generated RINs 
to be used for compliance could not be repeatedly used by a renewable 
fuel producer.
    We are seeking comment on whether EPA should amend the regulations 
to include this flexibility, whether the conditions set forth above are 
appropriate, and whether there are additional or alternative conditions 
that should be imposed if the flexibility is granted. We seek comment 
on specifying a 60-day time period for a RIN-generator to correct RIN 
information submitted to EMTS and limiting the availability of this 
flexibility to situations where the number of excess RINs generated for 
a particular batch exceeds the number of RINs that should have been 
generated by no more than 2%. In addition, we seek comment on the 
possibility of establishing a limit on the number of times this 
flexibility could be used within a compliance period by a given RIN 
generator. Such a limitation could encourage RIN generators to take 
appropriate measures to avoid generating invalid RINs, and limit the 
possibility that RIN generators would intentionally generate invalid 
RINs to take advantage of short term RIN price spikes. EPA seeks 
comment on all aspects of this proposal
3. Production Outlook Reports Submission Deadline
    In the final RFS2 regulations, in Sec.  80.1449(a), EPA set the 
annual deadline for submitting Production Outlook Reports as March 31 
of each year. However, EPA has determined that, in order for the 
information contained in the Production Outlook Reports to be most 
useful when setting the RFS2 volume requirements and associated 
percentage standards for the following calendar year, the reports 
should contain the most accurate projections possible. Since the 
accuracy of projections tends to increase the closer those projections 
are made to the following calendar year, we believe that the March 31 
deadline should be moved to June 1. This revised deadline would still 
allow the information contained in the Production Outlook Reports to be 
used in the development of the final

[[Page 38877]]

rulemaking setting the standards for the following year.
4. Attest Procedures
    In the final RFS2 regulations, EPA required in Sec.  
80.1464(c)(1)(i) and (c)(2)(ii) that RIN owners conduct attest 
procedures for RIN transaction and RIN activity reports that involve 
RIN separations. This requirement was intended to be included in the 
attest procedures for obligated parties and exporters as well as for 
renewable fuel producers and RIN-generating importers, in order to 
confirm that RINs are being properly separated by all parties 
participating in the RIN market. Thus, today's rule proposes amendments 
to Sec.  80.1464(a)(2)(i) and (a)(3)(ii) for obligated parties and 
exporters as well as to Sec.  80.1464(b)(2)(i) and (3)(ii) for 
renewable fuel producers and RIN-generating importers to include attest 
procedures concerning verification of RIN separation.
    Additionally, in the final RFS2 regulations, EPA required in Sec.  
80.1464 that auditors of RIN generation reports verify that product 
transfer documents (PTDs) include the required information. EPA 
believes it would be beneficial for auditors to verify the required 
information is present on PTDs for RIN transactions for all parties, 
including obligated parties, renewable fuel producers and importers and 
RIN owners. Thus, today's rule proposes amendments to Sec.  
80.1464(a)(2), (b)(2) and (c)(1) to require auditors to verify that the 
PTDs for a representative sample of RINs sold and purchased contains 
the information required in Sec.  80.1453.
5. Treatment of Canola and Rapeseed
    On September 28, 2010, EPA published a ``Supplemental Determination 
for Renewable Fuels Produced Under the Final RFS2 Program from Canola 
Oil'' (FR Vol. 75, No. 187, pg 59622-59634). We are proposing to 
clarify two aspects of the supplemental determination. First we propose 
to amend the regulatory language in Table 1 to 40 CFR 80.1426 to 
clarify that the currently-approved pathway for canola also applies 
more generally to rapeseed. While ``canola'' was specifically described 
as the feedstock evaluated in the supplemental determination, we had 
not intended the supplemental determination to cover just those 
varieties or sources of rapeseed that are identified as canola, but to 
all rapeseed. We currently interpret the reference to ``canola'' in 
Table 1 to 40 CFR 1426 to include any rapeseed. To eliminate ambiguity 
caused by the current language, however, we propose to replace the term 
``canola'' in that table with the term ``canola/rapeseed''. Canola is a 
type of rapeseed. While the term ``canola'' is often used in the 
American continent and in Australia, the term ``rapeseed'' is often 
used in Europe and other countries to describe the same crop. We 
believe that this change will enhance the clarity of the regulations 
regarding the feedstocks that qualify under the approved canola 
biodiesel pathway.
    Second, we wish to clarify that although the GHG emissions of 
producing fuels from canola feedstock grown in the U.S. and Canada was 
specifically modeled as the most likely source of canola (or rapeseed) 
oil used for biodiesel produced for sale and use in the U.S., we also 
intended that the approved pathway cover canola/rapeseed oil from other 
countries, and we interpret our regulations in that manner. We expect 
the vast majority of biodiesel used in the U.S. and produced from 
canola/rapeseed oil will come from U.S. and Canadian crops. Incidental 
amounts from crops produced in other nations will not impact our 
average GHG emissions for two reasons. First, our analyses considered 
world-wide impacts and thus considered canola/rapeseed crop production 
in other countries. Second, other countries most likely to be exporting 
canola/rapeseed or biodiesel product from canola/rapeseed are likely to 
be major producers which typically use similar cultivars and farming 
techniques. Therefore, GHG emissions from producing biodiesel with 
canola/rapeseed grown in other countries should be very similar to the 
GHG emissions we modeled for Canadian and U.S. canola, though they 
could be slightly (and insignificantly) higher or lower. At any rate, 
even if there were unexpected larger differences, EPA believes the 
small amounts of feedstock or fuel potentially coming from other 
countries will not impact our threshold analysis. Therefore, EPA 
interprets the approved canola pathway as covering canola/rapeseed 
regardless of country origin.

E. Technical Amendments Related to Registration

1. Construction Discontinuance & Completion Documentation
    The registration requirements in Sec.  80.1450(b)(1)(vi) state that 
for facilities claiming the exemption described in Sec.  80.1403(c) or 
(d), evidence must be submitted demonstrating the date that 
construction commenced. However, the registration requirements do not 
explicitly require the submission of evidence demonstrating that they 
meet certain of the other requirements described in Sec.  80.1403(c)(1) 
and (2) or (d)(1), (2) and (3).
    In order to verify that facilities which claim to qualify for an 
exemption under Sec.  80.1403(c) or (d) in fact meet all of the 
qualification requirements for such an exemption, we are proposing to 
amend Sec.  80.1450(b)(1)(vi) to include requirements that the owner or 
operator of facilities claiming exemption under Sec.  80.1403(c) submit 
evidence demonstrating that construction was not discontinued for a 
period of 18 months after construction began, and that construction was 
completed by December 19, 2010. Similarly, we are proposing that for 
facilities claiming the exemption under Sec.  80.1403(d), evidence be 
submitted demonstrating that construction was not discontinued for a 
period of 18 months after construction began and that construction was 
completed within 36 months of the date that construction commenced.
    In addition, we are proposing to add a general provision in (Sec.  
80.1450(b)(1)(vi)(D) requiring the submission of additional 
documentation and information as requested by the Administrator. This 
authority would be used in the event that documents submitted in 
accordance with requirements Sec.  80.1450(b)(1)(vi)(A) and (B) are not 
sufficient for EPA to verify that the facility has met all requirements 
described in Sec.  80.1403(c) or (d).
2. Third-Party Engineering Reviews
    The regulations stipulate that producers of renewable fuels and 
foreign ethanol producers are required to update their registration 
information, and submit an updated independent third-party engineering 
review, every 3 years after their initial registration in accordance 
with Sec.  80.1450(d)(3). We have received many inquiries regarding the 
start date that EPA uses to determine the 3 year period after which the 
producer must submit an updated independent third party engineering 
review (such as the registration acceptance date, the third-party 
professional engineer's signature date on the engineering review 
report, or when the engineering review is due for grandfathered and 
non-grandfathered facilities).
    Given the lack of clarity in the current regulations, we are 
proposing amendments to specify the time frame for submission of 
updated independent third-party engineering reviews. We are proposing, 
a simplified method that would group producers according to the 
calendar year they were or will be registered, and setting a fixed time

[[Page 38878]]

frame for registration updates for each group. Therefore, we are 
proposing to amend Sec.  80.1450(d)(3), to stipulate that for all 
producers of renewable fuel and foreign ethanol producers in which 
their registration was accepted by EPA in calendar year 2010, that the 
updated registration information and independent third-party 
engineering review shall be submitted to EPA within the three months 
prior to January 1, 2014, and within three months prior to January 1 of 
every third calendar year thereafter. For all producers of renewable 
fuel and foreign ethanol producers registered in any calendar year 
after 2010, the updated registration information and independent third-
party engineering review shall be submitted to EPA within three months 
prior to January 1 of every third calendar year after the first year 
the producer's registration was accepted by EPA. For example, a 
producer registered in 2011 would be required to submit an updated 
independent third-party engineering review by January 1, 2015, and by 
January 1 every three calendar years thereafter.
3. Foreign Ethanol Producers
    We are proposing that the amendments to the registration 
requirements in Sec.  80.1450 also apply to foreign ethanol producers. 
As defined in Sec.  80.1401, foreign ethanol producers are foreign 
producers that produce ethanol for use in transportation fuel, heating 
oil or jet fuel but who do not add denaturant to their product. 
Therefore, foreign ethanol producers do not technically produce 
``renewable fuel'' as defined in our regulations. As discussed in the 
preamble to the Direct Final Rule published on May 1, 2010 (see 75 FR 
26032), the result of the amendments made in the Direct Final Rule is 
to require foreign ethanol facilities that produce ethanol that 
ultimately becomes part of a renewable fuel for which RINs are 
generated to provide EPA the same registration information as foreign 
renewable fuel facilities that export their product to the United 
States. In both cases the required registration information is 
important for enforcement purposes, including verifying the use of 
renewable biomass as feedstock and the assignment of appropriate D 
codes. Therefore, we believe amendments to the registration 
requirements that we make in this proposed rule should also be 
applicable to foreign ethanol producers for same reasons.

F. Additional Amendments and Clarifications

1. Third-Party Engineering Review Addendum
    We have received many inquires as to whether an addendum to the 
existing independent third-party engineering review is sufficient to 
meet the requirement that all producers of renewable fuel and foreign 
ethanol producers submit an updated independent third-party engineering 
review if they make changes to their facility that will qualify the 
renewable fuel that is produced for a renewable fuel category or D code 
that is not already reflected in the producer's registration 
information. In some circumstances the majority of the information 
verified in the existing independent third-party engineering review 
would remain the same, and duplicating the entire effort does not 
appear necessary. We believe the concept of allowing the submission of 
an addendum in lieu of a updated independent third-party engineering 
review is reasonable and therefore we are proposing to amend the 
requirements in Sec.  80.1450(d)(1) to state that a producer of 
renewable fuel or foreign ethanol producer may submit an addendum to 
the existing independent third-party engineering review on file with 
EPA provided the addendum meets all the requirements in Sec.  
80.1450(b)(2) and verifies for EPA the most up-to-date information at 
the producer's existing facility. The updated independent third-party 
engineering review or addendum shall be submitted at least 60 days 
prior to producing the new type of renewable fuel and must meet all the 
same requirements stipulated in Sec.  80.1450(b)(2) for the independent 
third-party engineering review, including a new site visit conducted by 
the third-party to verify any changes to the facility that allows it to 
produce a different renewable fuel that is not currently reflected in 
their registration on file with EPA.
2. RIN Generation for Fuel Imported From a Registered Foreign Producer
    In RFS2, EPA finalized provisions allowing importers to generate 
RINs for renewable fuel imported from a foreign producer only under 
certain circumstances. The importer may only generate RINs for fuel 
imported from a foreign renewable fuel producer or foreign ethanol 
producer if that producer is registered with EPA and has received EPA 
company and facility identification numbers pursuant to Sec.  80.1450. 
Pursuant to Sec.  80.1426(c)(4), the importer is prohibited from 
generating RINs for fuel imported from a foreign producer that is not 
registered with EPA. In today's rule, EPA is clarifying that when an 
importer is generating RINs for fuel imported from a registered foreign 
renewable fuel producer or foreign ethanol producer, the importer must 
submit to EPA via EMTS the importer's company identification number, 
the facility identification number of the import facility where the 
batch was imported, and the facility identification number for the 
foreign renewable fuel or ethanol producer that produced the batch of 
fuel for which the importer is generating RINs. These clarifications 
are being made in Sec.  80.1452(b)(4) and (5).
3. Bond Posting
    We are proposing to amend paragraphs (e)(1), (e)(2) and (g)(2) of 
Sec.  80.1467 to make them consistent with Sec.  80.1467(g)(1). These 
amendments attempt to clarify that the amount of the posted bond must 
post must cover the number of gallon RINs that are sold and/or 
transferred, and also those RINs held and/or obtained by the foreign 
entity, including those held and/or obtained to comply with a foreign 
importer's RVO requirements. We are also proposing to amend Sec. Sec.  
80.1465-80.1467 by striking Sec. Sec.  80.1465(h)(2)(iii), 
80.1466(h)(2)(iii) and 80.1467(e)(2)(iii), which allowed entities to 
make alternative commitments in lieu of posting bonds. EPA believes 
that this method is vague, unnecessary, and unenforceable.
4. Acceptance of Separated Yard Waste and Food Waste Plans
    We are proposing to amend Sec.  80.1426(f)(5)(ii)(A) to remove the 
requirement that the separated yard waste plan and separated food waste 
plan must be approved by EPA, and instead only require that these two 
plans be submitted and accepted by EPA under the registration 
procedures specified in Sec.  80.1450(b)(1)(vii). The details and 
information required to be submitted in the separated yard waste plan 
and separated food waste plan are not overly burdensome or complex, and 
therefore we believe it does not warrant a specific EPA approval, but 
that EPA acceptance of these plans through the registration procedures 
is sufficient.
5. Transferred Blendstocks in Early Benzene Credit Generation 
Calculations
    Today's rule also proposes one minor correction to the gasoline 
benzene regulations which would clarify how refiners should account for 
transferred blendstocks in their early benzene credit generation 
calculations. Under current rules, refineries which generated early

[[Page 38879]]

benzene credits are required to reduce gasoline benzene during an early 
credit generation period by at least 10% compared to the refinery's 
benzene baseline, and are also required to make specific operational 
changes and/or improvements in benzene control technology to reduce 
gasoline benzene levels.\80\ Refineries which reduce their gasoline 
benzene by at least 10%, in part by transferring reformate to another 
refinery, could also generate early benzene credits, provided the 
transferee refinery treated the reformate in specific benzene-reduction 
processing units.\81\ See 72 FR 8486-87 (Feb. 26, 2007). However, the 
gasoline benzene regulations also contain an additional provision that 
requires all blendstock streams transferred to, from or between 
refineries to be excluded from a refinery's early credit generation 
calculations (except for reformate as described previously). This led 
to an inconsistent comparison of a refinery's benzene during an early 
credit generation period with a refinery's benzene baseline (which 
included blendstocks transferred to the refinery), which was not EPA's 
intent.
---------------------------------------------------------------------------

    \80\ Early credit generation periods were July 1, 2007 through 
December 31, 2007, and calendar years 2008, 2009 and 2010.
    \81\ Refineries produce gasoline by combining several different 
blendstocks produced by various refinery processing units. Reformate 
is a blendstock which contains approximately 80% of all benzene 
found in gasoline, per the MSAT2 regulatory impact analysis.
---------------------------------------------------------------------------

    As described in the preamble of the gasoline benzene final rule, 
EPA intended that refineries not be allowed to generate early benzene 
credits exclusively through blendstock trading, without making any 
other qualifying reductions (see 72 FR 8487), but that refineries could 
generate early benzene credits in part through qualifying reductions 
and ``in part'' through other means such as blendstock transfers (see 
72 FR 8496-97). However, the current regulations do not allow this 
approach, and this inconsistency has caused confusion among refiners 
about how to calculate the amount of early credits generated. Refiners 
have generally followed the approach set out in the preamble (as EPA in 
fact intended), and included all blendstocks transferred to a refinery 
in the refinery's early credit generation calculations. Refiners 
typically keep records on transferred blendstocks for 1-2 years, and 
thus do not have sufficient data to exclude transferred blendstocks 
from their early credit generation calculations.
    EPA recently became aware of this inconsistency and is proposing to 
change the regulations to make them consistent with EPA's intent as 
described in the preamble. Today's proposed rule would amend the 
gasoline benzene regulations at 40 CFR 80.1275(d)(3) by deleting that 
provision. This would allow a refinery to include blendstocks 
transferred to the refinery in the refinery's early benzene credit 
generation calculations (all other conditions, including treatment 
which removes benzene in transferred reformate streams still applying, 
of course). Consistent with EPA's original intent, today's rule also 
allows a refinery to include transferred blendstocks in past early 
credit generation calculations, provided the refinery met all of the 
other requirements for generating early benzene credits. EPA is 
proposing to include transferred blendstocks in past early credit 
generation calculation not only because this was EPA's intent at the 
time of the benzene gasoline rulemaking, but because some refiners have 
reasonably relied upon that stated intent in devising their compliance 
strategies.

VI. Petition for Reconsideration

    On February 7, 2011, the American Petroleum Institute (API) and the 
National Petrochemical and Refiners Association (NPRA) jointly 
submitted a Petition for Reconsideration of EPA's final rule 
establishing the RFS standards for 2011.\82\ EPA is proposing to deny 
the petition for the reasons described below, and solicits comment on 
this proposal.
---------------------------------------------------------------------------

    \82\ 75 FR 76790, December 9, 2010.
---------------------------------------------------------------------------

    The petition is available in docket EPA HQ OAR 2010-0133. It makes 
three primary assertions:
    1. EPA's 2011 cellulosic biofuel volume requirement of 6.6 million 
gallons (6.0 million ethanol-equivalent gallons) is unrealistically 
high. At the most, EPA should have used the estimate of 3.94 mill 
gallons provided by the Energy Information Administration (EIA).
    2. EPA's determination that there are sufficient sources of 
advanced biofuel to warrant not reducing the advanced biofuel standard 
lacks adequate factual support.
    3. EPA's treatment of delayed RINs injects undesirable uncertainty 
into the regulatory environment, and is contrary to the basic 
regulatory framework established by Congress.
    The petition requests that EPA reconsider the regulatory 
requirements in all three areas.

A. Legal Considerations of Petition

    The API/NPRA petition was submitted under the reconsideration 
provisions of section 307(d)(7)(B) of the Clean Air Act (CAA). This 
section strictly limits petitions for reconsideration both in time and 
scope. It states that:

Only an objection to a rule or procedure which was raised with 
reasonable specificity during the period for public comment 
(including any public hearing) may be raised during judicial review. 
If the person raising an objection can demonstrate to the 
Administrator that it was impracticable to raise such objection 
within such time or if the grounds for such objection arose after 
the period for public comment (but within the time specified for 
judicial review) and if such objection is of central relevance to 
the outcome of the rule, the Administrator shall convene a 
proceeding for reconsideration of the rule and provide the same 
procedural rights as would have been afforded had the information 
been available at the time the rule was proposed. If the 
Administrator refuses to convene such a proceeding, such person may 
seek review of such refusal in the United States court of appeals 
for the appropriate circuit (as provided in subsection (b)). Such 
reconsideration shall not postpone the effectiveness of the rule. 
The effectiveness of the rule may be stayed during such 
reconsideration, however, by the Administrator or the court for a 
period not to exceed three months.

    Thus the requirement to convene a proceeding to reconsider a rule 
is based on the petitioner demonstrating to EPA: (1) That it was 
impracticable to raise the objection during the comment period, or that 
the grounds for such objection arose after the comment period but 
within the time specified for judicial review (i.e., within 60 days 
after publication of the final rulemaking notice in the Federal 
Register, see CAA section 307(b)(1); and (2) that the objection is of 
central relevance to the outcome of the rule.
    Regarding the first procedural criterion for reconsideration, a 
petitioner must show why the issue could not have been presented during 
the comment period, either because it was impracticable to raise the 
issue during that time or because the grounds for the issue arose after 
the period for public comment (but within 60 days of publication of the 
final action). Thus, CAA section 307(d)(7)(B) does not provide a forum 
to request EPA to reconsider issues that actually were raised, or could 
have been raised, prior to promulgation of the final rule.
    Regarding the second procedural criterion for reconsideration, in 
EPA's view, an objection is of central relevance to the outcome of the 
rule only if it provides substantial support

[[Page 38880]]

for the argument that the regulation should be revised.\83\
---------------------------------------------------------------------------

    \83\ See Denial of Petitions to Reconsider Endangerment and 
Cause or Contribute Findings for Greenhouse Gases under section 
202(a), 75 FR 49556, 49560 (August 13, 2010); Denial of Petition to 
Reconsider, 68 FR 63021 (November 7, 2003), Technical Support 
Document for Prevention of Significant Deterioration (PSD) and 
Nonattainment New Source Review (NSR): Reconsideration at 5 (Oct. 
30, 2003) (EPA-456/R-03-005) (available at http://www.epa.gov/nsr/documents/petitionresponses10-30-03.pdf); Denial of Petition to 
Reconsider NAAQS for PM, 53 FR 52698, 52700 (December 29, 1988), 
citing Denial of Petition to Revise NSPS for Stationary Gas 
Turbines, 45 FR 81653-54 (December 11, 1980), and decisions cited 
therein. Also see EPA's February 17, 2011 denial of petitions by 
Clean Air Taskforce, World Wildlife Fund, National Wildlife 
Federation, and Friends of the Earth's to reconsider certain 
elements of the RFS2 program.
---------------------------------------------------------------------------

B. Advanced Biofuel Standard and Delayed RINs

    For the concerns raised in the petition related to the treatment of 
the advanced biofuel requirement for 2011 and the provision for delayed 
RINs, API and NPRA essentially restate the positions that they took in 
their comments in response to the 2010 NPRM. For instance, with regard 
to advanced biofuels, the petitioners did not reference any new data on 
imports of sugarcane ethanol or the production potential of biodiesel 
to demonstrate that the statutory applicable volume of 1.35 bill 
gallons of advanced biodiesel cannot be met in 2011. Likewise with 
regard to delayed RINs, the petitioners did not cite new circumstances 
or new information in their assertion that this provision will inject 
uncertainty into the regulatory system and RIN market. Thus the 
petition does not provide new information with regard to these two 
issues or assert arguments that could not have been raised during the 
comment period. As a result, we do not believe that the petition's 
request for a reconsideration of these regulatory requirements is 
justified under CAA 307(d)(7)(B), and we propose to deny the petition 
with respect to these two issues. We believe that our approach to these 
matters in the final rulemaking establishing the 2011 RFS standards was 
appropriate, for the reasons described in the preamble to that rule.

C. 2011 Cellulosic Biofuel Requirement

    Regarding the 2011 cellulosic biofuel requirement of 6.0 million 
ethanol-equivalent gallons, petitioners make two principal arguments: 
(1) That the statutory requirement that the cellulosic biofuel 
requirement be ``based on'' the estimate provided by the EIA requires 
EPA to use the 3.94 million ethanol-equivalent gallon EIA estimate 
regardless of any other information, and (2) that EPA lacked a 
reasonable basis for its projection of 6.0 million ethanol-equivalent 
gallons.
    The first issue raised by petitioners was discussed in the RFS2 
proposed rule. In the preamble to the 2010 RFS2 Notice of Proposed 
Rulemaking, we stated that when projecting cellulosic biofuel 
production volumes annually ``[w]e intend to examine EIA's projected 
volumes and other available data including the production outlook 
reports * * * '' that EPA proposed to require renewable fuel producers 
to submit annually.\84\ EPA further explained that the production 
outlook reports ``would be used * * * to set the annual cellulosic 
biofuel'' standard.\85\ Neither API nor NPRA submitted comments 
stating, as they do now, that EPA must in all cases rely on the EIA 
projection and cannot consider or rely upon other information in 
establishing the annual cellulosic biofuel standard. After evaluating 
the comments that EPA did receive, we issued a final rule, including 
applicable volumes and corresponding percentage standards consistent 
with the proposal. We stated in the preamble to the final rule that 
``[w]e will examine EIA's projected volumes and other available data 
including the required production outlook reports to decide the 
appropriate standard for the following year. The outlook reports from 
all renewable fuel producers will assist EPA in determining what the 
cellulosic biofuel standard should be * * * '' \86\
---------------------------------------------------------------------------

    \84\ 74 FR 24966.
    \85\ 74 FR 24970.
    \86\ 75 FR 14726. See also 75 FR 14729 (production outlook 
reports ``will help EPA set the annual cellulosic biofuel standard * 
* * '' and ``essential to our annual cellulosic biofuel standard 
setting * * *'').
---------------------------------------------------------------------------

    Petitioners had another opportunity to raise this same issue in the 
context of the rulemaking establishing the 2011 standards. EPA again 
made it clear in its proposed rule that the projection that would be 
provided to us by the EIA would only be one of several sources of 
information we would use to determine the applicable cellulosic biofuel 
volume for 2011:

    We will complete our evaluation based on comments received in 
response to this proposal, the Production Outlook Reports due to the 
Agency on September 1, 2010, the estimate of projected biofuel 
volumes that the EIA is required to provide to EPA by October 31, 
and other information that becomes available, and will finalize the 
standards for 2011 by November 30, 2010.\87\
---------------------------------------------------------------------------

    \87\ 75 FR 42240.
---------------------------------------------------------------------------

    These standards are to be based in part on transportation fuel 
volumes estimated by the Energy Information Administration (EIA) for 
the following year.\88\
---------------------------------------------------------------------------

    \88\ Ibid.
---------------------------------------------------------------------------

    As described in the final rule for the RFS2 program, we intend 
to examine EIA's projected volumes and other available data 
including the Production Outlook Reports required under Sec.  
80.1449 in making the determination of the appropriate volumes to 
require for 2011.\89\

    \89\ Ibid.

* * * each year by October 31 EIA is required to provide an estimate 
of the volume of cellulosic biofuel they expect to be sold or 
introduced into commerce in the United States in the following year. 
EPA will consider this information as well when finalizing a single 
volume for use in setting the 2011 cellulosic biofuel standard.\90\
---------------------------------------------------------------------------

    \90\ 75 FR 42246.

After considering all of the information before it, EPA proposed a 
level for the cellulosic biofuel volume that was different from that 
contained in the EIA projections. Once again, neither API nor NPRA 
provided comments in response to the 2010 NPRM on this subject. 
Accordingly, EPA proposes to deny the petition with respect to the 
contention that EPA must rely exclusively on the EIA projections in 
establishing the annual cellulosic biofuel volumes. That argument does 
not satisfy the criteria for a petition for reconsideration specified 
under CAA 307(d)(7)(B) since the issue could have been raised during 
the comment period of the 2010 standards rule, but was not.
    As a substantive matter, even if the petitioners were not 
foreclosed from raising this argument at this time, EPA would propose 
to deny their claim because the statute specifies that it is EPA, not 
EIA, that is to make the determination of projected cellulosic biofuel 
volumes. EPA's decision is to be ``based on'' the EIA estimate (as, 
indeed it was), but EPA interprets the statute to allow it to consider 
other available information as well in making its determination. EPA 
looked at all available information, including public comments on its 
proposal, and decided that 6.0 million ethanol-equivalent gallons was a 
reasonable projection for 2011. This is a reasonable interpretation of 
an ambiguous statutory provision, where Congress said ``based on'' the 
estimate provided by EIA but did not mandate that the determination be 
based solely upon this information. EPA carefully considered EIA's 
projection and explained why EPA's determination was different. See, 
for example, Nuclear Energy Institute v. EPA, 373 F.2d 1251, 1269 (DC 
Cir. 2004).
    The petition also contends that EPA is required to project the 
volume of cellulosic biofuel that will ``actually'' be

[[Page 38881]]

sold or introduced into commerce in the following year, but that EPA 
instead established the cellulosic biofuel volume at an 
``aspirational'' level. EPA believes that petitioners' allegations are 
not supported by either the statute or the facts. Under CAA 
211(o)(7)(D)(i), for any calendar year for which EPA determines that 
the projected volume of cellulosic biofuel production is less than the 
minimum applicable volume established under the statute, EPA is to 
reduce the applicable volume of cellulosic biofuel to the volume that 
is projected to be available. The statute specifies that the projection 
of cellulosic biofuel production is to be ``determined by the 
Administrator based on the estimate provided by [EIA],'' and that it 
must be made in time to set the annual standards by November 30 
preceding the applicable compliance year. To fulfill its mandate under 
this provision, EPA undertook an exhaustive evaluation of every 
existing and potential cellulosic biofuel production facility that 
could potentially supply cellulosic biofuel for use in the U.S., and 
projected a production volume for 2011 that reflected a balance between 
the uncertainty inherent in the projections and the objective of 
avoiding unnecessary reductions in the applicable volume set forth in 
the statute.
    The requirement to make a projection of cellulosic biofuel volumes 
for the following year necessarily means that the projection will be an 
estimate, and may not be exactly the volume that is ``actually'' 
produced. As described in the 2010 NPRM, there are many factors that 
may result in the actual volume deviating from the projected volume:
     Difficulty/delays in securing necessary funding.
     Delays in permitting and/or construction.
     Difficulty in scale up, especially for 1st of their kind 
technologies.
     Volumes from pilot and demonstration plants may not be 
sold commercially.
     Not all feedstocks may qualify to produce cellulosic 
Renewable Identification Numbers (RINs); some still awaiting evaluation 
of lifecycle impacts.
     Likelihood that fuels produced internationally will be 
exported to the United States rather than consumed locally.\91\
---------------------------------------------------------------------------

    \91\ 75 FR 42245.

We do not believe that the statute requires our projection to be 100% 
accurate, or that it requires that EPA project only what is absolutely 
or highly certain of production, as the petitioners would prefer. 
Rather, as described in Section II.B.4, we believe that our projection 
must be reasonable based on the information that is available at the 
time that the cellulosic biofuel standard is set. The applicable volume 
established by Congress for cellulosic biofuel is 250 mill gallons for 
2011, and in projecting 6 mill gallons of production we lowered the 
applicable volume by about 98%. The volume of 3.94 mill gallons 
projected by EIA, and favored by petitioners, also represents a 
reduction of about 98% from the statutory applicable volume of 250 mill 
gallons. Moreover, with only one exception (Range Fuel, discussed 
below), the petitioners do not present any new evidence to refute the 
projected production estimates that EPA made for the various facilities 
it anticipated would produce fuel in 2011. Their primary arguments are 
that we are compelled to use EIA's projection which, as noted above, 
the statute does not require, and that we are required to project a 
level with a high degree of certainty.
    As discussed in the rule that set the 2011 cellulosic standard, we 
believe that the volume of cellulosic biofuel actually produced in a 
given year is likely to be strongly influenced by the standard we set. 
At this early point in the RFS program, the volume of cellulosic 
biofuel actually made available will in general not exceed the standard 
that we set, and there is no recourse for increasing the cellulosic 
biofuel standard if our projection were to fall short of actual 
production. Therefore, setting a standard that is lower than what the 
industry could reasonably achieve could strand investments and/or 
further delay the industry's ability to move towards the higher levels 
of commercial production envisioned in the statute. We believe it is 
appropriate to consider these factors in projecting production volumes, 
and that we are not compelled to rely solely on volumes actually in 
production at the time we make our decision, as petitioners would 
prefer.
    In the final rule establishing the 2011 projected volume of 
cellulosic biofuel, we explained our approach to recognizing and 
accounting for uncertainty in the projections:

    In directing EPA to project cellulosic biofuel production for 
purposes of setting the annual cellulosic biofuel standard, Congress 
did not specify what degree of certainty should be reflected in the 
projections. We believe that the cellulosic biofuel standard should 
provide an incentive for the industry to grow according to the goals 
that Congress established through EISA. However, we also believe 
that the cellulosic biofuel standard that we set should be within 
the range of what can be attained based on projected domestic 
production and import potential. Any estimate we use to set the 
biofuel standard for 2011 will have some uncertainty in terms of 
actual attainment, and the level of such uncertainty generally rises 
with the volume mandate. Our intention is to balance such 
uncertainty with the objective of providing an incentive for growth 
in the industry. To this end we explored the 2011 volumes for 
individual companies as projected by EIA to determine not only what 
volumes might be anticipated, but more importantly what volumes were 
potentially attainable. Our final projected available volume of 
cellulosic biofuel for 2011 reflects these considerations. \92\
---------------------------------------------------------------------------

    \92\ 75 FR 76794.

Thus, our projection was not ``aspirational,'' as petitioners allege. 
Instead, we projected a volume that we believed could be reasonably 
achieved based on the information available at the time the standard 
was finalized. We acknowledged there were uncertainties, but balanced 
our consideration of that uncertainty against the goal of avoiding 
unnecessarily lowering the applicable volume in the statute. This is a 
reasonable approach to achieving Congress' goal of promoting the growth 
of the use of cellulosic biofuel, taking into account the interests of 
both the obligated parties and the producers of cellulosic biofuels.
    The API/NPRA petition does not suggest that the projection of 6.0 
mill ethanol-equivalent gallons of cellulosic biofuel was not 
achievable or was not a reasonable balance as discussed above, based on 
the information available at the time of the final rule. Instead, the 
petition focuses on balancing these interests in a manner that places 
the highest priority on achieving a low or very low degree of 
uncertainty in whether the projected volumes will in fact be produced. 
The petition focuses almost solely on the uncertainties associated with 
this volume and requests that the uncertainties be reduced by lowering 
the applicable volume of cellulosic biofuel to no more than the EIA 
projection of 3.94 mill gallons. Little if any priority or emphasis is 
placed on the importance of establishing conditions that reasonably can 
promote the growth in the production of cellulosic renewable fuel. EPA 
disagrees that this would be the appropriate balance to draw in 
implementing this provision, at least in these early years of the RFS2 
program.
    In arguing for a lower volume based on the uncertainties, the 
petition highlights the recent history for three companies: Bell 
BioEnergy, Cello Energy, and Range Fuels. The

[[Page 38882]]

discussion of Bell BioEnergy and Cello Energy in the petition is an 
update of the discussion of these same two companies in API's comments 
submitted in response to the 2010 NPRM. As the petition points out, 
while the information available at the time of the 2010 NPRM suggested 
that these two companies could produce cellulosic biofuel in 2011, by 
the time of the final rulemaking we had obtained updated information 
and determined that it would not be reasonable to project any 2011 
volume from these two companies. At the same time, we added two 
companies in the final rule that were not included in the 2010 NPRM 
list of companies that we projected could produce volume in 2011: KiOr 
and Range Fuels. The changes between the proposed and final lists of 
companies on which we based our projections for 2011 highlight the fact 
that, in the emergent cellulosic biofuel industry, any projection of 
cellulosic biofuel production is highly dependent upon the information 
available at the time of the projection, and that for any given company 
this information may change in one direction or another. Nevertheless, 
changes in the projected volume from one company may be counterbalanced 
or mitigated by production changes for other companies.
    With regard to Range Fuels, we reasonably projected a 2011 volume 
production of 2.3 mill ethanol-equivalent gallons out of the 6.0 mill 
ethanol-equivalent gallon volume that we determined was achievable in 
2011. Information made available since issuance of the final rule 
indicates that the facility was idled early in 2011. Nevertheless, this 
fact does not invalidate the projection of 6.0 mill gallons we made in 
December 2010, since their facility was complete, operational, and had 
produced some volume at that time. As indicated by the removal of Bell 
BioEnergy and Cello Energy from the list of companies we considered in 
the final rule, and the addition of KiOr and Range Fuels to this same 
list, it is clear that projections made at any point in time for some 
companies may ultimately prove too high while the projections for other 
companies may ultimately prove too low.
    This petition for reconsideration under CAA section 307(d) should 
be considered in the context of the specific statutory provisions 
related to the annual standard-setting process for the RFS program and 
the compliance flexibilities in the program. Congress established a 
standard-setting process for cellulosic biofuel that creates a 
considerably shorter leadtime than in most other EPA programs, and a 
standard that applies for only a single year. We are required to 
project volumes of cellulosic biofuel and determine the applicable 
percentage standard by November 30 of the year before the annual 
standard applies. This structure is well designed to facilitate use of 
the most up-to-date information available before the standard goes into 
effect. In other contexts, API and NPRA have argued that it is 
important that EPA not miss this November 30 deadline for setting the 
annual standards, so as to provide industry with all of the lead time 
in advance of the compliance year that is afforded by the statute.\93\ 
Since the standard only applies for one year, a petition to reconsider 
can in practice affect only that single year's obligation, and given 
the late date at which it is established, necessarily would involve a 
modification of the annual standard during the year in which it is 
applicable. Importantly, the statute contains a number of safeguards in 
the event that an annual standard cannot be achieved. Under CAA section 
211(o)(7)(D)(ii) and (iii), Congress established a mechanism through 
which obligated parties can purchase credits from the EPA in lieu of 
acquiring cellulosic biofuel RINs. Obligated parties can also carry a 
deficit for cellulosic biofuel into 2012 under certain conditions as 
stipulated in Sec.  80.1427(b). Finally, up to 20% of the 2011 
cellulosic biofuel standard (1.2 million gallons) can be met with 
excess cellulosic biofuel RINs from 2010 under the rollover provisions 
of Sec.  80.1427(a)(5). Indeed, we have determined that at least 1.2 
million excess cellulosic biofuel RINs from 2010 do exist, based on 
reports of renewable fuel production in the first half of 2010 under 
the RFS1 regulations.
---------------------------------------------------------------------------

    \93\ See NPRA v. EPA, (DC Cir., No 10-1071). slip op. at 37-39.
---------------------------------------------------------------------------

    The panoply of compliance flexibilities provided in the statute 
provides meaningful options for industry in the event that that actual 
production of cellulosic biofuel in 2011, or any year, falls below EPA 
projected levels. This, combined with the relatively short period of 
time at issue for a petition to reconsider a one-year volume standard, 
and the fact that any change in the standards would occur within the 
year in which it applies, impacts the kind of circumstances under which 
it would be appropriate to reconsider the standard. The compliance 
flexibilities, the short time period at issue, and the disruption that 
would occur from a change in the standard within the compliance year, 
indicate that a relatively larger change in circumstances with respect 
to cellulosic production would need to occur before EPA would determine 
that new circumstances provide substantial support for revising the 
volume standard for cellulosic biofuel for a specific year.
    EPA believes that the single change that petitioners have 
identified in their petition, closure of the Range Fuels plant, is not 
of a sufficiently large magnitude to warrant a standard revision. It 
may be a substantial percentage of the volume standard, but it remains 
a relatively minor change compared to the total volume that Congress 
mandated for 2011. After reducing that volume by 98%, the remaining 
change in circumstances amounts to a generally small change in an 
absolute sense, compared to the total volume of renewable fuel and the 
transportation fuel covered by the RFS2 program. In addition, it can be 
reasonably addressed by industry through utilization of program 
flexibilities, including use of carry over credits from 2010, use of 
cellulosic biofuel RINs for 2011, and deficit carryover into 2012. This 
approach will avoid the disruption and lack of certainty in the program 
that could follow if EPA readily re-opened the annual standard to 
revision during the single year it applied based on relatively small 
modifications resulting from an individual company's plans. For all of 
the reasons described above, EPA proposes to deny the petition for 
reconsideration of the 2011 cellulosic biofuel standard. EPA requests 
comment on this proposal.
    While we are proposing to deny the petition to reconsider the 
cellulosic biofuel volume requirement for 2011, we nevertheless must 
take into account the current status of the cellulosic biofuel industry 
when making our projections for 2012. This includes a review of the 
progress being made in 2011 by the five companies we used to project 
the cellulosic biofuel volume of 6.0 mill gallons, including Range 
Fuels. As noted in Section II.B.1, based on the information we have 
obtained to date on the status of their facility in Soperton, Georgia, 
we have not included Range Fuels in the list of companies that we 
project could produce cellulosic biofuel in 2012. We do not believe 
that this is inconsistent with our proposal to deny the API/NPRA 
petition for reconsideration. Our proposal to deny the petition is 
based on the availability of program flexibilities to allow industry to 
comply with the unadjusted 2011 standard, the relative magnitude of the

[[Page 38883]]

change, and the desire to avoid disruption in program implementation 
that would follow from EPA too readily re-opening the standard based on 
modifications in individual companies' operation plans. Our proposed 
2012 projections, on the other hand, are based on the best information 
available to us at this time, which includes the fact that the Range 
Fuel facility is not currently operating and we have been unable to 
confirm its future operational status.
    In a similar fashion, we do not believe that identifying the low 
end of the range of 2012 projected cellulosic biofuel volumes as 3.55 
mill gallons is inconsistent with our proposal to deny the API/NPRA 
petition for reconsideration. As described in Section II.B, we based 
the low end of the range for applicable 2012 volumes on consideration 
of only those facilities that are structurally complete at the time of 
this proposal and which anticipate commercial production of cellulosic 
biofuels by the end of 2011. While Range Fuel is structurally complete, 
they have not explicitly provided information to date indicating that 
they anticipate commercial production in 2011. Absent such information, 
for today's proposal we have excluded Range Fuels from the low end of 
the range of potential volumes for 2012.

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 DATES in the 
first part of this proposal. If you have an interest in the proposed 
standards and technical amendments to the RFS regulations described in 
this document, 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 in the first part of this proposal) before 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 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.

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, http://www.regulations.gov, or by e-mail. 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-2010-0133. 
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. 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

    Under Executive Order 12866 (58 FR 51735, October 4, 1993), this 
action is a ``significant regulatory action.'' Accordingly, EPA 
submitted this action to the Office of Management and Budget (OMB) for 
review under Executive Orders 12866 and 13563 (76 FR 3821, January 21, 
2011) and any changes made in response to OMB recommendations have been 
documented in the docket for this action.
    The economic impacts of the RFS2 program on regulated parties, 
including the impacts of the required volumes of renewable fuel, were 
already addressed in the RFS2 final rule promulgated on March 26, 2010 
(75 FR 14670). This action proposes the percentage standards applicable 
in 2012 based on the volumes that were analyzed in the RFS2 final rule. 
This action also proposes technical amendments to the RFS2 regulations 
that have been determined to have no adverse economic impact on 
regulated parties since they generally clarify existing requirements.

B. Paperwork Reduction Act

    This action does not impose any new information collection burden. 
While there are three proposed regulatory changes in today's NPRM that 
affect the recordkeeping and reporting burdens for regulated parties, 
we believe that the information collections already approved for the 
RFS2 program's general recordkeeping and reporting requirements, or the 
information collection already under review, would also cover the 
proposed changes in today's NPRM.
    The proposed regulatory changes are listed in Table VIII.B-1.

  Table VIII.B-1--Proposed Technical Amendments Affecting Recordkeeping
                              and Reporting
------------------------------------------------------------------------
           Section                            Description
------------------------------------------------------------------------
80.1449(a)...................  Amended Production Outlook Report due
                                date; added allowance for unregistered
                                renewable fuel producers and importers
                                to submit Production Outlook Reports.
80.1450(b)(1)(vi)............  Amended to require submission of
                                additional evidence as part of
                                registration to verify eligibility for
                                exemptions in Sec.   80.1403(c) or (d).

[[Page 38884]]

 
80.1450(d)(1)-(d)(3).........  Amended to add more specificity on when
                                updates, addenda, or resubmittals are
                                required for engineering reviews and to
                                include references to foreign ethanol
                                producers.
------------------------------------------------------------------------

With regard to production outlook reports, the change in due date is 
not expected to have any impact on the reporting burden. In addition, 
EPA recently prepared an Information Collection Request (ICR) document 
to permit the submission of voluntary production outlook reports by 
domestic and foreign renewable fuels producers. The parties affected by 
the ICR are not regulated parties under the RFS2 program. The ICR has 
been submitted for approval to OMB under the Paperwork Reduction Act, 
44 U.S.C. 3501 et seq. and may be identified by EPA ICR number 2409.01. 
Documents related to the ICR have been placed in docket number EPA-HQ-
OAR-2005-0161, which is accessible at http://www.regulations.gov.
    On October 14, 2010, EPA published a notice in the Federal Register 
announcing our intent to submit the proposed ICR for voluntary 
production outlook reports to OMB for approval. (See 75 FR 63173). The 
60-day comment period closed on December 14, 2010. No comments were 
received. On February 8, 2011, EPA published a Federal Register notice 
announcing submission of the ICR to OMB. Additional comments were 
solicited via an additional comment period through March 10, 2011.\94\
---------------------------------------------------------------------------

    \94\ See ``Agency Information Collection Activities; Submission 
to OMB for Review and Approval; Comment Request; Production Outlook 
Reports for Un-Registered Renewable Fuel Producers (New 
Collection),'' 76 FR 6781 (February 8, 2011). The document 
identification number for this notice is EPA-HQ-OAR-2005-0161-3221. 
The document identification number for the supporting statement is 
EPA-HQ-OAR-2005-0161-3222.
---------------------------------------------------------------------------

    The Office of Management and Budget (OMB) has previously approved 
the information collection requirements contained in the existing 
regulations at 40 CFR part 80, Subpart M under the provisions of the 
Paperwork Reduction Act, 44 U.S.C. 3501 et seq. This would include the 
following approved information collections (with OMB control numbers 
and expiration dates listed in parentheses): ``Renewable Fuels Standard 
Program: Petition and Registration'' (OMB Control Number 2060-0367, 
expires March 31, 2013); ``Renewable Fuels Standard (RFS2)'' (OMB 
Control Number 2060-0640, expires July 31, 2013); ``Regulations of 
Fuels and Fuel Additives: 2011 Renewable Fuels Standard--Petition for 
International Aggregate Compliance Approach'' OMB Control Number 2060-
0655, expires February 28, 2014). Detailed and searchable information 
about these and other approved collections may be viewed on the Office 
of Management and Budget (OMB) Paperwork Reduction Act Web site, which 
is accessible at http://www.reginfo.gov/public/do/PRAMain. With regard 
to the proposed changes in Sec.  80.1450, we believe that these 
information collections already approved for the RFS2 program's general 
recordkeeping and reporting requirements would also cover the proposed 
changes in today's NPRM.

C. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires an agency 
to prepare a regulatory flexibility analysis of any rule subject to 
notice and comment rulemaking requirements under the Administrative 
Procedure Act or any other statute unless the agency certifies that the 
rule will not have a significant economic impact on a substantial 
number of small entities. Small entities include small businesses, 
small organizations, and small governmental jurisdictions.
    For purposes of assessing the impacts of today's rule on small 
entities, small entity is defined as: (1) A small business as defined 
by the Small Business Administration's (SBA) regulations at 13 CFR 
121.201; (2) a small governmental jurisdiction that is a government of 
a city, county, town, school district or special district with a 
population of less than 50,000; and (3) a small organization that is 
any not-for-profit enterprise, which is independently owned and 
operated and is not dominant in its field.
    After considering the economic impacts of today's proposed rule on 
small entities, we certify that this proposed action will not have a 
significant economic impact on a substantial number of small entities. 
This rule proposes the annual standard for cellulosic biofuels for 2012 
and biomass-based diesel for 2013, regulatory provisions for new RIN-
generating pathways, and clarifying changes and minor technical 
amendments to the regulations. However, the impacts of the RFS2 program 
on small entities were already addressed in the RFS2 final rule 
promulgated on March 26, 2010 (75 FR 14670). Therefore, this proposed 
rule will not impose any additional requirements on small entities. We 
continue to be interested in the potential impacts of the proposed rule 
on small entities and welcome comments on issues related to such 
impacts.

D. Unfunded Mandates Reform Act

    This rule does not contain a Federal mandate that may result in 
expenditures of $100 million or more for State, local, and Tribal 
governments, in the aggregate, or the private sector in any one year. 
Thus, this action is not subject to the requirements of sections 202 or 
205 of UMRA.
    This action is also not subject to the requirements of section 203 
of UMRA because it contains no regulatory requirements that might 
significantly or uniquely affect small governments.

E. Executive Order 13132: Federalism

    This 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, as 
specified in Executive Order 13132. This action only applies to 
gasoline, diesel, and renewable fuel producers, importers, distributors 
and marketers and makes relatively minor corrections and modifications 
to the RFS2 regulations. Thus, Executive Order 13132 does not apply to 
this rule.
    In the spirit of Executive Order 13132, and consistent with EPA 
policy to promote communications between EPA and State and local 
governments, EPA specifically solicits comment on this proposed rule 
from State and local officials.

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

    This action does not have Tribal implications, as specified in 
Executive Order 13175 (65 FR 67249, November 9, 2000). This proposed 
rule will be implemented at the Federal level and impose compliance 
costs only on

[[Page 38885]]

transportation fuel refiners, blenders, marketers, distributors, 
importers, exporters, and renewable fuel producers and importers. 
Tribal governments would be affected only to the extent they purchase 
and use regulated fuels. Thus, Executive Order 13175 does not apply to 
this action.
    EPA specifically solicits additional comment on this proposed 
action from Tribal officials.

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

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

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

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

I. National Technology Transfer Advancement Act

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

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

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

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 today's proposal, including the 
proposed recordkeeping requirements, come from sections 114, 208, and 
301(a) of the Clean Air Act, 42 U.S.C. 7414, 7542, and 7601(a).

List of Subjects in 40 CFR Part 80

    Environmental protection, Administrative practice and procedure, 
Air pollution control, Confidential business information, Diesel fuel, 
Fuel additives, Gasoline, Imports, Labeling, Motor vehicle pollution, 
Penalties, Petroleum, Reporting and recordkeeping requirements.

    Dated: June 21, 2011.
Lisa P. Jackson,
Administrator.
    For the reasons set forth in the preamble, 40 CFR part 80 is 
proposed to be amended as follows:

PART 80--REGULATION OF FUELS AND FUEL ADDITIVES

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

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

Sec.  80.1275  [Amended]

    2. In Sec.  80.1275, remove paragraph (d)(3).

Subpart M [Amended]

    3. Section 80.1401 is amended by revising the definitions of 
``Annual cover crop'' and ``Naphtha'' to read as follows:

Sec.  80.1401  Definitions.

* * * * *
    Annual cover crop means an annual crop, planted as a rotation 
between primary planted crops, or between trees and vines in orchards 
and vineyards, typically to protect soil from erosion and to improve 
the soil between periods of regular crops. An annual cover crop has no 
existing market to which it can be sold except for its use as feedstock 
for the production of renewable fuel.
* * * * *
    Naphtha means a blendstock falling within the boiling range of 
gasoline which is composed of only hydrocarbons, is commonly or 
commercially known as naphtha, and is used to produce gasoline.
* * * * *
    4. Section 80.1405 is amended by revising paragraphs (a) through 
(c) to read as follows:

Sec.  80.1405  What are the Renewable Fuel Standards?

    (a) (1) Renewable Fuel Standards for 2011.
    (i) The value of the cellulosic biofuel standard for 2011 shall be 
0.003 percent.
    (ii) The value of the biomass-based diesel standard for 2011 shall 
be 0.69 percent.
    (iii) The value of the advanced biofuel standard for 2011 shall be 
0.78 percent.
    (iv) The value of the renewable fuel standard for 2011 shall be 
8.01 percent.
    (2) Renewable Fuel Standards for 2012.
    (i) The value of the cellulosic biofuel standard for 2012 shall be 
0.002-0.010 percent.
    (ii) The value of the biomass-based diesel standard for 2012 shall 
be 0.91 percent.
    (iii) The value of the advanced biofuel standard for 2012 shall be 
1.21 percent.
    (iv) The value of the renewable fuel standard for 2012 shall be 
9.21 percent.
    (b) EPA will calculate the value of the annual standards and 
publish these values in the Federal Register by November 30 of the year 
preceding the compliance period.
    (c) EPA will calculate the annual renewable fuel percentage 
standards using the following equations:

[[Page 38886]]

[GRAPHIC] [TIFF OMITTED] TP01JY11.001

Where:

StdCB,i = The cellulosic biofuel standard for year i, in 
percent.
StdBBD,i= The biomass-based diesel standard for year i, 
in percent.
StdAB,i= The advanced biofuel standard for year i, in 
percent.
StdRF,i= The renewable fuel standard for year i, in 
percent.
RFVCB,i= Annual volume of cellulosic biofuel required by 
42 U.S.C. 7545(o)(2)(B) for year i, or volume as adjusted pursuant 
to 42 U.S.C. 7545(o)(7)(D), in gallons.
RFVBBD,i= Annual volume of biomass-based diesel required 
by 42 U.S.C. 7545 (o)(2)(B) for year i, in gallons.
RFVAB,i= Annual volume of advanced biofuel required by 42 
U.S.C. 7545(o)(2)(B) for year i, in gallons.
RFVRF,i= Annual volume of renewable fuel required by 42 
U.S.C. 7545(o)(2)(B) for year i, in gallons.
Gi= Amount of gasoline projected to be used in the 48 
contiguous states and Hawaii, in year i, in gallons.
Di= Amount of diesel projected to be used in the 48 
contiguous states and Hawaii, in year i, in gallons.
RGi= Amount of renewable fuel blended into gasoline that 
is projected to be consumed in the 48 contiguous states and Hawaii, 
in year i, in gallons.
RDi= Amount of renewable fuel blended into diesel that is 
projected to be consumed in the 48 contiguous states and Hawaii, in 
year i, in gallons.
GSi= Amount of gasoline projected to be used in Alaska or 
a U.S. territory, in year i, if the state or territory has opted-in 
or 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

[[Page 38887]]

the state or territory has opted-in or opts-in, in gallons.
RDSi= Amount of renewable fuel blended into diesel that 
is projected to be consumed in Alaska or a U.S. territory, in year 
i, if the state or territory opts-in, in gallons.
GEi= The amount of gasoline projected to be produced by 
exempt small refineries and small refiners, in year i, in gallons in 
any year they are exempt per Sec. Sec.  80.1441 and 80.1442.
DEi= The amount of diesel fuel 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.

* * * * *
    5. Section 80.1415 is amended by revising paragraph (c)(2) to read 
as follows:

Sec.  80.1415  How are equivalence values assigned to renewable fuel?

* * * * *
    (c) * * *
    (2) The application for an equivalence value shall include a 
technical justification that includes all the following:
    (i) A calculation for the requested equivalence value according to 
the equation in paragraph (c)(1) of this section, including supporting 
documentation for the value of EC used in the calculation such as a 
certificate of analysis from a laboratory that verifies the lower 
heating value in Btu per gallon of the renewable fuel produced.
    (ii) For each feedstock, component, or additive that is used to 
make the renewable fuel, provide a description, the percent input, and 
identify whether or not it is renewable biomass or is derived from 
renewable biomass.
    (iii) For each feedstock that also qualifies as a renewable fuel, 
state whether or not RINs have been previously generated for such 
feedstock.
    (iv) A description of the renewable fuel and the production 
process, including a block diagram that shows all inputs and outputs at 
each step of the production process with a sample quantity of all 
inputs and outputs for one batch of renewable fuel produced.
* * * * *
    6. Section 80.1426 is amended as follows:
    a. By revising paragraph (f)(1).
    b. By revising Table 1 to Sec.  80.1426.
    c. By revising paragraphs (f)(5)(ii)(A) and (f)(5)(ii)(B).

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

* * * * *
    (f) * * *
    (1) Applicable pathways. D codes shall be used in RINs generated by 
producers or importers of renewable fuel according to the pathways 
listed in Table 1 to this section, paragraph (f)(6) of this section, or 
as approved by the Administrator. In choosing an appropriate D code, 
producers and importers may disregard any incidental, de minimis 
feedstock contaminants that are impractical to remove and are related 
to customary feedstock production and transport. Tables 1 and 2 to this 
section do not apply to, and impose no requirements with respect to, 
volumes of fuel for which RINs are generated pursuant to paragraph 
(f)(6) of this section.

 Table 1 to Sec.   80.1426--Applicable D Codes for Each Fuel Pathway for
                         Use in Generating RINs
------------------------------------------------------------------------
                                                Production
             Fuel type         Feedstock          process        D-Code
                                               requirements
------------------------------------------------------------------------
A......  Ethanol.........  Corn starch.....  All of the                6
                                              following: Dry
                                              mill process,
                                              using natural
                                              gas, biomass,
                                              or biogas for
                                              process energy
                                              and at least
                                              two advanced
                                              technologies
                                              from Table 2 to
                                              this section.
B......  Ethanol.........  Corn starch.....  All of the                6
                                              following: Dry
                                              mill process,
                                              using natural
                                              gas, biomass,
                                              or biogas for
                                              process energy
                                              and at least
                                              one of the
                                              advanced
                                              technologies
                                              from Table 2 to
                                              this section
                                              plus drying no
                                              more than 65%
                                              of the
                                              distillers
                                              grains with
                                              solubles it
                                              markets
                                              annually.
C......  Ethanol.........  Corn starch.....  All of the                6
                                              following: Dry
                                              mill process,
                                              using natural
                                              gas, biomass,
                                              or biogas for
                                              process energy
                                              and drying no
                                              more than 50%
                                              of the
                                              distillers
                                              grains with
                                              solubles it
                                              markets
                                              annually.
D......  Ethanol.........  Corn starch.....  Wet mill process          6
                                              using biomass
                                              or biogas for
                                              process energy.
E......  Ethanol.........  Starches from     Fermentation              6
                            crop residue      using natural
                            and annual        gas, biomass,
                            covercrops.       or biogas for
                                              process energy.
F......  Biodiesel, and    Soy bean oil;     One of the                4
          renewable         Oil from annual   following:
          diesel.           covercrops;       Trans-
                            Algal oil;        Esterification
                            Biogenic waste    Hydrotreating
                            oils/fats/        Excluding
                            greases; Non-     processes that
                            food grade corn   co-process
                            oil.              renewable
                                              biomass and
                                              petroleum.
G......  Biodiesel.......  Canola/Rapeseed   Trans-                    4
                            oil.              Esterification
                                              using natural
                                              gas or biomass
                                              for process
                                              energy.
H......  Biodiesel, and    Soy bean oil;     One of the                5
          renewable         Oil from annual   following:
          diesel.           covercrops;       Trans-
                            Algal oil;        Esterification
                            Biogenic waste    Hydrotreating
                            oils/fats/        Includes only
                            greases; Non-     processes that
                            food grade corn   co-process
                            oil.              renewable
                                              biomass and
                                              petroleum.
I......  Ethanol.........  Sugarcane.......  Fermentation....          5
J......  Ethanol.........  Cellulosic        Any.............          3
                            Biomass from
                            crop residue,
                            slash, pre-
                            commercial
                            thinnings and
                            tree residue,
                            annual
                            covercrops,
                            switchgrass,
                            and miscanthus;
                            cellulosic
                            components of
                            separated yard
                            waste;
                            cellulosic
                            components of
                            separated food
                            waste; and
                            cellulosic
                            components of
                            separated MSW.

[[Page 38888]]

 
K......  Cellulosic        Cellulosic        Any.............          7
          Diesel, Jet       Biomass from
          Fuel and          crop residue,
          Heating Oil.      slash, pre-
                            commercial
                            thinnings and
                            tree residue,
                            annual
                            covercrops,
                            switchgrass,
                            and miscanthus;
                            cellulosic
                            components of
                            separated yard
                            waste;
                            cellulosic
                            components of
                            separated food
                            waste; and
                            cellulosic
                            components of
                            separated MSW.
L......  Butanol.........  Corn starch.....  Fermentation;             6
                                              dry mill using
                                              natural gas,
                                              biomass, or
                                              biogas for
                                              process energy.
M......  Cellulosic        Cellulosic        Fischer-Tropsch           3
          Naphtha.          Biomass from      process.
                            crop residue,
                            slash, pre-
                            commercial
                            thinnings and
                            tree residue,
                            annual
                            covercrops,
                            switchgrass,
                            and miscanthus;
                            cellulosic
                            components of
                            separated yard
                            waste;
                            cellulosic
                            components of
                            separated food
                            waste; and
                            cellulosic
                            components of
                            separated MSW.
N......  Ethanol,          The non-          Any.............          5
          renewable         cellulosic
          diesel, jet       portions of
          fuel, heating     separated food
          oil, and          waste.
          naphtha.
O......  Biogas..........  Landfills,        Any.............          5
                            sewage waste
                            treatment
                            plants, manure
                            digesters.
------------------------------------------------------------------------

* * * * *
    (5) * * *
    (ii)(A) A feedstock qualifies under paragraph (f)(5)(i)(A) or 
(f)(5)(i)(B) of this section only if it is collected according to a 
plan submitted to and accepted by U.S. EPA under the registration 
procedures specified in Sec.  80.1450(b)(1)(vii).
    (B) A feedstock qualifies under paragraph (f)(5)(i)(C) of this 
section only if it is collected according to a plan submitted to and 
approved by U.S. EPA.
* * * * *
    7. Section 80.1429 is amended by revising paragraphs (b)(2) and 
(b)(9) introductory text to read as follows:

Sec.  80.1429  Requirements for separating RINs from volumes of 
renewable fuel.

* * * * *
    (b) * * *
    (2) Except as provided in paragraph (b)(6) of this section, any 
party that owns a volume of renewable fuel must separate any RINs that 
have been assigned to that volume once the volume is blended with 
gasoline or fossil-based diesel to produce a transportation fuel, 
heating oil, or jet fuel. A party may separate up to 2.5 RINs per 
gallon of blended renewable fuel.
* * * * *
    (9) Except as provided in paragraphs (b)(2) through (b)(5) and 
(b)(8) of this section, parties whose non-export renewable volume 
obligations are solely related to either the importation of products 
listed in Sec.  80.1407(c) or Sec.  80.1407(e) or to the addition of 
blendstocks into a volume of finished gasoline, finished diesel fuel, 
RBOB, or CBOB, can only separate RINs from volumes of renewable fuel if 
the number of gallon-RINs separated in a calendar year is less than or 
equal to a limit set as follows:
* * * * *
    8. Section 80.1449 is amended by revising paragraph (a) 
introductory text to read as follows:

Sec.  80.1449  What are the Production Outlook Report requirements?

    (a) By June 1 of each year (September 1 for the report due in 
2010), a registered renewable fuel producer or importer must submit and 
an unregistered renewable fuel producer may submit all of the following 
information for each of its facilities, as applicable, to EPA:
* * * * *
    9. Section 80.1450 is amended as follows:
    a. By revising paragraph (b)(1)(vi).
    b. By revising paragraphs (d)(1)-(d)(3).

Sec.  80.1450  What are the registration requirements under the RFS 
program?

* * * * *
    (b) * * *
    (1) * * *
    (vi) For facilities claiming the exemption described in Sec.  
80.1403(c) or (d), evidence demonstrating all of the following:
    (A) The date that construction commenced (as defined in Sec.  
80.1403(a)(1)), including all the following:
    (1) Contracts with construction and other companies.
    (2) Applicable air permits issued by the U.S. Environmental 
Protection Agency, state, local air pollution control agencies, or 
foreign governmental agencies that governed the construction and/or 
operation of the renewable fuel facility during construction and when 
first operated.
    (B) That construction was not discontinued for a period of 18 
months after commencement of construction.
    (C) That construction was completed by December 19, 2010, for 
facilities claiming an exemption pursuant to Sec.  80.1403(c); or 
within 36 months of commencement of construction for facilities 
claiming an exemption pursuant to Sec.  80.1403(d).
    (D) Other documentation and information as requested by the 
Administrator.
* * * * *
    (d) * * *
    (1) Any producer of renewable fuel, and any foreign ethanol 
producer who makes changes to his facility that will allow him to 
produce renewable fuel, as defined in Sec.  80.1401 that is not 
reflected in the producer's registration information on file with EPA 
must update his registration information and submit a copy of an 
updated independent third-party engineering review on file with EPA at 
least 60 days prior to producing the new type of renewable fuel. The 
producer may also submit an addendum to the independent third-party 
engineering review on file with EPA provided the addendum meets all the 
requirements in paragraph (b)(2) of this section and verifies for EPA 
the most up-to-date information at the producer's existing facility.
    (2) Any producer of renewable fuel and any foreign ethanol producer 
who

[[Page 38889]]

makes any other changes to a facility that will affect the producer's 
registration information but will not affect the renewable fuel 
category for which the producer is registered per paragraph (b) of this 
section must update his registration information 7 days prior to the 
change.
    (3) All producers of renewable fuel and foreign ethanol producers 
must update registration information and submit an updated independent 
third-party engineering review according to the schedule in paragraph 
(d)(3)(i) or (d)(3)(ii) of this section, and including the information 
specified in paragraph (d)(3)(iii) of this section:
    (i) For all producers of renewable fuel and foreign ethanol 
producers registered in calendar year 2010, the updated registration 
information and independent third-party engineering review shall be 
submitted to EPA by October 1, 2013, and by October 1 of every third 
calendar year thereafter; or
    (ii) For all producers of renewable fuel and foreign ethanol 
producers registered in any calendar year after 2010, the updated 
registration information and independent third-party engineering review 
shall be submitted to EPA by October 1 of every third calendar year 
after the first year of registration.
    (iii) In addition to conducting the engineering review and written 
report and verification required by paragraph (b)(2) of this section, 
the updated independent third-party engineering review shall include a 
detailed review of the renewable fuel producer's calculations used to 
determine VRIN of a representative sample of batches of each 
type of renewable fuel produced since the last registration. The 
representative sample shall be selected in accordance with the sample 
size guidelines set forth at Sec.  80.127.
* * * * *
    10. Section 80.1451 is amended by revising paragraph (a)(1)(xi) to 
read as follows:

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

    (a) * * *
    (1) * * *
    (xi) A list of all RINs generated prior to July 1, 2010 that were 
retired for compliance in the reporting period.
* * * * *
    11. Section 80.1452 is amended revising paragraphs (b)(2), (b)(4), 
and (b)(5) to read as follows:

Sec.  80.1452  What are the requirements related to the EPA Moderated 
Transaction System (EMTS)?

* * * * *
    (b) * * *
    (2) The EPA company registration number of the renewable fuel 
producer or foreign ethanol producer, as applicable.
* * * * *
    (4) The EPA facility registration number of the facility at which 
the renewable fuel producer or foreign ethanol producer produced the 
batch, as applicable.
    (5) The EPA facility registration number of the importer that 
imported the batch, if applicable.
* * * * *
    12. Section 80.1460 is amended by adding a new paragraph (b)(6) to 
read as follows:

Sec.  80.1460  What acts are prohibited under the RFS program?

* * * * *
    (b) * * *
    (6) Generate a RIN for fuel for which RINs have previously been 
generated.
* * * * *
    13. Section 80.1464 is amended as follows:
    a. By revising paragraphs (a)(2) introductory text and (a)(2)(i).
    b. By adding paragraphs (a)(2)(iii) and (a)(2)(iv).
    c. By revising paragraph (a)(3)(ii).
    d. By revising paragraphs (b)(2) introductory text and (b)(2)(i).
    e. By adding paragraphs (b)(2)(iii) and (b)(2)(iv).
    f. By revising paragraph (b)(3)(ii).
    g. By revising paragraph (c)(1) introductory text.
    h. By adding paragraphs (c)(1)(iii) and (c)(1)(iv).

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

* * * * *
    (a) * * *
    (2) RIN Transaction Reports and Product Transfer Documents.
    (i) Obtain and read copies of a representative sample, selected in 
accordance with the guidelines in Sec.  80.127, of each RIN transaction 
type (RINs purchased, RINs sold, RINs retired, RINs separated, RINs 
reinstated) included in the RIN transaction reports required under 
Sec.  80.1451(a)(2) for the compliance year.
* * * * *
    (iii) Verify that the product transfer documents for the 
representative samples under paragraph (a)(2)(i) of this section of 
RINs sold and the RINs purchased contain the applicable information 
required under Sec.  80.1453 and report as a finding any product 
transfer document that does not contain the required information.
    (iv) Verify the accuracy of the information contained in the 
product transfer documents reviewed pursuant to paragraph (a)(2)(iii) 
of this section and report as a finding any exceptions.
    (3) * * *
    (ii) Obtain the database, spreadsheet, or other documentation used 
to generate the information in the RIN activity reports; compare the 
RIN transaction samples reviewed under paragraph (a)(2) of this section 
with the corresponding entries in the database or spreadsheet and 
report as a finding any discrepancies; compute the total number of 
current-year and prior-year RINs owned at the start and end of each 
quarter, purchased, separated, sold, retired and reinstated, and for 
parties that reported RIN activity for RINs assigned to a volume of 
renewable fuel, the volume and type of renewable fuel (as defined in 
Sec.  80.1401) owned at the end of each quarter; as represented in 
these documents; and state whether this information agrees with the 
party's reports to EPA.
    (b) * * *
    (2) RIN Transaction Reports and Product Transfer Documents.
    (i) Obtain and read copies of a representative sample, selected in 
accordance with the guidelines in Sec.  80.127, of each transaction 
type (RINs purchased, RINs sold, RINs retired, RINs separated, RINs 
reinstated) included in the RIN transaction reports required under 
Sec.  80.1451(b)(2) for the compliance year.
* * * * *
    (iii) Verify that the product transfer documents for the 
representative samples under paragraph (b)(2)(i) of this section of 
RINs sold and the RINs purchased contain the applicable information 
required under Sec.  80.1453 and report as a finding any product 
transfer document that does not contain the required information.
    (iv) Verify the accuracy of the information contained in the 
product transfer documents reviewed pursuant to paragraph (b)(2)(iii) 
of this section and report as a finding any exceptions.
    (3) * * *
    (ii) Obtain the database, spreadsheet, or other documentation used 
to generate the information in the RIN activity reports; compare the 
RIN transaction samples reviewed under paragraph (b)(2) of this section 
with the corresponding entries in the database or spreadsheet and 
report as a finding any discrepancies; report the total number of each 
RIN generated during each quarter and compute and report the total 
number of current-year and prior-year RINs owned at the start and end 
of each

[[Page 38890]]

quarter, purchased, separated, sold, retired and reinstated, and for 
parties that reported RIN activity for RINs assigned to a volume of 
renewable fuel, the volume of renewable fuel owned at the end of each 
quarter, as represented in these documents; and state whether this 
information agrees with the party's reports to EPA.
* * * * *
    (c) * * *
    (1) RIN Transaction Reports and Product Transfer Documents.
* * * * *
    (iii) Verify that the product transfer documents for the 
representative samples under paragraph (c)(1)(i) of this section of 
RINs sold and RINs purchased contain the applicable information 
required under Sec.  80.1453 and report as a finding any product 
transfer document that does not contain the required information.
    (iv) Verify the accuracy of the information contained in the 
product transfer documents reviewed pursuant to paragraph (c)(1)(iii) 
of this section and report as a finding any exceptions.
* * * * *
    14. Section 80.1465 is amended by revising paragraph (h)(2) to read 
as follows:

Sec.  80.1465  What are the additional requirements under this subpart 
for foreign small refiners, foreign small refineries, and importers of 
RFS-FRFUEL?

* * * * *
    (h) * * *
    (2) Bonds shall be posted by any of the following methods:
    (i) Paying the amount of the bond to the Treasurer of the United 
States.
    (ii) Obtaining a bond in the proper amount from a third party 
surety agent that is payable to satisfy United States administrative or 
judicial judgments against the foreign refiner, provided EPA agrees in 
advance as to the third party and the nature of the surety agreement.
* * * * *
    15. Section 80.1466 is amended by revising paragraph (h)(2) to read 
as follows:

Sec.  80.1466  What are the additional requirements under this subpart 
for RIN-generating foreign producers and importers of renewable fuels 
for which RINs have been generated by the foreign producer?

* * * * *
    (h) * * *
    (2) Bonds shall be posted by any of the following methods:
    (i) Paying the amount of the bond to the Treasurer of the United 
States.
    (ii) Obtaining a bond in the proper amount from a third party 
surety agent that is payable to satisfy United States administrative or 
judicial judgments against the foreign producer, provided EPA agrees in 
advance as to the third party and the nature of the surety agreement.
* * * * *
    16. Section 80.1467 is amended by revising paragraphs (e)(1), 
(e)(2), and (g)(2) to read as follows:

Sec.  80.1467  What are the additional requirements under this subpart 
for a foreign RIN owner?

* * * * *
    (e) * * *
    (1) The foreign entity shall post a bond of the amount calculated 
using the following equation:

Bond = G * $ 0.01

Where:

Bond = Amount of the bond in U.S. dollars.
G = The total of the number of gallon-RINs the foreign entity 
expects to obtain, sell, transfer or hold during the first calendar 
year that the foreign entity is a RIN owner, plus the number of 
gallon-RINs the foreign entity expects to obtain, sell, transfer or 
hold during the next four calendar years. After the first calendar 
year, the bond amount shall be based on the actual number of gallon-
RINs obtained, sold, or transferred so far during the current 
calendar year plus the number of gallon-RINs obtained, sold, or 
transferred during the four calendar years immediately preceding the 
current calendar year. For any year for which there were fewer than 
four preceding years in which the foreign entity obtained, sold, or 
transferred RINs, the bond shall be based on the total of the number 
of gallon-RINs sold or transferred so far during the current 
calendar year plus the number of gallon-RINs obtained, sold, or 
transferred during any immediately preceding calendar years in which 
the foreign entity owned RINs, plus the number of gallon-RINs the 
foreign entity expects to obtain, sell or transfer during subsequent 
calendar years, the total number of years not to exceed four 
calendar years in addition to the current calendar year.

    (2) Bonds shall be posted by any of the following methods:
    (i) Paying the amount of the bond to the Treasurer of the United 
States.
    (ii) Obtaining a bond in the proper amount from a third party 
surety agent that is payable to satisfy United States administrative or 
judicial judgments against the foreign RIN owner, provided EPA agrees 
in advance as to the third party and the nature of the surety 
agreement.
* * * * *
    (g) * * *
    (2) Any RIN that is obtained, sold, transferred, or held that is in 
excess of the number for which the bond requirements of this section 
have been satisfied is an invalid RIN under Sec.  80.1431.
* * * * *
[FR Doc. 2011-16018 Filed 6-30-11; 8:45 am]
BILLING CODE 6560-50-P
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