EO 12866 Interagency Comments

DRAFT , DELIBERATIVE, DO NOT CITE OR QUOTE 6/4/2015 5/28/2015 5/27/2015

Page 1 of 2 I. Executive Summary

D. Outlook for 2017 and Beyond

We recognize that a number of challenges must be overcome in order to fully realize the potential for greater use of renewable fuels in the United States . We also recognize that the RFS program plays a central role in creating the incentives for realizing that potential. The standards being proposed would require that significant progress is made in overcoming those challenges. We expect future standard s to both reflect and anticipate progress of the industry and market in providing for continued expansion in the supply of renewable fuels.

We believe that the supply of renewable fuels can continue to increase in the coming years despite the constraints associated with shortfalls in cellulosic biofuel production and other advanced biofuels, and constraints associated with supplying renewable fuels to the vehicles and engines that can use them. As described in Section II.B, we believe that the market is capable of responding to ambitious standards by expanding infrastructure and modifying fuel pricing to provide incentives for the production a nd use of renewable fuels. While we do not believe that the statutory volumes can be reached within the next several years, the market is capable of attaining volumes significantly higher than in the past.

In future years, we would expect to use the m ost up

- to

- date information available to project the growth that can realistically be achieved considering the ability of the RFS program to spur growth in the volume of ethanol, biodiesel, and other renewable fuels that can be supplied and consumed by vehi cles. In particular we will focus on the emergence of advanced biofuels including cellulosic biofuel. Many companies are continuing to invest in efforts ranging from research and development to the construction of commercial

- scale facilities to increase the production potential of next generation biofuels. We will continue to evaluate new pathways especially for advanced biofuel s and respond to petitions, expanding the availability of feedstocks, production technologies, and fuel types eligible under th e RFS program.

In addition to ongoing efforts to evaluate new pathways for advanced biofuel production, we are aware that other actions can also play a role in improving incentives provided by the RFS

program to helping overcome challenges that limit the potential for increased volumes of renewable fuels. Such actions could potentially include amendments to program regulations that would help enable and potentially accelerate growth in renewable fuel volumes over time. We are currently considering ideas and various options for such actions. The details of such actions are beyond the scope of this current rulemaking, but we will continue to engage interested

stakeholders as we move forward.

There are also other approaches to determining volume requirem ents for future years that could potentially help to ensure growth in supply of renewable fuel. For instance, our proposed approach to determining the volume requirements for advanced biofuel and total renewable fuel in 2015 and 2016 is one of determining the maximum achievable supply by acknowledging constraints on supply to consumers resulting from the E10 blendwall, limitations in production Commented [OMB1]: The forward guidance is an important part of the proposed rule because capital investments that increase the consumption of renewable fuels depend on expectations of future

p rofitability, and therefore partly on expectations of future standards.

Several statements in the draft text in this section indicate EPA’s

intention to increase the volume of renewable fuels over time. The proposed edits instead indicate an intention to i ncrease the share of

renewable fuels over time. The distinction between volumes and share is not as important in the year of the proposed standards (e.g., 2015 or 2016) because the volumes are converted to shares. However, this is an important distinction for 2017 and beyond. The reason is that future gasoline consumption depends on many factors and is highly uncertain; there may be future surprises to fuel consumption compared to current EIA projections, as there have been in the past. Given the blendwall considerations that are discussed at length in the proposed standards, if there are consumption surprises

— either upward or downward

— the EPA may want to change the growth rates of the volumes. For example, if gasoline consumption is unexpectedly low, mainta ining the growth rates of volumes could become extremely costly, in which case it may be desirable to slow the growth rate of the volumes. The process of doing so would create uncertainty in the market as to what the new path would look like, thereby delay ing capital investments and slowing the overall progress of the program. On the other hand, if the stated intention is to increase the share of renewable fuels, the same growth rate in the share of renewable fuels

could be maintained even in the event of a surprising consumption drop. Therefore, using shares rather than growth rates would prevent uncertainty about future gasoline consumption from generating additional uncertainty about the standards. Suggest including discussion of percentage methodology i n here or some other appropriate place in the document.

Response: A percentage or share

- based approach to setting standards would represent a fundamental change to the program. We do not believe that an annual rulemaking is the appropriate

venue to prop ose such a change.EO 12866 Interagency Comments

DRAFT , DELIBERATIVE, DO NOT CITE OR QUOTE 6/4/2015 5/28/2015 5/27/2015

Page 2 of 2 and import capabilities, and the ability of the market to respond to the standards we set. As

described in Secti on II.D.2, there are a variety of ways that the market could respond to our proposed standards with widely varying levels of E85.

However, we recognize that since the majority of renewable fuel today is currently consumed as 10 percent ethanol blends, ch anges in demand for gasoline can have a significant impact on the ability of the marketplace to blend fixed volumes of renewable fuels. As such, an alternative approach to characterizing expected growth in renewable fuels would be to project

the share of the fuel pool that can reasonably be expected to be comprised of renewable fuel over time. In this way, increases or decreases reductions in gasoline demand would be reflected in corresponding increases or decreases in mandated renewable fuel volumes and vice versa . The distinction between volumes and renewable share (share of the market, expressed as a percentage) is not important once the annual standards are established because the volumes are converted to shares (percentage standards) and changes in gasoline and diesel fuel volume then automatically lead to corresponding changes in renewable fuel volumes. However, this could be explicitly considered in the context of evaluating potential future renewable fuel volume requirements. f

F uture gasolin e consumption depends on many factors and is highly uncertain; there may be unanticipated changes in fuel consumption compared to current EIA projections, as there have been in the past. For example, if EPA were to adopt an outlook for future years based on a growth rate for the renewable share of the fuel pool, it would be easier to maintain such a growth rate

- r ather than maintaining an outlook for specific volumes

- if gasoline consumption becomes unexpectedly low. We recognize that projections of expe cted future growth in renewable fuels can be expressed in terms of either absolute volumes or as a share of the transportation fuel pool, and stakeholders may see advantages in the latter. EPA is interested in stakeholder views on this approach. we expect there may be additional conversation on this issue

in the future.