```

[Federal Register Volume 78, Number 26 (Thursday, February 7, 2013)]
[Proposed Rules]
[Pages 9281-9306]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-02794]

[[Page 9281]]

Vol. 78

Thursday,

No. 26

February 7, 2013

Part V

Environmental Protection Agency

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

40 CFR Part 80

 Regulation of Fuels and Fuel Additives: 2013 Renewable Fuel Standards; 
Proposed Rule

Federal Register / Vol. 78 , No. 26 / Thursday, February 7, 2013 / 
Proposed Rules

[[Page 9282]]

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

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2012-0546; FRL-9678-8]
RIN 2060-AR43

Regulation of Fuels and Fuel Additives: 2013 Renewable Fuel 
Standards

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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

SUMMARY: Under section 211(o) of the Clean Air Act, 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 statute 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 2013 
that is below the applicable volume specified in the Act. EPA is 
proposing that the applicable volumes of advanced biofuel and total 
renewable fuel would remain at the statutory levels for 2013. Finally, 
today's action also proposes annual percentage 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 2013.

DATES: Comments must be received on or before March 25, 2013. A request 
for a public hearing must be received by February 14, 2013.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-
OAR-2012-0546, by one of the following methods:
    www.regulations.gov: Follow the on-line instructions for 
submitting comments.
     Email: a-and-r-docket@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-
2012-0546. EPA's policy is that all comments received will be included 
in the public docket without change and may be made available online at 
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 www.regulations.gov or email. The 
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 email comment 
directly to EPA without going through www.regulations.gov your email 
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 
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 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; Email 
address: macallister.julia@epa.gov, or the public information line for 
the Office of Transportation and Air Quality; telephone number (734) 
214-4333; Email address OTAQ@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:

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

[[Page 9283]]

    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 www.regulations.gov or email. 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. Purpose of This Proposed Action
    B. Summary of Major Provisions in This Notice
    1. Cellulosic Biofuel Volume for 2013
    2. Advanced Biofuel and Total Renewable Fuel in 2013
    3. Proposed Standards for 2013
    4. Biomass-Based Diesel for 2014
    5. Administrative Actions
    C. Impacts of Proposed Actions
II. Projection of Cellulosic Volume for 2013
    A. Statutory Requirements
    B. Status of the Cellulosic Biofuel Industry
    C. Cellulosic Biofuel Volume Assessment for 2013
    1. Cellulosic Biofuel Facilities Considered in the 2012 
Projections
    2. Facilities Not Included in 2012 Projections
    3. Other Potential Sources of Domestic Cellulosic Biofuel
    4. Imports of Cellulosic Biofuel
    5. Projections From the Energy Information Administration
    6. Summary of Volume Projections
    D. Proposed Cellulosic Biofuel Volume for 2013
III. Assessment of Advanced Biofuel and Total Renewable Fuel for 
2013
    A. Statutory Requirements
    B. Assessment of Available Volumes of Advanced Biofuel
    1. Biodiesel
    2. Domestic Production of Other Advanced Biofuel
    3. Imported Sugarcane Ethanol
    C. Proposed Volume Requirements for Advanced Biofuel and Total 
Renewable Fuel in 2013
    D. Consideration of the Ethanol Blendwall
IV. Proposed Percentage Standards for 2013
    A. Background
    B. Calculation of Standards
    1. How are the standards calculated?
    2. Small Refineries and Small Refiners
    3. Proposed Standards
V. Public Participation
    A. How do I submit comments?
    B. How should I submit CBI to the agency?
VI. 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
    F. Executive Order 13175: Consultation and Coordination With 
Indian Tribal Governments
    G. Executive Order 13045: Protection of Children From 
Environmental Health Risks and Safety Risks
    H. Executive Order 13211: Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use
    I. National Technology Transfer and Advancement Act
    J. Executive Order 12898: Federal Actions To Address 
Environmental Justice in Minority Populations and Low-Income 
Populations
VII. 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 major revisions to the regulatory requirements on March 
26, 2010.\1\
---------------------------------------------------------------------------

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

    The volumes of renewable fuel to be used under the RFS program each 
year (absent an adjustment or waiver by EPA) are specified in CAA 
211(o)(2). The volumes for 2013 are shown in Table I-1.

  Table I-1--Required Applicable Volumes in the Clean Air Act for 2013
                               [Bill gal]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel......................................         \a\ 1.0
Biomass-based diesel....................................       \b\ >=1.0
Advanced biofuel........................................        \a\ 2.75
Renewable fuel..........................................       \a\ 16.55
------------------------------------------------------------------------
\a\ Ethanol-equivalent volume.
\b\ Actual volume. The ethanol-equivalent volume would be 1.5 if
  biodiesel is used to meet this requirement.

    Under the RFS program, EPA is required to determine and publish 
annual percentage standards for each compliance year by November 30 of 
the previous year. The percentage standards are used by obligated 
parties to calculate their individual compliance obligations. The 
percentage standards are applied to the volume of gasoline and/or 
diesel fuel that each obligated party produces or imports during the 
specified calendar year to determine the volumes of renewable fuel that 
they must cause to be used as transportation fuel, heating oil, or jet 
fuel. The percentage standards are calculated so as to ensure use in 
transportation fuel of the ``applicable volumes'' of four types of 
biofuel (cellulosic biofuel, biomass-based diesel, advanced biofuel, 
and total renewable fuel) that are either set forth in the Clean Air 
Act or established by EPA in accordance with the Act's requirements.

[[Page 9284]]

    The cellulosic biofuel industry is transitioning from research and 
development (R&D) and pilot-scale to commercial scale facilities, 
leading to increases in production capacity. Construction has begun on 
several facilities with multiple facilities having progressed to the 
start-up phase. Based on detailed information from production companies 
and a consideration of various potential uncertainties, we are 
projecting that 14 million ethanol-equivalent gallons of cellulosic 
biofuel will be available in 2013.
    We have evaluated the types of advanced biofuels that can be 
produced or imported in 2013. Our preliminary determination is that 
there should be sufficient volumes to meet the statutory applicable 
volume of 2.75 billion gallons. As a result, we are proposing to use 
that volume to calculate the advanced biofuel standard for 2013. 
Combined with the availability of conventional biofuels such as corn 
ethanol, we have preliminarily determined that there should be 
sufficient total renewable fuels available in 2013 to meet the 
statutory applicable volume of 16.55 billion gallons. Therefore, we are 
not proposing to reduce the advanced biofuel and total renewable fuel 
applicable volumes below the levels specified in the statute. However, 
as described in Section III.C, there is some uncertainty in the 
projected availability of advanced biofuel in 2013. Therefore, we are 
requesting comment on the possibility of reducing the required volume 
of advanced biofuel and total renewable fuel in 2013 to reflect this 
uncertainty.

A. Purpose of This Proposed Action

    EPA is today proposing volume requirements for cellulosic biofuel, 
advanced biofuel, and total renewable fuel for 2013. Table I.A-1 lists 
the statutory provisions and associated criteria relevant to 
determining the applicable volumes in today's proposal. We are also 
proposing percentage standards for all four categories of renewable 
fuel for 2013.

     Table I.A-1--Statutory Provisions for Determination of Proposed
                           Applicable Volumes
------------------------------------------------------------------------
                                                    Criteria provided in
                                  Clean Air Act         statute for
      Applicable volumes            reference         determination of
                                                     applicable volume
------------------------------------------------------------------------
Cellulosic biofuel in 2013....  211(o)(7)(D)(i)..  Required volume must
                                                    be lesser of volume
                                                    specified in CAA
                                                    211(o)(2)(B)(i)(III)
                                                    or EPA's projected
                                                    volume.
Advanced biofuel in 2013......  211(o)(7)(D)(i)..  If applicable volume
                                                    of cellulosic
                                                    biofuel is reduced
                                                    to the projected
                                                    volume, EPA may
                                                    reduce advanced
                                                    biofuel by the same
                                                    or lesser volume. No
                                                    other criteria
                                                    specified.
Total renewable fuel in 2013..  211(o)(7)(D)(i)..  If applicable volume
                                                    of cellulosic
                                                    biofuel is reduced
                                                    to the projected
                                                    volume, EPA may
                                                    reduce total
                                                    renewable fuel by
                                                    the same or lesser
                                                    volume. No other
                                                    criteria specified.
------------------------------------------------------------------------

    EPA must annually determine the projected volume of cellulosic 
biofuel production for the following year. If the projected volume of 
cellulosic biofuel production is less than the applicable volume 
specified in section 211(o)(2)(B)(i)(III) of the statute, EPA must 
lower the applicable volume used to set the annual cellulosic biofuel 
percentage standard to the projected volume of production. In today's 
proposal, we present our analysis of cellulosic biofuel production and 
proposed projected volume for 2013. The analyses that led to the 
proposed 2013 applicable volume requirement were based on our 
evaluation of EIA's projection for 2013 as well as individual 
producers' production plans and progress to date. For the final rule, 
we will also consider comments received in response to this notice of 
proposed rulemaking and other information that becomes available.
    When we lower the applicable volume of cellulosic biofuel below the 
volume specified in CAA 211(o)(2)(B)(i)(III), we also have the 
authority to reduce the applicable volumes of advanced biofuel and 
total renewable fuel by the same or a lesser amount. Today's proposal 
includes our consideration of the 2013 volume requirements for these 
biofuels.
    Based on the applicable volumes for cellulosic biofuel, biomass-
based diesel, advanced biofuel, and total renewable fuel presented in 
today's proposal, we have calculated proposed percentage standards 
(shown in Section I.B.3 below) that would apply to all producers and 
importers of gasoline and diesel in 2013. The proposed percentage 
standards are based on a projection of volumes of gasoline and diesel 
consumption in 2013 from the Energy Information Administration (EIA).

B. Summary of Major Provisions in This Notice

1. Cellulosic Biofuel Volume for 2013
    The cellulosic biofuel industry in the United States continues to 
make significant advances in its progress towards large scale 
commercial production. Ongoing research and development work has 
resulted in increasing product yields, while at the same time lowering 
enzyme and catalyst costs. New supply chains have been developed, and 
several companies have reached contract agreements to provide the 
necessary feedstock for large scale cellulosic biofuel production 
facilities. Companies are continuing to invest significant sums of 
money to further refine cellulosic biofuel production technology and to 
construct the first commercial-scale facilities. From 2007 through the 
second quarter of 2011 over $2.4 billion was invested in advanced 
biofuel production companies by venture capitalists alone.\2\ For more 
information on the current status of the cellulosic biofuel industry in 
the United States and the advances being made, see Section II.B.
---------------------------------------------------------------------------

    \2\ Solecki M, Rickey D, Epstein B. Advanced Biofuel Market 
Report 2011: Meeting the California LCFS. Environmental 
Entrepreneurs. August 22, 2011. http://www.e2.org/ext/doc/E2%20Advanced%20Biofuel%20Mkt%20Report%202011.pdf.
---------------------------------------------------------------------------

    2013 is also expected to be a year of transition for the cellulosic 
biofuel industry, as many companies are shifting their focus from 
technology development to commercialization. This transition began in 
2012 with commercial production facilities from INEOS Bio and KiOR 
completing construction and scheduled to begin producing fuel in the 
first quarter of 2013. Abengoa, one of the largest producers of ethanol 
in the United States, is planning to begin producing cellulosic ethanol 
at commercial scale by the end of 2013. Several others companies, 
including DuPont and Poet, expect to be constructing their first 
commercial scale facilities in 2013, with the intention of beginning 
production in 2014. If these facilities are able to operate as 
anticipated, the uncertainty associated with commercial-scale

[[Page 9285]]

cellulosic biofuel production will decrease, and the expansion of the 
industry could be rapid.
    As part of our effort to estimate the volume of cellulosic biofuel 
that can be made available in the U.S. in 2013, 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 were 
not the focus of our assessment as production from these facilities 
represents very small volumes of cellulosic biofuel, and these 
facilities typically have not generated RINs for the fuel they have 
already produced. From this universe of potential cellulosic biofuel 
sources we identified the subset that could be producing commercial 
volumes of qualifying cellulosic biofuel for use as transportation fuel 
in 2013. To arrive at a proposed projected volume for each facility, we 
took into consideration EIA's company specific projections and factors 
such as the current and expected state of funding, the status of the 
technology utilized, progress towards construction and production 
goals, and other significant factors that could potentially impact fuel 
production or the ability of the produced fuel to generate cellulosic 
Renewable Identification Numbers (RINs) in 2013. Further discussion of 
these factors can be found in Section II.B.
    In our assessment we focused on domestic sources of cellulosic 
biofuel. At the time of this proposal no internationally-based 
cellulosic biofuel production facilities have registered under the RFS 
program and therefore no volume from international producers has been 
included in our projections for 2013. Of the domestic sources, we 
estimated that up to four facilities may produce commercial-scale 
volumes of cellulosic biofuel available for transportation use in the 
U.S. in 2013. Two of these four facilities have made sufficient 
progress to project that commercial scale production from these two 
facilities will occur, and we have therefore included production from 
them in our projected available volume for 2013. All four facilities 
are listed in Table I.B.1-1 along with our estimate of the projected 
2013 volume for each.

                  Table I.B.1-1--Projected Available Cellulosic Biofuel Plant Volumes for 2013
----------------------------------------------------------------------------------------------------------------
                                                                     Capacity
                                                                     (million          First         Projected
           Company                 Location         Fuel type       gallons per     production       available
                                                                       year)        (projected)     volume \a\
----------------------------------------------------------------------------------------------------------------
Abengoa......................  Hugoton, KS.....  Ethanol........              24         4Q 2013               0
Fiberight....................  Blairstown, IA..  Ethanol........               6         4Q 2013               0
INEOS Bio....................  Vero Beach, FL..  Ethanol........               8         1Q 2013               6
KiOR.........................  Columbus, MS....  Gasoline and                 11         1Q 2013               8
                                                  Diesel.
                                                                 -----------------------------------------------
    Total....................  ................  ...............              49  ..............              14
----------------------------------------------------------------------------------------------------------------
\a\ Volumes listed in million ethanol-equivalent gallons.

The EIA projections, variation in expected start-up times, along with 
the facility production capacities, company production plans, and a 
variety of other factors have all been taken into account in predicting 
the actual volume of cellulosic biofuel that will be produced in 2013. 
For more detailed information on our projections of cellulosic biofuel 
in 2013 and the companies we expect to produce this volume see Section 
II.
2. Advanced Biofuel and Total Renewable Fuel in 2013
    The statute indicates that we may reduce the applicable volume of 
advanced biofuel and total renewable fuel specified in the statute for 
2013 if we determine that the projected volume of cellulosic biofuel 
production for 2013 falls short of the statutory volume of 1.0 billion 
gallons. As shown in Table I.B.1-1, we have proposed a finding that 
this is the case. Therefore, we have also evaluated whether to propose 
lowering the applicable volumes for advanced biofuel and total 
renewable fuel. The statute provides no explicit criteria or direction 
for making this determination. We have focused our evaluation on the 
availability of renewable fuels that would qualify as advanced biofuel. 
The CAA specifies an applicable volume of 2.75 billion gallons of 
advanced biofuel for 2013. To determine whether to lower this volume, 
we considered the sources that are expected to satisfy any advanced 
biofuel mandate including: Cellulosic biofuel, biomass-based diesel, 
other domestically-produced advanced biofuels, and imported sugarcane 
ethanol.
    As described in Section II, we project that 14 mill gallons of 
cellulosic biofuel will be available in 2013. This volume would fulfill 
0.014 bill gal of the 2.75 bill gal advanced biofuel requirement.
    We have finalized a volume of 1.28 bill gal for 2013 biomass-based 
diesel in a separate action, and we expect that the vast majority of 
this requirement will be fulfilled with biodiesel. Since biodiesel has 
an Equivalence Value of 1.5, 1.28 billion physical gallons of biodiesel 
would provide 1.92 billion ethanol-equivalent gallons that could be 
counted towards the advanced biofuel standard of 2.75 billion gallons.
    As described in more detail in Section III, we have projected that 
domestic advanced biofuels are expected to grow steadily through 2013, 
and would include renewable diesel that does not qualify to be biomass-
based diesel, heating oil, biogas used as CNG, and ethanol. We are 
projecting that about 150 mill gal of domestic advanced biofuels is 
likely to be available in 2013, which would fulfill 0.15 bill gal of 
the 2.75 bill gal advanced biofuel requirement.
    After taking into account cellulosic biofuel, biomass-based diesel, 
and domestic advanced biofuels, 666 mill gal of imported sugarcane 
ethanol would be needed to fulfill the advanced biofuel requirement of 
2.75 bill gal. As described in Section III, there is reason to believe 
that this volume can be exported from Brazil to the U.S. in 2013 given 
Brazilian production and consumption projections. However, we note that 
there is some uncertainty in the volumes of Brazilian sugarcane ethanol 
that could be imported into the U.S. in 2013. This uncertainty arises 
from the possibility of poor sugarcane crop yields in the next harvest 
as occurred during the previous harvest, and the interplay between 
these yields and Brazilian demand for ethanol, world sugar prices, and 
international demand for biofuels. While most

[[Page 9286]]

projections indicate that Brazilian sugarcane crop yields will be 
significantly better in the coming harvest in comparison to the 
previous harvest, and that as a result sufficient sugarcane ethanol 
could be produced and exported to the U.S. to help meet the need for 
2.75 bill gal advanced biofuel, we nevertheless request comment on 
whether the advanced biofuel requirement should be reduced to account 
for this uncertainty.
    We also note that in both 2011 and 2012 there was significant two-
way trade in ethanol between the United States and Brazil. According to 
current EIA data, in 2011 the U.S. imported 101 million gallons of 
sugarcane ethanol from Brazil and exported 396 million gallons of corn-
based ethanol to Brazil. Total fuel ethanol exports in 2011 were 1.2 
billion gallons, and total exports through October 2012 were 646 
million gallons.
    Finally, we believe there will be sufficient volumes of 
conventional renewable fuel including corn-ethanol, combined with 
advanced biofuel, to satisfy the 16.55 billion gallon applicable volume 
of total renewable fuel specified in the Act. For instance, corn-
ethanol production capacity in 2012 was 14.9 bill gal, compared to the 
13.8 bill gal needed to meet the RFS requirements in 2013.\3\ We are 
not proposing to reduce the advanced biofuel volume requirement of 2.75 
bill gal, nor the total renewable fuel volume requirement of 16.55 bill 
gal. However, we are taking comment on lowering the advanced biofuel 
and total renewable volumes due to various uncertainties. For example, 
we currently project that 666 mill gal of sugarcane ethanol would need 
to be imported in order to meet the advanced biofuel volume. However, 
the recent reinstatement of the biodiesel tax credit introduced 
uncertainty around those projections, since it affects the amount of 
biodiesel that may be produced above the required 1.28 bill gal. In 
addition, the potential for increased domestic demand in Brazil if the 
25% biofuel blending requirement is reinstated also introduces 
uncertainty around the projections. We seek input on these and other 
such factors that are relevant to how the advanced biofuel volume 
requirement would be met.
---------------------------------------------------------------------------

    \3\ ``2012 Ethanol Industry Outlook,'' Renewable Fuels 
Association, http://ethanolrfa.3cdn.net/d4ad995ffb7ae8fbfe_1vm62ypzd.pdf.
---------------------------------------------------------------------------

3. Proposed Standards for 2013
    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 for the coming year are 
accurate, then the amount of renewable fuel, cellulosic biofuel, 
biomass-based diesel, and advanced biofuel actually used will meet the 
volumes required on a nationwide basis.
    To calculate the percentage standards for 2013, we have used the 
proposed projected volume of 14 million ethanol-equivalent gallons of 
cellulosic biofuel and the volume of biomass-based diesel of 1.28 bill 
gal that we have finalized in a separate action. The applicable volumes 
used in this proposal for advanced biofuel and total renewable fuel for 
2013 are those specified in the statute. These volumes are shown in 
Table I.B.3-1.

   Table I.B.3-1--Proposed Volumes Used To Determine the Proposed 2013
                        Percentage Standards \a\
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel....................  14 mill gal.
Biomass-based diesel..................  1.28 bill gal.
Advanced biofuel......................  2.75 bill gal.
Renewable fuel........................  16.55 bill gal.
------------------------------------------------------------------------
\a\ All volumes are ethanol-equivalent, except for biomass-based diesel
  which is actual.

    Four separate standards are required under the RFS program, 
corresponding to the four separate volume requirements shown in Table 
I.B.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 IV.B.1. The percentage standards represent the 
ratio of renewable fuel volume to projected non-renewable gasoline and 
diesel volume. The projected volume of transportation gasoline and 
diesel used to calculate the standards in today's proposed rule was 
derived from EIA projections.\4\ At this time EPA has not approved any 
small refinery or small refiner exemptions for 2013, and thus no 
adjustment has been made to the proposed standards to account for such 
exemptions. The proposed standards for 2013 are shown in Table I.B.3-2. 
Detailed calculations can be found in Section IV, including the 
projected 2013 gasoline and diesel volumes used.
---------------------------------------------------------------------------

    \4\ Letter, Adam Sieminski, Administrator, U.S. Energy 
Information Administration, to Lisa P. Jackson, Administrator, U.S. 
EPA, October 18, 2012.

          Table I.B.3-2--Proposed Percentage Standards for 2013
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel......................................        0.008%
Biomass-based diesel....................................        1.12%
Advanced biofuel........................................        1.60%
Renewable fuel..........................................        9.63%
------------------------------------------------------------------------

4. Biomass-Based Diesel for 2014
    While Clean Air Act section 211(o)(2)(B) specifies the volumes of 
biomass-based diesel through year 2012, it directs the EPA 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. EPA proposed an applicable volume of biomass-based 
diesel for 2013 on July 1, 2011, and issued a final rule establishing 
that applicable volume on September 27, 2012.\5\
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    \5\ 77 FR 59458.
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    Under 211(o)(2)(B)(ii) EPA, in coordination with the Secretary of 
Energy and the Secretary of Agriculture, is to establish the applicable 
volume for biomass based diesel in 2014 based on a review of 
implementation of the program in prior years and analysis of a number 
of factors, including biodiesel production capacity, consumption, and 
infrastructure capabilities, as well as impacts on emissions, costs, 
energy security, and other factors. While the industry produced around 
1.15 bill physical gallons in 2012, we are still evaluating the 
potential market impacts of this production level. In order to provide 
sufficient time for this evaluation, as well as the other analyses we 
are required to conduct, we are not proposing an applicable volume of 
biomass-based diesel for 2014 in today's NPRM. Instead, we will issue a 
separate proposal at a later date.
5. Administrative Actions
    By November 30 of each year we are required to make several 
administrative announcements which facilitate program implementation in 
the following calendar year. These announcements include the cellulosic 
biofuel waiver credit price and the status of the aggregate compliance 
approach to land-use restrictions under the definition of renewable 
biomass for both the U.S. and Canada. Since we did not make these 
announcements for 2013 by November 30 of 2012, we are here presenting 
our assessments of these administrative actions. We will provide the 
final announcements for these administrative actions when we finalize 
the standards being proposed in today's action.

[[Page 9287]]

    In the event that we reduce the required volume of cellulosic 
biofuel for 2013 below the applicable volume specified in the statute, 
EPA is required to offer biofuel waiver credits to obligated parties 
that can be purchased in lieu of acquiring cellulosic biofuel RINs. 
These waiver credits are not allowed to be traded or banked for future 
use, are only allowed to be used to meet the 2013 cellulosic biofuel 
standard, and cannot be applied to deficits carried over from 2012. 
Moreover, unlike cellulosic biofuel RINs, waiver credits may not be 
used to meet either the advanced biofuel standard or the total 
renewable fuel standard. For the 2013 compliance period, we estimate 
that cellulosic biofuel waiver credits could be made available to 
obligated parties for end-of-year compliance should they need them at a 
price of $0.42 per credit.
    As part of the RFS2 regulations, EPA established an aggregate 
compliance approach for renewable fuel producers who use planted crops 
and crop residue from U.S. agricultural land. This compliance approach 
relieved such producers (and importers of such fuel) of the individual 
recordkeeping and reporting requirements otherwise required of 
producers and importers to verify that feedstocks used in the 
production of RIN-qualifying renewable fuel meet the definition of 
renewable biomass. EPA determined that 402 million acres of U.S. 
agricultural land was available in 2007 (the year of EISA enactment) 
for production of crops and crop residue that would meet the definition 
of renewable biomass, and determined that as long as this total number 
of acres is not exceeded, it is unlikely that new land has been devoted 
to crop production based on historical trends and economic 
considerations. We indicated that we would conduct an annual evaluation 
of total U.S. acreage that is cropland, pastureland, or conservation 
reserve program land, and that if the value exceed 402 million acres, 
producers using domestically grown crops or crop residue to produce 
renewable fuel would be subject to individual recordkeeping and 
reporting to verify that their feedstocks meet the definition of 
renewable biomass. Based on data provided by the USDA, we have 
estimated that U.S. agricultural land reached 384 million acres in 
2012, and thus did not exceed the 2007 baseline acreage.
    On September 29, 2011, EPA approved the use of an aggregate 
compliance approach to renewable biomass verification for planted crops 
and crop residue grown in Canada. The Government of Canada utilized 
several types of land use data to demonstrate that the land included in 
their 124 million acre baseline is cropland, pastureland or land 
equivalent to U.S. Conservation Reserve Program land that was cleared 
or cultivated prior to December 19, 2007, and was actively managed or 
fallow and nonforested on that date (and is therefore RFS2 qualifying 
land). The total agricultural land in Canada in 2012 is estimated at 
121 million acres. The total acreage estimate of 121 million acres does 
not exceed the trigger point for further investigation.

C. Impacts of Proposed Actions

    Analyses for the March 26, 2010 RFS2 final rule indicated the GHG 
benefits from cellulosic biofuels compared to the petroleum-based fuels 
they displace could likely range well above the 60 percent threshold. 
Therefore, EPA expects that the increase in cellulosic biofuel use that 
EPA has projected for 2013 over prior year production levels would have 
directionally beneficial GHG emissions impacts.
    For advanced biofuel and total renewable fuel, we are not proposing 
to reduce the applicable volumes below the volumes required in the 
statute. All of the impacts of the biofuel volumes specified in the 
statute were addressed in the RFS2 final rule published on March 26, 
2010. Today's rulemaking simply proposes the standards for 2013 
advanced biofuel and total renewable fuel whose impacts were previously 
analyzed. Nevertheless, we recognize that the combination of imports of 
sugarcane ethanol from Brazil into the U.S. and exports of corn-ethanol 
from the U.S. to Brazil that may occur as a result of the advanced 
biofuel volume requirement engenders additional transport related 
emissions.

II. Projection of Cellulosic Volume for 2013

    In order to project the production volume of cellulosic biofuel in 
2013 for use in setting the percentage standard, we considered the EIA 
projections and collected information on individual facilities that 
have the potential to produce qualifying volumes for consumption as 
transportation fuel, heating oil, or jet fuel in the U.S. in 2013. This 
section describes the volumes that we project will be produced or 
imported in 2013 as well as some of the uncertainties associated with 
those volumes.
    In the past several years the cellulosic biofuel industry has made 
many significant advances. The production cost of cellulosic biofuels 
continues to fall as a result of ongoing technology development and 
operating experience gained from many research and development and 
demonstration-scale facilities across the country. These important 
advances include higher biofuel yields per ton of feedstock as well as 
lower enzyme and catalyst costs. As a result of these yield increases, 
the projected capital costs and energy costs to produce a gallon of 
cellulosic biofuel have decreased. New feedstock supply chains, which 
will be necessary to provide the raw materials for anticipated 
commercial facilities, have been established, and in several cases 
companies have signed contracts to obtain significant quantities of 
feedstocks for their first commercial facilities. These developments, 
along with the increased availability of project financing, have 
resulted in the construction of new commercial-scale cellulosic biofuel 
production facilities. Two commercial-scale facilities are both 
structurally complete and currently in the start-up phase of 
operations. Several additional facilities are planning construction in 
2013 and start-up in 2014. If these first facilities are successful and 
operate as designed it will significantly decrease the perceived risk 
associated with similar future facilities and could potentially lead to 
the rapid deployment of cellulosic biofuel production facilities around 
the United States.
    Despite significant advances in cellulosic biofuel production 
technology in recent years, RIN-generating cellulosic biofuel 
production in 2010 and 2011 was zero despite our projections that the 
industry was positioned to produce about 6 million gallons in each of 
those years.\6\ In 2010 the majority of the cellulosic biofuel 
shortfall was met through the use of RINs generated under the RFS1 
regulations, and since there were excess RFS1 cellulosic RINs many 
carried over into the following year. The remaining cellulosic biofuel 
requirements in 2011 were met through the purchase of cellulosic 
biofuel waiver credits.\7\ A

[[Page 9288]]

discussion of the reasons for this disparity between our projections 
and subsequent production is provided in Section II.B below.
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    \6\ In the first half of 2010 when the RFS1 program was still 
effective, some cellulosic biomass ethanol was produced and the RINs 
generated were valid for demonstrating compliance with the 2010 and 
2011 RFS2 cellulosic biofuel standards. However, the RFS1 cellulosic 
biomass ethanol that was produced was not made from cellulosic 
feedstocks, but rather was categorized as cellulosic because it was 
produced in plants using waste materials to displace 90% or more of 
fossil fuel use under the then-effective definition of cellulosic 
biomass ethanol in CAA Section 211(o)(1)(A). See also 40 CFR 
80.1101(a)(2).
    \7\ 4,248,338 cellulosic waiver credits were purchased for 2011 
compliance according to the EMTS Web site (information retrieved 
from the Web site on December 11, 2012) at a cost of $1.13 per 
credit. The ethanol-equivalent volume of cellulosic biofuel 
projected for 2011 and used to calculate the percentage standard for 
that year was 6.0 million gallons.
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    In 2012 the first cellulosic RINs were generated under the RFS2 
regulations. However, cellulosic biofuel production once again fell far 
short of our projections in 2012.\8\
---------------------------------------------------------------------------

    \8\ On December 31, 2012 EPA also received a request for a 
waiver of the 2012 cellulosic biofuel volume requirement from the 
American Fuel and Petrochemical Manufacturers.
---------------------------------------------------------------------------

A. Statutory Requirements

    The volumes of renewable fuel to be used under the RFS program each 
year (absent an adjustment or waiver by EPA) are specified in CAA 
211(o)(2). For 2013, the statute specifies a cellulosic biofuel 
applicable volume requirement of 1.0 bill gal. The statute requires 
that if EPA determines, based on EIA's estimate, 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 volumes of advanced 
biofuels and total renewable fuel by the same or a lesser volume. Our 
consideration of the 2013 volume requirements for advanced biofuels and 
total renewable fuel is presented in Section III.

B. Status of the Cellulosic Biofuel Industry

    As in previous years, cellulosic biofuel production in the United 
States in 2011 was limited to small-scale research and development, 
pilot, and demonstration-scale facilities. Companies such as Abengoa, 
BP, Coskata, DuPont Danisco, KL Energy, KiOR, Poet, and others 
successfully operated small-scale facilities in 2011. Several of these 
facilities, including all that were part of our 2012 volume 
projections, are discussed in more detail in Section II.C below. While 
there were numerous small-scale facilities producing cellulosic biofuel 
in 2011, the total volume of fuel produced was very small. Because of 
the R&D nature of these small facilities they are neither designed to 
produce fuel for commercial sale nor required to report the small 
volumes of fuel they produced. No RINs were generated for volumes that 
were produced in 2011, despite all of the companies included in the 
2011 projections expressing interest and/or intent in doing so. 
Although EPA has not attempted to accurately assess production volumes, 
based on generally available information we believe that total 
production in the United States in 2011 was likely less than one 
million gallons of cellulosic biofuel across the industry.
    Each of the companies included in our 2011 projections for 
cellulosic biofuel production had different reasons for not generating 
cellulosic RINs in 2011. DuPont had concerns about their ability to 
retain the R&D status of their Vonore, TN facility if they generated 
RINs and sold the cellulosic ethanol they produced from this facility. 
Fiberight was unable to secure the funding required to complete the 
modifications to their facility to allow for cellulosic ethanol 
production. KL Energy finalized an agreement with Petrobras in the 
second half of 2010 and changed the direction of their facility to 
focus on using bagasse as a primary feedstock. Finally, after 
completing initial production of cellulosic ethanol Range Fuels shut 
down operations in January 2011 and eventually declared bankruptcy.
    While cellulosic biofuel production in the United States remains 
limited, the industry continues to make significant progress towards 
producing cellulosic biofuel at prices competitive with petroleum 
fuels. From 2007 through the second quarter of 2011 venture capitalists 
invested over $2.4 billion in advanced biofuel companies in North 
America.\9\ Recent advancements in enzyme and catalyst technologies are 
allowing cellulosic biofuel producers to achieve greater yields of 
biofuel per ton of feedstock. These advancements have led to lower 
operational costs as they have driven down the cost for feedstock, 
energy, and other important inputs on a per gallon basis. For example, 
the estimated cost of producing cellulosic ethanol using an enzymatic 
hydrolysis process in 2007 was $4-$8 per gallon.\10\ By 2012 the 
estimated cost of cellulosic ethanol production using the same process 
had fallen to $2-$3.50 per gallon.\11\ The U.S. Department of Energy 
similarly reports that advancements in cellulosic ethanol technology 
have resulted in a decrease in modeled costs from approximately $4 per 
gallon (minimum ethanol selling price) in 2007 to approximately $2.50 
per gallon in 2011.\12\ The same technological advances have also 
lowered the capital costs of cellulosic biofuel production facilities 
per gallon of annual fuel production, as more gallons of biofuel can be 
produced at a facility without additional equipment or increased 
feedstock requirements.
---------------------------------------------------------------------------

    \9\ Solecki M, Rickey D, Epstein B. Advanced Biofuel Market 
Report 2011: Meeting the California LCFS. Environmental 
Entrepreneurs. August 22, 2011. Available Online http://www.e2.org/ext/doc/E2%20Advanced%20Biofuel%20Mkt%20Report%202011.pdf.
    \10\ Nielsen, Peder Holk. ``The Path to Commercialization of 
Cellulosic Ethanol--A Brighter Future.'' PowerPoint Presentation. 
Conference Call. February 22, 2012. Available Online http://www.novozymes.com/en/investor/events-presentations/Documents/Cellic3_conf_call_220212.pdf.
    \11\ IBID.
    \12\ Department of Energy. Biomass Multi-Year Program Plan. 
April 2012. DOE/EE-0702. Available Online http://www1.eere.energy.gov/biomass/pdfs/mypp_april_2012.pdf.
---------------------------------------------------------------------------

    As cellulosic biofuel producers gain experience and continue to 
progress towards commercial-scale biofuel production, it is reasonable 
to expect that the production costs and capital costs will continue to 
decline. This is a pattern shown by many new technologies, including 
renewable and emerging energy technologies. One example which has 
several similarities to the cellulosic biofuel industry is the 
experience with the dry mill corn ethanol industry. From 1983, the year 
in which the first commercial volumes of dry mill ethanol were 
produced, to 2005 the processing cost of corn ethanol decreased by 45%, 
while the capital costs of a dry mill ethanol facility decreased by 
88%.\13\ Many of the drivers for this cost reduction, such as higher 
ethanol yields, reduced enzyme costs, and better fermentation 
technologies \14\ are also expected to be factors in the lower 
cellulosic biofuel costs expected in the future. While the cost 
reduction percentages observed in the dry mill corn ethanol industry 
are not directly applicable to the cellulosic biofuel industry, the 
trend of decreasing production and capital costs over time is expected 
to hold true.
---------------------------------------------------------------------------

    \13\ Hettinga WG, Junginger HM, Dekker SC, Hoogwijk M, McAloon 
AJ, Hicks KB. Understanding the reductions in US corn ethanol 
production costs: An experience curve approach. Energy Policy 37 
(2009): 190-203. Available Online http://ddr.nal.usda.gov/bitstream/10113/22550/1/IND44146988.pdf.
    \14\ IBID.
---------------------------------------------------------------------------

    Another area where significant progress has been made is that of 
feedstock supply for commercial-scale cellulosic biofuel production 
facilities. This issue has often been raised as a factor that could 
hinder the development of the cellulosic biofuel industry as many of 
the proposed facilities rely on feedstocks, such as

[[Page 9289]]

agricultural residues or energy crops, for which supply chains have not 
previously existed. Over the past several years both Abengoa and Poet 
have been reaching out to farmers in the regions surrounding their 
first commercial-scale facilities to ensure the availability of the 
necessary feedstock. Because corn cobs and stover are only seasonally 
available, using them as a feedstock for a cellulosic biofuel 
production facility would require significant feedstock storage 
facilities. In the last two years Abengoa and Poet completed 
construction of large-scale feedstock storage facilities to ensure 
adequate supply to their cellulosic biofuel production facilities 
throughout the year. Both companies successfully completed fall biomass 
harvests in 2011 and have contracted with local farmers to provide 
feedstock for their cellulosic ethanol facilities. This supply chain 
will not only provide feedstock for their first commercial-scale 
facilities, but also a model that can be re-created at future 
production facilities.
    Several cellulosic biofuel producers are planning to use slash, 
forest thinnings, and forest product residue or the cellulosic portions 
of yard waste as feedstock. This material has many qualities that make 
it desirable as a cellulosic biofuel feedstock. It is generally 
inexpensive and is readily available in some regions of the United 
States. It is also available year round rather than seasonally, 
significantly reducing the need for large-scale feedstock storage 
facilities. Securing a sufficient quantity of this feedstock for a 
commercial-scale facility, however, can be challenging. In the summer 
of 2011 KiOR announced it had signed a feedstock agreement with 
Catchlight Energy to provide all the necessary slash, forest thinning, 
and forest product residue for their first commercial-scale facility. 
While KiOR plans to transition to planted trees for future facilities, 
KiOR now has secured sufficient feedstock such that they can produce 
cellulosic biofuel and cellulosic RINs using an existing pathway at 
their first commercial-scale facility. INEOS Bio also has a long term 
agreement with Indian River County to provide vegetative waste which 
will serve as the feedstock for their first facility.
    Another appealing feedstock for cellulosic biofuel production is 
separated municipal solid waste (MSW). MSW is already being collected 
and transported to a centralized facility, is consistently available 
throughout the year, and can be obtained for a very low, or even 
negative cost. MSW often contains contaminants, however, that may make 
it challenging to process for some cellulosic biofuel technologies. EPA 
also requires that waste separation plans be submitted and approved 
prior to any company generating RINs using separated MSW as a 
feedstock. In June 2012 EPA approved the first waste separation plan 
under the RFS program for Fiberight's facility in Blairstown, Iowa.
    Significant progress has also been made by some companies towards 
funding the construction of their first commercial-scale facilities. In 
the early years of the cellulosic biofuel industry several small start-
up companies announced plans to build large commercial-scale facilities 
that were scheduled to begin production in the past few years. The 
construction of many of these facilities was dependent on the companies 
raising additional funding, either from venture capitalists, government 
grants, or loans backed by government guarantees. So far few of the 
companies that made these early announcements have been able to 
successfully raise the necessary funds and begin construction. Securing 
this funding proved difficult, and when it did not materialize the 
projects were delayed or cancelled.
    The funding profiles of the companies included in our proposed 
volume for 2013, as well as for many of the companies targeting 
production in 2014, are markedly different. Many of these projects have 
already received, and in several cases have closed on loan guarantees 
and grants offered by DOE or USDA. Other companies have filed for and 
successfully executed IPOs. Several cellulosic ethanol projects are 
being self-financed by large companies such as Abengoa and Poet with 
significant experience in the biofuel, petrochemical, and specialty 
chemical markets. This solid financial backing has allowed these 
companies to proceed with construction. Both of the facilities included 
in our proposed volume for 2013 have already completed the construction 
of their first commercial production facilities. There is therefore far 
less uncertainty as to likely production from these two facilities than 
has been present for most of EPA's earlier projections. The next 
section provides additional details on the funding and construction 
status of the projects included in our projected cellulosic biofuel 
production volumes for 2013.
    If these first commercial-scale cellulosic biofuel production 
facilities are successful, the potential exists for a rapid expansion 
of the industry in subsequent years. Having successful commercial-scale 
facilities would not only provide useful information to help maximize 
the efficiency of future facilities, but would also significantly 
decrease the technology and scale-up risks associated with cellulosic 
biofuel production facilities and could lead to increased access to 
project funding. Fiberight and ZeaChem both plan to build larger-scale 
facilities (~25 mill gal per year) as soon as they are able to raise 
the necessary funds. INEOS Bio plans to expand production by building 
additional units near sources of inexpensive feedstock ranging in size 
from 8 to 50 million gallons of ethanol per year. They are currently 
exploring expansion possibilities in the United States and 
internationally. KiOR has plans for a second commercial-scale facility 
to be built in Natchez, MS, that will be approximately three times 
larger (~30 mill gal per year) than their Columbus, MS, plant and plans 
to break ground at their second facility after their first is fully 
operational. Abengoa currently anticipates construction of additional 
cellulosic ethanol facilities at multiple locations, likely including 
co-locating with some of their existing starch facilities in the US. 
Poet has a similar expansion strategy to build cellulosic ethanol 
plants at their grain ethanol facilities, license their technology for 
use at other grain ethanol facilities, and build cellulosic ethanol 
facilities that use feedstocks such as rice straw, rice hulls, woody 
biomass, or energy crops as a feedstock. Poet's goal is to be involved 
in the production of 3.5 billion gallons of cellulosic ethanol per year 
by 2022. Several other companies, such as DuPont and Enerkem are also 
targeting 2014 for the start-up of cellulosic biofuel production 
facilities and would likely look to build additional facilities 
relatively quickly if successful. While many of these expansion plans 
are still in the early stages and are subject to change, they do point 
to the potential for cellulosic biofuel production to increase rapidly 
in future years.

C. Cellulosic Biofuel Volume Assessment for 2013

    In 2011 no cellulosic biofuel RINs were generated, though some 
small volumes were produced. Announcements of new projects and project 
funding, changes in project plans, project delays, and cancellations 
occurred. Biofuel producers faced 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. While the cellulosic biofuel 
producer tax credit has been extended through 2013, the short-term 
nature of this incentive and legal challenges to the RFS volumes

[[Page 9290]]

have caused some technology developers and investors to question the 
long term RIN value of cellulosic biofuels. The resulting uncertainty 
may have had an impact on cellulosic biofuel production in 2011 and 
2012.
    Despite these challenges, there are several factors indicating that 
significant volumes of cellulosic biofuel are projected to be produced 
in 2013. Commercial-scale cellulosic biofuel projects from INEOS Bio 
and KiOR are structurally complete and expected to begin fuel 
production in the first quarter of 2013 and achieve production rates at 
or near their nameplate capacities by the end of 2013. Another 
commercial-scale facility backed by Abengoa, a large company with 
significant experience in biofuel production, is also scheduled to 
begin producing cellulosic biofuel in 2013. These facilities are 
indicative of a shift across the cellulosic biofuel industry from 
small-scale R&D and demonstration facilities operated by small start-up 
companies to large commercial-scale facilities backed by large 
companies, many of which have substantial experience in related 
industries.
    In order to project cellulosic biofuel production for 2013, we have 
tracked the progress of more than 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 generate cellulosic biofuel RINs in 
2013. Each of these companies was investigated further in order to 
determine the current status of their facilities and their likely 
cellulosic biofuel production and RIN generation volumes for the coming 
years. Information such as the funding status of these facilities, 
current status of the production technologies, announced construction 
and production rampup periods, and annual fuel production targets were 
all considered when we met with senior level representatives of each 
company to discuss cellulosic biofuel target production levels for 
2013. Our projection of the cellulosic biofuel production in 2013 is 
based on the estimate we received from EIA as well as the individual 
production projections that emerged from these discussions. A brief 
description can be found below for each of the companies we believe 
will produce cellulosic biofuel and make it commercially available in 
2013. We will continue to gather more information to help inform our 
decision regarding the final cellulosic biofuel volume to be required 
for 2013.
    In the sections that follow, we first discuss the cellulosic 
production facilities that were part of our volume projections for the 
2012 compliance year and the progress that they have made. Then we 
present our consideration of additional facilities that we believe will 
also produce cellulosic biofuel in 2013.
1. Cellulosic Biofuel Facilities Considered in the 2012 Projections
    In the January 9, 2012, final rule that established the required 
2012 cellulosic biofuel volume, we identified six production facilities 
that we projected would produce cellulosic biofuel and make that fuel 
commercially available in 2012. Five of these production facilities are 
currently structurally complete and one is planning to retrofit an 
existing corn ethanol plant with construction beginning in the first 
half of 2013. Six active facilities have completed the registration 
process for the RFS program, and are currently able to generate 
cellulosic RINs. The current status of each of these facilities, 
including target production levels for each facility in 2013, is 
discussed below.
API
    American Process Inc. (API) is developing a project in Alpena, 
Michigan capable of producing up to 900,000 gallons of cellulosic 
ethanol per year from woody biomass. This facility will use a 
technology developed by API called GreenPower+TM. This 
technology extracts the hemicellulose portion of woody biomass using 
hot water and hydrolyzes it into sugars. These sugars are then 
converted to ethanol or other alcohols, while the remaining portion of 
the woody biomass, containing mostly cellulose and lignin, is processed 
into wood paneling at a co-located facility. At future, larger-scale 
facilities API anticipates burning the residual biomass in a boiler to 
produce renewable steam and electricity as well as cellulosic biofuel.
    In January 2010 API received a grant from DOE for up to $18 million 
for the construction of their demonstration facility. Construction of 
the Alpena, Michigan facility began in March 2011 and API began 
commissioning operations at their facility in the summer of 2012. 
Production start-up is expected to begin in 2013.
Fiberight
    Fiberight uses an enzymatic hydrolysis process to convert the 
biogenic portion of separated MSW and other waste feedstocks into 
ethanol. They have successfully completed five years of development 
work on their technology at their small pilot plant in Lawrenceville, 
Virginia. In 2009 Fiberight purchased an idled corn ethanol plant in 
Blairstown, Iowa with the intention of making modifications to this 
facility to allow for the production of 6 million gallons of cellulosic 
ethanol per year from separated MSW and industrial waste streams. These 
modifications were scheduled to be completed in 2011, but difficulties 
in securing funding have resulted in construction at this facility 
being delayed. In January 2012 Fiberight was offered a $25 million loan 
guarantee from USDA. Closing on this loan would provide substantially 
all of the remaining funds required for Fiberight to complete the 
required modifications at their Blairstown facility. Construction is 
expected to begin in early spring 2013 and the company expects that it 
will take approximately 6 months to complete. Additionally, Fiberight's 
waste separation plan for this facility was approved in June 2012 
allowing Fiberight to generate RINs for the cellulosic ethanol they 
produce using separated MSW as a feedstock. Fiberight is also currently 
developing a second commercial-scale project based on their MSW ``hub 
and spoke'' concept. They anticipate that this facility will begin fuel 
production in 2014 and will produce approximately 25 million gallons of 
cellulosic ethanol per year when fully built out.
INEOS Bio
    INEOS Bio has developed a process for producing cellulosic ethanol 
by first gasifying cellulosic feedstocks 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 loan was closed in August 2011. This was in 
addition to the grant of up to $50 million INEOS Bio received from DOE 
in December 2009. At full capacity, this facility will be capable of 
producing 8 million gallons of cellulosic biofuel as well as 6 
megawatts (gross) of renewable electricity from a variety of feedstocks 
including yard, agricultural, and wood waste. The facility also plans 
to use a limited quantity of separated MSW as a feedstock after initial 
start-up.
    On February 9, 2011, INEOS Bio broke ground on this facility. INEOS 
Bio completed construction on this facility in June 2012 and began full 
commissioning of the facility. In August

[[Page 9291]]

2012 INEOS Bio received approval from EPA for their yard waste 
separation plan and successfully registered their Vero Beach, FL 
facility under the RFS program. In October 2012 the facility began 
producing renewable electricity. INEOS Bio entered the start-up phase 
of cellulosic ethanol production in November 2012. During this phase 
the facility was not run continually as facility modifications 
continued to be made, however a small volume of cellulosic ethanol was 
successfully produced. INEOS Bio has reported that they plan to be 
producing cellulosic ethanol at levels near the facility's capacity of 
8 million gallons per year throughout 2013. This reported schedule 
represents a very aggressive ramp-up period. Due to the many challenges 
of starting up a first-of-a-kind facility and the history of production 
delays in the cellulosic biofuel industry, EPA believes a more 
conservative projection is appropriate. For this proposal we project 6 
million gallons of cellulosic ethanol from INEOS Bio in 2013. This 
volume is consistent with what would be expected from this facility 
assuming a six month straight-line ramp-up period beginning in January 
2013. EPA requests comment on the projected available volume from INEOS 
Bio's facility in 2013, as well as these assumptions for the 
appropriate ramp-up period for cellulosic biofuel facilities and 
expectations for production during this ramp-up phase. EPA will monitor 
INEOS Bio's production output in the time between this proposal and the 
final rule and will consider that information, together with public 
comments received in making a final projection. INEOS Bio is also 
exploring several opportunities for additional cellulosic biofuel 
production facilities, both in the United States and internationally. 
INEOS Bio is targeting sources of inexpensive feedstock, primarily 
waste materials, and sees a market for plants with production 
capacities ranging from 8 to 50 million gallons per year.
KiOR
    KiOR is working to commercialize a technology capable of converting 
biomass to a biocrude using a process they call Biomass Fluid Catalytic 
Cracking (BFCC). BFCC uses a catalyst developed by KiOR in a process 
similar to Fluid Catalytic Cracking currently used in the petroleum 
industry. The first stage of this process produces a renewable crude 
oil which is then upgraded to produce primarily gasoline, diesel, and 
jet fuel as well as a small quantity of fuel oil, all of which are 
nearly identical to those produced from petroleum.
    KiOR's first commercial-scale facility is located in Columbus, 
Mississippi and is capable of producing approximately 11 million 
gallons of gasoline, diesel, and jet fuel per year. Construction on 
this facility began in May 2011 and was completed in September 2012. 
KiOR's Columbus facility is currently in the start-up phase. They have 
produced biocrude from cellulosic feedstocks that is in line with their 
specifications for upgrading to finished transportation fuels. 
Cellulosic biofuel RINs from this facility are expected in the first 
quarter of 2013. This facility is funded, in large part, with funds 
acquired through private equity raises and supplemented by KiOR's $150 
million IPO in June 2011. KiOR's current expectations at their Columbus 
facility are for a start-up \15\ period lasting 9-12 months during 
which they estimate fuel production will be at 30%-50% of the facility 
capacity after which they plan to approach full production rates at the 
facility. KiOR has feedstock supply agreements in place to supply all 
of the required feedstock for their Columbus facility with slash and 
pre-commercial thinning. They also have off-take agreements with 
several companies for all of the fuel that will be produced. KiOR has 
also announced plans to begin work on their second commercial-scale 
biofuel production facility in Natchez, Mississippi upon the successful 
start-up of their first facility. It is unlikely this second facility 
will begin production of biofuel in 2013. For 2013 our proposed 
production projection is for 5 million gallons (8 million ethanol-
equivalent gallons) of cellulosic biofuel from KiOR's Columbus 
facility. This volume is calculated assuming KiOR will produce at 30% 
of the facility capacity for the first nine months of 2013 (consistent 
with a 12 month line-out period beginning in October 2012) followed by 
three months of production at the nameplate capacity of the 
facility.\16\ These numbers are relatively conservative estimates based 
on the low end of KiOR's production guidance. EPA believes this is an 
appropriate approach for this proposal. We will continue to monitor 
KiOR's production volume in the period between this proposal and the 
final rule and will use this information, together with the public 
comments we receive in preparing an updated projection for the final 
rule.
---------------------------------------------------------------------------

    \15\ In conversations with KiOR they refer to this as a ``line-
out'' period.
    \16\ EPA is not assuming that this facility will produce at a 
30% rate throughout the entire start-up period, but rather projects 
that cellulosic biofuel production, when averaged over the entire 
start-up period, will be 30% of the production capacity during that 
period. Production will likely be very small in the first few months 
and will ramp up to near full production capacity by the end of the 
start-up period.
---------------------------------------------------------------------------

Blue Sugars
    Blue Sugars, formerly KL Energy, has developed a process to convert 
cellulose and hemicellulose into sugars and ethanol using a combined 
chemical/thermal-mechanical pretreatment process followed by enzymatic 
hydrolysis, co-fermentation of C5 and C6 sugars, and distillation to 
fuel-grade ethanol. This production process is versatile enough to 
allow for a wide variety of cellulosic feedstocks to be used, including 
woody biomass and herbaceous biomass such as sugarcane bagasse. In 
August 2010 Blue Sugars announced a joint development agreement with 
Petrobras America Inc. As part of the agreement Petrobras has invested 
$11 million to modify Blue Sugars' 1.5 million gallons per year 
demonstration facility in Upton, Wyoming to allow it to process bagasse 
and other biomass feedstocks. The modifications to Blue Sugars' 
facility were completed in the spring of 2011. In April 2012 Blue 
Sugars generated approximately 20,000 cellulosic biofuel RINs, the 
first such RINs generated under the RFS program. Blue Sugars has 
indicated, however, that the cellulosic ethanol they produced was 
exported to Brazil for promotional efforts at the Rio +20 conference in 
Brazil. These RINs would therefore have to be retired and will not be 
available to obligated parties to meet their cellulosic biofuel 
requirements in 2012. The main purpose of the Upton, Wyoming facility 
is to further refine Blue Sugars' technology in preparation for their 
first commercial facilities which may be located in the Brazil or the 
United States.
ZeaChem
    ZeaChem successfully completed construction of their demonstration-
scale facility in Boardman, Oregon, in October 2012, allowing for the 
production of ethanol from sugars derived from cellulose and hemi-
cellulose. When fully operational, ZeaChem expects this facility will 
be capable of producing 250,000 gallons of cellulosic ethanol per year. 
ZeaChem's 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, one containing sugars derived 
from cellulose and hemicellulose and

[[Page 9292]]

the other containing lignin. The sugars are fermented into an 
intermediate chemical, acetic acid, using a naturally occurring 
acetogen. The acetic acid is then converted into ethyl acetate, which 
can then be hydrogenated into ethanol. The hydrogen necessary for this 
process is produced by gasifying the lignin stream from the cellulosic 
biomass. Work is currently underway to add additional process modules 
that will enable ZeaChem to convert the cellulosic ethanol to jet and 
diesel fuel beginning in 2013.
    ZeaChem's process is flexible and is capable of producing a wide 
range of renewable chemicals and fuels from many different feedstocks. 
They plan to use both agricultural residues and wood waste at their 
demonstration facility and have contracts in place for these 
feedstocks, as well as purpose-grown wood, at their first commercial-
scale facility. In January 2012 ZeaChem announced that they had 
received a $232.5 million conditional loan guarantee offer from USDA 
for the construction of their first commercial-scale facility, which 
will have a capacity of at least 25 million gallons per year. ZeaChem 
currently has agreements in place to provide all of the necessary 
feedstock for this facility. This facility, however, is not expected to 
begin producing cellulosic biofuel until late 2014 at the earliest.
2. Facilities Not Included in 2012 Projections
    In addition to the facilities that were included in our cellulosic 
biofuel volume projections for the 2012 compliance year, there is one 
additional facility that we believe will produce volumes in 2013. 
Several other large production facilities are planning to begin 
production of cellulosic biofuel in 2014.
Abengoa
    Abengoa, a large international biofuels company, is one of two new 
cellulosic biofuels producers expected to begin the production of 
cellulosic biofuels and RINs from a commercial-scale facility in 2013. 
Abengoa plans to use an enzymatic hydrolysis technology to convert corn 
stover and other agricultural waste feedstocks into ethanol. After 
successfully testing and refining their technology at a pilot-scale 
facility in York, Nebraska as well as in a demonstration-scale facility 
in Salamanca, Spain, Abengoa is now working towards the completion of 
their first commercial-scale cellulosic ethanol facility in Hugoton, 
Kansas. Abengoa has contracts in place to provide the majority of 
feedstocks necessary for this facility for the next 10 years and 
successfully completed their first biomass harvest in the fall of 2011. 
Construction at this facility, which began in September 2011, is 
expected to take 24 months and be completed in the fourth quarter of 
2013. All of the major process equipment for this project has been 
purchased and all of the required permits for construction have been 
approved. Abengoa's Hugoton facility is being partially funded by a 
$132 million Department of Energy (DOE) loan guarantee.
    When completed, the Hugoton plant will be capable of processing 700 
dry tons of corn stover per day, with an expected annual ethanol 
production capacity of approximately 24 million gallons. Abengoa plans 
to begin ramping up production at the facility shortly after completing 
construction in late 2013 and to be producing fuel at rates near the 
nameplate capacity in the second quarter of 2014. After successfully 
proving their technology at commercial-scale in Hugoton, Abengoa 
currently plans to construct additional similar cellulosic ethanol 
production facilities, either on greenfield sites or co-locating these 
new facilities with their currently existing starch ethanol facilities 
around the United States. While this facility could produce up to 1 
million gallons of cellulosic ethanol in 2013 even a slight delay would 
result in no fuel being produced in 2013. Given the history of delays 
in the cellulosic biofuels industry we are not including any volume 
from Abengoa's Hugoton, KS facility in our proposed projected available 
volume for 2013.
Poet
    Poet has also developed an enzymatic hydrolysis process to convert 
cellulosic biomass into ethanol. Poet has been investing in the 
development of cellulosic ethanol technology for more than a decade and 
began producing small volumes of cellulosic ethanol at pilot-scale at 
their plant in Scotland, SD in late 2008. In January 2012, Poet formed 
a joint venture with Royal DSM of the Netherlands called Poet-DSM 
Advanced Biofuels to commercialize and license their cellulosic ethanol 
technology.
    The joint venture's first commercial-scale facility, called Project 
LIBERTY, will be located in Emmetsburg, Iowa. This facility is designed 
to process 770 dry tons of corn cobs, leaves, husks, and some stalk per 
day into cellulosic ethanol. The facility is projected to have an 
annual production capacity beginning at approximately 20 million 
gallons per year, increasing over time to 25 million gallons per year. 
In anticipation of the start-up of this facility, Poet constructed a 
22-acre biomass storage facility and had its first commercial harvest 
in 2010, collecting 56,000 tons of biomass.
    Site prep work for Project LIBERTY began in the summer of 2011, and 
vertical construction of the facility began in the spring of 2012. Poet 
was awarded a $105 million loan guarantee offer for this project from 
DOE in July 2011, but with the joint venture decided to proceed without 
the loan guarantee. This project is expected to be completed by the end 
of 2013, however at this time EPA is not expecting any commercial 
cellulosic ethanol production from this facility until 2014. After the 
completion of Project LIBERTY, Poet plans to build cellulosic ethanol 
facilities at all of their existing corn ethanol plants. They are also 
planning to license their technology for use at other grain ethanol 
plants, as well as build additional plants that will process wheat 
straw, rice hulls, woody biomass or herbaceous energy crops. By 2022 
Poet has a goal of producing 3.5 billion gallons of cellulosic ethanol 
per year.
Other Companies
    There are several more companies planning to begin producing 
cellulosic biofuel from commercial-scale facilities in 2014. Companies 
such as DuPont, Enerkem, and several others are all currently targeting 
2014 for the start-up of their first commercial facilities. These 
facilities represent approximately 100 million gallons of additional 
cellulosic biofuel production capacity. As with the companies discussed 
above, most of these companies have already begun to develop plans for 
their successive facilities after the successful completion of their 
initial projects. While they will not contribute any volume in 2013, 
and have therefore not been included in our proposed volume, they are a 
further indication of the potential for the significant growth of the 
cellulosic biofuel industry in the United States in the near future.
3. Other Potential Sources of Domestic Cellulosic Biofuel
    Each of the companies listed in the previous two sections is 
planning to generate cellulosic biofuel RINs using one of the valid 
RIN-generating pathways listed in Table 1 to Sec.  80.1426. We are also 
aware of several companies who may be in a position to produce 
cellulosic biofuel in 2013 but intend to use a production pathway that 
is not currently approved for RIN generation. Pathways that are 
currently under evaluation by EPA include transportation fuels derived 
from

[[Page 9293]]

landfill biogas such as CNG and cellulosic ethanol produced from corn 
kernel fiber. If these or other cellulosic biofuel pathways are 
approved by EPA, they may be used to generate cellulosic biofuel RINs 
in 2013. Because the date of any final determination on these pathways 
is uncertain, however, no volume of cellulosic fuel from these pathways 
has been included in our proposed 2013 cellulosic biofuel projection.
4. Imports of Cellulosic Biofuel
    While domestically produced cellulosic biofuels are the most likely 
source of cellulosic biofuel available in the United States in 2013, 
imports of cellulosic biofuel produced in other countries may also 
generate RINs and participate in the RFS program. While the RFS 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. We believe this situation is 
likely to continue in the near future and have not included any 
cellulosic biofuel imports in our projections of available volume in 
2013.
    As in the United States, the production of cellulosic biofuels 
internationally is currently limited to small-scale research and 
development, pilot, and demonstration facilities. This is likely to 
continue to be the case throughout 2013. Two notable exceptions are 
facilities built and operated by Beta Renewables and Enerkem. Beta 
Renewables completed construction of their first commercial-scale 
facility located in Crescentino, Italy in the summer of 2012. This 
facility is designed to produce approximately 20 million gallons of 
cellulosic ethanol per year. Beta Renewables uses an enzymatic 
hydrolysis process to produce ethanol from local agricultural residues 
and herbaceous energy crops.
    Enerkem is also in the process of building their first commercial-
scale facility in Edmonton, Alberta and plans to begin operations in 
early 2013. Enerkem's facility will use a thermochemical process to 
produce syngas from MSW and then catalytically convert the syngas to 
methanol. The methanol can then be sold directly or upgraded to ethanol 
or other chemical products. At full capacity this facility will be 
capable of producing 10 million gallons of cellulosic ethanol per year. 
At this point, neither Beta Renewables nor Enerkem have registered 
their facilities under the RFS program, a necessary step that must be 
completed before these companies can generate RINs for any fuel they 
import into the United States. Both are planning to locate additional 
plants in the United States in the future and are likely to generate 
RINs for production from domestic facilities in future years.
5. Projections From the Energy Information Administration
    Section 211(o)(3)(A) of the Clean Air Act requires EIA to `` * * * 
provide to the Administrator of the Environmental Protection Agency an 
estimate, with respect to the following calendar year, of the volumes 
of transportation fuel, biomass-based diesel, and cellulosic biofuel 
projected to be sold or introduced into commerce in the United 
States.'' EIA provided these estimates to us on October 18, 2012.\17\ 
With regard to cellulosic biofuel, the EIA estimated that the available 
volume in 2013 would be 9.6 million gallons (13.1 million ethanol-
equivalent gallons). A summary of the commercial scale plants they 
considered and associated production volumes is shown below in Table 
II.C.5.
---------------------------------------------------------------------------

    \17\ Letter from Adam Sieminski, EIA Administrator to Lisa 
Jackson, EPA Administrator October 18, 2012.

                                   Table II.C.5--Cellulosic Biofuel Plants Expected To Generate Biofuel RINs for 2013
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                EIA forecast
                                                                                                                  --------------------------------------
                                                                                                                                               Ethanol-
      Mechanical  completion               Company              Location               Product           Design                  Production   equivalent
                                                                                                        capacity   Utilization    (million    production
                                                                                                                     (percent)    gallons)     (million
                                                                                                                                               gallons)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012..............................  INEOS Bio...........  Vero Beach, FL......  Ethanol.............            8           50          4.0          4.0
2012..............................  KiOR................  Columbus, MS........  Liquids.............           11           50          5.5          9.0
Various...........................  Various Pilot Plants  Various.............  Ethanol.............            1           10          0.1          0.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Capacity and Production for 2013..........................................................           20           48          9.6         13.1
--------------------------------------------------------------------------------------------------------------------------------------------------------

    EIA's projections of cellulosic biofuel production in 2013 are very 
similar to EPA's projections discussed above and summarized in Section 
II.C.6 below. The lists of companies that EIA and EPA expect to 
generate cellulosic biofuel RINS in 2013 are the same. There are, 
however, differences in the volumes of cellulosic biofuel expected to 
be produced at the production facilities listed. EPA has higher 
projections of cellulosic biofuel production for INEOS Bio (6 million 
gallons vs. 4 million gallons) and lower projections for KiOR (8 
million ethanol-equivalent gallons vs. 9 million ethanol equivalent 
gallons). These variations are a result of different methodologies used 
by EIA and EPA to project biofuel production in future years. Both 
INEOS Bio and KiOR are structurally complete commercial scale 
facilities that plan to operate throughout 2013. In their projections 
EIA has used a utilization rate of 50% for both of these facilities. 
Rather than use utilization rates to project production, EPA has 
estimated ramp-up schedules for the both INEOS Bio and KiOR. The ramp-
up schedules estimated for these facilities differ from each other and 
were developed based on information received from the companies and 
EPA's knowledge of the production processes used by each company. We 
believe these different ramp-up schedules, which correspond to 
different effective utilization rates, are appropriate due to the 
significant differences in the technologies used by INEOS Bio and KiOR 
to produce cellulosic biofuel. EPA and EIA both considered the timing 
of the anticipated start up of these facilities along with anticipated 
ramp-up schedules/utilization rates in projecting volume production for 
2013.

[[Page 9294]]

As both facilities plan to start production at approximately the same 
time, the difference in the effective utilization rates represented by 
EPA's projected volumes for these companies is the result of 
anticipated ramp-up schedules. More information on the ramp-up 
schedules used by EPA in our projected production volumes for INEOS Bio 
and KiOR can be found in Section II.C.1 above.
    While the cellulosic biofuel volume projections for 2013 provided 
by EIA are not identical to those being finalized in this rule EPA 
believes that they are similar enough to support the volumes we are 
finalizing. Where differences exist they are due to differences in the 
ramp-up schedules estimated by EPA and the utilization factors used by 
EIA for the two companies expected to produce cellulosic biofuel in 
2013. As discussed above, EPA believes the approach we have taken is 
appropriate. EPA has interpreted section CAA 211(o)(7)(D) as vesting 
the authority for making the projection with EPA, and is not re-opening 
that interpretation for comment in today's proposal. As described in 
past rulemakings, the statute provides that the projection is 
``determined by the Administrator based on the estimate provided [by 
EIA].'' Congress did not intend that EPA simply adopt EIA's projection 
without an independent evaluation. EPA's consideration of EIA's 
estimate in developing this proposal is consistent with EPA's 
consideration of EIA's estimate in the past rulemakings involving a 
reduction of the volume standard for cellulosic biofuel. EPA's 
interpretation and implementation of the obligation to base its 
projection on the EIA estimate recently was upheld in API v. EPA, No. 
12-1139, slip op. at 5-9 (D.C. Cir. January 25, 2013).
6. Summary of Volume Projections
    The information we have gathered on cellulosic biofuel producers, 
described above, allows us to project production volumes for each 
facility in 2013. For the purposes of this proposed rulemaking we have 
focused on commercial-scale cellulosic biofuel production facilities. 
We believe our focus on commercial-scale facilities is appropriate as 
the industry transitions from small-scale R&D and pilot facilities to 
large-scale commercial production. It is likely that several small-
scale facilities such as API, KL Energy, ZeaChem, and others will also 
produce some cellulosic biofuel in 2013. Indeed, EIA's projection from 
such facilities was only 0.1 million gallons in 2013. This volume is 
quite small in relation to that expected from the two commercial-scale 
facilities for which we have projected volumes in 2013 (see Table 
II.C.6-1 below). Additionally, while RINs may be generated for any 
cellulosic biofuel produced from these small R&D and pilot facilities, 
historically many have chosen not to do so for a variety of reasons. We 
are therefore not proposing to include a volume projection from these 
facilities. We invite comment on this issue.
    In 2013 as many as four domestic cellulosic biofuel production 
facilities have the potential to produce fuel at commercial scale. Each 
of these facilities is discussed above, and the facility production 
targets for each are summarized in Table II.C.6-1 below. Two of the 
companies that have the potential to produce cellulosic biofuel in 
2013, Abengoa and Fiberight, are not planning on beginning fuel 
production until late in the year. Even a small delay in their expected 
production timeline could result in their failure to produce any 
cellulosic biofuel in 2013. For the purpose of this proposal, 
therefore, we are not projecting production from these facilities in 
2013 consistent with EIA.
    When added together, the total projected production volume from 
commercial-scale production facilities in the United States in 2013 is 
11 million gallons (14 million ethanol-equivalent gallons). This number 
represents the expected fuel production from each facility, taking into 
account the EIA estimates and the many factors described in detail 
above.

                                             Table II.C.6-1--Projected Available Cellulosic Biofuel for 2013
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                               2013
                                                                                                         Design        First production      projected
           Company name                  Location              Feedstock               Fuel             capacity         (projected)         available
                                                                                                          (MGY)                             volume (MG)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Abengoa..........................  Hugoton, KS.........  Corn Stover.........  Ethanol.............              24  4th Quarter 2013...               0
Fiberight........................  Blairstown, IA......  MSW.................  Ethanol.............               6  4th Quarter 2013...               0
INEOS Bio........................  Vero Beach, FL......  Vegetative Waste....  Ethanol.............               8  1st Quarter 2013...               6
KiOR.............................  Columbus, MS........  Wood Waste..........  Gasoline and Diesel.              11  1st Quarter 2013...               8
Various Pilot/Demo Plants........  N/A.................  N/A.................  N/A.................             N/A  N/A................               0
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Total..........................................................................................              49  ...................              14
--------------------------------------------------------------------------------------------------------------------------------------------------------

D. Proposed Cellulosic Biofuel Volume for 2013

    In today's NPRM we are proposing a volume for the 2013 cellulosic 
biofuel standard that is based on EIA's estimate, production volumes 
developed in consultation with the companies expected to produce 
cellulosic biofuel from commercial-scale facilities in 2013, and EPA's 
judgment. Many factors have been taken into consideration in developing 
these projections, such as the EIA estimate, the current status of 
project funding, the status of the production facility, anticipated 
construction timelines, the anticipated start-up date and ramp-up 
schedule, feedstock supply, intent to generate RINs, and many others. 
Moreover, all of the companies included in our 2013 volume projections 
have invested a significant amount of time and resources developing 
their technologies at R&D and demonstration-scale facilities prior to 
the design and construction of their first commercial-scale facilities. 
The projects have solid financial backing; for example the INOES Bio 
project is backed by federal loan guarantees. By the time of our final 
rule the facilities owned by KiOR and INEOS Bio are scheduled to have 
already begun fuel production, making our 2013 projections more 
reliable than prior year projections. We believe the sum of these 
individual projected available volumes (14 million ethanol-equivalent 
gallons) is a reasonable representation of expected production. This 
projection reflects EPA's best estimate of what will actually happen in 
2013.\18\
---------------------------------------------------------------------------

    \18\ See API v. EPA, No. 12-1139, slip op. at 10 (D.C. Cir. 
January 25, 2013).

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

[[Page 9295]]

    It is important to note that the final cellulosic biofuel standard 
for 2013 may be set at a volume that differs from the proposed volume. 
This could happen for a variety of reasons, including unexpected 
project modifications or cancellations or the inclusion of volumes of 
cellulosic biofuel from sources other than those listed above. For 
example, the proposed projected available volume of cellulosic biofuel 
in 2013 discussed above (14 million ethanol-equivalent gallons) does 
not include potential contributions from cellulosic ethanol produced 
from corn fiber or transportation fuels derived from landfill biogas 
such as CNG. Together, these pathways could generate several tens of 
millions of gallons of ethanol-equivalent renewable fuel. However, 
since it is uncertain when our evaluation of these pathways will be 
completed we have not included their volumes in our 2013 projection in 
this NPRM. If any of these pathways are approved prior to the final 
rule, additional volume from these sources may be added to the target 
production volumes listed in Table II.C.5-1 for the final rule.
    We will continue to monitor the progress of the cellulosic biofuel 
industry, in particular the progress of the companies which form the 
basis of our proposed 2013 volume projection. 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 after considering public comments we receive on this 
proposal, we will have a clearer idea of the appropriate volume of fuel 
that we can reasonably expect to be produced and made commercially 
available in 2013.

III. Assessment of Advanced Biofuel and Total Renewable Fuel for 2013

    As described in Section I, 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). For 2013, the applicable volume of 
advanced biofuel is 2.75 bill gal and the applicable volume of total 
renewable fuel is 16.55 bill gal. However, the statute gives EPA the 
discretion to reduce these volume requirements in the event that the 
cellulosic biofuel volume requirement is reduced. While we are not 
proposing to reduce the required volumes of advanced biofuel and total 
renewable fuel for 2013, we request comment on whether and to what 
extent a reduction is warranted. We have the discretion to reduce the 
advanced biofuel volume and the total renewable requirements for 2013 
by up to the amount that the cellulosic biofuel volume requirement is 
reduced (986 mill gal in today's proposal). This section discusses our 
evaluation of these two volume requirements.

A. Statutory Requirements

    According to CAA 211(o)(7)(D)(i), if EPA determines that the 
projected volume of cellulosic biofuel production for the following 
year is less than the applicable volume provided in the statute, then 
EPA must reduce the applicable volume of cellulosic biofuel to the 
projected volume available during that calendar year. Under such 
circumstances, EPA also has the discretion to reduce the applicable 
volumes of advanced biofuel and total renewable fuel by an amount not 
to exceed the reduction in cellulosic biofuel.
    Section 211(o)(7)(D)(i) provides that ``For any calendar year in 
which the Administrator makes such a reduction, the Administrator may 
also reduce the applicable volume of renewable fuel and advanced 
biofuels requirement established under paragraph (2)(B) by the same or 
a lesser volume.'' Thus Congress authorized EPA to reduce the volume of 
total renewable fuel ``and'' advanced biofuels. This indicates a clear 
Congressional intention that EPA may reduce both the total renewable 
and advanced biofuel volume together, not one or the other.
    This is consistent with the structure of the national volume 
standards, where the volume standards are nested and are not separate, 
unrelated standards. Congress established the advanced biofuel standard 
and its subsets as integral parts of the total renewable fuel standard. 
The volume requirements are interrelated and work together to achieve 
the goals of increasing the displacement of fossil fuel and increasing 
the use of fuels that reduce greenhouse gases. As described in the NPRM 
for the RFS2 program, we do not believe it would be appropriate to 
lower the advanced biofuel standard but not the total renewable 
standard, as doing so would allow conventional biofuels to effectively 
be used to meet the standards that Congress specifically set for 
advanced biofuels. See 74 FR 24915, May 26, 2009. EPA interprets this 
provision as authorizing EPA to reduce both total renewable fuel and 
advanced biofuel, by the same amounts, if EPA reduces the volume of 
cellulosic biofuel. The reductions in total renewable fuel and advanced 
biofuel can be up to but no more than the amount of reduction in the 
cellulosic biofuel volume.
    Since cellulosic biofuel is also used to satisfy 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 these two other 
standards. Congress established the volume requirements for advanced 
biofuel and total renewable fuel in conjunction with the specified 
cellulosic biofuel volumes, as interrelated standards. Therefore it is 
appropriate to consider a possible reduction in the advanced biofuel 
and total renewable fuel applicable volumes when EPA reduces the 
cellulosic biofuel volume below the applicable volume for cellulosic 
biofuel set forth in the statute.
    In 2013 the applicable volume of cellulosic biofuel specified in 
the statute represents more than a third of the advanced biofuel volume 
(1.0 bill gal out of 2.75 bill gal), a higher fraction than in any 
previous year. A substantial reduction in the applicable volume of 
cellulosic biofuel could potentially also have a substantial impact on 
the sufficiency of volumes to meet the advanced biofuel and total 
renewable fuel standards. As described in Section II.D above, we are 
indeed proposing a projected available volume of cellulosic biofuel for 
2013 at significantly below the statutory applicable volume of 1.0 
billion gallons. If we were to finalize a cellulosic biofuel applicable 
volume of 14 mill gallons for 2013, we would have the discretion to 
reduce the advanced biofuel and total renewable fuel applicable volumes 
by up to 986 mill gallons (ethanol-equivalent). Therefore, we believe 
that an investigation into the availability of advanced biofuel and 
total renewable fuel is warranted.
    The statute does not provide any explicit criteria that must be met 
or factors that must be considered when making a determination as to 
whether and to what degree to reduce the advanced biofuel and total 
renewable fuel applicable volumes when we have the discretion under CAA 
211(o)(7)(D)(i) to do so. However, in general we believe that it would 
not be consistent with the energy security \19\ and greenhouse gas 
reduction goals of the statute to 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.
---------------------------------------------------------------------------

    \19\ The energy security analysis took into account both 
domestic and foreign sources of advanced biofuel.
---------------------------------------------------------------------------

    Due to its relevance to RFS volume requirements, we note here that 
in the summer of 2012 and in light of drought

[[Page 9296]]

conditions affecting much of the country, Governors from several States 
and a number of organizations requested a waiver of the national volume 
requirements for the RFS pursuant to Section 211(o)(7)(A) of the Clean 
Air Act. The general waiver authority granted in this part of the 
statute is different from the authority granted in Section 211(o)(7)(D) 
that allows the advanced biofuel and total renewable fuels volume 
requirements to be reduced in the event that the cellulosic biofuel 
volume is reduced. After extensive analysis, review of thousands of 
comments, and consultation with the Department of Agriculture and the 
Department of Energy, the EPA on November 27, 2012 published a Federal 
Register decision denying the requests for a waiver.\20\ The Federal 
Register notice contains a detailed description of the analysis EPA 
conducted in conjunction with DOE and USDA, along with a discussion of 
relevant comments we received through our public comment process.
---------------------------------------------------------------------------

    \20\ 77 FR 70752, November 27, 2012.
---------------------------------------------------------------------------

B. Assessment of Available Volumes of Advanced Biofuel

    Renewable fuels that can be used to meet the standard for advanced 
biofuel include those with Renewable Identification Number (RIN) codes 
of 3, 4, 5, or 7. Table III.B-1 shows the number of each of these types 
of RIN that was generated in 2011. For the final rule, we will update 
our analysis with estimates from 2012.
---------------------------------------------------------------------------

    \21\ 2011 data from the EPA-Moderated Transaction System (EMTS)

               Table III.B-1--2011 RINs That Qualified To Meet the Advanced Biofuel Standard \21\
                                      [Million ethanol-equivalent gallons]
----------------------------------------------------------------------------------------------------------------
                                                                                     Renewable      Biogas and
       D code                  Category               Ethanol        Biodiesel        diesel        heating oil
----------------------------------------------------------------------------------------------------------------
3..................  Cellulosic biofuel.........               0               0               0               0
4..................  Biomass-based diesel.......               0           1,600              76               0
5..................  Advanced biofuel...........             186               0              27               8
7..................  Cellulosic diesel..........               0               0               0               0
                                                 ---------------------------------------------------------------
                     Total......................                               1,895
----------------------------------------------------------------------------------------------------------------

    The total of 1,895 mill ethanol-equivalent gallons is significantly 
higher than the 1,350 mill gal required in 2011 and nearly as high as 
the 2012 advanced biofuel requirement of 2,000 mill gal. This result 
supports our projection in the rulemaking setting the 2012 standards 
\22\ that there was no need to reduce the 2012 advanced biofuel 
requirement despite the significant reduction in the applicable volume 
of cellulosic biofuel.
---------------------------------------------------------------------------

    \22\ 77 FR 1320, published on January 9, 2012.
---------------------------------------------------------------------------

    The statutory volume requirement for advanced biofuel in 2013 is 
2,750 mill gal, an increase of 750 mill gal over the 2012 requirement 
of 2,000 mill gal. In order to determine the sufficiency of advanced 
biofuel volumes to meet a requirement for 2,750 mill gal in 2013, we 
first accounted for biomass-based diesel and cellulosic biofuels that 
would be required under the standards we are proposing today. As shown 
in Table III.B-2, the result is that there would need to be 816 mill 
ethanol-equivalent gallons of other advanced biofuels in order to meet 
the total advanced biofuel requirement of 2,750 mill gal.

 Table III.B-2--Necessary Volume of Advanced Biofuel (Mill gal ethanol-
                               equivalent)
------------------------------------------------------------------------
 
------------------------------------------------------------------------
2013 Advanced biofuel applicable volume.................           2,750
Cellulosic biofuel requirement..........................              14
Biomass-based diesel requirement........................       \a\ 1,920
Necessary volume of excess biodiesel, other domestic                 816
 advanced biofuels, and/or imported sugarcane ethanol...
------------------------------------------------------------------------
\a\ In 2011, a substantial majority of biomass-based diesel was
  biodiesel. Moreover, we expect further increases in biomass-based
  diesel to be met primarily with expanded biodiesel. Therefore, for
  this analysis we have assumed that the 1.28 bill gal requirement is
  composed entirely of biodiesel with an equivalence value of 1.5.

    We have identified a variety of sources of advanced biofuel that 
could meet the need for 816 mill gal of additional advanced biofuel, 
including the following:

 Biodiesel in excess of that required to meet the volume 
requirement of 1.28 bill gal
 Domestically produced advanced biofuels such as renewable 
diesel that does not qualify as biomass-based diesel, heating oil and 
qualifying fuel oil, and ethanol and other qualifying renewable fuels 
from separated food wastes
 Imported sugarcane ethanol

We have investigated each of these sources as discussed below.
1. Biodiesel
    In a separate action, we have finalized a biomass-based diesel 
volume of 1.28 bill gal for 2013. However, biomass-based diesel volumes 
above 1.28 bill gal are possible. As of October 2012, the aggregate 
production capacity of biodiesel plants in the U.S. is estimated to be 
2.1 billion gallons per year across 107 facilities.\23\ This includes 
idled plants, those producing at less than full capacity, and those 
that are producing products other than biodiesel. We expect the time 
and reinvestment required to ramp up biodiesel production at existing 
facilities to be likely on the order of 1-2 months, significantly less 
than the time required to build and begin production at new plants, 
which takes about a year on average.\24\ Thus, restarting idled plants 
is likely to be a cost-effective way of exceeding the applicable 
volumes of 1.28 bill gal in 2013 if a demand for such production 
exists.
---------------------------------------------------------------------------

    \23\ Figures taken from Table 4, ``Monthly Biodiesel Production 
Report,'' EIA, December 2012.
    \24\ Based on construction times for new plants listed in 
Biodiesel Magazine from July 2006 through May 2009.
---------------------------------------------------------------------------

    Moreover, the biodiesel industry has demonstrated that it can 
increase production quickly under appropriate circumstances. Total 
production of biomass-based diesel in 2011 exceeded 1.0 bill gal, 
compared to a 2010

[[Page 9297]]

production of about 380 mill gallons.\25\ In response to the NPRM 
published on July 1, 2011, some stakeholders expressed doubts that such 
increases could occur by 2012.\26\ Nevertheless, based on the single-
year increase of more than 600 mill gal in 2011 and the total capacity 
of existing plants described above, it is possible that the industry 
could achieve increases in production of both the 280 mill gallon 
increment that is reflected in the biomass-based diesel requirement for 
2013 as well as some ``excess'' production.
---------------------------------------------------------------------------

    \25\ All values from EMTS. 2010 estimate consists of 
approximately 209 mill gallons as recorded through EMTS for volume 
produced under the RFS2 regulations in July through December of 
2010, and approximately 171 mill gallons as recorded through RIN 
generation reports submitted by producers for volume produced under 
the RFS1 regulations in January through June of 2010.
    \26\ See comments in docket EPA-HQ-OAR-2010-0133 from the 
American Petroleum Institute, Marathon Petroleum Company, and the 
National Petrochemical Refiners Association.
---------------------------------------------------------------------------

    Recently, the tax credit for biodiesel was reinstated after having 
expired at the end of 2011.\27\ This tax credit, applicable 
retroactively to 2012 and through the end of 2013, may provide 
additional incentives to produce and consume biodiesel volumes in 
excess of the 1.28 bill gal requirement. EPA is requesting comment on 
what effect the tax credit will have on the advanced biofuel production 
volumes and the whether this would affect the incentives to import 
sugarcane ethanol and to what extent.
---------------------------------------------------------------------------

    \27\ ``Congress Votes to Reinstate Biodiesel Tax Incentive,'' 
January 2, 2013. http://biodiesel.org/news/biodiesel-news/news-display/2013/01/02/congress-votes-to-reinstate-biodiesel-tax-incentive.
---------------------------------------------------------------------------

    Nevertheless, there are a variety of factors that make the 
potential for 2013 biodiesel volumes in excess of 1.28 bill gal 
uncertain. For instance, despite the significant excess production 
capacity, the industry may not make the necessary preparations for 
excess production above 1.28 bill gal, such as restarting idled plants 
or establishing contracts for feedstocks supply, until such time as it 
becomes clear what the demand for excess biodiesel might be. This might 
not occur until later in 2013. Moreover, biodiesel production rates are 
currently and will continue to be at a historic high. The industry that 
supplies feedstocks for biodiesel production will be adjusting supplies 
and distribution routes to ensure that the 1.28 bill gal volume 
requirement is met, and biodiesel distribution and blending 
infrastructure is being upgraded to ensure that those volumes can be 
consumed. However, it is unclear if those adjustments and upgrades will 
be designed to accommodate biodiesel production in 2013 of volumes 
above 1.28 bill gal. We request comment on the degree to which 
biodiesel volumes in excess of the 1.28 bill gal requirement might be 
expected.
2. Domestic Production of Other Advanced Biofuel
    Pathways that have been approved for the generation of RINs are 
provided in the regulations in Table 1 to Sec.  80.1426. Apart from 
ethanol made from sugarcane which is permitted to generate advanced 
biofuel RINs, there are currently three pathways through which advanced 
biofuel RINs can be generated. These three are shown in Table III.B.2-
1.

             Table III.B.2-1--Pathways for Advanced Biofuel
------------------------------------------------------------------------
                                                     Production process
          Fuel type                 Feedstock           requirements
------------------------------------------------------------------------
Ethanol.....................  Grain Sorghum.......  Dry mill process,
                                                     using only biogas
                                                     from landfills,
                                                     waste treatment
                                                     plants, and/or
                                                     waste digesters for
                                                     process energy and
                                                     for on-site
                                                     production of all
                                                     electricity used at
                                                     the site other than
                                                     up to 0.15 kWh of
                                                     electricity from
                                                     the grid per gallon
                                                     of ethanol
                                                     produced,
                                                     calculated on a per
                                                     batch basis.
Biodiesel, renewable diesel   Soy bean oil; Oil     One of the
 \28\.                         from annual           following:
                               covercrops; Algal    Trans-
                               oil; Biogenic waste   Esterification.
                               oils/fats/greases;   Hydrotreating.
                               Non-food grade corn  Includes only
                               oil.                  processes that co-
                                                     process renewable
                                                     biomass and
                                                     petroleum.
Ethanol, renewable diesel,    The non-cellulosic    Any.
 jet fuel, heating oil, and    portions of
 naphtha.                      separated food
                               waste.
Biogas......................  Landfills \29\,       Any.
                               sewage waste
                               treatment plants,
                               manure digesters.
------------------------------------------------------------------------

In addition to producers of biomass-based diesel and cellulosic 
biofuel, there are many companies either producing or developing 
technologies to produce ``other advanced biofuels.'' In order to 
estimate the volumes of other advanced biofuels that could be produced 
by these companies in 2013, we investigated three sources of data:
---------------------------------------------------------------------------

    \28\ Our final action on the 2013 biomass-based diesel renewable 
fuel volume provides further details with regards to which 
feedstocks we believe will be used to meet that volume. See 77 FR 
59458, September 27, 2012.
    \29\ Biogas from landfills could be generated from separated 
food waste or yard waste.

    Production Outlook Reports. Required under Sec.  80.1449 for all 
registered producers, these reports contain projections of renewable 
fuel production for each of the next five years.\30\
---------------------------------------------------------------------------

    \30\ While the individual reports have not been published since 
they include company-specific information that could impact the 
competitive nature of the industry, we are providing aggregate 
results in this NPRM.
---------------------------------------------------------------------------

    2011 producers. Data from the EPA-Moderated Transaction System 
(EMTS) was reviewed to identify parties that produced some RIN-
generating advanced biofuel in 2011. Insofar as such parties did not 
provide a projected 2013 volume in a Production Outlook Report, they 
were contacted to update their 2013 projected production volume. We 
will update this analysis with information from 2012 for the final 
rule.
    Additional registered producers. We identified parties that were 
registered as producers of advanced biofuel under the RFS program, 
but neither produced RIN-generating volume in 2011 nor provided a 
projection of 2013 production volume in a Production Outlook Report. 
We contacted such parties to determine what, if any, volume could be 
expected in 2013.

Based on these investigations, we identified twenty domestic companies 
that are expected to produce some other advanced biofuel in 2013. The 
total projected production volume for these companies in 2013 is about 
115 mill

[[Page 9298]]

actual gallons, or 150 million ethanol-equivalent gallons, as shown in 
Table III.B.2-2.

                Table III.B.2-2--Projected Domestic Production of Other Advanced Biofuel in 2013
                                      [Million ethanol-equivalent gallons]
----------------------------------------------------------------------------------------------------------------
                                                     Renewable
                                      Ethanol         diesel        Heating oil         CNG            Total
----------------------------------------------------------------------------------------------------------------
Production Outlook Reports......              31              35               4               0              70
2011 producers..................              18              18               0               5              41
Other registered producers......               0              15              15               9              39
                                 -------------------------------------------------------------------------------
    Total.......................              49              68              19              14             150
----------------------------------------------------------------------------------------------------------------

    A projected volume of 150 mill ethanol-equivalent gallons of other 
advanced biofuel in 2013 is also consistent with a 2011 report released 
by E2/Environmental Entrepreneurs \31\ which estimated that the 
production capacity of domestic advanced biofuels in 2012 would be 
about 180 mill gal.
---------------------------------------------------------------------------

    \31\ Solecki, Mary et al, ``Advanced Biofuel Market Report 2011, 
Meeting the California LCFS'' August 22, 2011. E2/Environmental 
Entrepreneurs.
---------------------------------------------------------------------------

    EPA has recently approved an advanced ethanol pathway that is 
produced from grain sorghum at dry mill facilities using specified 
forms of biogas for both process energy and most electricity 
production.\32\ Although advanced sorghum ethanol is not reflected in 
Table III.B.2-2, sorghum ethanol is likely to help meet the 2013 
advanced biofuel volume requirements as a number of companies have been 
making preparations to use this feedstock. We are also currently 
investigating a variety of other potential RIN-generating pathways for 
advanced biofuel that could result in additional volumes in 2013. In 
addition to potential new pathways for cellulosic biofuel that would 
also count as advanced biofuel as discussed in Section II.D, new 
pathways for advanced biofuel could include certain butanol processes 
from corn and certain ethanol processes from barley. We have not yet 
determined, either through rulemaking or approval of an industry 
petition, whether these pathways are valid for the generation for 
advanced biofuel RINs. However, approval of such advanced biofuel 
pathways could potentially result in 200 million additional ethanol-
equivalent gallons of advanced biofuel being qualified to participate 
in the RFS program. Insofar as any of these pathways are approved in 
time to be used in 2013, it would increase the volume of domestically-
produced advanced biofuels available for 2013 compliance.
---------------------------------------------------------------------------

    \32\ See 77 FR 74592 published on December 17, 2012.
---------------------------------------------------------------------------

3. Imported Sugarcane Ethanol
    EPA estimates that if biodiesel production in 2013 does not exceed 
1.28 bill gallons, and domestic production of other advanced biofuels 
is about 150 mill gallons, imports of sugarcane ethanol from Brazil 
would need to reach 666 mill gal in order for the 2.75 bill gal 
advanced biofuel requirement to be met. We believe that such volumes 
can be reasonably expected from Brazil despite some uncertainty in 
production and export potential.
    From the supply perspective, recent production of sugarcane in 
Brazil has been lower than normally expected due to two factors. First, 
adverse weather conditions have reduced production.\33\ Since the 
adverse weather conditions are estimated to have reduced cane 
production by about 4%, a return to normal weather conditions should 
alone restore approximately 4% of production. Second, the general 
economic downturn made credit harder to get, delaying the replanting of 
existing fields. Normally sugarcane fields are replanted every five or 
six years to maximize yield. However, the lack of available credit 
caused some growers to delay the expense of this replanting, with the 
older fields losing production.\34\
---------------------------------------------------------------------------

    \33\ Gain Report BR110016, October 3, 2011, USDA Agricultural 
Service. See http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Sugar%20Semi-annual_Sao%20Paulo%20ATO_Brazil_10-3-2011.pdf
    \34\ On the margin, the high sugar prices may have also 
encouraged some growers to divert their crop from ethanol production 
to sugar production. But most cane growers do not have this 
flexibility with sugarcane mills designed for fixed amounts of 
refined sugar or ethanol so high sugar prices was likely a 
contributing factor but not a major cause of reduced sugarcane 
ethanol production in Brazil.
---------------------------------------------------------------------------

    Early 2012/13 sugarcane crop year data suggests that, at the very 
least, production in the 2012/2013 year will not be lower than in 2011/
2012. According to UNICA's December 1, 2012 biweekly report of sugar 
and ethanol production, total ethanol production from the 2012/13 crop 
in the South Central region was approximately 5.38 billion gallons, up 
slightly from 5.36 billion gallons this time last year.\35\ In 
September, UNICA projected that the South Central region, the dominant 
region for ethanol production in Brazil, will produce a total of 5.56 
billion gallons for the 2012/13 year.\36\ Other regions contributed 
roughly another 565 million gallons in 2011/12. Based on this, 6.1 
billion gallons is a reasonable conservative estimate for total 2012/13 
production, assuming no growth at all in production outside the South 
Central region. By comparison, total ethanol production from the 2011/
12 crop was just less than 6 billion gallons.
---------------------------------------------------------------------------

    \35\ UNICA, ``Harvest update: Biweekly Bulletin'', December 1, 
2012, http://www.unicadata.com.br/listagem.php?idMn=63.
    \36\ UNICA, ``Estimate for 2012/2013 Sugarcane Harvest of 
Brazilian South-Central Region'', September 20, 2012, http://www.unicadata.com.br/listagem.php?idMn=39.
---------------------------------------------------------------------------

    Some parties expect a more typical trend in sugarcane ethanol 
production for 2013 and future years, with replanted fields beginning 
to boost sugarcane production in existing plantations and, in response 
to increased worldwide demand, a growth in the acres planted with 
sugarcane. Increased production is supported by the Brazilian 
government which announced in February 2012 support for a plan to 
invest over $8 billion annually to boost cane and ethanol 
production.\37\ Private investment in Brazil is also increasing. For 
example, Usina de Acucar Santa Terezinha, a Brazilian ethanol producer, 
recently announced plans to invest almost $300 million in a new mill 
and sugarcane plantation.\38\ All of this suggests that sugarcane and 
ethanol production in the 2013/14 harvest year (which will begin in 
April of 2013) will be significantly higher than production over the 
last two years.
---------------------------------------------------------------------------

    \37\ See http://www.platts.com/RSSFeedDetailedNews/RSSFeed/Oil/8987702.
    \38\ See http://www.bloomberg.com/news/2012-03-08/santa-terezinha-invests-283-million-in-brazil-ethanol-projects.html.

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

[[Page 9299]]

    Nevertheless, there remains some uncertainty in the volumes of 
sugarcane ethanol that could be produced in Brazil in 2013. If weather 
conditions are unfavorable for another year, ethanol production may not 
recover from the comparatively low levels in 2011 and early 2012. A 
study from USDA projects that this may be the case, and concludes that 
total ethanol exports from Brazil to all countries in 2013 may only 
reach about 500 mill gallons,\39\ well short of the 666 mill gal that 
would be needed as described above. As a result, it is possible that 
there could be a shortfall of the total advanced biofuel requirement in 
2013 under these circumstances.
---------------------------------------------------------------------------

    \39\ USDA Foreign Agricultural Service, ``Brazil Biofuels 
Annual, Annual Report 2012,'' August 21, 2012. GAIN Report Number 
BR12013.
---------------------------------------------------------------------------

    Brazil's sugarcane ethanol production serves both its domestic 
market as well as the export market. The government of Brazil sets a 
minimum ethanol concentration for its gasoline. In 2011, the Brazilian 
government lowered this concentration to 20%, reflecting the decrease 
in domestic production. There have been indications that Brazil may 
raise the minimum ethanol concentration back up by 25% by May of 
2013,\40\ but no formal announcement has been made. Projecting this 
Brazilian domestic demand into the future can be uncertain since the 
government can reset the minimum ethanol content at any time; in the 
past this adjustment has largely been influenced by the price of 
ethanol (high prices leading to a reduction in the minimum percent). 
While these historical changes have typically varied by a few percent 
and have only occurred periodically, they do add another element of 
uncertainty to any projection of the volumes of ethanol that may be 
available for export to the U.S. in 2013.
---------------------------------------------------------------------------

    \40\ Bloomberg, ``Brazil Said to Plan Higher Ethanol Blend as 
Early as May,'' December 18, 2012. http://www.bloomberg.com/news/2012-12-18/brazil-said-to-plan-higher-ethanol-blend-as-early-as-may.html
---------------------------------------------------------------------------

    Total exports of ethanol from Brazil depend on ethanol production 
and demand within Brazil, and have varied significantly over the last 
decade. The historical maximum occurred in 2008 when 1.35 bill gal was 
exported, and ongoing efforts to upgrade distribution infrastructure 
mean that Brazil is capable of exporting around 2 bill gal today. 
However, actual export volumes in 2010-2012 have been significantly 
below those from previous years. Moreover, imports of ethanol into 
Brazil also impact the volumes it exports. In both 2011 and 2012 there 
was significant two-way trade in ethanol between the United States and 
Brazil. According to current EIA data, in 2011 the U.S. imported 101 
million gallons of sugarcane ethanol from Brazil and exported 396 
million gallons of corn-based ethanol to Brazil. Total fuel ethanol 
exports in 2011 were 1.2 billion gallons, and total exports through 
October 2012 were 646 million gallons. This two-way trade of ethanol 
engenders additional transport related emissions.
[GRAPHIC] [TIFF OMITTED] TP07FE13.010

    Aside from production capability and domestic demand within Brazil, 
market conditions generally determine the availability of sugarcane 
ethanol imported into the U.S. from Brazil. Approved as an advanced 
biofuel pathway, ethanol produced from sugarcane benefits from the RIN 
value associated with advanced biofuel but also has to compete with 
other sources of ethanol used for blending with gasoline in the U.S., 
most notably ethanol made from corn starch (which does not qualify as 
an advanced biofuel). The expiration of the tariff

[[Page 9300]]

applicable to imported ethanol has helped make imported sugarcane 
ethanol more cost competitive in the U.S., and any volumes of Brazilian 
sugarcane ethanol imported into California to meet the requirements of 
their Low Carbon Fuel Standard (LCFS) would also count towards meeting 
the requirements of the RFS program. However, international demand for 
Brazilian sugarcane ethanol is expected to continue to create some 
limitations in what volumes may be available to the U.S. Indeed in 2010 
essentially all ethanol exported from Brazil went to other countries, 
and in 2011 about 70% of ethanol exported from Brazil went to other 
countries. As a result, imports of Brazilian sugarcane ethanol into the 
U.S. in 2010 and 2011 were comparatively low. Brazil is on track to 
meet the need for about 500 mill gal of imported sugarcane ethanol in 
the U.S. in 2012, but this is below the 666 mill gal that may be needed 
in 2013 to meet the 2.75 bill gal advanced biofuel requirement. 
However, since the rate of ethanol imports from Brazil was 
significantly higher in recent months than at the beginning of 2012, 
there may be good reason to expect that import volumes in 2013 will be 
higher than in 2012.
[GRAPHIC] [TIFF OMITTED] TP07FE13.011

    Considering that reinvestment in sugarcane stock is already 
underway, a considerable resurgence in Brazilian ethanol export 
potential in the 2013 calendar year seems likely. Any limitations on 
ethanol exports created by delayed reinvestment in sugarcane stock 
appear to be waning. While uncertainties exist, on balance there is 
good reason to believe that Brazil can export at least 666 mill gal of 
ethanol to the U.S. in 2013.

C. Proposed Volume Requirements for Advanced Biofuel and Total 
Renewable Fuel in 2013

    As shown in Table III.B-2, in order for an advanced biofuel 
requirement of 2.75 bill gal to be met, there would need to be 816 mill 
gal of advanced biofuels in addition to the volumes that would need to 
be produced to meet the biomass-based diesel and proposed cellulosic 
biofuel requirements. After reviewing the projected availability of 
advanced biofuel volumes from various sources, we have preliminarily 
determined that it is likely that there will be sufficient volumes 
available to produce or import this 816 mill gal. Given our estimate of 
about 150 mill gal of domestic ``other'' advanced biofuel, the 
remaining volume of 666 mill gal would likely need to come from 
imported sugarcane ethanol and/or biodiesel in excess of 1.28 bill gal. 
As discussed above, we believe that this volume is achievable through a 
combination of these sources. Therefore, we believe that there is no 
reason to reduce the required volume of 2.75 bill gal advanced biofuel 
on the basis of available volumes. As noted above, maintaining the 2.75 
bill gal advanced biofuel volume set forth in the statute will result 
in reduced GHG emissions from the transportation sector and could also 
contribute to energy security objectives. We do not believe it is 
appropriate to forgo such benefits when they are physically achievable 
but we invite comment on this issue, particularly in the context of 
increasing international trade in biofuels and the blendwall 
implications for ethanol consumption (see discussion in Section D 
below).
    Nevertheless, we recognize that some uncertainty exists in the 
projected availability of other advanced biofuels. The single largest 
source, Brazilian sugarcane ethanol, was exported at lower total 
volumes in 2010-2012 than the U.S. would need in 2013 to meet the 2.75 
bill gal advanced biofuel requirement. Moreover, the need for 666 mill 
gal of Brazilian sugar ethanol in

[[Page 9301]]

2013 exceeds all historical volumes of ethanol imported into the U.S. 
from Brazil by a substantial margin. In addition, some stakeholders 
have stated that given a limited supply, sugarcane ethanol imported 
into the U.S. may be replaced in the exporting country's domestic 
market by either non-advanced biofuels, or by petroleum, which these 
stakeholders believe could lead to adverse GHG impacts. There may be 
enough uncertainty to warrant a more cautious approach to advanced 
biofuel and total renewable fuel in 2013, for example a reduction of 
200 mill gal to approximate the uncertainty discussed above. Therefore, 
while we are not proposing to reduce the required volumes of advanced 
biofuel and total renewable fuel for 2013, we request comment on 
whether and to what extent a reduction is warranted; we have the 
discretion to reduce the advanced biofuel volume requirement for 2013 
by up to the amount that the cellulosic biofuel volume requirement is 
reduced (986 mill gal in today's proposal). Were we to do so, as 
discussed in Section III.A, we would also simultaneously reduce the 
total renewable fuel requirement by the same amount.
    The overall cost impact of reducing the advanced biofuel and total 
renewable fuel volume mandates would depend on a number of factors, 
such as the future cost of petroleum, 2012/2013 crop production, the 
number of additional advanced biofuel pathways that are approved over 
the next year, and the time it would take for facilities using new 
advanced pathways to begin generating RINs.
    In 2014, the advanced biofuel requirement rises substantially to 
3.75 bill gal. Thus regardless of whether we reduce the advanced 
biofuel and total renewable fuel volume requirements for 2013, we also 
seek comment on whether such a reduction should be considered for 2014, 
the basis for such a reduction, and the amount of that reduction.

D. Consideration of the Ethanol Blendwall

    As the volume requirements of the RFS program increase, it becomes 
more likely that the volume of ethanol that must be consumed to meet 
those requirements will exceed the volume that can be consumed as E10. 
Additional volumes of ethanol must then be consumed as higher blend 
levels such as E15 or E85. While other non-ethanol biofuels can also be 
used to meet the RFS requirements, ethanol has predominated and will 
likely continue to predominate in the near future. As a result, some 
stakeholders have indicated that the volume of ethanol that can be 
legally and practically consumed in 2013 is a limiting factor in how 
much renewable biofuel can be consumed.
    In the context of the analyses conducted to support the decision 
regarding requests for a waiver of the renewable fuel standard, we 
estimated that the number of excess RINs generated in 2012 that could 
be carried over to 2013 will be on the order of 2.6 billion.\41\ Since 
this number of carryover RINs falls below the rollover cap imposed by 
Sec.  80.1427(a)(5), all of them can be used for compliance purposes in 
2013. As a result, we expect that the RFS demand for physical gallons 
of ethanol will be significantly less than the E10 saturation point 
(the blendwall), and thus there would be no dependence on significant 
volumes of E15-E85 in 2013. This remains the case regardless of whether 
EPA were to reduce the advanced biofuel and total renewable fuel volume 
requirements as described in Section III.C above. Nevertheless, we 
request comment on whether the blendwall presents any difficulty in 
terms of compliance with the RFS volume requirements in 2013.
---------------------------------------------------------------------------

    \41\ 77 FR 70759, November 27, 2012.
---------------------------------------------------------------------------

    In 2014, the situation could be different. There are a number of 
factors that will play a role in determining how regulated parties will 
demonstrate compliance with the applicable RFS volumes. First, the 
advanced biofuel and total renewable fuel requirements rise 
substantially to 3.75 bill gal and 18.15 bill gal respectively. This 
increase in volume, combined with the corn-ethanol volume expected to 
meet the total renewable fuel standard, could cause the total ethanol 
volume used to comply with the RFS program to be higher than 16 bill 
gal. While non-ethanol biofuels are also anticipated to continue to 
grow to help supply the advanced biofuel standard, this value gives 
some estimate of the amount of ethanol that might need to be used to 
comply with the RFS program in 2014. Second, the number of carryover 
RINs will also be a critical factor in determining whether obligated 
parties can acquire sufficient RINs to show compliance with the RFS 
volume requirements. However, the number of carryover RINs into 2014 
will almost certainly be lower than for 2013. EPA will continue to 
engage with stakeholders on this issue as we project the RFS volume 
requirements for 2014.

IV. Proposed Percentage Standards for 2013

A. Background

    The renewable fuel standards are expressed as volume percentages 
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 every obligated 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.D, we are proposing a required volume of 
cellulosic biofuel for 2013 of 11 million gallons (14 million ethanol-
equivalent gallons). The volume we select for the final rule will be 
used as the basis for setting the percentage standard for cellulosic 
biofuel for 2013. 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 biomass-based diesel volume for 
2013 has been established at 1.28 billion gallons through a separate 
rulemaking. The volumes used to determine the four proposed percentage 
standards are shown in Table IV.A-1.

    Table IV.A-1--Proposed Volumes for Use in Setting the Applicable
                     Percentage Standards for 2013 a
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel......................  14 mill gal.
Biomass-based diesel....................  1.28 bill gal.
Advanced biofuel........................  2.75 bill gal.
Renewable fuel..........................  16.55 bill gal.
------------------------------------------------------------------------
\a\ Due to the manner in which the percentage standards are calculated,
  all volumes are given in terms of ethanol-equivalent except for
  biomass-based diesel which is given in terms of physical volume.

    As with previous years' renewable fuels standards determination, 
the formulas used in deriving the annual standards are based in part on 
estimates of the volumes of gasoline and diesel fuel, for both highway 
and nonroad uses, that are projected to be used in the year in which 
the standards will apply. 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

[[Page 9302]]

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):
[GRAPHIC] [TIFF OMITTED] TP07FE13.012

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 = 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 2013, this value is zero. See further discussion 
in Section IV.B.2 below.
DEi = Amount of diesel projected to be produced by exempt 
small refineries and small refiners in year i, in gallons, in any 
year they are exempt per Sec. Sec.  80.1441 and 80.1442, 
respectively. For 2013, this value is zero. See further discussion 
in Section IV.B.2 below.

    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 four separate renewable fuel standards for 
2013 are based on the gasoline, ethanol, diesel, and biodiesel 
consumption volumes projected by EIA.\42\ We adjusted these nationwide 
values to represent the 49 states that participate in the RFS program 
(neither Alaska nor any U.S. territory participates).
---------------------------------------------------------------------------

    \42\ Letter, Adam Sieminski, Administrator, U.S. Energy 
Information Administration, to Lisa P. Jackson, Administrator, U.S. 
EPA, October 18, 2012.
---------------------------------------------------------------------------

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 our initial 
rulemaking to implement the new RFS program \43\, 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

[[Page 9303]]

noted above. 40 CFR 80.1141, 80.1142. Because EISA did not alter the 
small refinery exemption in any way, the RFS2 program regulations 
maintained the exemptions for gasoline and diesel produced by small 
refineries and small refiners through 2010 (unless the exemption was 
waived). See 40 CFR 80.1441, 80.1442.
---------------------------------------------------------------------------

    \43\ 72 FR 23900, May 1, 2007.
---------------------------------------------------------------------------

    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 whether 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.\44\ 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 standards as there was for the 2010 standards.
---------------------------------------------------------------------------

    \44\ 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. In 
March of 2011 DOE re-evaluated the impacts of the RFS program on small 
entities and concluded that some small refineries would suffer a 
disproportionate hardship.\45\ As a result, EPA exempted these 
refineries from being obligated parties for two additional years, 2011 
and 2012.\46\ The 2012 standards established in the January 9, 2012, 
final rulemaking reflected the exemption of these refineries. We are 
seeking comment on whether it would be appropriate to extend the two 
year exemption for small refineries as discussed in section 
211(o)(9)(A)(ii)(II).
---------------------------------------------------------------------------

    \45\ ``Small Refinery Exemption Study: An Investigation into 
Disproportionate Economic Hardship,'' U.S. Department of Energy, 
March 2011.
    \46\ 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.
---------------------------------------------------------------------------

    EPA may also extend the exemption for individual small refineries 
or small refiners on a case-by-case basis if they demonstrate 
disproportionate economic hardship. 40 CFR Sec. Sec.  80.1441(e)(2), 
80.1442(h). EPA has granted some exemptions pursuant to this process 
that apply in 2011 and 2012. However, at this time, no exemptions have 
been approved for 2013. Therefore, for this proposal we have calculated 
the proposed 2013 standards without a small refinery/small refiner 
adjustment.
    Note that if exemptions under Section 211(o)(9)(A)(ii)(II) were 
granted before finalizing the standards, or if an individual small 
refinery or small refiner requests an exemption and is approved 
following the release of this NPRM and prior to issuance of the final 
rule, the final standards will be adjusted upward to account for the 
exempted volumes of gasoline and diesel. Any requests for exemptions 
that are approved after the release of the final 2013 RFS standards 
will not affect the 2013 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 2013 standards are 
finalized, any additional exemptions for small refineries or small 
refiners that are issued will not affect those 2013 standards. EPA 
requests comment on whether it is appropriate for the agency to make 
changes to the 2013 volumes if small refiner exemptions are granted 
after the final rule is issued.
    We encourage any producers of gasoline and/or diesel who believe 
that they may be eligible under the small refinery or small refiner 
exemption provision to send a petition to the EPA under the provisions 
of Sec.  80.1441 or Sec.  80.1442. We believe that the approach EPA is 
currently using to assess disproportionate economic hardships for small 
refineries and small refiners appropriately addresses the intent of the 
statutory provision and the needs of the affected parties.
3. Proposed Standards
    As specified in the March 26, 2010 RFS2 final rule \47\, the 
percentage standards are based on energy-equivalent gallons of 
renewable fuel, with the cellulosic biofuel, advanced biofuel, and 
total renewable fuel standards based on ethanol equivalence and the 
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 
qualifying biodiesel will lead to the generation of 1.5 RINs. In order 
to ensure that demand for 1.28 billion physical gallons of biomass-
based diesel will be created in 2013, 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 
gallon toward the biomass-based diesel standard, but worth 1.5 gallons 
toward the other standards.
---------------------------------------------------------------------------

    \47\ 75 FR 14670, 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 because the gasoline and diesel volumes estimated by EIA 
include renewable fuel use, we must subtract the total renewable fuel 
volumes from the total gasoline and diesel volumes to get total non-
renewable gasoline and diesel volumes. The values of the variables 
described above are shown in Table IV.B.3-1.\48\ Terms not included in 
this table have a value of zero.
---------------------------------------------------------------------------

    \48\ 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 (2010) EIA State Energy Data, Transportation Sector 
Energy Consumption Estimates. The gasoline and transportation 
distillate fuel oil fractions are approximately 0.2% and 0.7%, 
respectively. Ethanol use in Alaska is estimated at 11.2% of its 
gasoline consumption (based on the same State data), and biodiesel 
use is assumed to be zero.

    Table IV.B.3-1--Values for Terms in Calculation of the Standards
                               [Bill gal]
------------------------------------------------------------------------
                           Term                                Value
------------------------------------------------------------------------
RFVCB,2013...............................................          0.014
RFVBBD,2013..............................................          1.28
RFVAB,2013...............................................          2.75
RFVRF,2013...............................................         16.55
G2013....................................................        133.70
D2013....................................................         52.26
RG2013...................................................         12.85
RD2013...................................................          1.23
------------------------------------------------------------------------

[[Page 9304]]

    Using the volumes shown in Table IV.B.3-1, we have calculated the 
proposed percentage standards for 2013 as shown in Table IV.B.3-2.

         Table IV.B.3-2--Proposed Percentage Standards for 2013
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel.......................................        0.008%
Biomass-based diesel.....................................        1.12%
Advanced biofuel.........................................        1.60%
Renewable fuel...........................................        9.63%
------------------------------------------------------------------------

V. Public Participation

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

A. How do I submit comments?

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

B. How should I submit CBI to the agency?

    Do not submit information that you consider to be CBI 
electronically through the electronic public docket, 
www.regulations.gov, or by email. Send or deliver information 
identified as CBI only to the following address: U.S. Environmental 
Protection Agency, Assessment and Standards Division, 2000 Traverwood 
Drive, Ann Arbor, MI 48105, Attention Docket ID EPA-HQ-OAR-2012-0546. 
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.

VI. 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'' because it raises novel 
legal or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in the Executive Order. 
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). With the exception of cellulosic biofuel, this action 
proposes the percentage standards applicable in 2013 based on the 
volumes that were analyzed in the RFS2 final rule.

B. Paperwork Reduction Act

    This action does not impose an information collection burden under 
the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. 
Burden is defined at 5 CFR 1320.3(b). This proposed rule does not 
impose any additional reporting requirements on regulated parties 
beyond those already required under the RFS program; therefore, there 
will not be any additional reporting burdens on entities impacted by 
this regulation. This action merely proposes, as required by section 
211(o) of the Clean Air Act, the RFS annual standards for 2013.

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 biofuel for 2013 
at 14 mill gal. Since small refiners and small refineries collectively 
comprise about 11.9% of gasoline and 15.2% of diesel production\49\, 
for an average of 12.9% for the entire gasoline + diesel pool, small 
refiners and small refineries would only be required to collectively 
meet a cellulosic biofuel requirement of about 1.8 mill gal (14 x 
12.9%). At a projected cellulosic biofuel waiver credit price of $0.42, 
the cost of complying with this requirement would total about $0.76 
million for the approximately 60 obligated parties that would be 
affected, or about $12,600 per facility on average.
---------------------------------------------------------------------------

    \49\ Estimates from RFS2 final rule, 75 FR 14867.
---------------------------------------------------------------------------

    The impacts of the RFS2 program on small entities were already 
addressed in the RFS2 final rule promulgated on

[[Page 9305]]

March 26, 2010 (75 FR 14670), and this proposed rule will not impose 
any additional requirements on small entities. However, 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 proposed action contains no Federal mandates under the 
provisions of Title II of the Unfunded Mandates Reform Act of 1995 
(UMRA), 2 U.S.C. 1531-1538 for State, local, or tribal governments or 
the private sector. This action implements mandate(s) specifically and 
explicitly set forth by the Congress in Clean Air Act section 211(o) 
without the exercise of any policy discretion by EPA. Therefore, this 
action is not subject to the requirements of sections 202 or 205 of the 
UMRA.
    This action is also not subject to the requirements of section 203 
of UMRA because it contains no regulatory requirements that might 
significantly or uniquely affect small governments. This proposed rule 
only applies to gasoline, diesel, and renewable fuel producers, 
importers, distributors and marketers and merely proposes the 2013 
annual standards for the RFS program.

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 proposes the 2013 
annual standards for the RFS program and only applies to gasoline, 
diesel, and renewable fuel producers, importers, distributors and 
marketers. 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 affects 
transportation fuel refiners, blenders, marketers, distributors, 
importers, exporters, and renewable fuel producers and importers. 
Tribal governments would be affected only to the extent they 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 (section 211(o) of the 
Clean Air Act).

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

    This action 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. This action 
simply proposes the annual standards for renewable fuel under the RFS 
program for 2013.

I. National Technology Transfer and Advancement Act

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

VII. 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, 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

    Administrative practice and procedure, Air pollution control, 
Diesel fuel, Environmental protection, Fuel additives, Gasoline, 
Imports, Oil imports, Petroleum.

    Dated: January 31, 2013.
Lisa P. Jackson,
Administrator.

    For the reasons set forth in the preamble, Environmental Protection 
Agency proposes to amend 40 CFR part 80 as follows:

PART 80--REGULATION OF FUELS AND FUEL ADDITIVES

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

    Authority: 42 U.S.C. 7414, 7521(1), 7545 and 7601(a).

0
2. Section 80.1405 is amended by adding paragraph (a)(4) to read as 
follows:

[[Page 9306]]

Sec.  80.1405  What are the Renewable Fuel Standards?

    (a) * * *
    (4) Renewable Fuel Standards for 2013.
    (i) The value of the cellulosic biofuel standard for 2013 shall be 
0.008 percent.
    (ii) The value of the biomass-based diesel standard for 2013 shall 
be 1.12 percent.
    (iii) The value of the advanced biofuel standard for 2013 shall be 
1.60 percent.
    (iv) The value of the renewable fuel standard for 2013 shall be 
9.63 percent.
* * * * *
[FR Doc. 2013-02794 Filed 2-6-13; 8:45 am]
BILLING CODE 6560-50-P
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