1 MEMORANDUM

Subject: Final Statutory Factors Assessment for 201 6

- 2017 B iomass B ased D iesel (BBD) Applicable Volumes

From: U.S. EPA, Office of Transportation and Air Quality

To: EPA Air Docket EPA

- HQ

- OAR

- 2015

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In this memorandum we discuss our considerations of the statutory factors set forth in CAA section 211(o)(2)(B)(ii)(I)

- (VI). As discussed in Section III.D.1 of the preamble , the BBD volume requirement is nested within the advanced biofuel requirement and the advanced biofuel

r equirement is, in turn, nested within the total renewable fuel volume requirements . This means that any BBD produced beyond the mandated BBD volume can be used to satisfy both these other applicable volume requirements. The result is that in considering the statutory factors we must consider the potential impacts of increasing BBD in comparison to other advanced

biofuels 1

. For a given advanced biofuel standard, g reater or lesser applicable volumes of BBD do not change the amount of advanced biofuel used t o displace petroleum fuels; rather, increasing the BBD applicable volume may result in the displacement of other types of advanced biofuels that could have been used to meet the advanced biofuels volume requirement.

Assessment of Statutory Factors f or 2014 and 2015 Biomass

- Based Diesel Applicable Volume s

Given the fact that the 2014 compliance year has passed, and that the final rule establishing the 2015 standards will be too late to influence the market in 2015, whatever action we take with respect to se tting the applicable volume of BBD for these years will not change the

amount of qualifying BBD produced, imported and u sed. Furthermore, in light of our decision to set the advanced biofuel applicable volumes for 2014 and 2015 at the level that was actu ally produced and used, and which is available for compliance, all of the BBD RINs generated in these years are expected to be retired for compliance with the 2014 and 2015 advanced biofuel requirements (or rolled over to replenish an equivalent number of prior

- year carryover RINs).

A s a result, we believe that our action in setting the 2014 and 2015 BBD volume requirement s will result in no real

- world impacts, including no impacts with respect to the factors listed under CAA section 211(o)(2)(B)(ii)(I)

- (VI). For example, there is no longer any ability for other advanced biofuels to compete with BBD for a greater share of t he advanced biofuel pool in 2014, so there would be no marginal benefit in terms of incentivizing production of such fuels in setting a higher or lower volume requirement than the volume of BBD tha n was actually produced and imported and available for comp liance in 2014 . The same is true for 2015, since this rule cannot influence the market in the one remaining month of the year . In light of these

1 As long as the BBD applicable volume is lower than the advanced biofuel applicable volume our action in setting the BBD applicable volume is not expected to displace conventional biofuels under the total renewable standard, but

rather other advanced biofuels. See Table II.G

- 2, “Volume Scenarios Illustrating Possible Compliance with 3.61

Bill Gal Advanced Biofuel and 18.11 Bill Gal Bill Gal Total R enewable Fuel”2 considerations, and other considerations discussed in the preamble, we are finalizing the 2014 applicable v olume for BBD as equal to the volume actually produced and imported, which is available for compliance. Similarly, for 2015 we are set ting the biomass

- based diesel standard at the level of BBD that we project will actually be produced and imported and ava ilable for compliance in 2015

.

Primary Statutory Factors Assessment for 2016 and 2017 Biomass

- Based Diesel Applicable

Volumes

EPA’s primary assessment of the statutory factors for year 2016 is that because the final advanced biofuel volume requirements for 2016 reflect s the advanced biofuel volumes (including BBD) that can reasonably be attained, and because the BBD requirement is nested within the advanced biofuel volume requirement, we expect that the advanced biofuel volume requirement will determine the level of BBD production and import; the same volume of BBD

will likely be produced and imported regardless of the BBD volume that we require for 2016 with only marginal and uncertain differences as BBD competes with other advanced biofuels in meeting the advanced biofuel volume

.
This assessment is based, in part, on our review of the RFS program implementation to date, as discussed in Sections III.B and III.D of the final rule preamble. Since our decision on the BBD applicable volume requirement f or 2016 is not expected to impact the volume of BBD produced and imported during this time period, we do not expect our decision to result in a difference in any of the factors we are required to evaluate pursuant to CAA section 211(o)(2)(B)(ii)(I)

- (VI). H owever, although the BBD volume requirement is lower than the total

volume expected due to the higher advanced biofuel standard , the BBD standard can still have a positive impact on the future development and marketing of BBD by providing a base guaranteed level for investment certainty in meeting that advanced volume

. This is consistent with the objectives of the Act to support the continued growth in production and use of

renewable fuels.

Similarly for 2017, even though we are finalizing only the 2017 BBD requirement at this time and not the 2017 advanced biofuel requirement, we believe this same primary assessment is appropriate since, as in previous years, we anticipate that the 2017 advanced biofuel requirement

will be set to reflect re asonably attainable volumes in the use of all advanced biofuels and that

the advanced biofuel volume standard will be expected to drive BBD production and use.

Supplementary Statutory Factors Assessment for 2016 and 2017 Biomass

- Based Diesel Applicable Volumes

As an additional supplementary assessment, we have considered the potential impacts of modifying the applicable volume of BBD from the l evels of 1. 90 billion gallons in 2016 and 2.00 billion gallons in 2017, based on the assumption that in guarante eing BBD volumes at any given level there could be greater use of BBD and a corresponding decrease in the use of other types of3 advanced biofuels for years 201 6

- 2017. 2

, 3 S etting a higher or lower BBD volume requirement

than 1.90 and 2.00 BG for 2016 and 2 017, respectively, would only be expected to impact BBD volumes on the margin, protecting to varying degrees this advanced biofuel from being outcompeted by other advanced biofuels. At present, the other advanced biofuels that could be

affected include the following: sugarcane ethanol; ethanol from grain sorghum, food waste, or cover crops; renewable diesel from food waste or cover crops; renewable naphtha from food waste or cover crops; CNG/LNG from non

- cellulosic sources; renewable diesel co

- processes with petroleum diesel fuel; and cellulosic biofuel. EPA continues to publish analysis of greenhouse gas emissions attributable to the production and transport of feedstocks used to produce cellulosic and advanced biofuel, including recent analysis of biom ass sorghum, pennycress oil, carinata oil, cottonseed oil, and jatropha oil ,. These analyses could help influence the submission of new petitions seeking EPA approval of additional advanced and cellulosic biofuel pathways

.

We think it is theoretically pos sible but unlikely that our decision regarding a BBD applicable volume will have any impact on the production or import of cellulosic biofuels given our separate action in establishing a cellulosic biofuel standard that is nested within the advanced

biofue l standard. Accordingly, the more likely affected biofuels are non

- cellulosic advanced biofuels, and our assessment below discusses the possibility that our decision regarding the BBD applicable volumes for 201 6

- 2017 could impact the production and use of these non

- cellulosic

advanced biofuels.

Our supplementary assessment of the statutory factors for this final rule is described

below

. Overall, we have determined that the primary assessment and the supplemental

assessment of the statutory factors specified in CAA section 211(o)(2)(B)(ii)(I)

- (VI) for the years 201 6

- 2017, do not provide significant support for setting the BBD standards at levels higher or lower than 1.90 billion gallons in 2016, and 2.0 billion gallons in 2017.

The EPA received numerous comments pertaining to the consideration of the statutory factors. NBB stated that we improperly based our consideration of the statutory factors on a comparison of BBD to other advanced biofuels, rather than to diesel fuel. They asserted that BBD would not compete with other advanced biofuels because EPA proposed to set the advanced biofuel volume at maximally achievable levels, and that no competition would be present if all available advanced biofuels had to be used. They sugg ested that setting the BBD

2 For the NPRM we performed a similar assessment for lower BBD and advanced biofuel volumes.

3 Section 211(o)((2)(B)(i)(IV) of the Clean Air Act provides the statutory applicable BBD volumes for years 2009

– 2012. For years after 2012, sect ion 211(o)(2)(B)(v) specifies that the applicable volume for BBD cannot be less than the requirement for 2012 which was 1.0 billion, and section 211(o)(2)(B) (ii) requires that EPA determine the annual BBD requirement taking into consideration a review of the implementation of the program and an analysis of various factors, in coordination with USDA and DOE. In setting this annual BBD volume, the statute does not establish any numeric criteria or other means of weighing the importance of the often competin g factors, or how to balance the overarching RFS program goals. In the analysis presented in this memorandum, we have considered whether any of the other factors listed in the statute should lead us to adopt higher or lower BBD volume requirements. The volumes could be set as low as the statutory minimum 1.0 billion gallons or, for 2016

, as high as the advanced volume requirement minus the cellulosic biofuel requirement

.4 standard at a higher level than proposed would actually result in BBD competing against diesel fuel, and therefore, EPA should analyze the impacts of displacing diesel fuel with BBD.

. In response we note that in the final rul e we are using the cellulosic waiver authority to reduce the advanced biofuel statutory volume, and we are establishing the required 2016
advanced biofuel volume at a level that corresponds to our assessment of volumes that are reasonably attainable

. We have not sought in the final rule to set the advanced biofuel requirement at a level that reflects “maximum reasonably achievable” volumes , as we have in using the general waiver authority for the total renewable fuel standard, Although the terminology is similar, the result is that our approach in setting the advanced biofuel requirement is less exacting in attempting to capture volumes that may be available than our approach to identifying the final increment of volume reduction for total renewable fuels , and it is entirely possible that there could be competition between BBD in excess of the BBD standard and other advanced biofuels in satisfying the 2016 advanced biofuel requirement

. In light of the nested nature of the BBD standard within the advanced biofuel standard, it is apparent that excess BBD above the BBD volume requirement will compete with other

advanced biofuels for use in the RFS program as advanced biofuel , rather than compete directly

with diesel. The only way for EPA’s action on the BBD volume requirement to result in a direct displacement of petroleum

- based fuels, rather than other advanced biofuels, would be if the BBD volume requirement were set larger than the total renewable fuel requirement. However, s ince BBD is a type of advance d biofuel, and advanced biofuel is a type of renewable fuel, the BBD volume requirement could never be larger than the advanced requirement, and the advanced biofuel requirement could never be larger than the total renewable fuel requirement . Thus, EPA

co ntinues to believe that it is appropriate to evaluate the impact of its action in setting the BBD volume requirements by evaluating the impact of using BBD as compared to other advanced

biofuels

. NBB also asserted that our analysis of the desirability of s etting the BBD volume requirement in a manner that would promote the development and use of a diverse array of advanced biofuels is prohibited by statute. We disagree with these comments . Congress broadly defined the term “advanced biofuel” in a way that allows an array of fuels to satisfy the definition and participate in the RFS program as advanced biofuels. Congress specifically chose to mandate only a minimum 1 billion gallon volume requirement for BBD in 2013 and later

years , while the statutory ta bles indicate substantial growth in both cellulosic biofuel and unspecified advanced biofuel for these years. While it is appropriate for EPA to consider enlarging the minimum volume devoted under the statute to BBD, as we are doing in this rulemaking, i t is clear from the statute that cellulosic biofuel and advanced biofuel were not the only advanced biofuel types envisioned by the statute

. Furthermore, as discussed elsewhere in this memorandum and in the preamble, there are potential benefits to divers ifying the renewable fuel supply, including energy security benefits and potential benefits associated with incentivizing continued research and growth of advanced biofuels that may have superior GHG

and non

- GHG environmental attributes than the current op tions. Thus, we disagree with the5 comment that EPA is prohibited from setting the BBD applicable volume with the intention of promoting growth in non

- BBD advanced biofuels, as well as BBD and cellulosic.

Because the BBD standard is nested within the adva nced biofuel and total renewable fuel standards, when an obligated party retires a BBD RIN (D4) to satisfy their obligation, this RIN also counts towards meeting their advanced biofuel and total renewable fuel obligations. It also means that obligated par ties may use BBD RINs in excess of their BBD obligations to satisfy their advanced biofuel and total renewable fuel obligations. To the extent that obligated parties are required to achieve compliance with the overall advanced biofuel standard using higher volumes of BBD D4 RINs, they may forgo the use of other biofuels considered advanced

biofuels to meet the advanced biofuel requirement . Therefore, the higher the BBD volume standard is, the lower the opportunity for other non

- BBD advanced biofuels to comp ete for market share within the context of the advanced biofuel standard. When viewed in a long

- term perspective, BBD can be seen as competing for research and development dollars with other types of advanced biofuels for participation as advanced biofuel s in the RFS program.

Finally, NBB stated that EPA previously found statutory factors supported greater annual increases in BBD volume requirement for 2013 and the statutory factors analysis developed to justify the 2016 and 2017 BBD volume requirements contradicts the analysis EPA put forward in 2013. We disagree. As in 2013, we have determined that incremental increases in the 2016 and 2017 BBD volume requirement are appropriate to provide continued support to the BBD industry. We did this in 2013, a cknowledging the important role the industry thus far had played in providing advanced biofuels to the marketplace, and in furthering the GHG reduction objectives of the statute. We did not in 2013, and are not today, setting the BBD volume requirement at the maximum potential production volume of BBD.

Following is a discussion of the six factors listed under CAA sec tion 211(o)(2)(B)(ii)(I)

- (VI) that form our supplementary assessment.

1. Impact on the Environment

a. Air Quality

Based on our emissions and air quality impact analyses from the 2010 RFS2 final rule, we can assess the likely impacts on non

- GHG pollutants associated with setting the applicable volume of BBD at levels higher or lower than 1.90 billion gallons in 2016, a nd 2.00 billion gallons in 2017.

The 2010 RFS2 analysis estimated the upstream and downstream emission impacts associated with various types of renewable fuels, including BBD, ethanol, renewable diesel and cellulosic diesel at full implementation of t he RFS2 program in 2022. The BBD and advanced biofuels volumes assumed in the RFS2 analysis led to increases in some criteria pollutant and air6 toxics emissions and decreases in others. 4 This indicates that some emissions increases or decreases might be a ssociated with any change in the volume of BBD and other advanced biofuels. Depending on which of the competing advanced biofuels is compared to BBD, the emissions impacts of devoting a larger or smaller portion of the advanced biofuel standard to

BBD will vary (assuming the advanced standard stays constant). However, given that other advanced biofuels also result in air quality impacts, and that the volumes at issue are relatively small when considered in the context of transportation fuel use throughout the geographic area in which the RFS program applies (the continental United States and Hawaii), the overall impacts of marginal shifts between BBD and other advanced biofuels is expected to be small, and this factor does not appear to provide a good reaso n for setting a higher or lower nested BBD volume requirement.

While we received comments f rom biodiesel industry stakeholde rs touting the non

- CO 2 air quality

- related benefits associated with biodiesel we also received comments criticizing the Agency f or increasing biodiesel and other renewable fuels that results in negative air quality impacts. We continue to believe that t he air quality assessment that supports the RFS2 rule

, which is the result of years of rigorous analysis and modeling

, remains the Agency’s best estimate of the air quality impacts associated with the renewable fuel standards , including the BBD component

. P rior studies summarized in the RFS2 RIA indicate that the impacts of biodiesel on VOC, PM and air toxics emissions at the tailpip e are generally favorable compared to petroleum diesel fuel, but the impact on NOx is slightly detrimental. However, that work was done on engines without NOx or PM aftertreatment, so the important impacts on new engines is

less well understood. Of great er importance, t he RFS2 RIA also indicates that certain of the upstream emissions (PM, VOC, NOx, CO, and SO 2 ) of biodiesel production (emissions associated with the upstream production and distribution of biodiesel) are detrimental to air quality. Upstrea m air toxics emissions impacts are negligible to slightly detrimental to air quality. Taking both tailpipe and upstream emissions associated with BBD production into account, the net impacts yield increases in the pollutants that contribute to both ambien t concentrations of ozone and particulate matter as well as air toxics. This BBD analysis indicates that some emissions increases or decreases might be associated with any change in the required

volume of BBD and the allowance under the advanced standard for other advanced biofuels. As we stated above, the overall impacts of marginal shifts between BBD and other advanced biofuels is expected to be small . T herefore, we do not believe that air quality impacts either by itself, or in consideration with other factors

, warrants setting the BBD applicable volumes at levels higher or lower than 1.90 billion gallons in 2016, and 2.0 billion gallons in 2017.

b. Climate Change

4 A complete discussion of the RFS2 air quality analysis and its limitations can be found in Chapter 3 of the RFS2 Regulatory Impact Analysis (RIA). U.S. EPA 2010, Renewable Fuel Standard Program (RFS2) Regulatory Impact Analysis. EPA

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- 11332.7 Pathways for advanced biofuels approved by EPA, including BBD produced from virgin vegetable oils such as soy, meet the definitional requirement that advanced biofuels provide at least a 50% improvement in GHG performance compared to 2005 baseline petroleum fuels. We believe the trend to increasing the use of waste fats, oils, and greases as feedstock s for the production of BBD ha s likely been driven by the lower cost of these feedstocks compared to virgin vegetable oils such as soy oil. Since BBD produced from waste fats, oils, and greases

receive s the same RFS compliance credit as BBD produced form virgin vegetable oils, the growth in use of waste fats, oils, and greases has been indicative of their cost advantage as a feedstock. The cheaper waste fats, oils, and greases will tend to be used prefe rentially toward meeting the BBD and advanced biofuel standards prior to the use of virgin vegetable oils such as soy oil. Similarly, the volume of non

- food grade corn oil extracted from distillers grains and solubles produced during corn ethanol producti on has grow n as a source for BBD feedstock, again reflecting its lower cost compared to virgin vegetable oils like soy oil.

The available supplies of waste fats, oils, and greases feedstock and non

- food grade corn

oil feedstock are currently insufficien t to produce even the minimum volume of 1. 28 billion gallons required for BBD in 2013

. While NBB and others noted that expanded feedstock availability for biodiesel production, in particular the expanding use of waste fats, oils and greases provides a gre ater opportunity for producing lower GHG BBD , we believe increases from these sources will slow and the majority of increases going forward will need to come from other qualifying sources. For any volume above the 1. 28 billion gallon adopted for 2013 , it is appropriate, therefore, to consider the impact of producing BBD from soy oil, the feedstock that will most likely be used at the margin to increase production over levels that can be attained using waste materials and non

- food grade corn oil. Our anal ysis of soy

- derived biodiesel as part of the 2010 RFS rulemaking indicated that it provides a 57% reduction in lifecycle GHG emissions as compared to the 2005 petroleum baseline. Other non

- cellulosic advanced biofuels which could compete with soy BBD wit hin the advanced standard include: sugarcane ethanol (primarily from Brazil); ethanol from grain sorghum, non

- cellulosic portions of food waste and cover crops; renewable diesel from food waste or cover crops, naphtha from camelina oil, food

waste or cover crops; and CNG/LNG from non

- cellulosic sources. 5 These alternative advanced biofuels range in GHG reduction performance, with the waste

- derived fuels providing the greatest reduction due to lack of any land use impact while biofuels made from crops havin g GHG reductions that are roughly comparable to soy biodiesel (e.g., sugarcane ethanol which has a 61% GHG reduction compared to gasoline; sorghum ethanol with estimated emission reductions of just over 50%;). Since for the years in question sugarcane and sorghum ethanol, and naphtha from camelina oil are the most likely marginal replacements for soy biodiesel, as suggested by feedstock availability and fuel production capacity, we believe based on these lifecycle GHG reduction calculations that if we set a marginally lower or higher BBD nested volume requirement and assumed this made a difference in how much BBD is ultimately used,

5 EPA has also recently assessed the GHG impact of producing and transporting biomass sorghum, pennycress oil, carinata oil, cottonseed oil, and jatropha oil as feedstocks with the potential for providing biofuels qualifying as
advanced biofuels but to date none of these feedstocks has reached biofuel production stage.8 that there would be no significant GHG impact. Therefore, this factor does not appear to provide a good reason for setting a higher or lower nested BBD volume requirement for 2016 or 2017

. We note, however, that certain advanced biofuels (e.g. ethanol from food waste or

CNG/LNG from non

- cellulosic feedstock) have significantly superior lifecycle GHG performance than soy biodie sel. Setting the nested BBD volume requirement sufficiently below the advanced biofuel requirement, as reflected in the final volumes, should provide a continuing incentive for the further development and marketing of such fuels, and may result in potent ially increased GHG reductions through RFS implementation over the long term

. While we received comments on the proposal from stakeholders indicating that they

believed our GHG assessments of particular biofuels w ere inaccurate, with either a better or

w orse GHG impact more likely

, reassessing the GHG impact of any particular pathway including those qualifying as BBD pathways is beyond the scope of this rulemaking,

c. Wetlands, Ecosystems, and Wildlife Habitats

As in the rulemaking establishing the BBD volume requirement for 2013, EPA has completed a largely qualitative assessment of impacts on wetlands, ecosystems, and wildlife habitats, consistent with available information.

The comparison of impacts on wet lands, ecosystems, and wildlife habitats will depend on which alternative advanced biofuel would be displaced by BBD from virgin oils such as soy oil. As noted above, soy oil is the most likely feedstock for biodiesel production after the less expensive w aste fats, oils, greases, and non

- food grade corn oil, and thus is the likely feedstock for producing marginal increases in BBD. Other non

- cellulosic advanced biofuels which could compete with BBD within the advanced standard include: sugarcane ethanol (p rimarily from Brazil); ethanol from grain sorghum, non

- cellulosic portions of food waste and cover crops; renewable diesel from food waste or cover crops, naphtha from camelina oil, food waste or cover

crops; renewable diesel co

- processed with petroleum di esel fuel, and CNG/LNG from non

cellulosic sources. As discussed above, t he advanced biofuels that are most likely to be impacted by the level at which the BBD applicable volume is established are the crop

- based advanced

biofuels includ ing grain sorghum ethanol and sugarcane ethanol, and naphtha from camelina oil. Such biofuels, like soy biodiesel, are made from planted crops and therefore are likely to have impacts on wetlands, ecosystems and wildlife habitats which are roughly comparable to, yet still may differ from, those of soy

- based BBD. Depending on which of these alternative advanced fuels might replace soy

- based BBD, the impacts of devoting a larger or smaller portion of the advanced biofuel standard to BBD will vary somewhat but, particularly given the relatively small volumes at issue, we do not believe that this factor provides a good reason for setting a higher or lower nested volume requirement for BBD.

We note, however, that certain advanced biofuels (e.g. ethanol from food waste,

CNG/LN G from non

- cellulosic feedstock, etc.) are not made directly from crops, and would therefore likely have significantly lower impacts on wetlands, ecosystems, and wildlife habitats9 than soy biodiesel. Setting the nested BBD volume requirement sufficiently below the advanced biofuel requirement, as reflected in the final volumes, should provide a continuing incentive for the further development and marketing of such fuels; to the extent such fuels become increasingly significant players in the advanced bio fuel market, there could be long

term reductions in impacts on wetlands, ecosystems, and wildlife habitats as compared to a scenario where the BBD volume requirement is set at a level that did not incentivize production

of such fuels.

In its comments, NBB noted the trend toward higher yields for soy (thus lower land use impact) and improved conservation practices, both of which should reduce any adverse impact of soy biodiesel on wetlands, ecosystems and wildlife habitats.

d. Water Quality and Water Supp ly

As is the case when considering the impacts on wetlands, ecosystems, and wildlife habitats, the impact on water quality and water supply will depend on which alternative advanced biofuel is displaced by soy

- based BBD. As discussed above, the advance d biofuels that are most likely to be impacted by the level at which the BBD applicable volume is established for the years in question include grain sorghum ethanol, sugarcane ethanol and naptha from camelina oil. Such biofuels, like soy biodiesel, are made from planted crops and therefore are likely to have impacts on water quality and water supply that are comparable to, yet still may differ from, those of soy

- based BBD. Depending on which of these alternative advanced fuels might replace

soy

- based BB D, the impacts of devoting a larger or smaller portion of the advanced biofuel standard to BBD will vary somewhat but, particularly given the relatively small volumes at issue, we do not believe that this factor provides a good reason for setting a higher or lower nested volume requirement for BBD.

Some advanced biofuels s (e.g., CNG/LNG from non

- cellulosic feedstock or ethanol made from food waste) will have little or no impact on water quality and water supply. While production of such fuels is likel y to be limited in the short term, setting the nested BBD volume requirement significantly below the advanced biofuel requirement, as reflected in the final volumes, should provide a continuing incentive for the further development and marketing of

such fuels; to the extent such fuels become increasingly significant players in the advanced biofuel market, there could be long

- term reductions in impacts on water quality and water supply as compared to a scenario where the BBD volume requirement is set at a level that did not incentivize production of such fuels.

2. Impact on Energy Security

The wider use of any advanced biofuels, including BBD and sugarcane or sorghum ethanol, diversify the U.S. liquid fuel mix and provide energy security benefits. This is true for both domestically produced and imported biofuels. Advanced biofuels, whether produced domestically or imported, will contribute, on the basis of energy displaced, to enhanced energy10 security. W e received a comment NBB suggest ing that “in creasing the biomass

- based diesel requirement will “diversify the U.S. liquid fuel mix and provide energy security benefits” in allowing for greater advanced biofuel volumes.” EPA believes that given the nested nature of the RFS standards, the additional BBD volumes referred to will be necessary to comply with the

advanced and total renewable fuel standards. Thus, the analysis of energy security impacts associated with increasing the BBD standard so that a larger portion of the advanced biofuel

standard would be BBD is a comparison of the energy security impacts of BBD to other types of advanced biofuels, not a comparison to diesel fuel. Other advanced biofuels, excluding BBD, currently include sugarcane ethanol (primarily from Brazil), sorghum ethanol, ethanol from food waste, renewable diesel co

- processed with petroleum diesel fuel, CNG/LNG from certain waste digesters, and renewable naphtha, etc. All of these fuels displace U.S. imports of petroleum and diversify the U.S. fuel supply. Also, all of the biofuels that displace petroleum are less likely to subject to periodic supply disruptions or “oil shocks.” Setting a BBD standard that required that all or virtually all of the advanced biofuel standard be made up of BBD would reduce diversity

of fuel s upply and therefore reduce energy security. Based on these considerations, the supplemental analysis does not appear to suggest a distinct energy security advantage associated with selecting a higher or lower BBD applicable volume for 2016 and 2017 , provid ing that our approach continues to incentivize the production and use of non

- BBD advanced biofuels.

3

. The Expected Annual Rate of Future Commercial Production of Renewable Fuels, including Advanced Biofuels in each Category

S ection s II. E and II.F of the preamble to the final rule provide an assessment of the maximum reasonably achievable volumes of commercial production and import of total renewable fuels for 2016, including advanced biofuels and BBD . S ection IV of the preamble provides information o n cellulosic production. As stated in section II.F of the preamble, f or the purposes of determining the reasonably attainable volume of advanced biofuels, we believe it is

reasonable to assume that a somewhat lower level of sugarcane ethanol imports will occur than the historic average over the last ten years. Thus we estimate that about 200 million gallons of sugarcane ethanol will be available in 2016 for the purposes of determining the advanced biofuel volume requirement for 2016. However, actual impo rts of sugarcane ethanol could be higher or lower than this level as shown in the scenarios for how the market could respond in Section II.G.

With regard to advanced biodiesel and renewable diesel, as discussed in section s II. E.3, II.F, and III. B. of th e preamble, past experience suggests that a high percentage of the supply of biodiesel and renewable diesel to the United States qualifies as advanced biofuel. In previous years biodiesel and renewable diesel produced in the United States has been almost exclusively advanced biofuel. It is likely that some advanced biodiesel will be imported in 2016, as

discussed in Section II.E.3.iii of the preamble , however we believe that the volume of biodiesel imported from Argentina in 2016 is likely to be less than the several hundred million gallons suggested by some commenters (see Section II.E.3.iii of the preamble for more detail on biodiesel and renewable diesel imports). Imports of conventional (D6) biodiesel and renewable diesel, however, have also increased in recent years, and are likely to continue to contribute to11 the supply of renewable fuel in the United States in 2016. By setting the advanced biofuel applicable volume at a level that reflects reasonably attainable volumes, we expect a high percentage of the 2.5 billion gallon projected total 2016 supply of biodiesel and renewable diesel

to be advanced biofuel. Due to the nested nature of the standards, all cellulosic biofuel qualifies to help meet the advanced biofuel volume requireme nt. As described in Section II.E.4 of the preamble , we have also estimated that about 25 million gallons of advanced biofuel other than ethanol, biodiesel, and renewable diesel can be supplied in 2016. We estimate that the

combination of all these source s results in a reasonably attainable volume of advanced biofuel

for 2016 of 3.61 billion ethanol

- equivalent gallons. As we note in the preamble in section II.F

, the volumes actually used to satisfy this requirement may be different than those listed in T able

II.F

- 1 below.

There is both sufficient capacity and feedstocks to meet the 1.9 and 2.0 billion gallon volume requirements for 2016 and 2017 being finalized for BBD as discussed in sections II.E.3 (i)

- (ii i) of the preamble to the final rule and the current total capacity of all registered biodiesel and renewable diesel production facilities in the United States currently exceeds 2.7 billion gallons. In addition to the domestic production capacity, there is also significant r egistered capacity overse as. With regard to sufficiency of feedstocks, we received a number of comments concerning the availability of feedstocks for BBD. Section II. E.3.(i) of the preamble and RTC
section 3.2.1 reviews the various studies and data submitted regarding the availa bility of feedstocks to produce BBD as well as our response to the submitted data. Given the comments and available data received, we believe that sufficient feedstocks are available for the production of the volume requirements we are finalizing in this rule.

In summary, t he domestic BBD industry coupled with foreign production available for import to the U.S. already has sufficient production capacity to meet the full 1

. 9 0 billion gallons being adopted for 201 6 and to meet the 2.1 billion gallons of advanced biodiesel and renewable diesel assumed in setting the 2016 advanced biofuel standard

. As noted earlier, EPA continues to respond to industry requests, expanding the number of advanced renewable fuel pathways

i ncluding those producing BBD. Based on comments received and further analysis, w e believe

that an increase in the BBD volume to 1. 90 billion gallons in 2016, and 2.00 billion gallons in

2017 strike s the appropriate balance between providing a market enviro nment where other types of advanced biofuels are incentivized and providing support and a degree of certainty for the BBD industry and the RFS program that are associated with increasing the BBD volume requirement. This approach does not limit additional BBD production.

4. Impact of Renewable Fuels on Infrastructure

a. Deliverability of Materials, Goods, and Products Other than Renewable Fuels

We do not anticipate any significant impacts on deliverability of materials other than renewable fuels that might result from devoting a larger or smaller portion of the advanced biofuel standard to BBD for years 2016

- 2017. The EPA evaluated in the RFS2 final rule the12 impacts on the U.S. t ransportation network from the distribution of the total additional volume of

biofuels that would be used to meet the 2022 RFS standards. Oakridge National Laboratory (ORNL) conducted an analysis of biofuel transportation activity from production plants to petroleum terminals by rail, barge, and tank truck to identify potential dis tribution constraints to help support the assessment in the RFS2 final rule. 6 The ORNL analysis concluded that the increase in biofuel shipments due to the RFS2 standards would have a minimal impact on U.S. transportation infrastructure. The majority of b iofuel transportation is projected to be accomplished by rail. It was estimated that biofuels transport would constitute only 0.4% of the total freight tonnage for all commodities transported by the rail system through 2022. 7 While that analysis did not consider BBD volumes greater than 1.82 billion gallons and evaluated RFS volumes more broadly, g iven the small contribution of biofuel transport as a whole to total US freight tonnage, we believe that our decision in setting the BBD applicable volume will not have a significant impact in this area. In addition, to the extent there were concerns , marginally higher BBD volume impacts would likely be comparable to those associated with the use of other advanced biofuels that it might displace. As a result, we do not believe that this factor provides a basis for selecting any particular BBD applicable volume for 2016 and 2017

b. Sufficiency of Infrastructure to Deliver and Use Renewable Fuels

The rapid growth of biodiesel and renewable diesel use has bee n driven by the RFS program and tax subsidies. In section II.E of the preamble to the final rule, we concluded that the infrastructure was available to deliver and use 2.5 billion gallons of renewable and biodiesel

in 2016. Therefore we do not expect suf ficiency of infrastructure to deliver and use renewable

fuels to be a constraint for the final , or for marginally higher or lower nested BBD applicable volume requirements, and we do not believe this factor provides a good reason for selecting higher or lo wer final BBD applicable volume for 2016 and 2017.

5

. Impact of the Use of Renewable Fuels on the Cost to Consumers of Transportation Fuel and on the Cost to Transport Goods

In the preamble, we provide illustrative cost estimates for hypothetical exa mples in which either soybean oil biodiesel or sugarcane ethanol fills the entire change in the advanced biofuel mandates from 2014 through 2017 . We estimate the difference in the price per energy

equivalent gallon of soybean oil biodiesel or sugarcane ethanol on the one hand, and the petroleum

- based fuel they would replace on the other. We then multiply this difference by the

year

- on

- year chan ge in the advanced biofuel volume requirement. More detail on this analysis can be found in the Memo to the Docket titled “Illustrative Costs Impact of the Final Annual RFS2 Standards, 2014

- 2017.” This memo, for example, estimates the cost of using soybea n oil

6 “Analysis of Fuel Ethanol Transportation Activity and Potential Distribution Constraints ”, Oakridge National Laboratory, March 9, 2009. To simplify the ORNL analysis, BBD volumes were assum ed to originate at the same points of production and to be shipped to the same petroleum terminals as the ethanol projected to be used to meet
the RFS standards.

7 See sections 1.6.4 and 1.6.5 of the RFS2 RIA.13 biodiesel to replace petroleum diesel ranges from $ 480 million to $ 1,182 million in 2016, while the cost for sugarcane ethanol to replace gasoline to satisfy the year to year changes in the advanced biofuel volume mandate ranges from $ 656 to $1, 493 m illion for 2016. In conjunction with the current higher per gallon RIN value for biodiesel , this suggests that biodiesel can have a competitive advantage relative to sugarcane ethanol under the advanced standard. These cost estimates however, are based on current market conditions, and it is likely that market conditions will vary over time. The market will determine which advanced biofuels are used to meet the portion of the advanced standard that is not dedicated to BBD. To the extent that cost

consider ations favor BBD, the cost benefit can be accomplished either through setting a higher BBD nested standard, or allowing the market to choose BBD over competing products in meeting the advanced and total RFS standards. Thus, this factor does not appear to clearly favor setting either a higher or lower BBD nested standard than the levels finalize d.

Setting a higher BBD volume requirement would only be expected, under the assumptions associated with this supplementary assessment, to impact biodiesel volu mes on the margin, protecting them from being outcompeted by other advanced biofuels. Thus, the extra BBD volume requirement would merely replace other advanced renewable fuels that could be used to meet the advanced biofuel standard. As noted in the prea mble, leaving room within the

advanced standard for non

- BBD advanced biofuels can incentivize the development and production of non

- BBD advanced biofuels which may eventually provide a cost benefit as compared to BBD and support the growth in their volumes needed for the longer term success of the RFS program . In addition, this approach may temper to some extent BBD prices, by providing competition between the marginal BBD production volumes and other types of

advanced biofuels. Therefore we believe tha t this factor supports maintaining the BBD volume requirement at a level sufficiently lower than the advanced biofuel volume requirement to incentivize production of non

- BBD advanced biofuels, consistent with today’s final rule

.

6. Impact of Renewable Fuels on Other Factors

a. Job Creation and Rural Economic Development

Executive Order 13563 directs federal agencies to consider regulatory impacts on job creation and employment. According to the Executive Order, “our regulatory system must protect public health, welfare, safety, and our environment while promoting economi c growth, innovation, competitiveness, and job creation. It must be based on the best available science” (Executive Order 13563, 2011). Regulatory employment impacts are difficult to disentangle from other economic changes affecting employment decisions, over time and across regions and industries. Labor market responses to regulation are complex. They depend on labor demand and supply elasticities and possible labor market imperfections (e.g., wage stickiness, long

- term unemployment, etc.). The unit of m easurement (e.g., number of jobs, types of job hours worked, and earnings), may affect observability of that response. Net employment impacts are composed of a mix of potential declines and gains in different areas of the economy (e.g., the directly regula ted sector, upstream and downstream sectors, etc.) over time.14 If the U.S. economy is at full employment, even a large

- scale environmental regulation is unlikely to have a noticeable impact on aggregate net employment. Instead, labor would primarily b e reallocated from one productive use to another and net national employment effects from environmental regulation would be small and transitory (e.g., as workers move from one job to another). If the economy is operating at less than full employment, ec onomic theory does not clearly indicate the direction or magnitude of the net impact of environmental regulation on employment; it could cause either a short

- run net increase or short

- run net decrease (Schmalansee and Stavins, 2011).

Several commente rs to the proposal provided or referenced additional information or studies on the impact of the RFS program in general on job creation and rural economic development. This information was considered and is discussed in RTC section 7.7

. For example, n um erous commenters state d that greater biofuel mandates increase employment, raise farm incomes and spur rural development in the U.S. On the other hand, another commenter suggested that proposed BBD volume requirements would continue to divert large quantit ies of a finite, inelastic supply of animal fats to the biofuels market, thereby critically disadvantaging the
dom estic oleochemical industry. This commenter suggest ed that the U.S. oleochemical industry could likely switch to foreign

- sourced palm oil, whi ch could result in a loss of potentially 25,000 U.S. jobs. EPA believes that higher renewable fuel 2014

- 2017 RVOs will result in increases in employment, income, and tax revenues to many rural communities throughout the U.S. While the comments on employmen t and rural economic development provide insights int o the impacts of increasing volume requirements on the renewable fuels and related industries, they do not necessarily provide a complete picture of the impact of a change in the volume standard s on the whole U.S. economy. The example of the oleochemcial industry shows that there could be employment and income losses outside of the biofuel and their related industries from the greater
use of renewable fuels as a result of the RFS.

To the extent that the guaranteed volumes cause more BBD to be used to fulfill the

advanced biofuel volume, there will be more employment and wage income earned producing BBD, but less employment and wage income in the production of other advanced biofuels that

could be used to satisfy the advanced biofuel mandate. Given the small changes in job and wage income across the advanced biofuel sector that would likely result from marginal changes in BBD volume, we do not believe that this factor provides a compelling reason for setting a higher
or lower nested standard for BBD.

b. Price and Supply of Agricultural Commodities

In Sec II. I

. of the preamble, we provide illustrative cost estimates for a hypothetical scenario in which soybean oil BBD fills the entire year

- to

- year increase in the final advanced biofuel standard. As part of this scenario analysis, we estimate price impacts on soybean oil from the higher demand for soybean oil BBD. We similarly analyzed a cost impact assuming Brazillian sugarcane ethanol satisfied the entire increase in the advanced standard. More detail on this analysis can be found in the Memo to the Docket titled “Illustrative Costs Impact of the Final Annual RFS2 Standards, 2014

- 2017”.15 To the extent that the guaranteed volumes cause more B BD to be used to fulfill the advanced biofuel volume, there may be small increases in the price of soybeans and soybean oil, but this should then result in offsetting price and supply impacts on feedstocks used to make other advanced biofuels such as grain sorghum and sugarcane. NBB noted that the cost of soybean meal may go down as a result of increased price for soy oil due to biodiesel demand. While such commodity price impacts might be small, they could tend to directionally offset any increase in soy oil price. Overall , we do not believe that this factor provides a good reason for either raising or lowering the nested standard for BBD.

c. Food Prices

As mentioned previously, in Sec II. I . of the preamble we estimate wholesale price impacts on so ybean oil for a hypothetical example in which the entire change in the year

- to year
final advanced biofuel volume mandates is met with soybean oil BBD. More detail on this analysis can be found in the Memo to the Docket titled “Illustrative Costs Impact of the Final Annual RFS2 Standards, 2014

- 2017”.

To the extent that the guaranteed volumes associated with a BBD standard would cause more BBD to be used to fulfill the advanced biofuel volume, there may be small increases in the price of soybeans, but this should then lead to offsetting price and supply impacts on crop feedstocks used to make other advanced biofuels such as grain sorghum and sugarcane. NBB also noted that expanded use of inedible corn oil and other waste fats, oils and greases would

decrease any potential impact on food prices of greater BBD production and use. Given the offsetting impacts and given that feedstock price is only one component in determining food prices, we would not expect any significant impact on food prices to result from m arginal changes in the BBD nested volume requirement; therefore we do not believe that this factor provides a good reason for either raising or lowering the nested standard for BBD.