Document ID: EPA-HQ-OAR-2013-0479-0037
Agency: epa
Document Type: Proposed Rule
Title: Renewable Fuel Standard Program; 2014 Standards
Posted Date: 2013-11-29T05:00Z

[Federal Register Volume 78, Number 230 (Friday, November 29, 2013)]
[Proposed Rules]
[Pages 71731-71784]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-28155]

[[Page 71731]]

Vol. 78

Friday,

No. 230

November 29, 2013

Part II

Environmental Protection Agency

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40 CFR Part 80

2014 Standards for the Renewable Fuel Standard Program; Proposed Rule

  Federal Register / Vol. 78 , No. 230 / Friday, November 29, 2013 / 
Proposed Rules  

[[Page 71732]]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2013-0479; FRL-9900-90-OAR]
RIN 2060-AR76

2014 Standards for the Renewable Fuel Standard Program

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 percentage 
standards each November for the following year. Today's action proposes 
the annual percentage standards for cellulosic biofuel, biomass-based 
diesel, advanced biofuel, and renewable fuels that would apply to all 
motor vehicle gasoline and diesel produced or imported in the year 
2014. For cellulosic biofuel, the statute specifies that EPA is to 
project the volume of production and must base the cellulosic biofuel 
standard on projected available volume if it is less than the 
applicable volume set forth in the Act. Today EPA is proposing a 
cellulosic biofuel volume for 2014 that is below the applicable volume 
specified in the Act. The statute also provides EPA the discretion to 
adjust the volumes of advanced biofuel and total renewable fuel under 
certain conditions. Relying on its Clean Air Act waiver authorities, 
EPA is proposing to adjust the applicable volumes of advanced biofuel 
and total renewable fuel to address projected availability of 
qualifying renewable fuels and limitations in the volume of ethanol 
that can be consumed in gasoline given practical constraints on the 
supply of higher ethanol blends to the vehicles that can use them and 
other limits on ethanol blend levels in gasoline. These adjustments are 
intended to put the program on a manageable trajectory while supporting 
growth in renewable fuels over time. Finally, the statute requires EPA 
to determine the applicable volume of biomass-based diesel to be used 
in setting annual percentage standards under the renewable fuel 
standard program for years after 2012. EPA is proposing the applicable 
volume of biomass-based diesel that would apply in 2014 and 2015. EPA 
is requesting comment on a variety of alternative approaches and on a 
range of inputs and methodologies relevant for setting the applicable 
standards.

DATES: Comments must be received on or before January 28, 2014.
    Hearing: We intend to hold a hearing. Details of the location and 
date will be provided in a separate notice.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-
OAR-2013-0479, 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-
2013-0479. 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:

------------------------------------------------------------------------
                                                           Examples of
                                NAICS \1\     SIC \2\      potentially
           Category               Codes        Codes        regulated
                                                             entities
------------------------------------------------------------------------
Industry.....................       324110         2911  Petroleum
                                                          Refineries.
Industry.....................       325193         2869  Ethyl alcohol
                                                          manufacturing.

[[Page 71733]]

 
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.

    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 Action
    B. Summary of Major Provisions in This Notice
    1. Cellulosic Biofuel Volume for 2014
    2. Biomass-Based Diesel Requirement in 2014 and 2015
    3. Advanced Biofuel and Total Renewable Fuel in 2014
    4. Proposed Annual Percentage Standards for 2014
    C. Volume Requirements for 2015 and Beyond
II. Proposed Cellulosic Biofuel Volume for 2014
    A. Statutory Requirements
    B. Cellulosic Biofuel Volume Assessment for 2014
    1. Potential Domestic Producers with Approved Pathways
    2. Potential Domestic Producers without Existing Pathways
    3. Potential Foreign Sources of Cellulosic Biofuel
    4. Summary of Volume Projections for Individual Companies
    C. Proposed Cellulosic Biofuel Volume for 2014
    D. Rescission of the 2011 Cellulosic Biofuel Standards
III. Proposed National Volume Requirement for Biomass-Based Diesel 
in 2014 and 2015
    A. Statutory Requirements
    B. Compliance with 2013 Volume Requirement of 1.28 Billion 
Gallons
    C. Determination of Applicable Volume for 2014 and 2015
IV. Proposed National Volume Requirements for Advanced Biofuel and 
Total Renewable Fuel for 2014
    A. Statutory Authorities for Reducing Volumes to Address Biofuel 
Availability and the Ethanol Blendwall
    1. Cellulosic Waiver Authority
    2. General Waiver Authority
    3. Combining Authorities for Reductions in Advanced Biofuel and 
Total Renewable Fuel
    B. Determination of Reductions in Total Renewable Fuel
    1. Estimating Ethanol Volumes that Could Reasonably Be Consumed
    a. Projected Composition of 2014 Gasoline Supply
    b. Assessment of E85 Consumption
    c. Proposed Projection of E85 Consumption in 2014
    d. Estimating Total Ethanol Consumption in 2014
    2. Estimating Availability of Non-Ethanol Renewable Fuel Volumes
    a. Non-Ethanol Cellulosic Biofuel
    b. Biomass-Based Diesel
    c. Non-Ethanol Advanced Biofuel
    d. Non-Ethanol Non-Advanced Renewable Fuel
    3. Treatment of Carryover RINs in 2014
    4. Proposed Range for the Volume Requirement for Total Renewable 
Fuel
    C. Determination of Reductions in Advanced Biofuel
    1. Available Volumes of Advanced Biofuel in 2014
    a. Cellulosic biofuel
    b. Biomass-Based Diesel
    c. Domestic Production of Other Advanced Biofuel
    d. Imported Sugarcane Ethanol
    e. Summary
    2. Options for Determining Appropriate Reductions in Advanced 
Biofuel
    a. Option 1: Advanced Biofuel Availability
    b. Option 2: Full Reduction in Cellulosic Biofuel
    c. Option 3: Availability, Growth, and Limits on Ethanol 
Consumption
    D. Summary of Proposed Volume Requirements for 2014
    E. Volume Requirements for 2015 and Beyond
V. Proposed Percentage Standards for 2014
    A. Background
    B. Calculation of Standards
    1. How Are the Standards Calculated?
    2. Small Refineries and Small Refiners
    3. Proposed Standards
VI. Public Participation
    A. How Do I Submit Comments?
    B. How Should I Submit CBI to the Agency?
VII. 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

[[Page 71734]]

    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
VIII. 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 was added 
through the Energy Policy Act of 2005 (EPAct). The statutory 
requirements for the RFS program were subsequently modified through the 
Energy Independence and Security Act of 2007 (EISA), resulting in the 
publication of major revisions to the regulatory requirements on March 
26, 2010.\1\
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    \1\ 75 FR 14670.
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    The national volumes of renewable fuel to be used under the RFS 
program each year (absent an adjustment or waiver by EPA) are specified 
in CAA section 211(o)(2). The volumes for 2014 are shown in Table I-1. 
Note that cellulosic biofuel and biomass-based diesel categories are 
nested within advanced biofuel, which is itself nested within the 
renewable fuel category.

 Table I-1--Required Applicable Volumes in Billion Gallons (bill gal) in
                       the Clean Air Act for 2014
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel.......................  1.75 \a\
Biomass-based diesel.....................  >=1.0 \b\
Advanced biofuel.........................  3.75 \a\
Renewable fuel...........................  18.15 \a\
------------------------------------------------------------------------
\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 calculated so as to 
ensure use in transportation fuel of the national ``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. The percentage standards are used by obligated 
parties (generally, producers and importers of transportation fuel) to 
calculate their individual compliance obligations. The percentage 
standards are applied to the volume of non-renewable transportation 
fuel that each obligated party produces or imports during the specified 
calendar year to determine the volumes of renewable fuel that must be 
used as transportation fuel, heating oil, or jet fuel.
    As required by statute, we are proposing to establish the volume 
for cellulosic biofuel based on projected availability of such fuel--
which is below the statutory target for 2014. In addition, we have 
evaluated the availability of qualifying renewable fuels and factors 
that in some cases limit supplying those fuels to the vehicles and 
equipment that can consume them, including the set of factors referred 
to as the ethanol blendwall. Based on this evaluation we believe that 
adjustments to the volumes of advanced biofuel and total renewable fuel 
required under the statute are warranted for 2014 due to an inadequate 
domestic supply of these fuels (see Section IV.A for further detail). 
We are also proposing to maintain the same volume for biomass-based 
diesel for 2014 and 2015 as was adopted for 2013. The volumes that we 
are proposing for 2014, as well as the ranges on which we are seeking 
comment, are shown below. With the exception of the volume requirement 
for cellulosic biofuel, the proposed volumes correspond to the 
preferred approach described in today's proposal, but we discuss and 
are seeking comment on alternative approaches as well.

            Table I-2--Proposed 2014 Volume Requirements \a\
------------------------------------------------------------------------
                                    Proposed volume     Projected range
------------------------------------------------------------------------
Cellulosic biofuel..............  17 mill gal.......  8-30 mill gal.
Biomass-based diesel............  1.28 bill gal.....  1.28 bill gal. \b\
Advanced biofuel................  2.20 bill gal.....  2.00-2.51 bill
                                                       gal.
Renewable fuel..................  15.21 bill gal....  15.00-15.52 bill
                                                       gal.
------------------------------------------------------------------------
\a\ All volumes are ethanol-equivalent, except for biomass-based diesel
  which is actual.
\b\ EPA is requesting comment on alternative approaches and higher
  volumes.

    Section II contains a detailed discussion of the basis for our 
proposed volume of cellulosic biofuel for 2014, Section III contains a 
detailed discussion of the basis for our proposed volume of biomass-
based diesel for 2014 and 2015, and Section IV contains a detailed 
discussion of the basis for our proposed volumes, as well as 
alternative potential approaches on which we are requesting comment, 
for advanced biofuel and total renewable fuel for 2014.
    In developing this proposal, we have been cognizant that Congress 
anticipated and intended the RFS program to promote substantial, 
sustained growth in biofuel production and consumption--beyond the 
levels that have been achieved to date. Although current gasoline 
demand and forecasts of future gasoline demand have decreased since 
EISA's enactment in 2007, EPA continues to support the objective of 
continued growth in renewable fuel production and consumption, as well 
as the central policy goals underlying the RFS program: reductions in 
greenhouse gas emissions, enhanced energy security, economic 
development, and technological innovation. The approach reflected in 
today's proposal is consistent with those objectives and is intended to 
put the RFS program on a manageable trajectory while supporting 
continued growth in renewable fuels over time. As emphasized throughout 
the proposal, we are seeking comment and information on a variety of 
alternative approaches as well as ranges of inputs and methodologies 
relevant to setting these standards, and look forward to engagement 
with stakeholders on all aspects of the proposal.

[[Page 71735]]

A. Purpose of this action

    EPA is today proposing annual volume requirements for obligated 
parties for cellulosic biofuel, biomass-based diesel, advanced biofuel, 
and total renewable fuel for 2014. Table I.A-1 lists the statutory 
provisions and associated criteria relevant to determining the national 
applicable volumes used to set the applicable standards in today's 
proposed rule.

    Table I.A-1--Statutory Provisions for Determination of Applicable
                                 Volumes
------------------------------------------------------------------------
                                                    Criteria provided in
                                  Clean Air Act         statute for
      Applicable volumes            reference         determination of
                                                     applicable volume
------------------------------------------------------------------------
Cellulosic biofuel in 2014....  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.
Biomass-based diesel in 2014    211(o)(2)(B)(ii)   Required volume for
 and 2015.                       and (v).           years after 2012
                                                    must be at least 1.0
                                                    bil gal, and must be
                                                    based on a review of
                                                    implementation of
                                                    the program and an
                                                    analysis of several
                                                    factors.
Advanced biofuel in 2014......  211(o)(7)(D)(i)..  If applicable volume
                                                    of cellulosic
                                                    biofuel is reduced
                                                    to the projected
                                                    volume, EPA may
                                                    reduce advanced
                                                    biofuel and total
                                                    renewable fuel by
                                                    the same or lesser
                                                    volume. No criteria
                                                    specified.
                                211(o)(7)(A).....  EPA may waive any
                                                    portion of the
                                                    statutory volume
                                                    requirements if
                                                    implementation of
                                                    those requirements
                                                    would severely harm
                                                    the economy or
                                                    environment of a
                                                    State, region, or
                                                    the United States,
                                                    or there is an
                                                    inadequate domestic
                                                    supply.
Total renewable fuel in 2014..  211(o)(7)(D)(i)..  If applicable volume
                                                    of cellulosic
                                                    biofuel is reduced
                                                    to the projected
                                                    volume, EPA may
                                                    reduce advanced
                                                    biofuel and total
                                                    renewable fuel by
                                                    the same or lesser
                                                    volume. No criteria
                                                    specified.
                                211(o)(7)(A).....  EPA may waive any
                                                    portion of the
                                                    statutory volume
                                                    requirements if
                                                    implementation of
                                                    those requirements
                                                    would severely harm
                                                    the economy or
                                                    environment of a
                                                    State, region, or
                                                    the United States,
                                                    or there is an
                                                    inadequate domestic
                                                    supply.
------------------------------------------------------------------------

    Under the statute, EPA must annually determine the projected volume 
of cellulosic biofuel production for the following year. If the 
projected volume of cellulosic biofuel production is less than the 
applicable volume specified in section 211(o)(2)(B)(i)(III) of the 
statute, EPA must lower the applicable volume used to set the annual 
cellulosic biofuel percentage standard to the projected volume of 
production available during the year. In today's proposed rule, we 
present our analysis of cellulosic biofuel production and projected 
volume for 2014. This analysis is based on our evaluation of individual 
producers' production plans and progress to date following discussions 
with cellulosic biofuel producers, the Energy Information 
Administration (EIA), the Department of Agriculture (USDA), and the 
Department of Energy (DOE), and includes an assessment of the 
probabilities associated with production schedules from each of these 
producers.
    While CAA section 211(o)(2)(B) specifies the volumes of biomass-
based diesel to be used in the RFS program through year 2012, it 
directs the EPA to establish the applicable volume of biomass-based 
diesel for years after 2012. The statute also lists the factors that 
must be considered in this determination. In today's action we are 
proposing volume requirements for biomass-based diesel for both 2014 
and 2015.
    There are two different authorities in the statute that permit EPA 
to reduce volumes of advanced biofuel and total renewable fuel below 
the volumes specified in the statute. 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. We can also reduce the applicable volumes of 
advanced biofuel or total renewable fuel under the general waiver 
authority provided at CAA 211(o)(7)(A) under certain conditions. 
Today's proposal uses a combination of these two authorities to reduce 
volumes of both advanced biofuel and total renewable fuel to address 
two important realities:
     Limitations in the volume of ethanol that can be consumed 
in gasoline given practical constraints on the supply of higher ethanol 
blends to the vehicles that can use them and other limits on ethanol 
blend levels in gasoline--a set of factors commonly referred to as the 
ethanol ``blendwall''
     Limitations in the ability of the industry to produce 
sufficient volumes of qualifying renewable fuel.
    As described in detail in Section IV, today's action lays out a 
framework for determining the applicable volume requirements that 
addresses these two realities. We are proposing to use this framework 
to establish the volume requirements in 2014. As described in more 
detail in Section IV.E, we believe that this framework would also be 
appropriate for later years, subject to adjustments made in the course 
of the rulemaking process and taking into account the specific facts 
about the availability of renewable fuels at the time of the final 
rulemaking.
    In today's proposed rule we have also provided the annual 
percentage standards (shown in Section I.B.4 below) that would apply to 
all producers and importers of gasoline and diesel in 2014. The 
percentage standards, which establish the legal requirement for the 
obligated parties, are based on the 2014 applicable volumes that we 
project for the four types of renewable fuel and a projection of 
volumes of gasoline and diesel consumption in 2014 from the Energy 
Information Administration (EIA).

B. Summary of Major Provisions in This Notice

1. Cellulosic Biofuel Volume for 2014
    The cellulosic biofuel industry continues to transition from 
research and development (R&D) and pilot scale to commercial scale 
facilities, leading to

[[Page 71736]]

significant increases in production capacity. RIN generation from the 
first commercial scale cellulosic biofuel facility began in March 
2013.\2\ A second facility began producing fuel in July 2013 with 
several others expected to follow in 2014. Based on information we have 
collected from these companies and discussions with EIA, we have 
identified five companies we expect to produce cellulosic biofuel in 
2014. There are an additional three companies that may be in a position 
to produce cellulosic biofuel if additional pathways are approved by 
EPA. Each of the relevant facilities is listed in Table I.B.1-1 along 
with our estimate of their projected 2014 volume. Based on the 
information we have received from these companies, our conversations 
with other government agencies, and EPA's own engineering judgment we 
are projecting that 8-30 million ethanol-equivalent gallons of 
cellulosic biofuel will be available in 2014. This range does not 
account for the estimate that EIA is required to provide to EPA 
containing estimates of the volume of cellulosic biofuel projected to 
be sold or introduced into commerce in 2014. The projected range also 
does not include any volume from facilities that could use pathways 
which have not yet been approved. If production volumes from these 
facilities were included, we would project a production range of 53-83 
million ethanol-equivalent gallons.
---------------------------------------------------------------------------

    \2\ A RIN is unique number generated by the producer and 
assigned to each gallon of a qualifying renewable fuel under the RFS 
program, and is used by refiners and importers to demonstrate 
compliance with the volume requirements under the program.
---------------------------------------------------------------------------

    As part of estimating the volume of cellulosic biofuel that would 
be made available in the U.S. in 2014, 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 is expected to produce commercial volumes of qualifying 
cellulosic biofuel for use in 2014. To arrive at a projected volume for 
each facility, we developed company specific projections based on 
discussions with cellulosic biofuel producers, EIA, USDA, and DOE, and 
on 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 qualify 
for cellulosic biofuel Renewable Identification Numbers (RINs) in 2014. 
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 proposed rule 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 2014.

   Table I.B.1-1--Projected Available Cellulosic Biofuel Plant Volumes in Million Gallons (mill gal) for 2014
----------------------------------------------------------------------------------------------------------------
                                                                     Annual                       Projected 2014
           Company                Location        Fuel type        production         First          available
                                                                   capacity a       production       volume b
----------------------------------------------------------------------------------------------------------------
                                        Companies With Approved Pathways
----------------------------------------------------------------------------------------------------------------
Abengoa.....................  Hugoton, KS....  Ethanol........  24.............  1Q 2014 c......            0-18
DuPont......................  Nevada, IA.....  Ethanol........  30.............  2H 2014 c......             0-2
INEOS Bio...................  Vero Beach, FL.  Ethanol........  8..............  3Q 2013........             2-5
KiOR........................  Columbus, MS...  Gasoline and     11.............  March 2013.....             0-9
                                                Diesel.
Poet........................  Emmetsburg, IA.  Ethanol........  25.............  1H 2014 c......             0-6
----------------------------------------------------------------------------------------------------------------
    Total for companies with  ...............  ...............  ...............  ...............          8-30 d
     approved pathways.
----------------------------------------------------------------------------------------------------------------
                                  Other Potential Cellulosic Biofuel Producers
----------------------------------------------------------------------------------------------------------------
CNG/LNG Producers...........  Various........  CNG/LNG........  Various........  Various........           35-54
Edeniq......................  Various........  Ethanol........  Various........  1H 2014 c......             0-7
Ensyn.......................  Stanley, WI....  Heating Oil....  3..............  2007...........             0-5
    Total for both companies  ...............  ...............  ...............  ...............         53-83 d
     with approved pathways
     and those with proposed
     pathways.
----------------------------------------------------------------------------------------------------------------
a Facilities are generally designed to process a given quantity of feedstock and volume capacities may vary
  depending on yield assumptions.
b Volumes listed in million ethanol-equivalent gallons.
c Start-up dates for these facilities are projections.
d Total volumes are the result of Monte Carlo simulations rather than the sum of the low and high end of the
  range of projected available volume for each company. See Section II.C for more detail.

    In projecting the actual volume of cellulosic biofuel that will be 
available for use in 2014, we have taken into account variation in 
expected start-up times, along with the facility production capacities, 
company production plans, the progress made in 2013, expected 
production distribution and a variety of other factors. We used this 
information

[[Page 71737]]

to determine the most likely production ranges for each of the 
individual companies and a production probability distribution within 
the range. We then used a Monte Carlo simulation to aggregate the 
individual ranges into a production projection for the cellulosic 
biofuel industry as a whole in 2014. We believe this method results in 
a projected production range that better represents our expectations 
for cellulosic biofuel production in 2014 than simply adding the low 
and high end of the production ranges from each of the individual 
companies. Section II discusses in greater detail our projections of 
cellulosic biofuel in 2014 and the companies we expect to produce this 
volume.
    In response to a recent court decision, we are also proposing to 
rescind the cellulosic biofuel standards for 2011. In January 2013, the 
United States Court of Appeals for the District of Columbia Circuit 
issued a decision interpreting the statutory requirements for EPA's 
cellulosic biofuel projections, in the context of considering a 
challenge to the 2012 cellulosic biofuel standard. The Court found that 
in establishing the applicable volume of cellulosic biofuel for 2012, 
EPA had used a methodology in which ``the risk of overestimation [was] 
set deliberately to outweigh the risk of underestimation.'' The Court 
held EPA's action to be inconsistent with the statute because EPA had 
failed to apply a ``neutral methodology'' aimed at providing a 
prediction of ``what will actually happen,'' as required by the 
statute. As a result of this ruling, the Court vacated the 2012 
cellulosic biofuel standard. See API v. EPA, 706 F.3d 474 (D.C. Cir. 
2013). EPA later removed the 2012 cellulosic biofuel requirement from 
the regulations.\3\ Since we used essentially the same methodology to 
develop the 2011 cellulosic biofuel standard as we did to develop the 
2012 standard, we believe it would be appropriate to rescind the 2011 
cellulosic biofuel standard as well and accordingly are proposing to do 
so in today's action. The money paid by obligated parties to purchase 
cellulosic waiver credits to comply with the 2011 cellulosic biofuel 
standard would be refunded if this action is finalized.\4\
---------------------------------------------------------------------------

    \3\ 78 FR 49794 (August 15, 2013).
    \4\ In 2011 obligated parties purchased 4,248,388 cellulosic 
biofuel waiver credits at a price of $1.13 per gallon-RIN for a 
total cost of $4,800,678.
---------------------------------------------------------------------------

2. Biomass-Based Diesel Requirement in 2014 and 2015
    While 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. 
Moreover, the statute requires that we finalize these biomass-based 
diesel volume requirements no later than 14 months before the first 
year for which that volume requirement will apply. We did not propose a 
volume requirement for biomass-based diesel in the February 7, 2013 
Notice of Proposed Rulemaking because at that time we were still 
evaluating the potential market impacts of current production levels. 
In order to provide sufficient time for this evaluation, as well as the 
other analyses we are required to conduct, we delayed our proposal for 
the 2014 volume requirement for biomass-based diesel.
    In today's action we are proposing to maintain the applicable 
volume of 1.28 bill gallons for biomass-based diesel for both 2014 and 
2015. As required by the statute when setting biomass-based diesel 
volume requirements for years after 2012, our proposal is based on a 
consideration of the factors specified in the statute, including 
biodiesel production, consumption, infrastructure, climate change, 
energy security, the agricultural sector, air quality, and others. 
Section III provides additional discussion of our assessment of the 
proposed volume of 1.28 bill gal of biomass-based diesel.
3. Advanced Biofuel and Total Renewable Fuel in 2014
    Since the RFS2 program began in 2010, EPA has considered reductions 
in advanced biofuel and total renewable fuel authorized under the 
cellulosic waiver provisions of 211(o)(7)(D)(i). In the past we have 
focused primarily on the availability of advanced biofuels in 
determining whether reductions in the required volume of cellulosic 
biofuel should be accompanied by reductions in the required volumes of 
advanced biofuel and total renewable fuel. The total volume of 
renewable fuel in the form of ethanol that could reasonably be 
available and supplied to vehicles as either E10 or higher ethanol 
blends given various constraints, was not a limiting factor for years 
prior to 2014. However, for 2014 and later years, the total volume of 
ethanol that can be consumed, and the total volume of non-ethanol 
renewable fuels that could reasonably be available, are together 
expected to be less than the volume requirements established in EISA 
for advanced biofuel and total renewable fuel. Therefore, we are 
proposing reductions in the volume requirements for these categories of 
renewable fuel to address these concerns.
    We evaluated three potential approaches for reducing the applicable 
volume requirements for advanced biofuel and total renewable fuel. Each 
of these approaches would require use of a combination of the 
cellulosic and general waiver authorities at 211(o)(7)(D)(i) and 
211(o)(7)(A), respectively, to address supply concerns associated with 
the blendwall. The three approaches differ primarily with regard to how 
the advanced biofuel requirement would be adjusted using these 
authorities. The first approach would lower the statutory volumes for 
advanced biofuels only to the extent that additional volumes are not 
projected to be available; the general waiver authority would be used 
to ensure that the total volume of renewable fuel would address supply 
concerns associated with the blendwall. The second approach would make 
reductions in advanced biofuel and total renewable fuel that are equal 
to the proposed reductions in cellulosic biofuel and would use the 
general waiver authority to make further reductions to the total 
renewable fuel requirement necessary to address the blendwall.
    The third approach that we evaluated, and the one that we are 
proposing today, includes both a consideration of the capability of the 
relevant industries to make qualifying renewable fuels available, 
either through domestic production or importation, and also the 
capability of the relevant industries to ensure that those renewable 
fuels are used as transportation fuel, heating oil, or jet fuel.\5\ The 
use of renewable fuels includes a consideration of the infrastructure 
available for distributing, blending, and dispensing renewable fuels, 
as well as appropriate vehicles in the fleet that can consume various 
renewable fuels, such as flex-fuel vehicles (FFVs). Our proposed 
framework for addressing both availability of qualifying renewable 
fuels and constraints on their consumption would make use of a 
combination of the cellulosic waiver authority at 211(o)(7)(D)(i) and 
the general waiver authority at 211(o)(7)(A). As described in detail in 
Section IV.A.2, we interpret the term ``inadequate domestic supply'' as 
it is used under the general waiver authority to include consideration 
of factors that affect consumption of renewable fuel. We believe the 
framework being proposed today best approximates the multiple goals 
that Congress intended in the RFS

[[Page 71738]]

program, and we would intend this framework to apply not just to 2014, 
but to later years as well. However, we are soliciting comment on 
alternative approaches as well. We discuss the proposed framework and 
the alternative approaches in Section IV.
---------------------------------------------------------------------------

    \5\ While the fuels that are subject to the percentage standards 
are currently only non-renewable gasoline and diesel, renewable 
fuels that are valid for compliance with the standards include those 
used as transportation fuel, heating oil, or jet fuel.
---------------------------------------------------------------------------

    We believe that our proposed framework for determining appropriate 
volumes of total renewable fuel and advanced biofuel would 
simultaneously address the ethanol blendwall and limitations in 
availability of qualifying renewable fuels. For total renewable fuel, 
we would project the volume of ethanol that could reasonably be 
consumed as E10 and higher ethanol blends, and would add to that the 
volume of all non-ethanol renewable fuels that could reasonably be 
expected to be available. For advanced biofuel, we would sum the 
ethanol-equivalent volumes of the cellulosic biofuel requirement, the 
biomass-based diesel requirement, and the additional non-ethanol 
advanced biofuels that could reasonably be expected to be available and 
be consumed. In this process we have projected ranges that encompass 
the most likely outcomes, and we propose several approaches to 
determining the most likely value for the final rule.
4. Proposed Annual Percentage Standards for 2014
    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 prove to be 
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.
    Four separate percentage standards are required under the RFS 
program, corresponding to the four separate volume requirements shown 
in Table I-1. The specific formulas we use in calculating the renewable 
fuel percentage standards are contained in the regulations at 40 CFR 
Sec.  80.1405 and repeated in Section V.B.1. The percentage standards 
represent the ratio of renewable fuel volume to projected non-renewable 
gasoline and diesel volume. The projected volume of transportation 
gasoline and diesel used to calculate the standards in today's proposed 
rule was derived from EIA projections. The proposed standards for 2014 
are shown in Table I.B.4-2. Detailed calculations can be found in 
Section V, including the projected 2014 gasoline and diesel volumes 
used.

          Table I.B.4-2--Proposed Percentage Standards for 2014
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel...................................             0.010%
Biomass-based diesel.................................              1.16%
Advanced biofuel.....................................              1.33%
Renewable fuel.......................................              9.20%
------------------------------------------------------------------------

C. Volume Requirements for 2015 and Beyond

    As highlighted above, EPA continues to support the objective--
reflected in the statute--of continued growth in renewable fuel 
production and consumption, as well as the central goals of the RFS 
program: enhanced energy security and reductions in greenhouse gas 
emissions. We also recognize that issues concerning the availability of 
qualifying fuels and the consumption of ethanol will continue to be 
relevant in 2015 and beyond, particularly in light of projections that 
overall gasoline demand will continue to decline while the statutory 
volumes for renewable fuel volumes continue to increase. Our objective 
in this rulemaking is to develop a general approach for determining 
appropriate volume requirements that can be applied not only in 2014, 
but also for 2015 and beyond. As we consider comments received in 
response to this NPRM, our intent is to develop an approach that puts 
the RFS program on a manageable trajectory while supporting continued 
growth in renewable fuels over time. The proposed approach described in 
today's NPRM can and will account for new and improved data and changes 
in circumstances over time, including the substantial efforts underway 
to increase the volume of biofuel produced and consumed in the United 
States. Many companies, often supported by various government programs, 
are continuing to invest in efforts ranging from research and 
development to the construction of commercial scale facilities 
resulting in the ongoing growth of next generation biofuels. Similar 
efforts on the part of both public and private sectors are growing the 
infrastructure to enable expansion in the use of gasoline fuel blends 
containing greater than 10 percent ethanol. Under the right 
circumstances, there is substantial potential for continued growth in 
the use of ethanol and next generation biofuels, both in the near term 
and into the future. As both ethanol and non-ethanol renewable fuel 
volumes grow, the proposed methodology set forth in today's proposed 
rule will incorporate this growth into the development of the standards 
for the following year, providing an ongoing incentive for growth of 
biofuels. We recognize that a number of challenges must be overcome to 
fully realize the potential that exists for increased production and 
consumption of renewable fuels in the United States. We also recognize 
that while the RFS program is a central element of our domestic 
biofuels policy, a range of other tools, programs, and actions have the 
potential to play an important complementary role. We request 
information and ideas on what actions could be taken by the variety of 
industry and other private stakeholders, as well by the government, to 
help overcome these challenges, continue to foster innovation, and 
minimize the need for adjustments in the statutory renewable fuel 
volume requirements in the future.

II. Proposed Cellulosic Biofuel Volume for 2014

    In order to project the volume of cellulosic biofuel production in 
2014 for use in setting the applicable percentage standard, we 
considered information we received from EIA and information we 
collected from 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 2014. This section describes the volumes 
that we project will be produced or imported in 2014 as well as some of 
the uncertainties associated with those volumes.
    In the past several years the cellulosic biofuel industry has 
continued to progress. The first cellulosic biofuel RINs under the 
current RFS regulations were produced in 2012 at two small 
demonstration scale facilities. During 2013, the first commercial scale 
cellulosic biofuel facilities have successfully completed commissioning 
and began fuel production, and several more large scale commercial 
production facilities are expected to begin fuel production in 2014. 
Projected costs for the production 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 advances, 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

[[Page 71739]]

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. EPA has 
also approved new pathways to increase the variety of fuels for which 
cellulosic RINs can be generated and the feedstocks from which these 
fuels can be produced. These factors have combined to continue to 
reduce the perceived technical, financial, and regulatory risks 
associated with the cellulosic biofuel industry and place the 
cellulosic biofuel industry on firm ground for future growth.
    Although the cellulosic biofuel industry faces many challenges and 
RIN-generating cellulosic biofuel production continues to be limited, 
the industry is growing incrementally, both in the United States and 
around the world.\6\ New facilities projected to be brought online in 
the United States in 2014 would increase the production capacity of the 
cellulosic industry by approximately 600 percent. The following section 
discusses the companies the EPA reviewed in the process of projecting 
cellulosic biofuel production for use as a transportation fuel in the 
United States in 2014. Information on these companies forms the basis 
for our projection that the volume of cellulosic biofuel produced in 
2014 is likely to be in the range of 8-30 million gallons. EPA will 
continue to monitor the progress of these facilities, as well as any 
others of which we become aware that have the potential for cellulosic 
biofuel production in 2014, in order to have the most up to date 
information possible to set the cellulosic biofuel standard in the 
final rule.
---------------------------------------------------------------------------

    \6\ As of July 31, 2013, 215,044 RINs that can be used to 
fulfill the cellulosic biofuel standard (D3 and D7 RINS) have been 
generated.
---------------------------------------------------------------------------

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 2014, the statute specifies a cellulosic biofuel volume 
requirement of 1.75 billion gallons. 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 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 2014 volume requirements for advanced biofuels and 
total renewable fuel is presented in Section IV.

B. Cellulosic Biofuel Volume Assessment for 2014

    In order to project cellulosic biofuel production for 2014, we have 
tracked the progress of several dozen potential cellulosic biofuel 
production facilities. As for the 2013 annual volumes, we have focused 
on facilities with the potential to produce commercial volumes of 
cellulosic biofuel rather than small R&D or pilot scale facilities as 
the larger commercial scale facilities are much more likely to generate 
RINs for the fuel they produce and the volumes they produce will have a 
far greater impact on the cellulosic biofuel standard for 2014. From 
this list of facilities we used publically available information, as 
well as information provided by DOE, EIA, 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 2014. Each of these companies was investigated further 
in order to determine the current status of its facilities and its 
likely cellulosic biofuel production and RIN generation volumes for the 
coming years. Information such as the funding status of these 
facilities, current status of the production technologies, announced 
construction and production ramp-up periods, and annual fuel production 
targets were all considered when we spoke with representatives of each 
company to discuss cellulosic biofuel target production levels for 
2014. Throughout this process EPA has been in contact with EIA to 
discuss relevant information.
    For each company included in our 2014 volume projections EPA has 
established a range of potential production volume such that it is 
possible, but highly unlikely, that the actual production will be above 
or below the range.\7\ The low end of the range for each company is 
designed to represent the volume of fuel EPA believes each company is 
likely to produce if they are unable to begin fuel production on their 
expected start-up date and/or experience challenges that result in 
reduced production volumes or a longer than expected ramp-up period. 
Experience to date with cellulosic biofuel production facilities is 
that historically they have been unable to achieve announced start-up 
dates and production volumes in their first few years of expected 
production. To project a low end of the range of production volumes, 
therefore, we must consider the likely minimum volume of fuel new 
facilities are likely to produce if they experience similar delays and 
setbacks. The low end of the range for any facilities that have not yet 
begun producing cellulosic biofuel is set at zero in our assessment. 
This reflects the uncertainties related to these facilities' start-up 
dates, the possibility that any remaining construction and 
commissioning timelines may be delayed, and the possibility that 
initial fuel volumes are likely to be small.
---------------------------------------------------------------------------

    \7\ For the purposes of the Monte Carlo simulation, discussed in 
more detail later, this range will be treated as representing the 
90% confidence interval.
---------------------------------------------------------------------------

    If a facility has already begun production any uncertainty related 
to its start-up date is no longer relevant and the remaining 
uncertainty primarily relates to the facility's ability to achieve 
steady state production and target yields as it progresses towards 
production rates that reflect the facility's nameplate capacity. For 
these facilities, production history is a significant factor in 
establishing the low end of the projected production range. It is 
important to note that the low end of the range does not represent a 
worst-case scenario. The worst-case scenario for any of these 
facilities is zero, as it is always possible that extreme circumstances 
or natural disasters may result in extended delays, project 
cancellation, or liquidation. While not denying this possibility for 
any of the facilities included in our projections, several have made 
sufficient progress that we believe a non-zero value for the low end of 
the range is appropriate. For these facilities we believe it is highly 
unlikely that the production volume will fail to exceed the low end of 
their projected production range in 2014. Further discussion on the 
basis for the low end of the projected production range for each 
facility is included in the company descriptions in the following 
sections.
    To determine the high end of the range of expected production 
volumes for each company we considered a variety of factors, including 
company history, expected start-up date and ramp-up period, facility 
capacity, and others mentioned above. As a starting point, EPA 
calculated a production volume using the expected start-up date and 
facility capacity assuming our best-case scenario benchmark of a six-
month straight-line ramp-up period. Any production volumes that 
exceeded this

[[Page 71740]]

volume were not considered to be credible, even for the high end of the 
range of expected production volumes. If the production estimate EPA 
received from a company was lower than the volume calculated using the 
methodology above, EPA used the company production targets instead. In 
some cases these volumes were discounted further based on the history 
of these companies or EPA's engineering judgment. More information on 
the process used to project the high end of the range of expected 
production volumes for each company can be found below. This process is 
similar to the process used in the 2013 standards Notice of Proposed 
Rulemaking (NPRM) to calculate the expected production for each 
company.
    We believe our range of projected production volumes for each 
company represents the range of what is likely to actually happen for 
each company. A brief description can be found below for each of the 
companies we believe will produce cellulosic biofuel and make it 
commercially available in 2014. We will continue to gather more 
information to help inform our decision regarding the cellulosic 
biofuel volume to be required for 2014 in the final rule. In the 
sections that follow, we first discuss domestic cellulosic biofuel 
production facilities with an approved RIN generating pathway, followed 
by facilities with pathways that have been proposed or are currently 
being evaluated by EPA, and finally foreign cellulosic biofuel 
producers.
    EPA has determined a range of potential production volumes for each 
company rather than a single value as a range better reflects the 
uncertainty associated with the production from each company. 
Additionally, there are a large number of companies that EPA must 
assess and aggregate to produce a single national volume covering the 
entire cellulosic biofuel industry. We believe that our projected 
production volume for the cellulosic biofuel industry as a whole is 
more accurate if it is done in such a way as to reflect the uncertainty 
associated with each of the companies that contribute to the 
projection. As discussed in more detail in Section II.C below, EPA is 
using a Monte Carlo simulation as a tool to combine our production 
projections for each individual company to determine a reasonable range 
of cellulosic biofuel production in 2014 for the entire industry in a 
way that reflects the uncertainty across the full suite of facilities. 
This projected range provides a basis for public comment and helps to 
inform our ultimate decision on the single value for the final rule 
that best represents the projected volume of cellulosic that will be 
available in 2014. Alternative methods to combine our production 
projections are discussed further in Section IV.
1. Potential Domestic Producers with Approved Pathways
    The companies and facilities discussed in this section all have the 
potential to produce cellulosic biofuel for use as transportation fuel, 
heating oil, or jet fuel in the United States in 2014. Both INEOS Bio 
and KiOR began producing cellulosic biofuel at commercial-scale in 
2013. The remaining seven are in various stages of construction. All 
seven of these facilities project the successful completion of 
construction of commercial scale facilities and initial fuel production 
in 2014. The strong financial incentive provided by the cellulosic 
RINs, combined with the fact that all these facilities are located in 
the United States and intend to use approved pathways, give us a high 
degree of confidence that any fuel they produce will also generate 
corresponding cellulosic biofuel RINs.\8\
---------------------------------------------------------------------------

    \8\ In 2012, approximately 20,000 gallons of cellulosic biofuel 
produced in the US was exported to Brazil to be used for promotional 
purposes. We believe the circumstances surrounding this export of 
cellulosic biofuel were unique, including significant investment in 
the company that produced the fuel by Petrobras, and are unlikely to 
be repeated by the companies included in future years.
---------------------------------------------------------------------------

    In order to generate RINs, each of these companies must register 
under the RFS program and comply with all applicable recordkeeping and 
reporting requirements. This includes using an approved RIN-generating 
pathway and verifying that their feedstocks meet the definition of 
renewable biomass.
Abengoa
    Abengoa, a large international biofuels company, has developed 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. 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.
    Abengoa has contracts in place to provide the majority of 
feedstocks necessary for the Hugoton 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 approximately two years 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 producing fuel at the facility in January 2014, shortly after 
completing construction in late 2013, and to be producing fuel at rates 
near the nameplate capacity by the end of the second quarter of 2014. 
They are currently projecting 17-20 million gallons of cellulosic 
ethanol production from this facility in 2014.\9\ This range of volumes 
is consistent with the 18 million gallons EPA would project if we 
assume production starts on January 1, 2014 and use the six-month ramp-
up period as a benchmark best case scenario for new cellulosic biofuel 
production facilities. To date construction at the Abengoa facility has 
proceeded as expected and EPA has no reason to believe this facility is 
less likely to achieve their production targets than any other new 
first-of-a-kind cellulosic biofuel facility. EPA is therefore using 18 
million gallons of cellulosic ethanol as the high end of the projected 
production range from Abengoa in todays proposed rule. For the low end 
of the production range, EPA is projecting a volume of 0 gallons, 
consistent with our projections for all facilities that have not yet 
begun producing commercial volumes of cellulosic biofuel. This 
significantly reduced volume reflects the fact that no commercial scale 
cellulosic biofuel facility has yet been able to achieve its target 
date for the first production of fuel. Any delay in the start-up date 
of this facility would have a significant negative impact on production 
in 2014 and may result in production being delayed until 2015.
---------------------------------------------------------------------------

    \9\ Email from Chris Standlee, Executive Vice President of 
Institutional Affairs, Abengoa to Dallas Burkholder, US EPA. 
Received June 26, 2013.

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[[Page 71741]]

Cool Planet Biofuels
    Cool Planet Biofuels has developed a process to convert a variety 
of forms of cellulosic biomass into a renewable gasoline product. Their 
process uses pressure and heat to convert the cellulosic biomass to a 
hydrocarbon stream in a biomass fractionator which is then upgraded 
using proprietary catalysts into a renewable gasoline product. Cool 
Planet Biofuels plans to deploy relatively small scale production units 
capable of producing 10 million gallons of fuel per year that can be 
located near readily available sources of cellulosic biomass. In 
December 2012 Cool Planet Biofuels began producing fuel from their 
400,000 gallon per year demonstration scale facility that is currently 
being used for testing purposes.
    Cool Planet Biofuels plans to begin producing fuel at their first 
commercial scale unit, with a nameplate capacity of 10 million gallons 
per year by the end of 2014. The location of this facility has not yet 
been announced, and it is unclear whether Cool Planet Biofuels has 
raised sufficient funds for the construction of this facility. Cool 
Planet Biofuels claims that the very short construction time they 
anticipate for their facility relative to cellulosic biofuel production 
facilities of similar size, which generally take at least two years to 
build, is made possible by their use of very little novel equipment. 
The majority of the facility is composed of units already used in 
commercial operation in other applications that will be purchased from 
vendors and assembled by Cool Planet Biofuels. The facility will be 
constructed on cargo container skids and then transported to the fuel 
production site.
    EPA believes that it may be possible for Cool Planet Biofuels to 
produce cellulosic biofuel from their first commercial scale production 
facility in 2014, but any production from this facility is highly 
uncertain. Historically the construction of cellulosic biofuel 
production facilities has taken multiple years, with delays to the 
initial construction schedules common. Cool Planet's unique 
construction plan may allow for a reduced construction timeframe; 
however we do not believe it would be appropriate to rely on this in 
projecting available volumes of cellulosic biofuel in 2014. We have 
therefore not included any volume from Cool Planet Biofuels in our 
projection of the potentially available volume of cellulosic biofuel in 
2014 in today's proposal.
DuPont
    DuPont has developed an enzymatic process to convert corn stover 
into cellulosic ethanol. DuPont has invested hundreds of millions of 
dollars to develop this technology and since 2009 has operated a small 
demonstration scale facility in Vonore, Tennessee. In addition to 
developing technology for converting cellulosic biomass to ethanol, 
DuPont has been working with corn producers, equipment manufacturers, 
and Iowa State University to develop expertise in the collection, 
transportation, and storage of the biomass feedstock for their 
cellulosic ethanol facilities. On March 29, 2013 DuPont signed an 
agreement with USDA to promote the sustainable harvesting of feedstocks 
for cellulosic biofuel facilities.
    On November 30, 2012 DuPont began the construction of their first 
commercial scale cellulosic ethanol facility in Nevada, Iowa. When 
completed, this facility will have a nameplate production capacity of 
30 million gallons of cellulosic ethanol per year. DuPont currently 
plans to achieve mechanical completion at this facility in June 2014 
and to begin production in the second half of 2014. They are currently 
projecting the production of approximately 3 million gallons of 
cellulosic ethanol from this facility in 2014; however they acknowledge 
that even slight delays in their expected construction timeline could 
have significant impacts on their fuel production in 2014. Using EPA's 
best-case benchmark of a six month straight-line ramp-up period 
assuming a production startup date of October 1, 2014 would result in 
an expected production of approximately 2 million gallons in 2014. Due 
to the start-up date that is late in the year, however, even a 
relatively minor delay in the construction and commissioning timeline 
or unforeseen challenges in start-up would result in no production from 
this facility in 2014. We have projected a range or 0-2 million gallons 
of cellulosic biofuel from DuPont's Nevada, Iowa facility in 2014.
Fiberight
    Fiberight uses an enzymatic hydrolysis process to convert the 
biogenic portion of separated municipal solid waste (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. Additional construction will be required at this 
facility before the production of cellulosic biofuel can begin, and the 
company expects that this construction 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. Because of the uncertainty surrounding Fiberight's funding 
status, the lack of progress towards the completion of the 
modifications at their Blairstown, Iowa facility, and their history of 
production delays EPA is not including any volume from Fiberight in 
today's proposal.
INEOS Bio
    INEOS Bio has developed a process for producing cellulosic ethanol 
by first gasifying cellulosic feedstocks into a synthesis gas (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 food and yard waste, agricultural residues, slash 
and pre-commercial thinnings, and tree residues from tree 
plantations.\10\ The facility also plans to use a limited quantity of 
separated MSW as a feedstock after initial start-up.
---------------------------------------------------------------------------

    \10\ Both slash and pre-commercial thinnings and tree residue 
from tree plantations must come from non-federal forestland to 
qualify as a feedstock in the RFS program. Additionally slash and 
pre-commercial thinnings must come from land that is not 
ecologically sensitive forest land.
---------------------------------------------------------------------------

    On February 9, 2011, INEOS Bio broke ground on this facility. INEOS 
Bio

[[Page 71742]]

completed construction on this facility in June 2012 and began full 
commissioning of the facility. In August 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. On July 31, 2013, 
INEOS Bio announced they had begun producing cellulosic ethanol at 
commercial scale from their Vero Beach facility. INEOS Bio currently 
projects cellulosic ethanol production at this facility to be 4-5 
million gallons in 2013. As this volume is less than what would be 
projected using our best-case ramp-up benchmark we believe it is an 
appropriate volume to represent the upper end of INEOS Bio's potential 
production range for 2014.
    There is, however, significant uncertainty in the ability of this 
facility to achieve these production volumes in 2014. The facility has 
not yet reached production rates consistent with its projected 
production volume, and production ramp-up could take longer than 
expected. INEOS Bio also experienced several setbacks to production 
related to weather-caused power losses at the facility. While they are 
working to protect against these issues in the future by enabling the 
facility to operate in a self-sustaining mode, the possibility of 
future interruption due to serious weather events will still exist. For 
this proposed rule we are projecting a production range of 2-5 million 
gallons of cellulosic ethanol from INEOS Bio's Vero Beach facility in 
2014. The low end of the range accounts for the possibility of both an 
extended ramp-up period and interruptions to production continuing into 
2014.
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. 
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. On March 17, 2013 KiOR generated their first cellulosic 
biofuel RINs from this facility. KiOR initially announced that they 
expected the start-up period at their Columbus facility to last 9-12 
months, during which time they estimate fuel production will average 
30%-50% of the facility capacity and production rates at or near 
nameplate capacity following. On August 8, 2013 KiOR reduced its 
production targets for 2013 from 3-5 million gallons to 1-2 million 
gallons. 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.
    In today's proposal we are projecting a production range of 0-9 
million ethanol-equivalent gallons in 2014 from KiOR's Columbus, MS 
facility. The high end of our proposed production projection (5.5 
million actual gallons or 9 million ethanol-equivalent gallons) has 
been calculated assuming this facility produces at an average rate of 
50% of nameplate capacity throughout 2014. We believe this reduced 
volume is appropriate given the low production volumes KiOR has 
achieved to date and KiOR's statements, in an August 8, 2013 conference 
call discussing their second quarter performance, that they had not yet 
begun focusing on increasing the efficiency and yields of the facility. 
The low end of the range (0 million gallons) reflects uncertainty 
surrounding KiOR's future production levels.
LanzaTech
    LanzaTech has developed a process for the production of ethanol 
from feedstock streams that contain carbon monoxide. The LanzaTech 
process can utilize industrial waste gas streams or syngas produced 
from the gasification of agricultural residues, woody biomass, or other 
cellulosic feedstocks.\11\ These gas streams are dispersed into a 
liquid medium where they are converted into ethanol or other chemicals 
by LanzaTech's proprietary microbes. LanzaTech is currently using this 
technology at two demonstration scale facilities in China, producing 
ethanol from waste gasses at steel mills in partnership with Baosteel 
and Capital Steel.
---------------------------------------------------------------------------

    \11\ RIN generation would be limited to fuels produced using 
approved sources of biomass such as agricultural residue, tree 
residue from a tree plantation, or slash and pre-commercial 
thinnings. LanzaTech would be required to meet all recordkeeping and 
reporting requirements to demonstrate the feedstock is renewable 
biomass sourced from land that meets all of the land use 
requirements of the RFS program.
---------------------------------------------------------------------------

    On January 3, 2012 LanzaTech purchased the former Range Fuels 
facility in Soperton, Georgia. LanzaTech is currently in the process of 
assessing the equipment in place at this facility. After making any 
necessary modifications to the existing gasifiers they plan to install 
units to allow for the production of ethanol from syngas produced from 
the gasification of local woody biomass. LanzaTech believes the current 
production capacity of the gasifiers when used in combination with 
their ethanol producing microbes is approximately 4-6 million gallons 
per year, with the potential for further expansion to allow for the 
production of 20-30 million gallons per year at this site. At this 
point, however, LanzaTech is not projecting initial ethanol production 
from this facility until late 2014 or early 2015. EPA has therefore not 
included any volume from LanzaTech in our cellulosic biofuel 
projections in this proposed rule.
Poet
    Poet has 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, South Dakota 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 of approximately 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

[[Page 71743]]

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 it decided to proceed 
without the loan guarantee. This project is expected to be completed in 
the first half of 2014 and will be followed by a commissioning period 
before the plant begins cellulosic ethanol production. Poet currently 
projects that production from Project LIBERTY will be between 7 and 12 
million gallons of cellulosic ethanol in 2014. Using the six month 
best-case ramp-up period with production beginning on July 1, 2014 
would result in a volume projection of 6 million gallons from this 
facility. In today's proposed rule, EPA is therefore setting the high 
end of Poet's projected production range at 6 million gallons of 
cellulosic ethanol. The low end of the projected production range for 
Poet's Project LIBERTY is 0 gallons in 2014. This number reflects the 
fact that any significant delay in the start-up date or difficulties 
encountered in the commissioning or start-up phases of production are 
likely to result in little to no production from this facility in 2014. 
While EPA has no reason to believe this facility will be any more prone 
to these types of challenges than any other commercial scale cellulosic 
biofuel production facility, our experience suggests that these types 
of delays are common and should be considered when projecting the low 
end of the range for production volume in 2014.
Sweetwater Energy
    Sweetwater Energy has also developed a technology for converting 
cellulosic biomass, primarily agricultural residues and woody biomass, 
to cellulosic sugars. Sweetwater Energy uses a modular approach, 
building relatively small facilities near the source of feedstock and 
transporting the sugars they produce to a larger facility to be 
converted into renewable fuels or chemicals. They currently have two 
arrangements in place with corn ethanol facilities in the United States 
to provide cellulosic sugars in sufficient quantity for the production 
of 3.6 million gallons of cellulosic ethanol from each of these 
facilities. Both of Sweetwater Energy's cellulosic sugar production 
modules are scheduled to begin production in the summer of 2014. If 
both these facilities begin producing sugars that are converted to 
cellulosic biofuel on July 1, 2014, our best case scenario benchmark 
six month straight-line ramp-up period would project a volume of 2 
million ethanol-equivalent gallons. At this time, however, cellulosic 
RINs would not be able to be generated for any fuel produced using 
Sweetwater Energy's cellulosic sugars since the existing RFS 
registration regulations were not designed to allow the subdivision of 
processes between multiple facilities. Until this is resolved, fuel 
production processes of this type will not be able to generate RINs. We 
therefore have not included any volume from Sweetwater Energy in our 
projections of cellulosic biofuel for 2014.
Ensyn
    Ensyn has developed a technology called Rapid Thermal Processing 
(RTP) that uses heat to thermally crack carbon based feedstocks into a 
liquid bio-oil product they call renewable fuel oil (RFO). This 
conversion takes place in less than two seconds and is similar to the 
fluid catalytic cracking (FCC) process used in many refineries. Ensyn 
is currently using this technology in two commercial facilities located 
in Wisconsin and Ontario, Canada to produce renewable chemicals, food 
additives, and heating oil. They estimate that they have up to 3 
million gallons of additional capacity at these two facilities that 
could be utilized if the fuel were eligible to generate RINs under the 
RFS program as home heating oil. This facility has a history of 
consistent production and we therefore believe this projection of 3 
mill gal, or 5 million ethanol-equivalent gallons, is an appropriate 
number to use as the high end of the projected range.
    Until recently the RFS regulations required that to qualify as 
``heating oil'' for which RINs may be generated the fuel must be 
1 diesel fuel, 2 diesel fuel, or any non-petroleum 
diesel blend that is sold for use in furnaces, boilers, and similar 
applications and which is commonly or commercially known or sold as 
heating oil, fuel oil, and similar trade names, and that is not jet 
fuel, kerosene, or motor vehicle, nonroad, locomotive or marine diesel 
fuel (MVNRLM). On October 22, 2013, EPA finalized a rule to amend this 
definition to include:

    A fuel oil that is used to heat interior spaces of homes or 
buildings to control ambient climate for human comfort. The fuel oil 
must be liquid at 60 degrees Fahrenheit and 1 atmosphere of 
pressure, and contain no more than 2.5% mass solids.\12\
---------------------------------------------------------------------------

    \12\ 78 FR 62462.

    This amendment allows the RFO produced by Ensyn to qualify for RINs 
if it were used to heat buildings where people live, work, recreate, or 
conduct other activities and it meets the other required components of 
the proposed definition. However, even if the fuel produced using the 
RTP process meets the new definition, Ensyn still faces several 
challenges to generating cellulosic biofuel RINs. Ensyn must still 
secure approved sources of renewable feedstock for their existing 
production facilities, increase production at these facilities, and 
find customers willing to make the modifications necessary to use 
Ensyn's RFO as home heating oil. Any of these steps could result in 
delays in the increased production or qualifying use of RFO until 2015. 
For this proposal EPA is projecting a range of production of 0-3 
million gallons (0-5 million ethanol-equivalent gallons) from Ensyn's 
facilities in 2014. This volume has not been included in EPA's primary 
projection of cellulosic biofuel projection for 2014 due to the 
outstanding issues mentioned above, but has been considered in our 
projection of all potentially available cellulosic biofuel, including 
companies without existing pathways for generating cellulosic biofuel 
RINs. In light of the recent amendments to the home heating oil 
definition, EPA will review this projection and make adjustments as 
necessary in the final rule.
2. Potential Domestic Producers without Existing Pathways
    In addition to the facilities discussed above, there are a number 
of companies with the potential to produce cellulosic biofuel from 
domestic facilities in 2014 from pathways that have not been approved 
for RIN generation by EPA. Some of these pathways were addressed in a 
notice of proposed rulemaking published by EPA on June 14, 2013, while 
others are currently being evaluated by EPA. As the companies discussed 
in this section do not yet have approved RIN generating pathways for 
the fuels they plan to produce, there is additional uncertainty 
regarding RIN production from them in 2014.\13\ Nevertheless, if the 
pathways are approved by EPA these facilities represent a significant 
potential source of cellulosic biofuel. The ranges projected for each 
company reflect only the uncertainty associated with

[[Page 71744]]

production volumes, assuming pathway approval occurs.\14\ EPA will 
decide whether or not to include any volume from these pathways based 
on the status of these pathways and the progress made by the companies 
towards commercial cellulosic biofuel production at the time of the 
final rule.
---------------------------------------------------------------------------

    \13\ At the time of this proposal, EPA has finalized changes to 
the home heating oil definition but has not yet completed our 
determination of whether or not the fuels discussed in this section 
meet all of the requirements to generate cellulosic biofuel RINs.
    \14\ In projecting potential production volumes EPA has assumed 
that the pathways are all approved as of January 1, 2014. Approval 
subsequent to that date would reduce potential volumes, depending on 
the producer at issue.
---------------------------------------------------------------------------

Compressed Natural Gas (CNG) and Liquified Natural Gas (LNG) Producers
    One of the new pathways proposed by EPA for the production of 
cellulosic biofuel is for the production of CNG or LNG from landfill 
biogas if used as a transportation fuel. The production potential for 
this type of cellulosic biofuel is very large with many landfills 
currently capturing biogas. The use of CNG and LNG as a transportation 
fuel in 2014 is expected to be approximately 700 million ethanol-
equivalent gallons.\15\ To generate RINs for landfill biogas, however, 
companies must be able to demonstrate that any fuel for which they 
generate RINs is used as transportation fuel. This can be done by 
fueling vehicles with CNG/LNG onsite or through contractual mechanisms.
---------------------------------------------------------------------------

    \15\ EIA Annual Energy Outlook 2013. Transportation Sector 
Energy Use by Mode and Type, Reference case.
---------------------------------------------------------------------------

    In this proposed rule, we are projecting a production range of 35-
54 million ethanol-equivalent gallons from landfill biogas in 2014. The 
high end of the range represents the actual peak capacity of all of the 
facilities that produced advanced RINs from landfill biogas while the 
low end represents the current production rate of advanced biofuel from 
landfill biogas. In the case of CNG and LNG from landfill biogas, we 
believe a different methodology for projecting the high end of the 
production range is appropriate as the uncertainties surrounding RIN 
generation are significantly different. The only change at issue in the 
proposal to approve this pathway for the generation of cellulosic 
biofuel RINs is a change in the type of RIN that is generated, allowing 
for the generation of cellulosic biofuel instead of advanced biofuel 
RINs based on new information of the composition of the feedstock. In 
this case production facilities already exist and are already capturing 
landfill biogas at or near their registered capacities. Similarly, the 
amount of CNG and LNG currently being used as transportation fuel far 
exceeds the combined production capacity of all of the registered 
facilities. RIN generation is therefore limited by the companies' 
ability to demonstrate the use of the biogas as a transportation 
fuel.\16\ As part of the registration process for the generation of 
advanced biofuel RINs, each of these facilities submitted documentation 
that included contracts with parties capable of using CNG/LNG as 
transportation fuel who had access to the same common carrier pipeline 
network as the biofuel producers.
---------------------------------------------------------------------------

    \16\ See CFR 80.1426 for requirements for generating RINs from 
biogas
---------------------------------------------------------------------------

    We believe the sum of the actual peak capacities of all of the 
facilities that produced advanced biofuel RINs from landfill biogas in 
2013 is an appropriate volume to use for the high end of the projected 
production range. It is also the case, however, that these facilities 
would appear to have the capability to realize value from advanced RIN 
production if they were to produce at their facility capacity and are 
not currently doing so. There may be additional factors that EPA is 
unaware of at this time that is limiting production. To account for 
this, we are setting the low end of the range for the production of 
cellulosic RINs from CNG/LNG produced from landfills equal to 35 
million gallons, the current production rate when projected over a full 
year.
Edeniq
    Edeniq has developed a proprietary process that would allow corn 
ethanol producers to generate cellulosic ethanol from corn kernel fiber 
at the producers' existing production facilities. Their process 
involves the addition of the Cellunator\TM\, a proprietary milling 
technology designed to increase the uniformity of the feedstock 
particles, along with a unique combination of enzymes to convert the 
cellulosic material in the corn kernel into sugars and ultimately 
cellulosic ethanol. Edeniq claims that their technology would not only 
allow corn ethanol producers to produce cellulosic ethanol from low 
value feedstock already present in their facility, but also would 
increase the yields of ethanol produced from starch by 2-4%. Several 
commercial plants are currently using the Cellunator technology to 
increase their yields of ethanol from starch. Edeniq has been testing 
their technology, including both the Cellunator and the additional 
enzymes, at a demonstration scale facility in Visalia, California since 
June 2012 and announced in May 2013 that they had successfully 
completed a trial run at this facility with a continuous run time of 
greater than 1000 hours.
    Several plants are evaluating Edeniq's proprietary system to 
produce cellulosic ethanol from corn kernel fiber. These evaluations 
have included commercial scale trials. If the pathway for the 
production of cellulosic ethanol from corn kernel fiber is approved, 
these facilities would be in position to begin generating cellulosic 
RINs shortly after approval. Other facilities currently using the 
Cellunator would only have to make minor modifications to their 
operations, including the addition of Edeniq's suite of enzymes to 
produce cellulosic ethanol. Edeniq currently projects approximately 7 
million gallons of cellulosic ethanol production using their technology 
in 2014 and has provided EPA with detailed information on the expected 
production volumes and dates of initial cellulosic ethanol production 
for facilities expected to utilize their technology. In today's 
proposed rule, we have included a projected production volume of 0-7 
million gallons. The low end of this range reflects the fact that 
Edeniq's technology has not yet been used to generate commercial scale 
volumes of cellulosic biofuel. The high end of the range reflects 
Edeniq's own projections, which EPA has reviewed and believes are 
reasonable given the nature of Edeniq's technology, the deals they 
currently have in place, and their experience with the installation and 
operation of the various components of their technology. This volume is 
also dependent on the finalization of EPA's proposed rule clarifying 
that the definition of crop residue includes corn kernel fiber.
3. Potential Foreign Sources of Cellulosic Biofuel
    In addition to the potential sources of cellulosic biofuel located 
in the United States discussed above there are several foreign 
cellulosic biofuel companies that may produce cellulosic biofuel in 
2014. All of these facilities utilize fuel production pathways that 
have been approved by EPA for cellulosic RIN generation provided 
eligible sources of renewable feedstock are used. These companies would 
therefore be eligible to register these facilities under the RFS 
program and generate RINs for any fuel imported into the United States. 
Currently, however, none of these facilities have successfully 
completed the registration process for the RFS program. Further, demand 
for the cellulosic biofuels they produce is expected to be high in 
local markets. Production volumes from these foreign facilities have 
therefore not been included in our projection of potentially available 
volume for 2014. EPA plans to

[[Page 71745]]

continue to monitor the progress of these foreign facilities and may 
include volumes from these facilities should their plans change in the 
future.
Beta Renewables
    Beta Renewables has developed a biochemical technology to convert 
cellulosic biomass into cellulosic sugars, which can then be used in 
the production of fuels or chemicals. Their first commercial scale 
facility was built in Crescentino, Italy and began producing cellulosic 
ethanol in commercial quantities in June 2013. This facility uses 
Arundo donax and wheat straw as feedstocks and has an annual production 
capacity of 20 million gallons of ethanol per year. Ethanol produced at 
this facility would be eligible to generate cellulosic RINs if Beta 
Renewables registers its facility and imports the cellulosic ethanol 
into the United States for use as a transportation fuel. Beta 
Renewables is also planning to build a cellulosic ethanol production 
facility in North Carolina. This facility is not expected to begin 
ethanol production in 2014, however, and has therefore not been 
included in our projection of available volume for 2014.
Enerkem
    Enerkem plans to use a thermochemical process to produce syngas 
from MSW and other waste materials and then catalytically convert the 
syngas to methanol. The methanol can then be sold directly or upgraded 
to ethanol or other chemical products. Their first commercial scale 
facility in Edmonton, Alberta, Canada is scheduled to complete 
construction and begin producing methanol in 2013 with ethanol 
production following in 2014. At full capacity this facility will be 
capable of producing 10 million gallons of cellulosic ethanol per year. 
Despite their relative close proximity to the United States, Enerkem 
has indicated to EPA that they do not intend to export cellulosic 
biofuel into the United States from their Edmonton facility.
GranBio
    GranBio began construction on its first commercial cellulosic 
ethanol production facility in S[atilde]o Miguel dos Campos, Brazil in 
December 2012. It is largely funded by a 300.3 million Reais loan from 
BNDES, Brazil's national social and economic development bank. This 
facility, which will use technology licensed from Beta Renewables, will 
have a nameplate capacity of 22 million gallons of ethanol per year and 
is scheduled to be completed in the first half of 2014. The feedstock 
for this facility will be excess bagasse not currently used to provide 
process heat or electricity at sugarcane ethanol production facilities.
Raizen
    Raizen, a joint venture between Royal Dutch Shell and Cosan SA, is 
planning to build a 10.5 million gallon per year cellulosic ethanol 
plant attached to their Costa Pinto sugarcane mill in Piracicaba, 
Brazil. This facility will use a biochemical conversion technology 
developed by Iogen and Codexis to convert sugarcane bagasse to ethanol. 
The facility is currently scheduled to complete construction in the 
second half of 2014 and if successful will be the first of up to 8 
cellulosic ethanol production facilities built by Raizen in Brazil.
4. Summary of Volume Projections for Individual Companies
    The information we have gathered on cellulosic biofuel producers, 
described above, allows us to project a range of production volumes for 
each facility in 2014. As in 2013, we have once again focused on 
commercial scale cellulosic biofuel production facilities. This focus 
is appropriate, as the volume of cellulosic biofuel produced from R&D 
and pilot scale facilities is quite small in relation to that expected 
from the commercial scale facilities for which we have projected 
volumes in 2014 and historically R&D and demonstration scale facilities 
have not generated RINs for any fuel they have produced.
    In 2014 as many as twelve domestic cellulosic biofuel production 
facilities have the potential to produce fuel at commercial scale. Each 
of these facilities is discussed above, and the projected available 
volumes for each are summarized in Table II.B.4-1 below. Two of the 
companies that have the potential to produce cellulosic biofuel in 
2014, INEOS Bio and KiOR, are currently producing cellulosic biofuel. 
The production of RIN generating fuel from the remaining 10 facilities 
is more uncertain as these facilities have either yet to complete 
construction or do not currently have a valid pathway for generating 
cellulosic RINs.
    We have also identified four foreign facilities with the potential 
to produce cellulosic ethanol in 2014. At this point we do not believe 
any of these facilities are likely to export any of the fuel they 
produce to the United States. We will continue to monitor the status of 
these facilities and may include volume from them in our final rule if 
appropriate. We ask for comment on this analysis and are especially 
interested in data that would support cellulosic volume estimates.

                                             Table II.B.4-1--Projected Available Cellulosic Biofuel for 2014
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                        2014 Projected
                                                                                               Design capacity                         available volume
          Company name                Location            Feedstock             Fuel              (MGY) \a\       First production        (ethanol-
                                                                                                                                         equivalent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         Domestic Facilities; Approved Pathways
--------------------------------------------------------------------------------------------------------------------------------------------------------
Abengoa........................  Hugoton, KS.......  Corn Stover.......  Ethanol...........  24................  1st Quarter 2014..  0-18
CoolPlanet Biofuels............  TBD...............  TBD...............  Gasoline..........  10................  2nd Half 2014.....  0
DuPont.........................  Nevada, IA........  Corn Stover.......  Ethanol...........  30................  2nd Half 2014.....  0-2
Fiberight......................  Blairstown, IA....  MSW...............  Ethanol...........  6.................  Unknown...........  0
INEOS Bio......................  Vero Beach, FL....  Vegetative Waste..  Ethanol...........  8.................  3rd Quarter 2013..  2-5
KiOR...........................  Columbus, MS......  Wood Waste........  Gasoline and        11................  1st Quarter 2013..  0-5.5
                                                                          Diesel.                                                    (0-9)
LanzaTech......................  Soperton, GA......  Wood Waste........  Ethanol...........  5.................  1st Half 2015.....  0
Poet...........................  Emmetsburg, IA....  Corn Stover.......  Ethanol...........  25................  1st Half 2014.....  0-6
Sweetwater Energy..............  Various...........  Ag. Residue.......  Ethanol...........  7.................  1st Half 2014.....  0
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 71746]]

 
                                            Domestic Facilities; All Potential Producers
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ensyn..........................  Stanley, WI.......  Wood Waste........  Heating Oil.......  3.................  2007..............  0-3
                                                                                                                                     (0-5)
CNG/LNG Producers..............  Various...........  Biogas from         CNG/LNG...........  Various...........  N/A...............  35-54
                                                      Landfills.
Edeniq.........................  Various...........  Corn Kernel Fiber.  Ethanol...........  Various...........  1st Half 2014.....  0-7
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Foreign Facilities
--------------------------------------------------------------------------------------------------------------------------------------------------------
Beta Renewables................  Crescentino, Italy  Wheat straw,        Ethanol...........  20................  2Q 2013...........  0
                                                      Arundo Donax.
Enerkem........................  Edmonton, Alberta.  Separated MSW.....  Methanol, Ethanol.  10................  1st Half 2014.....  0
GranBio........................  S[atilde]o Miguel   Bagasse...........  Ethanol...........  22................  1st Half 2014.....  0
                                  dos Campos,
                                  Brazil.
Raizen.........................  Piracicaba, Brazil  Bagasse...........  Ethanol...........  10.5..............  2nd Half 2014.....  0
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Facilities are generally designed to process a given quantity of feedstock and volume capacities may vary depending on yield assumptions.

C. Proposed Cellulosic Biofuel Volume for 2014
    As discussed in the preceding sections we have used information 
from a variety of sources, including EIA, USDA, and the companies 
themselves, to determine a projected range of production of cellulosic 
biofuel for each company in 2014. These volumes are summarized in Table 
II.B.4-1 above. These volumes form the basis for our projection of 
cellulosic biofuel production in 2014. We do not believe, however, that 
a simple summation of the low end and high end of the projected 
production volumes for each company would result in an appropriate 
projected range of production volumes across the cellulosic biofuel 
industry. It is highly unlikely that every company will produce at or 
near the low end, or conversely the high end, of its range of projected 
production volumes. It is also the case that the production 
expectations within the projected ranges differ for facilities in 
different stages. The uncertainties associated with cellulosic biofuel 
production vary in both type and degree among facilities that have 
already begun production, those that are currently in or will soon be 
approaching the commissioning of their facilities, and those that are 
still undergoing significant construction operations.
    EPA is using a Monte Carlo simulation to account for the need to 
aggregate across several ranges, with different producers having 
different production probability distributions across their expected 
production range. As discussed above, the high and the low end of each 
range represents values such that it is possible but highly unlikely 
that volumes would be higher or lower than this range. EPA will 
therefore treat these individual ranges as representing the 90% 
confidence interval of a distribution of possible volumes. In other 
words, the low end of the range for a producer would represent the 5th 
percentile and the high end of the range would represent the 95th 
percentile. This approach is consistent with EPA's judgment that, while 
the ranges shown in Table II.B.4-1 are intended to encompass the vast 
majority of possible volumes, there remains a small possibility that 
volumes outside of those ranges are possible. We believe it is 
reasonable to treat these values as a 90% confidence interval for 
purposes of the Monte Carlo analysis, though we request comment on 
treating them as a different confidence interval such as 80% or 95%.
    For the purposes of the Monte Carlo analysis, EPA must also 
identify an uncertainty distribution for production for each facility. 
These distributions reflect our expectation for the most likely 
distribution of production volumes within the projected range when 
taking into account the many different uncertainties associated with 
the production volume from each facility. While each facility faces its 
own set of unique circumstances and challenges in producing cellulosic 
biofuels at commercial scale, many can be grouped into one of several 
general categories, the impact of which will vary with the progress 
achieved at that facility to date. One source of uncertainty in the 
projected production volume of a new cellulosic biofuel facility is 
related to the completion of the construction and commissioning phases 
of the facility. This includes uncertainty in the construction 
schedules, modifications to the design during the construction or 
commissioning phase, challenges encountered in scaling up the 
technology to commercial scale, unexpected delays or repairs due to 
weather events, or any of a number of other reasons. Delays of this 
type will result in a later than expected start-up date which may 
result in significantly decreased production volumes in 2014 or the 
start of production being delayed until 2015. The uncertainty related 
to delays in the completion of the construction of a facility decreases 
the closer the project is to completion, and is entirely irrelevant to 
facilities that have already begun production.
    A second source of uncertainty is that associated with the ramp-up 
phase of new facilities. Lower than expected product yields, feedstock 
supply and handling challenges, contamination of chemical or biological 
catalysts, and a number of other issues can cause reduced production 
during the ramp-up phase and/or a longer than expected ramp-up period 
before reaching production levels that correspond to the nameplate 
capacity of the facility. Facilities that face these types of 
challenges during the ramp-up phase of production are very likely to 
still achieve some level of production, but that level may vary 
depending on the severity and duration of the challenges they face. The 
closer a facility is to achieving production rates that correspond to 
the nameplate capacity of the facility, the less likely they are to see

[[Page 71747]]

reductions in their expected production due to challenges in the ramp-
up phase.
    A third source of uncertainty is the ability of the facility to 
maintain consistent production at or near nameplate capacity after the 
ramp-up phase has been successfully completed. A number of factors 
including, but not limited to feedstock supply interruption, 
significant issues with feedstock quality, loss of power or other 
essential utilities at the facility, and interruptions in production 
due to accidents, operator error, or weather events could cause fuel 
production at a facility to decrease or cease altogether. While the 
uncertainty associated with these issues is never completely absent, it 
does decrease over time if a facility is able to consistently achieve 
production levels at or near nameplate capacity with few or no 
interruptions to production.
    The degree to which these three sources of uncertainty impact 
expected production of cellulosic biofuel in 2014 varies greatly with 
the progress achieved by the facility to date. To represent this 
uncertainty for facilities expected to begin operations in different 
timeframes, we used three different standardized uncertainty 
distributions. The three standard curves that represent the expected 
production distributions from cellulosic biofuel production facilities 
are shown in Figure II.C-1 below. We request comment on how well these 
three curves represent the expected production distributions of the 
various cellulosic biofuel producers discussed above or if other curves 
may be more appropriate.
[GRAPHIC] [TIFF OMITTED] TP29NO13.000

    As described more fully in Section IV.B.4, we believe that these 
three standardized distributions provide a mechanism for representing 
the regions within each projected volume range where the greatest 
likelihood of reasonably achievable volumes lie.
    Facilities that have already begun producing cellulosic biofuel in 
2012 or earlier and have at least a full year of production history do 
not face uncertainty associated with delays in the construction and 
commissioning of the facility. They may, however, face some uncertainty 
in their ramp-up schedule relative to the progress they have achieved 
to date, as well as the risk of unexpected shutdown or slowdown faced 
by all facilities. For facilities facing these uncertainties we expect 
that the most likely production volume is towards the middle of the 
range, with decreasing production probabilities as the high and low 
ends of the production ranges are approached. A normal curve is 
appropriate for this expected production distribution. In 2014, 
however, there are no commercial scale cellulosic biofuel production 
facilities that meet these criteria.
    Facilities that began producing cellulosic biofuel in 2013 no 
longer face uncertainty due to potential delays in the completion of 
construction and the commissioning of the facility. There is, however, 
uncertainty regarding these facilities ramp-up schedules which can have 
a significant impact on the production volumes from these facilities. 
We believe that the expected production of these facilities would be 
best represented by a right-skewed or Weibull curve, with the most 
likely production volume near, but not at, the low end of the range and 
the production probabilities gradually towards the high end of the 
range.
    Facilities not expected to begin producing cellulosic biofuel until 
2014 face uncertainty associated with a delay in the completion in the 
construction and commissioning of the facility. Given this uncertainty, 
we believe that the most likely production volume is at the

[[Page 71748]]

low end of the range with decreasing probability as the high end of the 
range is approached. To represent this asymmetrical uncertainty, we 
believe a half-normal curve is a reasonable representation of the 
expected production distribution from these facilities.
    The type of uncertainty distribution used to represent the expected 
production within the projected range for each company is shown in 
Table II.C-1.

           Table II.C-1--Standard Distributions Used To Project Cellulosic Biofuel Production in 2014
----------------------------------------------------------------------------------------------------------------
                                                                                                       95th
                                                                                  5th Percentile    Percentile
                                                                                   volume  (mill   volume  (mill
                    Company                            Distribution curve            ethanol-        ethanol-
                                                                                    equivalent      equivalent
                                                                                       gal)            gal)
----------------------------------------------------------------------------------------------------------------
Abengoa.......................................  Half-Normal.....................               0              18
DuPont........................................  Half-Normal.....................               0               2
INEOS Bio.....................................  Right-Skewed....................               2               5
KiOR..........................................  Right-Skewed....................               0               9
Poet..........................................  Half-Normal.....................               0               6
CNG/LNG Producers.............................  Normal..........................              35              54
Edeniq........................................  Half-Normal.....................               0               7
Ensyn.........................................  Normal..........................               0               5
----------------------------------------------------------------------------------------------------------------

    To aggregate the production distributions for each of the companies 
into a single distribution representing cellulosic biofuel production 
across the entire industry, we performed two Monte Carlo simulations in 
which each of the distributions was randomly sampled in an iterative 
fashion. Each of the distributions was sampled 3000 times and the 
results of all the iterations were then summed to produce a 
distribution for cellulosic biofuel. For the uncertainty distributions 
where the low end of the projected range was zero it was possible for 
the Monte Carlo simulation to select a negative volume for these 
companies.\17\ Whenever negative volumes were selected in the Monte 
Carlo simulations these negative volumes were reset to zero.
---------------------------------------------------------------------------

    \17\ Because the low end of each range represents the 5th 
percentile, negative volumes are selected approximately 5% of the 
time when the low end of the range is zero.
---------------------------------------------------------------------------

    We generated two separate aggregate distributions to represent 
total cellulosic biofuel using the Monte Carlo process. Given the 
uncertainty surrounding the timing and approval of the proposed RIN-
generating pathways that would be used by CNG/LNG producers, Edeniq, 
and Ensyn, the first aggregate distribution only included volumes from 
those facilities using RIN-generating pathways that have already been 
approved. The result of this Monte Carlo simulation forms the basis for 
the range of cellulosic biofuel production included in this proposal.

[[Page 71749]]

[GRAPHIC] [TIFF OMITTED] TP29NO13.001

    The second Monte Carlo simulation included volumes from all eight 
facilities for which we have projected a range of volumes in 2014. The 
results of this simulation would be more representative of the volume 
of cellulosic biofuel included in our final rule in the event that the 
proposed RIN-generating pathways discussed above are approved for RIN 
generation before the 2014 applicable volumes are finalized.

[[Page 71750]]

[GRAPHIC] [TIFF OMITTED] TP29NO13.002

    In today's NPRM we are proposing a volume for the 2014 cellulosic 
biofuel standard of 8--30 million ethanol-equivalent gallons. This 
volume is expected to be comprised of 5--26 million gallons of ethanol 
and 0--9 million ethanol-equivalent gallons of cellulosic 
hydrocarbons.\18\ The proposed range is derived from the 90% confidence 
interval of the Monte Carlo simulation that includes all the companies 
we expect to produce commercial volumes of cellulosic biofuel in 2014 
using pathways in the current RFS regulations. As discussed in Section 
II.B, many factors have been taken into consideration in developing the 
individual company projections, such as the information from EIA, 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, and many others. We have 
also used distribution curves weighted towards the low end of the 
expected production range for each company to account for the fact that 
previous projections of cellulosic biofuel production have exceeded 
actual production. We believe the range of volumes proposed (8--30 
million ethanol-equivalent gallons) resulting from the Monte Carlo 
simulation is a reasonable representation of expected production in 
2014 across the industry.
---------------------------------------------------------------------------

    \18\ These volumes are also the result of our Monte Carlo 
simulation. Similar to the individual company production 
projections, the low and high ends of the ranges cannot be simply 
added together to calculate the high and low ends of our total 
cellulosic biofuel production projection in 2014. Cellulosic 
hydrocarbons include both cellulosic gasoline and cellulosic diesel.
---------------------------------------------------------------------------

    Our proposed range reflects EPA's best estimate of the range of 
cellulosic biofuel volumes that will actually be produced in 2014. In 
the final rule EPA will determine a single volume that represents EPA's 
best estimate of the volume that will actually be produced in 2014.\19\ 
EPA invites comment on the best approach to determine a single value 
from a range developed using the approach described above. For example, 
EPA could use the mean (average value), median (50th percentile), or 
mode (the volume that occurs most frequently). It may also be 
reasonable to use a value representing higher or lower values in the 
distribution, such as the 25th or 75th percentile if there is reason to 
believe these would provide a more accurate projection of actual 
production in 2014.\20\ We have determined the volumes represented by 
each of these methods and presented the values in Tables II.C-2 and 
II.C-3 below.
---------------------------------------------------------------------------

    \19\ See API v. EPA, 706 F.3d 474 (D.C. Cir. 2013).
    \20\ This could be the case if there was reason to believe there 
was a systematic bias such that the ranges tended to over or under 
estimate the actual production volumes.

 Table II.C-2--Potential Approaches to Determining the Final Cellulosic
            Biofuel Requirement (Approved Pathways Only) \a\
                  [million ethanol-equivalent gallons]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Mean............................................................      17
50th percentile.................................................      16
Mode............................................................      16
25th percentile.................................................      12
75th percentile.................................................      21
------------------------------------------------------------------------
\a\ All volumes are ethanol-equivalent gallons

 Table II.C-3--Potential Approaches to Determining the Final Cellulosic
  Biofuel Requirement (All Potential Cellulosic Biofuel Producers) \a\
                  [million ethanol-equivalent gallons]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Mean............................................................      67
50th percentile.................................................      67

[[Page 71751]]

 
Mode............................................................      67
25th percentile.................................................      61
75th percentile.................................................      73
------------------------------------------------------------------------
\a\ All volumes are ethanol-equivalent gallons

    In today's NPRM, we are proposing to use the mean value for the 
final volume requirement for cellulosic because we believe it best 
represents a neutral aim at the volumes that could reasonably be 
supplied. However, we request comment on whether one of the alternative 
values shown in Table II.C-2 would be more appropriate as the basis for 
the required volume of cellulosic biofuel in the final rule.
    It is important to note that the final cellulosic biofuel standard 
for 2014 may be set at a volume outside the proposed range of 8-30 
million ethanol-equivalent gallons. If EPA finalizes the pathways 
discussed in the recent proposed rulemaking \21\ before the applicable 
volume of cellulosic biofuel for 2014 is finalized, volumes of fuel 
from companies intending to utilize these pathways may be included in 
our projected available volume for 2014 as discussed above. Foreign 
producers of cellulosic biofuel who inform EPA of their intent to 
export the fuel they produce to the United States may also be included. 
Finally, a variety of factors may affect our production projections for 
the companies considered in this proposal, including unexpected project 
modifications or cancellations or the inclusion of volumes of 
cellulosic biofuel from sources other than those listed above.
---------------------------------------------------------------------------

    \21\ 78 FR 36042 (June 14, 2013).
---------------------------------------------------------------------------

    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 2014 volume projection. We expect that for the 
final rule there will be greater certainty on the appropriate volume of 
fuel that we can reasonably expect to be produced and made commercially 
available in 2014. We request comment on our analysis and 
estimates.\22\
---------------------------------------------------------------------------

    \22\ Since EPA is proposing to reduce the applicable volume of 
cellulosic biofuel under section 211(o)(7)(D), EPA will be required 
to make available cellulosic biofuel credits. EPA will set the price 
for the cellulosic biofuel credits in the final rule, using the same 
approach to applying the criteria in section 211(o)(7)(D)(ii) that 
was used in setting the price for cellulosic biofuel credits for 
2013. See 78 FR 49794.
---------------------------------------------------------------------------

D. Rescission of the 2011 Cellulosic Biofuel Standards

    On January 25, 2013, the United States Court of Appeals for the 
District of Columbia Circuit issued its decision concerning a challenge 
to the 2012 cellulosic biofuel standard. The Court found that in 
establishing the applicable volume of cellulosic biofuel for 2012, EPA 
had used a methodology in which ``the risk of overestimation [was] set 
deliberately to outweigh the risk of underestimation.'' The Court held 
EPA's action to be inconsistent with the statute because EPA had failed 
to apply a ``neutral methodology'' aimed at providing a prediction of 
``what will actually happen,'' as required by the statute. As a result 
of this ruling, the Court vacated the 2012 cellulosic biofuel standard, 
and we removed the 2012 requirement from the regulations in a previous 
action. Industry had also challenged the 2011 cellulosic biofuel 
standard by, first, filing a petition for reconsideration of that 
standard, and then seeking judicial review of our denial of the 
petition for reconsideration. This matter was still pending at the time 
of the DC Circuit's ruling on the 2012 cellulosic biofuel standard. 
Since we used essentially the same methodology to develop the 2011 
cellulosic biofuel standard as we did to develop the 2012 standard, we 
requested, and the Court granted, a partial voluntary remand to enable 
us to reconsider our denial of the petition for reconsideration of the 
2011 cellulosic biofuel standard. Given the Court's ruling that the 
methodology EPA used in developing the 2012 cellulosic biofuel standard 
was flawed, we have decided to grant reconsideration of the 2011 
cellulosic biofuel standard, and are today proposing to rescind the 
2011 cellulosic biofuel standard. If this proposal is finalized, the 
money paid by obligated parties to purchase cellulosic waiver credits 
to comply with the 2011 cellulosic biofuel standard would be refunded.

III. Proposed National Volume Requirement for Biomass-Based Diesel in 
2014 and 2015

    EPA set the national volume requirement for biomass-based diesel 
for 2013 at 1.28 bill gal of biomass-based diesel.\23\ This national 
volume is then used to determine the applicable percentage standard 
that determines the specific renewable volume obligations for refiners 
and importers. Subsequently, EPA received two Petitions for 
Reconsideration requesting that EPA reconsider the final rule setting 
the 2013 biomass-based diesel volume requirement at 1.28 bill gal.\24\ 
After review and consideration of the issues raised by petitioners, EPA 
denied both petitions.\25\
---------------------------------------------------------------------------

    \23\ 77 FR 59458 (September 27, 2012).
    \24\ Letter dated November 20, 2012 to Honorable Lisa Jackson 
from Richard Moskowitz, American Fuel & Petrochemical Manufacturers, 
``Re: Petition for Reconsideration--Docket No. EPA-HQ-OAR-2010-0133. 
Letter dated November 26, 2012 to Honorable Lisa Jackson from Robert 
L. Greco, III, American Petroleum Institute, ``Re: Request for 
Reconsideration of EPA's Final Rulemaking `2013 biomass-Based Diesel 
Renewable Fuel Volume.' ''
    \25\ 78 FR 49411, August 14, 2013.
---------------------------------------------------------------------------

    In today's action we are proposing an applicable volume of 1.28 
bill gal biomass-based diesel for 2014 and 2015. In proposing the 2015 
applicable volume of biomass-based diesel, we are not at this time 
proposing the percentage standards that would apply to obligated 
parties in 2015. The percentage standards for 2015 will be proposed in 
a subsequent rulemaking as required by the statute once the requisite 
gasoline and diesel fuel volumes for 2015 are determined.

A. Statutory Requirements

    Section 211(o)(2)(B)(i) of the Clean Air Act specifies the 
applicable volumes of renewable fuel on which the annual percentage 
standards must be based, unless the applicable volumes are waived or 
adjusted by EPA in accordance with the Act.\26\ Applicable volumes are 
provided in the statute for years through 2022 for cellulosic biofuel, 
advanced biofuel, and total renewable fuel. For biomass-based diesel, 
applicable volumes are provided through 2012. For years after those 
specified in the statute (i.e. 2013+ for biomass-based diesel and 2023+ 
for all others), EPA is required under 211(o)(2)(B)(ii) to determine 
the applicable volume, in coordination with the Secretary of Energy and 
the Secretary of Agriculture, based on a review of the implementation 
of the program during calendar years for which the statute specifies 
the applicable volumes and on analysis of the following factors:
---------------------------------------------------------------------------

    \26\ For example, EPA may waive a given standard in whole or in 
part following the provisions at CAA 211(o)(7).
---------------------------------------------------------------------------

     The impact of the production and use of renewable fuels on 
the environment, including on air quality, climate change, conversion 
of wetlands, ecosystems, wildlife habitat, water quality, and water 
supply;
     The impact of renewable fuels on the energy security of 
the United States;
     The expected annual rate of future commercial production 
of renewable

[[Page 71752]]

fuels, including advanced biofuels in each category (cellulosic biofuel 
and biomass-based diesel);
     The impact of renewable fuels on the infrastructure of the 
United States, including deliverability of materials, goods, and 
products other than renewable fuel, and the sufficiency of 
infrastructure to deliver and use renewable fuel;
     The impact of the use of renewable fuels on the cost to 
consumers of transportation fuel and on the cost to transport goods; 
and
     The impact of the use of renewable fuels on other factors, 
including job creation, the price and supply of agricultural 
commodities, rural economic development, and food prices.
    The statute also specifies that the applicable volume of biomass-
based diesel cannot be less than the applicable volume for calendar 
year 2012, which is 1.0 bill gallons. The statute does not, however, 
establish any other numeric criteria or overarching goals for EPA to 
achieve in setting the applicable volumes in years after those 
specifically set forth in the provision.
    Finally, the statute also specifies the timeframe within which 
these volumes must be promulgated: the applicable volumes must be 
established no later than 14 months before the first year for which 
such applicable volume will apply. We did not propose a 2014 volume for 
biomass-based diesel in the February 7, 2013 NPRM because at that time 
we were still evaluating the potential market impacts of current 
production levels. In order to provide sufficient time for this 
evaluation, we delayed our proposal for the 2014 volume requirement for 
biomass-based diesel. Consequently, today we are proposing volume 
requirements for both 2014 and 2015.

B. Compliance With 2013 Volume Requirement of 1.28 Billion Gallons

    In making a determination regarding the volume requirement for 
biomass-based diesel to propose for 2014 and 2015, we first 
investigated the recent historical and current circumstances in the 
biodiesel market. According to data collected through the EPA-Moderated 
Transaction System (EMTS) production of biodiesel in 2012 exceeded 1.14 
bill gal.\27\ This demonstrates that the industry was able to meet the 
applicable 2012 volume requirement of 1 bill gal. It also provides 
evidence that the industry will meet the 1.28 bill gal requirement in 
2013. Additional volumes above 1.28 bill gal are possible in 2013, and 
may be used to help meet the advanced biofuel standard. Indeed current 
production rates in the biodiesel industry for the first seven months 
of 2013 were 25% above monthly production rates for the same time 
period in 2012 and are consistent with a total production volume of at 
least 1.6 bill gal for 2013.\28\
---------------------------------------------------------------------------

    \27\ Fuels and Fuel Additives 2012 EMTS Data, http://www.epa.gov/otaq/fuels/rfsdata/2012emts.htm (last accessed September 
16, 2013).
    \28\ Fuels and Fuel Additives 2013 EMTS Data, http://www.epa.gov/otaq/fuels/rfsdata/2013emts.htm (last accessed September 
16, 2013).
---------------------------------------------------------------------------

    While annual production volume has been increasing, a review of 
EIA's Monthly Biodiesel Production Reports \29\ since 2009 indicates 
that there has been some variability both in monthly production volume 
and in the number of facilities producing that volume. For example, 
there were significant biodiesel facility closures during the 2009 and 
2010 calendar years. Since that time the overall number of biodiesel 
facilities in operation has stabilized and overall capacity in the 
biodiesel industry has remained stable from 2009-2012 at more than 2 
bill gal. It is also clear that overall industry-wide utilization rates 
have increased during this time period from 25% in 2009 to 
approximately 46% in both 2011 and 2012. Thus it is clear that total 
production capacity at facilities already operating is above 1.28 bill 
gal. There are also indications that new or idle facilities have begun 
production in response to the 1.28 bill gal mandate for 2013. 
Specifically, EIA's monthly reports indicate that nine additional 
producers have become operational in the U.S. since the rule for 2013 
biomass-based diesel was finalized.\30\ The latest EIA monthly 
biodiesel report, available for July 2013, indicates that U.S. 
production was 128 million gallons in July, and came from 111 biodiesel 
plants in 38 states with total operating capacity of 2.1 bill gal per 
year.\31\ As described in Section IV.B.2.b, total biodiesel production 
by the end of 2013 could be as high as 1.7 bill gal, and the facilities 
contributing to this production collectively have a capacity of well 
over 2 bill gal.
---------------------------------------------------------------------------

    \29\ The U.S. Energy Information Administration as part of it 
responsibilities under section 1508 of the 2005 Energy Policy Act, 
amended its ICR and has begun collecting and publishing biodiesel 
production information on a monthly basis including production of 
biodiesel in a given month, the number of plants operating and 
contributing to the monthly total volume by state, and their total 
operating capacity for the year. U.S. Energy Information 
Administration/Monthly Biodiesel Production Report, Form EIA-22m 
Monthly Biodiesel Production Survey. U.S. Energy Information 
Administration, Monthly Biodiesel Production Report, For 2012 data 
collected showed that 2012 production was 969 mil gallons, which was 
up from production 967 million gallons during 2011.
    \30\ EIA data indicates that in December 2011, after the close 
of the comment period, 103 biodiesel plants existed with an 
operating capacity of 2.1 bill gal per year. In March 2012, 104 
biodiesel plants were operational and the report indicates that for 
the first quarter of 2012 production was up 78% over the first 
quarter of 2011. As EPA finalized the 2013 volume mandates in 
September 2012 there were 105 biodiesel producers operating in the 
U.S. By late November 2012 that number had increased to 112.
    \31\ http://www.eia.gov/biofuels/biodiesel/production/ (last 
accessed September 16, 2013).
---------------------------------------------------------------------------

    Further discussion of the factors we must consider in the context 
of the biomass-based diesel volume of 1.28 bill gallons for 2013 is 
contained in both the final rule adopting this level for 2013 \32\ and 
in EPA's denial of two petitions requesting the Agency reconsider the 
2013 biomass-based diesel final rule.\33\ As discussed in that final 
rule, the assessment of these factors supported a volume of 1.28 bill 
gallons for 2013. As we would expect that the impacts of 1.28 bill gal 
in 2014 and 2015 would not be materially different, we are not 
repeating the discussion of those analyses here. However, we 
specifically request data and analyses suggesting that the factors we 
considered in 2013 have changed significantly for 2014 or 2015.
---------------------------------------------------------------------------

    \32\ 77 FR 59458 (September 27, 2012).
    \33\ 78 FR 49411, August 14, 2013.
---------------------------------------------------------------------------

C. Determination of Applicable Volume for 2014 and 2015

    The biodiesel industry has clearly demonstrated that it can produce 
the volumes of biomass-based diesel up to the minimum required by the 
statute, and that 1.28 bill gal of biodiesel is readily attainable. We 
have no real concerns that a level of 1.28 bill gal will be achieved 
effectively in 2013, and that once it is met this level of production 
and consumption can also be achieved in years after 2013. Production 
costs associated with 1.28 bill gal of biodiesel could be affected by 
various factors, including the expiration of the biodiesel tax credit 
and projected lower soy oil prices.
    EPA's evaluation of the applicable volume that we should set for 
biomass-based diesel takes into account the context of the larger 
advanced biofuel and total renewable fuel volume requirements. The 
biomass-based diesel standard is a subset of both the advanced biofuel 
and total renewable fuel standards, and biomass-based diesel volumes 
can be used to meet all three standards. As discussed in Section IV 
below, we are proposing to reduce the applicable volumes of advanced 
biofuel and total renewable fuel. The reductions are designed to 
address several factors that affect achievement of

[[Page 71753]]

the volume goals that Congress established in the statute for these 
categories of renewable fuel. These factors include limitations in 
production or importation of the necessary volumes, and factors that 
limit supplying those volumes to the vehicles that can consume them. 
These same factors impact our consideration of the biomass-based diesel 
volume requirement for 2014. For example, EPA considers the 
availability of feedstocks for production of biodiesel.
    More importantly, the production and use of biomass-based diesel 
can be supported by both the need to comply with the required volume 
for biomass-based diesel as well as the need to comply with the 
required volume for advanced biofuel or even the volume for total 
renewable fuel. This provides EPA additional flexibility in considering 
the appropriate national volume to set for the biomass-based diesel 
volume requirement, as this requirement is not the only mechanism in 
the RFS program that can support production and use of biomass-based 
diesel. For example, while the applicable volume that EPA sets for 
biomass-based diesel will ensure that at least that volume of biomass-
based diesel would be produced and used, the advanced biofuel standard 
provides an alternative potential source of support for production and 
use of additional volumes of biomass-based diesel. It does this because 
obligated parties have discretion whether to choose biomass-based 
diesel or another advanced biofuel to satisfy their advanced biofuel 
obligation, and because the diesel pool can accommodate considerably 
more than 1.28 bill gal of biodiesel. EPA believes there is value in 
providing obligated parties increased flexibility in how they meet 
their required volume obligations in 2014. As discussed in Section IV, 
EPA is reducing the statutory volumes of advanced biofuel and total 
renewable fuel based on concerns of inadequate domestic supply of these 
renewable fuels. Providing obligated parties additional flexibility to 
address future supply circumstances is of increased importance under 
these circumstances.
    In setting the applicable volume for biomass-based diesel for 2013, 
EPA discussed various impacts of requiring volumes of biomass-based 
diesel in light of the relevant factors to be considered under CAA 
section 211(o)(2)(B)(ii).\34\ We believe this analysis continues to be 
appropriate, and supports the proposed applicable volume of biomass-
based diesel for 2014. In considering all of these factors, we see no 
need to reduce the minimum biomass-based diesel volume requirement from 
2013 levels. We have a high degree of confidence that this volume of 
1.28 bill gal could be achieved effectively without any real risk of 
production or supply problems.
---------------------------------------------------------------------------

    \34\ 77 FR 59458 (September 27, 2012), especially Sections IV 
and V of the preamble.
---------------------------------------------------------------------------

    At the same time, as discussed above, the volume requirement for 
biomass-based diesel is nested within the advance biofuel standards 
that we are proposing to reduce in 2014. We believe that volumes of 
biomass-based diesel above 1.28 bill gal can, and likely will, be 
produced in 2014 to meet the requirements of the advanced biofuel 
standard, though the degree to which this occurs will also depend on 
whether the biodiesel tax subsidy is extended beyond December 31, 2013. 
We do not expect that there would be a significant difference between 
additional volumes of biomass-based diesel above 1.28 bill gal and 
other advanced biofuels, as far as the overall impact of those fuels in 
terms of the factors we are required to consider under section 
211(o)(2)(B)(ii). Any such differences would also be hard to quantify. 
At the same time, providing obligated parties the discretion to choose 
the method to comply with their advanced biofuel volume requirement 
most appropriate for their circumstances is likely to reflect the most 
effective or efficient way to achieve the advanced biofuel volume 
requirements given the market circumstances present in 2014. In 
addition, as noted above, providing obligated parties additional 
flexibility to address the 2014 supply circumstances is of increased 
importance under the circumstances surrounding supply and consumption 
as discussed in Section IV. Therefore we are not proposing to increase 
the volume of biomass-based diesel that will be required in 2014 and 
2015.\35\
---------------------------------------------------------------------------

    \35\ While the statute requires EPA to establish the applicable 
volume of cellulosic biofuel at projected production levels, this is 
not the case with respect to the applicable volume of biomass-based 
diesel. For biomass based-diesel, EPA may set the applicable volume 
at any level above 1 bill gal after consideration of the factors set 
forth in the statute and consultation with the Departments of 
Agriculture and Energy.
---------------------------------------------------------------------------

    We invite comment on any different approaches that might be 
appropriate for balancing the factors noted above, including requiring 
an increase in the minimum volume of biomass-based diesel above 1.28 
bill gal in both 2014 and 2015. As discussed above, volumes above 1.28 
bill gal should be available, whether to meet a minimum biomass-based 
diesel requirement or the advanced biofuel requirement. Requiring a 
minimum volume of biomass-based diesel greater than 1.28 bill gal would 
place less emphasis on the benefits of preserving flexibility in how 
the required volume of advanced biofuel is achieved, and more emphasis 
on production of biomass-based diesel, without specific regard to the 
existence of a tax subsidy or to potential supplies of carryover 
biomass-based diesel RINs generated in 2013. We invite comment on all 
aspects of this issue, including information related to the statutory 
factors that we must consider as described in Section III.A. We also 
invite comment on the extent to which carryover biomass-based diesel 
RINs from 2013 would affect production levels of biomass-based diesel 
or other advanced biofuels in 2014, whether to meet the 1.28 bill gal 
biomass-based diesel volume or to achieve higher levels as a part of 
achieving the advanced biofuel requirement. We also seek comment on how 
EPA should take such information on biomass-based diesel carryover RINs 
into account when setting these volume requirements and the degree to 
which those carryover RINs support the goal of maintaining flexibility 
in how obligated parties meet the advanced biofuel mandate.
    In the overall context of the RFS program, the level of the 
biomass-based diesel applicable volume can be seen as the minimum 
amount of biomass-based diesel that is required, recognizing that 
additional volumes of biomass-based diesel may be used, along with 
other advanced biofuels, to satisfy the volume requirements for 
advanced biofuel and total renewable fuel. Having considered the 
statutory factors, in the context of proposing the volume requirements 
for advanced biofuel and total renewable fuel, we believe the minimum 
required volume of biomass-based diesel should be set at the same level 
as 2013. This approach would also recognize that volumes of biomass-
based diesel could be produced and consumed above the required volume 
level, and that obligated parties could well choose to use more 
biomass-based diesel than is required to satisfy their volume 
obligations for advanced and total renewable fuel. A volume requirement 
of 1.28 bill gal for biomass-based diesel in 2014 and 2015 would 
provide an assured minimum volume level for biomass-based diesel while 
also providing a clear opportunity for greater growth as part of the 
advanced biofuel category. Greater use of biomass-based diesel would be 
a recognized compliance path for the advanced and total renewable fuel 
volume obligations being proposed today. The proposed levels of those 
standards provide a

[[Page 71754]]

significant opportunity for greater volumes of biomass-based diesel to 
be produced and used if the market chooses them. We request comment on 
this proposed approach to the biomass-based diesel volume requirement 
for 2014 and 2015.

IV. Proposed National Volume Requirements for Advanced Biofuel and 
Total Renewable Fuel for 2014

    As described in Section I, the national volumes of renewable fuel 
to be used under the RFS program each year are specified in CAA 
211(o)(2). For 2014, the applicable volume of advanced biofuel is 3.75 
bill gal and the applicable volume of total renewable fuel is 18.15 
bill gal. However, two statutory provisions authorize EPA to reduce 
these volumes. EPA may reduce these volumes if it reduces the 
applicable volume for cellulosic biofuel, or if the criteria are met 
under the general waiver authority.\36\ We are proposing to exercise 
our discretion under these provisions to reduce the applicable volumes 
of advanced biofuel and total renewable fuel to address several factors 
that affect achievement of the volume goals that Congress established 
in the statute. These factors include limitations in production or 
importation of the necessary volumes, and factors that limit supplying 
those volumes to the vehicles that can consume them. Based on a 
detailed analysis of these limitations, we are proposing reductions in 
the statutory volumes of both advanced biofuel and total renewable fuel 
as shown below.
---------------------------------------------------------------------------

    \36\ See CAA section 211(o)(7)(D) and (A).

                                      Table IV-1--Proposed Volumes for 2014
                                                [billion gallons]
----------------------------------------------------------------------------------------------------------------
                                                                                         Proposed volume
                                                                  Statutory    ---------------------------------
                                                                    volume           Range             Mean
----------------------------------------------------------------------------------------------------------------
Advanced biofuel.............................................            3.75        2.00-2.51             2.20
Total renewable fuel.........................................           18.15      15.00-15.52            15.21
----------------------------------------------------------------------------------------------------------------

    We are proposing to use a combination of the cellulosic biofuel 
waiver authority and the general waiver authority to ensure that the 
proposed volumes are reasonably achievable given limitations in the 
volume of ethanol that can be practically consumed in motor vehicles 
considering constraints on the supply of higher ethanol blends to the 
vehicles that can use them and other limits on ethanol blend levels 
approved for use in motor vehicles and the volume of non-ethanol 
renewable fuels that we expect would be reasonably achievable. To 
accomplish this, we are proposing an approach involving the following 
three steps:
     First, we would determine the total volume of ethanol that 
can reasonably be supplied to and consumed in the transportation sector 
as both E10 and higher ethanol blends such as E85. We would then add to 
this the volume of all non-ethanol biofuels that we expect could be 
reasonably available for meeting all four of the applicable volume 
requirements (cellulosic biofuel, biomass-based diesel, advanced 
biofuel, and total renewable fuel). This first step would determine the 
volume of renewable fuel that can adequately be produced and supplied 
to consumers in light of limitations on the consumption of ethanol 
(commonly referred to as the ``ethanol blendwall'') and other relevant 
constraints, and would form the basis for the required volume of total 
renewable fuel as adjusted pursuant to EPA's waiver authorities.
     Second, we would determine the volumes of all sources of 
advanced biofuel that could be reasonably achieved to ensure that the 
required volume of advanced biofuel be set no higher than the volume 
that is projected to be reasonably available.
     Third, we would determine an appropriate volume of 
advanced biofuel at or below the projected available volume determined 
in the second step. This volume would include the required volume of 
cellulosic biofuels and biomass-based diesel, which are set separately, 
as well as any additional volumes of non-ethanol advanced biofuels 
projected to be reasonably achievable. This approach would account for 
the contribution of ethanol volumes in the advanced biofuel category to 
the supply concerns related to total renewable fuel, including 
considerations of both production and consumption. While ensuring that 
both advanced biofuel and non-advanced renewable fuels play a role in 
addressing the ethanol blendwall, it would also support Congress's goal 
in the RFS program of continued growth in the advanced biofuel category 
as reflected in the volume requirements established in the statute. As 
discussed in detail in Section IV.C.2, we have examined several 
alternative approaches to this third step, but we believe this approach 
best accommodates the objectives of the RFS program, while accounting 
for the limitations in the ability to produce and consume renewable 
fuels. We request comment, however, on alternative approaches and on 
all aspects of the framework discussed in this section.

We anticipate that the framework described in this section would apply 
not only to 2014, but to subsequent years as well. The specific 
estimates of volumes for each potential source of renewable fuel would 
be different in each future year, but the manner in which we aggregate 
those estimates to determine appropriate volume requirements would 
follow the overall approach described above. If circumstances differ 
substantially from those described here, or if further analysis 
suggests that our proposed approach is inadequate, we may consider the 
need for additional measures.

A. Statutory Authorities for Reducing Volumes To Address Biofuel 
Availability and the Ethanol Blendwall

    In establishing the annual volume objectives in the statute, 
Congress intended that volumes of renewable fuel, advanced biofuel, and 
cellulosic biofuel increase every year through 2022, and that volumes 
of biomass-based diesel be at least equal to the statutory volume for 
2012, while granting EPA discretion to increase the biomass-based 
diesel volume based on consideration of several specified factors. 
However, Congress recognized that circumstances could arise that might 
require a reduction in the volume objectives specified in the statute 
as evidenced by the different waiver provisions in CAA 211(o)(7). As 
described in more detail below, we

[[Page 71755]]

believe that limitations in production or importation of qualifying 
renewable fuels, and factors that limit supplying those volumes to the 
vehicles that can consume them, both constitute circumstances that 
warrant a waiver under section 211(o)(7) as discussed below. With 
regard to the ethanol blendwall, a decrease in total gasoline 
consumption since EISA was enacted in 2007, coupled with limitations in 
the number and geographic distribution of retail stations that offer 
higher ethanol blends such as E85 and the number of FFVs that have 
access to E85, as well as other market factors, combine to place 
significant restrictions on the volume of ethanol that can be supplied 
to and consumed in the transportation sector. Based on the types of 
renewable fuel that we project are likely to be available in 2014 and 
the volume that is likely to be non-ethanol, we believe that the 
ethanol blendwall represents a circumstance that warrants a reduction 
in the mandated volumes for 2014.
    The statute provides two separate authorities that permit EPA to 
reduce volumes of advanced biofuel or total renewable fuel under 
certain conditions: The cellulosic waiver authority and the general 
waiver authority. Applying a combination of these two authorities is 
the most appropriate way to address limitations in production or 
importation of the necessary volumes, and factors that limit supplying 
those volumes to the vehicles that can consume them, including the 
ethanol blendwall. This section discusses both of these statutory 
authorities and the manner in which we believe they can be used 
together to set standards for 2014.
1. Cellulosic Waiver Authority
    Under CAA section 211(o)(7)(D)(i), if EPA determines that the 
projected volume of cellulosic biofuel production for the following 
year is less than the applicable volume provided in the statute, then 
EPA must reduce the applicable volume of cellulosic biofuel to the 
projected volume available during that calendar year. 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 ``[f]or any calendar year in 
which the Administrator makes such a reduction, the Administrator may 
also reduce the applicable volume of renewable fuel and advanced 
biofuels requirement established under paragraph (2)(B) by the same or 
a lesser volume.'' Thus Congress authorized EPA to reduce the volume of 
total renewable fuel and advanced biofuel. As EPA has discussed before, 
this indicates a clear Congressional intention that under this 
provision EPA may reduce both the total renewable and advanced biofuel 
volume together, not one or the other.
    As described in the May 26, 2009 NPRM for the RFS regulations, 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.\37\ 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. Using this authority 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. Further 
discussion of this provision can be found in the final rule 
establishing the 2013 RFS standards.\38\
---------------------------------------------------------------------------

    \37\ See 74 FR 24914-15
    \38\ 78 FR 49794, August 15, 2013.
---------------------------------------------------------------------------

    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 based on a reduction in cellulosic 
biofuel volumes under CAA section 211(o)(7)(D)(i). EPA can consider the 
criteria described in sections 211(o)(2)(B)(ii) and 211(o)(7)(A) in 
determining appropriate reductions in advanced biofuel and total 
renewable fuel under the cellulosic waiver authority at section 
211(o)(7)(D)(ii), or any other factors that may be relevant. However, 
EPA must provide a reasoned explanation for any decision to reduce the 
advanced biofuel and total renewable fuel volume requirements under the 
cellulosic biofuel waiver authority.
2. General Waiver Authority
    CAA 211(o)(7)(A) provides that EPA, in consultation with the 
Secretary of Agriculture (USDA) and the Secretary of Energy (DOE), may 
waive the applicable volume requirements of the Act in whole or in part 
based on a petition by one or more States, by any person subject to the 
requirements of the Act, or by the EPA Administrator on her own motion. 
Such a waiver must be based on a determination by the Administrator, 
after public notice and opportunity for comment, that:
     Implementation of the requirement would severely harm the 
economy or the environment of a State, a region, or the United States; 
or
     There is an inadequate domestic supply.

In today's NPRM, we are proposing to use the general waiver authority 
to waive the applicable volume requirements based on the statute's 
authorization for the Administrator to act on her own motion. We have 
initiated discussions with both USDA and DOE on the proposed approach 
to determining the applicable volume requirements that is described in 
this section.
    Because this provision provides EPA the discretion to waive the 
volume requirements of the Act ``in whole or in part,'' we interpret 
this section as granting authority to waive any or all of the four 
applicable volume requirements in appropriate circumstances. Thus, for 
example, unlike the cellulosic waiver authority, a reduction in total 
renewable fuel pursuant to the general waiver authority would not 
automatically result in the same reduction in advanced biofuel, and 
would not be limited by the reduction in cellulosic biofuel.
    EPA has not previously interpreted or applied the waiver provision 
in CAA section 211(o)(7)(A)(ii) related to ``inadequate domestic 
supply.'' \39\ As explained in greater detail below, we believe that 
this ambiguous provision is reasonably and best interpreted to 
encompass the full range of constraints that could result in an 
inadequate supply of renewable fuel to the ultimate consumers, 
including fuel infrastructure and other constraints. This would 
include, for instance, factors affecting the ability to produce or 
import qualifying renewable fuels as well as factors affecting the 
ability to distribute, blend, dispense, and consume those renewable 
fuels.
---------------------------------------------------------------------------

    \39\ EPA has applied the waiver provision in section 
211(o)(7)(A)(i) related to severe harm to the economy. See 77 FR 
70752 (November 27, 2012), 73 FR 47168 (August 13, 2008).
---------------------------------------------------------------------------

    The waiver provision at CAA 211(o)(7)(A)(ii) is ambiguous in 
several respects. First, it does not specify what the general term 
``supply'' refers to. The common understanding of this term is an 
amount of a resource or product that is available for use by the person 
or place at issue.\40\ Hence the evaluation of

[[Page 71756]]

the supply of renewable fuel, a product, is best understood in terms of 
the person or place using the product. In the RFS program, various 
parties interact across several industries to drive the ultimate use of 
renewable fuel by consumers of transportation fuel. For example, 
supplying renewable fuel to obligated parties and terminal blenders is 
one part of this process, while supplying renewable fuel to the 
ultimate consumer as part of transportation fuel is a different and 
later aspect of this process. This is clearly the case with respect to 
the renewable fuels ethanol and biodiesel, which are typically supplied 
to the obligated parties and terminals as a neat fuel, but in almost 
all cases are supplied to the consumer as a blend with conventional 
fuel (ethanol and gasoline or biodiesel and diesel). The waiver 
provision does not specify what product is at issue (for example, neat 
renewable fuel or blended renewable fuel with transportation fuel) or 
the person or place at issue (for example, obligated party or ultimate 
consumer), in determining whether there is an ``inadequate domestic 
supply.''
---------------------------------------------------------------------------

    \40\ For example, see http://oxforddictionaries.com/us/definition/american_english/supply (a stock of a resource from 
which a person or place can be provided with the necessary amount of 
that resource: ``There were fears that the drought would limit the 
exhibition's water supply.''); http://www.macmillandictionary.com/us/dictionary/american/supply (``A limited oil supply has made gas 
prices rise.'' and ``Aquarium fish need a constant supply of 
oxygen.'').
---------------------------------------------------------------------------

    The waiver provision also does not specify what factors are 
relevant in determining the adequacy of the supply. Adequacy of the 
supply would logically be seen in terms of the parties who use the 
supply of renewable fuel. Adequacy of supply could affect various 
parties, including obligated parties, terminal operators, and 
consumers. Adequacy of supply with respect to the consumer might well 
involve consideration of factors different from those involved when 
considering adequacy of supply to the obligated parties. We believe 
that interpreting this waiver provision as authorizing EPA to consider 
the adequacy of supply of renewable fuel to all of the relevant 
parties, including the adequacy of supply to the ultimate consumer of 
transportation fuel, is consistent with the common understanding of the 
terms used in this waiver provision, especially in the context of a 
fuel program that is aimed at increasing the use of renewable fuel by 
consumers. In our view, this is the most reasonable and appropriate 
construction of this ambiguous language in light of the overall policy 
goals of the RFS program.
    EPA has reviewed other fuel related provisions of the Clean Air Act 
with somewhat similar waiver provisions, and they highlight both the 
ambiguity of the RFS general waiver provision and the reasonableness of 
applying it broadly to include adequacy of supply to the ultimate 
consumer of transportation fuel. For example, CAA section 
211(k)(6)(A)(ii) allows EPA to defer application of reformulated 
gasoline (RFG) requirements in a state that opts in to the RFG program 
if EPA determines that ``there is insufficient domestic capacity to 
produce reformulated gasoline.'' A related RFG waiver provision 
concerning the application of RFG requirements in the Ozone Transport 
Region, section 211(k)(6)(B)(i) and (iii), provides for a waiver of RFG 
requirements based on ``insufficient capacity to supply reformulated 
gasoline.'' For these RFG waiver provisions, Congress more clearly and 
explicitly indicated that the capacity to supply RFG could include 
consideration of factors beyond those concerning the capacity to 
produce RFG. In the language of the RFS general waiver provision, in 
comparison, Congress used a single, broader and clearly ambiguous 
phrase--``inadequate domestic supply''--without elaboration or 
clarification as to whether it refers solely to production capacity or 
also includes additional factors relevant to the ability to supply the 
fuel to various persons such as the ultimate consumer. As in the RFG 
provision, however, the adequacy of supply referred to in the RFS 
general waiver provision can logically--and we believe should--be read 
to include factors beyond capacity to produce that impact the ability 
of consumers to use the fuel as a transportation fuel.
    CAA section 211(c)(4)(C)(ii) provides EPA with waiver authority to 
address ``extreme and unusual fuel or fuel additive supply 
circumstances . . . which prevent the distribution of an adequate 
supply of the fuel or fuel additive to consumers.'' The supply 
circumstances must be the result of a natural disaster, an Act of God, 
a pipeline or refinery equipment failure or another event that could 
not reasonably have been foreseen, and granting the waiver must be ``in 
the public interest.'' In this case, Congress clearly specified that 
the adequacy of the supply is judged in terms of the availability of 
the fuel for use by the ultimate consumer, and includes consideration 
of the ability to distribute the required fuel or fuel additive to the 
ultimate consumer. Although the RFS waiver provision does not contain 
any such explicit clarification from Congress, its broad and ambiguous 
wording provides EPA the discretion to reasonably interpret the scope 
of the RFS waiver provision. EPA's interpretation of the RFS waiver 
provision is consistent with the view, expressed more explicitly in the 
section 211(c) waiver, that the adequacy of the supply of a fuel or 
fuel additive can reasonably be judged in terms of availability for use 
by the consumer, and can include consideration of the capacity to 
distribute the product to the ultimate consumer.
    CAA section 211(m)(3)(C) allows EPA to delay the effective date of 
oxygenated gasoline requirements for certain carbon monoxide 
nonattainment areas if EPA finds ``an inadequate domestic supply of, or 
distribution capacity for, oxygenated gasoline . . . or fuel 
additives'' needed to make oxygenated gasoline. Here, Congress chose to 
expressly differentiate between ``domestic supply'' and ``distribution 
capacity,'' indicating that each of these elements was to be considered 
separately. This would indicate that the term inadequate supply, 
although ambiguous for the reasons discussed above, could in 
appropriate circumstances be read as more limited in scope. In contrast 
to the RFS waiver provision, the section 211(m) waiver provision 
includes additional text that makes clear that EPA's authority includes 
consideration of distribution capacity--reducing the ambiguity inherent 
in using just the general phrase ``inadequate domestic supply.'' 
Presumably this avoids a situation where ambiguity would result in an 
overly narrow administrative interpretation. The oxygenated gasoline 
waiver provision is also instructive in that it clarifies that it 
applies separately to both finished oxygenated fuel and to oxygenated 
fuel blending components. That is, there could be an adequate supply of 
the oxygenate, such as ethanol, but not an adequate supply of the 
blended fuel which is sold to the consumer. The RFS waiver provision 
employs the phrase ``inadequate domestic supply'' without further 
specification or clarification, thus providing EPA the discretion to 
determine whether the adequacy of the supply of renewable fuel can 
reasonably be judged in terms of availability for use by the ultimate 
consumer, including consideration of the capacity to distribute the 
product to the ultimate consumer. In contrast to the section 211(m) 
waiver provision, Congress arguably did not mandate that the RFS waiver 
provision be interpreted as providing authority to address problems 
affecting the supply of renewable fuel to the ultimate consumer. 
However, the RFS waiver provision does provide EPA the discretion to 
adopt such an

[[Page 71757]]

interpretation, resulting in a policy approach consistent with that 
required by the less ambiguous section 211(m) waiver provision.\41\
---------------------------------------------------------------------------

    \41\ In CAA section 211(h)(5)(C)(ii), Congress authorized EPA to 
delay the effective date of certain changes to the federal 
requirements for Reid vapor pressure in summertime gasoline, if the 
changes would result in an ``insufficient supply of gasoline'' in 
the affected area. As with the RFS general waiver provision, 
Congress did not specify what considerations would warrant a 
determination of insufficient supply. EPA has not been called upon 
to apply this provision to date and has not interpreted it.
---------------------------------------------------------------------------

    As the above review of various waiver provisions in Title II of the 
Clean Air Act makes clear, Congress has used the terms ``supply'' and 
``inadequate supply'' in different waiver provisions. In the RFS 
general waiver provision, Congress spoke in general terms and did not 
address the scope of activities or persons or places that are the focus 
in determining the adequacy of supply. In other cases, Congress 
provided, to varying degrees, more explicit direction. Overall, the 
various waiver provisions lend support to the view that it is 
appropriate, where Congress has used just the ambiguous phrase 
``inadequate domestic supply'' in the general waiver provision, to 
consider supply in terms of distribution and use by the ultimate 
consumer, and that the term ``inadequate supply'' of a fuel need not be 
read as referring to just the capacity to produce renewable fuel or the 
capacity to supply it to the obligated parties.
    We are aware that prior to final adoption of the Energy 
Independence and Security Act of 2007, Congress had before it bills 
that would have provided for an EPA waiver in situations where there 
was ``inadequate domestic supply or distribution capacity to meet the 
requirement.'' \42\ EPA is not aware of any conference or committee 
reports, or other legislative history, explaining why Congress 
ultimately enacted the language in EISA in lieu of this alternative 
formulation. There is no discussion, for example, of whether Congress 
did or did not want EPA to consider distribution capacity, whether 
Congress believed the phrase ``inadequate domestic supply'' was 
sufficiently broad that a reference to distribution capacity would be 
unnecessary or superfluous, or whether Congress considered the 
alternative language as too limiting, since it might suggest that other 
types of constraints on delivering renewable fuel to the ultimate 
consumer should not be considered for purposes of granting a 
waiver.\43\ Given the lack of interpretive value typically given to a 
failure to adopt a legislative provision, and the lack of explanation 
in this case, we find the legislative history to be uninformative with 
regard to Congressional intent on this issue. It does not change the 
fact that the text adopted by Congress, whether viewed by itself or in 
the context of other fuel waiver provisions, is clearly ambiguous.
---------------------------------------------------------------------------

    \42\ H.R. 6 and S. 606 as reported by Senate Envt. & Public 
Works in Senate Report 109-74.
    \43\ There are, for example, legal constraints on the amount of 
certain renewable fuels that may be blended into transportation 
fuels.
---------------------------------------------------------------------------

    We believe the term ``inadequate domestic supply'' should be 
interpreted to authorize EPA to consider the full range of constraints, 
including fuel infrastructure and other constraints, that could result 
in an inadequate supply of renewable fuels to consumers. Under this 
interpretation, we would not limit ourselves to consideration of the 
capacity to produce or import renewable fuels but would also consider 
practical and other constraints related to the fuel delivery 
infrastructure and their effect on the volume of qualifying renewable 
fuel that would be supplied to the ultimate consumer.
    This interpretation is consistent with the provisions of section 
211(o) and promotes Congress's purposes in establishing the RFS 
program, which are to ensure that certain volumes of renewable fuel are 
used by the ultimate consumer as a replacement for the use of fossil 
based transportation fuel.\44\ The RFS program does not achieve the 
desired benefits unless renewable fuels are actually used to replace 
fossil based transportation fuels. For example, the greenhouse gas 
reductions and energy security benefits that Congress sought to promote 
through this program are realized only through the use by consumers of 
renewable fuels that reduce or replace fossil fuels present in 
transportation fuel. Imposing RFS volume requirements on obligated 
parties without consideration of the ability of the obligated parties 
and other parties to deliver the renewable fuel to the ultimate 
consumers, would achieve no such benefits and would fail to account for 
the complexities of the fuel system that delivers transportation fuel 
to consumers. We do not believe it would be appropriate to interpret 
the RFS general waiver provision more narrowly and limit EPA's 
consideration of factors related to the distribution and use of 
renewable fuels by the ultimate consumers of these fuels.
---------------------------------------------------------------------------

    \44\ See CAA section 211(o)(1)(I) (renewable fuel defined as 
``fuel . . . used to replace or reduce the quantity of fossil fuel 
present in a transportation fuel''), section 211(o)(2)(A)(i) (EPA's 
regulations must ``ensure that transportation fuel sold or 
introduced into commerce in the United States . . . contains at 
least the applicable volume of [renewable fuels]''). Also see CAA 
section 211(o)(1)(A), definition of ``additional renewable fuel.'' 
As one example, in the RFS program fuels with multiple end uses such 
as biogas or electricity are not considered a renewable fuel absent 
a demonstration that they will be used by the ultimate consumers as 
transportation fuel. As noted above, ethanol is almost always used 
as a renewable fuel in the form of E10 or higher, not as neat 
ethanol. The supply of neat ethanol, or biogas or electricity, does 
not by itself determine the supply of the fuel ethanol used as a 
transportation fuel.
---------------------------------------------------------------------------

    We invite comment on all aspects of our proposed interpretation of 
the waiver provision based on ``inadequate domestic supply.'' Whether 
or not circumstances projected for 2014 justify a waiver on this basis 
is discussed in Sections IV.B and IV.C.
3. Combining Authorities for Reductions in Advanced Biofuel and Total 
Renewable Fuel
    The two primary drivers that we have considered in today's NPRM for 
reductions in the required volumes are limitations in the availability 
of qualifying renewable fuels and factors that constrain supplying 
those volumes to the vehicles that can consume them. These two drivers 
are both relevant forms of inadequate domestic supply, which authorize 
reductions under the general waiver authority and can also justify 
reductions under the cellulosic biofuel waiver authority. We believe 
that reducing both total renewable and advanced biofuel are appropriate 
responses to these circumstances, and we propose to use a combination 
of the two waiver authorities discussed above to achieve this result as 
neither authority independently is sufficient to justify the necessary 
volume reductions. As discussed in Section II, EPA is proposing to 
reduce the applicable volume of cellulosic biofuel based on a 
projection of production for 2014. Given this reduction in the 
cellulosic biofuel volumes, EPA is also proposing to reduce the 
applicable volume of advanced biofuel using the cellulosic biofuel 
waiver authority in Section 211(o)(7)(D)(i). We are proposing a larger 
reduction in total renewable fuel volume than in the advanced biofuel 
volume. In effect one part of the reduction in total renewable fuel 
would be based on both the general waiver authority and the cellulosic 
biofuel waiver authority, and the remainder of the reduction in total 
renewable fuel would be based solely on the general waiver authority. 
Below we discuss the basis for each of the proposed volume reductions.

[[Page 71758]]

B. Determination of Reductions in Total Renewable Fuel

    As a first step in our proposed framework for setting the 
applicable volumes for total renewable fuel and advanced biofuel, we 
would estimate the volume of ethanol that can reasonably be expected to 
be available and consumed and the volume of non-ethanol renewable fuel 
that can reasonably be expected to be available and consumed. Taken 
together, these two considerations provide the basis for the volume of 
total renewable fuel that we are proposing to require. Our objective is 
that the proposed requirement would reflect a realistic projected 
estimate of renewable fuel supply, based to the greatest extent 
possible on data and real world circumstances.
    For ethanol, the primary issue is the use of the fuel in the 
transportation sector, as the purpose of the RFS program is to ensure 
that renewable fuels are used to replace or reduce the use of fossil 
fuel based transportation fuel.\45\ For ethanol blends, there are legal 
constraints on the amount of ethanol that can be blended into gasoline 
and practical constraints on the volume of ethanol that can be consumed 
as transportation fuel, notwithstanding the ability to produce higher 
volumes. For non-ethanol renewable fuels, the primary issue is the 
availability of volumes of the renewable fuel, and much less so the 
ability to consume it in the transportation sector if it is available. 
For purposes of this proposal, we generally refer to the consumption 
concerns related to ethanol, and the availability concerns related to 
non-ethanol forms of renewable fuel, recognizing the primary concern 
that is raised for each of these types of renewable fuel.
---------------------------------------------------------------------------

    \45\ Renewable fuels in heating oil and jet fuel are also valid 
under the RFS program, but ethanol is not used in these contexts. 
See CAA section 211(o)(1)(J) (the definition of renewable fuel), and 
CAA section 211(o)(2)(A) (the rulemaking authority related to 
ensuring renewable fuels are sold or introduced into commerce).
---------------------------------------------------------------------------

    With regard to consumption concerns related to ethanol, it is 
important to note that the overall pool of gasoline into which ethanol 
must be blended to achieve EISA's statutory volume requirements is 
significantly smaller now than it was projected to be prior to 
enactment of EISA in 2007, which established both the revised RFS 
program requirements and the mandated significant increases in vehicle 
fuel economy standards. The total demand for gasoline has been 
decreasing over the intervening years due to the recent GHG and CAFE 
standards for vehicles, fuel prices, and broader factors affecting the 
economy. In the summer of 2006, when the reference case for EIA's 
Annual Energy Outlook 2007 (AEO2007) was developed, the projected 2014 
gasoline energy demand was 18.68 Quad Btu and could have absorbed 15.43 
bill gal of ethanol as E10. By comparison, in the summer of 2012 when 
the AEO2013 reference case was developed, the projected 2014 gasoline 
energy demand was 15.94 Quad Btu and could absorb 13.17 bill gal 
ethanol as E10. The difference between these two projections thus 
represents about 2.3 bill gal of ethanol. That is, the gasoline pool 
will be able to absorb about 2.3 bill gal less ethanol as E10 in 2014 
than it would have been possible to absorb if the gasoline use 
projection in AEO2007 had been realized. If 15.43 bill gal of ethanol 
were to be consumed in 2014, the gasoline energy demand projected in 
AEO2013 would require about 3.4 bill gal of E85 if it is assumed that 
intermediate blends such as E15 do not penetrate the market to any 
significant extent.

                                  Table IV.B-1--Reduced Gasoline Demand in 2014
----------------------------------------------------------------------------------------------------------------
                                                                                                 Equivalent E10
                                        Motor gasoline    E85 (Quad Btu) a     Total energy    volume (bill gal)
                                         (Quad Btu) a                          (Quad Btu) a            c
----------------------------------------------------------------------------------------------------------------
AEO2007 b...........................              18.67              0.004              18.68             154.30
AEO2013 b...........................              15.84              0.097              15.94             131.67
Difference..........................  .................  .................  .................              22.63
----------------------------------------------------------------------------------------------------------------
a Higher heating value.
b Table 2 of EIA's Annual Energy Outlook, total delivered energy consumption for all sectors.
c Assumes conversion factors of 3.561 mill Btu per barrel for ethanol and 5.253 mill Btu per barrel for
  gasoline.

    We recognize that EIA's most current projections for motor fuel use 
are provided in the Short-term Energy Outlook (STEO), which is updated 
monthly, rather than in the AEO2013 reference case that was prepared in 
the summer of 2012. EPA understands that the estimate of 2014 
transportation fuel use that EIA is required to provide to EPA for 
purposes of determining the applicable percentage standards will be 
based on the latest available STEO forecast rather than the Annual 
Energy Outlook. The forecast for 2014 gasoline use in the October 2013 
STEO is about 1.5 percent higher that the AEO2013 reference case 
projection for 2014, while the implicit level of E85 use from the 
combined gasoline and ethanol forecasts in STEO is less than half of 
the AEO2013 E85 projection for 2014.
1. Estimating Ethanol Volumes That Could Reasonably Be Consumed
    The total volume of ethanol that could reasonably be consumed is a 
function of three factors:
     The overall demand for gasoline.
     The consumption of ethanol as E10, E15, and E85.
     The presence of non-oxygenated gasoline (E0).

In this section, we provide our assessment of the likely distribution 
of ethanol in gasoline, with a particular emphasis on potential volumes 
of E85 that could reasonably be achievable. We discuss and request 
comment on the assumption that the overall pool of gasoline is 
comprised of E10 and E85 in 2014.
a. Projected Composition of 2014 Gasoline Supply
    For the purposes of this proposed rule, we have assumed that all 
gasoline-powered vehicles and FFVs would use either E10 or E85. EPA has 
taken a series of regulatory steps to enable E15 to be sold in the U.S. 
In 2010 and 2011, EPA issued partial waivers to enable use of E15 in 
model year 2001 and newer vehicles, and in June of 2011, EPA finalized 
regulations to prevent misfueling of vehicles, engines, and equipment 
not covered by the partial waiver decisions. However, based on 
information currently available to the Agency, the volume of E15 being 
supplied in the market to date has been very limited. Therefore, to 
simplify the calculations and the discussion, we have assumed that the 
volume of E15

[[Page 71759]]

that is consumed in 2014 will be negligible, as there are currently 
very few retail stations offering E15. Any volumes of other 
intermediate blends, such as E30, are assumed to be sold through 
blender pumps into FFVs and are thus assumed to be part of the E85 
volume consumed by FFVs.
    We have not assumed that any gasoline would be E0 in 2014, since 
E10 is commonly used in nonroad engines just as it is used in cars and 
trucks. However, it is possible that a limited amount of E0 will be 
consumed if refiners are willing to provide it. If so, it would likely 
appear in premium gasoline, gasoline sold at marinas, or possibly 
unleaded motor gasoline used in light aircraft that do not require 
leaded aviation gasoline. There are also several states that require 
unblended gasoline to be provided to terminals, though the intention of 
these requirements is to ensure that terminals have the option to blend 
ethanol into that gasoline. We are not aware of any data that would 
provide a direct estimate of the demand for E0, and given that any 
ongoing demand for E0 is likely to be small, we have not included it in 
our calculations of the total volume of ethanol that can be consumed in 
2014. Nevertheless, we request information and data that would permit 
us to determine the volume of E0 used in the gasoline pool and the 
appropriateness of incorporating some estimate of E0 into the final 
standards.
    Aside from the volume of E85 that could reasonably be consumed in 
2014, discussed in more detail in the next section, the gasoline pool 
would be comprised of E10. We have assumed that gasoline contains 10.0% 
denatured ethanol. This is consistent with survey data collected by the 
Alliance of Automobile Manufacturers indicating that the average 
ethanol content of all gasoline containing at least 5vol% ethanol is 
about 9.74%. This estimate is based on the use of ASTM test method D-
5599, which measures only the alcohol portion of the gasoline, not any 
denaturant that would have been included with the ethanol before it was 
blended into gasoline. Since the denaturant portion of ethanol is at 
least 2%, ethanol that is blended into gasoline contains less than 98% 
ethanol. When blended into gasoline, therefore, the E98 would result in 
a gasoline-ethanol blend containing no more than 9.8% pure ethanol, or 
10.0% denatured ethanol. Since all RFS ethanol volumes and RINs are 
also calculated on a denatured ethanol basis, it is thus appropriate to 
assume 10.0 percent. We request comment, however, on the accuracy of 
this assessment, including information with regard to whether and to 
what extent there are real world constraints that limit the denatured 
ethanol content of E10 to a level lower than 10.0 percent, and if so, 
what the implications are with regard to the volume of ethanol that can 
reasonably be consumed in 2014.
    For E85 volumes, we recognize that the ethanol content could range 
from 51% to 83% according to ASTM D-5798-13. In today's NPRM we have 
assumed that the ethanol content of E85 is 74% consistent with the 
average value used by EIA in its Annual Energy Outlook. As for E10, we 
are treating the ethanol content of E85 as representing denatured 
ethanol.
b. Assessment of E85 Consumption
    For purposes of determining the total renewable fuel volume 
requirement for 2014, consistent with the waiver authorities we are 
proposing to exercise in this action, we have assessed the volume of 
E85 that can reasonably be supplied to and consumed in the 
transportation sector, based on a variety of factors that limit 
supplying E85 in the transportation sector. Our assessment of the range 
of E85 volumes that can be reasonably consumed in 2014 considers 
factors such as infrastructure and consumer acceptance limitations as 
well as the impact that the applicable standards could have on the 
relative price of E85 and E10. In projecting the likely range of E85 
consumption in 2014, we are not mandating that this amount of E85 be 
produced and consumed. The industries involved will decide what 
actually occurs in the marketplace. Obligated parties can take actions 
to facilitate the sale of E85, to the extent they can and choose to do 
so, or they can obtain RINs from non-ethanol sources of renewable fuel 
such as excess biodiesel, renewable diesel, heating oil, and biogas. We 
expect that the parties involved will resolve this through their 
business decisions. Nevertheless, we acknowledge that the renewable 
fuel volumes established in this rulemaking will have an impact on the 
volume of E85 consumed in 2014.
    There are a variety of sources we have considered in developing our 
estimate of the volume of E85 that could reasonably be supplied in the 
transportation sector in 2014. To begin with, we investigated available 
sources of information on E85 production in 2012 and 2013. One report 
from EIA reported an E85 production volume of about 37 mill gal in 
2012.\46\ This volume is based on EIA survey data from forms EIA-810 
(Monthly Refinery Report) and EIA-815 (Monthly Bulk Terminal and 
Blender Report). It likely underestimates actual E85 consumption as 
these surveys do not capture other sources of E85 production, such as 
the following:
---------------------------------------------------------------------------

    \46\ EIA, ``U.S. Refinery and Blender Net Production'', April 
29, 2013.
---------------------------------------------------------------------------

     E85 produced using reformulated gasoline (RFG) or 
reformulated gasoline blendstock (RBOB) as the petroleum component of 
the fuel.
     E85 produced by refiners or blenders producing small 
quantities of E85.
     E85 produced by parties such as ethanol production 
facilities.

For the last category, we were able to estimate the potential volume of 
E85 produced in 2012 by ethanol facilities using data collected in the 
EPA-Moderated Transaction System (EMTS). Ethanol production facilities 
are in general prohibited from separating RINs from the ethanol that 
they produce. However, if an ethanol producer blends its ethanol into 
gasoline to make a transportation fuel, it can separate the RINs from 
the ethanol used in this blending. If they do produce transportation 
fuel, it is very likely to be E85 rather than E10. Therefore, we 
assumed that all RINs separated by ethanol producers represent ethanol 
blended as E85. Under this assumption, we determined that ethanol 
production facilities separated about 22 million RINs in 2012, which 
would correspond to about 30 mill gal of E85. When combined with the 37 
mill gal estimate from EIA for E85 produced by refineries and blenders, 
the total 2012 E85 production is estimated to be about 70 mill gal.
    At this time, available information regarding the volume of E85 
production in 2013 is limited to the first half of the year. Using the 
same two sources of information described above--EIA survey data for 
E85 production by refineries and blenders, and EMTS data to estimate 
E85 production at ethanol facilities--we have estimated that total E85 
production for the first half of 2013 was about 36 mill gal. However, 
both of these data sources demonstrate a strongly increasing trend over 
this timeframe. If this trend continues through the end of 2013, total 
E85 production could reach 100 mill gal in 2013. Furthermore, if this 
trend continued throughout 2014, total E85 production would reach 240 
mill gal in 2014.\47\ If this trend were further augmented to account 
for the rate of ongoing growth in both the number of

[[Page 71760]]

retail stations offering E85 and in the number of FFVs in the fleet 
that would occur over the remainder of 2013 and 2014, the projection 
for 2014 could be as high as 300 mill gal.\48\ We anticipate that 
better and more detailed information will be available--including 
through this notice and comment process--by the time we promulgate the 
final rule. We solicit comment and information on 2013 consumption of 
E85 and its relevance to projecting reasonable levels of consumption in 
2014.
---------------------------------------------------------------------------

    \47\ Korotney, David, ``Extrapolation of E85 production in the 
first half of 2013 to the remainder of 2013 and through 2014,'' 
memorandum to EPA docket EPA-HQ-OAR-2013-0479
    \48\ Based on 25% annual growth in E85 consumption as described 
in memo entitled, ``Application of one-in-four E85 access 
methodology to 2014'', Memorandum from David Korotney to EPA docket 
EPA-HQ-OAR-2013-0479.
---------------------------------------------------------------------------

    It should be noted that historical consumption of E85 represents a 
small fraction of the consumption capacity of the FFVs currently in 
use. Even counting only those FFVs which have reasonable access to 
stations offering E85, their total consumption capacity is at least 1 
bill gal. The low historical consumption was most likely due to a 
combination of factors including limited access to retail stations 
offering E85, the reduced range of vehicles operating on E85, and the 
fact that E85 has historically been more expensive than E10 on an 
energy-content adjusted basis. A survey conducted by the National 
Association of Convenience Stores found that 71% of customers indicated 
that price was the most important factor in determining where they buy 
gasoline.\49\ We believe the volume of E85 that can and will be sold in 
the future is likely highly dependent on the price relationship between 
E10 and E85 and the availability of the fuel.
---------------------------------------------------------------------------

    \49\ 2013 NACS Retail Fuels Report.
---------------------------------------------------------------------------

    While historically E85 has been more expensive than E10 on an 
energy-content adjusted basis, recent data collected by EIA suggests 
that at least in some parts of the country this price relationship 
between E10 and E85 may be changing. In a Today in Energy article 
published on September 19, 2013, EIA presented data showing that in a 
collection of Midwestern states E85 retail prices were less than E10 
retail prices on an energy-content adjusted basis in July 2013, the 
most recent month for which information was available.\50\ This change 
in price relationship between E10 and E85 coincides with reported 
increases in sales volumes of E85 in Iowa and Minnesota, two states in 
which E85 sales volumes are publically available.\51\ If the conditions 
that have led to this price relationship continue in the future E85 
sales volumes are likely to continue to increase.
---------------------------------------------------------------------------

    \50\ ''E85 motor fuel is increasingly price-competitive with 
gasoline in parts of the Midwest.'' Today in Energy. EIA, 19 
September 2013. <http://www.eia.gov/todayinenergy/detail.cfm?id=13031>. Study compared daily average observed E85 and 
regular gasoline prices at the same stations in the states of Iowa, 
Illinois, Indiana, Kentucky, Michigan, Minnesota, and Ohio.
    \51\ See Table IV.B.1-2.
---------------------------------------------------------------------------

    Moreover, as more gasoline stations sell E85 and more FFVs are sold 
in the United States the potential market for E85 will continue to 
increase. Through 2013 the number of stations selling E85 has been 
increasing at a rate of over 300 stations per year.\52\ The size of the 
FFV fleet also increased by approximately 1 million vehicles in 
2013.\53\ If the recent pricing trends noted above persist and spread 
to other parts of the country the potential growth in E85 sales could 
be significant. Increasing E85 sales due to favorable pricing may also 
incentivize increasing growth rates in the number of stations selling 
E85 and the size of the FFV vehicle fleet. Such a scenario, however, is 
dependent on E85 being widely available at a price that is sufficiently 
lower than E10 to offset the lower energy content, increased refueling 
frequency requirements, and other factors. If the price relationship 
between E10 and E85 reverts to historic levels significant growth in 
E85 sales volumes is unlikely.
---------------------------------------------------------------------------

    \52\ Memorandum from David Korotney to EPA docket EPA-HQ-OAR-
2013-0479.
    \53\ EIA Annual Energy Outlook 2013, Table 40. Increase in 
Ethanol-Flex Fuel Cars and Light Trucks from 2013 to 2014.
---------------------------------------------------------------------------

    The price relationship between E85 and E10 depends on many factors, 
but three of the most significant are the prices of corn, crude oil, 
and RINs.\54\ Corn and crude oil are the primary contributors to the 
cost of production of the ethanol and gasoline, respectively, used in 
the United States. The RIN price functions as a mechanism to subsidize 
the price of ethanol sold as E85 until it is at or below price parity 
with gasoline on an energy-equivalent basis even if the relative prices 
of corn and oil would not otherwise support such a pricing structure. 
The net effect of a reduction in the price of ethanol is that the price 
of E85 should fall relative to the price of E10, since E85 contains 
more ethanol than E10. The significant rise in the price of D6 (non-
advanced) RINs and the subsequent drop in the retail price of E85 
relative to E10 over the course of 2013 \55\ occurred at a time when 
corn and thus ethanol was relatively expensive, indicating that RINs 
are already functioning in this manner. The recent shift in E85 prices 
relative to E10 and the simultaneous increase in E85 sales suggest the 
importance of paying careful attention to more recent data concerning 
E85 prices and sales volumes when projecting E85 volumes in 2014. While 
the more recent data is available from such a short period of time that 
it limits the confidence in using it to make projections for 2014, it 
nevertheless provides a basis for expecting that directionally, the 
lower the price of E85 compared to the price of E10, the greater the 
likelihood that FFV owners will opt to purchase E85. In addition to the 
volumetric energy content of E85 compared to E10, the price difference 
may also need to accommodate the inconvenience of a greater frequency 
of refuelings for a vehicle operating on E85, the potentially the 
greater driving distance to a station offering E85, the unfamiliarity 
that FFV owners may have with E85 or their own vehicle's capabilities, 
and differences in the mix of vehicle types among FFVs compared to 
conventional (not flex fuel) vehicles. These factors may also vary from 
region to region across the U.S. based on state and local policies, 
making it challenging to develop correlations representing the nation 
as a whole. While we currently have insufficient data to allow us to 
correlate sales volumes of E85 with its price relative to gasoline on 
an energy basis for the nation as a whole, information from Minnesota 
indicates a moderately strong correlation between E85/E10 price 
differential and E85 sales volumes. To further aid our projections for 
the final rule, we request comment on the manner and extent to which 
RIN prices are affecting gasoline and E85 prices for the nation as a 
whole, and any associated changes in E85 consumption.
---------------------------------------------------------------------------

    \54\ Other factors, including Federal and State taxes, subsidies 
and distribution costs, and relative convenience costs may also 
affect the price relationship. It is therefore very difficult to 
accurately predict fuel prices.
    \55\ ''E85 motor fuel is increasingly price-competitive with 
gasoline in parts of the Midwest.'' Today in Energy. EIA, 19 
September 2013. <http://www.eia.gov/todayinenergy/detail.cfm?id=13031>. E85 prices have fallen steadily since the 
beginning of 2013 relative to E10 prices.
---------------------------------------------------------------------------

    EPA is not in a position to estimate E85 consumption based on data 
or modeling involving the price relationship between E10 and E85. 
Therefore, in addition to information on E85 consumption in 2012 and 
2013 discussed above, we have considered other sources in developing 
our estimate of the volume of E85 that could reasonably be consumed. 
The following discussion presents the various sources and approaches 
used to inform our estimate.
    To begin with, we considered that even without further reductions 
in the price of E85 relative to the price of E10,

[[Page 71761]]

higher E85 consumption in 2014 could reasonably be expected compared to 
2012 and 2013 based on business-as-usual growth in the number of FFVs 
in-use and the number of retail stations offering E85. The combined 
effect of these two factors could raise the total E85 consumption 
volume from our 2013 estimate of about 100 mill gal to about 125 mill 
gal in 2014 if the purchasing behavior of individual FFV owners remains 
constant.\56\
---------------------------------------------------------------------------

    \56\ This estimate is based on two years of growth in stations 
offering E85 and two years of growth in in-use FFVs. Growth factors 
are discussed further in a memo entitled, ``Application of one-in-
four E85 access methodology to 2014'', Memorandum from David 
Korotney to EPA docket EPA-HQ-OAR-2013-0479.
---------------------------------------------------------------------------

    In the March 2010 RFS final rule we presented a means for 
estimating the E85 consumption capacity of FFVs based on historical 
market practices with diesel fuel.\57\ We defined ``reasonable access'' 
to E85 as a situation in which one out of every four service stations 
to which an FFV owner had access offered E85, such that an FFV owner 
could be considered to have a reasonable option of refueling on E85. 
All other FFVs would then be assumed not to have reasonable access to 
E85, and would therefore always refuel on gasoline (here presumed to be 
E10). Following this one-in-four access approach, we estimated that 
approximately 8.6% of FFVs would have access to E85 in 2014 based on 
projections of the number of retail stations likely to offer E85. 
Similarly, the total amount of energy \58\ consumed by all FFVs in 2014 
would be about 9% of all the energy consumed by all light-duty vehicles 
and trucks. If the price of E85 reflected only the energy difference 
between it and E10, the total volume of E85 consumed under this 
approach could be about 160 mill gal. If the price of E85 was lower 
than this level and as a result half of all FFV owners with access used 
E85, the total volume of E85 consumed could reach 640 mill gal. Details 
of these calculations can be found in a memorandum in the docket.\59\
---------------------------------------------------------------------------

    \57\ See discussion at 75 FR 14761, March 26, 2010.
    \58\ This estimate includes energy consumed from all fuel 
sources, including both E10 and E85.
    \59\ ``Application of one-in-four E85 access methodology to 
2014,'' Memorandum from David Korotney to EPA docket EPA-HQ-OAR-
2013-0479.
---------------------------------------------------------------------------

    We have also considered other projections of E85 usage, recognizing 
the varying assumptions made in developing these projections as well as 
the differing purposes of the projections. For example, in their 
comments on the NPRM for the 2013 standards, the University of Illinois 
included an article from the February 13, 2013 issue of Farmdoc Daily 
in which E85 consumption in 2014 was assumed to be 300 mill gal if E85 
prices were sufficiently low in comparison to E10 prices, though they 
did not quantify the prices needed to reach this E85 consumption level.
    Finally, in the context of EPA's response to requests for a waiver 
of the 2012 renewable fuel volume requirements due to drought, the 
Department of Energy provided its own analysis of the maximum volume of 
E85 that could be consumed based on a technical analysis of retail 
station throughput.\60\ Based on assumptions about E85 tank sizes at 
retail stations and the associated refill frequencies, DOE estimated 
that the maximum sales of E85 would be 600 mill gal.\61\ This DOE 
analysis focused on the potential throughput at E85 stations given 
certain underground tank refueling frequencies, and did not consider 
such things as vehicle refueling frequencies. DOE's analysis also noted 
that to achieve its potential, E85 may need to be priced at a greater 
discount than it would be based on the energy content differential 
between E85 and gasoline alone to account for the more frequent 
refueling that E85 requires. We request comment on how DOE's analysis 
could be refined to better estimate potential E85 consumption.
---------------------------------------------------------------------------

    \60\ ``Department of Energy Analyses in Support of the EPA 
Evaluation of Waivers of the Renewable Fuel Standard'', November 
2012, EPA-HQ-OAR-2012-0632-2544.
    \61\ In generating this estimate, DOE assumed that the number of 
retail stations offering E85 would be about 2,300. We estimate that 
the number of stations offering E85 will be closer to 3,300 in 2014, 
which would correspond to a maximum E85 throughput of about 860 mill 
gal.
---------------------------------------------------------------------------

c. Proposed Projection of E85 Consumption in 2014
    Our goal for this proposal is to generate a realistic estimate of 
the amount of E85 that could reasonably be supplied to and consumed in 
the transportation sector in 2014 in light of the various circumstances 
involved with distribution and sale of E85. As with other volumes of 
renewable fuel, we believe that it is most appropriate to project a 
range of E85 volumes that reflects the volume that could reasonably be 
consumed in 2014. This projected range for E85 is used to determine a 
range for the total volume of ethanol that can be consumed, which is 
further combined with projected ranges for non-ethanol renewable fuels 
to determine a range for the total renewable fuel standard. For the 
final rule, we will determine a single value within the projected range 
that is our best estimate of a realistic projection of total renewable 
fuel in 2014 for purposes of exercising the waiver authority. Once the 
applicable volume requirements are set, the parties in the market will 
determine whether our estimated volume of E85 is in fact consumed, or 
whether other renewable fuels are consumed instead of the volume of 
ethanol that we estimate could be consumed as E85.
    Based on our analysis of the available information described above, 
we are estimating a range of 100-300 mill gal of E85 consumption for 
2014. We believe that this estimated range of E85 encompasses the most 
likely possibilities. Volumes below 100 mill gal are possible, but we 
believe that they are unlikely given that we expect such volumes to be 
reached in 2013 and the market conditions that resulted in these values 
to continue. Likewise volumes above 300 mill gal are possible, but we 
believe that they are unlikely. As described above, we believe that 300 
mill gal of E85 could be consumed in 2014 if the monthly trends from 
the first half of 2013 continue unabated through both 2013 and 2014, 
and further increase due to growth in both retail stations offering E85 
and FFVs in the fleet. E85 consumption above 300 mill gal in 2014 would 
require that these trends increase even further, and in a sustained 
fashion, through the end of 2014. Therefore 300 mill gal is the highest 
value we would consider at this time as an upper end of the range of 
possible volumes of E85 for 2014. However, we acknowledge that the 
volume of E85 sold into the market is likely also a function of the 
standard for total renewable fuel that we set. We request comment and 
data from the public that would help estimate the impact of lowering 
the volumetric requirements on the incentive to sell ethanol blends 
higher than E10.
    In light of current uncertainties and the limited information 
available at this time, we are proposing that the specific volume of 
E85 that we would use in determining total ethanol consumption for 2014 
would be based on the mean value from the Monte Carlo analysis within 
the range of potential E85 volumes. As explained in Section IV.B.4 
below, the Monte Carlo analysis for E85 is based on a half-normal 
distribution, consistent with our view that a reasonable level of E85 
consumption is more likely to be towards the lower end of the proposed 
range. Based on this analysis, the mean value for E85 consumption would 
be about 180 mill gal. The mean provides a balance between the 
projected higher and lower volumes of E85 that could be reasonably 
achievable. While we believe that

[[Page 71762]]

volumes of E85 at the high end of our proposed range are achievable and 
well within the capabilities of the existing vehicle and refueling 
infrastructure, basing the total renewable fuel volume on E85 volumes 
at the high end of what is achievable could present an increased risk 
of non-compliance for obligated parties if more E85 is called for than 
was projected in setting the percentage standards. This could occur, 
for example, if uncertainties in projected gasoline and diesel 
consumption for 2014 led to a requirement for more than 300 mill gal 
E85. By using the mean, we would reduce the likelihood of potential 
outcomes such as this.
    The proposed mean volume of 180 mill gal for E85 is consistent with 
the recent upward trend in E85 production described above, where E85 is 
estimated to have been about 70 mill gal in 2012 and could reach and 
potentially exceed 100 mill gal in 2013. With regard to 2013, the 
increase is also consistent with available state-specific data on E85 
production increases in the first two quarters.

                                    Table IV.B.1.c-2--E85 Production in 2013
                                                   [Mill gal]
----------------------------------------------------------------------------------------------------------------
                                                                   First quarter  Second quarter     % change
----------------------------------------------------------------------------------------------------------------
Minnesota.......................................................             1.9             3.0            +58%
Iowa............................................................             1.8             2.6            +44%
----------------------------------------------------------------------------------------------------------------

    We request comment more generally on the range of E85 consumption 
that could reasonably be achieved under appropriate conditions in 2014, 
including the methodologies and approaches that would provide a 
projection of E85 that could reasonably be consumed in light of the 
various factors affecting the distribution and sale of E85. We 
reiterate our recognition that there is a short time period in which to 
achieve infrastructural and market changes that would affect E85 
consumption in 2014 and that the approach to estimating E85 consumption 
described above, consistent with best available information, is 
appropriate. We request comment in particular on methodologies and 
approaches that would be appropriate in light of these considerations.
d. Estimating Total Ethanol Consumption in 2014
    To estimate the total volume of ethanol that could reasonably be 
consumed in 2014, we assumed that volumes of E0 and E15 would be 
essentially zero, that E85 consumption would be in the range of 100-300 
mill gal and contain 74% denatured ethanol, and that all remaining 
gasoline would be E10 with a denatured ethanol content of 10%. We 
assumed that the total energy consumption for all gasoline-powered 
vehicles and engines would be 14.33 Quadrillion Btu,\62\ and that this 
amount of total energy consumption is fixed regardless of the relative 
amounts of E10 and E85. Based on a denatured ethanol energy content of 
77,000 Btu/gal and a gasoline (E0) energy content of 115,000 Btu/gal, 
we determined that an E85 consumption range of 100-300 mill gal would 
correspond to a total ethanol consumption volume of 12.95-13.09 bill 
gal. This ethanol volume would include non-advanced ethanol such as 
that made from corn as well as advanced biofuels such as sugarcane 
ethanol or other domestically-produced advanced ethanol.
---------------------------------------------------------------------------

    \62\ EIA Annual Energy Outlook 2013, Table 37. Represents lower 
heating value. For determining the total volume of ethanol that can 
be consumed in 2014, AEO provides 2014 gasoline consumption 
projections in the required energy units. However, EIA's Short-Term 
Energy Outlook provides 2014 projections that are more recent, but 
in units of volume. EPA understands that the estimate of 2014 
transportation fuel use that EIA is required to provide to EPA for 
purposes of determining the applicable percentage standards will be 
based on the latest available STEO forecast rather than the Annual 
Energy Outlook.
---------------------------------------------------------------------------

2. Estimating Availability of Non-Ethanol Renewable Fuel Volumes
    In addition to the volume of ethanol that could reasonably be 
consumed in 2014, the total volume of renewable fuel depends on the 
volume of non-ethanol renewable fuels that are projected to be 
available in 2014. These include both advanced and non-advanced non-
ethanol renewable fuels of all types that could reasonably be supplied 
to meet all four standards.
a. Non-Ethanol Cellulosic Biofuel
    The production of non-ethanol cellulosic biofuel in 2014 is 
projected to be between 0 and 9 million ethanol-equivalent gallons. 
This volume could be significantly greater if additional pathways for 
the generation of cellulosic biofuel RINs are approved and additional 
volumes of heating oil generate cellulosic RINs. For more details on 
the potential production of non-ethanol cellulosic biofuels in 2014, 
and the companies expected to produce these fuels, see Section II.
b. Biomass-Based Diesel
    Obligated parties are required to fulfill a Renewable Volume 
Obligation (RVO) based on a national applicable volume for biomass-
based diesel of 1.28 bill gal of biodiesel (1.92 bill ethanol-
equivalent gallons) in 2013.\63\ As described in Section III, in 
today's NPRM we are proposing that the national applicable volume for 
biomass-based diesel remain the same for 2014. However, this proposed 
requirement is not based exclusively on projected availability and we 
recognize that greater volumes could be available for purposes of 
satisfying the advanced biofuel and total renewable fuel volume 
requirements.
---------------------------------------------------------------------------

    \63\ 77 FR 59458, September 27, 2012 (establishing the national 
applicable volume for BBD).
---------------------------------------------------------------------------

    There is a large amount of excess production capacity for biomass-
based diesel, including at facilities that were in operation in 2012. 
While the total production capacity for all registered and unregistered 
biodiesel facilities is about 3.6 bill gal, the production capacity for 
only those facilities that produced some volume in 2012 is 2.4 bill 
gal, and the production capacity for facilities that utilized at least 
20% of their individual production capacities in 2012 was about 1.6 
bill gal.\64\
---------------------------------------------------------------------------

    \64\ ``Biodiesel plant list 2-6-13'' in docket EPA-HQ-OAR-2013-
0479.

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

[[Page 71763]]

[GRAPHIC] [TIFF OMITTED] TP29NO13.003

    While there is a large amount of excess production capacity, the 
degree to which it will be used to produce biodiesel in excess of 1.28 
bill gal depends on a variety of factors. One of those factors is the 
federal tax credit for biodiesel that was most recently extended 
through the end of 2013 under the American Taxpayer Relief Act of 2012. 
Under this Act, parties that produce a mixture of biodiesel and diesel 
fuel can claim a $1.00-per-gallon credit against their tax 
liability.\65\ This tax credit has enabled biodiesel to be more 
competitive with other advanced biofuels. However, as of this writing 
it is unclear if this tax credit will apply in 2014. Since many expect 
the tax credit to have a direct impact on the economic attractiveness 
of biodiesel, the fact that it does not yet apply in 2014 adds 
uncertainty to the volume of biodiesel above 1.28 bill gal that may be 
produced and consumed in the U.S. As discussed further in Section 
IV.B.4-2 below, we have assumed that the tax subsidy for biodiesel will 
not be extended past 2013. This is reflected in an upper end of the 
range for biomass-based diesel no higher than the volume that may be 
used in 2013, and through the use of a half-normal distribution in the 
context of the Monte Carlo process. We request comment on the degree to 
which the presence of the biodiesel tax credit in 2014 would affect our 
projections of the volumes that could be reasonably available in 2014. 
To the extent we have new information on the status of the tax credit 
in 2014, EPA will consider that information in the development of the 
final rule.
---------------------------------------------------------------------------

    \65\ See Section 405.
---------------------------------------------------------------------------

    According to production data available through EMTS, the total 
volume of biomass-based diesel produced through August 2013 was 1,053 
million gallons. Depending on how monthly production continues through 
the remainder of 2013, we would expect total 2013 biodiesel production 
to be between 1.6 and 1.8 bill gal. A projection of 1.8 bill gal 
results from the assumption that the August production rate continues 
through the rest of 2013. If the trend in production follows the 
downward trend that occurred in 2012 in the September-December 
timeframe (representing, for example, potential seasonality of 
available feedstocks or demand), the total 2013 production would be 1.6 
bill gal.

[[Page 71764]]

[GRAPHIC] [TIFF OMITTED] TP29NO13.004

    These 2013 biodiesel production volumes are occurring in the 
context of a $1/gal tax credit. While they provide a clear indication 
of the production capabilities of the industry, they do not provide an 
accurate indicator of the volumes that would be produced in the absence 
of the tax credit.
    In the past some stakeholders have expressed concern that there may 
be limitations in biodiesel consumption that could be imposed by 
manufacturer warranties and cold-weather operation, and that this could 
impact use of biodiesel above 1.28 bill gal. However, we do not believe 
that this is the case for 2014. For instance, most diesel engines are 
warrantied by their manufacturer to B5. That is, the use of biodiesel 
in concentrations above 5vol% will void these warranties. While not a 
legal limitation on the use of biodiesel, it does present a practical 
limitation. Assuming a total diesel consumption volume of about 56 bill 
gal for 2014,\66\ B5 for the diesel pool as a whole would correspond to 
a biodiesel volume of 2.8 bill gal. However, some diesel truck engines 
have been warrantied by their manufacturers to consume B20, starting in 
2011.\67\ This could potentially raise the limit on biodiesel 
consumption even higher, assuming retailers would dedicate a pump 
exclusively to B20 for this pool of diesel fuel consumers. Since 2.8 
bill gal is significantly higher than the range of biodiesel volumes we 
are considering in this proposal, manufacturer warranties do not 
represent a limitation on biodiesel use in 2014.
---------------------------------------------------------------------------

    \66\ EIA Annual Energy Outlook 2013, Table 11.
    \67\ Very few engine models are warrantied by manufacturers to 
consume B20 have been sold in the U.S. As such, this volume of 
biodiesel was assumed to be negligible for purposes of this 
estimate.
---------------------------------------------------------------------------

    Production of biodiesel in 2014 is likely to be impacted 
significantly by feedstock prices. Since their peak in August and 
September of 2012 during the height of uncertainty about the effects of 
the 2012 drought, prices of soybeans and soybean products have been 
trending downward. The USDA World Agricultural Supply and Demand 
Estimates (WASDE) Report's estimate \68\ of soybean prices for the 
2012/2013 marketing year have declined from an August 2012 range of 
$15-17 per bushel to a June 2013 estimate of $14.35 per bushel for the 
2012/2013 marketing year. WASDE's June Outlook Report estimates that 
for the 2013/2014 marketing year (which includes the months of October 
through December 2013) soybean prices will range from $9.75-$11.75 per 
bushel which is in line with the projections used by EPA in the 2013 
biomass-based diesel volume final rule.\69\
---------------------------------------------------------------------------

    \68\ See http://www.usda.gov/oce/commodity/wasde/index.htm (last 
accessed June 7, 2013); The WASDE report is a monthly report 
published by the U.S. Department of Agriculture (USDA) providing 
comprehensive forecast of supply and demand for major crops both for 
the U.S. and globally. Throughout the growing season and afterwards, 
estimates are compared with new information on production and 
utilization, and historical revisions are made as necessary. It is 
widely considered to be the benchmark to which all other private and 
public agricultural forecasts are compared.
    \69\ Compare Cf 77 FR 59458 at 59465 with the May 10, 2013 WASDE 
Report released on May 10, 2013, Table 518-15. See http://www.usda.gov/oce/commodity/wasde/index.htm (last accessed June 7, 
2013).
---------------------------------------------------------------------------

    At the same time, even biodiesel blends as low as B5 cannot be 
utilized year-round due to cold weather constraints. The cloud point 
for B5 soy methyl ester (SME) blended with No. 2 diesel is estimated to 
be approximately 5 [deg]F. Thus, the use of B5 is highly unlikely in 
any region where temperatures regularly drop below 5 [deg]F. Assuming 
that biodiesel cannot be blended in such regions during any month where 
the 10% percentile temperature falls below 5 [deg]F would result in a 
reduction of the 2014 biomass-based diesel volume by only about 3%. 
This would still permit more than 2 bill gal of biodiesel to be 
consumed in 2014. Thus, it appears that for 2014, the ability to 
consume biodiesel in the vehicle fleet is not constrained by cold 
weather.
    There are a variety of other sources that provide benchmarks for 
what volumes of biodiesel could be

[[Page 71765]]

reasonably available in 2014 in excess of 1.28 bill gal. For instance, 
in the 2013 standards final rule,\70\ we assessed potential feedstocks 
for biodiesel production, concluding that excess soy oil and corn-oil 
could be used to produce an additional 200 mill gal of biodiesel in 
2013 above the 1.28 bill gal requirement. For 2014 the additional 
biodiesel from these sources could be higher. According to USDA, 
domestic soybean production is expected to increase by 13% in the 2013 
soybean marketing year which extends through September 2014, in 
comparison to the 2012 marketing year.\71\ If this occurs, then 
domestic production of soy oil could increase by about 240 mill gal. 
Regarding corn-oil, more than one third of the 320 mill gal total 
production was exported in 2012. These exports could be diverted to 
biodiesel production depending on relative prices and other factors. 
Taken together, the use of both additional soy oil production and the 
diversion of corn oil exported could bring the total biodiesel 
production volume to about 1.62 bill gal.
---------------------------------------------------------------------------

    \70\ 78 FR 49794, August 15, 2013.
    \71\ Pete Riley, ``Grains and Oilseeds Outlook; 2013 
Agricultural Outlook Forum,'' USDA/Farm Service Agency, February 22, 
2013. 13% is assumed to apply only during the first 9 months of 
2014.
---------------------------------------------------------------------------

    We continue to receive requests for approval of additional RIN-
generating pathways for new feedstocks to expand the availability of 
feedstock types and for new production processes to produce 
biodiesel.\72\ While the degree to which these new processes and 
feedstocks may be viable for the 2014 production year is uncertain, 
given their directional impacts on lowering cost and improving 
feedstock availability, we would expect that approval of such new 
pathways would add biodiesel production volume in 2014. For example, 
since the adoption of the final rule in March 2010, we have added 
canola and camelina oil as valid biodiesel feedstocks and analyzed the 
potential to produce up to 600 million gallons of biodiesel from these 
new feedstocks by 2022 through expanded crop production.\73\ These 
feedstocks were added in response to industry requests based on their 
intention to expand production of these feedstocks to support biodiesel 
production. Since canola and camelina are established crops that can be 
grown for biodiesel use today, some portion of these maximum volumes 
could be produced in 2014, adding to the volume of feedstock otherwise 
available for biodiesel production.
---------------------------------------------------------------------------

    \72\ For example, as of June 2013, EPA had 5 petitions for new 
biodiesel pathways under review and had approved 3 additional 
petitions for new biodiesel pathways.
    \73\ See for example the final rules adding giant reed and 
napier grass feedstocks (74 FR 41703) and final rule adding camelina 
and energy cane as feedstocks and renewable gasoline and renewable 
gasoline pathways (74 FR 14190).
---------------------------------------------------------------------------

    We are aware of three other sources that provide potential 
benchmarks for biodiesel production volume in 2014. In 2011, IHS Global 
Insight estimated the potential for biodiesel production over the 
following decade.\74\ Under specified assumptions for crude oil price, 
crop yields, technology, and tax policies, this report concluded that 
it would be economically feasible to produce 1.54 bill gal biodiesel in 
the U.S. in calendar year 2014. This estimate assumed that the 
biodiesel tax credit would be extended beyond 2013, and did not examine 
a case in which the tax credit is not extended.
---------------------------------------------------------------------------

    \74\ John R. Kruse, ``Biodiesel Production Prospects for the 
Next Decade'', March 11, 2011.
---------------------------------------------------------------------------

    In their comments on the NPRM for the 2013 standards, the 
University of Illinois provided the results of an analysis of both 
production and consumption limitations for ethanol and biodiesel. They 
concluded that 1.7 bill gal of biodiesel could be available without 
overwhelming feedstock supplies, but provided little detail on the 
limits of feedstock supply. It also assumed the extension of the 
biodiesel tax credit. Darling International, Inc. also evaluated 
available feedstocks and concluded that 1.9 bill gal of biodiesel could 
be produced without diverting feedstocks from domestic food 
requirements. Their analysis, however, was silent with respect to 
whether it assumed the extension of the tax credit.
    Finally, we note that there are also international sources of 
biodiesel that could be imported into the U.S. and which could be 
eligible to generate either D4 (biomass-based diesel) or D6 (renewable 
fuel) RINs in 2014. While there is a significant volume of biodiesel 
that is produced around the globe, it is unclear how much could 
potentially be imported into the U.S. in 2014 and accordingly we have 
not included these sources in our analysis of available supply.
    Based on the discussion above, we have good reason to believe that 
the volume of biodiesel that can be produced in 2014 will be higher 
than the applicable volume requirement of 1.28 bill gal. A summary of 
all of the sources we have considered is provided below.

 Table IV.B.2.b-1--Projections of 2014 Biomass-Based Diesel Ordered From
                            Lowest to Highest
                            [Million gallons]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Biomass-based diesel volume requirement.............               1,280
IHS Global Insight report...........................               1,540
Extrapolated 2013 production........................               1,570
All registered biodiesel facilities that operated at               1,600
 least 20% of capacity in 2012......................
Additional soy oil production and diversion of                     1,620
 exported corn oil to biodiesel production..........
University of Illinois estimate in their comments...               1,700
Darling International, Inc. estimate in their                      1,900
 comments...........................................
Production capacity of all registered biodiesel                    2,400
 facilities that produced some biodiesel in 2012....
------------------------------------------------------------------------

    As with E85, we believe that it would be most appropriate to 
project a range of possible biodiesel production volumes for 2014, 
using the values in Table IV.B.2.b-1 as a guide. As explained above, 
the volumes in the table above represent potential technical 
availability. We recognize that multiple factors would ultimately 
influence actual production volumes. For the purposes of this NPRM, we 
are estimating a range of 1.28-1.6 bill gal of biodiesel production for 
2014. While it would not be below 1.28 bill gal, as that is the 
required volume, it could be above the high end of 1.6 bill gal. 
However we estimate that it would be unlikely to be above this value, 
especially if the federal tax credit is not extended beyond 2013. For 
instance, the 1.9 bill gal estimate from Darling international, Inc. 
was based on extrapolating the historically high production rate from 
December 2011 into the future. The circumstances in December 2011 were 
unique: the tax credit for biodiesel was to expire at the

[[Page 71766]]

end of that month, prompting a jump in production. Thus while it is 
possible that the production rate from December 2011 might be sustained 
in the future, we believe it is unlikely if the biodiesel tax credit is 
not extended past 2013. Likewise the analysis provided by the 
University of Illinois which projected 1.7 bill gal biodiesel in 2014 
assumed that the tax credit would be extended beyond 2013. A 2011 
report prepared on behalf of the National Biodiesel Board indicated 
that the expiration of the tax credit at the end of 2010 caused a 
substantial reduction in biodiesel production in 2011 compared to 
2010.\75\
---------------------------------------------------------------------------

    \75\ Urbanchuk, John, ``Economic Impact of Removing the 
Biodiesel Tax Credit for 2010 and Implementation of RFS2 Targets 
Through 2015,'' Prepared by Cardno Entrix for the National Biodiesel 
Board, June 8, 2011 (revised).
---------------------------------------------------------------------------

    For the purposes of this NPRM, we have assumed that the biodiesel 
tax credit will not be extended beyond 2013. As a result, we believe 
that biodiesel production volumes in 2014 are more likely to be towards 
the lower end of our proposed range of 1.28-1.6 bill gal. To reflect 
this assumption, we have used a half-normal distribution to represent 
biomass-based diesel in the context of the Monte Carlo process 
described in Section IV.B.4 below. This distribution has a mean value 
of 1,405 mill gal for biodiesel.
c. Non-Ethanol Advanced Biofuel
    Non-ethanol advanced biofuel other than cellulosic biofuel and 
biomass-based diesel has a D code of 5, and could include biodiesel and 
renewable diesel that is co-processed with petroleum ,\76\ heating oil, 
biogas, jet fuel, naphtha, and LPG. In 2012, RINs were generated for 
only three of these fuel types, as summarized in the following table.
---------------------------------------------------------------------------

    \76\ Biodiesel and renewable diesel that is co-processed with 
petroleum does not meet the requirements for biomass based diesel 
(D4 RIN), however it may qualify as an advanced biofuel (D5 RIN).

  Table IV.B.2.c-1--Other Non-Ethanol Advanced Biofuel Produced in 2012
                  [Million ethanol-equivalent gallons]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Heating oil....................................................      0.2
Biogas.........................................................      2.9
Renewable diesel...............................................     20.5
                                                                --------
  Total........................................................     23.6
------------------------------------------------------------------------

    These volumes were produced domestically and there were no volumes 
of non-ethanol advanced biofuel imported into the U.S. in 2012.
    In order to estimate a range of possible volumes of other non-
ethanol advanced biofuel for 2014, we examined the Production Outlook 
Reports that are required to be submitted by all registered renewable 
fuel producers under Sec.  80.1449.

 Table IV.B.2.c-2--Projections From Production Outlook Reports for Other
             Non-Ethanol Advanced Biofuel Production in 2014
                  [Million ethanol-equivalent gallons]
------------------------------------------------------------------------
                                                              Biodiesel
------------------------------------------------------------ ----------------
Biogas.............................................     45.8
Naphtha............................................      6.6
Renewable diesel...................................     79.1
                                                    --------------------
  Total............................................    131.7
------------------------------------------------------------------------

    Because biogas cannot be used in conventional gasoline or diesel 
vehicles, we investigated more closely whether the 45.8 mill gal shown 
in the above table was realistic for 2014. According to EPA's Landfill 
Methane Outreach Program, about 360 mill ethanol-equivalent gallons of 
biogas is currently being purified and injected into existing natural 
gas pipelines.\77\ Under Sec.  80.1426 this biogas can generate 
advanced biofuel RINs if it is demonstrated to have been used to fuel 
CNG vehicles and meets all other regulatory requirements. However, this 
amount of biogas is on the same order of magnitude as the total volume 
of CNG used in all CNG vehicles each year, which is about 420 mill 
ethanol-equivalent gallons.\78\ While establishing contracts to ensure 
that all CNG vehicles are fueled with landfill biogas rather than 
fossil-based natural gas is highly unlikely to occur in the short term 
given the rapid expansion underway of CNG vehicles in the marketplace, 
we believe it is reasonable that some smaller portion of all CNG 
vehicles could be fueled with landfill biogas in 2014. Since the 45.8 
mill ethanol-equivalent gallons of biogas from the Production Outlook 
Reports, shown in Table IV.B.2.c-2, represents about 11% of the annual 
CNG vehicle consumption, it is reasonable to expect that this volume 
could be used in 2014 to fuel CNG vehicles and thus generate advanced 
biofuel RINs. We request comment, however, on whether this level of 
consumption can reasonably be achieved within the relevant time frame.
---------------------------------------------------------------------------

    \77\ Based on list of operational landfill gas (LFG) energy 
projects provided at http://www.epa.gov/lmop/projects-candidates/operational.html.
    \78\ EIA's Short-Term Energy Outlook, Table 5a, released in 
September 2013. Projection of 0.093 bill cubic feet per day for 
2014. Conversion factor is 0.96 thousand Btu per cubic foot.
---------------------------------------------------------------------------

    Therefore, based on the actual production in 2012 and the projected 
production for 2014, for this NPRM we have used a range of 24-132 mill 
gal to represent non-ethanol advanced biofuel with a D code of 5. While 
the actual volume could be above 132 mill gal, we believe this is 
unlikely as this volume is based on the projections made by the 
producers themselves in light of their assessment of their own 
capabilities and plans. Likewise, while the actual volume could be 
below 24 mill gal, we believe this is unlikely since the industry has 
demonstrated that it can produce at this level. For the final rule we 
will update this range based on more recent data on actual production 
in 2013 and more recent versions of the Production Outlook Reports.
d. Non-Ethanol Non-Advanced Renewable Fuel
    To determine a range for the non-ethanol non-advanced renewable 
fuel volume, we used the same approach as for the non-ethanol advanced 
biofuel volume. That is, we used actual 2012 production to represent 
the low end of the range and 2014 projections from Production Outlook 
Reports to represent the high end of the range. This approach resulted 
in a range of 1-25 mill gal, mostly representing production of 
biodiesel at facilities that have been grandfathered under Sec.  
80.1403 and which may use feedstocks for which there is currently no 
valid RIN-generating pathway, such as sunflower or cottonseed oil. For 
the final rule we will update this range based on more recent data on 
actual production in 2013 and more recent versions of the Production 
Outlook Reports.
3. Treatment of Carryover RINs in 2014
    In the final rule establishing the applicable standards for 2013, 
we estimated the volume of ethanol that would need to be consumed to 
meet the statutory volume requirements prior to consideration of RINs 
carried over from 2012 in 2013.\79\ The total estimated volume of 
ethanol was 14.5 bill gal. If no ethanol blends higher than E10 were 
consumed in 2013, the total volume of E10 would be 131.1 bill gal 
(ignoring small amounts of E0) and the maximum volume of ethanol that 
could be consumed would thus be 13.1 bill gal. On the basis of these 
estimates, the volume of ethanol that is estimated to exceed the amount 
that could be consumed as E10 in 2013 was 1.4 bill gal.
---------------------------------------------------------------------------

    \79\ 78 FR 49794, August 15, 2013.
---------------------------------------------------------------------------

    In addition to the option of using E85 and/or more non-ethanol 
renewable fuels, the 2013 standards final rule also pointed to the 
substantial number of

[[Page 71767]]

RINs carried over from 2012 into 2013 that could be used in lieu of 
physical volumes. We determined that there would be about 2.6 billion 
such carryover RINs available in 2013. If the 1.4 bill gal of ethanol 
that is in excess of that which can be consumed as E10 in 2013 is 
covered entirely by carryover RINs, then there would still be at least 
1.2 billion RINs that could be carried over from 2013 and available for 
use in 2014.
    As described in the 2007 rulemaking establishing the RFS 
program,\80\ carryover RINs are intended to provide flexibility in the 
face of a variety of circumstances that could limit the availability of 
RINs. More specifically, carryover RINs provide a mechanism for 
offsetting the negative effects of fluctuations in either supply of or 
demand for renewable fuels. The flexibility afforded by these carryover 
RINs was evidenced in the recent response of the market to the drought 
in 2012. The flexibility of these carryover RINs is also what we 
highlighted in the 2013 standards final rulemaking as providing the 
opportunity for compliance despite potential constraints on physical 
ethanol consumption.
---------------------------------------------------------------------------

    \80\ 72 FR 23900, May 1, 2007.
---------------------------------------------------------------------------

    In the context of determining the appropriate volume requirements 
for 2014, as for 2013 it would be appropriate to consider carryover 
RINs that may be available. However, we believe it is also important to 
the viability of the market that some reasonable amount of carryover 
RINs continue to be available. Carryover RINs act as a buffer, and 
allow the regulated parties to address unforeseen circumstances that 
could limit the availability of RINs, and to address renewable fuel 
supply circumstances that differ from those assumed in the process of 
generating the projected volume ranges discussed above. The provision 
for carryover RINs recognizes that Congress structured the RFS program 
to provide a degree of flexibility for the obligated parties. In 2013 
preserving such a buffer was not a concern, since even if the 1.4 bill 
gal of ethanol that is estimated to be in excess of that which can be 
consumed as E10 in 2013 is covered entirely by carryover RINs, there 
would remain at least 1.2 billion additional, unused carryover RINs. 
For 2014, however, if we accounted for all 1.2 billion carryover RINs 
in setting the applicable standards, obligated parties would be left 
with no flexibility for addressing other unforeseen circumstances. We 
believe that a standard-setting process that included an assumption 
that the carryover RIN balance would be reduced to zero would be 
contrary to the original intention of the provision for providing a 
degree of flexibility through carryover RINs. For this reason, we have 
not accounted for carryover RINs in our assessment of the reductions in 
the statutory volume requirements that would be appropriate in setting 
the RFS standards for 2014. For years after 2014, if circumstances 
differ substantially from those described here, we may again consider 
the existence of carryover RINs in the standard-setting process 
depending on the number of carryover RINs expected to be available and 
projections of supply and consumption of renewable fuels. We request 
comment on whether and how to account for carryover RINs in setting the 
standards.
4. Proposed Range for the Volume Requirement for Total Renewable Fuel
    As discussed in the preceding sections, we have estimated volume 
ranges for five different categories of renewable fuel as a step 
towards estimating the volume requirement for total renewable fuel for 
2014. These ranges are summarized below.

Table IV.B.4-1--Volume Ranges for Estimating Total Renewable Fuel Volume
                                for 2014
                  [Million ethanol-equivalent gallons]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Ethanol that can be consumed........................       12,954-13,087
Available volumes of non-ethanol cellulosic biofuel.                 0-9
Available volumes of biomass-based diesel...........     \a\ 1,920-2,400
Available volumes of non-ethanol advanced biofuel...              24-132
Available volumes of non-ethanol non-advanced                       1-25
 renewable fuel.....................................
------------------------------------------------------------------------
\a\ Represents a physical volume range of 1.28-1.6 bill gal.

    By aggregating these five categories, we can estimate the total 
volume of renewable fuel that represents both the volume of ethanol 
that could reasonably be consumed as E10 and higher ethanol blends, and 
the volume of all non-ethanol renewable fuels that could reasonably be 
available to meet the four applicable standards. We note that in 
practice these five categories are not independent from one another, 
since different types of renewable fuel will differ in terms of their 
cost and higher volumes of one type of renewable fuel will reduce the 
need for volumes from another category in the context of meeting the 
applicable volume requirements. However, since the ranges shown above 
are intended to encompass reasonably achievable volumes for each type 
of renewable fuel, we believe that they can be treated as independent 
for the purposes of the aggregation described below.
    In order to aggregate the ranges in Table IV.B.4-1 into a single 
range for total renewable fuel, we used a Monte Carlo analysis to 
account for the need to aggregate multiple ranges, each having 
different likely distributions of likelihood across their range. As 
discussed in the preceding sections, the high and the low end of each 
range represents values such that it is possible but unlikely that 
volumes would be outside of those ranges. We have therefore treated 
these individual ranges as representing the 90% confidence interval of 
a distribution of possible volumes. In other words, the low end of the 
range would represent the 5th percentile and the high end of the range 
would represent the 95th percentile. This approach is consistent with 
our judgment that, while the ranges shown in Table IV.B.4-1 are 
intended to encompass the vast majority of possible volumes, there 
remains a small possibility that volumes outside of those ranges are 
possible. We believe it is reasonable to treat these ranges as 
representing 90% confidence intervals for purposes of the Monte Carlo 
analysis, though we request comment on treating them as a different 
confidence interval such as 80% or 95%.
    As an alternative to a Monte Carlo process for aggregating the 
volumes in Table IV.B.4-1, we could use a simple summation of the 
ranges (i.e. basing the low end of the range of total renewable fuel on 
the sum of the low ends of the ranges for each of the five different 
categories, and likewise for the high end

[[Page 71768]]

of the range). However, we do not believe that such an approach would 
be appropriate. Doing so would tend to exaggerate the width of the 
range for the required volume of total renewable fuel as it is highly 
unlikely that 2014 volumes for each of these categories will 
simultaneously be at the extreme low or high end of the proposed 
ranges, and would also mischaracterize biofuel categories wherein one 
end of the range is expected to be more likely than the other. 
Nevertheless, we request comment on this or alternative methods to the 
Monte Carlo approach for aggregating the volumes shown in Table IV.B.4-
1.
    For the purposes of the Monte Carlo analysis, we are also proposing 
an appropriate shape to represent the applicable distribution of 
volumes within each range. The shape of the distribution of volumes is 
based on factors unique to each source of renewable fuel. We identified 
three standardized distributions that we can use to reasonably 
represent uncertainty in the distribution of volumes for each of the 
sources of renewable fuel under consideration.
[GRAPHIC] [TIFF OMITTED] TP29NO13.005

    These three standardized distributions provide a mechanism for 
representing the regions within each projected volume range where the 
greatest likelihood of reasonably achievable volumes may lie, based on 
considerations of the various sources of uncertainty unique to each 
source of renewable fuel. We recognize that the half-normal 
distribution would by definition include a mode of zero, and that this 
would imply that the greatest likelihood of occurrence is at the low 
end of the range. For sources of renewable fuel wherein the low end of 
the range is estimated to be zero, for instance for some cellulosic 
biofuel facilities as discussed in Section II.C, the use of the half-
normal would appear to suggest that zero is the most likely result. 
However, in the context of the Monte Carlo process for combining volume 
ranges from different sources, we are proposing to use the mean rather 
than the mode as described more fully below. Nevertheless, other 
distributions might be reasonable to address concerns about the mode in 
the half-normal distribution. For instance, a gamma distribution could 
be used, or a Weibull distribution with greater skewness than that 
shown in the figure above. We request comment on the use of these 
alternative distributions.
    In the case of biomass-based diesel, we are proposing that the 
applicable volume requirement for 2014 would be 1.28 bill gal. Since 
this volume would be required, there is no realistic likelihood that 
the actual volume will be below 1.28 bill gal. While production volumes 
of biomass-based diesel in 2013 are expected to substantially exceed 
the required volume of 1.28 bill gal, this is likely driven in large 
part by the tax credit for biodiesel, currently scheduled to expire at 
the end of the year, on the price of D6 RINs which have increased since 
the beginning of 2013, and potentially other factors as well. Without 
the tax credit in place, demand for biodiesel substantially beyond the 
required volume is uncertain. Under the assumption that the biodiesel 
tax credit will not be extended beyond 2013, we believe that any 
additional incremental volumes above 1.28 bill gal would be 
progressively less likely than the required volume. This suggests that 
a half-normal distribution would be the most appropriate way to 
represent volumes of biomass-based diesel. With regard to non-ethanol 
cellulosic biofuel, we developed a distribution that was based on an 
aggregation of projected volume ranges for each cellulosic biofuel 
facility. See Section II.C for more discussion. For the total volume of

[[Page 71769]]

ethanol that could reasonably be consumed, we chose a half-normal 
distribution representing ethanol in E10 and E85 because there is 
little historical information on how market prices for E85 might 
respond to higher RIN prices, nor on how FFV owners might respond to 
changes in the relative price of E85 and E10. In the future it may be 
more appropriate to use a skewed or normal distribution for the total 
volume of ethanol to reflect a growing understanding of the impact that 
RIN prices have on the retail price of E85 and the impact that E85 
prices have on consumer choice. For volumes of non-ethanol advanced 
biofuel and non-ethanol non-advanced renewable fuel, we chose normal 
distributions because we believe there is an equal likelihood that the 
volumes that could be made available would be on either the low end of 
the respective ranges or the high end of the respective ranges. We do 
not believe that actual historical volumes, which form the basis for 
the low end of the range in both cases, should also be used as 
justification for using skewed distributions. The distributions that we 
used for each of the five categories of renewable fuel are shown below.

  Table IV.B.4-2--Standard Distribution Assumptions Used in Estimating
                  Total Renewable Fuel Volume for 2014
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Ethanol that could reasonably be consumed....  Half-normal.
Available volumes of non-ethanol cellulosic    Combined.\a\
 biofuel.
Available volumes of biomass-based diesel....  Half-normal.
Available volumes of non-ethanol advanced      Normal.
 biofuel.
Available volumes of non-ethanol non-advanced  Normal.
 renewable fuel.
------------------------------------------------------------------------
\a\ As described in Section II.C, this distribution is a combination of
  the distributions for all facilities projected to produce non-ethanol
  cellulosic biofuel using the same Monte Carlo process.

    Based on the estimated ranges and distributions, we used a Monte 
Carlo process to aggregate the five distributions into a single 
distribution representing total renewable fuel. The Monte Carlo process 
randomly samples each of the five distributions in an iterative 
fashion. The results of all the iterations were then summed to produce 
a distribution for total renewable fuel. The figure below shows the 
resulting distribution after 3000 iterations. Details of the Monte 
Carlo process are provided in a memo to the docket.\81\
---------------------------------------------------------------------------

    \81\ David Korotney, ``Application of Monte Carlo process to the 
determination of proposed volume requirements for 2014 standards 
NPRM,'' memorandum to EPA Air Docket EPA-HQ-OAR-2013-0479.
[GRAPHIC] [TIFF OMITTED] TP29NO13.006

    We recognize that the Monte Carlo process is an approximation to 
the mathematical formula that would result if the probability density 
functions for each of the distributions shown in Figure IV.B.4-1 were 
combined mathematically using convolution. However, we believe that the 
additional complexity of such a process is not warranted given the 
uncertainty inherent in the volumes ranges and the assigned 
distributions. The Monte Carlo process for combining distributions 
provides a reasonably accurate result with a considerably simpler 
process.

[[Page 71770]]

    Based on this approach to aggregating the five ranges shown in 
Table IV.B.4-1, the volume of total renewable fuel that we are 
proposing for 2014 would fall within the range of 15.00-15.52 bill 
gal.\82\ Given that the applicable volume in the statute is 18.15 bill 
gal, this range represents a reduction of 2.63-3.15 bill gal. Within 
the uncertainties discussed above for each of the components, a range 
of 15.00-15.52 bill gal represents a volume of renewable fuel that 
reasonably accounts for both limitations in the volume of ethanol that 
can be supplied and consumed as well as limitations in the availability 
of non-ethanol renewable fuels.
---------------------------------------------------------------------------

    \82\ The numbers are expressed as two significant digits to 
reflect that the applicable volumes in the statute are expressed 
this way.
---------------------------------------------------------------------------

    The distribution generated by the Monte Carlo process also provides 
a basis for determining a specific value within the range. We do not 
believe that using either the low end or high end of the proposed range 
would be appropriate as the basis for the applicable standard. While we 
believe that the upper end of the projected range is achievable, basing 
the total renewable fuel volume on this higher value could present an 
increased risk to obligated parties if, for example, uncertainties in 
projected gasoline and diesel consumption for 2014 lead to a 
requirement for more renewable fuel than is available or can be 
consumed. A value between the low and high ends, in contrast, would 
better account for cases in which the actual values for some of the 
input volumes fall at the high end of their respective ranges while the 
actual value of other input volumes fall at the low end of their 
ranges. Options for a value falling between the low and high ends of 
the range include the mean, the mode (highest frequency value) and the 
median (50th percentile). It may also be reasonable to use a value 
representing higher or lower values in the distribution, such as the 
25th or 75th percentile. The table below shows the values for each of 
these approaches that correspond to the distribution in Figure IV.B.4-
2.

 Table IV.B.4-3--Potential Approaches To Determining the Total Renewable
                         Fuel Volume Requirement
                  [Million ethanol-equivalent gallons]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Mean...........................................................   15,207
Mode...........................................................   15,059
25th percentile................................................   15,084
50th percentile................................................   15,183
75th percentile................................................   15,297
------------------------------------------------------------------------

    In today's NPRM, we are proposing to use the mean value for the 
volume requirement for total renewable fuel, which represents our best 
estimate of the average amount of renewable fuel volumes that could 
reasonably be supplied. However, we request comment on whether it would 
be more appropriate to utilize either the mode or median (50th 
percentile), or some other value in the appropriate range shown in 
Table IV.B.4-3 that best reflects renewable fuel volumes that could 
reasonably be supplied under this program.
    As discussed throughout this section, there is considerable 
uncertainty in the estimates of some of the various components from 
which the required volume for total renewable fuel has been derived. 
There are many factors affecting supply, and they could lead to greater 
or lesser supply of renewable fuels than projected, such as higher or 
lower volumes of non-ethanol renewable fuel or advanced biofuels, 
higher or lower volumes of E85, the degree to which E0 is used, if any, 
and so on. Obligated parties also have significant flexibility to 
address compliance through a number of various approaches, such as the 
ability to use carryover RINs generated in 2013, or to carry a 
compliance deficit into 2015. Our proposed approach for dealing with 
this uncertainty has been to develop ranges for the various components 
and utilize the Monte Carlo process for aggregating the components into 
a single range and mean value. These estimates will be refined for the 
final rule based on more up-to-date information and any new information 
received through the public comment process. We have used this approach 
to develop the best available volume projections using current 
information.
    We understand that values lower or higher than the mean also could 
be used. For example, some parties may believe that a value lower than 
the mean should be used to provide greater confidence in the adequacy 
of supply, and avoid the risks associated with a volume reduction that 
is not sufficient to address the supply problems. From the perspective 
of production and use of renewable biofuels, in contrast, a higher 
value than the mean would avoid the risks associated with a volume 
reduction that is more than what is necessary to address the supply 
problems. As noted, our current view is that the best approach for 
resolving this uncertainty is to neither underestimate nor overestimate 
the market's capacity to supply and consume renewable fuels. We request 
comment on our proposed approach and alternate approaches described 
here.

C. Determination of Reductions in Advanced Biofuel

    The second step in our proposed framework for setting the 
applicable volume standards would be to determine an appropriate 
reduction in advanced biofuel that accounts for the availability of 
advanced biofuels in light of the significant shortfall in cellulosic 
biofuel compared to the statutory volume, as well as the contribution 
of ethanol in this category to the supply concerns related to total 
renewable fuel. The proposed volume of advanced biofuel should also 
support the goals of the RFS program for continued growth in the 
advanced biofuel category as reflected in the increasing gap between 
the cellulosic biofuel and advanced biofuel volumes set by EISA.

1. Available Volumes of Advanced Biofuel in 2014

    Using a process similar to that for total renewable fuel in Section 
IV.B above, we determined the maximum volume of advanced biofuel that 
can reasonably be available in 2014. This volume defines the upper 
limit for any potential volume requirement we would set for advanced 
biofuels under the overall approach we are proposing. As described more 
fully in Section IV.A above, availability is one important factor to 
consider it determining the appropriate volume of advanced biofuel to 
require. However, as discussed in Section IV.C.2 below, for 2014 
additional considerations lead us to propose to set the advanced 
biofuel volume requirement at a level below the total available volume.
    In this section we describe the estimation of reasonable ranges for 
four separate categories of advanced biofuel, including:
     Cellulosic biofuel.
     Biomass-based diesel.
     Domestic Production of Other Advanced Biofuel.
     Imported Sugarcane Ethanol.
a. Cellulosic Biofuel.
    As discussed in Section II above, the production of cellulosic 
biofuel in 2014 is projected to be between 8 and 30 million ethanol-
equivalent gallons. This range can be separated into ethanol and

[[Page 71771]]

non-ethanol components as shown below.

   Table IV.C.1.a-1--Projected Volumes of Cellulosic Biofuel for 2014
                  [Million ethanol-equivalent gallons]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Ethanol........................................................     5-25
Non-ethanol....................................................      0-9
                                                                --------
  Total........................................................     8-30
------------------------------------------------------------------------

    The projected volume could be significantly greater if pathways for 
the generation of cellulosic biofuel RINs from landfill biogas and corn 
kernel fiber are approved and additional volumes of cellulosic heating 
oil are produced. For more details on the potential production of non-
ethanol cellulosic biofuels in 2014, and the companies expected to 
produce these fuels, see Section II.
b. Biomass-Based Diesel
    The range of biomass-based diesel that we used in estimating the 
availability of advanced biofuel is the same as the range that we used 
in determining the proposed volume of total renewable fuel. Table 
IV.B.2.b-1 lists the sources that we used to conclude that there could 
be 1.28-1.6 bill gal of biodiesel production in 2014.
c. Domestic Production of Other Advanced Biofuel
    In Section IV.B.2.c above we used 2012 production data and 
Production Outlook Reports to develop a range of 24-132 mill gal 
representing non-ethanol advanced biofuel with a D code of 5. These 
same sources were used to develop a range of ethanol advanced biofuel 
with a D code of 5.
    In 2012, 28 mill gal of ethanol advanced biofuel (other than 
cellulosic ethanol) was produced in the U.S. Based on Production 
Outlook Reports, we project that domestic production of such biofuel 
using some combination of sugarcane, grain sorghum, and separated food 
wastes could be as high as 142 mill gal. Based on these sources, for 
this NPRM we have used a range of 28-142 mill gal to represent domestic 
production of ethanol advanced biofuel with a D code of 5.
d. Imported Sugarcane Ethanol
    Sugarcane ethanol qualifies as advanced biofuel, and historically 
the U.S. has imported substantial volumes of it. Imports from the last 
ten years are shown below. While ethanol imported into the U.S. is not 
produced exclusively from sugarcane, it has historically been the 
primary feedstock for ethanol imported into the U.S. and is expected to 
continue to be the primary feedstock of ethanol imported into the U.S. 
in future years. While the generation of advanced biofuel RINs from 
sugarcane ethanol is not limited to ethanol imported from Brazil, 
historically Brazil has been the source of the majority of ethanol 
imported into the United States. As such, this section focuses on the 
availability of sugarcane ethanol imported from Brazil.
[GRAPHIC] [TIFF OMITTED] TP29NO13.007

    As some stakeholders have noted before, imported volumes of ethanol 
have been highly variable. As a commodity traded on the world market, 
the market clearing price and quantity of Brazilian ethanol sold into 
the U.S. market fluctuates over time. Significant factors that can 
affect the price and quantity of ethanol imported into the U.S. 
include:
     Sugarcane harvest (both acres planted and yield).
     Worldwide market for sugar.
     Worldwide demand for sugarcane ethanol.
     Brazilian demand for ethanol, including the minimum 
ethanol content of gasoline as specified by the Brazilian government.
     Potential for exporting corn-ethanol from the U.S. to 
Brazil.
     Opportunities for sale of sugarcane ethanol in the U.S. 
which is a function

[[Page 71772]]

of the RIN price for advanced biofuel, legal and practical constraints 
on the volume of ethanol that can be consumed, state Low Carbon Fuel 
Standards (LCFS) program demand, and the availability and price of 
competing advanced biofuels such as biodiesel.
     Import and export tariffs.
    Production of sugarcane in Brazil in recent years has been lower 
than normally expected due to two factors. First, adverse weather 
conditions reduced production.\83\ For example, adverse weather 
conditions are estimated to have reduced cane production by about 4% in 
the 2011/2012 marketing year.\84\ Thus, a return to more typical 
weather conditions, such as occurred in the 2012/2013 agricultural 
marketing year, in the timeframe that this rulemaking considers would 
by itself restore approximately 4% of production. Second, the general 
global economic downturn in recent years made obtaining credit more 
difficult in the Brazilian sugar cane industry, resulting in delayed 
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, resulting in older fields losing production.\85\ It appears 
that credit conditions have eased and that more direct investment in 
sugar cane production and milling in Brazil is occurring.
---------------------------------------------------------------------------

    \83\ 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.
    \84\ The sugar marketing year in Brazil's center-south sugar-
producing region, where the large majority of production occurs, 
runs from May through April.
    \85\ 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.
---------------------------------------------------------------------------

    Some parties expected a more typical trend in sugarcane ethanol 
production for the 2012/2013 through the 2014/2015 harvest years, with 
replanted fields boosting 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.\86\ Private investment in Brazil may also be increasing. 
For example, Usina de Acucar Santa Terezinha, a Brazilian ethanol 
producer, last year announced plans to invest almost $300 million in a 
new mill and sugarcane plantation.\87\ Such information suggests that 
sugarcane and ethanol production in the 2013/14 and 2014/15 harvest 
years could be higher than production in 2011 and 2012.
---------------------------------------------------------------------------

    \86\ See http://www.platts.com/RSSFeedDetailedNews/RSSFeed/Oil/8987702.
    \87\ See http://www.bloomberg.com/news/2012-03-08/santa-terezinha-invests-283-million-in-brazil-ethanol-projects.html.
---------------------------------------------------------------------------

    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 in part the 
decrease in domestic ethanol production. However, given the more 
optimistic production outlook, Brazil raised the minimum ethanol 
concentration to 25% effective May 1, 2013.\88\ The 25% concentration 
rate is the highest allowed by law in Brazil. The ability of the 
Brazilian government to reset the minimum ethanol content introduces 
some uncertainty in projecting future Brazilian demand. However, 
historically, adjustments have been infrequent, relatively small in 
degree (a few percent), and largely influenced by the price of ethanol 
(high prices leading to a reduction in the minimum). Indeed, as 
evidenced by the reduction to a 20% blending rate in 2011, the 
Brazilian government considers the likely supply of sugarcane ethanol 
to support its domestic needs in setting the minimum ethanol content of 
its blended fuel.
---------------------------------------------------------------------------

    \88\ Platts, ``Brazil to raise ethanol mix in gasoline to 25% 
from 20% May 1,'' http://www.platts.com/RSSFeedDetailedNews/RSSFeed/Oil/8194390.
---------------------------------------------------------------------------

    The Iowa State/CARD model projects that Brazil will produce roughly 
8.7 bill gal of ethanol in 2014. Non-fuel use and Brazilian ethanol 
exports to countries other than the U.S. is estimated to be around 500 
million gallons, which leaves roughly 8.2 bill gal for Brazilian 
consumption and for exports to the U.S. If the minimum blending rate 
for ethanol in motor vehicles in Brazil is set at 25% (the current 
rate), Iowa State estimates that Brazil will consume roughly 5.9 bill 
gal of ethanol. At a 20% minimum blend rate, ethanol demand in Brazil 
would be roughly 5.2 bill gal. Therefore, even with the 25% minimum 
blending requirement for ethanol in vehicles, Brazil should have up to 
2.8 bill gal available for a wide variety of domestic uses as well as 
the potential to export ethanol to the U.S.\89\ Thus, assuming that the 
25% blending rate remains in effect through 2014 (including both the 
2013/14 sugarcane season which ends in May 2014 and the subsequent 
2014/15 sugarcane season), the analyses referenced below suggest that 
more than enough ethanol should be available assuming normal weather 
patterns to support both the Brazilian domestic demand as well as 
export to the U.S. in 2014.
---------------------------------------------------------------------------

    \89\ Personal Communication with Dr. Bruce Babcock, Iowa State, 
June 27, 2013.
---------------------------------------------------------------------------

    The historical volumes of sugarcane ethanol imports into the U.S. 
from Brazil are indicative of Brazilian production and export capacity, 
and thus provide several benchmarks for the volume that could 
potentially be imported into the U.S. in 2014. For instance, the 
average import volume over the last ten years is 223 mill gal, while 
the maximum volume was 560 mill gal in 2006. In 2010 Brazil had its 
largest ethanol production volume in recent history, and in that same 
year it exported 490 mill gal to the U.S. Finally, the largest total 
export volume from Brazil to all other countries was 1.35 bill gal in 
2008.
    There are several other sources providing estimates of what import 
volumes of Brazilian sugarcane ethanol may be possible in 2014. In an 
addendum to its Annual Energy Outlook 2013, EIA included an estimate of 
sugarcane ethanol imports of 719 mill gal for 2014.\90\ In their 
comments on the 2013 standards NPRM, the Brazilian Ministry of Mines 
and Energy indicated that Brazil could achieve exports of 800 mill gal 
to the U.S. in 2014. A recent report from Iowa State University 
indicated that total ethanol imports could be 310-820 mill gal in 2014, 
depending on whether the biodiesel tax credit remains in effect.\91\
---------------------------------------------------------------------------

    \90\ ``AEO2013--Addendum on Ethanol Trade Balance.pdf'' document 
submitted to docket EPA-HQ-OAR-2013-0479.
    \91\ Bruce A. Babcock et al, ``Biofuel Taxes, Subsidies, and 
Mandates: Impacts on US and Brazilian Markets,'' Staff Report 13-SR 
108, May 22, 2013.
---------------------------------------------------------------------------

    The Food and Agricultural Policy Research Institute (FAPRI) 
publishes several different documents that also provide some 
benchmarks. The 2012 World Agricultural Outlook projected that total 
net exports of ethanol from Brazil could be 1,259 mill gal in 2014,\92\ 
while their Biofuel Baseline projects that total ethanol imports into 
the U.S. could reach 496 mill gal in 2014.\93\
---------------------------------------------------------------------------

    \92\ FAPRI-ISU 2012 World Agricultural Outlook, ``Ethanol 
Trade''.
    \93\ FAPRI-MU Biofuel Baseline, March 2013. FAPRI-MU Report 
02-13. Values for the 2013/2014 agricultural year were 
averaged with those from the 2014/2015 agricultural year assuming 
that the year begins in September and ends in August.

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

[[Page 71773]]

    Based on the discussion above, we have compiled a list of 
benchmarks that we believe can be used to estimate a range of import 
volumes for Brazilian sugarcane ethanol.

Table IV.C.1.d-1--Projections of 2014 Imported Sugarcane Ethanol Ordered
                         From Lowest to Highest
                            [Million gallons]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Average import volumes from 2003-2012...............                 223
ISU Staff Report--biodiesel tax credit in place.....                 310
Ethanol exported from Brazil to the U.S. when                        490
 ethanol production was at its historical maximum
 (2010).............................................
FAPRI Biofuel Baseline..............................                 496
Production Outlook Reports..........................                 510
Historical maximum ethanol imported into the U.S.                    560
 from Brazil (2006).................................
AEO2013.............................................                 719
Projection from Brazilian Ministry of Mines and                      800
 Energy.............................................
ISU Staff Report--biodiesel tax credit not in place.                 820
FAPRI 2012 World Agricultural Outlook--total                       1,259
 Brazilian exports in 2014..........................
Historical maximum ethanol exported from Brazil                    1,350
 (2008).............................................
------------------------------------------------------------------------

    For the purposes of this NPRM, we estimate, based on a review of 
the benchmarks shown in the table above, that a range of 300-800 mill 
gal of Brazilian sugarcane ethanol could be available for import to the 
U.S. in 2014. We do not believe that it would be appropriate to use 
either the highest or lowest values in the table since they are 
unlikely to reasonably represent the market circumstances in 2014.
    While the volumes of sugarcane ethanol imported into the U.S. in 
2012 were about 500 mill gal, and in 2013 could reach a similar level, 
we believe it is reasonable to use 300 mill gal as the low end of the 
range for 2014. There has been significant variability in sugarcane 
ethanol imports in the past, so volumes below 500 mill gal are possible 
depending on market factors and relevant public policies in both 
countries. While volumes above 800 mill gal are possible, we believe 
that they are unlikely given that the Brazilian agency responsible for 
projections of exports indicated that 800 mill gal would be achievable 
in 2014, and 800 mill gal would be a substantially higher import volume 
of Brazilian sugarcane ethanol than in any previous year.
    We have used a projected range of 300-800 mill gal for imported 
sugarcane ethanol in our estimate of the total volume of advanced 
biofuel that could be available in 2014. However, as described in 
Section IV.C.2 below, we are not proposing to use only availability in 
the determination of the applicable volume requirement for advanced 
biofuel. Thus the proposed volume requirement for advanced biofuel 
would not require the use of 300-800 mill gal of sugarcane ethanol, and 
the actual volume of sugarcane ethanol that is imported will be highly 
dependent upon competition in the U.S. market with other advanced 
biofuels that could be available.
e. Summary
    As discussed in the preceding sections, we have estimated volume 
ranges for six different categories of advanced biofuel as a step 
towards estimating the availability of advanced biofuel for 2014. We 
also identified which of the three standardized curves shown in Figure 
IV.B.4-1 would be most appropriate for each category. A discussion of 
the standardized distributions for cellulosic biofuel, biomass-based 
diesel, and domestic non-ethanol advanced biofuel are provided in 
Section IV.B.4 above. For volumes of ethanol advanced biofuel, we chose 
a normal distribution because we believe there is an equal likelihood 
that the volumes that could be made available would be on either the 
low end of the range or the high end of the range. A normal 
distribution for ethanol advanced biofuel is also consistent with our 
approach to non-ethanol advanced biofuel, as both ranges were developed 
from the same sources. For volumes of imported sugarcane ethanol, the 
most recent historical data on actual imports suggests that the middle 
of the range 300-800 mill gal is likely, and this suggests that a 
normal distribution is more reasonable than a skewed distribution. The 
advanced biofuel ranges and the assumed standardized distributions are 
summarized below.

     Table IV.C.1.e-1--Volume Ranges for Estimating Advanced Biofuel
                          Availability for 2014
                  [Million ethanol-equivalent gallons]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Available volumes of non-                     0-9  Skewed.
 ethanol cellulosic biofuel.
Available volumes of ethanol                 5-25  Combination.\a\
 cellulosic biofuel.
Available volumes of biomass-     \b\ 1,920-2,400  Half-normal.
 based diesel.
Available volumes of domestic              24-132  Normal.
 non-ethanol advanced biofuel.
Available volumes of domestic              28-142  Normal.
 ethanol advanced biofuel.
Available volumes of imported             300-800  Normal.
 sugarcane ethanol.
------------------------------------------------------------------------
\a\ As described in Section II.C, this distribution is a combination of
  the distributions for all facilities projected to produce non-ethanol
  cellulosic biofuel.
\b\ Represents a physical volume range of 1.28-1.6 bill gal.

    As for the total renewable fuel volume, the high and the low end of 
each range represents values such that it is possible but unlikely that 
volumes would be higher or lower than this range. EPA therefore treated 
each individual range in Table IV.C.1.e-1 as representing the 90% 
confidence interval of the applicable standardized distribution. We 
then used a Monte Carlo process in which each of the six distributions 
were randomly sampled in an iterative fashion. The results of all the 
iterations were then summed to produce a distribution for advanced. The 
figure below shows the resulting distribution after 3000 iterations.

[[Page 71774]]

[GRAPHIC] [TIFF OMITTED] TP29NO13.008

    Based on this approach to aggregating the six ranges shown in Table 
IV.C.1.e-1, we believe that available volumes of advanced biofuel are 
likely to fall within the range of 2.49-3.23 bill gal. Given that the 
volume requirement in the statute is 3.75 bill gal, this range of 
availability represents a reduction of 0.52-1.26 bill gal.
2. Options for Determining Appropriate Reductions in Advanced Biofuel
    While projected availability defines the upper limit of the volume 
requirement we would set for advanced biofuel, we have also considered 
two other factors: the contribution of ethanol in the advanced category 
to the supply concerns discussed above with respect to total renewable 
fuel, and the RFS program's goal of growth in the advanced biofuel 
category. Below we discuss three approaches that could be taken to 
determine an appropriate volume of advanced biofuel for 2014. We 
believe that Option 3 best addresses the dual concerns of constraints 
on ethanol supply and consumption and limited availability of advanced 
biofuels while also effectuating Congress's intention that the volume 
requirement for advanced biofuel continues to grow.
a. Option 1: Advanced Biofuel Availability
    The RFS volume requirements that Congress established in CAA 
211(o)(2)(B) increase steadily between 2009 and 2022. Over this period, 
the amount of total renewable fuel which is not advanced biofuel 
(largely corn starch based ethanol) was intended by Congress to grow 
slowly up to 15.0 bill gal in 2015, and then stay at that level for 
subsequent years. Cellulosic biofuel was intended to grow very 
dramatically, from 0.5 bill gal in 2012 to 16.0 bill gal in 2022. Non-
cellulosic advanced biofuel was expected to grow steadily every year, 
increasing from 1.5 bill gal in 2012 to 5.0 bill gal in 2022. This 
anticipated growth of the advanced biofuel category is also evident 
from its increasing role as a component of the applicable volume of 
total renewable fuel, growing from 5.4% in 2009, to 20.7% in 2014, and 
61.1% in 2022. Advanced biofuel must meet a GHG reduction threshold of 
50%, compared to a 20% threshold for non-advanced renewable fuel.\94\ 
Thus, increased substitution of advanced biofuels for fossil fuels 
would result in lower lifecycle GHG emissions from transportation 
fuels.
---------------------------------------------------------------------------

    \94\ Renewable fuels grandfathered under the provisions of Sec.  
80.1403 are not required to meet any GHG threshold.
---------------------------------------------------------------------------

    In previous rulemakings where we considered reductions in the 
applicable annual volume of advanced biofuel following a reduction in 
the statutory volume for cellulosic biofuel, we focused on the 
availability of advanced biofuel (and in some cases available carryover 
RINs) when making determinations as to whether a reduction in advanced 
biofuel volumes was warranted. Using availability to set the applicable 
volume of advanced biofuel for 2014 and beyond would be consistent with 
past practice, and would reflect placing sole emphasis on its 
availability and the growth in advanced biofuels that results. However, 
the approach we used in previous annual rulemakings was based on the 
circumstances in previous years. In particular, supply concerns related 
to the legal constraints on the amount of ethanol that can be blended 
into gasoline and practical constraints on the volume of ethanol that 
can be consumed were not a limiting factor in previous years and so 
were not discussed as a potential basis for determining volumes. As 
discussed in Section IV.B.1 above, constraints on ethanol consumption 
are a limiting factor in 2014.
    Moreover, using availability as the sole basis for determining 
advanced biofuel volumes would ignore the impact that ethanol within 
the advanced biofuel category have on the supply concerns related to 
constraints on ethanol consumption in blends higher than E10. While the 
available volume of advanced biofuel would be predominantly non-
ethanol, a substantial volume would be ethanol.\95\ For an advanced 
biofuel availability of 2.49-3.23 bill gal (see Figure IV.C.1.e-

[[Page 71775]]

1), the fraction that is ethanol ranges from an average of about 18% at 
the low end of the range to an average of about 25% at the high end of 
the range. Since any advanced biofuel that is ethanol contributes to 
the concerns related to total ethanol consumption, it is appropriate to 
consider reductions in the required volume of advanced biofuel beyond 
the 0.52-1.26 bill gal reduction needed to ensure that the volume 
required is available.
---------------------------------------------------------------------------

    \95\ While production volumes of ethanol that can qualify as an 
advanced biofuel, both domestically and internationally are 
significant, consumption of this fuel will be constrained
---------------------------------------------------------------------------

    For these reasons, we invite comment on the Option 1 approach but 
are not proposing it.
b. Option 2: Full Reduction in Cellulosic Biofuel
    Under the cellulosic waiver authority we have the discretion to 
reduce advanced biofuel by up to the same amount that we reduce 
cellulosic biofuel. Thus, a second option would be to reduce the 
advanced biofuel volume by the same amount that we reduce the 
cellulosic biofuel volume. Our proposed cellulosic biofuel volume 
requirement of 8-30 mill gal for 2014 corresponds to a reduction of 
1,720-1,742 mill gal in comparison to the statutory volume of 1,750 
mill gal. This is approximately twice the size of the reduction in 
advanced biofuel that would result from accounting for availability 
alone, as in Option 1, and would result in an advanced biofuel volume 
requirement of 2,008-2,030 mill gal.
    A reduction of 1,720-1,742 mill gal in the advanced biofuel 
requirement would allow for overall growth in non-cellulosic advanced 
biofuel, consistent with overall levels of non-cellulosic advanced 
biofuels that Congress specified for 2014 in 211(o)(2)(B). The table 
below shows that this approach would ensure that the required volume of 
non-cellulosic advanced biofuel--comprised of biomass-based diesel and 
other advanced biofuel--that would be needed to meet the requirements 
would remain at 2.0 bill gal, the same volume that would have been 
needed to meet the statutory level of 3.75 bill gal of advanced biofuel 
if 1.75 bill gal of cellulosic biofuel were available.\96\
---------------------------------------------------------------------------

    \96\ The 2.0 bill gal is composed of the proposed volume of 
biomass-based diesel, 1.92 bill gallons ethanol equivalent, and the 
remaining volume of non-cellulosic advanced biofuel, 0.08 bill 
gallons.

    Table IV.C.2.b--Impact on Other Advanced Biofuel of Reducing the
   Advanced Biofuel Requirement by an Amount Equal to the Reduction in
                           Cellulosic Biofuel
                  [Million ethanol-equivalent gallons]
------------------------------------------------------------------------
                                   Required volumes    Required volumes
                                       without a       with a reduction
                                     reduction in         in advanced
                                  cellulosic biofuel   biofuel equal to
                                      or advanced        reduction in
                                        biofuel           cellulosic
------------------------------------------------------------------------
Cellulosic biofuel..............               1,750                  17
Biomass-based diesel \a\........               1,920               1,920
Other advanced biofuel \b\......                  80                  80
Total advanced biofuel..........               3,750               2,017
------------------------------------------------------------------------
\a\ Represents a physical volume of 1.28 bill gal biodiesel.
\b\ Can include biomass-based diesel with a D code of 4 that is in
  excess of that required to meet the biomass-based diesel requirement
  of 1.28 bill gal, as well as any other forms of advanced biofuel with
  a D code of 5 such as renewable diesel, heating oil, biogas, and
  imported sugarcane ethanol.

    This approach to setting the advanced biofuel volume requirement 
would minimize the impact of the advanced biofuel category on the 
supply problems associated with constraints on ethanol consumption. 
However this approach would ignore the availability of non-cellulosic 
advanced biofuel to fill the shortfall in cellulosic biofuel. It would 
reduce the market opportunities for other advanced biofuels (as 
compared to the other options), and thereby hinder the development of 
advanced biofuels that might otherwise help to meet the broader energy 
security and GHG reduction goals of Congress for the RFS program. 
Finally, as discussed below, this approach would result in greater 
reductions in advanced biofuel than are needed to account for the 
contribution of ethanol advanced biofuels to the blendwall. For these 
reasons, we invite comment on this approach but are not proposing it.
c. Option 3: Availability, Growth, and Limits on Ethanol Consumption
    Neither Option 1 nor Option 2 address all the factors we believe 
are important in the determination of the applicable advanced biofuel 
volume requirement. For instance, under Option 1 (using just 
availability to determine the appropriate volume of advanced biofuel), 
the significant impacts of constraints on ethanol consumption and the 
factors leading to a reduction in the total volume of renewable fuel 
would not be reflected at all in our determination of the advanced 
biofuel requirement. On the other hand, under Option 2 (reducing the 
advanced biofuel requirement by the same amount that we reduce 
cellulosic biofuel), would impose unnecessary constraints on non-
ethanol advanced biofuels even though they do not contribute to the 
constraints on the volume of ethanol that can reasonably be consumed.
    For these reasons we are proposing a third option that would 
address these issues by first summing the applicable volume 
requirements for cellulosic biofuel and biomass-based diesel, and then 
adding available volumes of non-ethanol advanced biofuel, including any 
biodiesel in excess of the 1.28 bill gal requirement as well as other 
available non-ethanol advanced biofuels such as renewable diesel, 
heating oil, and biogas. Under this approach, we consider only non-
ethanol sources of advanced biofuel as these fuels are not limited by 
their ability to be consumed as are ethanol blends. This approach would 
help to ensure that the advanced biofuel requirement would include all 
available volumes of advanced biofuel which do not contribute to the 
supply concerns related to constraints on ethanol consumption. It would 
also provide for additional growth in volumes of advanced biofuel that 
would otherwise be lost due to the shortfall in cellulosic biofuel. 
Once the advanced biofuel volume requirement was set, the market would 
determine which

[[Page 71776]]

advanced biofuels would be produced and sold to meet the advanced 
biofuel requirement, including whether they would be ethanol or non-
ethanol. Thus under this approach we would not be mandating or 
determining what renewable fuels would in fact be produced and sold.
    We once again used a Monte Carlo approach to aggregate the ranges 
for cellulosic biofuel, biomass-based diesel, and non-ethanol advanced 
biofuel. The ranges and standardized distributions we used in this 
process are shown in Table IV.C.2.c-1, and the resulting distribution 
for advanced biofuel is shown in Figure IV.C.2.c-1.

Table IV.C.2.c-1--Proposed Volume Ranges for Estimating Advanced Biofuel
                          Requirement for 2014
                  [Million ethanol-equivalent gallons]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Proposed requirement for                     8-30  Combined.\a\
 cellulosic biofuel.
Proposed requirement for                \b\ 1,920  n/a.
 biomass-based diesel.
Available volumes of excess             \c\ 0-480  Half-normal.
 biomass-based diesel.
Available volumes of domestic              24-132  Normal.
 non-ethanol advanced biofuel.
------------------------------------------------------------------------
\a\ As described in Section II.C, this distribution is a combination of
  the distributions for all facilities projected to produce cellulosic
  biofuel.
\b\ Represents a physical volume of 1.28 bill gal.
\c\ Represents a physical volume range of 0-320 mill gal.

[GRAPHIC] [TIFF OMITTED] TP29NO13.009

    For the reasons discussed above, we propose that the advanced 
biofuel volume requirement would be set based on the Option 3 approach, 
within the range of 2.00-2.51 bill gal. Given that the volume 
requirement in the statute is 3.75 bill gal, this proposed range of 
advanced biofuel would represent a reduction of 1.24-1.75 bill gal. In 
comparison, the reduction in cellulosic biofuel that we are proposing 
in today's NPRM is 1.72-1.74 bill gal, and the reduction in total 
renewable fuel that we are proposing is 2.63-3.15 bill gal. The Option 
3 approach to setting the advanced biofuel volume requirement would 
generate a volume that falls approximately midway between Options 1 and 
2 for 2014.
    The approach we are proposing in today's NPRM is based upon and 
fully consistent with the authorities provided in the statute for 
waiving volumes. The proposed reductions in the volumes of advanced 
biofuel and total renewable fuel derive from our determination that the 
industry and market will be unable to supply sufficient volumes in 2014 
to meet the statutory mandates, either because of projected limitations 
in production and importation of qualifying renewable fuels, or 
projected limitations in the available infrastructure to ensure that 
those fuels are supplied to and consumed in the transportation sector. 
All of these limitations represent forms of inadequate supply and are 
permissible bases for exercising both the general waiver authority and 
the cellulosic waiver authority.
    As for the required volume of total renewable fuel, there are a 
variety of ways in which a specific value within the proposed range can 
be chosen for the volume of advanced biofuel that we require in the 
final rule. The table below shows the values that correspond to the 
distribution in Figure IV.C.2.c-1 using several possible approaches.

Table IV.C.2.c-2--Potential Approaches to Determining the Final Advanced
                       Biofuel Volume Requirement
                  [Million ethanol-equivalent gallons]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Mean...........................................................    2,202
Mode...........................................................    2,099
25th percentile................................................    2,086
50th percentile................................................    2,178
75th percentile................................................    2,289
------------------------------------------------------------------------

[[Page 71777]]

    In today's NPRM we are proposing to use the mean value of 2,202 
mill gal for the volume requirement for advanced biofuel because we 
believe it best represents a neutral aim at advanced biofuel volumes 
that could reasonably be supplied. However, we request comment on 
whether one of the alternative values shown in Table IV.C.2.c-2, or 
some other approach, would be more appropriate as the basis for the 
required volume of advanced biofuel in the final rule.

D. Summary of Proposed Volume Requirements for 2014

    For the reasons discussed above, we are proposing the volumes of 
total renewable fuel and advanced biofuel as shown below.

                                     Table IV.D-1--Proposed Volumes for 2014
                                                [Billion gallons]
----------------------------------------------------------------------------------------------------------------
                                                                                          Proposed volume
                                                                     Statutory   -------------------------------
                                                                      volume           Range           Mean
----------------------------------------------------------------------------------------------------------------
Advanced biofuel................................................            3.75       2.00-2.51            2.20
Total renewable fuel............................................           18.15     15.00-15.52           15.21
----------------------------------------------------------------------------------------------------------------

    For the final rule, we may revise the ranges based on additional 
information that becomes available after publication of this NPRM. This 
information could include more recent Production Outlook Report 
required under Sec.  80.1449, production and consumption data for 2013, 
and information from stakeholders.
    With regard to the mean, we request comment on whether it is the 
most appropriate way to determine the volume within each of the ranges 
that we would require in the final rule, or whether instead one of the 
alternatives shown in Tables IV.B.4-3 or IV.C.2.c-2, or some other 
approach, would be more appropriate. Nevertheless, as described above, 
we do not believe that using either the low end or high end of the 
proposed ranges would be appropriate as the basis for the applicable 
standards. A value between the low and high ends would better account 
for cases in which the actual values for some of the input volumes fall 
at the high end of their respective ranges while the actual value of 
other input volumes fall at the low end of their ranges.
    We note that the two ranges shown in Table IV.D-1 were not 
independently derived and thus cannot be treated independently from one 
another in the determination of the appropriate volumes to finalize. 
Many of the same ranges of biofuel availability that were used in 
estimating the range of total renewable fuel were also used in 
estimating the range of advanced biofuel. This fact can be seen in the 
distribution of results from the Monte Carlo process, which shows a 
distinct correlation between total renewable fuel and advanced biofuel.
[GRAPHIC] [TIFF OMITTED] TP29NO13.010

[[Page 71778]]

    Because of this correlation, decisions for both total renewable 
fuel and advanced biofuel need to take this relationship into account. 
For example, it would not be appropriate to finalize a volume for total 
renewable fuel that is at the high end of its proposed range, while 
also finalizing a volume for advanced biofuel that is at the low end of 
its proposed range. Doing so would result in a demand for renewable 
fuels that either could not be filled with available volumes or could 
not reasonably be consumed.
    The ranges that we are proposing for advanced biofuel and total 
renewable fuel determine the range of non-advanced renewable fuel that 
would be needed. The majority of non-advanced renewable fuel is ethanol 
made from corn starch, though as discussed in Section IV.B.2.d we would 
also expect some non-ethanol renewable fuel as well, in the range of 1-
25 mill gal. Taking this non-ethanol renewable fuel into account, we 
used the results of the Monte Carlo process that generated the ranges 
shown in Table IV.D-1 to determine that the volume of corn-ethanol that 
would be needed would be 12.94-13.07 bill gal. This range represents an 
increase in comparison to 2012 corn-ethanol consumption, which was 
about 12.5 bill gal.\97\ While this range represents a reduction in 
comparison to the statutory volumes for 2014, it nonetheless represents 
an increase relative to projected 2013 corn-ethanol consumption of 
about 12.3 bill gal.\98\ For comparison, this reduction in corn-ethanol 
volume for 2014 is about 90% of the size of the proposed reduction in 
advanced biofuel. Thus under our proposed approach, both non-advanced 
renewable fuels and advanced biofuels are contributing to the necessary 
reductions needed to attain renewable fuel volumes that can reasonably 
be supplied and consumed. We request comment on our proposed approach 
and on alternative approaches that may be applied to determine how best 
to allocate adjustments needed to address the constraints of both the 
ethanol blendwall and limitations in the availability of non-ethanol 
biofuels.
---------------------------------------------------------------------------

    \97\ EIA Monthly Energy Review for June 2013, Table 10.3. Corn-
ethanol exports were about 740 mill gal in 2012 based on EIA Exports 
By Destination.
    \98\ EIA AEO2013, Table17. Assumes corn-ethanol exports of 885 
mill gal per EIA.
---------------------------------------------------------------------------

E. Volume Requirements for 2015 and Beyond

    In enacting the RFS program, Congress anticipated and intended to 
promote substantial, sustained growth in biofuel production and 
consumption--beyond the levels that have been achieved to date--though 
it did so in the context of forecasts of continually growing 
transportation fuel consumption. As explained in Section IV.B, gasoline 
demand has declined in the years since EISA was enacted in 2007 and is 
projected to continue to do so. As a result, the gasoline pool will be 
able to absorb about 2.3 bill gal less ethanol as E10 in 2014 than it 
would have been possible to absorb if the gasoline use projection in 
AEO2007 had been realized. While we recognize this change in 
circumstances, we continue to support the objective of continued growth 
in renewable fuel production and consumption, as well as the central 
policy goals underlying the RFS program: reductions in greenhouse gas 
emissions, enhanced energy security, economic development, and 
technological innovation. We recognize that the issues concerning 
availability of qualifying renewable fuels and the consumption of 
ethanol that are discussed above with respect to the 2014 RFS standards 
will continue to be relevant in 2015 and beyond. Our objective in this 
rulemaking is to develop a general approach for determining appropriate 
volume requirements that can be applied not only to 2014, but also for 
2015 and beyond. Any such approach would, of course, fully consider 
comments received in response to this NPRM and would account for new 
and improved data and changes in relevant circumstances over time. As 
we have underscored throughout this proposal, we look forward to 
engagement with stakeholders on all relevant aspects of the proposed 
approach.
    We believe that the general approach reflected in today's proposal 
is consistent with the goals of the underlying statute and will put the 
RFS program on a manageable trajectory while supporting continued 
growth in renewable fuels over time. In future years, we would expect 
to use the most recently available information to update the analyses 
used to project volumes in each of these areas:
     Volume of ethanol that could be consumed, including 
reasonably achievable growth in capacity to consume higher ethanol 
blends such as E15 and E85.
     Available volumes of cellulosic biofuel.
     Available volumes of biomass-based diesel.
     Available volumes of advanced biofuel.
     Available volumes of non-advanced renewable fuel.
     Amount of carryover RINs.

In addition to these factors, the approach we are proposing today would 
also account for changes in circumstances over time, including the 
substantial efforts underway to increase the volume of biofuel produced 
and consumed in the United States. Many companies are continuing to 
invest in efforts ranging from research and development to the 
construction of commercial scale facilities to increase the production 
potential of next generation biofuels. Many of these projects have 
received financial support from government agencies:
     DOE's ARPA-E program, which aims to advance high-
potential, high-impact energy technologies that are too early for 
private sector investment, and DOE's Integrated Biorefinery Program, 
which provides grants and works in partnership with industry to 
develop, build, operate, and validate integrated biorefineries at 
various scales at locations across the country.\99\ DOE invests more 
than $200 million annually on technology development aimed at enabling 
cost-competitive advanced biofuels, including cellulosic ethanol, 
renewable gasoline, diesel, and aviation fuel. DOE has also awarded 
over $1 billion since 2007 for 27 integrated biorefinery projects 
intended to de-risk first-of-a-kind technologies at pilot, 
demonstration, and commercial scale.
---------------------------------------------------------------------------

    \99\ For more information on these programs visit their Web 
sites at: http://arpa-e.energy.gov/ and http://www1.eere.energy.gov/bioenergy/integrated_biorefineries.html.
---------------------------------------------------------------------------

     USDA's Biorefinery Assistance Program, which provides loan 
guarantees for the development and construction of commercial scale 
biorefineries, is another example.\100\ Many of these new projects are 
focused on producing non-ethanol fuels, including bio-based 
hydrocarbons (gasoline, diesel, and jet fuel), gaseous fuels (CNG and 
LNG), or more energy-dense alcohols such as butanol.
---------------------------------------------------------------------------

    \100\ On October 21st USDA announced that an additional $181 
million would be available through the Biorefinery Assistance 
Program. For more information visit the program's Web site at: and 
http://www.rurdev.usda.gov/BCP_Biorefinery.html.
---------------------------------------------------------------------------

     President Obama's directive to USDA, DOE, and the Navy to 
collaborate with the private sector to spur a ``drop-in'' biofuels 
industry to meet the transportation needs of the Department of Defense 
(DOD) and the private sector. This multi-agency effort potentially 
establishes the federal government as an early market adopter of these 
biofuels, demonstrating their potential bankability for commercial 
markets. DOD made four $5M, 18-month phase 1 awards in June 2013. 
Successful projects will be selected to go on to

[[Page 71779]]

Phase II construction to be jointly supported by the three agencies in 
---------------------------------------------------------------------------
the beginning of fiscal year 2015.

In addition to these efforts at other agencies, EPA is currently 
evaluating a number of new pathways to allow these fuels to generate 
RINs under the RFS program if the applicable feedstock, fuel type, and 
greenhouse gas reduction requirements are met. As these new fuels and 
fuel volumes come online, the proposed methodology will automatically 
incorporate them into the development of the standards for the 
following year.
    Simultaneously, efforts are underway to increase the availability, 
awareness, and acceptance of gasoline fuel blends containing greater 
than 10 percent ethanol as expanded consumption of this fuel could play 
a role in the future. For instance, EPA has taken a series of 
regulatory steps to enable E15 to be sold in the U.S. In 2010 and 2011, 
EPA issued partial waivers to enable use of E15 in model year 2001 and 
newer vehicles, and in June of 2011, EPA finalized regulations to 
prevent misfueling of vehicles, engines, and equipment not covered by 
the partial waiver decisions. Other federal and state agencies have 
also taken steps to help foster the inclusion of E15 in the 
marketplace. We recognize that there remain a number of obstacles to 
increased E15 consumption. We request comment on what actions, on the 
part of government as well as industry and other stakeholders, could be 
taken to overcome these obstacles and to enable E15 consumption to 
increase.
    With regard to E85, the portion of the estimated 11.5 million FFV 
fleet (in 2013) \101\ having reasonable access to the existing E85 
retail infrastructure (approximately 3,000 stations nationwide) 
represents a potential market of over 1 bill gal of E85 
consumption.\102\ While there are many factors that may contribute to a 
customer's choice of which fuel to purchase, a recent study by the 
National Association of Convenience Stores found that for 71% of 
customers, price was the most important factor in their decision on 
where to purchase their fuel.\103\ Historically, E85 has been more 
expensive than E10 on an energy-content adjusted basis which has likely 
been a key factor in the low sales volumes. Recent data collected by 
EIA suggests that at least in some parts of the country the price 
relationship between E10 and E85 may be changing. In a Today in Energy 
article published on September 19, 2013, EIA presented data showing 
that in a collection of Midwestern states E85 retail prices were less 
than E10 retail prices on an energy-content adjusted basis in July 
2013, the most recent month for which information was available.\104\ 
This change in price relationship between E10 and E85 coincides with 
reported increases in sales volumes of E85 in Iowa and Minnesota, two 
states in which E85 sales volumes are publically available.\105\ If the 
conditions that have led to this price relationship continue in the 
future, E85 sales volumes are likely to continue to increase.
---------------------------------------------------------------------------

    \101\ EIA Annual Energy Outlook 2013, Table 40. Sum of Ethanol-
Flex Fuel ICE Cars and Light Trucks.
    \102\ Memorandum from David Korotney to EPA docket EPA-HQ-OAR-
2013-0479.
    \103\ 2013 NACS Retail Fuels Report.
    \104\ ``E85 motor fuel is increasingly price-competitive with 
gasoline in parts of the Midwest.'' Today in Energy. EIA, 19 
September 2013. <http://www.eia.gov/todayinenergy/detail.cfm?id=13031. Study compared daily average 
observed E85 and regular gasoline prices at the same stations in the 
states of Iowa, Illinois, Indiana, Kentucky, Michigan, Minnesota, 
and Ohio.
    \105\ See Table IV.B.1-2
---------------------------------------------------------------------------

    In addition to the potential for increased consumption of E85 when 
considering the existing infrastructure and vehicle fleet, there is 
also substantial opportunity to increase ethanol consumption in higher 
level ethanol blends through growth in the FFV fleet and E85 
infrastructure. The number of stations offering E85 is currently 
increasing at a rate of approximately 300 new stations per year.\106\ 
In 2012 USDA announced a goal to help retail station owners install as 
many as 10,000 ethanol blender pumps by 2017.\107\ Growth Energy has a 
``Blend Your Own Ethanol'' program to encourage the installation of 
ethanol blender pumps. These efforts, combined with the potential for 
these higher level ethanol blends to decrease consumer fuel costs in 
the future under appropriate market circumstances, could lead to a 
significant increase in the amount of ethanol than can be consumed as a 
transportation fuel in the United States in future years. As a 
benchmark, if every FFV currently in the fleet had access to E85 and 
chose to use it exclusively, the total consumption of these vehicles 
would be approximately 8 bill gal per year. The size of the FFV vehicle 
fleet also continues to increase, and is expected to grow by 
approximately 1 million vehicles from 2013 to 2014, with sales recently 
in excess of 2 million vehicles per year.\108\ \109\ EPA's recently 
proposed credit for vehicle manufacturers under the light-duty 
greenhouse gas standards could help encourage the continuation such 
sales into the future.\110\ Ongoing growth in the size of the FFV fleet 
and the number of E85 pumps could be accelerated by increases in demand 
from customers for E85 fuel, which has the potential to support a rapid 
growth in E85 infrastructure. Under the proposed framework for the 2014 
standards, any such growth in capacity for ethanol consumption would 
continuously be reflected in the standards set for the following year.
---------------------------------------------------------------------------

    \106\ Memorandum from David Korotney to EPA docket EPA-HQ-OAR-
2013-0479.
    \107\ http://www.usda.gov/wps/portal/usda/usdamediafb?contentid=2012/05/0141.xml.
    \108\ EIA Alternative Fuel Vehicle Data Report. Released May 4, 
2012.
    \109\ EIA Annual Energy Outlook 2013, Table 40. Increase in 
Ethanol-Flex Fuel Cars and Light Trucks from 2013 to 2014.
    \110\ Draft Guidance Letter, CD-13-XX (LD), ``E85 Flexible Fuel 
Vehicle Weighting Factor for Model Year 2016-2019 Vehicles,'' http://epa.gov/otaq/regs/ld-hwy/greenhouse/ld-ghg.htm#action.
---------------------------------------------------------------------------

    At the same time, we recognize that a number of challenges must be 
overcome in order to fully realize the potential for higher levels of 
production and consumption of higher-level ethanol blends and of 
renewable fuels generally in the United States. We also recognize that, 
while the RFS program is a central element of our domestic biofuels 
policy, a range of other tools, programs, and actions have the 
potential to play an important complementary role. We request comment 
on what actions could be taken by various industry and other private 
stakeholders, as well by the government, to help overcome these 
challenges and to minimize the need for adjustments in the statutory 
renewable fuel volume requirements in the future.

V. Proposed Percentage Standards for 2014

A. Background

    The renewable fuel standards are expressed as volume percentages 
and are used by each refiner or importer to determine their 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.C, we are proposing a required volume of 
cellulosic biofuel for 2014 of 17 million

[[Page 71780]]

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 2014. We are also proposing to reduce the 
advanced biofuel and total renewable fuel volumes. The biomass-based 
diesel volume for 2014 has been proposed to be maintained at 1.28 
billion gallons. The volumes to be used to determine the four proposed 
percentage standards are shown in Table V.A-1.

     Table V.A-1--Proposed Volumes for Use in Setting the Applicable
                    Percentage Standards for 2014 \a\
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel.....................  17 mill gal.
Biomass-based diesel...................  1.28 bill gal.
Advanced biofuel.......................  2.20 bill gal.
Renewable fuel.........................  15.21 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 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] TP29NO13.011

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. This value 
excludes diesel used in ocean-going vessels.
RGi = Amount of renewable fuel blended into gasoline that 
is projected to be consumed in the 48 contiguous states and Hawaii, 
in year i, in gallons.
RDi = Amount of renewable fuel blended into diesel that 
is projected to be consumed in the 48 contiguous states and Hawaii, 
in year i, in gallons.
GSi = Amount of gasoline projected to be used in Alaska 
or a U.S. territory in year i if the state or territory opts-in, in 
gallons.
RGSi = Amount of renewable fuel blended into gasoline 
that is projected to be consumed in Alaska or a U.S. territory in 
year i if the state or territory opts-in, in gallons.
DSi = Amount of diesel projected to be used in Alaska or 
a U.S. territory in year i if the state or territory opts-in, in 
gallons.
RDSi = Amount of renewable fuel blended into diesel that 
is projected to be consumed in Alaska or a U.S. territory in year i 
if the state or territory opts-in, in gallons.
GEi = Amount of gasoline projected to be produced by 
exempt small refineries and small refiners in year i, in gallons, in 
any year they are exempt per Sec. Sec.  80.1441 and 80.1442, 
respectively. For 2014, this value is zero. See further discussion 
in Section V.B.2 below.
DEi = Amount of diesel projected to be produced by exempt 
small refineries and

[[Page 71781]]

small refiners in year i, in gallons, in any year they are exempt 
per Sec. Sec.  80.1441 and 80.1442, respectively. For 2014, this 
value is zero. See further discussion in Section V.B.2 below.

    The four separate renewable fuel standards for 2014 are based on 
the gasoline and diesel consumption volumes projected by EIA. The Act 
requires EPA to base the standards on an EIA estimate of the amount of 
gasoline and diesel that will be sold or introduced into commerce for 
that year. The projected volumes of gasoline and diesel that will be 
used to calculate the final 2014 percentage standards will be provided 
to EPA by EIA. To estimate the gasoline and diesel projected volumes 
for the purposes of this proposal, we have used EIA's Short-Term Energy 
Outlook (STEO) \111\ for the gasoline projection and EIA's Annual 
Energy Outlook 2013 Early Release \112\ for the diesel projection. 
Gasoline and diesel volumes are adjusted to account for renewable fuel 
contained in the EIA projections. The projected volumes of ethanol and 
biodiesel used to calculate the final percentage standards will be 
provided to EPA by EIA. To estimate the ethanol and biodiesel projected 
volumes for the purposes of this proposal, we have used the values 
\113\ for ethanol and biodiesel provided in the STEO. Using the most 
recent available EIA data for purposes of this proposal allows us to 
provide the affected industries with a reasonable estimate of the 
standards for planning purposes.
---------------------------------------------------------------------------

    \111\ Energy Information Administration/Short-Term Energy 
Outlook--September 2013, Table 4a, ``U.S. Crude Oil and Liquid Fuels 
Supply, Consumption, and Inventories.''
    \112\ Energy Information Administration/Annual Energy Outlook 
2013, April 2013, ``Energy Consumption by Sector and Source, United 
States, Reference case; Transportation Distillate Fuel Oil.''
    \113\ Energy Information Administration/Short-Term Energy 
Outlook--September 2013, Table 8, ``U.S. Renewable Energy 
Consumption (Quadrillion Btu).''
---------------------------------------------------------------------------

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,\114\ we exercised our 
discretion under section 211(o)(3)(B) and extended this temporary 
exemption to the few remaining small refiners that met the Small 
Business Administration's (SBA) definition of a small business (1,500 
employees or less company-wide) but did not meet the statutory small 
refinery definition as noted above.\115\ 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).\116\
---------------------------------------------------------------------------

    \114\ 72 FR 23900, May 1, 2007.
    \115\ 40 CFR Sec. Sec.  80.1141, 80.1142.
    \116\ See 40 CFR Sec. Sec.  80.1441, 80.1442.
---------------------------------------------------------------------------

    Congress provided two ways that small refineries could receive a 
temporary extension of the exemption beyond 2010. One was 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. In March of 2011, DOE 
evaluated the impacts of the RFS program on small entities and 
concluded that some small refineries would suffer a disproportionate 
hardship.\117\ The other way that small refineries could receive a 
temporary extension is based on EPA determination of disproportionate 
economic hardship on a case-by-case basis in response to refiner 
petitions.\118\ EPA has granted some exemptions pursuant to this 
process, as recently as 2013. However, at this time, no exemptions have 
been approved for 2014. Therefore, for this proposal we have calculated 
the 2014 standards without a small refinery/small refiner adjustment.
---------------------------------------------------------------------------

    \117\ ``Small Refinery Exemption Study: An Investigation into 
Disproportionate Economic Hardship,'' U.S. Department of Energy, 
March 2011.
    \118\ 40 CFR Sec. Sec.  80.1441(e)(2), 80.1442(h).
---------------------------------------------------------------------------

    However, if an individual small refinery or small refiner requests 
an exemption and is approved prior to issuance of the final rule, the 
final standards will be adjusted to account for the exempted volumes of 
gasoline and diesel. Any requests for exemptions that are approved 
after the release of the final 2014 RFS standards will not affect the 
2014 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 2014 standards are finalized, any additional 
exemptions for small refineries or small refiners that are issued will 
not affect those 2014 standards.
3. Proposed Standards
    As specified in the March 26, 2010 RFS2 final rule,\119\ 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. For example, 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 2014, 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.
---------------------------------------------------------------------------

    \119\ 75 FR 14716, March 26, 2010.
---------------------------------------------------------------------------

    The levels of the percentage standards would be reduced if Alaska 
or a U.S. territory chooses to participate in the RFS2 program, as 
gasoline and diesel produced in or imported into that state or 
territory would then be subject to the standard. Neither Alaska nor any 
U.S. territory has chosen to participate in the RFS2 program at this 
time, and thus the value of the related terms in the calculation of the 
standards is zero.
    Note that because the gasoline and diesel volumes estimated by EIA 
include renewable fuel use, we must subtract the total renewable fuel 
volumes from the total gasoline and diesel volumes to get total non-
renewable gasoline and diesel volumes. The values of the variables 
described above are shown in Table V.B.3-1.\120\ Terms not included in 
this table have a value of zero.
---------------------------------------------------------------------------

    \120\ 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 EIA State Energy Data System (SEDS), Energy Consumption 
Estimates.

  Table V.B.3-1--Values for Terms in Calculation of the Standards \121\
                               [bill gal]
------------------------------------------------------------------------
                              Term                                Value
------------------------------------------------------------------------
RFVCB,2014.....................................................    0.017
RFVBBD,2014....................................................     1.28
RFVAB,2014.....................................................     2.20

[[Page 71782]]

 
RFVRF,2014.....................................................    15.21
G2014..........................................................   132.65
D2014..........................................................    47.12
RG2014.........................................................    13.12
RD2014.........................................................     1.38
------------------------------------------------------------------------

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

    \121\ U.S. Gasoline (October 2013 STEO) = 8.67 MMbbl/day; U.S. 
Ethanol (October 2013 STEO) = 0.858 MMBD calculated as 1.115 QBtu; 
U.S. Transportation Distillate (AEO2013) = 6.55 QBtu; U.S. Biodiesel 
(October 2013 STEO) = 0.09 MMBD calculated as 0.176 QBtu; U.S. 
Diesel Ocean-going vessels (AEO2013) = 52.429 TBtu; Alaska (SEDS 
2011): AK Gasoline = 6.321 MMbbl, AK Ethanol = 0.733 MMbbl; AK 
Diesel = 7.621 MMbbl, AK Biodiesel = 0, AK Ocean-going vessels 
estimated at 4.5% of U.S. vessel bunkering and applied to the U.S. 
ocean-going vessel volume.

          Table V.B.3-2--Proposed Percentage Standards for 2014
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Cellulosic biofuel............................................    0.010%
Biomass-based diesel..........................................     1.16%
Advanced biofuel..............................................     1.33%
Renewable fuel................................................     9.20%
------------------------------------------------------------------------

VI. 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-2013-0479. 
You may claim information that you submit to EPA as CBI by marking any 
part or all of that information as CBI (if you submit CBI on disk or CD 
ROM, mark the outside of the disk or CD ROM as CBI and then identify 
electronically within the disk or CD ROM the specific information that 
is CBI). Information so marked will not be disclosed except in 
accordance with procedures set forth in 40 CFR part 2.
    In addition to one complete version of the comments that include 
any information claimed as CBI, a copy of the comments that does not 
contain the information claimed as CBI must be submitted for inclusion 
in the public docket. 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.

VII. Statutory and Executive Order Reviews

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

    This action is a ``significant regulatory action'' as set forth 
under Executive Order 12866 (58 FR 51735, October 4, 1993). 
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. A 
determination has not been reached, however, with regard to whether 
this action is ``economically significant'' under Executive Order 
12866. Such a determination will be made for the final rule.
    The economic impacts of the RFS2 program on regulated parties, 
including the impacts of the volumes of renewable fuel specified in the 
statute, were analyzed in the RFS2 final rule promulgated on March 26, 
2010 (75 FR 14670). With the exception of biomass-based diesel, this 
action proposes standards applicable in 2013 that would be reduced from 
those analyzed in the RFS2 final rule. The impacts of the proposed 2014 
and 2015 volumes of biomass-based diesel were addressed in the final 
rule establishing the 2013 volume requirement of 1.28 bill gal (77 FR 
59458).

B. Paperwork Reduction Act

    There are no new information collection requirements associated 
with the standards in this notice of proposed rulemaking. The standards 
being proposed today would not impose new or different reporting 
requirements on regulated parties. The existing information collection 
requests (ICR) that apply to the RFS program are sufficient to address 
the reporting requirements in the regulations.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a 
currently valid OMB control number. The OMB control numbers for EPA's 
regulations in 40 CFR are listed in 40 CFR part 9.

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 
Procedures Act or any other statute unless the agency certifies that 
the rulemaking 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 proposed 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

[[Page 71783]]

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 rulemaking proposes that the annual volume requirement for 
cellulosic biofuel for 2014 would be reduced from the statutory volume 
of 1.75 bill gal. We are also proposing to reduce the annual volume 
requirements for advanced biofuel and total renewable fuel. The impacts 
of the RFS2 program on small entities were already addressed in the 
RFS2 final rule promulgated on March 26, 2010 (75 FR 14670), and this 
proposed rule will not impose any additional requirements on small 
entities beyond those already analyzed. 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 2014 
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 2014 
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 
rulemaking.
    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 proposed 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 proposed 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 2014.

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.

VIII. 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. sections 7414, 
7542, and 7601(a).

[[Page 71784]]

List of Subjects in 40 CFR Part 80

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

    Dated: November 18, 2013.
Gina McCarthy,
Administrator.

    For the reasons set forth in the preamble, 40 CFR part 80 is 
proposed to be amended as follows:

PART 80--REGULATION OF FUELS AND FUEL ADDITIVES

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

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

0
2. Section 80.1405 is amended by adding paragraph (a)(5) to read as 
follows:

Sec.  80.1405  What are the Renewable Fuel Standards?

    (a) * * *
    (5) Renewable Fuel Standards for 2014.
    (i) The value of the cellulosic biofuel standard for 2014 shall be 
0.010 percent.
    (ii) The value of the biomass-based diesel standard for 2014 shall 
be 1.16 percent.
    (iii) The value of the advanced biofuel standard for 2014 shall be 
1.33 percent.
    (iv) The value of the renewable fuel standard for 2014 shall be 
9.20 percent.

[FR Doc. 2013-28155 Filed 11-27-13; 8:45 am]
BILLING CODE 6560-50-P