USCA Case #17-1049 Document #1661370 Filed: 02/10/2017 ...

UNITED STATES COURT OF APPEAL ILEDFT I Q

RCEiVEóOR THE DISTRICT OF COLUMBIA CIR( ‘UIt..

____________________

CLERK

)MONROE ENERGY, LLC, ) V

) No. 17-1049Petitioner, )

)v. )

)UNITED STATES ENVIRONMENTAL )PROTECTION AGENCY, )

)Respondent. )

)

PETITION FOR REVIEW

Pursuant to Section 307(b) of the Clean Air Act, 42 U.S.C. § 7607(b), as

well as Federal Rule of Appellate Procedure 15(a) and D.C. Circuit Rule 15(a),

Petitioner Monroe Energy, LLC petitions the United States Court of Appeals for

the District of Columbia Circuit for review of the final rule of Respondent United

States Environmental Protection Agency (“EPA”), entered the 12th day of

December, 2016, entitled EPA, Final Rule, Renewable Fuel Standard Program:

Standards for 2017 and Biomass-Based Diesel Volume for 201$, $1 Fed. Reg.

89,746 (Dec. 12, 2016) (attached as Exhibit A). This Court has jurisdiction and

venue is proper under 42 U.S.C. § 7607(b)(1).

1

USCA Case #17-1049 Document #1661370 Filed: 02/10/2017 of 64

Dated: February 10, 2017 Respectfully submitted,

Thomas J. PerrelliDavid W. DeBruinMatthew E. PriceJENNER & BLOCK LLP1099 New York Ave., NW Suite 900Washington, DC 20001Tel.: 202-639-6000Fax: 202-639-6066Email: tperrellijenner.com

ddebruinj enner.commpricejenner.com

Counselfor Monroe Energy, LLC

2


CORPORATE DISCLOSURE STATEMENT

Pursuant to D.C. Circuit Rule 26.1 and Federal Rule of Appellate Procedure

26.1, Petitioner Monroe Energy, LLC respectfully submits the following corporate

disclosure statement:

Monroe Energy, LLC is a refiner of petroleum products and is wholly owned

by Delta Air Lines, Inc., a publicly traded company.

Dated: February 10, 2017 Respectfully submitted,

Matthew F. Price


CERTIFICATE OF SERVICE

Pursuant to Circuit Rule 15(a), I hereby certify that on February 10, 2017, a

true and correct copy of the foregoing Petition for Review and Corporate

Disclosure Statement were served by certified United States mail, postage prepaid,

to the following addresses:

The Honorable Catherine R. McCabeActing AdministratorU.S. Environmental Protection Agency1200 Pennsylvania Ave., NWWashington, DC 20460

Correspondence Control UnitOffice of General Counsel (2311)U.S. Environmental Protection Agency1200 Pennsylvania Ave., NWWashington, D.C. 20460

The Honorable Jeff SessionsAttorney General of the United StatesU.S. Department of Justice950 Pennsylvania Ave., NWWashington, DC 20530

Dated: February 10, 2017

Matthew E. PriceJENNER & BLOCK LLP1099 New York Ave., NW Suite 900Washington, DC 20001Tel.: 202-639-6000Fax: 202-639-6066Email: mpricej enner. corn


EXHIBIT A


89746 Federal Register/Vol. 81, No. 238/Monday, December 12, 2016/Rules and Regulations

ENVIRONMENTAL PROTECTIONAGENCY

40 CFR Part 80

[EPA—HQ—OAR—2076—0004; FRL—9955—84—OAR]

RIN 2060—AS72

Renewable Fuel Standard Program:Standards for 2077 and BiomassBased Diesel Volume for 2078

AGENCY: Environmental ProtectionAgency (EPA).ACTION: Final rule.

SUMMARY: Under section 211 of theClean Air Act, the EnvironmentalProtection Agency (EPA) is required toset renewable fuel percentage standardsevery year. This action establishes theannual percentage standards forcellulosic biofuel, biomass-based diesel,advanced biofuel, and total renewablefuel that apply to all motor vehiclegasoline and diesel produced orimported in the year 2017. Relying onstatutory authority that is availablewhen projected cellulosic biofuelproduction volumes are less than the

applicable volume specified in thestatute, the EPA is setting volumerequirements for cellulosic biofuel,advanced biofuel, and total renewablefuel that are below the statutoryapplicable volumes, but which arenevertheless significantly higher thanpast requirements. The final rule alsoestablishes the four percentagestandards applicable to obligatedparties, namely producers and importersof gasoline and diesel, based on thecorresponding volume requirements.The final standards are expected tocontinue driving the market toovercome constraints in renewable fueldistribution infrastructure, which inturn is expected to lead to substantialgrowth over time in the production anduse of renewable fuels. In this action,we are also establishing the applicablevolume of biomass-based diesel for2018.

DATES: This final rule is effective onFebruary 10, 2017.

ADDRESSES: The EPA has established adocket for this action under Docket IDNo. EPA—HQ—OAR—2016—0004. Alldocuments in the docket are listed on

the http://www.regulations.gov Website. Although listed in the index, someinformation is not publicly available,e.g., CBI or other information whosedisclosure is restricted by statute.Certain other material, such ascopyrighted material, is not placed onthe Internet and will be publiclyavailable only in hard copy form.Publicly available docket materials areavailable electronically through http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: JuliaMacAllister, Office of Transportationand Air Quality, Assessment andStandards Division, EnvironmentalProtection Agency, 2000 TraverwoodDrive, Ann Arbor, MI 48105; telephonenumber: 734—214—4131; email address:[email protected].

SUPPLEMENTARY INFORMATION: Entitiespotentially affected by this final rule arethose involved with the production,distribution, and sale of transportationfuels, including gasoline and diesel fuelor renewable fuels such as ethanol,biodiesel, renewable diesel, and biogas.Potentially regulated categories include:

This table is not intended to beexhaustive, but rather provides a guidefor readers regarding entities likely to beregulated by this final action. This tablelists the types of entities that EPA isnow aware could potentially beregulated by this final action. Othertypes of entities not listed in the tablecould also be regulated. To determinewhether your entity would be regulatedby this final action, you should carefullyexamine the applicability criteria in 40CFR part 80. If you have any questionsregarding the applicability of this finalaction to a particular entity, consult theperson listed in the FOR FURTHERINFORMATION CONTACT section.

Outline of This Preamble

I. Executive SummaryA. Purpose of This ActionB. Summary of Major Provisions in This

Action1. Approach to Setting Volume

Requirements

2. Cellulosic Biofuel3. Advanced Biofijel4. Total Renewable Fuel5. Biomass-Based Diesel6. Armual Percentage Standards7. Assessment of Aggregate Compliance

II. Authority and Need for Waiver ofStatutory Applicable Volumes

A. Statutory Authorities for ReducingVolume Targets

1. Cellulosic Waiver Authority2. General Waiver Authority3. General Comments Related to Waiver

AuthoritiesB. Treatment of Carryover RINs1. Updated Projection of Carryover RIN

Volume2. EPA’s Decision

III. Cellulosic Biofuel Volume for 2017A. Statutory RequirementsB. Cellulosic Biofuel thdustry Assessment1. Potential Domestic Producers2. Potential Foreign Sources of Cellulosic

Biofuel3. Summary of Volume Projections for

Individual CompaniesC. Projection From the Energy Information

Administration

D. Cellulosic Biofuel Volume for 2017IV. Advanced Biofuel Volume for 2017

A. Volumetric Limitation on Use of theCellulosic Waiver Authority

B. Determination of Reasonably Attainableand Appropriate Volumes

1. Imported Sugarcane Ethanol2. Biodiesel and Renewable Diesel3. Other Advanced Biofliel4. Total Advanced Biofuel

V. Total Renewable Fuel Volume for 2017A. Volumetric Limitation on Use of the

Cellulosic Waiver AuthorityB. Assessing Adequacy of Supply1. Ethanoli. E0ii. E15iii. E85iv. Total Ethanol2. Biodiesel and Renewable Dieseli. Feedstock Availabilityii. Biodiesel and Renewable Diesel

Production Capacityiii. Biodiesel and Renewable Diesel hnport

Capacityiv. Biodiesel and Renewable Diesel

Distribution Capacity

Category NAICS codes SIC2 codes Examples of potentially regulated entities

Industry 324110 2911 Petroleum Refineries.Industry 325193 2869 Ethyl alcohol manufacturing.Industry 325199 2869 Other basic organic chemical manufacturing.Industry 424690 5169 Chemical and allied products merchant wholesalers.Industry 424710 5171 Petroleum bulk stations and terminals.Industry 424720 5172 Petroleum and petroleum products merchant wholesalers.Industry 221210 4925 Manufactured gas production and distribution.Industry 454319 5989 Other fuel dealers.

North American Industry Classification System (NAICS).2Standard Industrial Classification (SIC) system code.


Federal Register/Vol. 81, No. 238/Monday, December 12, 2016/Rules and Regulations 89747

v. Biodiesel and Renewable Diesel RetailInfrastructure Capacity

vi. Biodiesel and Renewable DieselConsumption Capacity

vii. Biodiesel and Renewable DieselConsumer Response

viii. Projected Supply of Biodiesel andRenewable Diesel in 2017

3. Total Renewable Fuel SupplyC. Market Responses to the Advanced

Biofuel and Total Renewable FuelVolume Requirements

D. Impacts of 2017 Standards on CostsVI. Biomass-Based Diesel Volume for 2018

A. Statutory RequirementsB. Determination of Applicable Volume of

Biomass-Based Diesel1. BBD Production and Compliance

Through 20152. Interaction Between BBD and Advanced

Biofuel Standards3. BBD Volume for 2018C. Consideration of Statutory Factors for

2018VII. Percentage Standards for 2017

A. Calculation of Percentage StandardsB. Small Refineries and Small RefinersC. Final Standards

VIII. Assessment of Aggregate ComplianceA. Assessment of the Domestic Aggregate

Compliance ApproachB. Assessment of the Canadian Aggregate

Compliance ApproachIX. Public ParticipationX. Statutory and Executive Order Reviews

A. Executive Order 12866: RegulatoryPlanning and Review and ExecutiveOrder 13563: Improving Regulation andRegulatory Review

B. Paperwork Reduction Act (PRA)C. Regulatory Flexibility Act (RFA]D. Unfunded Mandates Reform Act

(UMRA)E. Executive Order 13132: FederalismF. Executive Order 13175: Consultation

and Coordination With Indian TribalGovernments

G. Executive Order 13045: Protection ofChildren From Environmental HealthRisks and Safety Risks

H. Executive Order 13211: ActionsConcerning Regulations ThatSignificantly Affect Energy Supply,Distribution, or Use

I. National Technology Transfer andAdvancement Act (NTTAA)

J. Executive Order 12898: Federal ActionsTo Address Environmental Justice inMinority Populations, and Low-IncomePopulations

K. Congressional Review Act (CRA)XI. Statutory Authority

I. Executive SummaryThe Renewable Fuel Standard (RFS)

program began in 2006 pursuant to therequirements in Clean Air Act (CAA)section 2 11(0] that were added throughthe Energy Policy Act of 2005 (EPAct).The statutory requirements for the RFSprogram were subsequently modifiedthrough the Energy Independence andSecurity Act of 2007 (EISA), resulting inthe publication of major revisions to theregulatory requirements on March 26,2010.1 EISA’s stated goals includemoving the United States toward“greater energy independence andsecurity, to increase the production ofclean renewable fuels.” Today, nearlyall of the approximately 142 billiongallons of gasoline used fortransportation purposes contains 10percent ethanol (ElO), and a substantialportion of diesel fuel contains biodiesel.

Renewable fuels represent anopportunity for the U.S. to move awayfrom fossil fuels towards a set of lowerlifecycle GHG transportation fuels, andthe RFS program provides incentives forthese lower lifecycle GHG fuels to growand compete in the market. Whilerenewable fuels include non-advanced(conventional) corn starch ethanol,which is the predominant renewablefuel in use to date, Congress envisionedthe majority of growth from 2014forward to come from advancedbiofuels, as the conventional volumesremain constant in the statutory volumetables starting in 2015 while theadvanced volumes continue to grow.2

The statute includes annual volumetargets, and requires EPA to translatethose volume targets (or alternativevolume requirements established byEPA in accordance with statutorywaiver authorities) into complianceobligations that refiners and importersmust meet every year. In this action, weare establishing the annual percentagestandards for cellulosic biofuel,biomass-based diesel, advanced biofuel,and total renewable fuel that would

apply to all gasoline and dieselproduced or imported in 2017. We arealso establishing the applicable volumeof biomass-based diesel for 2018.

The standards we are setting aredesigned to achieve the Congressionalintent of increasing renewable fuel useover time in order to reduce lifecycleGHG emissions of transportation fuelsand increase energy security, while atthe same time accounting for the real-world challenges that have slowedprogress toward these goals. Thosechallenges have made the volumetargets established by Congress for 2017beyond reach for all fuel categoriesother than biomass-based diesel (BBD),for which the statute specifies only aminimum requirement of 1.0 billiongallons. In setting these standards for2017, we have used the cellulosicwaiver authority provision provided byCongress to establish volumerequirements that will be lower than thestatutory targets for fuels other thanbiomass-based diesel, but neverthelessrepresent significant growth from pastyears.

The 2017 volume requirements foradvanced biofuel and total renewablefuel are higher than the levels weproposed in the NPRM, reflecting ourassessment of updated information anda review of comments received. We arealso finalizing the proposed volumerequirement for BBD for 2018. This BBDvolume requirement will continue toprovide support for the BBD industry,and we expect that larger volumes ofthis fuel type are likely to be used tocomply with the advanced biofuelrequirement. The final volumerequirements are shown in Table I—ibelow. These final volumes, whenconsidered together with the volumesestablished over the past several years ofthe RFS program, indicate that the RFSprogram is working to deliver steady,ambitious growth in the total amount ofrenewable fuel produced and used inthe United States, consistent withCongressional intent.

TABLE I—i—PROPOSED AND FINAL VOLUME REQUIREMENTS a

2017 2018

Proposed Final Proposed Final

Cellulosic biofuel (million gallons) 312 31 1 n/a n/aBiomass-based diesel (billion gallons) b2.0 b2.0 2.1 2.1Advanced biofuel (billion gallons) 4.0 4.28 n/a n/aRenewable fuel (billion gallons) 18.8 19.28 n/a n/a

aAll values are ethanol-equivalent on an energy content basis, except for BBD which is biodiesel-equivalent.bThe 2017 BED volume requirement was established in the 201 4—2016 final rule (80 FR 77420, December 14, 2015).

‘75 FR 14670, March 26, 2010. 2 this document we follow the commonpractice of using the term “conventional”

renewable fuel to mean any renewable fuel that isnot an advanced biofuel.



Despite significant increases inrenewable fuel use in the United States,real-world constraints, such as theslower than expected development ofthe cellulosic biofuel industry andconstraints in the marketplace related tosupply of certain biofuels to consumers,have made the timeline laid out byCongress for the growth in renewablefuel use (other than for BBD) impossibleto achieve. These challenges continue,and are largely the same for 2017 as theywere for 2016. However, a carefulreview of the comments we received inresponse to the May 31, 2016 Notice ofProposed Rulemaking (NPRM) and otherinformation that has become availablesince May has led us to conclude thatvolume reductions for 2017 need not beas great as we had proposed. In light ofthe lower reductions necessary, in thisfinal rule we rely exclusively on thecellulosic waiver authority to providereductions in both advanced biofuel andtotal renewable fuel volumes. That is,we have determined that it is notnecessary to provide an additionalincrement of volume reduction for totalrenewable fuels through use of thegeneral waiver authority based on afinding of inadequate domestic supply,as we had done in the final ruleestablishing annual standards for 2014—2016 (“Renewable Fuel StandardProgram: Standards for 2014, 2015, and2016 and Biomass-Based Diesel Volumefor 2017,” (hereinafter referred to as the“2014—2016 final rule”), and as we alsoproposed to do in establishing standardsfor 2017.

We believe that the RFS program canand will drive renewable fuel use, andwe have considered the ability of themarket to respond to the standards weset when we assessed the amount ofrenewable fuel that can be reasonablyattained in 2017. Therefore, while thisfinal rule applies the tools Congressprovided to make adjustments to thestatutory volume targets in recognitionof the constraints that exist today, webelieve the standards we are setting inthis action will drive growth inrenewable fuels, particularly advancedbiofuels, which achieve substantiallifecycle GHG emissions. In our view,while Congress recognized that supplychallenges may exist as evidenced bythe waiver provisions, it did not intendgrowth in the renewable fuels market to

be stopped by those challenges,including those associated with the“ElO blendwall.” The fact thatCongress chose to mandate increasingand substantial amounts of renewablefuel clearly signals that it intended theRFS program to create incentives toincrease renewable fuel supplies andovercome constraints in the market. Thestandards we are setting in this actionwill provide those incentives.

The standards we are setting in thisfinal rule are part of a collection ofactions, in both the government andprivate sectors, to increase the use ofrenewable fuels. In addition to ongoingefforts to evaluate new pathways for RINgeneration for advanced biofuels, wehave recently proposed regulatoryprovisions that we believe will enhancethe ability of the market to increase notonly the production of advanced andcellulosic biofuels, but also the use ofhigher-level ethanol blends such as E15and E85.° DOE and USDA arecontinuing to provide funds for thedevelopment of new technologies andexpansion of infrastructure for higherethanol blends, and the ethanol industryhas also made efforts to expand the useof higher ethanol blends through itsPrime the Pump program. These actionsare expected to continue to help clearhurdles to support the ongoing growthin the use of renewable fuels in futureyears.

A. Purpose of This Action

The national volume targets ofrenewable fuel that are intended to beachieved under the RFS program eachyear (absent an adjustment or waiver byEPA] are specified in CAA section211(o)(2]. The statutory volumes for2017 are shown in Table IA—i. Thecellulosic biofuel and BBD categoriesare nested within the advanced biofuelcategory, which is itself nested withinthe total renewable fuel category. Thismeans, for example, that each gallon ofcellulosic biofuel or BBD that is used tosatisfy the individual volumerequirements for those fuel types can

also be used to satisfy the requirementsfor advanced biofuel and totalrenewable fuel.

TABLE l.A—i—APPLICABLE 2017 VOLUMES SPECIFIED IN THE CLEAN AIRACT

Cellulosic biofuel 5.5Biomass-based diesel 1 .0Advanced biofuel 9.0Renewable fuel 24.0

aAlI values are ethanol-equivalent on an energy content basis, except values for BBDwhich are given in actual gallons.

Under the RFS program, EPA isrequired to determine and publishannual percentage standards for eachcompliance year. The percentagestandards are calculated to ensure use intransportation fuel of the national“applicable volumes” of the four typesof biofuel (cellulosic biofuel, BBD,advanced biofuel, and total renewablefuel) that are set forth in the statute orestablished by EPA in accordance withthe Act’s requirements. The percentagestandards are used by obligated parties(generally, producers and importers ofgasoline and diesel fuel] to calculatetheir individual compliance obligations.Each of the four percentage standards isapplied to the volume of non-renewablegasoline and diesel that each obligatedparty produces or imports during thespecified calendar year to determinetheir individual volume obligationswith respect to the four renewable fueltypes. The individual volumeobligations determine the number ofRINs of each renewable fuel type thateach obligated party must acquire andretire to demonstrate compliance.

EPA is establishing the annualapplicable volume requirements forcellulosic biofuel, advanced biofuel, andtotal renewable fuel for 2017, and forBBD for 2018. Table I.A—2 lists thestatutory provisions and associatedcriteria relevant to determining thenational applicable volumes used to setthe percentage standards in this finalrule.

[Billion gallonsJa

ElO blendwall” represents the volume ofethanol that can be consumed domestically if allgasoline contains 10% ethanol and there are nohigher-level ethanol blends consumed such as E15or E85.

the recently proposed RenewablesEnhancement and Growth Support (REGS) Rule (81FR 80828, November 16, 2016). More informationabout this proposed rule can be found at hrtps://www.epa.gov/renewable-fue]-stondord-program/proposed-renewobles-enhancement-ond-growthsupport-rags-rule.

7The 2017 BBD volume requirement wasestablished in the 2014—2016 final rule.

80 FR 77420, December 14, 2015.81 FR 34778, May 31, 2016.



TABLE I.A—2—STATUTORY PROVISIONS FOR DETERMINATION OF APPLICABLE VOLUMES

Applicable volumes Clean air act reference Criteria provided in statute for determination of applicable volume

Cellulosic biofuel 211(o)(7)(D)fi) Required volume must be lesser of volume specified in CM211(o)(2)(B)(i)(Ill) or EPA’s projected volume.

27 1(o)(7)(A) EPA in consultation with other federal agencies may waive the statutory volume in whole or in part if implementation would severely harm the economyor environment of a State, region, or the United States, or if there is an inadequate domestic supply.

Biomass-based diesel8 21 1(o)(2)(B)(ii) and (v) Required volume for years after 2012 must be at least 1.0 billion gallons, andmust be based on a review of implementation of the program, coordinationwith other federal agencies, and an analysis of specified factors.

21 1(o)(7)fA) EPA in consultation with other federal agencies may waive the statutory volume in whole or in part if implementation would severely harm the economyor environment of a State, region, or the United States, or it there is an inadequate domestic supply.

Advanced biofuel 211(o)f7)(D)(i) If applicable volume of cellulosic biofuel is reduced below the statutory volume to the projected volume, EPA may reduce the advanced biofuel andtotal renewable fuel volumes in CAA 211fo)(2)(B)(i)(l) and (II) by the sameor lesser volume. No criteria specified.


Total renewable fuel 211(o)(7)(D)(i) If applicable volume of cellulosic biofuel is reduced below the statutory volume to the projected volume, EPA may reduce the advanced biofuel andtotal renewable fuel volumes in CAA 211(o)(2)(B)(i)(l) and (II) by the sameor lesser volume. No criteria specified.


As shown in Table I.A—2, thestatutory authorities allowing EPA tomodify or set the applicable volumesdiffer for the four categories ofrenewable fuel. Under the statute, EPAmust annually determine the projectedvolume of cellulosic biofuel productionfor the following year. If the projectedvolume of cellulosic biofuel productionis less than the applicable volumespecified in section 211(o)(2)(B)(i)(III) ofthe statute, EPA must lower theapplicable volume used to set theannual cellulosic biofuel percentagestandard to the projected productionvolume. In Section III of this final rule,we present our analysis of cellulosicbiofuel production and the finalapplicable volume for 2017. Thisanalysis is based on informationprovided by the Department of Energy’sEnergy Information Administration(EIA], an evaluation of producers’production plans and progress to datefollowing discussions with cellulosicbiofuel producers, and is informed bycomments we received in response tothe NPRM.

With regard to BBD, Congress chose toset aside a portion of the advanced

8Section 211(o)(7)(E) also authorizes EPA inconsultation with other federal agencies to issue atemporary waiver of applicable volumes of BBDwhere there is a significant feedstock disruption orother market circumstance that would make theprice of BBD fuel increase significantly.

biofuel standard for BBD, and CAAsection 211(o)(2](B) specifies theapplicable volumes of BBD to be usedin the RFS program only through year2012. For subsequent years the statutesets a minimum volume of 1 billiongallons, and directs EPA, incoordination with the U.S. Departmentsof Agriculture (USDA) and Energy(DOE), to determine the requiredvolume after review of implementationof the renewable fuels program andconsideration of a number of factors.The BBD volume requirement must beestablished 14 months before the year inwhich it will apply. In the 2014—2016final rule we established the BBDvolume for 2017. In Section VI of thispreamble we discuss our assessment ofstatutory and other relevant factors andour final volume requirement for BBDfor 2018, which has been developed incoordination with USDA and DOE. Weare increasing the required volume ofBBD so as to provide continued supportto that important contributor to the pooiof advanced biofuel while at the sametime setting the volume requirement ina manner anticipated to providecontinued incentive for thedevelopment of other types of advancedbiofuel.

Regarding advanced biofuel and totalrenewable fuel, Congress providedseveral mechanisms through whichthose volumes could be reduced if

necessary. If we reduce the applicablevolume of cellulosic biofuel below thevolume specified in CAA section211(o)(2](B)(i](III), we also have theauthority to reduce the applicablevolumes of advanced biofuel and totalrenewable fuel by the same or a lesseramount. We refer to this as the‘cellulosic waiver authority.” We may

also reduce the applicable volumes ofany of the four renewable fuel typesusing the “general waiver authority”provided in CAA section 211(o)(7](A) ifEPA, in consultation with USDA andDOE, finds that implementation of thestatutory volumes would severely harmthe economy or environment of a State,region, or the United States, or if thereis inadequate domestic supply. SectionsII, IV, and V of this final rule describeour use of the cellulosic waiverauthority alone to reduce volumes ofadvanced biofuel and total renewablefuel, and our assessment that theresulting volumes are reasonablyattainable. As described in the NPRM,and consistent with the views that weexpressed in the 2014—2016 final rule,we continue to believe that reductionsin the statutory targets for 2017 arenecessary. However, in light of ourreview of updated information andconsideration of comments, we aremaking those reductions under thecellulosic waiver authority alone andare not finalizing an additional


$9750 Federal Register/Vol. 81, No. 238/Monday, December 12, 2016/Rules and Regulations

increment of reduction for totalrenewable fuel based on a finding ofinadequate domestic supply under thegeneral waiver authority as we hadproposed. Despite the reductions we arefinalizing today, we continue to bemindful that the primary objective ofthe statute is to increase renewable fueluse over time. While progress has takenlonger than Congress anticipated, wenote that today’s rule provides for 15billion gallons of conventionalrenewable fuel, the implied levelenvisioned under the statute for 2017,while also providing for a substantialincrease in the required volume ofadvanced biofuel over past volumerequirements.

B. Summary ofMajor Provisions in ThisAction

This section briefly summarizes themajor provisions of this final rule. Weare establishing applicable volumerequirements and associated percentagestandards for cellulosic biofuel,advanced biofuel, and total renewablefuel for 2017, as well as the percentagestandard for BBD for 2017, and theapplicable volume requirement for BBDfor 2018.

1. Approach to Setting VolumeRequirements

The approach we have taken in thisfinal rule is essentially the same as thatpresented in the NPRM and in the2014—2016 final rule with regard toestablishing the cellulosic biofuelvolume requirement, and the use of thecellulosic waiver authority to reduceadvanced biofuel and total renewablefuel. However, it differs in that we havenot found it necessary to also use thegeneral waiver authority to provide anadditional increment of reduction withrespect to total renewable fuel. While inthe NPRM we proposed to determinethe maximum reasonably achievablesupply of total renewable fuel,consistent with the general waiverauthority’s “inadequate domesticsupply” criterion, in this final rule wehave instead identified the totalrenewable fuel volume that results fromuse of the cellulosic waiver authority,and have determined that this volume oftotal renewable fuel is reasonablyattainable. In this assessment, we tookinto account the same constraints in thesupply of renewable fuel we noted inthe NPRM, but have come to a differentresult with respect to necessary volumereductions in light of updatedinformation and consideration ofcomments.

Section II provides a generaldescription of our approach to settingvolume requirements in today’s rule,

including a review of the statutorywaiver authorities and ourconsideration of carryover RINs. SectionIII provides our assessment of the 2017cellulosic biofuel volume based on aprojection of production that reflects aneutral aim at accuracy. Sections IV andV describe our assessment of reasonablyattainable volumes of advanced biofueland total renewable fuel, respectively.Finally, Section VI provides ourdetermination regarding the 2018 BBDvolume requirement, and reflects ananalysis of a set of factors stipulated inCAA section 211(o)(2)(B)(ii).

2. Cellulosic BiofuelIn the past several years the cellulosic

biofuel industry has continued to makeprogress towards increased commercialscale production. Cellulosic biofuelproduction reached record levels in2015, driven largely by compressednatural gas (CNG) and liquefied naturalgas (LNG) derived from biogas, and isexpected to exceed these volumes in2016. Cellulosic ethanol, whileproduced in much smaller quantitiesthan CNG/LNG derived from biogas,was produced consistently on acommercial scale for the first time in2015. Cellulosic ethanol productionlevels increased from existing facilitiesin 2016, and significant work continuesto be done to enable the production ofcellulosic ethanol at new facilities in2017 and beyond. Available data suggestthat the production levels for bothcellulosic CNG/LNG and cellulosicethanol in 2016 will exceed by asignificant margin the levels producedin 2015. In this rule we are establishinga cellulosic biofuel volume requirementof 311 million ethanol-equivalentgallons for 2017 based on theinformation we have received regardingindividual facilities’ capacities,production start dates and biofuelproduction plans, information receivedin public comments, input from othergovernment agencies, and EPA’s ownengineering judgment.

As part of estimating the volume ofcellulosic biofuel that will be madeavailable in the U.S. in 2017, weconsidered all potential productionsources by company and facility. Thisincluded facilities still in thecommissioning or start-up phases, aswell as facilities already producingsome volume of cellulosic biofuel.9From this universe of potentialcellulosic biofuel sources, we identified

° Facilities primarily focused on research anddevelopment (R&D] were not the focus of ourassessment, as production from these facilitiesrepresents very small volumes of cellulosic biofuel,and these facilities typically have not generatedRINs for the fuel they have produced.

the subset that is expected to producecommercial volumes of qualifyingcellulosic biofuel for use astransportation fuel, heating oil, or jetfuel by the end of 2017. To arrive atprojected volumes, we collectedrelevant information on each facility.We then developed projectedproduction ranges based on factors suchas the status of the technology beingused, progress towards construction andproduction goals, facility registrationstatus, production volumes achieved,and other significant factors that couldpotentially impact fuel production orthe ability of the produced fuel toqualify for cellulosic biofuel RenewableIdentification Numbers (RINs]. We alsoused this information to group thesecompanies based on production historyand to select a value within theaggregated projected production rangesthat we believe best represents the mostlikely production volume from eachgroup of companies in 2017. Furtherdiscussion of these factors and the waythey were used to determine our finalcellulosic biofuel projection for 2017can be found in Section III.

3. Advanced Biofuel

The conditions that compelled us toreduce the 2016 volume requirement foradvanced biofuel below the statutorytarget remain relevant in 2017. As for2016, we investigated the ability ofvolumes of non-cellulosic advancedbiofuels to backfill unavailable volumesof cellulosic biofuel in 2017, throughdomestic production or import. We tookinto account the substantial GHGemissions reduction required ofadvanced biofuels, the variousconstraints on supply of advancedbiofuels, the ability of the standards weset to bring about market changes in thetime available, and the potentialimpacts associated with diverting somefeedstocks from current use to theproduction of biofuel. Based on theseconsiderations and review of thecomments received in response to theNPRM and other information that hasbecome available, we have determinedthat a portion of the shortfall incellulosic biofuel may appropriately bebackfilled with advanced biofuel. Weare exercising our cellulosic waiverauthority to reduce the statutoryapplicable volume of advanced biofuelto a final volume requirement of 4.28billion gallons for 2017. This issomewhat higher than the proposedlevel of 4.0 billion gallons. Theapplicable volume for advanced biofuelthat we are establishing for 2017 willresult in significant volume growth overthe volume requirement for 2016, andwill require the use of more non-



cellulosic advanced biofuel (3.97 billiongallons) than would have been requiredunder the statutory targets (3.50 billiongallons).

4. Total Renewable FuelFollowing our determination of the

appropriate volume reduction foradvanced biofuel for 2017 using thecellulosic waiver authority, we appliedthe same volume reduction to thestatutory target for total renewable fuel,resulting in a volume requirement of19.28 billion gallons. We then evaluatedthis total renewable fuel volume todetermine if it is reasonably attainablegiven assessments of attainable volumesof individual fuel types, includingbiodiesel, renewable diesel, ethanol (inthe form of ElO or higher ethanol blendssuch as E15 or E85, taking into accountdemand for E0), and other renewablefuels. Based on comments received inresponse to the NPRM and otherinformation that has become available,we have determined that a totalrenewable fuel volume of 19.28 billiongallons is reasonably attainable in 2017.There is, therefore, no need to use thegeneral waiver authority to furtherreduce the total renewable fuel volumerequirement due to a finding ofinadequate domestic supply.b0

5. Biomass-Based DieselIn EISA, Congress specified increasing

applicable volumes of BBD through2012. Beyond 2012 Congress stipulatedthat EPA, in coordination with otheragencies, was to establish the BBDvolume taking into considerationimplementation of the program to dateand various specified factors, providingthat the required volume for BBD couldnot be less than 1.0 billion gallons. For2013, EPA established an applicablevolume of 1.28 billion gallons. For 2014and 2015 we established the BBDvolume requirement to reflect the actualvolume for each of these years of 1.63and 1.73 billion gallons.11 For 2016 and2017, we set the BBD volumerequirements at 1.9 and 2.0 billiongallons respectively.

Given current and recent marketconditions, the advanced biofuelvolume requirement is driving the use

10The general waiver authority can also be usedunder a determination that the RFS volumes wouldcause “severe economic or environmental harm.”As descrihed in Section II.A.2 and in more detailin the response to comments documentaccompanying this rule, EPA does not believe thatthe record supports a finding of severe economic orenvironmental hsnn with respect to the volumerequirements we are finalizing today.

11 The 2015 BBD standard was based on actualdata for the first 9 months of 2015 and onprojections for the latter part of the year for whichdata on actual use was not available at the time.

of biodiesel and renewable dieselvolumes over and above volumesrequired through the separate BBDstandard, and we expect this tocontinue. Nevertheless, we continue tobelieve for 2018 that it is appropriate toset increasing BBD applicable volumesto provide a floor to support continuedinvestment to enable increasedproduction and use of BBD. In doing sowe also believe in the importance ofmaintaining opportunities within theadvanced biofuel requirement forgrowth in other types of advancedbiofuel, such as renewable diesel coprocessed with petroleum, renewablegasoline blend stocks, and renewableheating oil, as well as others that areunder development.

Thus, based on a review of theimplementation of the program to dateand all the factors required under thestatute, and in coordination with USDAand DOE, we are finalizing an increasein the applicable volume of BBD by 100million gallons, to 2.1 billion gallons for2018. We believe that this increase willsupport the overall goals of the programwhile also maintaining the incentive fordevelopment and growth in productionof other advanced biofuels. Establishingthe volumes at this level will encourageBBD producers to manufacture highervolumes of fuel that will contribute tothe advanced biofuel and totalrenewable fuel requirements, while alsoleaving considerable opportunity withinthe advanced biofuel mandate forinvestment in and growth in productionof other types of advanced biofuel withcomparable or potentially superiorenvironmental or other attributes.

6. Annual Percentage StandardsThe renewable fuel standards are

expressed as a volume percentage andare used by each producer and importerof fossil-based gasoline or diesel todetermine their renewable fuel volumeobligations. The percentage standardsare set so that if each obligated partymeets the standards, and if ETAprojections of gasoline and diesel usefor the coming year prove to be accurate,then the amount of renewable fuel,cellulosic biofuel, BBD, and advancedbiofuel actually used will meet thevolume requirements used to derive thepercentage standards, required on anationwide basis.

Four separate percentage standardsare required under the RFS program,corresponding to the four separaterenewable fuel categories shown inTable IA—i. The specific formulas weuse in calculating the renewable fuelpercentage standards are contained inthe regulations at 40 CFR 80.1405. Thepercentage standards represent the ratio

of renewable fuel volume to projectednon-renewable gasoline and dieselvolume. The volume of transportationgasoline and diesel used to calculate thefinal percentage standards was providedby the Energy InformationAdministration (ETA). The finalpercentage standards for 2017 areshown in Table I.B.6—1. Detailedcalculations can be found in Section VII,including the projected gasoline anddiesel volumes used.

TABLE I.B.6—1—FINAL 2017PERCENTAGE STANDARDS

Cellulosic biofuel 0.173%Biomass-based diesel 1.67%Advanced biofuel 2.38%Renewable fuel 10.70%

7. Assessment of Aggregate ComplianceBy November 30 of each year we are

required to assess the status of theaggregate compliance approach to land-use restrictions under the definition ofrenewable biomass for both the U.S. andCanada. In today’s action we areproviding the final announcements forthese administrative actions.

As part of the RFS regulations, EPAestablished an aggregate complianceapproach for renewable fuel producerswho use planted crops and crop residuefrom U.S. agricultural land. Thiscompliance approach relieved suchproducers (and importers of such fuel)of the individual recordkeeping andreporting requirements otherwiserequired of producers and importers toverify that such feedstocks used in theproduction of renewable fuel meet thedefinition of renewable biomass. EPAdetermined that 402 million acres ofU.S. agricultural land was available in2007 (the year of EISA enactment) forproduction of crops and crop residuethat would meet the definition ofrenewable biomass, and determined thatas long as this total number of acres isnot exceeded, it is unlikely that newland has been devoted to cropproduction based on historical trendsand economic considerations. Weindicated that we would conduct anannual evaluation of total U.S. acreagethat is cropland, pastureland, orconservation reserve program land, andthat if the value exceeds 402 millionacres, producers using domesticallygrown crops or crop residue to producerenewable fuel would be subject toindividual recordkeeping and reportingto verify that their feedstocks meet thedefinition of renewable biomass. Asdescribed in Section VIllA, based ondata provided by the USDA and usingthe methodology in place since 2014,


89752 federal Register/Vol. 81, No. 238/Monday, December 12, 2016/Rules and Regulations

we have estimated that U.S. agriculturalland totaled approximately 380 millionacres in 2016 and thus did not exceedthe 2007 baseline acreage. Thisassessment means that the aggregatecompliance provision can continue tobe used in the U.S. for calendar year2017.

On September 29, 2011, EPAapproved the use of a similar aggregatecompliance approach for planted cropsand crop residue grown in Canada. TheGovernment of Canada utilized severaltypes of land use data to demonstratethat the land included in their 124million acre baseline is cropland,pastureland or land equivalent to U.S.Conservation Reserve Program land thatwas cleared or cultivated prior toDecember 19, 2007, and was activelymanaged or fallow and non-forested onthat date (and is therefore RFS2qualifying land]. As described inSection VllI.B, based on data providedby Canada, we have estimated thatCanadian agricultural land totaledapproximately 118.4 million acres in2016 and thus did not exceed the 2007baseline acreage. This assessment meansthat the aggregate compliance provisioncan continue to be used in Canada forcalendar year 2017.

II. Authority and Need For Waiver ofStatutory Applicable Volumes

The statute provides the EPA with theauthority to reduce volumerequirements below the applicablevolume targets specified in the statuteunder specific circumstances. Thissection discusses those authorities andour use of the cellulosic waiverauthority alone to set 2017 volumerequirements for cellulosic biofuel,advanced biofuel, and total renewablefuel that are below the statutory volumetargets.

A. StatutoryAuthorities for ReducingVolume Targets

In CAA section 211(o)(2), Congressspecified increasing annual volumetargets for total renewable fuel,advanced biofuel, and cellulosic biofuelfor each year through 2022, and forbiomass-based diesel through 2012, andauthorized EPA to set volumerequirements for subsequent years incoordination with USDA and DOE, andafter consideration of specified factors.However, Congress also recognized thatunder certain circumstances it would beappropriate for EPA to set volumerequirements at a lower level thanreflected in the statutory volume targets,and thus provided waiver provisions inCAA section 211(o)(7).

1. Cellulosic Waiver Authority

Section 211(o](7)(D)(i) of the CAAprovides that if EPA determines that theprojected volume of cellulosic biofuelproduction for a given year is less thanthe applicable volume specified in thestatute, that EPA must reduce theapplicable volume of cellulosic biofuelrequired to the projected productionvolume for that calendar year. In makingthis projection, EPA must take a“neutral aim at accuracy.” APIv. EPA,706 F.3d 474 (D.C. Cir. 2013). Pursuantto this provision, EPA has set thecellulosic biofuel requirement lowerthan the statutory volumes for each yearsince 2010. As described in SectionIII.D, the projected volume of cellulosicbiofuel production for 2017 is less thanthe 5.5 billion gallon volume target inthe statute. Therefore, for 2017, we aresetting the cellulosic biofuel volumerequirement at a level lower than thestatutory applicable volume, inaccordance with this provision.

Section 211(o)(7)(D)(i) also providesthat “[f]or any calendar year in whichthe Administrator makes . . . areduction [in cellulosic biofuelvolumesJ, the Administrator may alsoreduce the applicable volume ofrenewable fuel and advanced biofuels

by the same or a lesser volume.”Using this authority, the reductions intotal renewable fuel and advancedbiofuel can be less than or equal to, butno more than, the amount of reductionin the cellulosic biofuel volume. EPAused this authority to reduce applicablevolumes of advanced biofuel in 2014—16, and to reduce the total renewablefuel volumes in those years by an equalamount. We refer to authority in Section211(o](7)(D)(i) to waive volumes ofadvanced and total renewable fuel asthe “cellulosic waiver authority.”

The cellulosic waiver authority wasdiscussed by the United States Court ofAppeals for the District of ColumbiaCircuit, in the context of itsconsideration of a judicial challenge tothe rule establishing the 2013 annualRFS standards. As the court explained,

The Clean Air Act provides that if EPAreduces the cellulosic biofuel requirement, asit did here, then it ‘may also reduce’ theadvanced biofuel and total renewable fuelquotas ‘by the same or a lesser volume.’ 42U.S.C. 7545(o)(7)(D)(i). There is norequirement to reduce these latter quotas, nordoes the statute prescribe any factors thatEPA must consider in making its decision.See Id. In the absence of any express orimplied statutory directive to considerparticular factors, EPA reasonably concludedthat it enjoys broad discretion regardingwhether and in what circumstances to reducethe advanced biofuel and total renewable fuelvolumes under the cellulosic waiver

provision. Monroe v. EPA, 750 F.3d 909, 915(D.C. Cir. 2014].

Some stakeholders have commentedthat EPA may only exercise thecellulosic waiver authority to reducetotal and advanced volumes incircumstances described in CAA section211(o)(7)(A] (that is, where there isinadequate domestic supply or severeharm to the environment or economy),or that it must in using the cellulosicwaiver authority consider the factorsspecified in section 211(o)(2](B)(ii) thatare required considerations when EPAsets applicable volumes for years inwhich the statute does not do so.Contrary to these comments, the Courtfound in the Monroe case that thestatute does not prescribe any factorsthat EPA must consider in making isdecision; EPA has broad discretionunder 211(o)(7)(D)(i) to determine whenand under what circumstances to reducethe advanced and total renewable fuelvolumes when it reduces the statutoryapplicable volume of cellulosic biofuel.

When using the cellulosic waiverauthority, we believe that there wouldbe substantial justification to exerciseour discretion to lower volumes of totaland advanced biofuels in circumstanceswhere there are questions regarding thesufficiency of production or import ofpotentially qualifying renewable fuels,and where there is evidence ofconstraints that would limit the abilityof those biofuels to be used for purposesspecified in the Act (i.e., intransportation fuel, heating oil, or jetfuel). In addition, we believe that it isappropriate in exercising the cellulosicwaiver authority for EPA to consider theCongressional objectives reflected in thevolumes tables in the statute, and theenvironmental objectives that generallyfavor the use of advanced biofuels overnon-advanced biofuels. For example, inlight of the larger GHG emissionsreductions required for advancedbiofuels as compared to conventionalbiofuel, and the Congressional objectiveto dramatically increase their use in thetime period between 2015 and 2022, webelieve that it is generally appropriatefor reasonably attainable volumes ofadvanced biofuel that are sourced in amanner expected to provide significantGHG reduction benefits to backfill forshortages in cellulosic biofuel. On theother hand, we do not believe it wouldbe appropriate for the gap in theavailability of cellulosic biofuel in 2017to be filled or partially filled with nonadvanced biofuel, taking intoconsideration both the substantiallylower greenhouse gas emissionsreductions required for non-advanced


federal Register/Vol. 81, No. 238/Monday, December 12, 2016/Rules and Regulations 89753

biofuel and the Congressional intentreflected in the statutory tables that useof these biofuels in this time periodwould be limited.’ Theseconsiderations are consistent withEPA’s past interpretation of thecellulosic waiver authority asenvisioning equivalent reductions in theapplicable volumes of advancedbiofuels and total renewable fuels’4 See74 FR 24914; 78 FR 49810.

We believe, as we did in setting thevolumes in the past, that thecircumstances justifying use of ourcellulosic waiver authority and thus areduction in statutory volumes arecurrently present, and we are againusing our cellulosic waiver authorityunder 211(o)(7)(D)(i) to reduce volumerequirements for advanced biofuel andtotal renewable fuel. Congressenvisioned that there would be 5.5billion gallons of cellulosic biofuel in2017, while our production projection,described in detail in Section III, is for311 million gallons. Under211(o)(7)(D)(i), EPA must lower therequired cellulosic volume to theprojected production volumes. See alsoAPIv. EPA, 706 F.3d 474 (D.C. Cir.2012). Doing so also provides EPA withauthority to lower advanced and totalrenewable fuel volumes by the same ora lesser amount.

We have determined, as described inSection IV, that the applicable volumefor advanced biofuels specified in thestatute for 2017 cannot be achieved and,consistent with the principles describedabove, we are exercising our cellulosicwaiver authority to lower the applicablevolume of advanced biofuel to a levelthat is both reasonably attainable and

f2Nonadvanced biofuel must meet the 20%reduction in lifecycle GHG emissions described inCAA section 211(o)(2)(A)(i), unless they qualifi foran exemption under 40 CFR 80.1403.

Since the advanced biofuel volumerequirement is nested within the total renewablefuel volume requirement, the statutory impliedvolume for conventional renewable fuel in thestatutory tables can be discerned by subtracting theapplicable volume of advanced biofuel from that oftotal renewable fuel. Performing this calculationwith respect to the tables in CAA section211(o)(2)fB) indicates a Congressional expectationthat in the time period 2015—2022, advancedbiofuel volumes would grow from 5.5 to 21 billiongallons, while the implied volume for conventionalrenewable fuel would remain constant at 15 billiongallons.

Our consistent view has been that the provisionis best interpreted and implemented to provide forequal reductions in advanced biofuel and totalrenewable fuel. We believe that this approach isconsistent with the statutory language and besteffectuates the objectives of the statute, in that itallows for EPA to determine an appropriate volumeof advanced biofuel providing meaningful GHGemissions reductions to backfill missing cellulosicvolumes, while also resulting in an implied volumefor conventional renewable fuel of no greater than15 billion gallons as envisioned in the statutorytime period for 2015—2022.

appropriate, and to provide anequivalent reduction in the applicablevolume of total renewable fuel. Inaddition, we have determined that thereis adequate supply to satisfy the totalrenewable fuel volume derived throughapplying an equal volume reduction asfor advanced biofuel. Therefore, nofurther reductions of the total renewablefuel volume requirement are necessaryto address concerns of inadequatesupply. The resulting volumerequirements provide the benefitsassociated with the use of reasonablyattainable and appropriate volumes ofadvanced biofuels to partially backfillfor missing volumes of cellulosic biofuelin 2017, while also providing for animplied volume requirement forconventional biofuel equal to thatenvisioned by Congress for 2017.

2. General Waiver AuthoritySection 211(o)(7)(A) of the CAA

provides that EPA, in consultation withthe Secretary of Agriculture and theSecretary of Energy, may waive theapplicable volume specified in the Actin whole or in part based on petition byone or more States, by any personsubject to the requirements of the Act,or by the EPA Administrator on her ownmotion. Such a waiver must be based ona determination by the Administrator,after public notice and opportunity forcomment that (1) implementation of therequirement would severely harm theeconomy or the environment of a State,a region or the United States, or (2) thereis an inadequate domestic supply.Because the general waiver provisionprovides EPA the discretion to waivethe statutory applicable volume “inwhole or in part,” we interpret thissection as granting EPA authority tofully or partially waive any of the fourapplicable volume requirements inappropriate circumstances. For the years2014—2016, EPA determined that therewas an inadequate domestic supply oftotal renewable fuel, and used thegeneral waiver authority to reduce thetotal renewable fuel volumes furtherthan the reductions obtained using thecellulosic waiver authority. In the noticeof proposed rulemaking for this rule,EPA proposed to use the general wavierauthority in a similar way, and for thesame reason, in establishing the 2017total renewable fuel volumerequirement.

Based on further evaluation of theavailability of renewable fuel in themarket, in the interim between theNPRM and this final rule, and review ofpublic comment, EPA has determinedthat it is not necessary to use the generalwaiver authority. That is, we havedetermined that use of the cellulosic

waiver authority alone will be sufficientto yield a volume requirement that isconsistent with available supply.’

3. General Comments Related to WaiverAuthorities

Many commenters suggested that EPAshould only use the cellulosic waiverauthority to reduce volumes of totalrenewable fuel in 2017. While we do notbelieve this would have been possibleunder the circumstances described inthe proposal, in light of EPA’s reevaluation of available supplies, asdiscussed in Sections IV and V, we aretoday following the approach suggestedby these commenters in using thecellulosic waiver authority exclusivelyto reduce volumes of both advancedbiofuel and total renewable fuel.

Some commenters said that EPAshould not reduce the volumerequirements for advanced biofuel andtotal renewable fuel at all and shouldinstead set standards for 2017 based onthe statutory targets. In most cases, thesecommenters based their positions on theavailability of carryover RINs and anexpectation that “letting the marketwork” would be sufficient to overcomeall constraints related the productionand distribution of fuels that can beused to satisfy these standards. Asdescribed in Section II.B below, wecontinue to believe that, in light of theexpected volume of carryover RINs, itwould be inappropriate for 2017 tointentionally draw down the bank ofcarryover RINs for the purposes ofincreasing the volume requirementsabove levels that can be satisfied withphysical volume. As for “letting themarket work,” we believe that this viewis dismissive of the market constraintsdiscussed in the NPRM, Table lIE. 1—1of the 2014—2016 final rule and inSections IV.B and V.B of this final rule.The market is not unlimited in itsability to respond to the standards EPAsets. While setting the standards at thestatutory targets would undoubtedlyproduce a significant increase in RINprices, doing so in light of the combinedactions of all constraints shown in TableILE.1—1 of the 2014—2016 final rule anddiscussed in Sections IV.B. and V.B. ofthis rule would nevertheless create a

15Some commenters noted that in addition to theauthority to reduce applicable volumes under thegeneral waiver authority on the basis of an“inadequate domestic supply” that EPA possessesthe ability to use the general waiver authority whereit finds that the RFS volumes would cause “severeeconomic or environmental harm in a State, region,or the United States.” As described in more detailin the response to comments documentaccompanying this rule, EPA does not believe thatthe record supports a finding of severe economic orenvironmental harm with respect to the volumerequirements we are finalizing today.



shortfall in supply in 2017 that wouldlikely lead to a complete draw-down inthe bank of carryover RINs,noncompliance, and/or additionalpetitions for a waiver of the standards.As described in Sections IV and V, weare authorized to use the cellulosicwaiver authority in 2017 to reducevolumes of advanced and totalrenewable fuel, and believe it isappropriate to do so for the reasonsnoted in those sections.

B. Treatment of Carryover BINs

Consistent with our approach in the2014—2016 final rule, we have alsoconsidered the availability and role ofcarryover RINs in our decision toexercise our cellulosic waiver authorityin setting the advanced and totalvolume requirements for 2017.16Although the statute requires a creditprogram and specifies that the creditsshall be valid for a 12-month timeperiod, neither the statute nor EPAregulations specify how or whether EPAshould consider the availability ofcarryover RINs in exercising itscellulosic waiver authority.17 As notedin the context of the rule establishingthe 2014—16 RFS standards, we believethat a bank of carryover RINs isextremely important in providingobligated parties compliance flexibilityin the face of substantial uncertaintiesin the transportation fuel marketplace,and in providing a liquid and well-functioning RIN market upon whichsuccess of the entire program depends.18Carryover RINs provide flexibility in theface of a variety of circumstances thatcould limit the availability of RINs,including weather-related damage torenewable fuel feedstocks and othercircumstances potentially affecting the

production and distribution ofrenewable fuel.19 On the other hand,carryover RINs can be used forcompliance purposes, and in the contextof the 2013 RFS rulemaking we notedthat an abundance of carryover RINsavailable in that year, together withpossible increases in renewable fuelproduction and import, justifiedmaintaining the advanced and totalrenewable fuel volume requirements forthat year at the levels specified in thestatute. 20

In the 2017 NPRM, EPA estimatedthat the likely volume of the carryoverRIN bank for 2017 would beapproximately 1.72 billion carryoverRINs (including all D codes). Weproposed that in light of this relativelylimited volume and the importantfunctions provided by the RIN bank,that we would not set the volumerequirements for 2017 in a manner thatwould intentionally lead to a drawdownin the bank of carryover RINs. In theircomments on the 2017 NPRM, partiesgenerally expressed two opposingpoints of view. Commentersrepresenting obligated parties supportedEPA’s proposed decision to not assumea drawdown in the bank of carryoverRINs in determining the appropriatelevel of volume requirements. Thesecommenters reiterated the importance ofmaintaining the carryover RIN bank inorder to provide obligated parties withnecessary compliance flexibilities,better market trading liquidity, and acushion against future programuncertainty. Commenters representingrenewable fuel producers, however,contended that carryover RINs representactual supply and should be accountedfor when establishing the annualvolume standards and, in particular, inany determination under the generalwaiver authority that there is an“inadequate domestic supply.” Theyexpressed concern that obligated partiescould use carryover RINs as analternative to RINs generated forrenewable fuel produced in 2017,leading to less demand for their productand inadequate return on investment.21

1. Updated Projection of Carryover RINVolume

In the NPRM, EPA estimated that thecarryover RIN bank available in 2017would be approximately 1.72 billioncarryover RINs. Since that time,obligated parties have submitted theircompliance demonstrations for the 2014

19See id., and 72 FR 23900 (May 1, 2007).205ee 79 FR 49794 (August 15, 2013).21 A full description of comments received, and

our detailed responses to them, is available in theResponse to comments document in the docket.

compliance year and, based on thatinformation, we now estimate that therewill at most be 1.54 billion carryoverRINs available for possible use incomplying with the standards for 2017,a decrease of nearly 200 million RINsfrom the previous estimate.22 This isapproximately 8 percent of the final2017 total renewable fuel volumestandard and less than half of the 20percent limit permitted by theregulations to be carried over for use incomplying with the 2017 standards.However, there remains considerableuncertainty surrounding this numbersince compliance demonstrations stillneed to be made for the 2015 and 2016RFS standards, and it is unclear at thistime whether some portion of the 1.54billion carryover RINs we estimate willbe available for the 2017 compliancedemonstrations will be used forcompliance prior to 2017. In addition,we note that there have beenenforcement actions in past years thathave resulted in the retirement of RINsthat were fraudulently generated andwere therefore invalid, and parties thatrelied on those invalid RINs forcompliance were required to acquirevalid substitutes to true up their pastcompliance demonstrations. Futureenforcement actions could have similarresults, and require that obligatedparties settle past enforcement-relatedobligations in addition to the annualstandards, thereby potentially creatingdemand for RINs greater than can beaccommodated through actualrenewable fuel blending in 2017.Collectively, the result of satisfying RFSobligations in 2015 and 2016 andsettling enforcement-related accountscould be an effective reduction in thesize of the collective bank of carryoverRINs to a level below 1.54 billion RINs.Thus, we believe there is considerableuncertainty that a RIN bank as large as1.54 billion RINs will be available in2017.

2. EPA’s Decision

EPA has decided to maintain theproposed approach, and not set thevolume requirements in the final rulewith the intention or expectation ofdrawing down the current bank ofcarryover RINs. In finalizing thisapproach, we carefully considered themany comments received, including onthe role of carryover RINs under ourwaiver authorities and the policyimplications of our decision. While wehave not assumed an intentional

22 The calculations performed to estimate thenumber of carryover RINs available in 2017 can befound in the memorandum, “2017 Carryover RINBank Calculations,” available in the docket.

ie The discussion of the role of carryover RINs asthey relate to the cellulosic volume standard for2017 can be found in Section 111.0.

17CAA section 211(o)(5) requires that EPAestablish a credit program as part of its RFSregulations, and that the credits be valid to showcompliance for 12 months as of the date ofgeneration. EPA implemented this requirementthough the use of RH’Js, which can be used todemonstrate compliance for the year in which theyare generated or the subsequent compliance year.Obligated parties can obtain more RINs than theyneed in a given compliance year, allowing them to“carry over” these excess RINs for use in thesubsequent compliance year, although use of thesecarryover RINs is limited to 20% of the obligatedparty’s RVO. For the bank of carryover RINs to bepreserved from one year to the next, individualcarryover RINs are used for compliance before theyexpire and are essentially replaced with a newervintage RIN that is then held for use in the nextyear. For example, if the volume of the RIN bankis unchanged from 2016 to 2017, then all of thevintage 2016 carryover RINs must be used forcompliance in 2017, or they will expire. However,the same volume of 2017 RINs can then be“banked” for use in the next year.

‘5See 80 FR 77482—77487 (December 14, 2015).



drawdown in the overall bank ofcarryover RINs owned by obligatedparties collectively in establishing thevolume requirements for 2017, weunderstand that some obligated partiesmay choose to sell or use all or part oftheir individual banks of carryoverRINs. To the extent that they do so,other obligated parties would be in aposition to bank carryover RINs byusing available renewable fuel orpurchasing RINs representing such fuel,with the expected net result being noeffective change in the size of theoverall bank of carryover RINs that isowned collectively by obligated parties.

In response to those parties whoargued that carryover RINs must beconsidered part of the “supply” whenEPA uses the general waiver authorityon the basis of a finding of “inadequatedomestic supply,” we note that we arenot using the general waiver authorityin this final action, so these argumentsare irrelevant. We believe that abalanced consideration of the possiblerole of carryover RINs in achieving thestatutory volume objectives foradvanced and total renewable fuels,versus maintaining an adequate bank ofcarryover RINs for importantprogrammatic functions, is appropriatewhen EPA exercises its discretion underthe cellulosic waiver authority, and thatthe statute does not specify the extent towhich EPA should require a drawdownin the bank of carryover RINs when itexercises this authority.

An adequate RIN bank serves to makethe RIN market liquid and to avoid thepossible need for adjustments to thestandards. Just as the economy as awhole functions best when individualsand businesses prudently plan forunforeseen events by maintaininginventories and reserve moneyaccounts, we believe that the RFSprogram functions best when sufficientcarryover RINs are held in reserve forpotential use by the RIN holdersthemselves, or for possible sale to othersthat may not have established their owncarryover RIN reserves. Were there to beno RJNs in reserve, then even minordisruptions causing shortfalls inrenewable fuel production ordistribution, or higher than expectedtransportation fuel demand (requiringgreater volumes of renewable fuel tocomply with the percentage standardsthat apply to all volumes oftransportation fuel, including theunexpected volumes] could lead to theneed for a new waiver of the standards,undermining the market certainty socritical to the long term success of theRFS program. Furthermore, manyobligated parties lack the ability toseparate one or more types of RINs

through blending. With a functioningliquid RIN market this is not a problembecause we expect that these obligatedparties will be able to comply bysecuring these RINs on the open market.However, a significant drawdown of thecarryover RIN bank leading to a scarcityof RINs may stop the market fromfunctioning in an efficient manner, evenwhere the market overall could satisfythe standards. For all of these reasons,the collective carryover RIN bankprovides a needed programmatic bufferthat both facilitates individualcompliance and provides for smoothoverall functioning of the program.23With volume requirements increasingannually, and the size of the carryoverRIN bank shrinking through use ofcarryover RINs in both 2013 and 2014,we believe it is prudent not tointentionally draw down the PIN bankfor 2017 that we have determined willnot likely be larger than 1.54 billioncarryover RINs, and which could in factbe smaller.

For the reasons noted above, andconsistent with the approach we took inthe 2014—2016 final rule, we havedetermined that under currentcircumstances, an intentionaldrawdown of the carryover RIN bankshould not be assumed in establishingthe 2017 volume requirements. Thecurrent bank of carryover PINs willprovide an important and necessaryprogrammatic buffer that will bothfacilitate individual compliance andprovide for smooth overall functioningof the program. Therefore, we are notsetting renewable fuel volumerequirements at levels that wouldenvision the drawdown in the bank ofcarryover RINs. However, we note thatwe may or may not take a similarapproach in future years; we will assessthe situation on a case-by-case basisgoing forward, and take into account thesize of the carryover RIN bank in thefuture and any lessons learned fromimplementing past rules.

III. Cellulosic Biofuel Volume for 2017

In the past several years the cellulosicbiofuel industry has continued to makeprogress towards increased commercial-scale production. Cellulosic biofuelproduction reached record levels in2015, driven largely by compressednatural gas (CNG] and liquefied naturalgas (LNG) derived from biogas.24

23Here we use the term “buffer” as shorthandreference to all of the benefits that are provided bya sufficient bank of carryover RINs.

24 The majority of the cellulosic RINs generatedfor CNG/LNG are sourced from biogas fromlandfills, however the biogas may come from avariety of sources including municipal wastewatertreatment facility digesters, agricultural digesters,

Cellulosic ethanol, while produced inmuch smaller quantities than CNG/LNGderived from biogas, was also producedconsistently in 2015. Plans for multiplecommercial scale facilities capable ofproducing drop-in hydrocarbon fuelsfrom cellulosic biomass were alsoannounced. This section describes ourassessment of the volume of cellulosicbiofuel that we project will be producedor imported into the United States in2017, and some of the uncertaintiesassociated with those volumes.

In order to project the volume ofcellulosic biofuel production in 2017 weconsidered the Energy InformationAdministration’s projections ofcellulosic biofuel production 25 alongwith data reported to EPA through theEPA Moderated Transaction System(EMTS] and information we collectedregarding individual facilities that haveproduced or have the potential toproduce qualifying volumes forconsumption as transportation fuel,heating oil, or jet fuel in the U.S. in2017. In this final rule we have updatedthe projected facility start-up dates,facility capacities, production volumes,and other relevant information with themost recent information available.However, we are using the methodologydiscussed in the proposed rule toproject the available supply of cellulosicbiofuel for 2017. As described in amemorandum to the docket, the use ofessentially the same methodology togenerate the applicable standards for2016 resulted in volumes that themarket is currently on track to meet,taking into account anticipated seasonalvariation in cellulosic biofuel supplybased on data from previous years.2e

New cellulosic biofuel productionfacilities projected to be brought onlinein the United States over the next fewyears would significantly increase theproduction capacity of the cellulosicindustry. Operational experience gainedat the first few commercial scalecellulosic biofuel production facilitiescould also lead to increasing productionof cellulosic biofuel from existingproduction facilities. The followingsection discusses the companies theEPA reviewed in the process ofprojecting qualifying cellulosic biofuel

separated MSW digesters, and the cellulosiccomponents of biomass processed in other wastedigesters.

25 “ETA projections of transportation fuel for2017,” docket EPA—HQ—OAR—2016—0004. We notethat EIA projections do not include renewable fueloil, imports of cellulosic biofuel from foreignfacilities, or CNC/LNG used as transportation fuelin their estimate of cellulosic biofuel production.

26 “Assessment of the Accuracy of CellulosicBiofuel Production Projections in 2015 and 2016”,memorandum from Dallas Burkholder to EPA AirDocket EPA—HQ—OAR—2016—0004.



production in the United States in 2017.Information on these companies formsthe basis for our projection of 311million ethanol-equivalent gallons ofcellulosic biofuel produced for use astransportation fuel, heating oil, or jetfuel in the United States in 2017.

A. Statutory Requirements

The volumes of renewable fuel to beused under the RFS program each year(absent an adjustment or waiver by EPA)are specified in CAA section 211(o)(2).The volume of cellulosic biofuelspecified in the statute for 2017 is 5.5billion gallons. The statute provides thatif EPA determines, based on EIA’sestimate, that the projected volume ofcellulosic biofuel production in a givenyear is less than the statutory volume,then EPA is to reduce the applicablevolume of cellulosic biofuel to theprojected volume available during thatcalendar year.27

In addition, if EPA reduces therequired volume of cellulosic biofuelbelow the level specified in the statute,the Act also indicates that we mayreduce the applicable volumes ofadvanced biofuels and total renewablefuel by the same or a lesser volume, andwe are required to make cellulosicwaiver credits available. Ourconsideration of the 2017 volumerequirements for advanced biofuel andtotal renewable fuel is presented inSections IV and V of this rule.

B. Cellulosic Biofuel IndustryAssessment

In order to project cellulosic biofuelproduction for 2017, we have trackedthe progress of several dozen potentialcellulosic biofuel production facilities.As we have done in previous years, wehave focused on facilities with thepotential to produce commercial-scalevolumes of cellulosic biofuel rather thansmall R&D or pilot-scale facilities.Larger commercial-scale facilities aremuch more likely to generate RINs forthe fuel they produce and the volumesthey produce will have a far greaterimpact on the cellulosic biofuelstandards for 2017. The volume ofcellulosic biofuel produced from R&Dand pilot-scale facilities is quite small inrelation to that expected from thecommercial-scale facilities. R&D anddemonstration-scale facilities have alsogenerally not generated RINs for the fuel

27The United States court of Appeals for theDistrict of columbia circuit evaluated thisrequirement in APIv. EPA 706 F.3d 474. 479—480(D.C. cir. 2013), in the context of a challenge to the2012 cellulosic biofuel standard. The Court statedthat in projecting potentially available volumes ofcellulosic biofuel EPA must apply an ‘outcomeneutral methodology” aimed at providing aprediction of “what will actually bappen.”

they have produced in the past. Theirfocus is on developing anddemonstrating the technology, notproducing commercial volumes. RINgeneration from R&D and pilot-scalefacilities in previous years has notcontributed significantly to the overallnumber of cellulosic RINs generated.28

From this list of commercial-scalefacilities we used information fromEMTS, publically available information(including press releases and newsreports), and information provided byrepresentatives of potential cellulosicbiofuel producers, to make adetermination of which facilities aremost likely to produce cellulosic biofueland generate cellulosic biofuel RINs in2017. Each of these companies wasinvestigated further in order todetermine the current status of itsfacilities and its likely cellulosic biofuelproduction and RIN generation volumesfor 2017. Both in our discussions withrepresentatives of individualcompanies 29 and as part of our internalevaluation process we gathered andanalyzed information including, but notlimited to, the funding status of thesefacilities, current status of theproduction technologies, anticipatedconstruction and production ramp-upperiods, facility registration status, andannual fuel production and RINgeneration targets.

Our approach for projecting theavailable volume of cellulosic biofuel in2017 is discussed in more detail inSection III.D below. The approach is thesame as the approach adopted inestablishing the required volume ofcellulosic biofuel in 2016.° Theremainder of this Section discusses thecompanies and facilities EPA expects tobe in a position to produce commercial-scale volumes of cellulosic biofuel bythe end of 2017. This information,together with the reported cellulosicbiofuel RIN generation in previous yearsin EMTS and EIA’s projection of liquidcellulosic biofuel production in 2017forms the basis for our volumerequirement for cellulosic biofuel for2017.

28 While a few small R&D and pilot scale facilitieshave registered as cellulosic RIN generators, totalproduction from each of these facilities from 2010through September 2016 has been less than 50,000ifiNs.

25ln determining appropriate volumes for CNG/LNG producers we generally did not contactindividual producers but rather relied primarily ondiscussions with industry associations, andinformation on likely production facilities that arealready registered under the RFS program. In somecases wbere further information was needed we didspeak with individual companies.

35See 80 FR 77420, 77499 (December 14, 2015).

1. Potential Domestic Producers

There are a number of companies andfacilities 31 located in the United Statesthat have either already begunproducing cellulosic biofuel for use astransportation fuel, heating oil, or jetfuel at a commercial scale, or areanticipated to be in a position to do soat some time during 2017. The financialincentive provided by cellulosic biofuelRINs,32 combined with the facts that todate nearly all cellulosic biofuelproduced in the United States has beenused domestically and all thedomestic facilities we have contacted inderiving our projections intend toproduce fuel on a commercial scale fordomestic consumption using approvedpathways, gives us a high degree ofconfidence that cellulosic biofuel RINswill be generated for any fuel producedby commercial scale facilities. In orderto generate ifiNs, each of these facilitiesmust be registered under the RFSprogram and comply with all theregulatory requirements. This includesusing an approved RIN-generatingpathway and verifying that theirfeedstocks meet the definition ofrenewable biomass. Most of thecompanies and facilities have alreadysuccessfully completed facilityregistration, and many have successfullygenerated RlNs. A brief description ofeach of the companies (or group ofcompanies for cellulosic CNG/LNGproducers) that EPA believes mayproduce commercial-scale volumes ofRIN generating cellulosic biofuel by theend of 2017 can be found in amemorandum to the docket for this finalrule. These descriptions are based ona review of publicly availableinformation and in many cases oninformation provided to EPA inconversations with companyrepresentatives. General information oneach of these companies or group ofcompanies considered in our projectionof the potentially available volume of

31 The volume projection from CNG/LNGproducers does not represent production from asingle company or facility, but rather a group offacilities utilizing the same production technology.

32 to data from Argus, the price for2016 cellulosic biofijel R1Ns averaged $1.84 in 2016(through September 2016). Ahematively, obligatedparties can obtain a RIN value equivalent to acellulosic biofuel RIN by purchasing an advanced(or biomass-based diesel) RIN and a cellulosicwaiver credit. The price for a 2018 cellulosic waivercredit is $1.33.

33 only known exception was a small volumeof fuel produced at a demonstration scale facilityexported to be used for promotional purposes.

“Cellulosic Biofuel Producer CompanyDescriptions (October 2016)”, memorandum fromDallas Burkholder to EPA Air Docket EPA—HQ—OAR—2016—0004.



cellulosic biofuel in 2017 is summarizedin Table III.B.3—1 below.

2. Potential Foreign Sources ofCellulosic Biofuel

In addition to the potential sources ofcellulosic biofuel located in the UnitedStates, there are several foreigncellulosic biofuel companies that mayproduce cellulosic biofuel in 2017.These include facilities owned andoperated by Beta Renewables, Enerkem,Ensyn, GranBio, and Raizen. All of thesefacilities use fuel production pathwaysthat have been approved by EPA forcellulosic RIN generation providedeligible sources of renewable feedstockare used and other regulatoryrequirements are satisfied. Thesecompanies would therefore be eligibleto register these facilities under the RFSprogram and generate RINs for anyqualifying fuel imported into the UnitedStates. While these facilities may be ableto generate RINs for any volumes ofcellulosic biofuel they import into theUnited States, demand for the cellulosicbiofuels they produce is expected to behigh in their own local markets.

EPA is charged with projecting thevolume of cellulosic biofuel that will be

produced or imported into the UnitedStates. For the purposes of this final rulewe have considered all of the registeredforeign facilities under the RFS programto be potential sources of cellulosicbiofuel in 2017. We believe that due tothe strong demand for cellulosic biofuelin local markets, the significanttechnical challenges associated with theoperation of cellulosic biofuel facilities,and the time necessary for potentialforeign cellulosic biofuel producers toregister under the RE’S program andarrange for the importation of cellulosicbiofuel to the United States, cellulosicbiofuel imports from facilities notcurrently registered to generatecellulosic biofuel RThJs are highlyunlikely in 2017. We have therefore, forpurposes of our 2017 cellulosic biofuelprojection evaluated in detail only thepotential for foreign cellulosic biofuelproduction from facilities that arecurrently registered. Two foreignfacilities that have registered ascellulosic biofuel producers havealready generated cellulosic biofuelRINs for fuel exported to the UnitedStates; projected volumes from each ofthese facilities are included in ourprojection of available volumes for

2017. Two additional foreign facilitieshave registered as a cellulosic biofuelproducer, but have not yet generatedany cellulosic RINs. EPA contactedrepresentatives from these facilities toinquire about their intentions to exportcellulosic biofuel to the United States in2017. In one case, companyrepresentatives indicated they intendedto export cellulosic biofuel to the UnitedStates, and EPA believes that there issufficient reason to believe imports ofcellulosic biofuel from this company arelikely. EPA has included potentialvolumes from this facility in our 2017volume production projection (see TableIII.B.3—1 below).

3. Summary of Volume Projections forIndividual Companies

The information we have gathered oncellulosic biofuel producers forms thebasis for our projected volumes ofcellulosic biofuel production for eachfacility in 2017. As discussed above, wehave focused on commercial-scalecellulosic biofuel production facilities.Each of these facilities is discussedfurther in a memorandum to thedocket. 3

TABLE III.B.3—1—PROJECTED PRODUCERS OF CELLULOSIC BIOFUEL BY 2017

Company name Location Feedstock Fuel cpZConstrcon start First production37

(MGY)35

CNG/LNG Pro- Various (US and Biogas CNG/LNG Various N/A August 2014.ducersas Canada).

DuPont Nevada, IA Corn Stover Ethanol 30 November 2012 End 2016.Edeniq Various Corn Kernel Fiber Ethanol Various Various Fall 2016.Ensyn Renfrew, ON, Wood Waste Heating Oil 3 N/A 2014.

Canada.GranBio São Miguel dos Sugarcane ba- Ethanol 21 Mid 2012 September 2014.

Campos, Brazil gasse.Poet Emmetsburg, IA Corn Stover Ethanol 24 March 2012 40 2015.QCCP Galva, IA Corn Kernel Fiber Ethanol 4 Late 2013 October 2014.

C. Projection From the EnergyInformotion Administrotion

Section 211(o)(3)(A) of the Clean AirAct requires EIA to “. . . provide to theAdministrator of the EnvironmentalProtection Agency an estimate, withrespect to the following calendar year,of the volumes of transportation fuel,biomass-based diesel, and cellulosicbiofuel projected to be sold or

“cellulosic Biofuet Producer companyDescriptions (October 2016)”, memorandum fromDallas Burkholder to EPA Air Docket EPA—HQ—OAR—2016—0004.

3 Facility capacity is generslly equal to thenameplate capacity provided to EPA by companyrepresentatives or found in publicly availableinformation. If the facility has completedregistration and the total permiued capacity islower than the nameplate capacity then this lower

introduced into commerce in the UnitedStates.” EIA provided these estimates toEPA on October 19, 20l6.° With regardto ce)lulosic biofuel, the EIA estimatedthat the available volume in 2017 wouldbe 10 million gallons.

In their letter, EIA did not identify thefacilities on which their estimate ofcellulosic biofuel production was based.EIA did, however, indicate in their letterthat they did not include estimates for

volume is used as the facility capacity. Forcompanies generating RINs for CNG/LNC derivedfrom bingas the Facility capacity is equal to thelower of the annualized rate of production of CNG/LNG from the facility or the sum of the volume ofcontracts in place for the sale of CNG/LNG for useas transportation fuel (reported as the actual peakcapacity for these producers).

Where a quarter is listed for the first productiondate EPA has assumed production begins in the

cellulosic biofuel produced from biogasfrom landfills, municipal wastewatertreatment facilities, separated MSWdigesters, or agricultural digesters orthose producing renewable heating oil,which represent approximately 96% ofour projected cellulosic biofuel volumefor 2017. They also did not includeprojections for facilities located outsideof the United States that we project willexport cellulosic biofuel into the United

middle month of the quarter (i.e., August for the 3rdquarter) for the purposes of projecting volumes.

38 For more information on these facilities see“October 2016 Assessment of celluinsic BiofuelProduction from Biogas (2017)”, memorandum fromDallas Burkholder to EPA Ak Docket EPA—HQ—OAR—2016—0004.

“EtA projections of transportation fuel for2017,” docket EPA—HQ—OAR—2016—0004.


8975$ Federal Register/Vol. 81, No. 238/Monday, December 12, 2016/Rules and Regulations

States in 2017. When limiting the scopeof our projection to the companiesassessed by EIA, we note that while ourvolume projections are not identical,they are very similar. EPA projectsapproximately 11 million gallons ofliquid cellulosic biofuel will beproduced domestically in 2017 (whenexcluding heating oil, as EIA did intheir estimate of cellulosic biofuelproduction). EIA did not provide detailon the basis of their projections, so wecannot say precisely why EPA and EIA’sprojections differ. We further note thatif we used EIA’s projections fordomestic liquid cellulosic biofuelproduction without modification inplace of our own assessment of thesefacilities the impact on the cellulosicbiofuel standard overall for 2017 wouldbe less than 1%,

D. Cellulosic Biofuel Volume for 2017

For our 2017 cellulosic biofuelprojection, we have used the samemethodology used in the final ruleestablishing the cellulosic biofuelvolume standard for 2016.° We believethis methodology produces a productionprojection that is consistent with EPA’scharge to project volumes with a“neutral aim at accuracy,” and thatcellulosic RIN generation data in 2015and 2016 demonstrate that the use ofthis methodology has producedreasonable projections in these years.4’We also received comments on ourprojection methodology, some of whichare discussed below, with the remainderdiscussed in the response to commentdocument. Some commenters objectedto the use of the same methodology usedto establish the cellulosic biofuelvolume for 2015 and 2016, arguing thatthis methodology has consistently overestimated cellulosic RIN generation.42In this final rule we consideredmodifying several of the individualcomponents of our productionprojection methodology (such as thestart-up date, ramp-up period, expectedproduction volume with the projectedranges, etc.), but ultimately decided touse the same methodology as proposed,as we believe this methodology resultedin reasonably accurate projection ofcellulosic biofuel RIN generation in the

40See 80 FR 77499 for additional detail.41 “Assessment of the Accuracy of Cellulosic

Biofuel Production Projections in 2015 and 2016”,memorandum from Dallas Buritholder to EPA AirDocket EPA—HQ—OAR—2016—0004.

42 As support for these claims, commentersreviewed EPA’s projections of cellulosic biofuelproduction going back to 2010. We note that weused a substantially different methodology toproject volumes for 2015 and 2016 than we usedin previous years, and we therefore do not believethat overestimates of cellulosic biofuel production

final three months of 2015, and willlikely result in a reasonably accurateprojection for 2016 based on theavailable data that is currentlyavailable.43 While this methodologyoverestimated portions of the cellulosicbiofuel pooi (such as the production ofliquid cellulosic biofuels from newfacilities), it also underestimatedproduction for other portions of thecellulosic biofuel pool (production ofCNG/LNG derived from biogas).Modifying individual components of thepast methodology may seem justifiedbased on a narrow consideration of eachfactor, but we do not believe that thereis currently sufficient information tosupport these changes. Adjusting eachindividual component of themethodology each year based on themost recent information would result inan increasingly complex andunpredictable methodology, and wouldnot necessarily project overall cellulosicbiofuel production more accurately.This is especially true in an industry atthe early stages of commercialization.We do not believe it would bereasonable to establish a methodologywhere the success or failure of a smallgroup of companies, and in some casesa single company, would have adramatic impact on the methodologyused to project volumes from othercompanies the following year,especially where the methodologyoverall has been demonstrablysuccessful. Therefore, for this year wehave decided to use the samemethodology that worked successfullyin 2015 and 2016. We will continue toevaluate this methodology on an annualbasis, and will adjust the methodologyif it ceases to provide reasonablyaccurate projections in future years.

To project cellulosic biofuelproduction in 2017 we separated the listof potential producers of cellulosicbiofuel into four groups according towhether they are producing liquidcellulosic biofuel or CNG/LNG frombiogas, and whether or not the facilitieshave achieved consistent commercial-scale production and cellulosic biofuelRIN generation (See Table hID—Ithrough Table III.D—3). We next defineda range of likely production volumes for

in years prior to 2015 are relevant in assessing thereasonableness of the current methodology.

“-‘ “Assessment of the Accuracy of CellulosicBiofuel Production Projections in 2015 and 2016”,memorandum from Dallas Burkholder to EPA AirDocket EPA—HQ—OAR—2016—0004.

44We did not assume a six-month straight-tineramp-up period in determining the high end of theprojected production range for CNG/LNGproducers. This is because these facilities generallyhave a history of CNG/LNG production prior toproducing RINs, and therefore do not face many ofthe start-up and scale-up challenges that impact

each group of potential cellulosicbiofuel producers. The low end of therange for each group of producersreflects actual RIN generation data overthe last 12 months for which data areavailable (October 2015—September2016). The low end of the range forcompanies that have not yet beguncommercial-scale production (or in thecase of CNG/LNG producers have notyet generated RINs for fuel sold astransportation fuel in the United States)is zero.

To calculate the high end of theprojected production range for eachgroup of companies we considered eachcompany individually. To determine thehigh end of the range of expectedproduction volumes for companiesproducing liquid cellulosic biofuel weconsidered a variety of factors,including the expected start-up date andramp-up period, facility capacity, andfuel off-take agreements. As a startingpoint, EPA calculated a productionvolume for these facilities using theexpected start-up date, facility capacity,and a benchmark of a six-monthstraight-line ramp-up periodrepresenting an optimistic ramp-upscenario.44 Generally we used thiscalculated production volume as thehigh end of the potential productionrange for each company. The onlyexceptions were cases where companiesprovided us with production projections(or projections of the volume of fuelthey expected to export to the UnitedStates in the case of foreign producers)that were lower than the volumes wecalculated as the high end of the rangefor that particular company. In thesecases, the projected production volume(or import volume) provided by thecompany was used as the high end ofthe potential production range ratherthan the volume calculated by EPA. ForCNG/LNG producers, the high end ofthe range was generally equal RINproduction projections for 2017provided to EPA by the renewablenatural gas industry.45 The high end ofthe ranges for all of the individualcompanies within each group wereadded together to calculate the high endof the projected production range forthat group.

new facilities. For further information on themethodology used to project cellulosic RINgeneration from CNG/LNG producers see “October2016 Assessment of Cellulosic Biofuel Productionfrom Biogas (2017)”, memorandum from DallasBurkholder to EPA Air Docket EPA—HQ—OAR—2016—0004.

45For additional detail on the methods used toproject cellulosic biofiiel production for CNG/LNGproducers see “October 2016 Assessment ofCellulosic Biofuel Production from Biogas (2017]”,memorandum from Dallas Burkholder to EPA AirDocket EPA—HQ—OAR—2016—0004.



TABLE III.D—1—2017 PRODUCTION RANGES FOR LIQUID CELLULOSIC BIOFUEL PRODUCERS WITHOUT CONSISTENTCOMMERCIAL SCALE PRODUCTION

[Million gallons]

Low end of High end ofthe range a the range a

DuPont 0 7Edeniq 0 6GranBio 0 2Poet 0 18Aggregate Range 0 33

a Rounded to the nearest million gallons.

TABLE III.D—2—2017 PRODUCTION RANGES FOR LIQUID CELLULOSIC BIOFUEL PRODUCERS WITH CONSISTENTCOMMERCIAL SCALE PRODUCTION

(Million gallons)

Low end of high end ofthe range the range a

Ensyn bX 3Quad County Corn Processors 4Aggregate Range 3.5 7

a Rounded to the nearest million gallons.bThe low end of the range for each individual company is based on actual production volumes and is therefore withheld to protect information

claimed to be confidential business information.

TABLE III.D—3—2017 PRODUCTION RANGES FOR CNG/LNG PRODUCED FROM BIOGAS[Million gallons]

Low end of High end ofthe rangea the rangea

CNG/LNG Producers (New Facilities) 0 178CNG/LNG Producers (Currently generating RINs) 174 221

a Rounded to the nearest million gallons.

EPA received comments from biofuelsproducers stating that productionprojections we receive from companiesshould be used as the basis for the meanvalue of any projected production range.They argue that EPA should defer to thetechnical expertise of the cellulosicbiofuel manufacturers who providethese projections, and that it isinappropriate to use these projections asthe high end of a projected range, withthe low end of the projected range basedon previous production data. EPAunderstands that the volume projectionsprovided by companies included in ourprojection are intended to represent thecompanies’ expectations for production,rather than the high end of a potentialproduction range. We also acknowledgethe technical expertise of thesecompanies and the significant amountof investment that has gone into thedevelopment of these biofuelproduction processes as they haveprogressed from R&D throughdemonstration and pilot scale inpreparation for the first commercialscale facilities. While acknowledgingthese facts, we do not believe it wouldbe appropriate to ignore the history of

the cellulosic biofuel industry. Eachyear since 2010, EPA has gatheredinformation, including volumeproduction projections, from companieswith the potential to produce cellulosicbiofuel. Each of these companiessupported these projections withsuccessful pilot and demonstration scalefacilities as well as other supportingdocumentation. In the majority of thesecases, due to a variety of circumstances,the companies were unable to meet theirown volume projections, and in somecases were unable to produce any RINgenerating cellulosic biofuel.

We believe our methodologyreasonably projects the range ofpotential production volumes for eachcompany. A brief overview of each ofthe companies we believe will producecellulosic biofuel and make itcommercially available in 2017 can befound in a memorandum to thedocket.46 In the case of cellulosicbiofuel produced from CNG/LNG wehave discussed these facilities as a

48”cellulosic Biofuel Producer CompanyDescriptioos (October 2016)”, memorandum fromDallas Burkholder to EPA Air Docket EPA—HQ—OAR—2016—0004.

group rather than individually. EPAbelieves it is appropriate to discussthese facilities as a group since they areutilizing proven productiontechnologies and the uncertainties andchallenges they face relate primarily tolinking their production to ultimate useas transportation fuel that is eligible togenerate RINs under the RFS program.47

After defining likely productionranges for each group of companies weprojected a likely production volumefrom each group of companies for 2017.We used the same percentile values toproject a production volume within theestablished ranges for 2017 as we did inthe final rule establishing the cellulosicbiofuel standards for 2014—2016; the50th and 25th percentiles respectivelyfor liquid cellulosic biofuel producerswith and without a history of consistentcellulosic biofuel production and RINgeneration, and the 75th and 50thpercentiles respectively for producers ofCNG/LNG from biogas with and without

47For individual company information see“October 2016 Cellulosic Biofuel IndividualCompany Projections for 2017 (CBI)”, memorandumfrom Dallas Burkholder to EPA Air Docket EPA—HQ—OAR—2016—0004.



a history of consistent commercial-scaleproduction and RIN generation. Asdiscussed in the final rule establishingthe 2014—2016 cellulosic biofuelstandards, we believe these percentagesappropriately reflect the uncertaintiesassociated with each of these groups ofcompanies.48 We further believe that theprogress to date in 2015 and 2016supports the use of these percentilevalues.49 We also note that thesepercentile values are used to project alikely production volume within the

projected range for each group ofcompanies. In most cases, especially forcompanies that have not yetconsistently produced cellulosic RINs,the high end of these projected rangesare not necessarily the nameplatecapacities of the facilities, as theprojected start-up dates and ramp-upperiods have been taken intoconsideration in developing the likelyproduction ranges for each company.This means that our percentile valuesare not directly comparable to the

“utilization rates” calculated orprojected by some commenters, whichcalculate a percentage using the facilitycapacity rather than the high end of theranges in the tables below. Aftercalculating a likely production volumefor each group of companies in 2017,the volumes from each group are addedtogether to determine the total projectedproduction volume of cellulosic biofuelin 2017.

TABLE IILD—4—PROJECTED VOLUME OF CELLULOSIC BIOFUEL IN 2017[Million gallons]

Low end of High end of Perc tI Projectedthe range a the range a en i e volume a

Liquid Cellulosic Biofuel Producers; Producers without Consistent Commercial Scale Production 0 33 25th

Liquid Cellulosic Biofuel Producer; Producers with Consistent CommercialScale Production 4 7 50th 5

CNG/LNG Producers; New Facilities 0 178 50th 89CNG/LNG Producers; Consistent Production 174 221 75th 209

Total N/A N/A N/Aj 311

8

a Volumes rounded to the nearest million gallons.

EPA received comments requestingthat we assess each potential cellulosicbiofuel production facility individually,in a way that reflects the circumstancesof each facility, rather than groupingfacilities together. We continue tobelieve that grouping the potentialcellulosic biofuel producers using thecriteria of whether or not they haveachieved consistent commercial-scaleproduction is appropriate for thepurposes of projecting a likelyproduction volume. While each of thesegroupings contains a diverse set ofcompanies with their own productiontechnologies and challenges, we believethere is sufficient commonality in thechallenges related to the funding,construction, commissioning, and startup of commercial-scale cellulosicbiofuel facilities to justify aggregatingthese company projections into a singlegroup for the purposes of projecting themost likely production volume ofcellulosic biofuel. The challenges newproduction facilities face are alsosignificantly different than those offacilities ramping up productionvolumes to the facility capacity andmaintaining consistent production.Finally, we believe that the level ofuncertainty associated with productionvolumes from any individual facility is

For a further discussion of the percentile valuesused to projected likely production from each groupof companies see 80 FR 77499.

“ “Assessment of the Accuracy of CellulosicBiofuel Production Projections in 2015 and 2016”,

sufficiently high that assessing facilitiesindividually, rather grouping themtogether as done in this final rule,would not necessarily result in moreaccurate volume projections.

Several commenters claimed that EPAhad underestimated the potentialproduction of cellulosic RINs fromcellulosic CNG/LNG in 2017. Somecommenters noted the large quantity ofbiogas that is currently produced atlandfills, or the development of newdigesters designed to produce CNGILNGfrom biogas to support their claims.Others stated that because biogascollection from landfills or productionin digesters was an establishedtechnology EPA should not discountprojections from these producers, butrather should assume these volumes canbe produced. While we acknowledgethat these factors reduce the uncertaintyrelated to cellulosic biofuel productionfor CNG/LNG derived from biogas, theydo not eliminate the uncertaintiesassociated with these fuels. RINs canonly be generated for CNG/LNG derivedfrom biogas if the RIN generator canverify (in accordance with theregulations) that an equivalent volumeof CNG/LNG was used as transportationfuel. The limited demand for CNG/LNGas transportation fuel is a significant

memorandum from Dallas Burtholder to EPA AirDocket EPA—HQ—OAR—2016—0004.

50 “Assessment of the Accuracy of CellulosicBiofuel Production Projections in 2015 arid 2016”,

source of uncertainty related to thegeneration of cellulosic RINs for CNG/LNG for biogas. We believe that thepercentile values used in the proposedrule to project cellulosic RIN generationfor CNG/LNG from biogas (75thpercentile for facilities that havepreviously generated RINs and 50thpercentile for new facilities) isappropriate, and that this is supportedby the RIN generation data for cellulosicRINs from CNG/LNG in 2015 and2016.° We also note that in commentson the proposed rule a group oforganizations representing CNG/LNGproducers supported this methodologyas doing a “reasonable job at projectingproduction with a neutral aim ataccuracy.”

EPA also received comments claimingthat the proposed cellulosic biofuelvolumes were unreasonably high. Thesecommenters generally claimed that inlight of the inability of cellulosic biofuelcompanies to achieve their projectedproduction volumes, start-up dates, andramp-up schedules in previous yearsEPA should instead rely solely onhistorical production data to projectvolumes for future years. Theysuggested that EPA should projectfuture production volumes based onavailable cellulosic RIN generation data

memorandum from Dallas Burtholder to EPA AirDocket EPA—HQ—OAR—2016—0004.

See comments from David Cox, GeneralCounsel, Coalition for Renewable Natural Gas et al.EPA—HQ—OAR—201 6—0004—1732.



from previous months. EPA believesthis would be inconsistent with ourcharge to project available cellulosicbiofuel volume by taking a neutral aimat accuracy. Adopting such an approachwould effectively mean ignoring thepotential for facilities that have notgenerated RINs in the past to contributevolumes in the future. It would alsoignore the potential for facilities thathave begun producing RINs to increasetheir fuel production rates. This wouldbe inconsistent with our expectationsfor an industry that has shownsubstantial growth over the last severalyears, and is anticipated to continue togrow in 2017. Most importantly, thesignificant year-over-year increases inthe supply of cellulosic biofuel in recentyears demonstrates that this suggestedmethod is inappropriatelyconservative.52 We recognize that in thepast we have both overestimated andunderestimated cellulosic RIMgeneration but we do not believe thatour current methodology isfundamentally biased to either anoverestimate or an underestimate oftotal cellulosic MN production.

Some commenters suggested that afterprojecting the cellulosic biofuelproduction volume for 2017, EPAshould add to this number the numberof available carryover RIN generated inprevious years available for use in 2017.These commenters argued that theseRIMs should be viewed as part of theavailable supply of cellulosic biofuel,and that a failure to include these RIMsin our projection of available volumecould have negative impacts on theprice of cellulosic RIMs and ultimatelythe cellulosic biofuel industry. EPAdoes not believe it would be appropriateto add an estimate of carryover RINsavailable for use in 2017 to ourprojection of cellulosic biofuelproduction in 2017 for the purposes ofestablishing the 2017 cellulosic biofuelstandard. Because the compliance

52 Total RIN generation in July—September of2014 (likely the last 3 months for which EPA wouldhave data available to use in a rule establishingannual volume for 20151 was 11 million ethanol-equivalent gallons. indicating an annual standard of44 million ethanol-equivalent gallons for 2015 ifthis was the only information considered inestablishing the standard. Actual cellulosic RINsupply in 2015 (RINs generated less those retiredfor reasons other than compliancel was 141 millionethanol-equivalent gallons. similarly, total MNgeneration in July—September of 2015 was 39.2million ethanol-equivalent gallons, indicating anannual standard of 157 million ethanol-equivalentgallons for 2016 if this was the only informationconsidered in establishing the standard. Actualcellulosic MN supply for 2016 (ifiNs generated lessthose retired for reasons other than compliance) hasalready surpassed 127 million RINs and in the first9 months of the year and is expected to meet the2016 standard of 230 million ethanol-equivalentgallons.

deadlines for 2015 and 2016 occur afterthe finalization of this rule it isimpossible to know precisely thenumber of carryover RIMs that will beavailable for use in 2017. While thecompliance data for 2014 indicate thatthere are likely to be approximately 12million cellulosic biofuel carryoverRIMs from that year,53 and cellulosicRIN generation in 2015 exceeded thestandard by 17 million RIN5,a4 it ispossible that cellulosic RIM generationin 2016 may fall short of the standard,and that many of these RIMs may beused to off-set that shortfall. While it isuncertain to what extend RIMsrepresenting past production couldlawfully be included in the projection offuture cellulosic biofuel productionrequired under 211(o)(7)(D), EPA hasnot seen any evidence that the existenceof RIMs generated in previous years thatmay be used towards satisfyingcellulosic biofuel obligations in futureyears has had a negative impact oncellulosic RIM prices.55 This suggeststhat any cellulosic biofuel RINs inexcess of the standard are being used byobligated parties in much the same wayas other types of carryover RIMs; aidingmarket liquidity and reducing the pricevolatility and potential impacts of short-term supply disruptions. While we donot believe it would be appropriate toadd an estimate of available cellulosiccarryover RIMs for use in 2017 to theprojected production volume, EPAremains committed to the success of thecellulosic biofuels industry and willcontinue to carefully monitor the marketfor both cellulosic biofuels andcellulosic biofuel RIMs, and will reevaluate this issue in future years.

We believe our range of projectedproduction volumes for each company(or group of companies for cellulosicCMG/LNG producers) represents the

Annual compliance data can be found on EPA’sWeb site at https://www.epo.gov/fueis-registrotionreporting-ond-cornplionce-help/onnuolcornplionce-doto-obligoted-porties-ond.

54According to EPA’s EMTS Web site (https://www.epo.gov/fuels-registrotion-reporting-ondcornplionce-help/201 5-renewoble-fuel-stondord-doto) net cellulosic MN generation wasapproximately 140 million RINs in 2015, while thecellulosic biofisel volume requirement for 2015 was123 million gallons.

to data from Argus, the average 2016cellulosic biofuel MN price has been $1.84 throughseptember 2016. We believe this price isreasonable, as is it is somewhat below the“theoretical maximum” cellulosic MN price of$2.19 (the cellulosic waiver price plus the averageprice of all non-cellulosic advanced MNsl andsignificantly above the “theoretical minimum”cellulosic MN price of $0.86 (the average price ofall non-cellulosic advanced tUNa; we consider thisthe “theoretical minimum” price for a cellulosicbiofuel MNs as excess cellulosic biofuel RINs canbe used to satisfy an obligated party’s advancedbiofuel obligation).

range of potential production volumesfor each company, and that projectingoverall production in 2017 in themanner described above results in aneutral estimate (neither biased toproduce a projection that isunreasonably high or low) of likelycellulosic biofuel production in 2017(311 million gallons). A brief overviewof individual companies we believe willproduce cellulosic biofuel and make itcommercially available in 2017 can befound in a memorandum to thedocket.ae In the case of cellulosicbiofuel produced from CMG/LNG wehave discussed the production potentialfrom these facilities as a group ratherthan individual1y.

IV. Advanced Biofuel Volume for 2017

The national volume targets foradvanced biofuel to be used under theRFS program each year through 2022 arespecified in CAA section211(o)(2)(B)(i)(II). Congress set annualrenewable fuel volume targets thatenvisioned growth at a pace that farexceeded historical growth andprioritized that growth as occurringprincipally in advanced biofuels(contrary to historical growth patternswhere most growth was in conventionalrenewable fuel, namely corn-ethanol).Congressional intent is evident in thefact that the portion of the totalrenewable fuel volume target that is notrequired to be advanced biofuel is 15billion gallons in the statutory volumetables for all years after 2014, while theadvanced volumes continue to growthrough 2022 to a total of 21 billiongallons, for a total of 36 billion gallonsin 2022.

We have evaluated the capabilities ofthe market and have concluded that the9.0 billion gallons specified in thestatute for advanced biofue) cannot bereached in 2017. This is primarily dueto the expected continued shortfall incellulosic biofuel; production of thisfuel type has consistently fallen short ofthe statutory targets by 95% or more,and again in 2017 will fall far short ofthe statutory target of 5.5 billion gallons.In addition, although in earlier years ofthe RFS program we determined that theavailable supply of non-cellulosicadvanced biofuel and otherconsiderations justified our retainingthe statutory advanced biofuel target

se “cellulosic Biofuel Producer companyDescriptions (October 2016)”, memorandum fromDallas Burkholder to EPA Air Docket EPA—HQ—OAR—2016—0004.

57 individual company information see“October 2016 cellulosic Biofliel Individualcompany Projections for 2017 (cBI)”, memorandumfrom Dallas Burkholder to EPA Air Docket EPA—HQ—DAR—2016—0004.


89762 federal Register/Vol. 81, No. 238/Monday, December 12, 2016/Rules and Regulations

notwithstanding the shortfall incellulosic biofuel production, severalfactors preclude such a determinationfor 2017, including:

• The more ambitious statutory targetfor 2017

• The fact that a greater proportion ofthat target was intended to be satisfiedby cellulosic biofuels 58

• The continued slow pace of growthin cellulosic biofuel production

• Limited volumes of advancedbiofuels that we believe are appropriateto backfill for missing volumes ofcellulosic biofuelAs a result, we are exercising theauthority granted by the statute toreduce the applicable volume ofadvanced biofuel using the cellulosicwaiver authority. The final volumerequirement for advanced biofuelrecognizes the ability of the market torespond to the standards we set whilestaying within the limits of reasonablefeasibility, providing for a partial

backfilling of missing cellulosic biofuelvolumes with volumes of advancedbiofuel we have determined areappropriate to require for this purpose.The net impact of this volumerequirement is that the required volumeof advanced biofuel for 2017 will besignificantly greater than volumesrequired or used in the past, but belowthe statutory target.

To help inform today’s action, weinvestigated whether the market is ontrack to meet the 2016 advanced biofuelvolume requirement of 3.61 billiongallons. As described in a memorandumto the docket, supply through the end ofSeptember coupled with a review ofseasonal variations in supply forprevious years indicate that the 2016standards are indeed attainable.° Forcomparison, we have also reviewedRINs available for compliance inprevious years, along with the effectivevolume requirements in those years.6°


As described in Section II.A, whenmaking reductions in advanced biofueland total renewable fuel under thecellulosic waiver authority, the statutelimits those reductions to no more thanthe reduction in cellulosic biofuel. Asdescribed in Section hID, we arefinalizing a 2017 volume requirementfor cellulosic biofuel of 311 milliongallons, representing a reduction of5,189 million gallons from the statutorytarget of 5,500 million gallons. As aresult, 5,171 million gallons is themaximum volume reduction foradvanced biofuel and total renewablefuel that is permissible using thecellulosic waiver authority,61 If we wereto use the cellulosic waiver authority tothis maximum extent, the resulting 2017volumes would be 3.83 and 18.83billion gallons for advanced biofuel andtotal renewable fuel, respectively.

TABLE IV.A—1—L0wEsT PERMISSIBLE VOLUME REQUIREMENTS USING ONLY THE CELLULOSIC WAIVER AUTHORITY[Million gallons]

Advanced renlebiofuel fuel

Statutory target 9,000 24,000Maximum reduction permitted under the cellulosic waiver authority 5,189 5,189Lowest 2017 volume requirement permitted using only the cellulosic waiver authority 3,817 18,811

We are authorized under thecellulosic waiver authority to reduce theadvanced and total renewable fuelvolumes “by the same or a lesser”amount as the reduction in thecellulosic biofuel volume. Thus, we arenot required to use the authority to itsmaximum extent. And, as discussed inSection hA, EPA has broad discretionin using the cellulosic waiver authority,since Congress did not specify thecircumstances under which it may orshould be used nor the factors toconsider in determining appropriatevolume reductions. We believe thatadvanced biofuel should be permitted tocompensate for a portion of the shortfallin cellulosic biofuel, thereby promotingthe larger RFS goals of reducing GHGemissions and enhancing energysecurity. To that end, we haveinvestigated the volume of advancedbiofuel that is reasonably attainable andappropriate to require in 2017, and have

56 example, while the statutory tables indicatethat 61.1% of the 2017 advanced biofuel targetwould be satisfied by cellulosic biofuel, thecorresponding value for 2013 was only 36.4%.

59”Comparison of 2016 availability of RINs and2016 standards,’ memorandum from DavidKorothey to docket EPA—HQ—OAR—2016—0004.

determined that such volumes arehigher than the lowest permissiblevolumes shown in the table above.

B. Determination of ReasonablyAttainable and Appropriate Volumes

In the NPRM we proposed to use onlythe cellulosic waiver authority to reducevolumes of advanced biofuel, and to useboth the cellulosic and general waiverauthorities to reduce volumes of totalrenewable fuel. As noted above, anddescribed in more detail in this sectionand in Section V, we have determinedthat use of the general waiver authorityis not necessary for any renewable fuelcategory in 2017. However, in responseto the NPRM, some commentersmisstated our obligations under thecellulosic waiver authority and ourintent with respect to its use in settingthe volume requirement for advancedbiofuel. For instance, some stakeholdersexpressed concern that EPA had not

60 “Comparison of availability of RINs andstandards for previous years,” memorandum fromDavid Korotney to docket EPA—HQ-OAR—2016—0004.

61 If we determined it necessary to provide furtherreductions to address inadequate domestic supplyor severe economic or environmental harm, such

proposed to set the advanced biofuelvolume requirement at the maximumachievable level, but rather at a levelthat was “reasonable.” Many of thesestakeholders suggested that it would bemost consistent with the statutory goalsif we were to set the volumerequirement for advanced biofuel equalto the maximum achievable volume.

In the NPRM, as well as in the 2014—2016 final rule, we made a cleardistinction between our approach insetting volumes under the cehlulosicwaiver authority versus our approach insetting volumes under the generalwaiver authority. The prerequisite forthe general waiver authority as EPA hasexercised it to date is a finding thatthere is an “inadequate domesticsupply” of renewable fuel. In using thisauthority in the 2014—2016 final rule wenoted that our objective was to waivevolumes to the point where theinadequacy of supply is removed.

further reductions would be possible using thegeneral waiver authority.



Therefore, we set volume requirementsat the level we determined to be themaximum achievable. When using thecellulosic waiver authority, in contrast,we are only required to ensure that anyreduction is no larger than that providedfor cellulosic biofuel. The statute doesnot specify other prerequisites for itsuse, nor any criteria or factors that EPAshould consider in determiningwhether, and to what extent, to use theauthority. Thus, under the cellulosicwaiver authority, Congress providedEPA with broad discretion to loweradvanced biofuel and total renewablefuel applicable volumes in instanceswhere it lowers the cellulosic biofuelrequirement, as in today’s rule. Inexercising this broad discretion in thecontext of the 2014—2016 final rule, ourintent was to require the use of“reasonably attainable” volumes topartially backfill for missing cellulosicbiofuel volumes. We explained that wewere not required, and did not intend,to necessarily require the use of the“maximum” volumes of advancedbiofuel, and that our assessment of“reasonably attainable” volumes wassimilar to, but not intended to be asexacting, as our assessment of“maximum achievable” supplies whenusing the general waiver authority basedon a finding of inadequate domesticsupply.

In using the cellulosic waiverauthority to set the 2017 advancedbiofuel volume requirement, we havebeen mindful of the fact that the statuteconcentrates all of the very substantialgrowth in the statutory targets forrenewable fuel on advanced biofuel foryears after 2014, and that advancedbiofuels are required to providesignificantly greater lifecycle GHGreductions (at least 50%) in comparisonto non-advanced renewable fuel (20%,or no reduction if grandfathered under§ 80.1403). In addition, we generallybelieve that greater use of renewablefuel enhances energy security. Theseconsiderations, taken alone, wouldsupport the commenters’ suggestion thatwhen using the cellulosic waiverauthority we should require maximumachievable levels of advanced biofuel tobackfill to the greatest extent possiblefor missing volumes of cellulosicbiofuel. However, we note, first, that ourassessments contain some uncertainty.To the extent we may over-estimatesupply in setting the advanced biofuelvolume requirement, we can create asituation where compliance costsdramatically escalate and/or obligatedparties are either unable to comply orcompliance requires a substantialdrawdown in the collective bank of

carryover RINs. While our assessment of“maximum achievable” volumes for the2014—2016 final rule reflected our viewof what is achievable, if proven to becorrect such negative implications willnot materialize. Nevertheless, webelieve that it is appropriate given thebroad discretion afforded under thecellulosic waiver authority to allow anadditional cushion to ensure that thestandards can be met, and we describethis less exacting approach as onedesigned to identify “reasonablyattainable” volumes based on supplyconsiderations. In the 2014—2016 finalrule we set the advanced biofuel volumerequirement so as to require allreasonably attainable volumes ofadvanced biofuel, and we proposed asimilar approach for 2017.

However, some commenters suggestedthat EPA should take into considerationthe fact that higher advanced biofuelvolume requirements could create anincentive for switching advancedbiofuel feedstocks from existing uses tobiofuel production, and that in light ofsuch market reactions we should set theadvanced biofuel volume requirement atless than the reasonably attainable level.We agree with these commenters thatwe have the broad discretion whenusing the cellulosic waiver authority totake into consideration suchimplications. We believe that in theshort-term, every increment in theadvanced biofuel standard should notnecessarily be expected to result in acorresponding incremental increase inthe volume of advanced biofuelfeedstocks produced on a global scale,since increasing demand for suchfeedstocks for advanced biofuelproduction could potentially be filledthrough diversion of feedstocks fromother non-biofuel markets. There issignificant uncertainty related to theGHG emission benefits associated withfuels produced in this way. Moreover,rapidly increasing the required volumesof advanced biofuels without giving themarket adequate time to adjust byincreasing supplies could also result indiversion of advanced biofuels fromforeign countries to the U.S. withoutincreasing total global supply,contribute to shortages and/orreallocation of raw materials in othersectors, disrupt markets, and/or increaseprices.62 We believe that we areauthorized to take these factors intoaccount in exercising our discretionunder the cellulosic waiver authority.

62 For example, see comments from Action AidUSA & The Hunger Project (EPA—HQ—OAR—2016—0004—1817), American Cleaning Institute (EPA—HQ—OAR—2016—0004—1735) and Union ofConcerned Scientists (EPA—HQ—OAR—2016—0004—1672).

Although we are not able to quantifythese factors at this time, we believe thatthey would be a likely consequence ofsetting the 2017 volume requirement foradvanced biofuel at the highest possiblelevel, and that they justify our taking amore measured approach indetermining the volume of advancedbiofuel that should backfill for missingcellulosic biofuel volumes in 2017.63These considerations are described inmore detail in the following sectiondescribing our assessment of advancedbiodiesel and renewable diesel volumes.Our final approach results in a volumerequirement that provides for significantgrowth in the production and use ofadvanced biofuels above all historiclevels, is within the range of what isreasonably attainable from a supplyperspective and is also appropriate,taking other considerations intoaccount.

Having determined the reasonablyattainable and appropriate volumereduction for advanced biofuel, we usedthe cellulosic waiver authority toprovide an equivalent reduction in totalrenewable fuel. That step is described inmore detail in Section V.A, togetherwith our assessment that no furtherincrement of reduction is required fortotal renewable fuel in 2017 on the basisof supply considerations.

1. Imported Sugarcane EthanolIn the NPRM, we noted that the

predominant source of advanced biofuelother than cellulosic biofuel and BBDwas imported sugarcane ethanol, andwe proposed that the volume ofimported sugarcane ethanol forpurposes of determining the reasonablyattainable volume of advanced biofuelfor 2017 would be 200 million gallons.This is the same volume that we usedin setting the 2016 standards, and wesaid that the information currentlyavailable to us did not suggest that thecircumstances would be significantlydifferent for 2017 than they are for 2016.We also pointed to the high variabilityin ethanol import volumes in the past(including of Brazilian sugarcaneethanol, the predominant form ofimported ethanol), the fact that importsof Brazilian sugarcane ethanol in 2014and 2015 reached only 64 and 89million gallons, respectively, increasinggasoline consumption in Brazil, andvariability in Brazilian production ofsugar.

63 have also considered comments raisingadditional factors that stakeholders deemedrelevant in setting the advanced biofuel standard,as described in the response to commentsdocument. We believe the volume requirementestablished today reflects an appropriate balancingof these often competing considerations.



In response to the NPRM,stakeholders representing some refinersand conventional ethanol interests saidthat our estimate of 200 million gallonswas too high given recent import levels.

We agree that 200 million gallons isconsiderably higher than actual importsof Brazilian sugarcane ethanol in 2014and 2015, of 64 and 89 million gallons,respectively, but it is far lower than the

historic maximum of 680 milliongallons of Brazilian sugarcane ethanolimports in 2006 or the more recent highvolume of 486 million gallons importedin 2012.

800

600

500C

300

200

Figure IV.B.1-1Historical Ethanol Imports’

R All other (non-advanced)

• Brazil (advanced)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: “U.S. Imports of fuel Ethanol from EIA,” docket EPA-HQ-OAR-20 16-0004.a Imports from BraziL include those that are transmitted through the CBI andCAFTA, and are produced from sugarcane. Imports from other countries aretypically not produced from sugarcane and do not qualify as advanced biofuel.

In proposing to use 200 milliongallons in assessing reasonablyattainable supply of advanced biofuel in2017, we attempted to balanceindications of lower potential importsfrom more recent data with indicationsthat higher volumes were possible basedon older data, as depicted in the figureabove.

Stakeholders who represent advancedbiofuel interests generally believed thatour assumption of 200 million gallons ofimported sugarcane ethanol for 2017was too low. Some commenters citedprojections from other sources that wereconsiderably higher than 200 milliongallons, and even pointed to thehistorical maximum of 681 milliongallons for sugarcane ethanol importedin 2006 as evidence that volumes largerthan 200 million gallons are possible.We generally believe that thisinformation is of limited probative valuein determining the volume of sugarcaneethanol that should be assumed in thecontext of determining reasonablyattainable volumes of advanced biofuelfor 2017. Sources providing projectionsfor 2017 and beyond have not accurately

predicted current and past importlevels, highlighting the uncertainty insuch projections.64 As for the historicalmaximum of 681 million gallons in2006, there is no basis for believing thatthe economic and market circumstanceswhich led to that import volume wouldbe repeated in 2017, more than a decadelater, when more recent years haveshown far more modest import levels.

The Brazilian Sugarcane IndustryAssociation (UNICA) said that it was notappropriate for EPA to use actual importdata from 2010—2015 as the basis forestimating the potential import volumein 2017. While these years reflects theperiod when the RFS2 program has beenin place, UNICA argued that the lowimport volumes in 2014 and 2015resulted from the fact that EPA had notestablished applicable RFS percentage

4 instance, the FAPRI—MIJ report “U.S.Baseline Briefing Book,” (March 2016) indicatesthat ethanol imports in 2015 reached 167 mill gal,nearly double the actual imports of 89 mill galaccording to data from EMTS. Also, the FAPRI—ISUreport “2012 World Agricultural Outlook” projectedthat the U.S. would be a net ethanol exporter in2013—2015, when in fact it was a net importer.

standards until the end of 2015.However, UNICA also noted thatweather, harvests, and world prices alsoaffect ethanol exports from Brazil. Asdiscussed in the 2014—2016 final rule,total ethanol exports from Brazil in 2014and 2015 were at their lowest levelssince 2004, suggesting the possibilitythat unusual factors were at work inthese two years to minimize exportsfrom Brazil. For instance, Brazilincreased the ethanol concentrationrequirement in its gasoline in early 2015and indications from available datasuggest that total gasoline consumptionwill continue rising in 2016.6566 Giventhe high variability of ethanol importsin the past and the difficulty inprecisely identifying the reasons for thatvariability, there is no way to knowwhether the lack of applicable standardsin 2014 and 2015 was the primary

65 See discussion at 80 FR 77477.

“Gasoline Demand in Brazil: An empiricalanalysis,” ThaIs Machado de Matos Vilela,Pontifical Catholic University of Rio de Janeiro,Figure 2.

700

‘II



reason for low import levels, or a lesssignificant contributing factor.

Since release of the NPRM, some dataon imports in 2016 have becomeavailable. Imports of sugarcane ethanolin 2016 through September havereached 34 million gallons, withessentially all of this volume occurringsince June.67 Historically, ethanolimports have been higher in the summerand early fall than at other times of theyear, so it is possible that the monthlyaverage that has occurred in June—September could continue through theend of the year. If so, then totalsugarcane ethanol imports for 2016could reach 76 million gallons, similarto the levels imported in 2014 and 2015.Nevertheless, the low observed 2016volume indicates that an increase in theadvanced biofuel standard does notnecessarily result in an increase inimports of sugarcane ethanol, and alsoimplies that even California’s LowCarbon Fuel Standard (LCFS) has notspurred demand for the large volumes ofadvanced ethanol imports that UNICApredicted.68

As they did in response to the 2 014—2016 proposed standards, UNICA againcommented on the proposed 2017standards that potential ethanol exportsfrom Brazil to the U.S. are drivenprimarily by a combination of Brazilianethanol production capacity andopportunities created by the RFSprogram itself. The RIN value ofadvanced biofuels is undoubtedly afactor in the volume of ethanol thatBrazil exports to the U.S., and the RINvalue is a function of the level of theadvanced biofuel standard. However,recent data on imports of sugarcaneethanol into the U.S. suggest that itwould be inappropriate to increase thevolume used in the determination of theapplicable volume requirement foradvanced biofuel above 200 milliongallons.

UNICA went on to say that sugarcanemills have significant flexibility in theamount of sugar versus ethanol that theyproduce, and that the amount of ethanolrequired to be blended into gasoline islikewise flexible based on opportunitiesfor ethanol exports. We continue tobelieve that UNICA has underestimatedthe uncertainty associated with othermarket factors, including the ElOblendwall in the U.S., ongoing growthin gasoline demand in Brazil, and

67Data from the International Trade Commission,from which ETA derives their reported values ofimports of ethanol. See “2016 imports of ethanolfrom Brazil through September,” docket EPA—HQ—OAR—2016—0004.

instance, UNICA said that ‘. , sugarcaneethanol should continue to be a major renewablefuel source in California.”

competing world demand for sugar, andhas overstated the flexibility and speedwith which Brazil can change therelative production of sugar versusethanol and the required ethanolcontent of gasoline.

Based on these facts, we continue tobelieve that recent low import levelsand high variability in longer-termhistorical imports are significant andmust be taken into account in thecontext of determining reasonablyattainable volumes of advanced biofuelfor 2017. However, we do not agree withcommenters who argued for deviatingfrom the 200 million gallons ofsugarcane ethanol that we proposedusing in the determination of the 2017advanced biofuel volume requirement.We believe that this level reflects areasonable intermediate point betweenthe lower levels imported recently andthe considerably higher levels that havebeen achieved in earlier years.Regardless of this assumed level usedonly in deriving the advanced biofuelvolume requirement, we note that actualimports of sugarcane ethanol could behigher or lower than 200 million gallonsas shown in the scenarios for how themarket could respond in Section V.Cbelow.

Aside from the specific assessment ofsugarcane ethanol imports, onestakeholder said that the inclusion ofany imported renewable fuels in thedetermination of applicable standardswas inconsistent with Congressionalintent to increase domestic energysecurity. However, the statute does notdiscriminate between domestically-produced and imported biofuels, and anincreased diversity of fuels, includingthose imported from a variety ofcountries, helps contribute to thestability of the energy supply.

2. Biodiesel and Renewable DieselWith regard to biodiesel and

renewable diesel, there are manydifferent factors that could potentiallyconstrain the total volume of these fuelsthat can be used as transportation fuelor heating oil in the United States.These constraints could include suchfactors as the availability of qualifyingbiodiesel and renewable dieselfeedstocks, limitations on the market’sability to distribute biodiesel, andlimitations related to diesel enginemanufacturers recommendations forbiodiesel use in the engines theyproduce. Each of these factors, and thedegree to which they may constrain thetotal supply of biodiesel and renewablediesel in 2017, is discussed in detail inSection V.3.2. Of these potentialconstraints, however, the primaryconstraint considered in our

determination of the reasonablyattainable and appropriate volume ofadvanced biodiesel and renewablediesel considered in the context ofderiving the advanced biofuel standardfor 2017 is the availability of advancedbiodiesel and renewable dieselfeedstock.6 This is because mostregistered biodiesel and renewablediesel production facilities are capableof producing either advanced or non-advanced biofuels depending on anumber of economic and regulatoryfactors, and the combined productioncapacity of the registered biodiesel andrenewable diesel facilities exceeds thevolume of these fuels we project can besupplied in 2017.° Since the reasonablyattainable and appropriate volume ofadvanced biodiesel and renewablediesel for 2017 projected in the contextof deriving the advanced biofuelstandard (determined primarily by anassessment of advanced biodiesel andrenewable feedstocks) is less than themaximum reasonably achievablevolume of all biodiesel and renewablediesel in 2017, other potentialconstraints (such as limitations on themarket’s ability to distribute and usebiodiesel and renewable diesel) are notexpected to limit the supply ofadvanced biodiesel and renewablediesel. This section will therefore focuson the availability of qualifyingfeedstocks, while other potentialconstraints related to the distributionand use of biodiesel and renewablediesel are discussed in Section V.B.2.

Before considering availability ofqualifying feedstocks that could be usedto produce advanced biodiesel andrenewable diesel, it is helpful to reviewthe supply of biodiesel and renewable

69Throughout this section we refer to advancedbiodiesel and renewable diesel as well as advancedbiodiesel and renewable diesel feedstocks. In thiscontext, advanced biodiesel and renewable dieselrefers to any biodiesel or renewable diesel forwhich RINs can be generated that satisfy anobligated party’s advanced biofuel obligation (i.e.,04 or D5 RINs). An advanced biodiesel orrenewable feedstock refers to any of the biodiesel,renewable diesel, jet fuel, and heating oil feedstockslisted in Table I to § 80.1426 that can be used toproduce fuel that qualifies for 04 or 05 RINs. Thesefeedstocks include soy bean oil; oil from annualcover crops; oil from algae grownphotosynthetically; biogenic waste oils/fats/greases;non-food grade corn oil; camelina sativa oil; andcanola/rapeseed oil (See pathways F, C, and H ofTable 1 to § 80.1426).

70See Section V.B.2.ii for a discussion of thecurrent production capacity for biodiesel andrenewable diesel. While some biodiesel facilitiesare limited to certain types of feedstocks (typicallyvirgin vegetable oils) we note that some virginvegetable oils qualify as advanced biofuels, whileothers can only be used to produce non-advancedrenewable fuel (fuel that qualifies to produce 06RINs] when used at facilities that qualify for anexemption from the 20% lifecycle greenhouse gasreduction requirements under 40 CFR 80.1403.



diesel to the United States in recent and renewable diesel to the United so as to require that a high percentageyears. While historic supply data and States qualifies as advanced biofuel.71 In of the projected total supply of biodieseltrends alone are insufficient to project previous years biodiesel and renewable and renewable diesel would bethe volumes of biodiesel and renewable diesel produced in the United States has advanced biofuel would not only bediesel that are reasonably attainable and been almost exclusively advanced consistent with our experience inappropriate in future years, historic data biofuel.72 Imports of advanced biodiesel previous years, but would also becan serve as a useful frame of reference have increased in recent years and will consistent with the goal of seeking toin considering future volumes. Past likely continue in 2017, as discussed in increase volumes of fuels with higherexperience suggests that a high Section V.B.2.iii. Setting the 2017 potential GHG reductions.percentage of the supply of biodiesel advanced biofuel volume requirement

TABLE IV.B.2—1—ADVANCED (D4 AND D5) BIODIESEL AND RENEWABLE DIESEL FROM 2011 TO 2016[million gallons]a

2011 2012 2013 2014 2075 2016b

Domestic Biodiesel (Annual Change) 967 (N/A) 1014 (+47) 1376 (+362) 1303 (— 73) 1,253 (— 50) N/ADomestic Renewable Diesel (Annual

Change) 58 (N/A) 11 (—47) 92 (+81) 155 (+63) 175 (+20) N/AImported Biodiesel(Annual Change) 44 (N/A) 40 (—4) 156 (+116) 130 (—26) 261 (÷131) N/AImported Renewable Diesel b (Annual

Change) 0 (N/A) 28 (+28) 145 (+117) 129 (—16) 121 (—8) N/AExported Biodiesel C (Annual Change) 48 (N/A) 102 (÷54) 125 (+23) 134 (+9) 133 (—1) N/A

Total (Annual Change) 1021 (N/A) 991 (—30) 1,644 (+653) 1,583 (—61) 1,677 (+94) 2,100 (+423)

aAll data for 201 1—2015 from EMTS. EPA reviewed all advanced biodiesel and renewable diesel RINs retired for reasons other than demonstrating compliance with the RFS standards and subtracted these RINs from the RIN generation totals for each category in the table above tocalculate the supply in each year.

bvolumes for 2016 are those determined reasonably attainable in the final rule deriving the 2016 standards. This projection was for all advanced biodiesel and renewable diesel and did not differentiate between domestically produced and imported fuels or between biodiesel and renewable diesel.

calculating the supply of advanced biodiesel and renewable diesel we have assumed all exported biodiesel must retire 1.5 RINs per gallonconsistent with 80.1130. No parties reported exports of advanced renewable diesel from 2011—2015.

TABLE IV.B.2—2 SUPPLY OF CONVENTIONAL (D6) BIODIESEL AND RENEWABLE DIESEL FROM 2011 TO 2016[million gallons] a

biodiesel and renewable diesel.CIn calculating the supply of conventional biodiesel and renewable diesel we have assumed all

Ion consistent with 80.1130. No parties reported exports of renewable diesel from 2011—2015.

Since 2011 the year-over-yearincreases in the volume of advancedbiodiesel and renewable diesel in theUnited States have varied greatly, froma low of negative 61 million gallonsfrom 2011 to 2012 to a high of 653million gallons from 2012 to 2013.These changes in supply were likelyinfluenced by a number of factors such

From 2011 through 2015 over 95% of allbiodiesel and renewable diesel supplied to theUnited States (including domestically-producedand imported biodiesel and renewable diesel)qualified as advanced biodiesel and renewable

as the cost of biodiesel feedstocks andpetroleum diesel, the status of thebiodiesel blenders tax credit, growth inmarketing of biodiesel at high volumetruck stops and centrally fueled fleetlocations, demand for biodiesel andrenewable diesel in other countries, andthe volumes of renewable fuels(particularly advanced biofuels)

diesel (6,836 million gallons of the 7,159 milliongallons) according to EMTS data.

72From 2011 through 2015 over 99.8% of all thedomestically produced biodiesel and renewable

required by the RFS. This historicalinformation does not indicate that themaximum previously observed increaseof 653 million gallons of advancedbiodiesel and renewable diesel isreasonably attainable and appropriatefrom 2016 to 2017, nor does it indicatethat the low growth rates observed inother years represent the limit of

diesel supplied to the United States qualified asadvanced biodiesel and renewable diesel (6,538million gallons of the 6,545 million gallons)according to EMTS data.

2011 2012 2013 2014 2015 2076b

Domestic Biodiesel (Annual Change) 0 (N/A) 0 (+0) 6 (+6) 1 (—5) 0 (+0) N/ADomestic Renewable Diesel (Annual

Change) 0 (N/A) 0 (+0) 0 (+0) 0 (+0) 0 (+0) N/AImported Biodiesel (Annual Change) 0 (N/A) 0 (+0) 31 (+31) 52 (+21) 74 (+22) N/AImported Renewable Diesel b (Annual

Change) 0 (N/A) 0 (+0) 53 (+53) 0 (—53) 106 (÷106) N/AExported Biodiesel C (Annual Change) 0 (N/A) 0 (+0) 0 (+0) 0 (+0) 0 (+0) N/A

Total (Annual Change) 0 (N/A) 0 (+0) 90 (+90) 53 (—37) 180 (+127) 400 (+220)

aAlI data for 2011—2015 from EMTS. EPA reviewed all conventional biodiesel and renewable diesel RINs retired for reasons other than demonstrating compliance with the RFS standards and subtracted these RINs from the RIN generation totals for each category in the table above tocalculate the supply in each year.

bVolumes for 2016 are those used in deriving the total renewable fuel standard in the final rule deriving the 2016 standards. This projectionwas for all conventional biodiesel and renewable diesel and did not differentiate between domestically produced and imported fuels or between

exported biodiesel must retire 1.5 RINs per gal-



potential growth in 2017. Rather, thesedata illustrate both the magnitude of theincreases in advanced biodiesel andrenewable diesel in previous years andthe significant variability in theseincreases.

We also acknowledge that the volumeof conventional (D6) biodiesel andrenewable diesel use in the UnitedStates has increased in recent years, andthat these fuels are likely to continue tocontribute to the supply of renewablefuel in the United States in 2017. Ifthere are constraints on the total volumeof all forms of biodiesel and renewablediesel related to the ability of the marketto distribute and/or consume biodieseland renewable diesel, as we believe willlikely be the case in 2017, setting theRFS standards in such a way that theprojected volume of advanced biodieseland renewable diesel was equal to theprojected volume of total biodiesel andrenewable diesel (including bothadvanced and conventional fuels)would require all of the reasonablyattainable volume of biodiesel andrenewable diesel to qualify as anadvanced biofuel (See Section V.B.2 formore detail on these constraints). Thiswould assume that the standards we setcould effectively close the market forconventional biodiesel and renewablediesel, as constraints related to thedistribution and use of additionalvolumes of biodiesel and renewablediesel would be expected to make theuse of conventional fuels in addition tothe advanced volumes unlikely. Ifeffective, establishing the RFS volumesin this way could significantly disruptthe supply chains established to supplythe United States with conventionalbiodiesel and renewable diesel.However, it is also possible that theconventional forms of these fuels wouldcontinue to be imported in 2017 despiteour action in setting the advancedbiofuel standard, consistent with pastpractice and established contracts andsupply chains, and that the result, dueto constraints related to distributionand/or consumption of all forms ofbiodiesel and renewable diesel, wouldbe an inability to satisfy the advanced

73As shown in Table IV.B.2—2, there was noqualifying conventional biodiesel and renewablediesel used in the United States in 2011 and 2012,and the volume of these fuels rose to 90 milliongallons, 53 million gallons, and 180 million gallonsfrom 2013—2015.

“ We also note that the potential constraintsrelated to the distribution and use of biodiesel maylead to an increasing demand for renewable diesel,which faces fewer potential constraints related todistribution and use than biodiesel. Much of therenewable diesel produced globally would qualifyas conventional, rather than advanced biofuel, andwe therefore expect that conventional renewablediesel will continue to be an important source ofrenewable fuel used in the United States in 2017.

biofuel volume requirement through theproduction and use of advancedbiofuels (as opposed to use of carryoverRINs).

Although there is uncertaintyregarding EPA’s ability to effectivelyconstrain the entry into commerce inthe U.S. of conventional biodiesel andrenewable diesel through setting ahigher advanced biofuel standard, webelieve our decision for 2017 isreasonably made on the basis of ananalysis of feedstock availability. Theprimary difference betweenconventional and advanced forms ofbiodiesel and renewable diesel is thetype of feedstock used for production.EPA received several comments on ourproposed rule related to the availabilityof qualifying advanced biodiesel andrenewable diesel feedstocks. Some ofthese comments argued that theexpected increase of qualifyingadvanced feedstocks was less than theproposed increase of 200 million gallonsof advanced biodiesel and renewablediesel from 2016 to 2017 (from 2.1billion gallons to 2.3 billion gallons).These parties generally argued thatbecause the available supply ofqualifying advanced feedstocks wouldnot increase in line with the proposedvolume requirements, the proposedstandards would likely result infeedstock substitution, with anincreased use of qualifying advancedfeedstocks for biodiesel and renewablediesel production, while the partiespreviously using these feedstocks forfood, feed, or industrial purposes wouldturn to alternative feedstocks. Thesecommenters generally speculated that asbiodiesel and renewable dieselproducers sought out more qualifyingadvanced feedstocks, other partieswould likely turn to greater use of palmoil as a substitute. Alternatively, otherparties argued that there were sufficientqualifying advanced feedstocks toachieve significantly higher volumes ofadvanced biodiesel and renewablediesel than the volumes in EPA’sproposed rule. They requested that inlight of the availability of thesefeedstocks EPA should finalizeincreases from both the proposedadvanced biofuel standard for 2017 andthe proposed biomass-based dieselstandard for 2018. Commenters arguingfor either lower or higher advancedbiofuel standards in 2017 on the basisof the availability of qualifyingadvanced feedstocks both includedfeedstock assessments to support theirclaims. These assessments are discussedbriefly below. More detail on EPA’sevaluation of each of these assessments

can be found in Section 2.4.5 of the RTCdocument.

Commenters claiming that qualifyingfeedstocks would not increasesufficiently to meet the proposedincrease in advanced biodiesel andrenewable diesel from 2016 to 2017generally relied on a study by Nelsonand Searle. This study builds upon a2015 study by Brorsen76 of availablefeedstocks capable of being utilized toproduce biodiesel. The Nelson andSearle study focused on the productionand recovery of feedstocks in the UnitedStates that can be used to produceadvanced biodiesel, after accounting fordemand from other sectors (e.g., food,feed, industrial, etc.). It concluded thatfeedstocks for advanced biofuels (e.g.,soy oil, canola oil, yellow grease etc.)were expected to increase so thatbiodiesel fuel could increase by 23million gallons in 2017, and increase atan annual average rate of 31.5 milliongallons through 202 The study’sstrength is its transparent methodologyin accounting for the different types offeedstocks that can be utilized toproduce advanced biofuels.

The Nelson and Searle study is afairly conservative view of the increasedavailability of advanced biodiesel/renewable diesel feedstocks fromplanted crops in the United States in thenext few years. for the followingreasons we believe it likely underestimates the total availability ofadvanced feedstocks for biodiesel andrenewable diesel production in 2017.USDA’s most recent World AgriculturalSupply and Demand Estimates(WASDE) has larger increases invegetable oils in the U.S. than theNelson and Searle study (see discussionbelow).78 The Nelson and Searle studydid not consider the availability offeedstocks for advanced biodiesel andrenewable diesel production incountries other than the United States.It also assumed no significant increasesin distillers corn oil or the recovery ofadditional waste oils such as yellowgrease or brown grease.79

Nelson, B. and Searle, S., ‘Projectedavailability offats, oils, and greases in the U.S.”,2016, ICCT Working Paper. EPA—HQ—OAR—2016—0004—1800.

76Brorsen, W., “Projections of U.S. Production ofBiodiesel Feedstock”, 2015, EPA—HQ—OAR—2015—0111.

Producing one gallon of biodiesel or renewablediesel requires approximately one gallon offeedstock.

78USDA, World Agricultural Supply and DemandEstimates, September 2016, p. 10.

79 study also did not account for the potentialdecline in soybean oil use in food, as a result of aJune 2015 FDA determination requiring theelimination by 2018 of all partially hydrogenatedoil in food use (See the determination on the RFS

Continued



Commenters arguing that there issufficient available feedstock for muchhigher volumes of advanced biodieseland renewable diesel generally citedstudies conducted by LMCInternational.80 81 The 2016 LMCInternational study is an update to aprevious study that LMC Internationalundertook for the previous RFS AnnualRule (2014—2016). Both of the LMCInternational studies sought to quantifythe global availability of feedstocks foradvanced biodiesel and renewablediesel production, after accounting fordemand for these feedstocks in othermarkets. The most recent LMCInternational study concluded that theglobal availability of feedstocks for usein advanced biodiesel and renewablediesel production is expected to growfrom 8.6 billion gallons in 2017 to 9.2billion gallons in 2018 and 9.8 billiongallons in 2020. While they do notprovide an estimate of feedstockavailability broken down by qualifyingoils and fats in 2016, they do state thatthe global supply of advanced feedstockis expected to “rise steadily” over theforecast period. In part, this is due to anupward revision of the projected level ofsoy oil production worldwide sincetheir 2015 study. This would suggest anannual increase in advanced feedstockavailability of up to 600 million gallonsper year. The most recent LMCInternational study does not attempt todetermine how much of the increase inthis feedstock, or the resulting biodieselor renewable diesel, could be expectedto be used in the United States versusother international markets, howeverthey do note that approximately onethird of the existing feedstock isproduced in North America.

Both of the LMC International studiesmay overestimate feedstock availability.For example, when estimatingavailability, the studies consider thetheoretical maximum amount of oil thatcould be extracted from an oil seed, or“oil in seed”, versus the amount of oilactually expected to be extracted/produced. Some amount of the soybeansupply is not crushed, and is fed

Web site st http://www.fdo.gov/Food/IngredientsPockogingLobeling/FoodAdditlveslngredients/ucm4491 62.html. To theextent that soy oil continues to be phased down forfood purposes, this will free up some supply of soyoil for biodiesel. Any reduction in soybean oil usedfor food purposes, however, would be expected tolead to an increased use of other vegetable oils forfood purposes. These alternative oils, then, wouldnot be available as potential feedstocks forrenewable fuel.

se LMC international, “Current ond Fofore Supplyof Biodiesel Feedstocks”, 2016, EPA—HQ—OAR—2016—0004—2904 (Attachment 141.

83LMC International, “Current ond Future Supplyof Biodiesel Feedsfocks”, 2015, EPA—HQ—OAR—2016—0004—2904 (Attachment 14).

directly to livestock, and in otherinstances the soybean is crushed, andoil is extracted, but it is added as anecessary element to feed and thusdoesn’t enter the oil market. Theseunaccounted for alternate practicescontribute to oil supply estimates thatare in some cases significantly higherthan USDA estimates. For example, themost recent LMC International estimateof global soybean oil supply is morethan 25 percent greater than thatprojected by USDA—WASDE in 2016/2017.82

NBB also submitted a study thatcontained updated results from theWorld Agricultural Economic andEnvironmental Services model (WAEESmodel).83 Rather than project theavailability of advanced biodiesel andrenewable diesel feedstocks in 2017,this study instead looked at the likelyimpacts of meeting a “market reality”scenario with an advanced biofuelstandard of 4.75 billion gallons in 2017and 2018 and biomass-based dieselstandards of 2.0 and 2.50 billion gallonsin 2017 and 2018, respectively. In the“market reality” scenario, the WAEESmodel projected that approximately 2.3billion gallons of biodiesel and 0.6billion gallons of renewable dieselwould be used to satisfy the RFSstandards for 2017 assumed in thisscenario.84 The study concludes thatthese higher standards could be metwith a rise in biodiesel costs from $3.02in 2016 to $3.34 in 2017 and $3.58 in2018.

These WAEES model results,however, are significantly impacted bya number of fairly optimisticassumptions. Each individualassumption may be justifiable, but whencompiled together the results of thestudy imply an outlook for biodiesel/renewable diesel feedstocks that is morefavorable than is likely. For example,WAEES assumes the U.S. biodieselblenders tax credit is in place for 2017and 2018; that foreign countries do notmeet their renewable fuel mandates thusfreeing up biodiesel supplies for theUnited States market; 85 that biodiesel

82 USDA, World Agriculturol Supply ond DemondEstimotes, August 2016. htfp://usdo.monnlib.cornell.edu/usdo/woob/wosde//201 0s/201 6/wosde-08-12-201 6.pdf

83 Kruse, J., “Implications of Higher BiodieselVolume Obligations for Global Agriculture andBiofuels”, 2016, World Agricultural Economic andEnvironmental Services (WAEESI, EPA—HQ—OAR—2016—0004—2904 (Attachment 131.

84 This study assumes that all of the biodiesel isadvanced biodiesel, but notes that the volume ofrenewable diesel includes both advanced andconventional renewable diesel.

83 foreign countries have their ownbiodiesel mandates. Most countries have increasingstringency in their levels of required biodiesel,

consumption in 2015 was higher thanthe volumes reported in EMTS; and thatmuch higher volumes of ethanol areused in higher level ethanol blends thanEPA believes is possible.88 Also, incontrast to the Nelson and Searle study,the WAEES model predicts that corn oilextraction rates from distillers’ grainsincrease, resulting in an increase in thesupply of corn oil available for biodieselproduction in the United States. Usingdifferent assumptions, such as higherdemand for biodiesel in the rest of theworld, would result in higher costimpacts, and less availability offeedstocks to produce biodiesel formeeting the high potential standardsevaluated by the WAEES model. Thecombined impact of the keyassumptions including the renewal ofthe biodiesel blenders tax credit, higherethanol than EPA believes is possibleetc., are significant. This means thatachieving these volumes is likely to bemore difficult than the results from theWAEES model indicate.

In assessing the expected increase inthe availability of feedstocks that can beused to produce advanced biodiesel andrenewable diesel from 2016 to 2017,EPA has looked to a number of differentsources. We believe the most reliablesource for projecting the expectedincrease in vegetable oils in the UnitedStates is USDA’s WASDE. TheSeptember 2016 WASDE report projectsthat the production of vegetable oils inthe United States will increase by 0.33million metric tons from 2016 to 2017.87This quantity of vegetable oils could beused to produce approximately 94

although past performance does not equate to futureresults and some past mandates have not beensatisfied. See an assessment entitied, “BiomassBased Diesel Mandates and Trade Trends aroundthe World” (available at htfp://www.biofuelsdigest.com/bdigest/201 6/08/31 /biomoss-bosed-diesel-mondofes-ond-trode-frendsoround-the-world/l, for an overview of the status ofbiomass-baaed diesel mandates outside of theUnited States.

86 The WAEES model projects 621 million gallonsof ethanol will be used in mid to high level ethanolblends in 2016/2017 and 600 million gallons ofethanol will be used in mid to high level ethanolblends in 2017/2018. These volumes aresignificantly higher than those we prolect can beconsumed in Section V.B.1 of this rule.

87 The September WASDE was the most recentpublished WASDE report available to EPA at thetime the advanced biodiesel and renewable dieselfeedstock assessment was conducted. It is availableonline at: http://www. usdo.gov/oce/commodify/wosde/lofest.pdf. The WASDE projects the supplyof agricultural commodities by agriculturalmarketing year, rather than calendar year. Theagricultural marketing year runs from October 1through September 30. We have therefore used theWASDE projections from 2015/2016 to representavailable feedstocka in 2016, and the projectionsfrom 2016/2017 to represent available feedstocks in2017.



million gallons of advanced biodiesel orrenewable diesel.88

In addition to virgin vegetable oils, wealso expect increasing volumes ofdistillers corn oil to be available for usein 2017. In assessing the likely increasein the availability of distillers corn oilfrom 2016 to 2017, the authors of theWAEES model considered the impactsof an increasing adoption rate ofdistillers corn oil extractiontechnologies, as well as increased cornoil extraction rates enabled by advancesin this technology. They project that theavailability of distillers corn oil willincrease by approximately 83 milliongallons from 2016 to 2017.89 We believethat this is a reasonable projection of theincreased production of distillers cornoil from 2016 to 2017. While the vastmajority of the increase in advancedbiodiesel and renewable dieselfeedstocks produced in the UnitedStates from 2016 to 2017 is expected tocome from virgin vegetable oils anddistillers corn oil, increases in thesupply of other sources of advancedbiodiesel and renewable dieselfeedstocks, such as biogenic waste oils,fats, and greases, may also occur. Theseincreases, however, are expected to bemodest. In total, we expect thatincreases in feedstocks produced in theUnited States are sufficient to produceapproximately 200 million more gallonsof advanced biodiesel and renewablediesel in 2017 relative to 2016. We notethat this is consistent with the resultsfrom the LMC model, mentioned above,which projected a global increase of 600million gallons of advanced biodieseland renewable diesel feedstocks andnotes that historically approximatelyone third of the total quantity of thesefeedstocks has been produced in NorthAmerica.

In addition to the expected increase inadvanced feedstocks produced in theUnited States, we have also consideredthe expected increase in the imports ofadvanced biodiesel and renewablediesel produced in other countries. Webelieve this is appropriate in light of thesignificant expected increase inadvanced biodiesel and renewablediesel feedstocks in countries other thanthe United States (estimated at

88To calculate this volume we have used aconversion of 7.7 pounds of feedstock per gallon ofbiodiesel. This is based on the expected conversionof soy oil (http://extension.missouri.edu/p/G1 990),which is the largest source of feedstock used toproduce advanced biodiesel and renewable diesel.We believe that it is also a reasonable conversionfactor to use for all virgin vegetable oils.

89 Kruse, J., ‘Implications of Higher BiodieselVolume Obligations for Global Agriculture aridBiofuels”, 2016, World Agricultural Economic andEnvironmental Services (WAEES), EPA—HQ—OAR—2016—0004—2904 (Attachment 13].

approximately 400 million gallons usingthe global results from the LMC modeltogether with our estimate of theincrease in the domestic production ofthese feedstocks discussed above], andthe increasing volumes of importedadvanced biodiesel and renewablediesel in recent years. While there hasbeen significant variation in the volumeof advanced biodiesel and renewablediesel imports in previous years, thegeneral trend has been for increasingvolumes of imports. From 2011 through2015, the average annual rate of increasein the imported volume of advancedbiodiesel and renewable diesel has beenapproximately 85 million gallons peryear.°° From 2012 through 2015 theaverage annual rate of increase for thesefuels was approximately 105 milliongallons per year.°

We therefore believe it is reasonableto expect the imports of advancedbiodiesel and renewable diesel toincrease by approximately 100 milliongallons from 2016 to 2017. We believethat this volume of imported advancedbiodiesel and renewable diesel willcontinue to provide the appropriatemarket demand signal for advancedbiodiesel and renewable diesel, withoutresulting in the potential negativeimpacts of large scale feedstockswitching discussed above. We note thatwe do not believe that the supply ofimported advanced biodiesel andrenewable diesel necessarily could orshould increase by 100 million gallonsper year for years beyond 2017. Thereare several factors, such as expectedslowing growth rates in the productionof advanced biodiesel and renewablediesel feedstocks and increasingdemand for advanced biodiesel andrenewable diesel in other countries,which indicate that this rate of growthin imported volumes of advancedbiodiesel and renewable diesel willlikely slow in futures years.Nevertheless, we believe an increase of100 million gallons of importedadvanced biodiesel and renewablediesel is reasonable to assume from2016 to 2017.

After a careful consideration of theassessments of available feedstocks,along with comments we received onthe proposed 2017 volume standardsand a review of the historic supply of

90 This number is calculated using theinformation in Table IV.B.2—1 above. The totalimports of advanced biodiesel and renewable dieselwas 44 million gallons in 2011, rising to 382million gallons in 2015.‘ This number is calculated using the

information in Table IV.B.2—1 above. The totalimports of advanced biodiesel and renewable dieselwas 68 million gallons in 2012, rising to 362million gallons in 2015.

advanced biodiesel and renewablediesel to the United States in previousyears, EPA has determined that 2.4billion gallons of advanced biodieseland renewable diesel is reasonablyattainable and appropriate for use in ourdetermination of the advanced biofuelstandard for 2017. This volume, whichis 300 million gallons higher than thevolume of advanced biodiesel andrenewable diesel projected in derivingthe advanced biofuel standard in 2016,reflects EPA’s assessment of theexpected increase in advancedfeedstocks available for the productionof advanced biodiesel and renewablediesel for the U.S. market from 2016 to2017. We believe that in not consideringpotential increases in the volume ofdistillers corn oil or waste feedstocksthat can be recovered, and by focusingsolely on feedstock availability in theUnited States, the Nelson and Sealestudy significantly under-estimated thelikely increase in available feedstocksfrom 2016 to 2017. Conversely, whilethe LMC model may be a relativelyreasonable assessment of the growth inglobal availability (with the exception ofthe optimistic assumptions notedabove], it would be unreasonable toassume that all of this feedstock can orshould be used for biodiesel andrenewable diesel production for use inthe United States.

While we are projecting that 2.4billion gallons of advanced biodieseland renewable diesel will be availableto the United States in 2017 for thepurposes of deriving the advancedbiofuel standard, we do not believe thatthis is the maximum volume that couldbe supplied. It is possible that if EPAwere to set a higher advanced biofuelstandard that prices for biodiesel andrenewable diesel (and the associatedRINs) would rise to levels that wouldresult in a greater supply of advancedbiodiesel and renewable diesel to theUnited States. These increases,however, would likely not be the resultof additional production of advancedbiodiesel and renewable dieselproduction enabled by an increase inthe production of advanced feedstocks.Advanced biodiesel and renewablediesel feedstocks include both wasteoils, fats and greases and oils fromplanted crops. In recent years thedemand for waste oils, fats, and greasesfor biodiesel production has beensignificant, especially as mandatedvolumes of renewable fuels in theUnited States and around the worldhave increased. While we believe anincrease in supply of waste oils, fats,and greases is possible in 2017 based inpart on the studies cited above, we



believe this increase is limited as muchof these oils, fats, and greases arealready being recovered and used inbiodiesel and renewable dieselproduction or for other purposes. Manyof the planted crops that supplyvegetable oil for advanced biodiesel andrenewable diesel production areprimarily grown as livestock feed withthe oil as a co-product or by-product,rather than specifically as biodiesel andrenewable diesel feedstocks.92 This istrue for soy beans and corn, which arethe two largest sources of feedstock fromplanted crops used for biodieselproduction in the United States.93 Thismeans that the planted acres of thesecrops are unlikely to respond toadditional demand for vegetable oils forbiodiesel and renewable dieselproduction in the near term, as the oilsproduced are not the primary source ofrevenue for these crops.

Given the limited ability of themarkets to provide additional feedstocksin response to a higher advanced biofuelstandard in 2017, we believe that theprimary impact of setting a standardinvolving more than a 300 milliongallon increase over the 2016 standardcould be a decreased use of advancedbiodiesel and renewable diesel in othercountries (as this supply is shifted to theUnited States) as well as significantfeedstock substitution as the food, feed,and industrial oil markets switch tonon-advanced feedstocks to free upgreater volumes of advanced feedstocksfor advanced biodiesel and renewablediesel production.° Increasing theshort-term supply of advanced biodieseland renewable diesel to the UnitedStates in this manner (simply shifting

°2For example, corn oil is a co-product of corngrown primarily for feed or ethanol production,while soy and canola oil are primarily grown aslivestock feed. for further discussion on this issuesee the LMC International study, submitted as partof the NBB comments (EPA—HQ—OAR—2016—0004—2904, Attachment 14).

°3According to ETA data 4,906 million pouiids ofsoy bean oil and 1,044 million pounds of corn oilwere used to produce biodiesel in the United Statesin 2015. Other significant sources of feedstock wereyellow grease (1,232 million pounds), canola oil(745 million pounds), white grease (588 millionpounds), tallow (429 million pounds), and poultryfat (190 million pounds). Numbers from FIA’sFebruary 2016 Monthly Biothesel ProductionReport. Available at http://www.eia.gov/biofuels/biodiesel/production/archfve/2015/201 5_12/biodiese].pdf.

94Given the constraints in the use of totalbiodiesel and renewable diesel in the U.S.described in Section V. increasing the use ofadvanced biodiesel and renewable diesel in the U.S.in 2017 could be expected to also lead to a decreasein the use of conventional biodiesel and renewablediesel. Any energy security benefits gained fromadditional volumes of advanced biodiesel andrenewable diesel would be expected to be off-set bythe corresponding lower consumption ofconventional biodiesel and renewable diesel.

the end use of advanced feedstocks andbiodiesel and renewable dieselproduced from these feedstocks anddisplacing conventional biodiesel andrenewable diesel with advancedbiodiesel and renewable diesel) may notadvance the GHG goals of the RFSprogram. In a worst case scenario,higher standards could cause supplydisruptions to a number of markets asbiodiesel and renewable dieselproducers seek additional supplies ofadvanced feedstocks and the parties thatpreviously used these feedstocks, bothwithin and outside of the fuelsmarketplace, seek out alternativefeedstocks. This could result insignificant cost increases, for bothbiodiesel and renewable diesel as wellas other products produced fromrenewable oils, while failing tomeaningfully reduce overall GHGemissions or increase U.S. energysecurity. Nevertheless, while the growthin the availability of advancedfeedstocks may be slowing both in theU.S. and abroad, as indicated by somestudies,° we believe that a volume of2.4 billion gallons of advanced biodieseland renewable diesel (300 milliongallons more than our projection of theavailable volume of these fuels in 2016)is both reasonably attainable andappropriate in 2017.

The 300 million gallon annualincrease we are using for 2017 is a littleless than the increase in advancedbiodiesel and renewable diesel weassumed in deriving the 2016 advancedbiofuel standard would occur from 2015to 2016 (approximately 370 milliongallons). We believe that this isreasonable because the circumstanceswe are facing in this action are differentfrom those we were facing in the 20 14—2016 final rule. The 2016 standardsfollowed two years where standards hadnot been set by the statutory deadlines.Relatively modest increases in thesupply of advanced biodiesel andrenewable diesel occurred in 2014 and2015. This meant that there was greateropportunity in 2016 to take advantage ofmarket changes that had not been fullyutilized in the preceding two years.

EPA also received comments on theequivalence value EPA used to convertthe volume of advanced biodiesel andrenewable diesel into a projectednumber of RINs for the purpose ofderiving the proposed advanced biofuel

See the results of the LMC International study.which projects that the availability of advancedfeedstocks for biodiesel and renewable dieselproduction will increase by 600 million gallonsfrom 2017 to 2018 (8.6 billion gallons to 9.2 billiongallons), but these increases will be only 300million gallons per year from 2018—2020 (9.2 to 9.8billion gallons over two years).

standard. Biodiesel has an equivalencevalue of 1.5, while renewable dieselgenerally has an equivalence value of

In the proposed rule EPA assumedan equivalence value of 1.5, consistentwith the past rules, using thesimplifying assumption that the vastmajority of volume was biodiesel.Commenters noted, however, that usingan equivalence value of 1.5 did notproperly account for the significantvolumes of renewable diesel that isexpected to be supplied to the UnitedStates in 2017. EPA agrees with thesecomments. In this final rule we haveused an equivalence value of 1.55 toconvert the projected volume ofadvanced biodiesel and renewablediesel to a volume of RlNs for thepurpose of deriving the advancedbiofuel standard. We have similarlyused this higher equivalence value(1.55) to convert the projected volume oftotal biodiesel and renewable diesel(both advanced and conventional) to avolume of RINs for the purpose ofderiving the total renewable fuelstandard for 2017. This higherequivalence value is generallyconsistent with the volume weightedaverage equivalence value for thevolume of advanced biodiesel andrenewable diesel supplied to the UnitedStates in recent years.97 Note that thishigher equivalence value does notimpact the volume of biodiesel andrenewable diesel, but does increase thenumber of RINs that is expected to begenerated for this volume of biodieseland renewable diesel, which impactsboth the advanced and total renewablefuel standards.

We note that the reasonably attainableand appropriate volume of advancedbiodiesel and renewable dieselprojected for the purpose of deriving theadvanced biofuel volume requirementcannot itself be viewed as a volumerequirement. This volume is merely thebasis on which we have determined thevolume requirements for advancedbiofuel and total renewable fuel. Asdiscussed in more detail in Section V.Cbelow, there are many ways that themarket could respond to the percentagestandards we establish, including use ofadvanced biodiesel and renewablediesel volumes higher or lower thanthose projected in this section.

96 This means that biodiesel producers generallygenerate 1.5 RINs for every gallon of biodiesel theyproduce, while renewable diesel producersgenerally generate 1.7 RINs for every gallon ofrenewable diesel they produce.

97’ volumes to RINs for biodiesel &renewable diesel,” docket EPA—HQ—OAR—2016—0004.



3. Other Advanced Biofuel diesel, there are other advanced biofuels biofuels include biogas, naphtha,that can be counted in the heating oil, butanol, and jet fuel.

In addition to cellulosic biofuel, determination of reasonably attainable However, the supply of these fuels hasimported sugarcane ethanol, and and appropriate volumes of advanced been relatively low in the last severaladvanced biodiesel and renewable biofuel for 2017. These other advanced years.

TABLE IV.B.3—1—HIsT0RIcAL SUPPLY OF OTHER ADVANCED BIOFUELS[Million ethanol-equivalent gallons]

Biogas Heating oil Naphtha Repewble Total

2013 26 0 3 64 932014 20 0 18 15 532015 0 1 24 8 33

a Some renewable diesel generates D5 rather than D4 RINs as a result of being produced through coprocessing with petroleum or being produced from the non-cellulosic portions of separated food waste or annual cover crops.

The downward trend over time inbiogas as advanced biofuel with a Dcode of 5 is due to the re-categorizationin 2014 of landfill biogas from advanced(D code 5) to cellulosic (D code 3)98 Theaverage of the remaining sources overall three years is 44 million gallons.Based on historical supply and theexpectation that growth in the advancedbiofuel standard will continue toprovide incentives for growth in thesupply of these other advanced biofuels,we proposed using 50 million gallons inthe context of determining the advancedbiofuel volume requirement.

While some stakeholders suggestedthat volumes higher than 50 milliongallons were possible in 2017, theyrelied primarily on opportunities forother biofuels to qualify as advancedunder the existing regulations,including jet fuel, liquefied petroleumgas (LPG), and liquefied natural gas (asdistinct from compressed natural gas).We agree that such opportunities exist,and believe that they could help thetotal volume of other advanced biofuelsto reach 50 million gallons in 2017.However, since they have been

produced in only de minimis amountsin the past, we do not have a basis forprojecting substantial volumes fromthese sources in 2017. We have takeninto consideration that the marketsupplied 67 million gallons of nonbiogas advanced biofuel in 2013,demonstrating that it is capable ofachieving supply of more than 50million gallons. However, overallsupply of other advanced biofueldecreased in 2014 and 2015, albeitduring years when the RFS standardswere not in place to drive increasedproduction and use. Since it is notpossible to discern the precise cause ofthe reduced volumes achieved in 2014and 2015, we do not believe it would bereasonable to ignore these data points.We believe it is most reasonable toassume reasonably attainable volumessomewhat lower than the historicmaximum, but higher than the lowvolumes seen in 2014 and 2015 thatlikely reflect in part the absence of adriving RFS standard. In light of theseconsiderations, we believe it isreasonable to assume reasonablyattainable and appropriate volumes of

50 million gallons of other advancedbiofuel in 2017.

Some stakeholders suggested that weshould ignore supply from otheradvanced biofuel sources altogether,citing the low volumes supplied in thepast. We disagree. Some volumes areclearly attainable, and we do not believeit would be appropriate to ignore them.Therefore, for the purposes ofdetermining the final advanced biofuelvolume requirement, we have used 50million gallons of other advancedbiofuel.

4. Total Advanced Biofuel

The combination of all sources ofadvanced biofuel described in theprevious sections leads us to believethat 4.28 billion gallons of advancedbiofuel is reasonably attainable andappropriate to require in 2017, and thatit is not necessary to reduce theadvanced biofuel statutory target by thefull amount permitted under thecellulosic waiver authority. This is theadvanced biofuel volume requirementthat we are establishing for 2017.

TABLE IV.B.4—1 —VOLUMES USED TO DETERMINE THE FINAL ADVANCED BIOFUEL VOLUME REQUIREMENT FOR 2017[Million ethanol-equivalent gallons except as noted]

311

Advanced biodiesel and renewable diesel (ethanol-equivalent volume/physical volume) 3,720/2,400Imported sugarcane ethanol 200Other non-ethanol advanced 50

Total advanced biofuel 4,281

The final volume requirement foradvanced biofuel for 2017 is an increaseof about 300 million gallons from theproposed volume of 4.0 billion gallons,primarily reflecting our updated

assessment of biodiesel and renewablediesel.

The volume of advanced biofuel thatwe are establishing for 2017 will requireincreases from current levels that aresubstantial yet reasonably attainable and

appropriate, taking into account theconstraints on supply discussedpreviously, our judgment regarding theability of the standards we set to resultin marketplace changes, feedstockavailability, and the various

9879 FR 42128. July 18, 2014.



uncertainties we have described. FigureIV.B.4—1 shows that the advanced

biofuel volume requirement for 2017will be significantly higher than the

volume requirements for advancedbiofuel in previous years.

Figure IV.B.4-1Growth in Advanced Biofuel Volume Requirements

4,500

4,000

II2016 2017

In response to the NPRM,stakeholders were strongly divided onwhether the proposed 2017 advancedbiofuel volume of 4.0 billion gallonswas too high or too low. Partiesrepresenting advanced biofuelproduction, including biodiesel andsugarcane ethanol, expressed concernthat 4.0 billion gallons would notprovide enough incentive for the marketto grow. However, the final volume of4.28 billion gallons is about 700 milliongallons higher than the 2016 volumerequirement, providing significantopportunities for growth as discussed inmore detail in Section V.C

Among commenters who suggested analternative, higher volume for the 2017advanced biofuel volume requirement,most based it primarily on a higherassumed level of BBD of between 2.5and 2.9 billion gallons. As discussed inSection W.B.2, after consideration ofstakeholder comments, we do notbelieve that BBD volumes this high arereasonably attainable or appropriate in2017. One stakeholder also believed thatthe methodology that we developed fordetermination of cellulosic biofuelunderestimated potential 2017 volumes,and suggested that an additional 100million gallons of cellulosic biofuel waspossible. As discussed in Section hID,we continue to believe that ourmethodology for cellulosic biofuelappropriately accounts for uncertaintyin projections for that emergingindustry, and that while an additional100 million gallons of cellulosic biofuelcould be considered possible, it is

unlikely and thus should not beincluded in volumes used as the basisfor the 2017 standards.

Parties representing the refiningindustry generally believed that theproposed volume of 4.0 billion gallonsfor advanced biofuel was too high. Theysuggested an alternative 2017 advancedbiofuel volume requirement of 3.2billion gallons, considerably below the2016 volume requirement of 3.61 billiongallons. Although there are manyproblems with the assumptions thesecommenters used to justify theirsuggestion, we note first that, asdescribed in Section I.B.1, availableevidence indicates that the 2016standard for advanced biofuel is ontrack to be met. Since available evidenceindicates that the 2016 advanced biofuelstandard is likely to be met, we see noreason to expect that at least the samevolumes cannot be attained in 2017.

These stakeholders also assumed thatimports of sugarcane ethanol and otheradvanced biofuel would be zero in 2017.Making such an assumption would beinconsistent with all past experienceand there is no basis to assume thatimports cannot contribute at least somevolume in 2017.

The suggested advanced biofuelvolume requirement of 3.2 billiongallons also assumes that cellulosicbiofuel will only reach 200 milliongallons instead of the 312 milliongallons that we proposed. As describedin Section III.D, we do not believe thatusing only historic cellulosicproduction volumes is appropriatewhen making projections for the future;

the statute directs EPA to set thecellulosic volume at the “projectedvolume . . . of production,” rather thanon the basis of past production alone.

Finally, these stakeholders’ suggestionof 3.2 billion gallons of advancedbiofuel assumes that the supply of BBDwill not exceed the applicable BBDstandard, which is 2.0 billion gallons for2017. There is no basis for thisassumption in setting the advancedbiofuel volume requirement. The totalsupply of BBD has consistentlyexceeded the applicable BBD standardin the past, and is expected to do soagain in 2016. Moreover, actual supplyof BBD in 2016 is likely to exceed 2.0billion gallons as shown in amemorandum to the docket.°° Asdescribed in the NPRM and in the 2014—2016 final rule, the advanced biofuelstandard creates a significant incentivefor supply of BBD at levels higher thanthe BBD standard. Commenterssupporting 3.2 billion gallons ofadvanced biofuel for 2017 gave nocompelling reason why BBD cannotreach levels higher than 2.0 billiongallons.

As noted before, the volumes actuallyused to satisfy the advanced biofuelvolume requirements may be differentthan those shown in Table IV.B.4—1above. The volumes of individual typesof renewable fuel that we have used inthis analysis represent our best estimateof volumes that are reasonably

°9comparison of 2016 availability of RINs and2016 standards,” memorandum from DavidKorotney to docket EPA—HQ—OAR—2016—0004.

3,500

3,000

2,500

2,000

2014 2015



attainable by a market that is responsiveto the RFS standards. However, giventhe uncertainty in these estimates, thevolumes of individual types ofadvanced biofuel may be higher orlower than those shown above.

V. Total Renewable Fuel Volume for2017

The national volume targets of totalrenewable fuel to be used under the RFSprogram each year through 2022 arespecified in CAA section211(o)(2)(B)(i)(I]. For 2017 the statutestipulates that the volume of totalrenewable fuel should be 24 billiongallons. Since we have determined thatthe statutory volume target for cellulosicbiofuel must be reduced to reflect theprojected production volume of that fueltype in 2017, we are authorized underCAA section 211(o)(7)(D)(i) to reducethe advanced biofuel and totalrenewable fuel targets by the same or alesser amount. We also have theauthority to reduce any volume targetunder the general waiver authorityunder specific conditions as describedin Section II.A.2. Although in the NPRMwe had proposed to use a combinationof the cellulosic waiver authority andthe general waiver authority to reducethe statutory volume target for totalrenewable fuel for 2017, we havedetermined, based on commentsreceived in response to the NPRM anda review of updated information, that2017 supply is adequate to meet a totalrenewable fuel volume requirement of

19.28 billion gallons resulting from theuse of the cellulosic waiver authorityalone. The use of the general waiverauthority for 2017 to further reduce thetotal renewable fuel standard istherefore not necessary. As a result, theimplied volume for conventional (nonadvanced) renewable fuel will be 15.0billion gallons.

Today’s standards are significantlyhigher than have been achieved in thepast and will drive significant growth inrenewable fuel use beyond what wouldoccur in the absence of therequirements. The final volumerequirements for both advanced biofueland total renewable fuel recognize theability of the market to respond to thestandards we set, thereby accomplishingthe goals of the statute to increaserenewable fuel use.

We investigated whether the market ison track to meet the 2016 totalrenewable fuel volume requirement of18.11 billion gallons, which EPAprojected to be the maximum achievablevolume for that year in the context ofour use of the general waiver authority.As described in a memorandum to thedocket, supply through the end ofSeptember coupled with a projectionbased on consideration of seasonalvariations in supply for previous yearsindicate that compliance with the 2016standards is indeed within reach.100 Webelieve these results support theassessment conducted for purposes ofestablishing the 2016 total renewablefuel standard. For this final rule, we

have taken a similar approach toassessing the adequacy of supply of totalrenewable fuel that differs in someparticulars as described below.


In Section IV.B we explained our useof the cellulosic waiver authority toreduce the statutory volume target foradvanced biofuel to a level that we havedetermined is reasonably attainable andappropriate given a consideration offactors related to the likely constraintson imports, distribution and use, andglobal GHG impacts of incrementalgrowth in advanced biodiesel andrenewable diesel. This did not require areduction as large as the reduction inthe statutory volume target for cellulosicbiofuel, and so this reduction waswithin the authority provided by CAAsection 211(o)(7)(D)(i).

As discussed in Section hAl, webelieve that the cellulosic waiverprovision is best interpreted to requireequal reductions in advanced biofueland total renewable fuel. We haveconsistently articulated thisinterpretation.101 Having determinedthat we should establish the advancedbiofuel volume at a level requiring areduction of 4,719 million gallons fromthe statutory target, applying an equalreduction to the statutory target for totalrenewable fuel yields the results shownbelow.

Advanced renIebiofue fuel

Statutory target 9,000 24,000Reduction under the cellulosic waiver authority 4,719 4,719

Resulting volume 4,281 19,281

If we were to determine that there isan inadequate domestic supply tosatisfy the total renewable fuel volumeresulting from use of the cellulosicwaiver authority alone, we could usethe general waiver authority, describedin Section II.A.2, to provide furtherreductions. Indeed, we proposed suchan approach. However, we have reevaluated the situation in light of new

“Comparison of 2016 availability of RINs and2016 standards,” memorandum from DavidKorotney to docket EPA—HQ--OAR—2016—0004.

data and consideration of comments,and as described below we havedetermined that there will be adequatesupply to meet a total renewable fuelvolume requirement of 19.28 billiongallons in 2017102 As a result of thisassessment, we have determined thatfurther reductions in the total renewablefuel applicable volume using the generalwavier authority are not necessary.

For instance, see discussion in the final rulesetting the 2013 standards: 78 FR 49809—49810,August 15, 2013.

B. Assessing Adequacy of Supply

As noted above, the applicablevolume of total renewable fuel wasderived by applying the same volumereduction to the statutory volume targetfor total renewable fuel as wasdetermined to be appropriate foradvanced biofuel, using the cellulosicwaiver authority. This section describesour assessment that there is adequate

lOz5takeholder comments most directlyimpacting our assessment of the adequacy of supplyof total renewable fuel were directed at thstriblltionissues associated with biodiesel and renewablediesel. See Section V.8.2 for further discussion.

TABLE V.A—i—APPLYING EQUAL VOLUME REDUCTIONS TO TOTAL RENEWABLE FUEL AS FOR ADVANCED BIOFUEL UNDERCELLULOSIC WAIVER AUTHORITY

[Million gallons]



supply to meet an applicable volumerequirement of 19.28 billion gallons.The objective of our assessment isdifferent than our analysis in the NPRM,where we sought to identify themaximum reasonably achievablevolume of total renewable fuel based onthe sum of estimates of each type ofrenewable fuel, such as total ethanol,biodiesel and renewable diesel, biogas,and other non-ethanol renewable fuels.In this final rule, in contrast, we insteadare evaluating those sources todetermine if in the aggregate it appearsthat there is adequate supply to meet thetotal renewable fuel volume shown inTable V.A—i. Based on our conclusionthat there is sufficient supply asdiscussed below, it is unnecessary toaddress any inadequate domestic supplythrough use of the general waiverauthority.

Despite the different objective, weface much the same challenges that wenoted in the NPRM: It is a verychallenging task to estimate theadequacy of supply in light of themyriad complexities of the fuels marketand how individual aspects of theindustry might change in the future, andalso because we cannot preciselypredict how the market will respond tothe volume-driving provisions of theRFS program. This is the type ofassessment that is not given to precisemeasurement and necessarily involvesconsiderable exercise of judgment.

Our investigation into whether thereis adequate supply to meet the totalrenewable fuel volume shown in TableV.A—i was driven primarily by aconsideration of the total amount ofethanol that can be reasonably attainedin light of various constraints, and thetotal volume of biodiesel and renewablediesel that can be reasonably attained.We also considered smallercontributions from non-ethanolcellulosic and other non-ethanolrenewable fuels (i.e. naphtha, heatingoil, butanol, and jet fuel). With regard tothe more dominant contributors, theinformation that is available hasallowed us to make a relatively moreprecise estimate of total supply ofethanol than of biodiesel/renewablediesel. This is due to the fact that theprimary constraints in the supply ofethanol in 2017 are readily identifiable,although still challenging to quantify,while there are many different factorsthat could potentially constrain thesupply of biodiesel and renewablediesel in 2017. As a result, we did notattempt to derive a specific estimate ofreasonably attainable supply of totalbiodiesel and renewable diesel. Instead,after estimating what we consider to bereasonably attainable supply of ethanol

in 2017, and taking into account theestimates of non-ethanol cellulosicbiofuel supply discussed in Section III.Dabove and estimates of other non-ethanol renewable fuel supplydiscussed in Section IV.B.3, weconsidered whether the supply of totalbiodiesel and renewable diesel wouldbe adequate to satisfy a requirement of19.28 billion gallons.103 The followingsections provide our assessment ofethanol and biodiesel/renewable dieselvolumes.

1. Ethanol

Ethanol is the most widely producedand consumed biofuel, bothdomestically and globally. Since thebeginning of the RFS program, the totalvolume of renewable fuel produced andconsumed in the United States hasgrown substantially each year, primarilydue to the increased production and useof corn ethanol. However, the rate ofgrowth in the supply of ethanol to theU.S. market has decreased in recentyears as the gasoline market has becomesaturated with EiO, and efforts toexpand the use of higher ethanol blendssuch as Ei5 and E85 have not beensufficient to maintain past growth rates.Although we believe ethanol use isgrowing and can continue to grow, thelow number of retail stations sellingthese higher-level ethanol blends, alongwith poor price advantages compared toElO, and a limited number of FFVs,among others, represent challenges tothe rate of growth of ethanol as atransportation fuel in the United States.

In the 2014—2016 final rule wediscussed in detail the factors thatconstrain growth in ethanol supply andthe opportunities that exist for pushingthe market to overcome thoseconstraints.104 That discussion generallyremains relevant for 2017, though webelieve that the supply of ethanol can besomewhat higher in 2017 than in 2016.

Ethanol supply is not currentlylimited by production and importcapacity, which is in excess of 15 billiongallons.105 Instead, the amount ofethanol supplied is constrained by thefollowing:

• Overall gasoline demand and thevolume of ethanol that can be blended

103 As noted earlier, “reasonably attainable”volumes may be less than the “maximumachievable” volumes we would seek to identifywhen using the general waiver authority based ona finding of inadequate domestic supply. It followsthat if there are sufficient reasonably attainablevolumes of renewable fuel to satisfy aJotalrenewable fuel requirement of 19.28 billion gallons,that there is no basis for a finding of inadequatedomestic supply.

10480 FR 77456—77465.‘°5”RFA 2016 Annual Industry Outlook,” docket

EPA—HQ—OAR—2016—0004.

into gasoline as ElO (typically referredto as the ElO blendwall).

• The number of retail stations thatoffer higher ethanol blends such as E15and E85.

• The number of vehicles that canboth legally and practically consumeE15 and/or E85.

• Relative pricing of E15 and E85versus ElO and the ability of RINs toaffect this relative pricing.

• The supply of gasoline withoutethanol (ED).

The applicable standards that we setunder the RFS program provideincentives for the market to overcomemany of these ethanol-relatedconstraints.

While in the short term the RFSprogram is unlikely to have a directeffect on overall gasoline demand or thenumber of vehicles designed to usehigher ethanol blends, it can provideincentives for changes in some othermarket factors, such as the number ofretail stations that offer higher ethanolblends and the relative pricing of thosehigher ethanol blends in comparison toElD. The RFS program complementsother efforts to increase the use ofrenewable fuels, such as the following:

• USDA’s Biofuel InfrastructurePartnership (BIP) program which hasprovided $100 million in grants for theexpansion of renewable fuelinfrastructure in 2016 (supported byadditional State matching funds)

• USDA’s Biorefinery AssistanceProgram which has provided loanguarantees for the development andconstruction of commercial-scalebiorefineries with a number of the newprojects focused on producing fuelsother than ethanol.

• The ethanol industry’s Prime thePump program, which has committedmore than $45 million to date for retailrefueling infrastructure

In response to the NPRM, manystakeholders repeated their views fromthe 2014—2016 rulemaking regarding theexistence and nature of the ElOblendwall. Ethanol proponentsgenerally regard the blendwall as afictional idea created by refiners, andsaid or implied that increases in ethanolsupply beyond the blendwall are onlylimited by refiners’ unwillingness toinvest in the necessary infrastructure.Some also said that EPA’s approach tosetting standards, in which constraintson the supply of ethanol are used asjustification for reducing the volumerequirement below the statutory targets,was a self-fulfilling prophecy thatguaranteed that the blendwall would

‘°“Email dialogue with Robert White on Primethe Pump,” docket EPA—HQ—OAR—2016—0004.



never be exceeded. Refiners andmarketers typically viewed theconstraints associated with theblendwall as representing a firm barrierthat could not or should not be crossed,with costs for necessary infrastructurechanges being prohibitively high andthe associated opportunities for greaterprofits at retail being inconsequentiallylow. In their views, higher level ethanolblends such as E15 and E85 would benegligible in 2017 and standards thatrequired higher ethanol blends toincrease dramatically would compelrefiners to reduce domestic supply ofgasoline and diesel or risk noncompliance.

As stated in the 2014—2 016 final ruleand in the NPRM, our view of the ElOblendwall falls between these twoviewpoints. We continue to believe thatthere are real constraints on the abilityof the market to exceed an averagenationwide ethanol content of 10%.However, these constraints do not havethe same significance at all ethanolconcentrations above 10%. Instead, forthe state of infrastructure that can beavailable in 2017, the constraintsrepresent a continuum of mildresistance to growth at the firstincrements above 10% ethanol andevolve to significant obstacles at higherlevels of ethanol. In short, the ElOblendwall is not the barrier that somestakeholders believe it to be, but neitherare increases in poolwide ethanolconcentrations above 10% unlimited inthe 2017 timeftame.

We continue to believe that theconstraints associated with the ElOblendwall do not represent a firmbarrier that cannot or should not becrossed. Rather, the ElO blendwallmarks the transition from relativelystraightforward and easily achievableincreases in ethanol consumption asElO to those increases in ethanolconsumption as E15 and E85 that aremore challenging to achieve. Commentsreceived in response to the NPRMprovided no compelling evidence thatthe nationwide average ethanolconcentration in gasoline cannot exceed10.0%.

However, we also recognize that themarket is not unlimited in its ability torespond to the standards we set. This istrue both for expanded use of ethanoland for non-ethanol renewable fuels.The fuels marketplace in the UnitedStates is large, diverse, and complex,made up of many different players withdifferent, and often competing, interests.Substantial growth in the renewable fuelvolumes beyond current levels willrequire action by many different parts ofthe fuel market, and a constraint in anyone part of the market can act to limit

the growth in renewable fuel supply.Whether notable constraints are in thetechnology development andcommercialization stages, as has beenthe case with cellulosic biofuels, thedevelopment of distributioninfrastructure as is the case withethanol, or in the distribution and useof biodiesel, the end result is that theseconstraints limit the growth rate in theavailable supply of renewable fuel astransportation fuel, heating oil, or jetfuel. These constraints were discussedin detail in the 2 014—2016 final rule,and we believe that the same constraintswill operate to limit supply for 2017 aswell.107 Other factors outside thepurview of the RFS program also impactthe supply of renewable fuel, includingthe price of crude oil and global supplyand demand of both renewable fuelsand their feedstocks. These factors adduncertainty to the task of estimating theadequacy of supply of renewable fuel inthe future.

While the constraints are real andmust be taken into account in ourevaluation of whether there is adequatesupply to meet 19.28 billion gallons oftotal renewable fuel, none of thoseconstraints represent insurmountablebarriers to growth. Rather, they arechallenges that are in the process ofbeing addressed and will be overcomein a responsive marketplace givenenough time and with appropriateinvestment. The speed with which themarket can overcome these constraintsis a function of whether and howeffectively parties involved in the manydiverse aspects of renewable fuel supplyrespond to the challenges associatedwith transitioning from fossil-basedfuels to renewable fuels, the incentivesprovided by the RFS program, and otherprograms designed to incentivizerenewable fuel use.

i. ED

We based the proposed totalrenewable fuel volume requirement inthe NPRM on the same expectation fromthe 2014—2016 final rule regardingsupply of ED: The RFS program wouldresult in all but a tiny portion—estimated at 200 million gallons—ofgasoline to contain at least 10% ethanol.We based this determination on thefollowing two considerations:

1. The RFS program will continueincentivizing the market to transitionfrom ED to EID and other higher levelethanol blends through the RINmechanism.

2. Recreational marine enginesrepresent a market segment that webelieve would be particularly difficult to

107 See 80 FR 77450.

completely transition from ED since theyare used in a water environment wherethere is a greater potential for watercontamination of the fuel. Someconsumers are concerned that therecould be a potential for consequentengine damage following phaseseparation of the water and fuel.108

Based on the analysis conducted forthe 2014—2016 final rule, it is mostlikely that any recreational marineengines refueled at retail service stations(i.e., not at marinas] would use only E1Dsince ED is not typically offered at retail.Moreover, only a small minority ofrecreational marine engines refuel atmarinas where ED is more likely to beavailable, catering to that particularmarket. In a memorandum to the docket,we evaluated the information that hadbeen supplied to us by stakeholders,highlighting the uncertainty in thatinformation and concluding that about200 million gallons of ED was areasonable estimate of the volume likelyto be consumed by recreational marineengines.109 In the NPRM, we expressedour belief that this analysis alsoreflected reasonable expectations for2017.

In response to the proposal for the2017 standards, some stakeholders saidthat we had significantlyunderestimated the volume of ED usedby recreational marine engines.However, no new information wasprovided that was not alreadyconsidered in the 2D14—2D16 final ruleand discussed in the aforementionedmemorandum and, as before, nostakeholders provided any data onactual consumption of ED byrecreational marine engines. Moreover,the anecdotal information suggestingthat most if not all recreational marineengines are fueled on E0 does notrepresent an appropriate basis forincreasing our estimate since it was notbased on any form of data and moreoverappears highly unlikely given ourexpectation that only a small minorityof recreational marine engines refuel atmarinas where ED is likely to be moreprevalent.

Other stakeholders said that we hadignored significant demand for ED in ourdetermination of the total volume of

‘°8We note that a recent report from the NationalRenewable Energy Laboratory calls into questionthe significance of water contamination forrecreational marine engines. See “Gas becomes stalebefore water uptake becomes a concern,” EthanolProducer Magazine, September 21, 2016. See alsooriginal report “Water Uptake and Weathering ofEthanol-Gasoline Blends in Humid Environments,”by Christensen & McCormick, National RenewableEnergy Laboratory, September, 2016,

“Estimating E0 use in recreational marineengines,” memorandum from David Korotiiey todocket EPA—HQ—OAR—201 5—0111.


89776 Federal Register/Vol. 81, No. 238/Monday, December 12, 2016/Rules arid Regulations

ethanol that can be supplied. Theypointed beyond recreational marineengines to other small engines wherethere is demand for ED, and to Web siteslike Fure-gas.org, which claim to listmore than 11,000 stations which offerED. Several stakeholders pointed to areport from ETA suggesting that 5.3billion gallons of ED was consumed in2015.110 Several refiners reiterated theircomments responding to the 2014—2016proposal which used ETA data toconclude that there is ongoing demandfor ED at a level of at least 3% of thetotal gasoline pool. This estimate of EDdemand was the primary basis for theirrequest that the 2017 standards be set insuch a way that the poolwide gasolineethanol concentration is no higher than9.7%.

Other than references to data andanalyses collected by ETA, nostakeholder provided any data on actualED consumption. With regard to datafrom ETA, in the 2014—2016 final rulewe addressed refiners’ claim that 3% ofthe gasoline pool has been ED for severalyears, concluding that those estimateswere generated from incomplete EIAgasoline supply data whichoverestimated the potential demand forED at retail.11’ Comments from refinersin response to the 2017 proposal did notprovide any new or differentinformation that would change ourconclusions with regard to that 3%estimate.

With regard to EIA’s more recentestimate that 5.3 billion gallons of EDwas consumed in 2015, we do notbelieve that this value representsconsumption of ED at the retail. ETA’sestimate was based on survey data frommost U.S. terminals, which includeinformation about domestic distributionfrom the terminal level and exports ofethanol-free gasoline, with thedifference representing domesticdisposition. ETA combines thisinformation with estimates of availableethanol, assuming that the ethanol isused in a 10% blend with ethanol-freegasoline. As described in amemorandum to the docket, ouranalysis of ETA’s estimate of 5.3 billiongallons of ED concludes that it wouldrequire E85 volumes significantly higherthan the volumes likely to have beensupplied in 2015.112 In our view, the 5.3billion gallons of ED estimated by ETAmust include volumes that are blendedwith ethanol downstream of the

110 “Almost all U.S. gasoline is blended with 10%ethanol,” Energy Information Administration,Today In Energy, May 4, 2016.

See discussion at 80 FR 77462.lIZ “Ethanol consumption 2015 and Estimates

of E0 Use,” memorandum from David Korotney toDocket EPA—HQ—OAR—2016—0004.

terminal prior to dispensing from retailand centralized fleet refueling stationswhere additional ethanol blending canand does occur in excess of the blendingused in ETA’s estimate. The calculationsare very sensitive to the exact volume oftotal ethanol available for blending,with EIA and EPA estimated volumes oftotal ethanol used differing by about 1percent. We believe that EMTS dataprovides more accurate information onactual use of ethanol in motor fuel thanETA’s survey data on ethanolproduction, blending, imports, andexports because it accounts for everygallon of ethanol produced but notexported, and is verified by thepurchaser in the transaction withinEMTS. Based on our analysis, weestimate that ED consumption at theretail level in 2015 would have beencloser to about 700 million gallons.

Some stakeholders pointed out that itwould be difficult for the market totransition about 5 billion gallons of E0to E1D within one year. However, sincewe believe that actual consumption ofE0 in 2015 was much closer to 700million gallons than 5.3 billion gallons,continuing to transition away from EDsince then to 200 million gallons of EDby the end of 2017 is achievable. As aresult, we continue to believe that 200million gallons of ED is a reasonablevalue to assume for purposes ofassessing the adequacy of supply of totalrenewable fuel, based on our priorassessment that this volume dedicatedto recreational marine engine use maynot be significantly influenced by thestandards we set in this time period,and our expectation that the RFSprogram will continue to incentivize allbut this small portion of the gasolinepool to be blended with ethanol.

Stakeholders representing boatowners expressed concern that byincluding only 200 million gallons of EDin the proposed derivation of maximumachievable total renewable fuelvolumes, EPA anticipated effectivelylimiting the availability of ED to 200million gallons. This is not the case. Thestandards that EPA sets are not specificto ethanol nor to specific ethanolblends. Once the standards are set, themarket has the flexibility to choose themix of fuel types used to meet thosestandards. If, for instance, the demandfor ED in 2017 is higher than 200 milliongallons, the market can compensate byproviding higher volumes of E15 and/orE85, or additional non-ethanolrenewable fuels.

ii. E15

In the NPRM, we proposed that a totalethanol volume of 14.4 billion gallonscould be reached in 2017 based on the

expectation that somewhat largerincreases in ethanol supply werepossible in 2017 than we had estimatedfor 2016. We did not provide specificestimates of E15 or E85 use in 2017, butinstead said that we generally expectedthe RFS program to influence sales ofED, E15, and E85 in such a way as toproduce this increase in ethanolvolume. For this final rule, we haveundertaken a more detailed estimate ofthe volumes of E15 and E85 that arepossible in 2017, so as to moreconfidently assess whether there isadequate supply to reach a totalrenewable fuel volume requirement of19.28 billion gallons.

Most comments in response to theNPRM repeated viewpoints they hadexpressed in response to the 2014—2016proposal. Refiners and theirassociations, as well as partiesrepresenting fuel marketers and retail,expressed doubt that the number ofstations offering E15 could increasesignificantly in 2017 and pointed tovehicle warranties that they believedwould hinder many owners of 2001+model year vehicles from refueling onE15. They also repeated their concernsabout engine damage and liability formisfueling. Ethanol proponentsgenerally pointed to the large number ofin-use vehicles that are legallypermitted to use E15 and informationsuggesting that many existing retailstations are already compatible withE15, or can be inexpensively upgraded.They also pointed to incentives forexpanded infrastructure provided byprograms such as USDA’s BiofuelsInfrastructure Partnership (BIP) programand the ethanol industry’s Prime thePump program. A more detaileddiscussion of our views of thesecomments can be found in the 2014—2016 final rule and in the Response toComments document for this finalrule.”3

Consistent with our assessment forthe 2014—16 final rule, we believe thatneither the number of vehicles that arelegally permitted to use E15, nor thenumber of owners of such vehicles whowould choose to use it, are thepredominant factors in determining thevolume of E15 that is reasonablyattainable in 2017. Instead, we believethat it is the number of retail stationsoffering E15 in 2017 that is more likelyto determine how much E15 is actuallyconsumed. The number of retail stationsregistered to offer E15 has grown toabout 400 in the fall of 2016 based oninformation collected by the RFGSurvey Association, more than doublingfrom the previous year. However, this is

“3See discussion at 80 FR 77462—77464.



still a very small fraction of theapproximately 150,000 retail stationscurrently operating. Based on commentsreceived from retail station owners andtheir associations, this low number ofretail stations offering E15 is most likelydue to liability concerns and lowexpectations for a return on aninvestment in new or upgradedinfrastructure.

We do not believe, based on pastexperience, that the core concernsretailers have with liability overequipment compatibility and misfuelingwould change if the RFS volumerequirements were increasedsignificantly. Similarly, while higherRFS volume requirements could make itincrementally more attractive forretailers to upgrade infrastructure tooffer E15, the concerns they expressedin their comments about high capitalcosts and opportunities for return ontheir investment would remain. As aresult, setting higher volumerequirements would be unlikely toresult in dramatic increases in thenumber of additional retail stationsoffering E15 in 2017 beyond those thatmay be upgraded through existing grantprograms. As a result, we do not believethat E15 infrastructure expansion canoccur on the much larger scale andfaster timeframe that ethanolproponents believe it can. However, wedo believe that retail infrastructure canand will change to offer more E15 in2017. We have estimated the expansionthat is possible in 2017 based oninformation on both the BIP and Primethe Pump programs, as well as anexpectation that independent efforts toexpand infrastructure will continue. Asdescribed in a memorandum to thedocket, we believe that the number ofstations will increase during the courseof the year, and that an annual averageof about 1,640 retail stations will be ableto offer E15 in 2017.114

Since actual experience with E15sales is so limited, and commentersprovided little information on actualE15 sales volumes, we have made anestimate of possible E15 use in 2017using the same methodology that waspresented in the 2 014—2016 final rule,supplemented by additional informationabout E15 that is expected to besupplied by terminals.hla That estimatewas based on the following equation,which was also used in the 2014—2016final rule:

114 “Projections of retail stations offering E15 andE85 in 2017,” memorandum from David Korotneyto docket EPA—HQ—OAR—2016—0004.

“Estimates of E15 and E85 volumes in 2017,”memorandum from David Korotney to docket EPA—HQ—OAR—2016—0004.

E15 volume = (Total gasolinethroughput per station) x (Numberof stations offering Ei5) x (Fractionof total gasoline sales which areE15)

We have updated the values used in thiscalculation based on commentsprovided by stakeholders and additionalinformation that has become availablesince release of the NPRM. First, wehave updated the number of retailstations that may offer E15 in 2017, asdiscussed above. Second, somestakeholders said that retail stationsbeing targeted under the BIP programhad greater total annual gasoline salesthan average, such that it would beinappropriate to assume that the totalgasoline throughput per retail servicestation in the above equation is equal tothe nationwide average, currently about0.95 million gallons per station per year.Available information on the BIPprogram does not include gasolinethroughput, but larger retail stationswould be more likely to produce thematching funds necessary as a conditionof receiving BIP grant funds. Onestakeholder that is actively and directlyworking with many of the retailers usingfunds from the BIP and Prime the Pumpprograms indicated that the averagetotal gasoline throughput for affectedretail stations is 2.8 billion gallons peryear. Therefore, we have used this valuein our determination of E15 supply for2017. Further discussion can be foundin a memorandum to the docket.11e

Finally, in the 2014—2016 final rulewe used a value of 50% for the fractionof total gasoline sales which are E15 atstations offering both ElO and E15 basedon the expectation that ElO and E15could be priced equally on a volumetricenergy basis. While we continue tobelieve that 50% is possible, a numberof refiners pointed out reasons that 50%may be too high in the near term,including the fact that there are likely tobe fewer dispensers at a given retailstation offering E15 than those offeringonly ElO, and customer familiarity withElO. One party indicated that in Iowa in2015, per-station E15 sales were 15% ofper-station ElO sales, though the data onwhich this conclusion was based didnot rely on retail stations selling bothElO and Eis; the per-station estimate forElO was based on all stations offeringElO, regardless of whether they alsooffered E15. Not only are the Iowa datanot necessarily representative of stationsoffering both ElO and E15, we have noinformation to indicate whether theexperience in Iowa is representative ofconditions that could exist under the

“elbid

increasing RFS standards in 2017.Nevertheless, we agree that the fractionof total gasoline sales which is E15 atstations offering both E15 and ElO islikely to be considerably less than 50%for the reasons described earlier (e.g.,number of dispensers offering E15 at agiven station, consumer unfamiliaritywith E15), at least in 2017. Since weonly have one source of data uponwhich to base our estimate, we are usingthat 15% value in our assessment.

Although E15 has historically beenproduced at retail stations in blenderpumps, since release of the NPRM wehave become aware of new activities toproduce E15 at terminals.117 This E15could be used in retail equipment thathas been certified to be compatible withE15, and so would expand the use ofE15 beyond that available throughblender pumps, including those targetedby the BIP and Prime the Pumpprograms. Based on currently availableinformation, four out of theapproximately 1,400 terminals in theU.S. would produce E15 in 2017, andwe expect that E15 production at thosefour terminals would be small incomparison to ElO production. Asdescribed in a memorandum to thedocket, we estimate the E15 producedthrough terminals would be 41 milliongallons in 20l7y’’

Based on the above discussion, wehave estimated that total E15 supply in2017 could reach 728 million gallons,resulting in about 38 million gallons ofethanol more than would be supplied ifthat portion of the gasoline pool wereElO. We have included this in ourdiscussion of total ethanol volumes inSection V.B.1.iv below.

iii. E85

As described previously, the NPRMdid not provide specific estimates ofE15 or E85 use in 2017, but insteadindicated that we generally expected theRFS program to influence sales of ED,E15, and E85 in such a way as toproduce a total ethanol supply of 14.4billion gallons. Nevertheless,stakeholders provided comments on avariety of topics related to theestimation of achievable volumes ofE85.11° Many of these comments

117 “HWRT & RFA Announce First-Ever Offeringof Pre-blended Els,” docket EPA—HQ—OAR—2016—0004.

“5”Estimates of E15 and E65 volumes in 2017,”memorandum from David Korotney to docket EPA—HQ—OAR—2016—0004.

iia We note that, in the 2014—2016 final rule, theestimation of E65 volumes was made in the contextof determining the volume that constitutedinadequate domestic supply under our generalwaiver authority. For this final rule, we are using

continued



focused on an analysis of therelationship between E85 sales volumesand E85 price discount derived frompublically available data from six states,which was provided with the 2 014—2016 final rule.120

As for many other aspects of this rule,stakeholders were strongly divided onthe volumes of E85 that are achievablein 2017. Refiners typically said that E85volumes are likely to reach little morethan around 100 million gallons in 2017based on their own estimates of E85 inprevious years using data collected byETA from refiners, blenders, and ethanolproduction facilities. For instance,refiners suggested that E85 use in 2015reached only 87 million gallons.However, as discussed in the 2014—2016final rule, the ETA sources on which thisestimate was based do not capture allE85 that is actually used; not allproduction at terminals, ethanolproduction facilities, or blenders withless than 50,000 barrels of productstorage capacity are included, nor is E85captured which is produced usingreformulated gasoline or naturalgasoline as the petroleum basedcomponent. Also, reported E85production at ethanol productionfacilities is likely to represent net ratherthan total finished fuel production giventhe occasional negative values reportedin the past.121 These stakeholdersprovided no new information onhistorical E85 supply beyond what theseETA sources capture. As described in amemorandum to the docket, our ownestimate of actual E85 use in 2015 basedon E85 supply data from six states isapproximately 186 million gallons.122Moreover, we also do not believe itwould be appropriate to merelyextrapolate 2017 E85 supply from trendsin the past several years as somestakeholders suggested. Doing so wouldignore the ability of the market torespond to the standards that we set.

In contrast, ethanol proponents saidthat E85 volumes could reach at least

the cellulosic waiver authority alone, and areeathnating reasonably attainable volumes of E85.

“correlating E65 consumption volumes withEMS price.” memorandum from David Korotney todocket EPA—HQ—OAR—2015—011 1.

‘21Reported values for ethanol productionfacilities represent net finished fuel produced.Insofar as finished fuel brought into the facility (i.e.,gasoline) exceeds finished fuel produced by thefacility (i.e., EaSl, a net negative value will result,This would occur if gasoline brought into thefacihty is used as a denaturant only, or as both adenaturant and in the production of 1185. As aresult, the values reported by ELk do not captureactual E85 produced and made avsilable by thesefacilities, which would be the relevant value to usein our assessment.

322 “Final estimate of E85 consumption in 2015,”memorandum from David Korotney to docket EPA—HQ-OAR-2016-0004.

500 million gallons in 2017, and someprovided estimates considerably higher.Several pointed to E85 supplyprojections from ETA’s Annual EnergyOutlook 2016 (AE02016J, whichprojects 735 million gallons for 2017.However, we do not believe that theAEO is an appropriate basis forprojecting E85 supply in 2017 for thepurposes of setting the applicablevolume requirements under the RFSprogram. For instance, the samemodeling that projected 735 milliongallons for 2017 also projected 326 and508 million gallons, respectively, for2014 and 2015. These volumes are farhigher than what we believe the actualsupply was in these years.123 AndAE02016 projects that total ethanol usein 2017 would be 13.8 billion gallons,far lower than the 14.4 billion gallonsthat we proposed as the maximumachievable, and also considerably lowerthan ETA’s own projections for 2017 in

their Short-Term Energy Outlook(STEOJ. As the STEO projections arebased on more current information andare focused on more near-termoutcomes, and the STEO also forms thebasis for the gasoline and diesel demandprojections that ETA has indicatedshould be used for determining theapplicable percentage standards, we donot believe that AEO is an appropriatebasis for estimating the E85 supply in2017 that is reasonably attainable, nor,as another commenter suggested, totalgasoline energy demand for 2016. Wehave used the STEO for the projectionof 2017 total gasoline demand,combined with our own projections oftotal ethanol supply based on ourestimates of reasonably attainablevolumes of ElS and E85, along with asmall amount of E0.

For those stakeholders who provideddetailed comments on how E85 supplymight best be projected for 2017, thosecomments typically focused on threeareas:

• The number of flex-fueled vehicles(FFVs) in the 2017 fleet that can use E85

• The retail infrastructure that can bemade available in 2017 to supply E85 toFFVs

• The degree to which E85 sales canbe influenced by the E85 price discountrelative to ElO

We continue to believe that thenumber of FFVs in the fleet is not thecontrolling constraint on the use of E85.According to AE02016, the number ofFFVs in the fleet in 2017 is expected tobe about 21 million.124 These vehicles

123 For instance, as described in the 2014—2016final mle (60 FR 77460), we estimate that E85 usein 2014 was about 150 mill gal.

124 Table 40, “Light-Duty vehicle stock byTechnology Type.”

could use up to 13 billion gallons of E85if all of them had access to retailstations offering it and all FFV ownerschose to refuel on E85 instead of ElO.We acknowledge that a largerpercentage of FFVs in the fleet couldincrease the volume of E85 consumed,but in the short term we believe that itis the relatively very small number ofretail stations offering E85 that isoperating as the primary constraint onthe volumes of E85 sold, and to a lesserextent the relative price of E85 and ElO.

Many stakeholders providedcomments on how the number of retailstations offering E85 could growthrough the end of 2017. Most pointedto a combination of USDA’s BiofuelsInfrastructure Partnership (BIP)program, the ethanol industry’s Primethe Pump program, and ongoing effortsindependent of these two programs.Parties representing gasoline marketingand retail, in contrast, generallyrepeated the concerns that they raised inthe 2014—2 016 final rule about costs fornew infrastructure and low expectedprofit margins in support of their viewthat the number of retail stationsoffering E85 would grow slowly. Severalstakeholders pointed to specificexamples of retail stations that hadstopped offering E85 due to poor sales.

Based on the information provided bystakeholders and other information thatbecame available following release ofthe NPRM, we believe that the BIP andPrime the Pump programs will drivenearly all growth in E85 stationsthrough the end of 2017, with far (essgrowth occurring through independentefforts. As described in a memorandumto the docket, we believe that an annualaverage of about 4,300 retail stations canoffer E85 in 2017.125 This is a significantincrease in comparison to the 3,200 thatwe projected would offer E85 in 2016 inthe 2014—2016 final rule, but still arelatively small number of stationscompared to the estimated 150,000retail stations nationwide.

In order to estimate reasonablyattainable sales volumes of E85 in 2017,it is also necessary to estimate thevolume of E85 likely to be sold at eachretail station that offers it. Recognizingthis, stakeholders provided commentson the aforementioned analysis of therelationship between E85 sales volumesat retail and E85 price discount derivedfrom publically available data from sixstates. Refiners generally dismissed thevalue of the data used in this analysis,saying that the uncertainty within thedata and questions about its

125 “Projections of retail stations offering ElS andE85 in 2017,” memorandum from David Korotneyto docket EPA—HQ—OAR—2016—0004.



representativeness for the nation as awhole made it an improper basis forfuture projections. They insteadsuggested that E85 use in 2017 shouldbe based only on an extrapolation of E85supply trends from the previous fewyears. We disagree. The data used forthe analysis demonstrated statisticallysignificant correlations between E85sales volumes and E85 price discounts,and represented between 21% and 31%of all stations in the U.S. which offeredE85.126 Moreover, their suggestedextrapolation from historical data wouldinsufficiently account for the influenceof both the RFS program itself andprograms such as BIP and Prime thePump, and would also be based onhistorical estimates of E85 supply usingETA data that, as described above, webelieve are likely to be inaccurate.

Ethanol proponents recognized thevalue of the available data in developingcorrelations between E85 sales at retailand E85 price discounts. However, theyprovided critiques of the analyses wehad conducted for the 2014—2016 finalrule, and they also had alternative viewson the application of the resultingcorrelations. Comments provided bythese stakeholders generally fell intobroad areas:

• The data should be represented bynonlinear rather than linear correlations

• Estimates of E85 use derived fromthe correlations should be based onsubstantial extrapolations beyond thelimits of the data, i.e. using much higherE85 price discounts than have occurredin the past

Some stakeholders conducted theirown analyses of the data wherein theyemployed additional statisticaltechniques to attempt to more preciselydetermine the nature of the relationshipbetween E85 sales volumes and E85price discounts. These included suchthings as adding seasonal and annualcategorical variables into the

correlations and an investigation intodifferent nonlinear functional forms.

In light of the comments provided bythese stakeholders, we determined thatthe analyses conducted for the 2014—2016 final rule should be updated. Notonly is additional data now available forthe six states included in the analyses,but more rigorous statistical methodscan be employed to more preciselydetermine the relationship between E85sales volumes and E85 price discount,including whether a nonlinearcorrelation is appropriate. As describedin a memorandum to the docket, ourrevised analyses indicate that a weaknonlinear relationship can be discernedin the data, and that it does provide asmall increase in the explanatory powerof the curve fit.127

In addition to an estimate of thenumber of retail stations that may offerE85 in 2017, the use of a correlationbetween E85 sales volumes and E85price discount to estimate reasonablyattainable volumes of E85 for 2017requires that we estimate an E85 pricediscount that would be reasonable for2017. Again, stakeholders were stronglydivided on what E85 price discount maybe attainable in 2017. Refiners typicallysaid that an E85 price discount beyondenergy parity (about 22% below theprice of Elo) was not supportable basedon historical data and pointed to EPA’sanalyses showing that a sizable portionof the R1N value is not passed on toretail customers, diluting the impact ofRIN prices on E85 prices. Ethanolproponents instead said that historicalE85 price discounts should not be usedas a gauge of what future E85 pricediscounts could be under the influenceof higher RFS program standards. Theydiscounted the limitations associatedwith the pass-through of RIN values toretail customers, arguing that if EPA setthe standards high enough, the resultinghigher RIN prices would result in

significantly discounted retail pricingfor E85 at the retail level. Somecommenters presented examples ofindividual stations or regions where itappeared the RIN value was beingpassed-through to a greater degree tosupport their statements, however EPAdoes not believe these examples arerepresentative of retailer behavior acrossthe country.128

There is no straightforwardmechanism for precisely identifying anE85 price discount for use in assessing2017 ethanol supply. While somestakeholders provided examples of E85price discounts that could be reachedunder specific assumed RIN prices andassumed RIN value pass-through toretail customers, such examples werepurely speculative and provided nomethod for determining the E85 pricediscount that is likely to be reasonablyattainable in 2017 given the E85 retailprices we have observed to date and thehistory of the fuels market.

In order to identify an E85 pricediscount that could be reasonably beassumed for the nation as a whole in2017, we continue to believe that aninvestigation of E85 price discountsreached in the past is both lessspeculative than the suggestions madeby ethanol proponents in theircomments and more consistent withcommonly accepted approaches to dataanalysis. However, we also do notbelieve that the average levels achievedin the past are sufficientlyrepresentative of what could beexpected to occur in the future underthe influence of the RFS program. Asdescribed in a memorandum to thedocket that we published with theNPRM, the monthly average E85 pricediscount has rarely exceeded energyparity (about 22%), and the highest 12-month average retail E85 price discounthas been significantly lower.129

TABLE V.B.1.iii—1—E85 PRIcE DISCOUNTS BETWEEN 2012 AND EARLY 2016

Fuels Institute E85prices.com MA

Highest E85 price discount in a single month 21.1% (May 2015) 23.7% (Oct 2014) 24.1% (Apr2015).Highest 12-month average E85 price discount 16.0% (Sep 2014—Aug 19.6% (Sep 2014—Aug 18.7% (Oct 2014—Sep

2015). 2015). 2015).

In that memorandum we indicatedour belief that achieving energy parityfor a full year would be unprecedented,

126 Range depends on the month and year.127 correlation of E85 sales volumes

with E85 price discoimt,” memorandum from DavidKorotney to docket EPA—HQ—OAR—2016—0004.

‘28For a further discussion of these comments,see Section 2.3.8.2 of the Response to Commentdocument.

129 “Estimating achievable volumes of E85,”memorandum from David Korotney to docket EPA—HQ—OAR—2016—0004. Note that this memorandumwas published with the NPRM on May 31, 2016,

and with the exception of the discussion ofhistorical E85 price reductions is largely supplantedby memoranda published with this final rule. Seein particular “Estimates of E15 and E85 volumes in2017,” memorandum from David Korotney todocket EPA—HQ—OAR—2016—0004.

but appears to be within the capabilities higher than energy parity that wereof the market given the historical values suggested by some stakeholders in theirshown above. E85 price discounts comments have not been achieved in



the past for any notable length of time,and thus, we believe, are not likely forall of 2017. They may, however, occurin future years as the number of retailstations offering E85 increases andcompetition between them drives E85prices down. For the purposes of thisfinal rule, we have used an E85 pricediscount of 22% in estimating thesupply of E85 in 2017.

Some stakeholders pointed to astatement in the NPRM which said

an increase in the nationwideaverage E85 price reduction to 30%would be unprecedented,” and thenargued that EPA had not provided anyjustification for expecting this level tobe sustainable for a full year.’3° We notethat E85 price discounts have reached30% in the past, albeit locally and forshort time periods. However, we did notpropose using an E85 price discount of30% in the determination of theproposed 2017 volume requirement fortotal renewable fuel, but only provided

it as one of several examples for how themarket might respond.

Combining the updated correlationbetween E85 sales volumes and E85price discounts with estimates for thenumber of retail stations that can offerE85 in 2017 and a reasonably attainableE85 price discount of 22%, we havedetermined that supply of about 275million gallons of E85 is reasonablyattainable in 2017, resulting in about182 million gallons of ethanol morethan would be supplied if that portionof the gasoline pool were ElO. This levelof E85 supply is an increase of almost40% in just one year from the 200million gallons that we believed couldbe reached in 2016, primarily reflectingthe significant increase in the number ofstations projected to offer E85 in 2017as a result of USDA’s BIP program andthe ethanol industry’s Prime the Pumpprogram.

iv. Total Ethanol

The total supply of ethanol in 2017 isa function of the respective volumes of

ElO, E15, and E85, while accounting forsome ED. Assuming that the totaldemand for gasoline energy isindependent of the amounts of each ofthese types of fuel, estimating thesupply of ED, E15, and E85 that areattainable can be used to derive thesupply of EID.

Several stakeholders commented thatwe should use a more recent version ofETA’s Short-Term Energy Outlook(STEO) than the April, 2016 version weused in the NPRM to estimate gasolinedemand in 2017. We agree that weshould use updated EIA data. For thisfinal rule we have used the October,2016 version, which projects a totalgasoline energy demand of 17.29Quadrillion Btu.” Based on estimatesof ED, E15, and E85 supply for 2017 asdiscussed in previous sections, the EIDvolume and resulting total ethanolsupply can be calculated.

TABLE V.B.1JV—1—GASOLINE VOLUMES USE To DETERMINE REASONABLY ATTAINABLY ETHANOL SUPPLY IN 2017

Fuel volume Energy(mill gal) (mill gal) (Quad Btu)

E0 200 0 0.025ElO 142,480 14,248 17.151E15 728 109 0.086E85a 275 204 0.026

Total 143,683 14,561 17.288

aAssumed to contain 74% ethanol.

Based on this assessment, we estimatean ethanol supply for 2017 of 14.56billion gallons. While the market willultimately determine the extent towhich compliance with the annualstandards is achieved through the use ofgreater volumes of ethanol versus other,non-ethanol renewable fuels, wenevertheless believe that this ethanolvolume represents a reasonablyattainable level that takes into accountthe ability of the market to respond tothe standards we set and the constraintsto fuel supply that we have noted.

One stakeholder said that EIA’sprojections of future gasoline demand asprovided in the STEO have been too lowin previous years, and that EPA shouldaccount for this underestimate whenmaking projections of the volume ofethanol that can be achieved in 2017.We investigated this issue and

130 See discussion at 81 FR 34790.Derived from Table 4a of the STEO, converting

consumed gasoline and ethanol projected volumesinto energy using conversion factors supplied by

determined that while EIA projectionsof future gasoline demand do containuncertainty, they are not consistentlyabove or below actual gasolinedemand.’32

In response to the NPRM, somestakeholders reiterated their concernsfrom the 2014—2016 final rule thatEPA’s methodology rewarded obligatedparties for their recalcitrance in notinvesting in the infrastructure needed tosubstantially increase ethanol use abovethe E1D blendwall. In taking thesepositions, stakeholders cited both thestatutory requirement that obligations beplaced on “refineries, blenders, andimporters, as appropriate” and EPA’sregulations which (with limitedexceptions) further narrow theapplicability of the obligations toproducers and importers of gasoline anddiesel. As described in the 2014—2 016

EIA. http://w’vw.eiogov/forecasts/steo/nrchives/octi 6.pdf.

Excludes gasoline consumption in Alaska. Forfurther details, see “calculation of final %

final rule, we agree that the statutorylanguage, in combination with theregulatory structure, generally placesthe responsibility on producers andimporters of gasoline and diesel toensure that transportation fuel sold orintroduced into commerce contains therequired volumes of renewable fuel.Obligated parties have a variety ofoptions available to them, both toincrease volumes in the near term andthe longer term. The standards that weare establishing today reflect both theresponsibility placed on obligatedparties as well as the short-termactivities available to them, and weexpect obligated parties to be takingactions now that will help to increaserenewable fuel volumes in future years.However, as pointed out by somerefiners in response to the NPRM, thisgeneral responsibility does not require

standards for 2017” in docket EPA—HQ—0AR—2016—0004.

“2”Accuracy of STEO gasoline demandprojections,” memorandum from David Korotney todocket EPA—HQ—OAR—2016.


Federal Register/Vol. 81, No. 238/Monday, December 12, 2016 /Rules and Regulations 89781

obligated parties to take actions specificto E15 and/or E85 infrastructure, as theRFS program does not require anyvolumes of ethanol specifically. Wecontinue to believe that as obligatedparties procure and blend renewablefuels into transportation fuel, orpurchase RINs from those who do so,the demand for RINs will drive demandfor renewable fuel, thereby stimulatingevery participant in the fuels industry,including obligated parties themselves,to increase their activities to supplyit.133 Moreover, the reductions instatutory volumes reflected in thisaction are largely the result of theinability to date of renewable fuelproducers to commercialize the volumesof cellulosic biofuel envisioned in thestatute. This fact cannot reasonably beattributed to actions or inactions ofobligated parties.

One stakeholder said that the EPAshould target a poolwide gasolineethanol content of less than 10% in partbecause blenders need a buffer toaccount for uncertainty associated withethanol content testing and downstreammixing in the fungible distributionsystem. This stakeholder suggested thatblenders have historically aimed toblend at less than 10% ethanol, and thatas a result EPA should set standardsconsistent with this practice. Weinvestigated this issue using survey data

collected by the Alliance of AutomobileManufacturers for 2011—2015 anddetermined that the average ethanolcontent of all gasoline that containedmore than de minimis levels of ethanolwas 9.80%.134 This estimate is based onthe use of ASTM test method 0—5599,which measures only the alcoholportion of the gasoline, not anydenaturant that would have beenincluded with the ethanol before it wasblended into gasoline. Since thedenaturant portion of ethanol istypically about 2%, ethanol that isblended into gasoline contains about98% ethanol.135 When blended intogasoline, therefore, the E98 would resultin a gasoline-ethanol blend containingabout 9.8% pure ethanol, or 10.0%denatured ethanol. Based on thisinvestigation, we have determined thatit is appropriate to continue assumingthat the denatured ethanol content ofElO is 10%.

2. Biodiesel and Renewable Diesel

While the market constraints onethanol supply are readily identifiable,it is more difficult to identify and assessthe market components that may limitpotential growth in the use of allqualifying forms of biodiesel andrenewable diesel in 2017. Therefore, asdiscussed in the introduction to SectionV.B, after estimating the supply of

ethanol in 2017, and taking into accountthe estimates of non-ethanol cellulosicbiofuel supply discussed in Section 111.0above and estimates of other non-ethanol renewable fuel supplydiscussed in Section IV.B.3, weconsidered whether the supply of totalbiodiesel and renewable diesel wouldbe adequate to satisfy a requirement of19.28 billion gallons.

In Section V.A we described how useof the cellulosic waiver authority toprovide a volume reduction for totalrenewable fuel that equals that providedfor advanced biofuels yields a volume of19.28 billion gallons. In addition to theethanol volume discussed in SectionV.B.1.iv above, cellulosic biogas canalso contribute to this total volume ofrenewable fuel, as described more fullyin Section 111.0. While other renewablefuels such as naphtha, heating oil,butanol, and jet fuel can be expected tocontinue growing over the next year,collectively, we expect them tocontribute considerably less thanethanol to the total volume of renewablefuel that can be supplied in 2017. Thesewere discussed in Section IV.B.3. Basedon these estimates of supply, about 2.9billion gallons of biodiesel andrenewable diesel would be needed inorder to meet a total renewable fuelvolume requirement of 19.28 billiongallons.

TABLE V.B.3—1—DETERMINATION OF VOLUME OF BIODIESEL AND RENEWABLE DIESEL NEEDED IN 2017 To ACHIEVE19.28 BILLION GALLONS OF TOTAL RENEWABLE FUEL

[Million ethanol-equivalent gallons except as noted]

Total renewable fuel volumeEthanolNon-ethanol cellulosic biofuelOther non-ethanol renewable fuels a

Biodiesel and renewable diesel needed (ethanol-equivalent volume/physical volume)

a Includes naphtha, heating oil, butanol, and jet fuel. See further discussion in Section IV.B.3.

As discussed in the final ruleestablishing the RFS standards for2014—2016, there are several factors thatmay, to varying degrees and at differenttimes, limit the growth of biodiesel andrenewable diesel, including localfeedstock availability, production andimport capacity, and the ability todistribute, sell, and use increasingvolumes of biodiesel and renewablediesel. We continue to believe that thesupply of biodiesel and renewablediesel as transportation fuel in theUnited States, while growing, is notwithout limit.

The EPA Administrator signed the ProposedDenial of Petitions for Rulemaldng to Change theRFS Point of Obligation on November 10, 2016.More information can be found at hups://www.epa.gov/renewable-fuel-stcndord-program/

In the proposed rule we discussed thecurrent status of each of a number of thefactors that impact the supply ofbiodiesel and renewable diesel used astransportation fuel in the United States.We received a number of comments onour assessment of these factors. Some ofthese comments supported the proposedfindings in the NPRM and agreed thatEPA had sufficiently accounted for thefactors that may constrain the growth ofbiodiesel and renewable diesel in 2017,while others argued that EPA hadoverstated these constraints and thedegree to which they would limit the

response-petitions-reconsideration-rfs2-rule-change-point-obligation.

134 Under the rounding method required under 40CFR 80.9, ethanol concentrations of between 8.6%

supply of biodiesel and renewablediesel in 2017. As stated in ourproposed rule, we expect that thegrowth in the supply of biodiesel andrenewable diesel will largely be drivenby incremental developments across themarketplace to steadily increasevolumes. However, after a carefulreview of the information submitted ascomments on our proposed rule, webelieve that the reasonably attainablesupply of biodiesel and renewablediesel in 2017 is higher than we hadproposed.

and 10.5% inclusive would qualify for the Ipsiwaiver.

135 definition of renewable fuel” at 40 CFR80. 1401.

19,28014,561

29950

4,370/2,819



Based on our assessment of thevarious factors which affect the supplyof biodiesel and renewable diesel, wehave determined that 2.9 billion gallonsof biodiesel and renewable diesel(including both advanced andconventional biofuel) can be reasonablyattained in 2017, up from the 2.5 billiongallons that was projected for 2016. Thisvolume is significantly higher than thepreviously established BBD standard of2.0 billion gallons for 2017, as webelieve additional volumes of bothconventional and advanced biodieseland renewable diesel can be supplied tothe United States in 2017 (see SectionVI for further discussion of the BBDstandard]. The following sectionsdiscuss our expectations fordevelopments in key areas affecting thesupply of biodiesel and renewablediesel in 2017.

i. Feedstock Availability

In previous years, the primaryfeedstocks used to produce biodieseland renewable diesel in the UnitedStates have been vegetable oils(primarily soy, corn, and canola oils)and waste fats, oils, and greases. Weanticipate that these feedstocks willcontinue to be the primary feedstocksused to produce biodiesel andrenewable diesel in 2017. Globalsupplies of these oils are significant,however they are expected to increaserelatively slowly over time, as vegetableoil production increases primarily withincreases in crop yields and theremaining untapped supply ofrecoverable waste oils diminishes.Additional supplies of feedstocks couldbe produced by increasing the plantedacres of oilseed crops (soy, canola, etc.),but with the exception of palm oil mostvegetable oils are produced as a coproduct of the production of animalfeed and increased demand forvegetable oil is unlikely to result in asignificant increase in oilseed cropplanting absent growing demand for theanimal feed. While some have suggestedthat industries that compete with thebiodiesel and renewable diesel industryfor renewable oil feedstocks will turn toalternative feedstock sources, resultingin greater feedstock availability forbiodiesel and renewable dieselproducers, such a shift in renewable oilfeedstock use would not result in anincrease in the total available supply ofrenewable oil feedstocks as thosevolumes will have to be backfilled. Asa result, this would not alter thefundamental feedstock supply dynamicsfor biodiesel and renewable dieselproduction.

We anticipate that there will be amodest increase in the available supply

of feedstocks that can be used toproduce biodiesel and renewable dieselin 2017. Oil crop yield increases overthe next few years are expected to berelatively modest, and significantincreases in the planted acres of oilcrops are expected to be limited bycompetition for arable land from otherhigher value crops and demand for theanimal feed co-products produced bymost oilseed crops.136 The recovery ofcorn oil from distillers grains and therecovery of waste oils are alreadywidespread practices, limiting thepotential for growth from these sectorscompared to what has been able tooccur over recent years as these newmarkets were being tapped. In light ofthis, we do not believe that theavailability of biodiesel and renewablediesel feedstocks is without limit. It isalso possible that biodiesel productionat some individual facilities, especiallythose built to take advantage of low-cost, locally available feedstocks, maybe limited by their access to affordablefeedstocks in 2017, rather than theirfacility capacity, even if the globalsupply of feedstocks is sufficient toenable additional production.

As discussed in further detail inSection IV.B.2, the availability ofqualifying advanced biodiesel andrenewable diesel feedstocks may also belimited (even if the total supply offeedstocks is sufficient], and largeincreases in advanced biodiesel andrenewable diesel demand could lead tosignificant feedstock substitution ratherthan increased production of advancedfeedstocks. Unreasonably high demandfor biodiesel and renewable diesel couldalso cause undesirable marketdisruptions. Large increases in theavailable supply of biodiesel andrenewable diesel in future years willlikely depend on the development anduse of new, high-yielding feedstocks,such as algal oils or alternative oilseedcrops. Based on currently availableinformation, we believe that theavailability of feedstocks (includingboth feedstocks that can be used toproduce advanced and conventionalbiodiesel and renewable diesel) isunlikely to significantly limit the supplyof total biodiesel and renewable dieselused for transportation fuel in theUnited States in 2017, when consideringthe standards we are establishing in thisrule. This is largely the case because webelieve that other constraints, discussedbelow, will likely constrain the

136 Because most oilseed crops are grownprimarily to provide livestock feed, the plantedacres of these crops are expected to increase inresponse to demand for livestock feed rather thandemand for renewable vegetable oils.

distribution and use of biodiesel andrenewable diesel before the feedstocklimits have been reached.

ii. Biodiesel and Renewable DieselProduction Capacity

The capacity for all registereddomestic biodiesel production facilitiesis approximately 3.5 billion gallons.The capacity for all registered domesticrenewable diesel production facilities isapproximately 0.7 billion gallons.138Active production capacity is lower,however, as a number of registeredfacilities were idle in 2015 and 2016.The capacity for all domestic biodieseland renewable diesel productionfacilities that generated RINs in 2015 or2016 is approximately 3.1 billiongallons.139 While idled productionfacilities may be brought online, doingso would likely require sufficient timeto re-staff the production facilities, makeany necessary repairs or upgrades to thefacility, and source the requiredfeedstocks. Additionally, there are manyfactors that may limit biodiesel orrenewable diesel production at anygiven facility to a volume lower than thefacility capacity.14° As with feedstockavailability, we do not expect thatproduction capacity at registeredfacilities will limit the supply ofbiodiesel/renewable diesel for use astransportation fuel in the United Statesin 2017. Foreign registered biodieseland renewable diesel facilities representa significant volume of additionalpotential production that could be madeavailable to markets in the UnitedStates. While the total registeredproduction capacity of foreign biodieseland renewable diesel is significant,supply of biodiesel and renewablediesel from these facilities in 2017 maybe impacted by the capacity to importthese fuels, discussed in the followingsection.

iii. Biodiesel and Renewable DieselImport Capacity

Another important market componentin assessing biodiesel and renewablediesel supply is the potential forimported volumes and the diversion ofdomestically produced biodiesel andrenewable diesel exports to domesticuses. In addition to the approximately560 million gallons imported into the

137 Biodiesel and Renewable Diesel RegisteredCapacity (October 2016)”, Memorandum fromDallas Burkholder to EPA Docket EPA—HQ—OAR—2016—0004.

135 Ibid.139 Ibid.140 Due to the relatively low capital cost of

biodiesel production facilities, many facilities werebuilt with excess production capacity that has neverbeen used.



U.S. in 2015, there were about 90million gallons exported from theUnited States to overseas markets. Onecommenter used biodiesel import datafrom January 2012 through April 2016to estimate that, based on the highestannual volume of biodiesel imports inthe 55 cities that reported biodieselimports during this time period, theUnited States current import capacityfor biodiesel at these cities isapproximately 659 million gallons.141Actual import capacity is likely toexceed this volume, as this estimaterelied solely on historic importvolumes, rather than an assessment ofthe capacity of the infrastructure thatcould be used to import biodiesel atthese 55 cities. It is also likely thatunder the right circumstances there areadditional locations through whichbiodiesel could be imported.

Given the right incentives, it may bepossible to increase net biodiesel andrenewable diesel imports, either byredirecting a portion of the biodieselcurrently consumed in foreign countries

to be exported to the U.S. and/or byreducing the volume of biodieselexported from the United States.However, the amount of biodiesel andrenewable diesel that can be importedinto the United States is difficult topredict, as the incentives to importbiodiesel and renewable diesel to theU.S. are a function not only of the RFSand other U.S. policies and economicdrivers, but also those in the othercountries around the world. Thesepolicies and economic drivers are notfixed, and change on a continuing basis.Over the years there has been significantvariation in both the imports andexports of biodiesel and renewablediesel as a result of varying policies andrelative economic conditions (SeeFigure V.B.2.iii—1 below). Increasingbiodiesel and renewable diesel importssignificantly beyond the 659 milliongallons estimated above would require aclear signal to the parties involved thatincreasing imports will be economicallyadvantageous and the potential renegotiations of existing contracts. It may

also require upgrades and expansions atU.S. import terminals. It is possible, butuncertain, whether higher RFSstandards could provide such a signal.Also, to the degree that higher volumesof imported biodiesel or renewablediesel to the United States come at theexpense of consumption in the rest ofthe world, the environmental benefits ofthis increased volume are expected to bemodest.142 In this final rule we have notprojected biodiesel and renewablediesel imports separately fromdomestically produced biodiesel andrenewable diesel, since these fuels aresubject to the same potential limitations(e.g., feedstock availability, distributionand use constraints, etc.)’43 We dobelieve, however that the standards inthis final rule will result in an increasein biodiesel and renewable dieselimports consistent with the generaltrend observed in previous years, andour projection of the supply of thesefuels in 2017 includes this expectedincrease.

400

c300

100

0—II !! ia Import data reported through the EMTS system. Export data sourced from EIA(http://www.eia.gov/dnav/pet/petmoveexpca_EPOORDBEEX_mbbl_a.htm)

I’ll See comments from Renewable Energy Group,Inc. (EPA—HQ—OAR—2016—0004—3477). REQ useddata from the Energy Information Agency in theirassessment, and therefore did not capturerenewable diesel imports. The total import capacityof biodiesel and renewable diesel therefore likelyexceeds the volumes estimated here.

142 See Section W.B.2 for a further discussion ofthis issue.

143 discussed in Section IV.B.2, we expect anincrease of approximately 100 million gallons ofadvanced biodiesel, advanced renewable diesel,and/or feedstocks that can be used to produce these

fuels. We are also projecting an increase of 100million gallons of conventional biodiesel andrenewable diesel. Historically the majority of thisfuel has been imported (see Table IV.B.2—2), and weexpect this will again be the case in 2017.

Figure V.B.2.iii-1 1Biodiesel and Renewable Diesel Imports and Exports (20 l2-2o15t

600

500

II2011 2012 2013 2014 2015

S Imports • Exports



iv. Biodiesel and Renewable DieselDistribution Capacity

While biodiesel and renewable dieselare similar in that they are both dieselfuel replacements produced from thesame types of feedstocks, there aresignificant differences in their fuelproperties that result in differences inthe way the two fuels are distributedand consumed. Renewable diesel is apure hydrocarbon fuel that is nearlyindistinguishable from petroleum-baseddiesel. As a result, it can generally usethe existing distribution infrastructurefor petroleum diesel and there are nosignificant constraints on its growthwith respect to distribution capacity.Biodiesel, in contrast, is an oxygenatedfuel rather than a pure hydrocarbon. Ithistorically has not been distributedthrough most pipelines due tocontamination concerns with jet fuel,and may require specialized storagefacilities, additives, or blending withpetroleum diesel to prevent the fuelfrom gelling in cold temperatures. In thepast few years, however, a limitednumber of pipelines that do not carry jetfuel have begun shipping biodieselblends.144 Recent changes to the ASTMjet fuel specifications allowing up to 50ppm biodiesel,145 as well as experiencegained in isolating jet fuel frombiodiesel in pipelines may open newopportunities for distributing biodieselblends by pipeline in future years. Anumber of studies have investigated theimpacts of cold temperatures on storage,blending, distribution, and use ofbiodiesel, along with potentialmitigation strategies.’46 147 148

Information provided by the NationalBiodiesel Board, as well as commentson our proposed rule, indicate that someretailers offer biodiesel blend levels thatdiffer in the summer and winter toaccount for these cold temperatureimpacts.’49 150 While cold temperaturescan cause problems with thedistribution and use of biodiesel, the

144 See NBB comments on the Proposed Rule(EPA—HQ—OAR—2016—0004—2904).

145 While the ASTM specification generelly limitsbiodiesel contamination irs jet fuel to 50 ppm, upto 100 ppm biodiesel may be allowed on an“emergency basis.” Subcommittee J intends toconsider a ballot to increase the limit of biodieselin jet fuel to 100 ppm (See ASTM D1655).

148 “Biodiesel cloud Point and cold WeatherIssues,” NC State University & A&T State UniversityCooperative Extension, December 9, 2010.

147 “Biodiesel Cold Weather Blending Study,”Cold Flow Blending Consortium.

148 “Petroleum Diesel Fuel and BiodieselTecbnical Cold Weather Issues,” MinnesotaDepartment of Agriculture, Report to Legislature,February 15, 2009.

148 http://biodiesel.org/using-biodiesel/findingbiodiesel/retoil-locotions/biodiesel-retoiler-Iistings.

isa See comment from CountryMark on theproposed rule (EPA—HQ—OAR—2016—0004—1826).

experiences of states such as Minnesotaand Illinois, where biodiesel is usedyear-round despite cold winter weather,demonstrates that these challenges canbe overcome with the proper handlingof biodiesel.’5’ 152

The infrastructure needed to store anddistribute biodiesel has generally beenbuilt in response to the local demand forbiodiesel. In some cases, theinfrastructure must be expanded tobring biodiesel to new markets andadditional infrastructure may also beneeded to increase the supply ofbiodiesel in markets where it is alreadybeing sold. In other cases, sufficientinfrastructure exists to increase the localsupply of biodiesel and biodiesel blendsusing existing infrastructure.

Another factor potentiallyconstraining the supply of biodiesel isthe number of terminals and bulk plantsthat currently distribute biodiesel. Astudy conducted on behalf of the NBBused OPIS data to calculate thatbiodiesel is currently offered at fuelterminals in 369 of the 563 cities(approximately 66%) that haveterminals providing gasoline, dieseland/or biodiesel.’53 In addition to theseterminals, biodiesel is often distributedfrom bulk plants or directly frombiodiesel production facilities. Atpresent, the Web site Biodiesel.org listsover 600 distribution facilities reportedas selling biodiesel either in pure formor blended form, the majority of whichare bulk plants.’ 155 Biodieselproduction facilities also serve asimportant distribution centers forbiodiesel. According to a surveyconducted by NBB, 30% of the biodieselproduced at facilities that responded tothe survey is sold directly to retailersaeDirect sales to retail stations provide a

151 Biodiesel is used year-round in Minnesota andIllinois in large part due to state mandates and taxcredits respectively, in addition to the incentivesprovided by the RFS program.

152 “Report to the Legislature Annual Report onBiodiesel,” Kevin Hennessy, Minnesota Departmentof Agriculture. January 15, 2016, Available online<https://www.Jeg.stote.mn. us/docs/201 6/mondoted/1601 62.pdfr.

153 See Attacbment 6 of the comments submittedby the National Biodiesel Board (EPA—HQ—OAR—2016—0004—2904), The report lists 453 cities withterminals that offer gasoline and diesel, 369 thatoffer biothesel or biodiesel blends, and 259 thatoffer both petroleum diesel and biodiesel,

154 List of biodiesel distributers fromBiodiesel.org Web site (http://biodiesel. os/osingbiodiesel/finding-biodiesel/locote-distributors-inthe-us/distributors-mop). Accessed 10/8/15. Thislist does not include terminals that distributebiodiesel or biodiesel blends,

Bulk plants are much smaller than majorgasoline and diesel distribution terminals, andgenerally receive diesel and biodiesel shipped bytrucks from major terminals,

‘° See Attachment 6 of the comments submittedby the National Biodieset Board (EPA—HQ—OAR—2016—0004—2904).

significant opportunity for biodieselproducers to access local marketswithout first transporting biodiesel to aterminal or bulk plant for furtherdistribution.

While there are a large number ofbiodiesel distribution points in theUnited States, including terminals, bulkplants, and biodiesel productionfacilities, the majority of thesedistribution points appear to beconcentrated in the Midwest and mostof the population centers of the country.These same areas consume the majorityof the diesel fuel in the United States,and thus have the greatest potentialmarkets for biodiesel. For the biodieselmarket to continue to expand, it musteither increase the volume of biodieselsold in markets where it is already beingsold, or expand into markets thatcurrently do not have access tobiodiesel. Either of these methods forexpanding the biodiesel market willlikely require additional infrastructure.Transportation of the biodiesel fromproduction facilities to retail fuelstations, whether directly or throughterminals and bulk plants, will alsoneed to be expanded for volumes tocontinue to grow. This will likelyrequire additional trucks and/or railcars,Th7 as biodiesel and biodieselblends are currently generally nottransported in common carrierpipelines. If recent changes to theASTM specifications for jet fuel(discussed above) allow for greatervolumes of biodiesel blends to beshipped by pipeline this would be apotentially significant change, as itwould likely allow for biodieseldistribution at terminals that currentlydo not have access to biodiesel blendsand could significantly reduce the costof distributing biodiesel. Distributingbiodiesel via truck or rail results in highfuel transportation costs (relative topetroleum derived diesel, which isgenerally delivered to terminals viapipelines), which may impact theviability of adding biodiesel distributioncapacity at a number of existingterminals or bulk plants. It is likely thatuntil and unless significant volumes ofbiodiesel blends are transported bypipeline, increasing the biodieselmarket will require greater investmentper volume of biodiesel supplied thanin the past, as the new biodieseldistribution facilities will generally

157 Biodiesel can also be transported by barge,however we expect that a limited number ofbiodiesel production facilities have access to bargeor ocean transportation. Survey data collected byNBB indicates that only 7% of biodiesel is currentlytransported by barge (see NBB comments on theproposed rule, attachment 6; EPA—HQ—OAR—2016—0004—2904).



have access to smaller markets than theexisting facilities, or will facecompetition as they seek to expand intoareas already supplied by existingdistribution facilities.

The net result is that the expansion ofthe distribution infrastructure requiredto transport biodiesel to distributionpoints and retail stations and store it atthese locations will be necessary,whether biodiesel consumption isincreased through additionalconsumption in existing markets,expansion to new markets, or somecombination of the two. While this isnot an insurmountable challenge, it willrequire time and investment, and maylimit the potential for the rapidexpansion of the biodiesel supply. Inprevious years the expansion ofbiodiesel distribution and storage haslargely been enabled by high volumediesel retailers, such as truck stops andtravel centers. We believe this is likelyto be the case in the near future as well,however the rate of increase of biodieseland renewable diesel at these locationsmay slow as many are already supplyingsignificant volumes of biodiesel andrenewable diesel.

The distribution of biodiesel andbiodiesel blends is an area in which thebiodiesel industry has made steadyprogress over time, and we anticipatethat this progress can and will continueinto the future, particularly with theongoing incentive for biodiesel growthprovided by the RFS standards. This isespecially true to the degree that excessbiodiesel transportation infrastructure(trucks, rail cars, barges, etc.) andstorage capacity currently exist. Low oilprices, however, may present achallenge to the expansion of biodieseldistribution infrastructure, since theprofitability of such projects in currentmarket conditions is largely dependenton government support such as thebiodiesel blenders tax credit and RFSRIN value.158 Since some investors viewsuch government supports as inherentlyuncertain they may be hesitant to investin new infrastructure to enableadditional biodiesel distribution at atime when diesel prices are low. Aswith many of these potential supplyconstraints, increasing biodiesel storageand distribution capacity will requiretime and investment, potentiallylimiting the potential growth in 2017and future years.

v. Biodiesel and Renewable DieselRetail Infrastructure Capacity

For renewable diesel, we do notexpect that refueling infrastructure (e.g.,

‘585ee comments from NATSO fEPA—HQ—OAR—2016—0004—1830).

refueling stations selling renewablediesel blends) will be a significantlimiting factor in 2017 due to itssimilarity to petroleum-based diesel andthe relatively small volumes expected tobe supplied in the United States. Thesituation is different, however, forbiodiesel. Biodiesel is typicallydistributed to retail stations in blendedform with diesel fuel as blends varyingfrom 32 up to 320, and in some narrowcases at levels exceeding 320. Biodieselblends up to and including B20 can besold using existing retail infrastructure,and generally do not require anyupgrades or modifications at the retaillevel. Small retailers of diesel fuel,however, generally have only a singlestorage tank for diesel fuel, and cantherefore generally only offer a singlebiodiesel blend. We expect that many ofthe retailers in this situation will behesitant to offer biodiesel blends above35, as doing so would mean only sellinga fuel that is not recommended for useby some vehicle and enginemanufacturers (see following section fora further discussion of potential enginewarranty issues).

Large diesel fuel retailers, such astruck stops and travel centers may havesufficient tankage to offer multipleblends of diesel fuel and/or biodiesel,should they choose to do so. Some ofthese large retailers have biodieselblending infrastructure at their retailfacilities, allowing them greater controlover the blends of biodiesel sold at theirstations. This is significant, as EIAestimates that 80% of all diesel fuel soldin the United States is sold throughlarge and mid-sized truck stops, with25% of the diesel fuel being soldthrough stations owned by the fourlargest on-highway diesel sellers.’5 Assome of the highest volume truck stopshave begun selling increasing volumesof biodiesel blends in recent years, ithas allowed biodiesel volumes to growquickly. These large truck stops andtravel sellers sell significant volumes ofbiodiesel, and in many cases offerbiodiesel blends higher than 35160

Further they have expressed anintention to expand their sales ofbiodiesel in future years.’61 We expectthat in future years these large truckstops and travel centers will continue tobe a primary location for biodiesel sales,and will likely look to expand biodiesel

159 Estimates of diesel fuel sales through variousretailers from ETA Web site: http://www.eia.gov/petroleum/gosdiesel/dieselproc-methods.cfm.

‘60See information submitted by NBB incomments on the proposed rule fEPA—HQ—0AR—2016—0004—2904), pages 29—30.

161 June 9, 2016 hearing statements from MusketCorporation, ‘Transcript for room Chicago,” docketEPA—HQ—OAR—2016—0004.

sales in the future where it is profitableto do so. In addition, many centrallyfueled fleets that often consume largevolumes of diesel fuel have increasedtheir use of biodiesel blends.’62

As discussed in the next section,biodiesel blends up to 5% may belegally sold as diesel fuel without theneed for special labeling, and areapproved for use in virtually all dieselengines. Because biodiesel blends up to35 can be used in virtually all dieselengines and require no specializedinfrastructure at refueling stations, andmany large diesel retailers havedemonstrated a willingness to offerbiodiesel blends higher than B5,expanding the number of refuelingstations offering biodiesel blends istherefore expected to be constrained lessby resistance from the retail facilitiesthemselves, and more by the presence ofnearby wholesale distribution networksthat can provide the biodiesel blends toretail at attractive prices. As discussedin the previous section, we expect thisexpansion will continue at a steady pacein 2017.

vi. Biodiesel and Renewable DieselConsumption Capacity

Virtually all diesel vehicles andengines now in the in-use fleet havebeen warranted for the use of 35 blends.Both the Federal Trade Commission(FTC) and ASTM International (ASTM)specifications for diesel fuel (16 CFRpart 306 and ASTM D975 respectively)allow for biodiesel concentrations of upto five volume percent (35) to be soldas diesel fuel, with no separate labelingrequired at the pump Biodiesel blendsof up to 5% are therefore oftenindistinguishable from diesel fuel that isnot blended with biodiesel.

In recent years an increasing numberof vehicle and engine manufacturershave approved the use of biodieselblends up to B 20.163 According toinformation submitted to EPA by NBB,over 30% of all diesel vehiclesregistered in the United States areapproved to use biodiesel blends up to320 by the vehicle and enginemanufacturers.64 The percentage ofvehicles and engines approved by themanufacturers to use biodiesel blendsup to B20 rises to over 50% for class 8trucks, which use the majority of the

‘62”Biodiesel Ranks First Among Fleets for AltFuel Use,” BiodieseL org. March 23, 2016. Availableonline <hup://biodiesel.org/news/news-disploy/201 6/03/23/biodiesel-ranks-first-among-fleets-for-alt-fuel-use>.

163 See, for example, Paccar announcementapproving all engines to use B20 blends.

764 Information on the number of vehiclesapproved to use B20 from a presentation by NOBto EPA staff on July 28, 2016.



diesel fuel in the United States.Tha Thisinformation indicates that while thepotential consumption of biodiesel inblends that exceed 35 in vehicles andengines that are approved for the use ofthis fuel is significant, such approval isnot universal. For the nearly 70% ofvehicles and engines that are notapproved to use biodiesel blends greaterthan 35, using higher level blends couldpotentially void the warranties of theengines if the damage to the enginedamage is attributable to the fuel thatwas used. While many of the vehiclesthat are not approved to use biodieselblends greater than B5 are likely nolonger covered by the manufacturer’swarranty, the owners of these vehiclesmay still be hesitant to use a fuel thatwas not approved for use in theirvehicle.

In light of the ability of effectively alldiesel engines to use biodiesel blends atthe B5 level, the increasing number ofdiesel engines approved to use biodieselblends up to B20, and the compatibilityof renewable diesel with in-use dieselengines, we believe the market will becapable of consuming 2.9 billion gallonsof biodiesel and renewable diesel in2017. However, to achieve this level ofconsumption we believe it will becomeincreasingly necessary to sell higher-level biodiesel blends, greater quantitiesof renewable diesel, and/or additionalvolumes of biodiesel in qualifyingnonroad applications. Even if everygallon of diesel sold in the United Statesin 2017 contained 5% biodiesel, thetotal volume of biodiesel consumedwould only reach approximately 2.8billion gallonsl66 When considering thepotential availability of renewablediesel together with the use of biodieselin non-road applications and higherlevel biodiesel blends, there are severalscenarios that would enable theconsumption of 2.9 billion gallons ofbiodiesel and renewable diesel. If weassume the availability of approximately500 million gallons of renewable dieselin 2017 (approximately a 100 milliongallon increase from 2015) and the useof 100 million gallons of biodiesel inqualifying nonroad (such as agriculturaland mining equipment] and heating oilapplications, approximately 84% of thehighway diesel pool in 2017 would haveto be sold as a B5 blend to supply 2.9billion gallons of biodiesel and

renewable diesel in 2017.167 If wefurther assume that 20% of all dieselfuel in the United States is sold athigher biodiesel blend levels averaging310 (to account for the sales of higherblends at travel centers and in stateswith biodiesel blend mandates), only54% of the remaining diesel pooi wouldhave to be blended with 5% biodiesel toenable the consumption of 2.9 billiongallons of biodiesel and renewablediesel. We believe these scenarios, alongwith the possibility for even greatervolumes of biodiesel to be used inqualifying non-road applications andhigher level biodiesel blends,demonstrate that 2.9 billion gallons ofbiodiesel and renewable diesel isreasonably attainable in the UnitedStates in 2017. EPA will continue tomonitor the compatibility of the in-usevehicle fleet to use of biodiesel in futureyears as we assess potential constraintson increased volumes.

vii. Biodiesel and Renewable DieselConsumer Response

Consumer response to the availabilityof renewable diesel and low-levelbiodiesel blends (B5 or less) has beengenerally positive, and this does notappear to be a significant impediment togrowth in biodiesel and renewablediesel use. Because of its similarity topetroleum diesel, consumers whopurchase renewable diesel are unlikelyto notice any difference betweenrenewable diesel and petroleum-deriveddiesel fuel Similarly, biodiesel blendsup to B5 are unlikely to be noticed byconsumers, especially since, asmentioned above, they may be soldwithout specific labeling. Consumerresponse to biodiesel blends is alsolikely aided by the fact that despitebiodiesel having roughly 10 percent lessenergy content than diesel fuel, whenblended at 5 percent the fuel economyimpact of B5 relative to petroleum-derived diesel is a decrease of only0.5%, an imperceptible difference.Consumer response has been furtheraided by the lower prices that manywholesalers and retailers have beenwilling to provide to the consumers forthe use of biodiesel blends. Theeconomic incentives provided by thebiodiesel blenders tax credit and theRIN have made it possible for retailersto offer these blends at a lower price pergallon than diesel fuel that has not been

blended with biodiesel despite thehigher cost of production for biodieselrelative to petroleum based diesel, andthe competition among diesel fuelretailers has generally led to theseincentives being reflected in the retailprice of biodiesel blends. The ability forretailers to offer biodiesel blends atcompetitive prices relative to diesel thatdoes not contain biodiesel, even at timeswhen oil prices are low, is a key factorin the growth in the supply of biodieseland renewable diesel to date.

viii. Projected Supply of Biodiesel andRenewable Diesel in 2017

Due to the large number of marketsegments where actions andinvestments may be needed to supportthe continued growth of biodieselblends, it is difficult to isolate thespecific constraint or group ofconstraints that would be the limitingfactor or factors to the supply ofbiodiesel and renewable diesel in theUnited States in 2017. Not only aremany of the potential constraints interrelated, but they are likely to vary overtime. The challenges in identifying asingle factor limiting the growth in thesupply of biodiesel and renewablediesel in 2017 does not mean, however,that there are no constraints to thegrowth in supply.

A starting point in developing aprojection of the available supply ofbiodiesel and renewable diesel in 2017is a review of the volumes of these fuelssupplied for RFS compliance inprevious years. In examining the data,both the absolute volumes of the supplyof biodiesel and renewable diesel inprevious years, as well as the rates ofgrowth between years are relevantconsiderations. The volumes ofbiodiesel and renewable diesel(including both D4 and D6 biodiesel andrenewable diesel) supplied each yearfrom 2011 through 2015 are shownbelow.

165 Ibid.166 This estimate assumes 55.5 billion gallons of

diesel fuel are used in the United States in 2016(from the EIA’s August Short Term Energy

Outlook). It also assumes no biodiesel is used inblends greater than 35.

167 This estimate again assumes 55.5 billiongallons of diesel fuel are used in the United States

in 2016 (from the EIA’s August Short Term EnergyOutlook) and no biodiesel is used in blends greaterthan 35.



1400C= 1200

1000

. 800

600

400

200

To use the historical data (shown inthe figure above) to project the availablesupply of biodiesel and renewablediesel in 2017, we started with thevolume expected to be supplied in 2016(2.5 billion gallons], and then assessedhow much the supply could be expectedto increase in 2017111 light of theconstraints discussed above. Usinghistoric data is appropriate to the extentthat growth in the year or years leadingup to 2016 reflects the rate at whichbiodiesel and renewable dieselconstraints can reasonably be expectedto be addressed and alleviated in thefuture. In assessing the potential growthof biodiesel and renewable diesel in2017 we believe this to be the case.There are many potential ways thehistorical data could be used to projectthe supply of biodiesel and renewablediesel in future years. Two relativelystraightforward methods would be touse either the largest observed annualsupply increase (743 million gallonsfrom 2012 to 2013) or the averagesupply increase (209 million gallonsfrom 2011 to 2015) to project how muchbiodiesel and renewable diesel volumescould increase over 2016 levels in 2017.We recognize that there are limitationsin the probative value of past growthrates to assess what can be done in thefuture, however we believe there issignificant value in consideringhistorical data, especially in caseswhere the future growth rate is expected

to be largely determined by the samevariety of complex and inter-dependentfactors that have factored into historicalgrowth.

In projecting the available supply ofbiodiesel and renewable diesel in 2016for the final rule establishing the 2 014—2016 standards, we estimated that thesupply of biodiesel and renewablediesel could increase from the levelsupplied in 2015 in line with the largestobserved annual supply increase fromthe historic record. While theavailability of RIN generation data for2016 is limited, we believe the dataavailable to date confirm that this highyear-over-year increase is possible.168We believe this is the case in part dueto the relatively small growth in thesupply of biodiesel and renewablediesel in 2014 and 2015, during whichno annual RFS standards were in placeto promote growth in the supply ofbiodiesel and renewable diesel andduring which time the biodieselblenders tax credit was only reinstatedretroactively. During these years (2014—2015), while growth in the supply ofbiodiesel and renewable diesel waslimited, significant progress continuedto be made in a number of areas(upgrades at biodiesel productionfacilities, increasing number of vehiclesapproved to use blends greater than B5,

168 “Comparison of 2016 availability of RINs arid2016 standards,” memorandum from DavidKorotney to docket EPA—HQ—OAR—2016—0004.

increasing biodiesel distributioninfrastructure, etc.] to expand thepotential supply of biodiesel andrenewable diesel used as transportationfuel in the United States. We believethat despite this progress, the absence ofRFS standards for most of this timeperiod (along with other economicfactors such as the lapses in thebiodiesel blenders tax credit and thefluctuating prices of petroleum dieseland biodiesel and renewable dieselfeedstocks] resulted in limited increasesto the supply of biodiesel and renewablediesel in these years. We thereforebelieve that the significant increase inthe projected supply of biodiesel andrenewable diesel from 2015 to 2016 wassignificantly enabled by the relativelyslow growth in supply in 2014 and2015.

Commenters also noted a similarlylarge increase in the supply of biodieseland renewable diesel from 2010 to 2011to support claims that large annualincreases in the supply of biodiesel andrenewable diesel to the United Statescould be achieved in successiveyears.’69 While this increase is yetanother example of the rapid increase inthe supply that can be achieved undercertain market conditions, we onceagain note that in the years prior to 2010the biodiesel and renewable dieselsupply had been declining. It is not

2000

1800

1600

Figure V.B.2.viii-1Biodiesel and Renewable Supply by Year (2011-201 5)a

Average Increase of209M gallons/year

2011 2012 2013 2014 2015

• Biodiesel • Renewable Diesel

Values represent current estimates of the net supply of biodiesel and renewable diesel (including conventional,advanced, and BBD biodiesel and renewable diesel) from EMTS, accounting for the production, import, and exportof biodiesel and renewable diesel.

‘69See NBB comments on the proposed rule(EPA—HQ—OAR—2016—0004—2904), page 5.



clear from the historical data whethersuch large increases are sustainableyear-over-year. Increases of thismagnitude require a number of factors,including feedstock supply, productioncapacity, distribution capacity, retailofferings, and biodiesel consumption, tobe addressed. In previous years asignificant excess of feedstocks, incombination with newly establishedstate and federal incentives and a groupof large, interested retail partners haveenabled significant rapid growth in thesupply of biodiesel and renewablediesel. We believe that these marketconditions are unlikely to be repeated infuture years, but that there still existopportunities for growth in the supplyof biodiesel and renewable diesel. Afterreviewing the available information andthe comments received on the proposedrule, we believe that increases in thesupply of biodiesel and renewablediesel greater than those we haveproposed are possible, but we do notbelieve that these increases are withoutlimit, as some commenters havesuggested.

We recognize that the growth ratesachieved in the past (such as the averageannual growth rate or the largest annualsupply increase] do not necessarilyindicate the growth rate that can beachieved in the future. In the past,biodiesel was available in fewermarkets, allowing new investments tobe targeted to have a maximum impacton volume. However, as the marketbecomes more saturated and biodieselbecomes available in an increasingnumber of markets, additionalinvestments may tend to have less of animpact on volume, potentially limitingthe increases in supply year over year.Additionally, much of the increase inthe volume of biodiesel and renewablediesel supplied from 2012 to 2013 wasrenewable diesel, which is faced withfar fewer distribution and consumptionchallenges than biodiesel for blendsabove B5. Such an increase in theavailable supply of renewable diesel in2017 is unlikely as we are currentlyunaware of any renewable dieselfacilities under construction, either inthe United States or abroad, that arelikely to supply significant volumes offuel to the United States in 2017, andthe capital costs and constructiontimelines associated with constructingnew renewable diesel facilities aresignificant. It will likely require greaterinvestment to achieve the same levels ofgrowth in the supply of biodiesel andrenewable diesel in 2017 as compared tothe higher rates from previous years.

However, we must also consider theextent to which historic growth ratescan be seen as representing what is

possible with the RFS standards andother incentives in place. The year withthe historic maximum rate of growthwas 2013—a year in which both taxincentives and RFS incentives were inplace to incentivize growth through theentire year. There were also fewerpotential constraints to the growth ofbiodiesel and renewable diesel relatedto the distribution and use of biodieselin 2013 than there are currently due tothe significantly lower volume of thesefuels supplied in 2012. We believe it isreasonable to assume the incentivesprovided by the standards in 2017 willbe sufficient to enable supply increasesdespite these challenges discussedabove, but do not believe it would bereasonable to assume that the RFS andother incentives could drive a rate ofgrowth in 2017 that is equal to that seenin 2013. Comments received from theNational Biodiesel Board, as well asfrom the National Association of TruckStop Owners (which represents partieswith significant experience andinvestment in the distribution and salesof biodiesel] suggest that parties havealready begun making the necessaryinvestments to distribute and sellvolumes of biodiesel that exceed thevolumes projected in our proposed rulein anticipation of ongoing support forbiodiesel from both the blenders taxcredit and the RFS program. At thepublic hearing for the proposed 2017RFS standards, Michael Whitney ofMusket Corporation testified that hiscompany, which is the supply andtrading arm of Love’s Travel Stops,anticipated increasing biodiesel supplyby 100 million gallons in 2017.170 Hefurther estimated that as they accountedfor approximately 20—25% of allbiodiesel blended in the United States,that total supply could be increased by500 million gallons in 2016.171 Whilewe believe these numbers are somewhatspeculative, we also believe theyprovide support for an expectation ofconsiderable growth in 2017. We alsonote, however, that while the NationalAssociation of Truck Stop Owners(NATSO] generally supported“ambitious” standards with respect tobiodiesel and renewable diesel, theyalso supported EPA’s consideration of“market realities” to prevent the RFSstandards from being set atunreasonably high levels.172 Failure todo so, they stated, could result in RFSstandards that are significantly beyondthe market’s ability to supply renewable

170 See testimony of Michael Whitney, Musketcorporation, June 9, 2016 (chicago Room).

Ibid.‘72See comments from NATSO (EPA-HQ-OAR

2016—0004—1830).

fuels, ultimately resulting in higherprices for diesel fuel, negativelyimpacting both NATSO members andthe entire U.S. economy.373

In the NPRM we projected that theavailable supply of biodiesel andrenewable diesel in 2017 would beapproximately 2.7 billion gallons. Wediscussed the many different factors thatcould potentially constrain theproduction and use of biodiesel andrenewable diesel in 2017, and placedparticular emphasis on the potentiallimitations associated with the ability todistribute increasing volumes ofbiodiesel from production facilities toretail locations. In response to ourproposed rule, several parties, includingNBB and REG, provided significant newinformation to EPA related to the abilityof the market to distribute biodieselfrom production facilities to retaillocations.174 This information includeddata on the significant volume ofbiodiesel that is sold and transported toretail stations and/or other end usersdirectly from biodiesel productionfacilities, bypassing the traditional fueldistribution points such as fuelterminals or bulk plants. These datawere supported by statements fromdiesel retailers, such as the testimony ofMichael Whitney cited above. While wecontinue to believe that the potential toproduce, distribute, and consumebiodiesel and renewable diesel in theUnited States is not without limit, webelieve the information we received incomments in our proposed ruleprovides a sufficient basis forconcluding that a volume of 2.9 billiongallons of biodiesel and renewablediesel can be produced, distributed, andconsumed in the United States in 2017.When taken together with our projectionof 2.4 billion gallons of advancedbiodiesel and renewable diesel, thisassessment assumes 500 million gallonsof conventional biodiesel and renewablediesel to be used towards satisfying thetotal renewable fuel standard.’75However the market could choose to fill

173 Ibid. If RFS standards are significantly beyondthe market’s ability to supply renewable fuels, theprice of biofuels and separated RINs could rise toextreme levels as obligated parties seek to obtainthe RINs necessary to satisfy their obligations. Thiswould be expected to cause an increase in gasolineand diesel prices as obligated parties sought torecover their RFS compliance costs through theprices of the petroleum fuels they sell.

comments from NBB (EPA—HQ—OAR—2016—0004—2904) and REG (EPA—HQ—OAR—2o16—0004—3477].

175 Lesser volumes of conventional biodiesel andrenewable diesel may be used to satisfy thestandards if additional volumes of advancedbiodiesel and renewable diesel are supplied to themarket, or if the volume of ethanol supplied to themarket exceeds EPA’s projections in the previoussection.


Federai Register/Vol. 81, No. 238/Monday, December 12, 2016/Rules and Regulations 89789

these volumes with advanced biodieselor with other forms of renewable fuel.

The present constraints do notrepresent insurmountable barriers, butthey will take time to overcome. Themarket has been making efforts toovercome these constraints in recentyears, as demonstrated by discussionabove and the fact that biodiesel andrenewable diesel supply in the U.S. hasbeen steadily increasing. We believethat opportunity for ongoing growthexists, but that the constraints listedabove will continue to be a factor in therate of growth in future years and thatyear-on-year growth may slow as theopportunities for large increasesdiminish. Taking all of the above intoconsideration, we believe that it wouldbe reasonable to assume that growth in2017 can exceed the 226 million gallonhistoric annual average increase fromthe 2011—2015 time period, but will beunlikely to reach the maximum 659million gallon annual increase seen in2013. Considering the multiplicity offactors potentially influencing supply,we do not believe that a projection canbe made pursuant to any particularformula, but requires considerableexercise of judgment. We believe that itis reasonable to project a 400 milliongallon increase in supply in 2017,which would result in a total supply of2.9 billion gallons in 2017.

Throughout this section we havefocused on determining if the marketcan reasonably attain the 2.9 billiongallons of biodiesel and renewablediesel needed, together with reasonablyattainable volumes of ethanol and otherrenewable fuels, to satisfy the 19.28billion gallon total renewable fuelvolume derived through use of thecellulosic waiver authority alone. Basedon the data available to EPA at this time,including data submitted in commentson the NPRM, we believe that themarket is capable of producing,distributing, and using 2.9 billion

gallons of biodiesel and renewablediesel in 2017. We note, however, thatthe 400 million gallon increase issignificantly higher than the annualaverage increase in the supply ofbiodiesel and renewable diesel from2011—2015, and when combined withthe projected increase of approximately600 million gallons from 2015 to 2016would result in an increase in thesupply of biodiesel and renewablediesel of over one billion gallons in justtwo years. While our analysis has notfocused on determining the maximumreasonably achievable volume ofbiodiesel and renewable diesel in 2017,we believe that the ambitious growth inthe supply of biodiesel projected from2015 to 2017 indicate that the maximumreasonably achievable volume of thesefuels in 2017 is likely near the 2.9billion gallons assessed in this rule.

We recognize that the market may notnecessarily respond to the final totalrenewable standard by supplyingexactly 2.9 billion gallons of biodieseland renewable diesel to thetransportation fuels market in theUnited States in 2017, but that themarket may instead supply a lower orhigher volume of biodiesel andrenewable diesel with correspondingchanges in the supply of other types ofrenewable fuel. As a result, we believethere is less uncertainty with respect tothe attainability of the total volumerequirement of 19.28 billion gallonsthan there is concerning the projected2.9 billion gallons of biodiesel andrenewable diesel that we have used indetermining the adequacy of supply oftotal renewable fuel for 2017.

3. Total Renewable Fuel SupplyIn Section V.A we described how use

of the cellulosic waiver authority toprovide a volume reduction for totalrenewable fuel that equals that providedfor advanced biofuels yields a volume of19.28 billion gallons. Based on our

assessment of supply of ethanol andbiodiesel/renewable diesel, along withsmaller amounts of non-ethanolcellulosic biofuel and other non-ethanolrenewable fuels, we have determinedthat there will be adequate supply tomeet a volume requirement of 19.28billion gallons for total renewable fuel.As a result, there is no need for furtherreductions on the basis of an“inadequate domestic supply”determination using the general waiverauthority.176 Therefore, we areestablishing the total renewable fuelvolume requirement at 19.28 billiongallons.

Our use of the cellulosic waiverauthority alone to set the advancedbiofuel and total renewable fuel volumerequirements results in an impliedvolume for non-advanced (i.e.conventional) renewable fuel of 15.0billion gallons. This is an increase overthe proposed level of 14.8 billiongallons, and a significant increase incomparison to the 2016 implied volumeof 14.5 billion gallons. We recognizethat some stakeholders are primarilyconcerned about this impliedconventional renewable fuel volume.For these stakeholders, it may be helpfulto compare the implied volume forconventional renewable fuel to the ElOblendwall, despite the fact that a portionof the 15.0 billion gallon impliedvolume is likely to be met withconventional biodiesel and renewablediesel. As shown below, 15.0 billiongallons continues a year-by-year trend ofexceeding the Elo blendwall (thevolume of ethanol that could beconsumed if all gasoline was ElO andthere was no E0, E15, or E85) by everincreasing amounts.

1 As discussed in the response to commentsdocument, we also do not believe that the recordindicates either severe economic or environmentalharm that would justify further reductions using thegeneral waiver authority.



Figure V.B.3-lComparison of El 0 Blendwall to Implied Conventional Volume

15,200

15,000— * — ElO Blendwall

14,800• Implied Conventional Volume

14,600

14, 400

14,200

14,000

13,800

13,600

13,400

As discussed in Section V.B.2.viiiabove, we believe that there will beadequate supply of biodiesel andrenewable diesel such that the totalrenewable fuel volume requirement of19.28 billion gallons can he satisfied,based in part on our determination that2.9 billion gallons of biodiesel andrenewable diesel is reasonablyattainable in 2017. While our analysishas not focused on determining themaximum reasonably achievablevolume of renewable fuel in 2017, webelieve that the ambitious growth in thesupply of each of the various types ofrenewable fuel (discussed in furtherdetail in the preceding Sections)indicates that the maximum reasonablyachievable volume of these fuels in 2017is likely near the 19.28 billion gallonsassessed in this rule.

We note that the contributions fromindividual sources shown in TableV.B.3—1 were developed only for thepurpose of determining the adequacy ofsupply of total renewable fuel; they donot represent EPA’s projection of

precisely how the market will respond.As we said in the 2 014—2016 final rule,any supply estimate we make forparticular fuel types may be uncertain,but there is greater certainty that theoverall volume requirements can be metgiven the flexibility in the market thatis inherent in the RFS program.

C. Market Responses to the AdvancedBiofuel and Total Renewable FuelVolume Requirements

To meet the final volumerequirements, the market will need torespond by some combination ofincreasing domestic production and/orimports of those biofuels that havefewer marketplace constraints, byexpanding the infrastructure fordistributing and consuming renewablefuel, and/or by improving the relativepricing of renewable fuels andconventional transportation fuels at theretail level to ensure that they areattractive to consumers. However,because the transportation fuel market isdynamic and complex, and the RFS

program is only one of many factors thatdetermine the relative types andamounts of renewable fuel that will beused, we cannot precisely predict themix of different fuel types that willresult. In this section we delineate arange of possible outcomes, and doingso provides a means of demonstratingthat the volume requirements canreasonably be satisfied through multiplepossible paths.

We evaluated a number of scenarioswith varying levels of EU, E15, E85,imported sugarcane ethanol, advancedbiodiesel and renewable diesel, andconventional biodiesel and renewablediesel. In doing so we sought to capturethe range of possibilities for eachindividual source, based both on levelsachieved in the past and how the marketmight respond to the applicablestandards. Each of the rows in TableV.C—i represents a scenario in whichthe total renewable fuel and advancedhiofuel volume requirements would besatisfied.

TABLE V.C—1—VOLUME SCENARIOS ILLUSTRATING POSSIBLE COMPLIANCE WITH THE 2017 VOLUME REQUIREMENTS[million gallonsja b

- — —

— I

2013 2014 2015 2016 2017 2018J

MinimumTotal volume ofbiodiesel advancedSugarcane and biodieselE85 EO Total ethanol C

ethanol renewable and renewable

E15

dieseld dieseld

200 600 200 14,504 0 2,856 2,528200 600 500 14,474 0 2,876 2,528200 600 500 14,474 200 2,876 2,399200 600 500 14,474 500 2,876 2,206


Federal Register / Vol. 81, No. 238 / Monday, December 12, 2016/ Rules and Regulations 89791

TABLE V.C—1—VOLUME SCENARIOS ILLUSTRATING POSSIBLE COMPLIANCE WITH THE 2017 VOLUME REQUIREMENTS—Continued

[million gallonsjab

MinimumTotal volume ofbiodieselE85 E15 ED Total ethanolc ugarcane and avance

etiano renewable biodiesel

diesel a an renewa ediesela

200 600 500 14,474 800 2,876 2,012200 1,200 200 14,535 500 2,836 2,206330 600 500 14,559 800 2,820 2,012330 1,200 200 14,621 0 2,780 2,528330 1,200 200 14,621 200 2,780 2,399330 1,200 200 14,621 500 2,780 2,206330 1,200 200 14,621 800 2,780 2,012330 1,200 500 14,590 200 2,800 2,399

a Assumes for the purposes of these scenarios that supply of other advanced biofuel other than ethanol, BED and renewable diesel (e.g., heating oil, naphtha, etc.) is 50 mill gal, and that the cellulosic biofuel final volume requirement is 311 mill gal, of which 12 mill gal is ethanol and theremainder is primarily biogas.

b Biodiesel + renewable diesel is given in physical gallons, and can be converted into ethanol-equivalent gallons by multiplying by 1.55 (seediscussion of this conversion factor in Section lV.B.2). Other categories are given as ethanol-equivalent volumes.

CFor the range of total ethanol shown in this table, the poolwide average ethanol content would range from 10.08% to 10.17%.d Includes supply from both domestic producers as well as imports.

The scenarios in the tables above arenot the oniy ways that the market couldchoose to meet the total renewable fueland advanced biofuel volumerequirements that we are establishing inthis action. Indeed, other combinationsare possible, with volumes higher thanthe highest levels we have shown aboveor, in some cases, lower than the lowestlevels we have shown. The scenariosabove cannot be treated as EPA’s viewson the oniy, or even most likely, waysthat the market may respond to the 2017volume requirements. Instead, thescenarios are merely illustrative of thevarious ways that it could play out. Ourpurpose in generating the list ofscenarios above is only to illustrate arange of possibilities which demonstratethat the standards we are establishing inthis action can reasonably be met.

We provided a similar table of volumescenarios in the NPRM, andstakeholders were strongly divided onwhether those scenarios wereachievable and whether they capturedthe most likely outcomes. Refinersgenerally said that most if not all of thescenarios were not achievable in 2017,expressing concern that the chosenvolumes of ED were lower than actualmarket demand and that the chosenvolumes of other ethanol blends andrenewable fuel sources wereconsiderably higher than historicallevels. Proponents of renewable fuelsgenerally said that the providedscenarios were not demonstrative of themuch higher renewable fuel volumesthat were possible. Comments onreasonably attainable levels of specificethanol blends and non-ethanolrenewable fuel types are addressed in

Section V.B above and in Sections 2.3through 2.5 of the RTC document.

Several proponents of the ethanolindustry said that the proposedstandards would provide no incentivefor greater volumes of E15 and/or E85 in2017 compared to 2016, and noincentive for increased investment inthe infrastructure that supports thesehigher ethanol blends. We disagree. Theproposed volume requirement for totalrenewable fuel, and the implied volumefor non-advanced renewable fuel, wereboth higher than the corresponding finalvolume requirements for 2016. Whilenone of the applicable RFS programstandards are specific to ethanol, thehigher proposed volume requirementswould have created greater incentivesfor growth in E15 and/or E85 in 2017than existed in 2016. Moreover, we haveincreased the final volume requirementfor total renewable fuel and the impliedvolume for non-advanced renewablefuel in this final rule, in comparison tothe NPRM, providing additionalincentives for expansion of E15 and/orE85.

One stakeholder representingconventional ethanol interests said thatthe volume scenarios in the NPRMdemonstrated that 15 billion gallons ofnon-advanced renewable fuel werepossible in 2017. To do this, thestakeholder pointed to the highestvolumes in each category to construct anew scenario higher than the proposedvolume requirements. While we are infact finalizing standards for 2017 thatinclude an implied volume of 15 billiongallons of non-advanced renewable fuel,we continue to believe, as we stated inthe NPRM, that it would be

inappropriate to construct a newscenario (as this commenter attempted)based on the highest volumes in eachcategory that are shown in the tablesabove in order to argue for highervolume requirements. Doing so wouldresult in summing of values that wehave determined are higher than thereasonably attainable volumes of thedifferent fuel categories, resulting in atotal volume that we believe would beextremely unlikely to be reasonablyattainable or appropriate. We have moreconfidence in the ability of the marketto attain the volume requirements foradvanced biofuel and total renewablefuel than we have in the ability of themarket to achieve a specific level of,say, biodiesel, or E85. The probabilitythat the upper limits of all sourcesshown in the tables above could bereasonably attained simultaneously isvery small. For instance, if all volumelevels in Table V.C—1 were equallylikely, then there would be a less than1% likelihood that the maximum levelscould be attained simultaneously.177

We recognize that in some scenariosdescribed in the NPRM and above, thevolume of a particular category ofrenewable fuel exceeds the historicalmaximum or previously demonstratedproduction level. Stakeholders whobelieved that the proposed volumerequirements were too high pointed tothis fact as evidence that many, if notall, volume levels in the scenarios werenot achievable. However, as stated inthe NPRM, the fact that the scenarios

‘77For illustrative purposes oniy. We have notdetermined the relative likelihood of the differentvolume levels shown in Table v.c—i.



included volumes higher than historicallevels cannot be treated as a reason forconcluding that such levels are notachievable. The RFS program isintended to result in supply in anygiven year that is higher than in allprevious years, and ft is ourdetermination that for 2017 this isreasonably attainable.

With regard to E85, under highlyfavorable conditions related to growthin the number of E85 retail stations,retail pricing, and consumer response tothat pricing, it is possible that E85volumes as high as 330 million gallonscould be reached. For instance, growthin the number of retail stations offeringE85 may increase more rapidly than wehave estimated under USDA’s BiofuelsInfrastructure Partnership (BIP) grantprogram and the ethanol industry’sPrime the Pump program. If so, the totalnumber of retail stations offering E85could perhaps increase from about 3,100today to 4,800 in 2017 (average for theyear), rather than the 4,300 we assumedabove in Section V.B.1.iii. Also, it ispossible that increases in the price of D6RINs since the release of the 2014—2016final rule can help to increase the E85price discount relative to ElO ifproducers and marketers of E85 pass thevalue of the RIN to the prices offered tocustomers at retail, providing greaterincentive to FFV owners to refuel withE85 instead of E15. Under suchcircumstances, an E85 price discount ashigh as 30% is possible. Indeed, E85price discounts this high have beenreached in the past in some locales.178Efforts to increase the visibility of E85,including expanded marketing andeducation, can also help to increase E85sales. Sales volumes of E85 higher than330 million gallons are very unlikely,but are possible if pump installationsincrease significantly and the marketcan overcome constraints associatedwith E85 pricing at retail and consumerresponses to those prices.

Similarly, we believe that underfavorable conditions, it is possible thatE15 volumes as high as 1,200 milliongallons could be reached in 2017. Again,the BIP program and Prime the Pumpprogram could result in a higher growthrate for retail stations offering E15 thanwe have estimated, potentially reachingas high as 2,000 in 2017 (average for theyear). Although for the purposes ofestimating reasonably attainable E15 in2017 we have estimated that sales ofE15 would be 15% of all gasoline salesat stations selling both ElO and E15, itis possible that sales of E15 could be as

178 For instance, data from the Fuels Instituteindicates that 3% of E85 price discounts were above30% at surveyed retail stations in 2015.

high as 50% under favorable pricingconditions as described in SectionV.B.1.ii. Also, additional terminalscould produce E15 in 2017 beyond thefour that we included in our estimate ofreasonably attainable volumes of E15 in2 017.179

As the table above illustrates, thevolume requirements could result in theconsumption of 2.88 billion gallons ofbiodiesel and renewable diesel in 2017.This level is less than our estimate ofthe production capacity for allregistered domestic biodiesel andrenewable diesel production facilities,and approximately the same as the 2.9billion gallons that we used in thecontext of determining whether there isadequate supply to meet the totalrenewable fuel volume requirement of19.28 billion gallons in 2017. Given thenecessarily imprecise nature of ourestimate of supply of biodiesel andrenewable diesel in the context ofdetermining whether there will beadequate supply to meet the totalrenewable fuel volume requirement of19.28 billion gallons in 2017, volumesas high as 2.88 billion gallons andpotentially higher are possible.

Finally, out of the maximum of about2.9 billion gallons of biodiesel andrenewable diesel shown in Table V.C—1, more than 2.5 billion gallons could beadvanced biodiesel. While this isslightly higher than the 2.4 billiongallons that we used in determining theadvanced biofuel volume requirement,it could be supplied from currentbiodiesel domestic production capacitywhich is about 3 billion gallons, thoughthis would possibly involve additionalfeedstock switching as discussed inSection IV.

D. Impacts of 2017 Standards on Costs

In this section we provide illustrativecost estimates for the 2017 standards. By“illustrative costs,” EPA means the costestimates provided are not meant to beprecise measures, nor do they attempt tocapture the full impacts of this finalrule. These estimates are providedsolely for the purpose of showing howthe cost to produce a gallon of a“representative” renewable fuelcompares to the cost of petroleum fuel.There are a significant number ofcaveats that must be considered wheninterpreting these cost estimates. First,there are a number of differentfeedstocks that could be used toproduce ethanol and biodiesel, andthere is a significant amount of

179HWR1 Oil Company intends to eventuallyoffer E15 from 17 additional terminals in additionto the four announced on July 19, 2016. “HWRT &RFA Announce First-Ever Offering of Pre-blendedE15,’ docket EPA—HQ—OAR—2016—0004.

heterogeneity in the costs associatedwith these different feedstocks andfuels. Some fuels may be costcompetitive with the petroleum fuelthey replace; however, we do not havecost data on every type of feedstock andevery type of fuel. Therefore, we do notattempt to capture this range ofpotential costs in our illustrativeestimates.

Second, the costs and benefits of theRFS program as a whole are bestassessed when the program is fullymature in 2022 and beyond.180 Wecontinue to believe that this is the case,as the annual standard-setting processencourages consideration of the programon a piecemeal (i.e., year-to-year) basis,which may not reflect the long-termeconomic effects of the program. Thus,EPA did not quantitatively assess otherdirect and indirect costs or benefits ofincreased renewable fuel volumes suchas infrastructure costs, investment, GHGemissions and air quality impacts, orenergy security benefits, which all are tosome degree affected by this final rule.While some of these impacts wereanalyzed in the 2010 final rulemakingwhich established the current RFSprogram, we have not fully analyzedthese impacts for the 2017 volumerequirements. We have framed theanalyses we have performed for thisfinal rule as “illustrative” so as not togive the impression of comprehensiveestimates.

Third, at least two different scenarioscould be considered the “baseline” forthe assessment of the costs of this rule.One scenario would be the statutoryvolumes (e.g., the volumes in the CleanAir Act 211(o)(2) for 2016) in whichcase this final rule would be reducingvolumes, reducing costs as well asdecreasing expected GHG benefits. Forthe purposes of showing illustrativeoverall costs of this rulemaking, we usethe preceding year’s standard as thebaseline (e.g., the baseline for the 2017advanced standard is the 2016 advancedstandard), an approach consistent withpast practices in previous annual RFSrules.

EPA is providing cost estimates forthree illustrative scenarios:

1. If the entire change in the advancedstandards is met with soybean oil BBD

2. If the entire change in the advancedstandards is met with sugarcane ethanolfrom Brazil

3. If the entire change in the totalrenewable fuel volume standards thatcan be satisfied with conventional (i.e.,non-advanced) renewable fuel is metwith corn ethanol.

18077 FR 59477.



While a variety of biofuels could helpfulfill the advanced standard beyondsoybean oil BBD and sugarcane ethanolfrom Brazil, these two biofuels havebeen most widely used in the past. Thesame is true for corn ethanol vis-a-visthe non-advanced component of thetotal renewable fuel standard. Webelieve these scenarios provideillustrative costs of meeting theapplicable 2017 standards.

For this analysis, we estimate the pergallon costs of producing biodiesel,sugarcane ethanol, and corn ethanolrelative to the petroleum fuel theyreplace at the wholesale level, thenmultiply these per gallon costs by thedifference in the volumes between therelevant 2017 standard and the previous2016 standard for the advanced (forbiodiesel and sugarcane ethanol] andnon-advanced component of the totalrenewable fuel (for corn ethanol]categories. More background

information on this section, includingdetails of the data sources used andassumptions made for each of thescenarios, can be found in aMemorandum submitted to thedocket. 181

Because we are focusing on thewholesale level in each of the threescenarios, these comparisons do notconsider taxes, retail margins, and anyother costs or transfers that occur at orafter the point of blending (i.e., transfersare payments within society and are notadditional costs). Further, as mentionedabove we do not attempt to estimatepotential costs related to infrastructureexpansion with increased renewablefuel volumes (e.g., the costs of providingpumps and storage tanks associatedwith higher level ethanol blends]. Inaddition, because more ethanol gallonsmust be consumed to go the samedistance as gasoline and more biomassbased diesel must be consumed to go

the same distance as petroleum dieseldue to each of the biofuels’ lesser energycontent, we consider the costs ofethanol and biomass-based diesel on anenergy equivalent basis to theirpetroleum replacements (i.e., per energyequivalent gallon).

For our first illustrative cost scenario,we estimate the costs of soybean-basedbiodiesel to meet the entire change inthe advanced biofuel standard for2017.182 Table V.D—1 below presents theannual change in volumes beingestablished by this rule, a range ofillustrative cost differences betweenbiomass-based diesel and petroleum-based diesel by individual gallon on adiesel gallon equivalent (DGE] basis,and multiplies those per gallon costestimates by the volume of fueldisplaced by the advanced standard onan energy equivalent basis to obtain anoverall cost estimate of meeting thestandard.

TABLE V.D—1—ILLUSTRATIVE COSTS OF SOYBEAN BIODIESEL To MEET INCREASE IN ADVANCED BIOFUEL STANDARDS IN2017

2016 2017

Advanced Volume Required (Million Gallons) 3,610 4,280Advanced Volume Required (Million Gallons as Biodiesel) 2,407 183 2,853Annual Change in Volume Required (Million Gallons as Biodiesel) 447

(DGE)184 (408)Cost Difference Between Soybean Biodiesel and Petroleum Diesel Per Gallon ($/DGE) $1 .98—$2.95Annual Increase in Overall Costs (Million $) 185$807_

$1,203

For our second illustrative costscenario, we estimate the costs ofBrazilian sugarcane ethanol to meet theentire change in the advanced biofuelstandard for 2017. Table V.D—2 belowpresents the annual change in volumes

established by this final rule, a range ofillustrative cost differences betweenBrazilian sugarcane ethanol andwholesale gasoline on a per gasolinegallon equivalent (GGE] basis, andmultiplies those per gallon cost

estimates by the volume of fueldisplaced by the advanced standard onan energy equivalent basis to obtain anoverall cost estimate of meeting thestandard.

181 ‘Illustrative costs Impact of the Final AnnualRFS2 Standards, 2017”, Memorandum fromMichael Shelby and Aaron Sobel to EPA DocketEPA—HQ—OAR—2016—0004,

Soybean biothesel could meet the preestablished 2017 biomass-based diesel volume,which itself is a nested volume within the 2017advanced biofuel RFS volume. Illustrative costsrepresent meeting all of the costs of the annualincrease of the 2017 advanced standard usingentirely soybean-based biodiesel as one scenario.

‘83EPA used a value of 1.5 when calculating theRIN equivalencies of soybean-based biodiesel forthe purpose of this illustrative costs example. Seesection IV.B—2 for a more detailed explanation ofthe biodiesel and renewable diesel equivalencevalue used for the purpose of deriving therenewable fuel standard under the 2017 RFS mle.

184 Due to the difference in energy contentbetween biodiesel and diesel, one gallon ofbiodiesel is energy-equivalent to approximately91% of a gallon of diesel; 447 million gallons of

biodiesel is energy-equivalent to approximately 408million gallons of diesel,

185 Overall costs may not match per gallon coststimes volumes due to rounding.

188 Due to the difference in energy contentbetween ethanol and gasoline, one gallon of ethanolis energy-equivalent to approximately 67% of agallon of gasoline; 670 million gallons of ethanol isenergy-equivalent to approximately 447 milliongallons of gasoline.


TABLE V.D—2—ILLUSTRATIVE COSTS OF BRAZILIAN SUGARCANE ETHANOL To MEET INCREASE IN ADVANCED BIOFUELSTANDARDS IN 2017

2016 2017

Advanced Volume Required (Million Gallons) 3,670 4,280Annual Change in Volume Required (Million Gallons) 670

(GGE)186 (447)Cost Difference Between Sugarcane Ethanol and Gasoline Per Gallon ($/GGE) $1 .00—$2.16Annual Increase in Overall Costs (Million $) 187 $446$966



For our third illustrative costscenario, we assess the difference incost associated with a change in theimplied volumes available forconventional (i.e., non-advanced)biofuels for 2017. We provide estimatesof what the potential costs might be if

corn ethanol is used to meet the entirechange in implied conventionalrenewable fuel volumes. Table V.D—3below presents the annual change involumes established by this final rule, arange of illustrative cost differencesbetween corn ethanol and the wholesale

gasoline on a per gasoline gallonequivalent (GGE) basis, and multipliesthose per gallon cost estimates by thevolume of petroleum displaced on anenergy equivalent basis by the change inimplied conventional fuel volumes foran estimated overall cost in 2017.

These illustrative cost estimates arenot meant to be precise measures, nordo they attempt to capture the fullimpacts of the rule. These estimates areprovided solely for the purpose ofillustrating how the cost to producerenewable fuels could compare to thecosts of producing petroleum fuels.There are several important caveats thatmust be considered when interpretingthese costs estimates. First, there is asignificant amount of heterogeneity inthe costs associated with differentfeedstocks and fuels that could be usedto produce renewable fuels; however,EPA did not attempt to capture thisrange of potential costs in theseillustrative estimates. Second, EPA didnot quantify other impacts such asinfrastructure costs, job impacts, orinvestment impacts. If the illustrativecosts from the Tables above,representing the range for combinedadvanced and non-advanced fuelvolumes, were summed together theywould range from $686—$1,550 millionin 2017. It is important to note thatthese costs do not represent net benefitsof the program.

For the purpose of this annualrulemaking, we have not quantifiedbenefits for the 2017 standards. We donot have a quantified estimate of theGHG impacts for a single year (e.g.,2017), and there are a number ofbenefits that are difficult to quantify,such as rural economic development,employment impacts, and nationalsecurity benefits from more diversifiedfuel sources. When the RFS program isfully phased in, the program will resultin considerable volumes of renewablefuels that will reduce GHG emissions incomparison to the fossil fuels whichthey replace. EPA estimated GHG,

188 500 million gallons of ethanol is energy-equivalent to approximately 333 million gallons ofgasoline.

energy security, and air quality impactsand benefits in the 2010 RFS2 final ruleassuming full implementation of thestatutory volumes in 2022.190

VI. Biomass-Based Diesel Volume for2018

In this section we discuss the finalbiomass-based diesel (BBD) applicablevolume for 2018. We are establishingthis volume in advance of those forother renewable fuel categories in lightof the statutory requirement in CAAsection 211(o)(2)(B](ii) to establish theapplicable volume of BBD for years after2012 no later than 14 months before theapplicable volume will apply. We arenot at this time establishing the BBDpercentage standards that would applyto obligated parties in 2018 but intendto do so in the Fall of 2017, afterreceiving EIA’s estimate of gasoline anddiesel consumption for 2018. Althoughthe BBD applicable volume sets a floorfor required BBD use, because the BBDvolume requirement is nested withinboth the advanced biofuel and the totalrenewable fuel volume requirements,any “excess” BBD produced beyond themandated 2018 BBD volume can beused to satisfy both of these otherapplicable volume requirements.Therefore, these other standards canalso influence BBD production and use.

A. Statutory Requirements

The statute establishes applicablevolume targets for years through 2022for cellulosic biofuel, advanced biofuel,and total renewable fuel. For BBD,applicable volume targets are specifiedin the statute only through 2012. Foryears after those for which volumes arespecified in the statute, EPA is requiredunder CAA section 211(o)(2](B](ii) todetermine the applicable volume of


BBD, in coordination with the Secretaryof Energy and the Secretary ofAgriculture, based on a Teview of theimplementation of the program duringcalendar years for which the statutespecifies the volumes and an analysis ofthe following factors:

1. The impact of the production anduse of renewable fuels on theenvironment, including on air quality,climate change, conversion of wetlands,ecosystems, wildlife habitat, waterquality, and water supply;

2. The impact of renewable fuels onthe energy security of the United States;

3. The expected annual rate of futurecommercial production of renewablefuels, including advanced biofuels ineach category (cellulosic biofuel andBBD);

4. The impact of renewable fuels onthe infrastructure of the United States,including deliverability of materials,goods, and products other thanrenewable fuel, and the sufficiency ofinfrastructure to deliver and userenewable fuel;

5. The impact of the use of renewablefuels on the cost to consumers oftransportation fuel and on the cost totransport goods; and

6. The impact of the use of renewablefuels on other factors, including jobcreation, the price and supply ofagricultural commodities, ruraleconomic development, and food prices.

The statute also specifies that thevolume requirement for BBD cannot beless than the applicable volume forcalendar year 2012, which is 1.0 billiongallons. The statute does not, however,establish any other numeric criteria, orprovide any guidance on how the EPAshould weigh the importance of theoften competing factors, and theoverarching goals of the statute when

19075 FR 14670.

TABLE V.D—3—ILLUSTRATIVE COSTS OF CORN ETHANOL To MEET INCREASE IN THE CONVENTIONAL (i.e., NON-ADVANCED) PORTION OF THE TOTAL RENEWABLE FUEL STANDARDS IN 2017

2016 2017

Implied Conventional Volume (Million Gallons) 14,500 15,000Annual Change in Implied Conventional Volume (Million Gallons) 500

(GGE)188 (333)Cost Difference Between Corn Ethanol and Gasoline Per Gallon ($/GGE) $0.72—si .04Annual Increase in Overall Costs (Million $) 189$24..$347



the EPA sets the applicable volumes ofBBD in years after those for which thestatute specifies such volumes. In theperiod 2013—2022, the statute specifiesincreasing applicable volumes ofcellulosic biofuel, advanced biofuel, andtotal renewable fuel, but provides noguidance, beyond the 1.0 billion gallonminimum, on the level at which BBDvolumes should be set.

B. Determination ofApplicable Volumeof Biomass-Based Diesel

1. BBD Production and ComplianceThrough 2015

One of the primary considerations indetermining the biomass-based dieselvolume for 2018 is a review of theimplementation of the program to date,as it affects biomass-based diesel. Thisreview is required by the CAA, and alsoprovides insight into the capabilities of

the industry to produce, import, export,and distribute BBD. It also helps us tounderstand what factors, beyond theBBD standard, may incentivize theproduction and import of BBD. Thenumber of BBD RINs generated, alongwith the number of RINs retired due toexport or for reasons other thancompliance with the annual BBDstandards from 201 1—2015 are shownbelow.

TABLE VI.B.1—1—BIOMA55-BA5ED (D4) RIN GENERATION AND STANDARDS IN 2013—2017[Million gallons]191

BED RINsBBD RlNs Exported BED retired, non- Available BED standard BED standardgenerated (RINs) compliance BED RINsa (gallons) (RINs)

reasons

2011 1,692 110 98 1,483 800 1,2002012 1,737 183 90 1,465 1,000 1,5002013 2,739 298 101 2,341 1,280 1,9202014 2,770 126 92 2,492 1,630 b2,4902015 2,796 133 32 2,631 1,730 b2,6552016 N/A N/A N/A N/A 1,900 2,8502017 N/A N/A N/A N/A 2,000 3,000

aAvailable BED RlNs may not be exactly equal to BED RINs Generated minus Exported RlNs and BED RINs Retired, Non-Compliance Reasons due to rounding.

bEach gallon of biodiesel qualifies for 7.5 RlNs due to its higher energy content per gallon than ethanol. Renewable diesel qualifies for between 1.5 and 1.7 RlNs per gallon. In 2074 and 2015 the number of RlNs in the BED Standard column is not exactly equal to 1.5 times the BEDvolume standard as these standards were established based on actual RIN generation data for 2014 and a combination of actual data and a projection of RIN generation for the last three months of the year for 2015. Some of the volume used to meet the biomass-based diesel standardwas renewable diesel, which generally has an equivalence value of 1.7.

In reviewing historical BBD RINgeneration and use, we see that thenumber of RINs available forcompliance purposes exceeded thevolume required to meet the BBDstandard in 2011 and 2013. Additionalproduction and use of hiodiesel waslikely driven by a number of factors,including demand to satisfy theadvanced biofuel and total renewablefuels standards, the biodiesel tax credit,and favorable blending economics. In2012 the available BBD RINs wereslightly less than the BBD standard.There are many reasons this may havebeen the case, including the temporarylapse of the biodiesel tax credit at theend of 2011.192 The number of RINsavailable in 2014 and 2015 wasapproximately equal to the numberrequired for compliance in those years.This is because the standards for these

191 BBD RINs Generated and BBD R1NsRetired for Non-compliance Reasons informationfrom EMTS. Biodiesel Export information from EIA.http://www.eia.gov/dnov/pet/pet move_expcaEPOORDBEEXmbbJa.htm.

192 biodiesel tax credit was reauthorized iiiJanuary 2013. It applied retroactively for 2012 andfor the remainder of 2013. It was once againextended in December 2014 and appliedretroactively to all of 2014 as well as to theremaining weeks of 2014. In December 2015 thebiodiesel tax credit was once authorized andapplied retro-actively for all of 2015 as well asthrough the end of 2016.

years were finalized at the end ofNovember 2015 when RIN generationdata were available for all of 2014 andmuch of 2015, and we exercised ourauthority to establish the required BBDvolumes for these time periods to beapproximately equal to the number ofBBD RINs that were available (for pasttime periods) or were expected to beavailable (for the months of 2015 forwhich EPA did not yet have reliabledata) in the absence of the influence ofthe RFS standards. While we do not yethave final compliance data for 2016,BBD RIN generation is currently ontrack to exceed the volume required bythe BBD standard by a significantmargin.193 This strongly suggests thatthere is demand for these RINs to satisfythe advanced biofuel and/or totalrenewable fuel requirements.

2. Interaction Between BBD andAdvanced Biofuel Standards

The BBD standard is nested withinthe advanced biofuel and totalrenewable fuel standards. This meansthat when an obligated party retires aBBD RIN (D4) to satisfy their BBDobligation, this RIN also counts towardsmeeting their advanced biofuel and total

193 ‘comparison of 2016 availability of RINs and2016 standards,” memorandum from DavidKorotney to docket EPA—HQ—OAR—2016—0004.

renewable fuel obligations. It also meansthat obligated parties may use BBD RINsin excess of their BBD obligations tosatisfy their advanced biofuel and totalrenewable fuel obligations. Higheradvanced biofuel and total renewablefuel standards, therefore, create demandfor BBD, especially if there is aninsufficient supply of other advanced orconventional renewable fuels to satisfythe standards, or if BBD RINs can beacquired at or below the price of otheradvanced or conventional biofuelRINs.’94

In reviewing the implementation ofthe RFS program to date, it is apparentthat the advanced biofuel and/or totalrenewable fuel volume requirementswere in fact helping grow the market forvolumes of biodiesel above the BBDstandard. In 2013 the number ofadvanced RINs generated from fuelsother than BBD and cellulosic biofuelwas not large enough to satisfy theimplied standard for “other advanced”biofuel (advanced biofuel needed tosatisfy the advanced biofuel standardafter the BBD and cellulosic biofuelstandards are met), and additionalvolumes of BBD filled the gap (see Table

“4 The biodiesel blenders tax credit effectivelyreduced the cost of BBD, allowing it to be pricedlower than many other advanced biofiiels.



VI.B.2—1 below]. In fact, the amount bywhich the available BBD RINs exceededthe 1.28 billion gallon BBD volumerequirement (421 million Rll’Js] waslarger than the amount of such excessBBD needed, together with other typesof advanced biofuels, to satisfy theadvanced biofuel standard (278 millionRINs; the number of advanced biofuelRINs required after subtracting thenumber of RINs generated to meet theBBD standard and the number of RINsgenerated for non-BBD advancedbiofuels], suggesting that the additionalincrement was incentivized by the totalrenewable fuel standard. Preliminarydata for 2016 similarly reveal the abilityfor the advanced and total renewablefuel standards to incentivize increased

BBD production. The current RINgeneration data suggest that BBDproduction is on track to exceed theBBD standard for 2016 by a significantmargin, and that these excess BBD RINswill be needed to enable compliancewith the advanced biofuel and totalrenewable fuel standards given thelimited production of other advancedbiofuels.195 As discussed above, the2014 and 2015 BBD standards wereintended to reflect the full number ofavailable BBD RINs in these years andwere set in late 2015, at which point thenumber of available RINs in these yearswas largely known. We can thereforedraw no conclusions about the abilityfor the advanced and total renewablefuel standards to incentivize BBD

production from these years. While theavailable BBD RINs in 2012 wereslightly less than the BBD standarddespite the opportunity to contributetowards meeting the advanced and totalrenewable fuel standards, there areseveral factors beyond the RFSstandards (2012 drought, expiration ofthe biodiesel tax credit, opportunitiesfor increased ethanol blending as ElO)that likely impacted BBD production in2012. We continue to believe that theadvanced biofuel and total renewablefuel standards can provide a strongincentive for increased BBD volume inthe United States in excess of thatrequired to satisfy the BBD standard (forfurther discussion on this issue see 80FR 77492].

TABLE VI.5.2—1—BIOMASS-BASED DIESEL AND ADVANCED BIOFUEL RIN GENERATION AND STANDARDS[Million RINs]

Aval bi Available OpportunityBED

e BBD standard D5 RINs for “Other‘RINs) (RINs) (advanced Advanced”‘ biofuels)a biofuels°

2011 1,483 1,200 225 1502012 1,465 1,500 597 5002013 2,341 1,920 552 8302014 2,492 2,490 143 1472015 2,631 2,655 147 102

a Does not include BBD or cellulosic biotuel RINs, which may also be used towards an obligated party’s advanced biofuel obligation.bAdvanced biofuel that does not qualify as BBD or cellulosic biofuel; calculated by subtracting the number of required BED RINs (BED re

quired volume x 1.5) and the number of required cellulosic biofuel RINs from the advanced biofuel volume requirement.

The prices paid for advanced biofueland BBD RINs beginning in early 2013through mid-2016 also support theconclusion that advanced biofuel and/ortotal renewable fuel standards provide asufficient incentive for additionalbiodiesel volume beyond what isrequired by the BBD standard. Becausethe BBD standard is nested within theadvanced biofuel and total renewablefuel standards, and therefore can help tosatisfy three RVOs, we would expect theprice of BBD RINs to exceed that ofadvanced and conventional renewableRINs196 If, however, BBD RINs arebeing used by obligated parties to satisfytheir advanced biofuel and/or totalrenewable fuel obligations, above and

beyond the BBD standard, we wouldexpect the prices of conventionalrenewable fuel, advanced biofuel, andBBD RINs to converge to the price of theBBD RIN’97 When examining RINprices data from 2013 through mid-2016, shown in Figure VI.B.2—1 below,we see that throughout this entire timeperiod the advanced RTN price andbiomass-based diesel RIN prices wereapproximately equal. Similarly,throughout most of this time period theconventional renewable fuel andbiomass-based diesel RIN prices wereapproximately equal. This suggests thatthe advanced biofuel standard and/ortotal renewable fuel standard wascapable of incentivizing increased BBD

volumes beyond the BBD standard inthese years.198 While final standardswere not in place throughout 2014 andmost of 2015, EPA had issued proposedrules for both of these years. In eachyear, the market response was to supplyvolumes of BBD that exceeded theproposed BBD standard in order tosatisfy the advanced biofuel standard.Additionally, the RIN prices in theseyears strongly suggests that obligatedparties and other market participantsanticipated the need for BBD RINs tomeet their advanced biofuel obligations,and responded by purchasing advancedbiofuel and BBD RINs at approximatelyequal prIces.

‘Comparison of 2016 availability of RINs and2016 standards,” memorandum from DavidKorotney to docket EPA—HQ—OAR—2016—0004.

196 This is because when an obligated party retiresa BBD RIN to help satisfy their BBD obligation, thenested nature of the B3D standard means that thisRIN also counts towards satisfying their advancedand total renewable fuel obligations. AdvancedRINs count towards both the advanced and total

renewable fuel obligations, while conventionalRINs (D6) count towards only the total renewablefuel obligation.

197 would still expect D4 RINs to be valuedat a slight premium to D5 and D6 RINs in this case(and D5 RINs at a slight premium to D6 RINs) toreflect the greater flexibility of the D4 RINs to beused towards the 030, advanced biofuel, and total

renewable fuel standard. This pricing has beenobserved over the past several years.

‘99Although we did not issue a rule establishingthe final 2013 standards until August of 2013, webelieve that the market anticipated the finalstandards, based on EPA’s July 2011 proposal andthe volume targets for advanced and total renewablefuel established in the statute (76 FR 36844, 36843).


Federal Register/Vol. 81, No. 238/Monday, December 12, 2016/Rules and Regulations $9797

$1.60

$1.20

$1.00

$0.60

0.4Q

$0.20

figure VI.B.2-lCurrent Year RIN Prices (2O132Ol6)a

06 R!N Price (Conventional Biofuel}

05 RIN Price (Advanced Riofuel)

04 RN Price (Biornass-Based Diesel)

a for a list of the eligible pathways for each D-code see Table I to §80.1426RIN Price Data from OPtS (2013-2015) and Argus (2016)

In establishing the BBD and cellulosicstandards as nested within the advancedbiofuel standard, Congress clearlyintended to support development ofBBD and cellulosic biofuels, while alsoproviding an incentive for the growth ofother non-specified types of advancedbiofuels. That is, the advanced biofuelstandard provides an opportunity forother advanced biofuels (advancedbiofuels that do not qualify as cellulosicbiofuel or BBD] to be used to satisfy theadvanced biofuel standard after thecellulosic biofuel and BBD standardshave been met. Indeed, since Congressspecifically directed growth in BBDonly through 2012, leaving developmentof volume targets for BBD to EPA forlater years while also specifyingsubstantial growth in the cellulosicbiofuel and advanced biofuel categories,we believe that Congress clearlyintended for EPA to evaluate in settingBBD volume requirements after 2012 theappropriate rate of participation of BBDwithin the advanced biofuel standard.

When viewed in a long-termperspective, BBD can be seen ascompeting for research anddevelopment dollars with other types ofadvanced biofuels for participation asadvanced biofuels in the RFS program.We believe that preserving space withinthe advanced biofuel standard foradvanced biofuels that do not qualify asBBD or cellulosic biofuel provides theappropriate incentives for the continueddevelopment of these types of fuels. In

addition to the long-term impact of ouraction in establishing the BBD volumerequirements, there is also the potentialfor short-term impacts during thecompliance years in question. Byestablishing BBD volume requirementsat levels lower than the advancedbiofuel volume requirements (and lowerthan the expected production of BBD tosatisfy the advanced biofuelrequirement], we are creating thepotential for some competition betweenBBD and other advanced biofuels tosatisfy the advanced biofuel volumestandard. We continue to believe thatpreserving space under the advancedbiofliel standard for non-BBD advancedbiofuels, as well as BBD volumes inexcess of the BBD standard, will help toencourage the development andproduction of a variety of advancedbiofuels over the long term withoutreducing the incentive for additionalvolumes of BBD beyond the BBDstandard in 2018. A variety of differenttypes of advanced biofuels, rather thana single type such as BBD, wouldpositively impact energy security (e.g.,by increasing the diversity of feedstocksources used to make biofuels, therebyreducing the impacts associated with ashortfall in a particular type offeedstock] and increase the likelihood ofthe development of lower cost advancedbiofuels that meet the same GHGreduction threshold as BBD.19°

‘99All types of advanced biofuel, includingbiomass-based diesel and cellulosic biofuel, must

While a single-minded focus on theability of the advanced and totalrenewable fuel standards to incentivizeincreasing production of the lowest costqualifying biofuels, regardless of fueltype, would suggest that a flat or evendecreasing BBD volume requirementmay be the optimal solution, this is notthe only consideration. Despite many ofthese same issues being present inprevious years, we have consistentlyincreased the BBD standard each year.Our decisions to establish increasingBBD volumes each year have been madein light of the fact that while cellulosicbiofuel production has fallen far short ofthe statutory volumes, the availablesupply of 3BD in the United States hasgrown each year. This growing supplyof BBD allowed EPA to establish higheradvanced biofuel standards, and torealize the GHG benefits associated withgreater volumes of advanced biofuel,than would otherwise have beenpossible in light of the continuedshortfall in the availability of cellulosicbiofuel. It is in this context that wedetermined that steadily increasing theBBD requirements was appropriate toencourage continued investment andinnovation in the BBD industry,providing necessary assurances to theindustry to increase production, whilealso serving the long term goal of theRFS statute to increase volumes ofadvanced biofuels over time.

achieve lifecycle greenhouse gas reductions of atleast 50%.

1/2/2013 1/2/2014 1/2/2015 1/2/2016



Although the BBD industry hasperformed well in recent years, webelieve that for 2018 a continuedappropriate increase in the BBD volumerequirement will help provide stabilityto the BBD industry and encouragecontinued growth. This industry iscurrently the single largest contributorto the advanced biofuel pool, one thatto date has been largely responsible forproviding the growth in advancedbiofuels envisioned by Congress.Nevertheless, many factors that impactthe viability of the BBD industry in theUnited States, such as commodity pricesand the biodiesel tax credit, remainuncertain. Continuing to increase theBBD volume requirement should help toprovide market conditions that allowthese BBD production facilities tooperate with greater certainty. Thisresult is consistent with the goals of theAct to increase the production and useof advanced biofuels (for furtherdiscussion of these issues see 80 FR77492).

3. BBD Volume for 2018

With the considerations discussed inSection IV.B.2 in mind, as well as ouranalysis of the factors specified in thestatute, we are setting the applicablevolume of BBD at 2.1 billion gallons for2018. This volume represents an annualincrease of 100 million gallons over theapplicable volume of BBD in 2017. Webelieve this is appropriate for the samereasons reflected in the December 14,2015 final rule: To provide additionalsupport for the BBD industry whileallowing room within the advancedbiofuel volume requirement for theparticipation of non-BBD advancedfuels. Although we are not setting theadvanced biofuel volume requirementfor 2018 at this time, we anticipate thatthe 2018 advanced biofuel requirementwill be larger than the 2017 advancedbiofuel volume requirement, and the2018 BBD volume requirement reflectsthis anticipated approach. Ourassessment of the required statutoryfactors, summarized in the next sectionand in a memorandum to the docket,supports this approach.20°

We believe this approach strikes theappropriate balance between providinga market environment where thedevelopment of other advanced biofuelsis incentivized, while also maintainingsupport for growth in BBD volumes.Given the volumes for advanced biofuelwe anticipate requiring in 2018, settingthe BBD standard in this manner wouldcontinue to allow a considerable portion

200 “Memorandum to docket: Final StatutoryFactors Assessment for the 2018 Biomass-BasedDiesel (BBD) Applicable Volumes.”

of the advanced biofuel volume to besatisfied by either additional gallons ofBBD or by other unspecified types ofqualifying advanced biofuels.

C. Consideration of Statutory Factors for2018

In this section we discuss ourconsideration of the statutory factors setforth in CAA section 211(o)(2)(B)(ii)(I)—(VI). As noted earlier in Section IV.B.2,the BBD volume requirement is nestedwithin the advanced biofuelrequirement and the advanced biofuelrequirement is, in turn, nested withinthe total renewable fuel volumerequirement. This means that any BBDproduced beyond the mandated BBDvolume can be used to satisfy both theseother applicable volume requirements.The result is that in considering thestatutory factors we must consider thepotential impacts of increasing BBD incomparison to other advancedbiofuels.20’ For a given advancedbiofuel standard, greater or lesser BBDvolume requirements do not change theamount of advanced biofuel used todisplace petroleum fuels; rather,increasing the BBD requirement mayresult in the displacement of other typesof advanced biofuels that could havebeen used to meet the advanced biofuelsvolume requirement.

Consistent with our 2017 approach insetting the final BBD volumerequirement, EPA’s primary assessmentof the statutory factors for the final 2018BBD applicable volume is that becausethe BBD requirement is nested withinthe advanced biofuel volumerequirement, we expect that the final2018 advanced volume requirement,when set next year, will largelydetermine the level of BBD productionand imports that occur in 2018.Therefore, EPA continues to believe thatthe same overall volume of BBD wouldlikely be supplied in 2018 regardless ofthe BBD volume we mandate for 2018in this final rule. This assessment isbased, in part, on our review of theRFS program implementation to date,as discussed above in SectionVI.B. 1—VI.B—2.

As we stated in our proposal, eventhough we are not setting the 2018advanced biofuel volume requirementin this final rule, the final BBD volumerequirement for 2018 that we are

201 While excess BBD production could alsodisplace conventional renewable fuel under thetotal renewable standard, as long as the BBDapplicable volume is significantly lower than theadvanced biofuel applicable volume our action insetting the BBD applicable volume is not expectedto displace conventional renewable fuel under thetotal renewable standard, but rather other advancedbiofuels. See Table V. C—i.

establishing in this action is notexpected to impact the volume of BBDthat is actually produced and importedduring the 2018-time period. Thus wedo not expect our final 2018 BBDvolume requirement to result in adifference in the factors we are requiredto consider pursuant to CAA section211(o)(2)(B)(ii)(I)—(VI). However, wenote that our approach of setting BBDvolume requirement at a higher level in2018 (as we did in 2017), while still ata volume level lower than theanticipated overall production andconsumption of BBD in 2018, isconsistent with our evaluation ofstatutory factors in CAA sections211(o)(2)(B)(ii) (I), (II) and (III), since wecontinue to believe that our decision onthe BBD volume requirement can havea positive impact on the futuredevelopment and marketing of otheradvanced biofuels and can also result inpotential environmental and energysecurity benefits, while still sending asupportive signal to potential BBDinvestors, consistent with the objectivesof the Act to encourage the continuedgrowth in production and use ofrenewable fuels, and in particular,advanced renewable fuels.

Even though we are finalizing onlythe 2018 BBD volume requirement atthis time and not the 2018 advancedbiofuel requirement, we believe that ourprimary assessment with respect to the2018 BBD volume requirement isappropriate, as is clear from the fact thatthe reasoning and analysis would applyeven if we did not increase the 2018advanced biofuel requirement above2017 levels.202 Nevertheless, weanticipate that the 2018 advancedbiofuel requirement will be set to reflectreasonably attainable and appropriatevolumes in the use of all advancedbiofuels, similar to the approach used inthis rule, and that the advanced biofuelvolume standard will be larger in 2018than in 2017.

As an additional supplementaryassessment, we have considered thepotential impacts of modifying the 2018BBD volume requirement from the levelof 2.1 billion gallons based on theassumption that in guaranteeing theBBD volume at any given level therecould be greater use of BBD and acorresponding decrease in the use ofother types of advanced biofuels.However, setting a BBD volumerequirement higher or lower than 2.1

202As explained in Section IV, in deriving the2017 advanced biofuel applicable volumerequirement, we assumed that 2.4 billion gallons ofBBD (3.72 billion RINs) would be used to satisfy the4.28 bill gal advanced biofuel requirement. Thusthe mandated 2018 BBD applicable volume is lessthan we anticipate will actually be used in 2017.



billion gallons in 2018 would only beexpected to impact BBD volumes on themargin, protecting to a lesser or greaterdegree BBD from being outcompeted byother advanced biofuels. In thissupplementary assessment we haveconsidered all of the statutory factorsfound in CAA section 211(2)(B)(ii), andas described in a memorandum to thedocket,203 our assessment does notappear, based on available information,to provide a reasonable basis for settinga higher or lower volume requirementfor BBD than 2.1 billion gallons for2018.

Overall and as described in our finalmemorandum to the docket, we havedetermined that both the primaryassessment and the supplementalassessment of the statutory factorsspecified in CAA section211(oJ(2)(B)(ii)(I)—(VIJ for the year 2018does not provide significant support forsetting the BBD standard at a levelhigher or lower than 2.1 billion gallonsin 2018.

The EPA received numerouscomments pertaining to theconsideration of the statutory factors forthe 2018 BBD volume requirement.Many of these comments were madepreviously in response to last year’sproposal to set the 2017 BBD volumerequirement at 2.0 billion as part of therenewable fuels program’s annualrulemaking.204 Below we reiterate ourresponses to a number of key issueswhich continue to be raised by theNational Biodiesel Board (NBB).Additional comments and EPAresponses can be found in the Responseto Comment document thataccompanies this final rule.

NBB restated its claim that weimproperly based our consideration ofthe statutory factors on a comparison ofBBD to other advanced biofuels, ratherthan to diesel fuel. They continued tosuggest that setting the BBD standard ata higher level than proposed wouldactually result in BBD competingagainst diesel fuel, and therefore, EPAshould analyze the impacts ofdisplacing diesel fuel with BBD in itsstatutory factors analysis. We continueto disagree. In setting the advancedbiofuel volume requirement, we haveassumed reasonably attainable andappropriate volumes in BBD and otheradvanced biofuels. After determiningthat it is in the interest of the program,as described in Section VI.B.2 to set theBBD volume requirement at a level

203 “Memorandum to docket: Final StatutoryFactors Assessment for the 2018 Biomass-BasedDiesel (BBD) Applicable Volumes.”

204 Renewable Fuel Standard Program: Standardsfor 2014, 2015, and 2016 and Biomass-Based DieselVolmne for 2017; Final Rule. 80 FR 77420.

below anticipated BBD production andimports, so as to provide continuedincentives for research and developmentof alternative advanced biofuels, it isapparent that excess BBD above the BBDvolume requirement will compete withother advanced biofuels, rather thandiesel.20a The only way for EPA’s actionon the BBD volume requirement toresult in a direct displacement ofpetroleum-based fuels, rather than otheradvanced biofuels, would be if the BBDvolume requirement were set larger thanthe total renewable fuel requirement.However, since BBD is a type ofadvanced biofuel, and advanced biofuelis a type of renewable fuel, the BBDvolume requirement could never belarger than the advanced requirementand the advanced biofuel requirementcould never be larger than the totalrenewable fuel requirement.

NBB also continues to assert that ouranalysis of the desirability of selling theBBD volume requirement in a mannerthat would promote the developmentand use of a diverse array of advancedbiofuels is prohibited by statute. Wedisagree with these comments andcontinue to believe that the statutoryvolumes of renewable fuel establishedby Congress in CAA section 211(o)(2J(B)provide an opportunity for otheradvanced biofuels (advanced biofuelsthat do not qualify as cellulosic biofuelor BBD) to be used to satisfy theadvanced biofuel standard after thecellulosic biofuel and BBD standardshave been met. Ensuring that a diversityof renewable biofuels are produced isconsistent with CAA section 211(o)(2J(A)(i), which requires that the EPA“ensure that transportation fuel sold, orintroduced into commerce in the UnitedStates . . . contains at least theapplicable volume of renewable fuel,advanced biofuels, cellulosic biofuel,and biomass-based dieselBecause the BBD standard is nestedwithin the advanced biofuel and totalrenewable fuel standards, when anobligated party retires a BBD RIN (D4)

205 The possibility for competition between BBDand other types of advanced biofuels is notprecluded by our setting the advanced biofuelrequirement at a level that reflects reasonablyattainable volumes of all advanced btofuel types, orby our setting the total renewable fuel voimnerequirement at a level that also reflects thereasonably acbievable volume of all fuel types. Anyof our estimates related to a particular fuel typecould prove to be either an over or under estimate.We are confident that the sum of all individualestimates used in setting the applicable volumes for2017 as well as the 2018 BBD volume requirementat an appropriate level are reasonable, and moreaccurate than our individual estimates for anyparticular fuel type. It is at the margin where ourestimates regarding production and import ofindividual fuel types may be in error thatcompetition between qualifying fuels can takeplace.

to satisfy their obligation, this RIN alsocounts towards meeting their advancedbiofuel and total renewable fuelobligations. It also means that obligatedparties may use BBD RINs in excess oftheir BBD obligations to satisfy theiradvanced biofuel and total renewablefuel obligations. To the extent thatobligated parties are required to achievecompliance with the overall advancedbiofuel standard using higher volumesof BBD D4 RINs, they forgo the use ofother biofuels considered advancedbiofuels to meet the advanced biofuelrequirement. Therefore, the higher theBBD volume standard is, the lower theopportunity for other non-BBDadvanced biofuels to compete for marketshare within the context of theadvanced biofuel standard. Whenviewed in a long-term perspective, BBDcan be seen as competing for researchand development dollars with othertypes of advanced biofuels forparticipation as advanced biofuels inthe RFS program.

Finally, NBB restated its argumentthat the EPA previously found statutoryfactors supported greater annualincreases in BBD volume requirementfor 2013 and the statutory factorsanalysis developed to justify the 2017BBD and now the 2018 volumerequirements contradicts the analysisEPA put forward in 2013. We disagree.As in 2013, we have determined thatincremental increases in the 2018 BBDvolume requirement are appropriate toprovide continued support to the BBDindustry. We did this in 2013,acknowledging the important role theindustry thus far had played inproviding advanced biofuels to themarketplace, and in furthering the GHGreduction objectives of the statute. Wedid not in 2013, and are not today,selling the BBD volume requirement atthe maximum potential productionvolume of BBD.

VII. Percentage Standards for 2017

The renewable fuel standards areexpressed as volume percentages andare used by each obligated party todetermine their Renewable VolumeObligations (RVOs). Since there are fourseparate standards under the RFSprogram, there are likewise fourseparate RVOs applicable to eachobligated party. Each standard appliesto the sum of all non-renewable gasolineand diesel produced or imported. Thepercentage standards are set so that ifevery obligated party meets thepercentages by acquiring and retiring anappropriate number of RINs, then theamount of renewable fuel, cellulosicbiofuel, biomass-based diesel (BBD),and advanced biofuel used will meet the



applicable volume requirements on anationwide basis.

Sections III through V provide ourrationale and basis for the volumerequirements for 2017.206 The volumesused to determine the percentagestandards are shown in Table Vu—I.

TABLE Vu—i—VoLuMES FOR USE INSETTING THE 2017 APPLICABLEPERCENTAGE STANDARDS

[Billion gallons]

Cellulosic biofuel 0.311Biomass-based diesel a 2.00Advanced biotuel 4.28Renewable fuel 19.28

a Represents physical volume.

For the purposes of converting thesevolumes into percentage standards, wegenerally use two decimal places to beconsistent with the volume targets asgiven in the statute, and similarly twodecimal places in the percentagestandards. However, for cellulosicbiofuel we use three decimal places inboth the volume requirement andpercentage standards to more preciselycapture the smaller volume projectionsand the unique methodology that insome cases results in estimates of onlya few million gallons for a singleproducer.

A. Calculation of Percentage Standards

The formulas used to calculate thepercentage standards applicable toproducers and importers of gasoline anddiesel are provided in § 80,1405. Theformulas rely on estimates of thevolumes of gasoline and diesel fuel, forboth highway and nonroad uses, whichare projected to be used in the year inwhich the standards will apply. Theprojected gasoline and diesel volumesare provided by EIA, and includeethanol and biodiesel used intransportation fuel. Since the percentagestandards apply only to the nonrenewable gasoline and diesel producedor imported, the volumes of ethanol andbiodiesel are subtracted out of the EIAprojections of gasoline and diesel.

Transportation fuels other thangasoline or diesel, such as natural gas,propane, and electricity from fossilfuels, are not currently subject to thestandards, and volumes of such fuels arenot used in calculating the annualpercentage standards. Since under theregulations the standards apply only toproducers and importers of gasoline anddiesel, these are the transportation fuelsused to set the percentage standards, aswell as to determine the annual volume

206 The 2017 volume requirement for BBD wasestablished in the 2014—2016 final rule.

obligations of an individual gasoline ordiesel producer or importer.

As specified in the March 26, 2010RFS2 final rule, the percentagestandards are based on energy-equivalent gallons of renewable fuel,with the cellulosic biofuel, advancedbiofuel, and total renewable fuelstandards based on ethanol equivalenceand the BBD standard based onbiodiesel equivalence. However, all RINgeneration is based on ethanol-equivalence. For example, the RFSregulations provide that production orimport of a gallon of qualifyingbiodiesel will lead to the generation of1.5 RINs. The formula specified in theregulations for calculation of the BBDpercentage standard is based onbiodiesel-equivalence, and thus assumesthat all BBD used to satisfy the BBDstandard is biodiesel and requires thatthe applicable volume requirement bemultiplied by 1.5. However, BBD oftencontains some renewable diesel, and agallon of renewable diesel typicallygenerates 1.7 RINs.207 In addition, thereis often some renewable diesel in theconventional renewable fuel pooi. As aresult, the actual number of RINsgenerated by biodiesel and renewablediesel is used in the context of ourassessing reasonably attainable volumesfor purposes of deriving the applicablevolume requirements and associatedpercentage standards for advancedbiofuel and total renewable fuel, andlikewise in obligated parties’determination of compliance with anyof the applicable standards. While thereis a difference in the treatment ofbiodiesel + renewable diesel in thecontext of determining the percentagestandard for BBD versus determiningthe percentage standard for advancedbiofuel and total renewable fuel, it is nota significant one given our approach todetermining the BBD volumerequirement; o. Our intent in setting theBBD applicable volume is to provide anadditional increment of guaranteedvolume for BBD, but as described inSection VI.B, we do not expect the BBDstandard to be binding. That is, weexpect that actual supply of BBD, aswell as supply of conventional biodiesel+ renewable diesel, will be driven bythe advanced biofuel and totalrenewable fuel standards.

B. Small Refineries and Small Refiners

In CAA section 211(o](9), enacted aspart of the Energy Policy Act of 2005,and amended by the EnergyIndependence and Security Act of 2007,Congress provided a temporary

exemption to small refineries 208

through December 31, 2010. Congressprovided that small refineries couldreceive a temporary extension of theexemption beyond 2010 based either onthe results of a required DOE study, orbased on an EPA determination of“disproportionate economic hardship”on a case-by-case basis in response tosmall refinery petitions. In reviewingpetitions, EPA, in consultation with theDepartment of Energy, evaluates theimpacts petitioning refineries wouldlikely face in achieving compliance withthe RFS requirements and howcompliance would affect their ability toremain competitive and profitable.

EPA has granted some exemptionspursuant to this process in the past.However, at this time, no exemptionshave been approved for 2017, andtherefore we have calculated thepercentage standards for this yearwithout an adjustment for exemptedvolumes. Any requests for exemptionsfor 2017 that are approved after the finalrule is released will not be reflected inthe percentage standards that apply toall gasoline and diesel produced orimported in 2017. As stated in the finalrule establishing the 2011 standards,“EPA believes the Act is bestinterpreted to require issuance of asingle annual standard in Novemberthat is applicable in the followingcalendar year, thereby providingadvance notice and certainty toobligated parties regarding theirregulatory requirements. Periodicrevisions to the standards to reflectwaivers issued to small refineries orrefiners would be inconsistent with thestatutory text, and would introduce anundesirable level of uncertainty forobligated parties.” 209

C. Final Standards

The formulas in § 80.1405 for thecalculation of the percentage standardsrequire the specification of a total of 14variables covering factors such as therenewable fuel volume requirements,projected gasoline and diesel demandfor all states and territories where theRFS program applies, renewable fuelsprojected by EIA to be included in thegasoline and diesel demand, andexemptions for small refineries. Thevalues of all the variables used for thisfinal rule are shown in Table VII.C—1.21°

208 A small refiner that meets the requirements of40 CFR 80.1442 may also be eligible for anexemption.

209 See 75 FR 76804 (December 9, 2010).210To determine the 49-state values for gasoline

and diesel, the amounts of these fuels used inAlaska is subtracted from the totals provided byDOE. The Alaska fractions are determined from the

207 Although in some cases a gallon of renewablediesel generates either 1.5 or 1.6 RINs.



TABLE VII.C—1—VALuEs FOR TERMS IN CALCULATION OF THE 2017 STANDARDS211[Billion gallons]

Term Description Value

RFVCH Required volume of cellulosic biofuel 0.31 1RFVBBD Required volume of biomass-based diesel 2.00RFVAB Required volume of advanced biofuel 4.28RFV Required volume of renewable fuel 19.28G Projected volume of gasoline 143.61D Projected volume of diesel 53.15RG Projected volume of renewables in gasoline 14.35RD Projected volume of renewables in diesel 2.28GS Projected volume of gasoline for opt-in areas 0.00RGS Projected volume of renewables in gasoline for opt-in areas 0.00DS Projected volume of diesel tot opt-in areas 0.00RDS Projected volume of renewables in diesel for opt-in areas 0.00GE Projected volume of gasoline for exempt small refineries 0.00DE Projected volume of diesel for exempt small refineries 0.00

Projected volumes of gasoline anddiesel, and the renewable fuelscontained within them, were providedby ETA and are consistent with theOctober, 2016 version of ETA’s Short-Term Energy Outlook (STEO).212 Theseprojections reflect EIA’s judgment offuture demand volumes in 2017,accounting for the low oil priceenvironment in 2016.

Using the volumes shown in TableVII.C—i, we have calculated thepercentage standards for 2017 as shownin Table VII.C—2.

TABLE VII.C—2—FINAL PERCENTAGESTANDARDS FOR 2017

Cellulosic biofuel 0.173Biomass-based diesel 1.67Advanced biofuel 2.38Renewable fuel 10.70

VIII. Assessment of AggregateCompliance

A. Assessment of the DomesticAggregate Compliance Approach

The RFS2 regulations contain aprovision for renewable fuel producerswho use planted crops and crop residuefrom U.S. agricultural land that relievesthem of the individual recordkeepingand reporting requirements concerningthe specific land from which theirfeedstocks were harvested. To enablethis approach, EPA established abaseline number of acres for U.S.agricultural land in 2007 (the year ofEISA enactment] and determined that aslong as this baseline number of acreswas not exceeded, it was unlikely thatnew land outside of the 2007 baselinewould be devoted to crop productionbased on historical trends and economicconsiderations. We therefore provided

that renewable fuel producers usingplanted crops or crop residue from theU.S. as feedstock in renewable fuelproduction need not comply with theindividual recordkeeping and reportingrequirements related to documentingthat their feedstocks are renewablebiomass, unless EPA determinesthrough one of its annual evaluationsthat the 2007 baseline acreage of 402million acres agricultural land has beenexceeded.

In the final RFS2 regulations, EPAcommitted to make an annual findingconcerning whether the 2007 baselineamount of U.S. agricultural land hasbeen exceeded in a given year. If thebaseline is found to have beenexceeded, then producers using U.S.planted crops and crop residue asfeedstocks for renewable fuelproduction would be required tocomply with individual recordkeepingand reporting requirements to verifythat their feedstocks are renewablebiomass.

The Aggregate Compliancemethodology provided for the exclusionof acreage enrolled in the GrasslandReserve Program (GRP] and theWetlands Reserve Program (WRP] fromthe estimated total U.S. agriculturalland. However, the 2014 Farm Billterminated the GRP and WRP as of 2013and USDA established the AgricultureConservation Easement Program (ACEP)with wetlands and land easementcomponents. The ACEP providesfinancial and technical assistance tohelp conserve agricultural lands andwetlands and their related benefits.Under the Agricultural Land Easements(ACEP—ALE) component, USDA helpsIndian tribes, state and localgovernments and non-governmental

organizations protect workingagricultural lands and limit nonagricultural uses of the land. Under theWetlands Reserve Easements (ACEP—WRE] component, USDA helps torestore, protect and enhance enrolledwetlands. The WRP was a voluntaryprogram that offered landowners theopportunity to protect, restore, andenhance wetlands on their property.The GRP was a voluntary conservationprogram the emphasized support forworking grazing operations,enhancement of plant and animalbiodiversity, and protection of grasslandunder threat of conversion to other uses.

USDA and EPA concur that theACEP—WRE and ACEP—ALE represent acontinuation in basic objectives andgoals of the original WRP and GRP.Therefore, it was assumed in thisrulemaking that acreage enrolled in theeasement programs would represent areasonable proxy of WRP and GRPacreage and was excluded whenestimating total U.S. agricultural land.

Based on data provided by the USDAFarm Service Agency (FSA) and NaturalResources Conservation Service (NRCS],we have estimated that U.S. agriculturalland reached approximately 380 millionacres in 2016, and thus did not exceedthe 2007 baseline acreage. This acreageestimate is based on the samemethodology used to set the 2007baseline acreage for U.S. agriculturalland in the RFS2 final rulemaking, withthe GRP and WRP substitution as notedabove. Specifically, we started with FSAcrop history data for 2016, from whichwe derived a total estimated acreage of380,429,574 acres. We then subtractedthe ACEP—ALE and ACEP—WREenrolled areas by the end of Fiscal Year2016, 313,284 acres, to yield an estimate

212 “EIA projections of transportation fuel for2017,” docket EPA—HQ—OAR—2016—0004.

June 29, 2016 EIA State Energy Data System (SEDS), 211 See “calculation of final % standards forEnergy consumption Estimates. 2017” in docket EPA—HQ—OAR—2016—0004.



of approximately 380 million acres ofU.S. agricultural land in 2016. Note thatthese programs were still in place in2016. The USDA data used to make thisderivation can be found in the docket tothis rule.213

B. Assessment of the CanadianAggregate Compliance Approach

On March 15, 2011, EPA issued anotice of receipt of and solicited publiccomment on a petition for EPA toauthorize the use of an aggregateapproach for compliance with theRenewable fuel Standard renewablebiomass requirements, submitted by theGovernment of Canada. The petitionrequested that EPA determine that anaggregate compliance approach willprovide reasonable assurance thatplanted crops and crop residue fromCanada meet the definition of renewablebiomass. After thorough considerationof the petition, all supportingdocumentation provided and the publiccomments received, EPA determinedthat the criteria for approval of thepetition were satisfied and approved theuse of an aggregate complianceapproach to renewable hiomassverification for planted crops and cropresidue grown in Canada.

The Government of Canada utilizedseveral types of land use data todemonstrate that the land included intheir 124 million acre baseline iscropland, pastureland or landequivalent to U.S. Conservation ReserveProgram land that was cleared orcultivated prior to December 19, 2007,and was actively managed or fallow andnon-forested on that date (and istherefore RFS2 qualifying land). Thetotal agricultural land in Canada in 2016is estimated at 118.4 million acres. Thistotal agricultural land area includes 94.6million acres of cropland and summerfallow, 14.0 million acres of pasturelandand 9.8 million acres of agriculturalland under conservation practices. Thisacreage estimate is based on the samemethodology used to set the 2007baseline acreage for Canadianagricultural land in the RFS2 responseto petition. The trigger point for furtherevaluation of the data for subsequentyears, provided by Canada, is 124million acres. The data used to makethis calculation can be found in thedocket to this rule.

213 for the first time since 2013, USDA providedEPA with data on legacy acreage still covered by thediscontinued GRP and WRP. Given this new data,EPA also estimated the total U.S. agricultural landtaking the GRP and WRP acreage into account. In2016, combined land under GRP and WRP totaled2,966,122 acres. Factoring in the GRP, WRP, ACEP—WRE, and ACEP—ALE data yields an estimate of377,150,168 acres or approximately 377 milliontotal acres of U.S. agricultural land in 2016.

IX. Public ParticipationMany interested parties participated

in the rulemaking process thatculminates with this final rule. Thisprocess provided opportunity forsubmitting written public commentsfollowing the proposal that wepublished on May 31, 2016 (81 FR34778], and we also held a publichearing on June 9, 2016, at which manyparties provided both verbal and writtentestimony. All comments received, bothverbal and written, are available in EPAdocket EPA—HQ—OAR—2016—0004 andwe considered these comments indeveloping the final rule. Publiccomments and EPA responses arediscussed throughout this preamble andin the accompanying RTC document,which is available in the docket for thisaction.

X. Statutory and Executive OrderReviews

A. Executive Order 12866: RegulatoryPlanning and Review and ExecutiveOrder 13563: Improving Regulation andRegulatory Review

This action is an economicallysignificant regulatory action that wassubmitted to the Office of Managementand Budget (0MB] for review. Anychanges made in response to 0MBrecommendations have beendocumented in the docket. The EPAprepared an analysis of illustrative costsassociated with this action. Thisanalysis is presented in Section V.D ofthis preamble.

B. Paperwork Reduction Act (PRA)

This action does not impose any newinformation collection burden under thePRA. 0MB has previously approved theinformation collection activitiescontained in the existing regulationsand has assigned 0MB control numbers2060—063 7 and 2060—0640. The finalstandards will not impose new ordifferent reporting requirements onregulated parties than already exist forthe RFS program.

C. Regulatory Flexibility Act (RFA)

I certify that this action will not havea significant economic impact on asubstantial number of small entitiesunder the RFA. In making thisdetermination, the impact of concern isany significant adverse economicimpact on small entities. An agency maycertify that a rule will not have asignificant economic impact on asubstantial number of small entities ifthe rule relieves regulatory burden, hasno net burden, or otherwise has apositive economic effect on the smallentities subject to the rule.

The small entities directly regulatedby the RES program are small refiners,which are defined at 13 CFR 121.201.We have evaluated the impacts of thisfinal rule on small entities from twoperspectives: As if the 2017 standardswere a standalone action or if they area part of the overall impacts of the RFSprogram as a whole.

When evaluating the standards as ifthey were a standalone action separateand apart from the original rulemakingwhich established the RFS2 program,then the standards could be viewed asincreasing the volumes required ofobligated parties between 2016 and2017. To evaluate this rule from thisperspective, EPA has conducted ascreening analysis 214 to assess whetherit should make a finding that this actionwould not have a significant economicimpact on a substantial number of smallentities. Currently-available informationshows that the impact on small entitiesfrom implementation of this rule wouldnot be significant. EPA has reviewedand assessed the available information,which suggests that obligated parties,including small entities, are generallyable to recover the cost of acquiring theRINs necessary for compliance with theRFS standards through higher salesprices of the petroleum products theysell than would be expected in theabsence of the RFS program.215216 Thisis true whether they acquire RINs bypurchasing renewable fuels withattached RINs or purchase separatedRINs. Even if we were to assume thatthe cost of acquiring RINs were notrecovered by obligated parties, and weused the maximum values of theillustrative costs discussed in SectionV.D and the gasoline and diesel fuelvolume projections and wholesaleprices from the October 2016 version ofETA’s Short-Term Energy Outlook, andcurrent wholesale fuel prices, a cost-to-sales ratio test shows that the costs tosmall entities of the RFS standards arefar less than 1% of the value of theirsales.

214 “Updated Screening Analysis for the FinalRenewable Fuel Standard Program RenewableVolume Obligations for 2017”, memorandum fromDallas Burkholder and Tia Sutton to EPA AirDocket EPA—HQ—OAR—2016—0004.

215 For a further discussion of the ability ofobligated parties to recover the cost of RINs see ‘APreliminary Assessment of RIN Market Dynamics,RIN Prices, and Their Effects,” Dallas Burkholder,Office of Transportation and Air Quality, US EPA.May 14, 2015, EPA Air Docket EPA—HQ—OAR—2015—0111.

216 Knittel, Christopher R., Ben S. Meiselman, andJames H. Stock. “The Pass-Through of RIN Pricesto Wholesale and Retail Fuels under the Renewablefuel Standard.” Working Paper 21343. NBERWorking Paper Series. Available online http://www.nber.org/popers/w21343.pdf.



While the screening analysisdescribed above supports a certificationthat this rule would not have asignificant economic impact on smallrefiners, we continue to believe that itis more appropriate to consider thestandards as a part of ongoingimplementation of the overall RFSprogram. When considered this way, theimpacts of the RFS program as a wholeon small entities were addressed in theRFS2 final rule (75 FR 14670, March 26,2010), which was the rule thatimplemented the entire programrequired by the Energy Independenceand Security Act of 2007 (EISA 2007).As such, the Small Business RegulatoryEnforcement Fairness Act (SBREFA)panel process that took place prior tothe 2010 rule was also for the entire RFSprogram and looked at impacts on smallrefiners through 2022.

For the SBREFA process for the RFS2final rule, EPA conducted outreach,fact-finding, and analysis of thepotential impacts of the program onsmall refiners, which are all describedin the Final Regulatory FlexibilityAnalysis, located in the rulemakingdocket (EPA—HQ—OAR—2005—0161).This analysis looked at impacts to allrefiners, including small refiners,through the year 2022 and found thatthe program would not have asignificant economic impact on asubstantial number of small entities,and that this impact was expected todecrease over time, even as thestandards increased. For gasoline and/ordiesel small refiners subject to thestandards, the analysis included a cost-to-sales ratio test, a ratio of theestimated annualized compliance coststo the value of sales per company. Fromthis test, it was estimated that alldirectly regulated small entities wouldhave compliance costs that are less thanone percent of their sales over the lifeof the program (75 FR 14862].

We have determined that this finalrule will not impose any additionalrequirements on small entities beyondthose already analyzed, since theimpacts of this final rule are not greateror fundamentally different than thosealready considered in the analysis forthe RFS2 final rule assuming fullimplementation of the RFS program. Asshown above in Tables I—i and IA—i(and discussed further in Sections III,IV, and V], this rule establishes the 2017volume requirements for cellulosicbiofuel, advanced biofuel, and totalrenewable fuel at levels significantlybelow the statutory volume targets. Thisexercise of EPA’s waiver authorityreduces burdens on small entities, ascompared to the burdens that would beimposed under the volumes specified in

the Clean Air Act in the absence ofwaivers—which are the volumes that weassessed in the screening analysis thatwe prepared for implementation of thefull program. Regarding the biomassbased diesel standard, we are increasingthe volume requirement for 2018 overthe statutory minimum value of 1billion gallons. However, this is a nestedstandard within the advanced biofuelcategory, which we are significantlyreducing from the statutory volumetargets. As discussed in Section VI, weare setting the 2018 biomass-baseddiesel volume requirement at a levelbelow what is anticipated will beproduced and used to satisfy thereduced advanced biofuel requirement.The net result of the standards beingestablished in this action is a reductionin burden as compared toimplementation of the statutory volumetargets, as was assumed in the RFS2final rule analysis.

While the rule will not have asignificant economic impact on asubstantial number of small entities,there are compliance flexibilities in theprogram that can help to reduce impactson small entities. These flexibilitiesinclude being able to comply throughRIN trading rather than renewable fuelblending, 20% RIN rollover allowance(up to 20% of an obligated party’s RVOcan be met using previous-year RINs),and deficit carry-forward (the ability tocarry over a deficit from a given yearinto the following year, providing thatthe deficit is satisfied together with thenext year’s RVO). In the RFS2 final rule,we discussed other potential smallentity flexibilities that had beensuggested by the SBREFA panel orthrough comments, but we did notadopt them, in fart because we hadserious concerns regarding our authorityto do so.

Additionally, as we realize that theremay be cases in which a small entityexperiences hardship beyond the levelof assistance afforded by the programflexibilities, the program provideshardship relief provisions for smallentities (small refiners), as well as forsmall refineries.217 As required by thestatute, the RFS regulations include ahardship relief provision (at 40 CFR80.1441(e)(2)] that allows for a smallrefinery to petition for an extension ofits small refinery exemption at any timebased on a showing that compliancewith the requirements of the RFSprogram would result in the refineryexperiencing a “disproportionateeconomic hardship.” EPA regulationsprovide similar relief to small refinersthat are not eligible for small refinery

217 See CAA section 211(o)(9)(B).

relief. A small refiner may petition fora small refiner exemption based on asimilar showing that compliance withthe requirements of the RFS programwould result in the refiner experiencinga “disproportionate economic hardship”(see 40 CFR 80.1442(h)]. EPA evaluatesthese petitions on a case-by-case basisand may approve such petitions if itfinds that a disproportionate economichardship exists. In evaluating suchpetitions, EPA consults with the U.S.Department of Energy, and takes thefindings of DOE’s 2011 Small RefineryStudy and other economic factors intoconsideration. EPA successfullyimplemented these provisions byevaluating petitions for exemption from13 small refineries for the 2014 RFSstandards.

Given that this final rule will notimpose additional requirements onsmall entities, would decrease burdenvia a reduction in required volumes ascompared to statutory volume targets,would not change the complianceflexibilities currently offered to smallentities under the RFS program(including the small refinery hardshipprovisions we continue to successfullyimplement], and available informationshows that the impact on small entitiesfrom implementation of this rule wouldnot be significant viewed either from theperspective of it being a standaloneaction or a part of the overall RFSprogram, we have therefore concludedthat this action would have no netregulatory burden for directly regulatedsmall entities.

D. Unfunded Mandates Reform Act(UMBA)

This final action contains a federalmandate under UMRA, 2 U.S.C. 1531—153 8, that may result in expenditures of$100 million or more for state, local andtribal governments, in the aggregate, orthe private sector in any one year.Accordingly, the EPA has prepared awritten statement required undersection 202 of UMRA. This statement ispresented in Section V.D in the form ofillustrative cost estimates of the 2017RFS standards. This action implementsmandates specifically and explicitly setforth in CAA section 211(o) and webelieve that this action represents theleast costly, most cost-effectiveapproach to achieve the statutoryrequirements of the rule.

This action is not subject to therequirements of section 203 of UMRAbecause it contains no regulatoryrequirements that might significantly oruniquely affect small governments.



E. Executive Order 13132: Federalism

This action does not have federalismimplications. It will not have substantialdirect effects on the states, on therelationship between the nationalgovernment and the states, or on thedistribution of power andresponsibilities among the variouslevels of government.

F. Executive Order 13175: Consultationand Coordination With Indian TribalGovernments

This action does not have tribalimplications as specified in ExecutiveOrder 13175. This final rule will beimplemented at the federal level andaffects transportation fuel refiners,blenders, marketers, distributors,importers, exporters, and renewable fuelproducers and importers. Tribalgovernments would be affected only tothe extent they produce, purchase, anduse regulated fuels. Thus, ExecutiveOrder 13175 does not apply to thisaction.

G. Executive Order 13045: Protection ofChildren From Environmental HealthRisks and Safety Risks

The EPA interprets Executive Order13045 as applying only to thoseregulatory actions that concernenvironmental health or safety risks thatthe EPA has reason to believe maydisproportionately affect children, perthe definition of “covered regulatoryaction” in section 2—202 of theExecutive Order, This action is notsubject to Executive Order 13045because it implements specificstandards established by Congress instatutes (CAA section 211(o)) and doesnot concern an environmental healthrisk or safety risk.

H. Executive Order 13211:ActionsConcerning Regulations ThatSignificantly Affect Energy Supply,Distribution, or Use

have a significant adverse effect on thesupply, distribution, or use of energy.This action establishes the requiredrenewable fuel content of thetransportation fuel supply for 2017,consistent with the CAA and waiverauthorities provided therein. The RFSprogram and this rule are designed toachieve positive effects on the nation’stransportation fuel supply, by increasingenergy independence and loweringlifecycle greenhouse gas emissions oftransportation fuel.

I. National Technology Transfer andAdvancement Act (NTTAA)

This rulemaking does not involvetechnical standards.

J. Executive Order 12898: federalActions To Address EnvironmentalJustice in Minority Populations, andLow-Income Populations

The EPA believes that this action doesnot have disproportionately high andadverse human health or environmentaleffects on minority populations, low-income populations, and/or indigenouspeoples, as specified in Executive Order12898 (59 FR 7629, February 16, 1994].This final rule does not affect the levelof protection provided to human healthor the environment by applicable airquality standards. This action does notrelax the control measures on sourcesregulated by the RFS regulations andtherefore would not cause emissionsincreases from these sources.

K. Congressional Review Act (CRA)

This action is subject to the CRA, andthe EPA will submit a rule report toeach House of the Congress and to theComptroller General of the UnitedStates. This action is a “major rule” asdefined by 5 U.S.C. 804(2].

XI. Statutory Authority

Statutory authority for this actioncomes from section 211 of the Clean AirAct, 42 U.S.C. 7545. Additional supportfor the procedural and compliance

related aspects of this final rule comefrom sections 114, 208, and 301(a) of theClean Air Act, 42 U.S.C. 7414, 7542, and7601(a).

List of Subjects in 40 CFR Part 80

Environmental protection,Administrative practice and procedure,Air pollution control, Diesel fuel, Fueladditives, Gasoline, Imports, Oilimports, Petroleum, Renewable fuel.

Dated: November 23, 2016.Gina McCarthy,Administrator.

For the reasons set forth in thepreamble, EPA amends 40 CFR part 80as follows:

PART 80—REGULATION OF FUELSAND FUEL ADDITIVES

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

Authority: 42 U.S.C. 7414, 7521, 7542,7545, and 7601(a).

Subpart M—[AmendedJ

• 2. Section 80.1405 is amended byadding new paragraph (a](8) to read asfollows:

§ 80.1405 What are the Renewable FuelStandards?

(a] * * *

(8] Renewable fuel Standards for2017.

(i] The value of the cellulosic biofuelstandard for 2017 shall be 0.173 percent.

(ii] The value of the biomass-baseddiesel standard for 2017 shall be 1.67percent.

(iii] The value of the advanced biofuelstandard for 2017 shall be 2.38 percent.

(iv] The value of the renewable fuelstandard for 2017 shall be 10.70 percent.

[FR Doe. 2016—28879 Filed 12—9—16; 8:45 am]

BILLING CODE 6560—50—P

This action is not a “significantenergy action” because it is not likely to


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