Alternative Fuel Transportation Program; Replacement Fuel Goal Modification, 54771-54789 [E6-15516]

Agencies

• DEPARTMENT OF ENERGY
• Office of Energy Efficiency and Renewable Energy
• Energy Efficiency and Renewable Energy Office

[Federal Register Volume 71, Number 181 (Tuesday, September 19, 2006)]
[Proposed Rules]
[Pages 54771-54789]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-15516]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 71, No. 181 / Tuesday, September 19, 2006 / 
Proposed Rules

[[Page 54771]]



DEPARTMENT OF ENERGY

Office of Energy Efficiency and Renewable Energy

10 CFR Part 490

RIN 1904-AB67


Alternative Fuel Transportation Program; Replacement Fuel Goal 
Modification

AGENCY: Office of Energy Efficiency and Renewable Energy, Department of 
Energy (DOE or Department).

ACTION: Notice of proposed rulemaking (NOPR) and public hearing.

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SUMMARY: DOE proposes to modify the 2010 goal of 30 percent of U.S. 
motor fuel production to be supplied by replacement fuels, established 
in section 502(b)(2) of the Energy Policy Act of 1992 (EPAct 1992), 
because it is not achievable. The Department has authority to review 
the goal and to modify it, by rule, if it is not achievable, and in 
doing so may change the percentage level for the goal and/or the 
timeframe for achievement of the goal. The Department has determined 
through its analysis that the 30 percent replacement fuel production 
goal could potentially be met, not by 2010, but at a later date. The 
Department consequently is proposing in this notice to keep the 
replacement fuel goal of 30 percent originally provided in EPAct 1992 
(section 502(b)(2)), but extend the date for achieving the goal to 
2030.

DATES: Written comments (preferably provided electronically, but if not 
possible, then eight copies) on the proposed modification must be 
received by DOE on or before November 3, 2006; electronic copies of 
comments may be submitted as described below.
    Oral views, data, and arguments may be presented at the public 
hearing, which will be held on October 3, 2006. The length of each oral 
presentation is limited to 10 minutes. The public hearing will be held 
at the U.S. Department of Energy, Room GJ-015, Forrestal Building, 1000 
Independence Avenue, SW., Washington, DC 20585-0121. Requests to speak 
at the hearing must be submitted to DOE no later than 4 p.m., September 
26, 2006.

ADDRESSES: Written comments (eight copies) and requests to speak at the 
public hearing should be addressed to: U.S. Department of Energy, 
Office of Energy Efficiency and Renewable Energy, EE-2G, RIN 1904-AB67, 
1000 Independence Avenue, SW., Washington, DC 20585-0121. E-mails may 
be sent to: regulatory_info@afdc.nrel.gov. Comments may also be 
submitted through the Federal Rulemaking Portal at https://
www.regulations.gov. DOE is currently using Microsoft Word. 
Organizations are strongly encouraged to submit comments 
electronically, to facilitate timely receipt of comments and ease 
inclusion in the electronic docket.
    Copies of this notice, the transcript from the hearing, and written 
comments will be placed at the following Web site address: https://
www.eere.energy.gov/vehiclesandfuels/epact/private_fleets.shtml. 
Interested parties may also access these documents using a computer in 
DOE's Freedom of Information (FOI) Reading Room, U.S. Department of 
Energy, Forrestal Building, Room 1E-190, 1000 Independence Avenue, SW., 
Washington, DC 20585-0121, (202) 586-3142, between the hours of 9 a.m. 
and 4 p.m., Monday through Friday, except Federal holidays.
    For more information concerning public participation in this 
rulemaking, see the ``Opportunity for Public Comment'' section found in 
the SUPPLEMENTARY INFORMATION section of this notice.

FOR FURTHER INFORMATION CONTACT: To request a copy of this notice or 
arrange on-site access to paper copies of other information in the 
docket, or for further information, contact Mr. Dana V. O'Hara, Office 
of Energy Efficiency and Renewable Energy (EE-2G), U.S. Department of 
Energy, 1000 Independence Avenue, SW., Washington, DC 20585-0121; (202) 
586-9171; regulatory_info@afdc.nrel.gov; or Mr. Chris Calamita, Office 
of the General Counsel, U.S. Department of Energy, 1000 Independence 
Avenue, SW., Washington, DC 20585-0121; (202) 586-9507.

SUPPLEMENTARY INFORMATION:
I. Introduction
II. Replacement Fuel Production Goal
III. Achievability of the Goal
IV. Goal Modification and Background
V. Goal Modification Analysis
VI. New Replacement Fuel Production Goal Proposal
VII. Opportunity for Public Comment
VIII. Regulatory Review
IX. Approval by the Office of the Secretary

I. Introduction

    The Energy Policy Act of 1992 (EPAct 1992), Public Law 102-486, 
established an interim goal of developing sufficient U.S. domestic 
replacement fuel production capacity to replace 10 percent of projected 
total motor fuel use by the year 2000 and a final goal of 30 percent by 
the year 2010, with at least one half of such replacement fuels being 
domestic fuels. Pursuant to EPAct 1992, DOE is required to review these 
goals periodically and publish the results and provide opportunities 
for public comments. If DOE determines that the goals are not 
achievable, EPAct 1992 section 504(b) directs DOE to modify, by rule, 
the percentage requirements and/or dates, so that the goals are 
achievable. (42 U.S.C. 13254(b)) The Department believes that in order 
for a goal to be achievable, there must be a reasonable expectation 
that the desired level of replacement fuels production capacity will 
develop within the relevant timeframe.
    The purpose of this NOPR is to review the existing 2010 replacement 
fuel production goal; determine whether the goal is achievable; and if 
the goal is not achievable, propose a new replacement fuel production 
goal. Today's NOPR also implements the March 6, 2006, order of the U.S. 
District Court for Northern District of California to prepare and 
publish a notice of proposed rulemaking to modify EPAct 1992's 
replacement fuel production goal for 2010. See Center for Biological 
Diversity v. U.S. Department of Energy et al., No. C 05-01526 WHA 
(Order on Cross-Motions for Partial Summary Judgment).

II. Replacement Fuel Production Goal

A. Statutory Requirements

    Section 502(a) of EPAct 1992 requires the Secretary of Energy 
(Secretary) to establish a program to promote the development and use 
of ``domestic replacement fuels'' and to ``promote the

[[Page 54772]]

replacement of petroleum fuels with replacement fuels to the maximum 
extent practicable'' (42 U.S.C. 13252(a)). Section 502(b) establishes 
production goals for replacement fuels (42 U.S.C. 13252(b)). The 
relevant portions of 502(b) are:

    (b) Development Plan and Production Goals--[T]he Secretary * * * 
shall review appropriate information and--
* * * * *
    (2) determine the technical and economic feasibility of 
achieving the goals of producing sufficient replacement fuels to 
replace, on an energy equivalent basis--
    (A) at least 10 percent by the year 2000; and
    (B) at least 30 percent by the year 2010, of the projected 
consumption of motor fuel in the United States for each such year, 
with at least one half of such replacement fuels being domestic 
fuels;
    42 U.S.C. 13252(b)(2) [emphasis added].

    For the purposes of this NOPR, the ``replacement fuel production 
goal'' or the ``goal'' refers to the 30 percent production goal by 2010 
(42 U.S.C. 13252(b)(2)(B)), unless otherwise noted. DOE believes the 10 
percent production goal was meant to be an ``interim'' milestone to 
help gauge the progress to the 30 percent production goal. As noted 
elsewhere in this NOPR, DOE has evaluated the status of the 2000 
interim goal and determined that it was not met. Furthermore, DOE has 
evaluated and proposes to determine that the 2010 goal is not 
achievable. Adopting a revised interim goal would not assist DOE in 
carrying out its obligation to revise the 2010 replacement fuel goal. 
Moreover, DOE notes that the Court order referenced earlier instructs 
DOE to ``publish a Notice of Proposed Rulemaking for a revised 
replacement fuel goal.'' \1\ DOE, therefore, is proposing in this 
notice to focus on the final goal in section 502(b)(2). In addition, 
the analyses presented later in this notice nevertheless project 
potential replacement fuel levels for the intervening years without 
establishing a specific interim level or target date.
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    \1\ The order issued on March 6, 2006, by the U.S. District 
Court for Northern California instructs DOE to issue a revised 
replacement fuel goal, not goals. See Center for Biological 
Diversity v. U.S. Department of Energy et al., No. C 05-01526 WHA 
(Order Re Timing of Relief).
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    DOE will periodically evaluate the prospects for achieving the 
replacement fuel goal proposed in today's notice, including tracking 
the levels projected for intervening years, and will publish the 
results of its evaluations as necessary.
    Since 1992, DOE has taken a number of steps to implement EPAct's 
replacement fuel programs. DOE coordinates various aspects of the 
Federal fleets' efforts to comply with the vehicle acquisition 
requirements established under section 303 of EPAct 1992 (42 U.S.C. 
13212). DOE has promulgated and implemented regulations and guidance 
for alternative fuel providers and State government fleets, which are 
subject to the fleet provisions contained in sections 501 and 507(o) 
(42 U.S.C. 13251 and 13257(o), respectively). DOE has also established 
the Clean Cities Program, which supports public and private 
partnerships that deploy alternative fueled vehicles (AFVs) and build 
supporting infrastructure.
    However, EPAct 1992 does not provide DOE the authority ``to mandate 
marketing or pricing practices, policies or strategies for alternative 
fuel, or to mandate the production or delivery of such fuels.'' (42 
U.S.C. 13254(c)) Further, the Department's authority to require the use 
of alternative fuels is limited.\2\
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    \2\ Fleets are not required to use alternative or replacement 
fuel in their AFVs (except for alternative fuel providers, which are 
required by section 501(a)(4) of EPAct to use alternative fuel in 
their AFVs.)
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B. Definitions

    The term ``replacement fuel'' is defined by EPAct 1992 to mean 
``the portion of any motor fuel that is methanol, ethanol, or other 
alcohols, natural gas, liquefied petroleum gas, hydrogen, coal derived 
liquids, fuels (other than alcohols) derived from biological materials, 
electricity (including electricity from solar energy), ethers,'' or any 
other fuel that the Secretary determines meets certain statutory 
requirements. (42 U.S.C. 13211(14) (Emphasis added)).
    The term ``alternative fuel'' is defined to include many of the 
same types of fuels (such as ethanol, natural gas, hydrogen, and 
electricity), but also includes certain ``mixtures'' of petroleum-based 
fuels and other fuels as long as the ``mixture'' is ``substantially not 
petroleum.'' (42 U.S.C. 13211(2) and 10 CFR 490.2).
    Thus, a certain mixture might constitute an ``alternative fuel,'' 
but only the portion of the fuel that falls within the definition of 
``replacement fuel'' would actually constitute a ``replacement fuel.'' 
For example, M85, a mixture of 85 percent methanol and 15 percent 
gasoline, would, in its entirety, constitute an ``alternative fuel,'' 
but only the 85 percent that was methanol would constitute 
``replacement fuel.'' Also by way of example, gasohol (a fuel blend 
typically consisting of approximately 10 percent ethanol and 90 percent 
gasoline) would not qualify as an ``alternative fuel'' because it is 
not ``substantially not petroleum,'' but the 10 percent that is ethanol 
would qualify as ``replacement fuel.''
    Section 301(12) of EPAct 1992 defines ``motor fuel'' as ``any 
substance suitable as fuel for a motor vehicle.'' The goals established 
in section 502(b)(2) require that DOE evaluate the capacity of 
producing sufficient replacement fuels to offset a certain percentage 
of U.S. ``motor fuel'' consumption. Moreover, the term motor vehicle is 
defined in EPAct 1992 section 301(13), through reference to 42 U.S.C. 
7550(2), as a self-propelled vehicle that is designed for transporting 
persons or property on a street or highway. Therefore, DOE, for the 
purposes of Title V of EPAct 1992, has interpreted the term motor fuel 
to include all fuels that are used in on-road vehicles. This includes 
fuels used in light-, medium-, and heavy-duty on-road vehicles. (See 
Private and Local Government Fleet Determination; Final Rule, 69 FR 
4219, 4226 (January 29, 2004).)

C. Quantifying the Replacement Fuel Production Goals

    The replacement fuel production goals contained in EPAct 1992 would 
require significant increases in the production of replacement fuels, 
which if used, would represent a substantial reduction in petroleum 
motor fuel usage. The 2000 on-road motor fuel consumption in the U.S. 
was about 10 million barrels per day (mbpd). Thus the 2000 goal of 
producing sufficient fuel to replace 10 percent of total motor fuel 
demand would have required the supply of 1 million barrels oil 
equivalent per day of replacement fuels. The current U.S. production 
capacity for ethanol, which currently is the most prevalent replacement 
fuel, is roughly 0.16 million barrels of oil equivalent per day and 
considerably less than the level of the 2000 goal. In 2010, the U.S. is 
projected to consume over 12 mbpd of motor fuels and, therefore, the 
production of 3.7 mbpd in replacement fuels would be required to 
satisfy the goal of 30 percent replacement fuel.
    To further put these figures in perspective, it is helpful to 
consider the goals in relation to other energy sectors. For example, in 
2010, achieving the EPAct 1992 goal would require the replacement of 
over 3.7 million barrels of oil per day (7.3 quads \3\ of energy), 
equivalent to 9 percent of the total projected domestic energy 
consumption. (See the Energy Information

[[Page 54773]]

Administration's (EIA) Annual Energy Outlook (AEO) 2006,\4\ Tables A2 
and A7.)
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    \3\ One quad equals one quadrillion BTU, which is equivalent to 
172.414 million barrels of crude oil.
    \4\ The AEO is EIA's long-term forecast of energy supply, 
demand, and prices, based on upon results from EIA's National Energy 
Modeling System (NEMS). EIA is an independent statistical and 
analytical agency within DOE.
---------------------------------------------------------------------------

    Moreover, the 2010 replacement fuel goal for motor fuels set forth 
in EPAct 1992 is almost equivalent to the total energy demand for the 
entire commercial sector (service-providing facilities and equipment of 
business; Federal, State, and local governments; and other public and 
private organizations), which is projected to account for 11.5 percent 
of total energy consumption in 2010. The 30 percent goal also 
represents the equivalent of twice as much energy as is projected to be 
supplied by all renewable fuels across all sectors, and roughly the 
equivalent to the total energy currently supplied by U.S. nuclear power 
generating facilities. Achieving the existing statutory replacement 
fuel goal also becomes more difficult each year as more vehicles are 
placed in service and vehicle miles traveled increases. In this decade 
alone, motor fuel demand is expected to increase by nearly 2.5 million 
barrels per day (from 2000 to 2010).
    Seen another way, in order to meet the existing 2010 goal, the U.S. 
would need to replace, in the next three years, over 90 million of the 
130 million light-duty passenger cars on the road today with AFVs 
running 100 percent of the time on alternative fuels. Since there are 
currently about six million AFVs in the U.S., meeting this goal would 
require a 15-fold increase in AFVs within the next three years--
basically requiring nearly five years' worth of vehicle sales in only 
three years, and every vehicle sold would have to be an AFV.
    In discussing the United States' transportation energy issues, 
Brazil is often suggested as a potential model to follow for petroleum 
replacement. In 2004, Brazil was able to replace approximately 44 
percent of its gasoline consumption (on a volume basis), or 34 percent 
on an energy-adjusted basis, with ethanol. Brazil's transition to 
ethanol began in the 1970s and has experienced a significant ramp-up 
over the past 10 years. However, this level of replacement fuel does 
not account for the large amount of diesel fuel consumed in Brazil, and 
thus the total petroleum replacement provided by ethanol in Brazil is 
much less than the 34 percent level reported above.
    The fact that the U.S. already produces more ethanol than Brazil 
annually (yet replaces less than 3 percent of its motor fuels) reveals 
that this country's petroleum dependence is significantly larger than 
Brazil's. It would take a considerable amount of time for the U.S. to 
achieve similar results, on a percentage basis, given the time it would 
take to develop the production capacity of the magnitude required to 
reach the 30 percent level.

III. Achievability of the Goal

A. Statutory Requirements

    Section 504(a) of EPAct 1992 requires DOE to periodically 
``examine'' the goals established in section 502(b)(2) and determine 
whether they should be modified. (42 U.S.C. 13254(a)) The examination 
of the goals is to be made taking into account the program goals stated 
under section 502(a), namely to promote the development and use of 
``domestic replacement fuels'' and to ``promote the replacement of 
petroleum fuels with replacement fuels to the maximum extent 
practicable.''
    As an initial matter, DOE notes that it is unaware of any analysis 
or technical data that was used by Congress in 1992 as a basis for 
setting the 10 percent and 30 percent replacement fuel goals set forth 
in EPAct 1992. Thus, DOE is aware of no affirmative determination by 
Congress or by any agency that, at the time they were set, the 
statutory goals were reasonably achievable. Regardless, and as 
described and discussed below, the Department periodically has 
evaluated the feasibility of the goals.

B. Previous Analyses of the Existing Goals

1. Technical Report 14
    Several previous efforts were made by the Department to analyze the 
replacement fuel goal. The first effort was in 1996, as part of the 
Assessment of Costs and Benefits of Flexible and Alternative Fuel Use 
in the U.S. Transportation Sector, Technical Report Fourteen: Market 
Potential and Impacts of Alternative Fuel Use in Light-Duty Vehicles: A 
2000/2010 Analysis (U.S. Department of Energy, Office of Policy and 
Office of Energy Efficiency and Renewable Energy, January 1996, report 
number DOE/PO-0042), to be referred to as Technical Report 14. To 
analyze the potential for replacement fuels, Technical Report 14 relied 
upon the Alternative Fuels Trade Model (AFTM), a long-run static 
equilibrium model that estimates prices and quantities that balance the 
interrelated world oil and gas markets, given assumptions about supply, 
demand, and costs. This model allows for comparisons between a baseline 
or benchmark case against a modified case (the unconstrained case), or 
even a series of modified cases.
    Technical Report 14 estimated that overall replacement fuel use in 
light-duty vehicles in 2010 would range from 12.4 percent to 45.8 
percent assuming various policies measures are adopted and mature 
alternative fuel industries are permitted to develop. Out of all of the 
cases run (30 in total), two-thirds (20) resulted in replacement fuel 
use of 30 percent or more of light-duty fuel use. (Technical Report 14 
pp. 6-8 and 14-15). The higher penetration levels presented typically 
occur when utilizing the EIA AEO 1994 reference case oil prices 
(compared to Technical Report 14's other major cases which were run 
under only low oil prices). The report projects most alternative fuels 
and replacement fuels as being competitive with petroleum motor fuels 
when the reference fuel prices are used. When low oil prices are used, 
alternative fuel and replacement fuel use declines. The most 
significant replacement fuel levels projected occur when greenhouse gas 
(GHG) emissions are constrained. The scenarios constraining GHG 
emissions result in higher levels of alternative fuels used because 
typically most alternative fuels are less carbon-intensive than 
petroleum fuels.
    The benchmark cases evaluated project much lower levels of 
replacement fuel use (less than 13 percent) and do not assume new 
policies or mandates to facilitate replacement fuel use. The benchmark 
cases also assume the existence of transitional barriers, which are not 
present for the most part in the other scenarios evaluated. In the case 
without transitional barriers or the ``unconstrained case,'' 
alternative fuel vehicles and alternative fuel infrastructure is 
assumed to exist in sufficient numbers to allow significantly increased 
levels of replacement fuel use, assuming they are otherwise cost-
competitive.
    Overall, Technical Report 14 concluded that at least in 1996, 
displacing 30 percent of light-duty motor fuel use appeared 
theoretically feasible by 2010, assuming certain policies and market 
conditions materialize. However, Technical Report 14 only considered 
replacement fuels in the context of motor fuel demand by on-road light 
duty vehicles. Light-duty fuel use in the U.S. is typically 75-80 
percent of all motor fuel use, so achieving 30 percent replacement of 
light-duty fuel use equates to replacing approximately 22-24 percent of 
all motor fuel use.

[[Page 54774]]

2. EPAct 1992 Section 506 Report
    The second major attempt by the Department to evaluate the 
replacement fuel picture was made at the end of the last decade, in the 
report Replacement Fuel and Alternative Fuel Vehicle Analysis Technical 
and Policy Analysis, Pursuant to Section 506 of the Energy Policy Act 
of 1992 (U.S. Department of Energy, Energy Efficiency and Renewable 
Energy, Office of Transportation Technologies, December 1999 with 
amendments September 2000), hereinafter section 506 report. The report 
is available at https://www.eere.energy.gov/vehiclesandfuels/epact/pdfs/
plf_docket/section506.pdf.
    The report concluded that it was unlikely that the 10 percent and 
30 percent goals contained in EPAct 1992 would be achieved given the 
limited statutory authorities provided to DOE and the relatively low 
price of petroleum motor fuels that had occurred in the time since 
EPAct 1992's passage. An addendum issued in 2000 indicated that 
significantly higher oil prices (in the $30 per barrel range) might 
lead to additional replacement fuel use, but would not alter the 
original conclusion that achievement of the goals was unlikely.
    Despite the conclusion concerning achievability, the report did not 
take the additional step of making a determination under EPAct 1992 
section 504(b) that the goals were not achievable; nor did the report 
seek to revise the statutory replacement fuel goals. The report did 
indicate DOE's continued support for alternative fuel and replacement 
fuel programs, and concluded that alternative fuels could provide 
significant benefits in terms of greenhouse gas emission reductions and 
oil savings. Like Technical Report 14, the section 506 report indicated 
that the 30 percent goal is achievable eventually if certain obstacles 
are overcome, mainly that alternative and replacement fuels become more 
price competitive with petroleum motor fuels. However, the report 
highlights the significant lead-times necessary to get sufficient 
vehicles on the road and the steep ramp-up that must occur to increase 
the use of replacement fuels.
3. Transitional Alternative Fuels and Vehicles (TAFV) Model Report
    The next report to consider the achievability of the replacement 
fuel goals was the TAFV Model Report. See The Alternative Fuel 
Transition: Results from the TAFV Model of Alternative Fuel Use in 
Light-Duty Vehicles 1996-2000 (ORNL.TM2000/168) (September 17, 2000). 
This report was completed shortly after the section 506 report. It 
examined multiple pathways toward increased replacement and alternative 
fuel use. The major difference between the TAFV report and earlier 
reports is that it used a dynamic transitional model to analyze 
potential replacement fuel pathways. Many of the earlier studies and 
analyses used single-period equilibrium models and also assumed no 
transitional barriers to increased alternative fuel and replacement 
fuel use. The TAFV report includes a number of scenarios that assume no 
transitional barriers but it also includes multiple pathways that do 
include analysis of transitional barriers.
    The TAFV report is instructive in that it highlights just how 
difficult it will be to achieve the 30 percent replacement fuel 
production goal. Of the policy options considered, only one achieves 
the 30 percent goal in the 2010 timeframe and that case relies on a 
retail sales mandate for alternative fuels (an option that is not 
authorized by statute.) Of the cases reviewed both with and without 
transitional barriers, replacement fuel levels achieved were less than 
20 percent. Several other policy options led to increased use of 
replacement fuel use but all of them required authority beyond that 
currently afforded DOE. For example, these scenarios relied on a low-
GHG fuel subsidy or increased Corporate Average Fuel Economy (CAFE) 
standards to lead to larger levels of replacement fuel use; however, 
even in the high oil price case, the GHG fuel subsidy resulted in only 
about 22 percent replacement fuel use by that year. Most of the other 
policy options considered led to no more than 10 percent replacement 
fuel use by 2010. The TAFV report also concluded that it was unlikely 
the 2010 replacement fuel goal would be achieved without significant 
policy changes, including incentives for the ``expansion of vehicle 
production and fuel availability.''
    Another important factor to consider is that the replacement fuel 
levels projected in the TAFV report only considered light-duty fuel and 
thus overstated the actual potential replacement fuel levels by about 
25 percent. The report is available for review at: https://
www.eere.energy.gov/vehiclesandfuels/epact/pdfs/plf_docket/
tafv99report31a_ornltm.pdf.
    In summary, the section 506 report and TAFV 2000 Report both 
concluded that it would be difficult and unlikely, but not impossible, 
to achieve the 2010 replacement goal in EPAct 1992. In neither of these 
reports issued in mid/late 2000 did DOE make a determination under 
EPAct 1992 section 504(b) that the statutory replacement fuel goals 
were not achievable--i.e., the determination that would have triggered 
a statutory obligation to set a new, achievable, replacement fuel goal. 
The Department chose to take a ``wait and see'' approach regarding the 
need to revise the 2010 goal.

C. Current Review and Analysis of the Goal

    In the development of this proposed rule, DOE evaluated the 
prospects for achieving the replacement fuel goals set out in the 
Energy Policy Act of 1992, which call for developing the capacity to 
produce enough replacement fuels to offset 10 and 30 percent of the on-
highway motor fuels projected consumption for 2000 and 2010, 
respectively. Based on actual data reported for 2000, the 10 percent 
replacement fuel goal was not achieved. Replacement fuel use in that 
year totaled about 4.7 billion gallons, or only about 2.9 percent of 
the 162 billion gallons of on-highway motor fuel consumed. Of this 
amount, oxygenates in the form of ethanol and Methyl Tertiary Butyl 
Ether (MTBE) supplied about 92 percent of the replacement fuel 
production. (See Transportation Energy Data Book--26th Edit., Table 2.3 
(2006) (replacement fuel use) and FHWA Motor Fuel Use Report, Table MF-
21; https://199.79.179.101/ohim/hs00/mf.htm.)
    Based on EIA's latest forecast (AEO 2006), replacement fuels 
currently supply approximately 2.5 percent of the total motor fuel used 
in on-road motor vehicles. The amount of replacement fuel used, as a 
percent of total motor fuel consumed, has essentially been flat for the 
past decade despite an increase in use of alternative and replacement 
motor fuels. This is because the growth in replacement fuels has been 
matched by the growth in petroleum motor fuels.
    Additionally, the recently accelerated phase-out of MTBE as an 
additive in gasoline has limited the total amount of replacement fuels 
consumed since MTBE previously accounted for a significant portion of 
these fuels. Because a gallon of MTBE contains more energy than a 
gallon of ethanol, replacing MTBE with ethanol may result in more 
gallons of ethanol used, but not in a higher replacement fuel level, 
since the level of replacement (percentage) is calculated on an energy 
content basis. This replacement of MTBE with ethanol partly explains 
why replacement fuels have not garnered a larger share of the on-road 
fuels market on an energy basis, even as ethanol use has increased 
quite

[[Page 54775]]

significantly in the past several years, increasing from a level of 
slightly more than 1 billion gallons in 2002 to 4 billion gallons in 
2005.
    The EIA AEO 2006 reference case projects that replacement fuels in 
2010 will account for approximately 2.94 percent of total on-road motor 
fuels, or approximately 5.7 billion gallons of gasoline equivalent 
replacement fuel. As noted above, ethanol production is increasing 
significantly but some of this increase is offset by the near complete 
phase-out of MTBE expected by 2010. Given the short-term nature of the 
2010 goal, it appears that ethanol would be the primary replacement 
fuel option to consider. Some production capacity for ethanol now 
exists, with increases in capacity projected over the next few years, 
partly in response to the Renewable Fuel Standard established by the 
Energy Policy Act of 2005. Ethanol can be used in low-level blends with 
gasoline in conventional vehicles already on U.S. roads, and methods to 
distribute ethanol already exist. The changes in distribution and 
infrastructure needed for other fuels (e.g., gaseous fuels or 
electricity) to make major contributions would be much longer term in 
nature, and thus largely impractical for serious consideration before 
2010. Therefore, ethanol in blends is expected to account for about 80 
percent of the replacement fuels produced in 2010, with the remaining 
balance made up of mostly natural gas and propane. Even in the AEO 2006 
high price forecast, replacement fuels only account for slightly more 
than 3 percent of total on-road motor fuel in 2010.
    For replacement fuels to replace 30 percent of the motor fuel 
produced in 2010, replacement fuel production would have to increase 
more than 10-fold, to nearly 60 billion gallons. Even if extraordinary 
measures were undertaken, replacement fuel production could not be 
ramped up enough to meet the level required to achieve the 30 percent 
replacement fuel goal in three years. By way of illustration, if all 
the corn currently produced in the U.S. were used to produce ethanol, 
the amount of ethanol produced would only be about 18 billion gallons 
of gasoline equivalent, which constitutes only 9 percent of U.S. motor 
fuels.
    DOE therefore proposes to determine that the existing EPAct 1992 
replacement fuel goal of 10 percent for 2000 was not met and that the 
goal of 30 percent for 2010 is not achievable, considering all 
information available and the economic and technical feasibility of 
achieving the 2010 goal.

IV. Goal Modification and Background

A. Statutory Requirements

    Section 504(b) requires ``[i]f, after analysis of information 
obtained in connection with carrying out subsection [504](a) [which 
requires periodic review of the replacement fuel goals] or section 502, 
or other information, and taking into account the determination of 
technical and economic feasibility made under section 502(b)(2), the 
Secretary determines that goals described in section 502(b)(2), 
including the percentage requirements or dates are not achievable, the 
Secretary, in consultation with appropriate Federal agencies, shall, by 
rule, establish goals that are achievable, for the purposes of this 
title'' (42 U.S.C. 13254(b)). In modifying the goal, DOE may promulgate 
an achievable goal by adjusting the level of the goal and/or adjusting 
the timeframe of the goal.
    The Department has proposed to determine that the EPAct 1992 
replacement fuel goal of 30 percent by 2010 is not achievable. That 
determination, if finalized, would require the Department to establish 
a new goal, by rule which is achievable. Section 504 makes clear that 
achievability of the goal is key, both for analysis of the goal as well 
as modifying the goal. EPAct 1992, however, does not define 
``achievable'' for the purpose of modifying the goal. Section 502(b)(2) 
directs DOE to consider the technological and economic feasibility of 
the statutory goal in determining the goal's achievability under the 
initial review. The Department interprets the term to mean that in 
order for a goal to be achievable, there must be a reasonable 
expectation, based on technological and economic feasibility, that the 
desired level of production capacity will be created within the 
relevant timeframe.

B. Previous Rulemaking

    Section 507(c) directed the Department to issue an Advanced Notice 
of Proposed Rulemaking (ANOPR) that, in part, would evaluate the 
progress toward achieving the replacement goal and assess the adequacy 
and practicability of the goal. (42 U.S.C. 13257(c)) In response to 
that directive, DOE issued an ANOPR on April 17, 1998 (63 FR 19372). 
DOE conducted three public hearings (Minneapolis, Minnesota; Los 
Angeles, California; and Washington, DC) and solicited written comments 
from the public on the ANOPR. More than 110 interested parties 
responded by providing written and oral comments. Comments were 
received through July 16, 1998. DOE has reviewed all of these comments 
and, in the following paragraphs, provides a summary of and DOE's 
response to those comments relevant to the replacement fuel goal.
    In the ANOPR, DOE requested comments on 23 specific questions 
covering three broad areas: Replacement fuels, fleet requirements, and 
urban transit buses. Only the first set of questions is relevant to 
today's rulemaking. A detailed discussion of these comments was 
previously provided in the notice of proposed rulemaking for the 
Private and Local Government Fleet Determination, 68 FR 10320, 10326-
10328 (March 3, 2003).
    The questions raised in the 1998 ANOPR addressed whether the 
existing replacement fuel goal for 2010 was achievable, and if not, 
what goal would be achievable; how DOE should determine achievability; 
what should be done to maximize use of replacement fuels (such as 
mandates and incentives); and how DOE should determine the impact of 
replacement fuels.
    Comments about the goal were received from more than 40 individuals 
or entities, and primarily addressed whether the goal of replacing 30 
percent of the U.S. motor fuel by 2010 was considered achievable. While 
generally lacking specific goal levels and dates to inform today's 
action, the comments did identify likely problems in achieving the 
existing goal. Almost half of the comments received that explicitly 
addressed this question regarded the goal as unachievable. By an even 
wider margin, those submitting comments considered the goal 
unachievable under present economic conditions, and many offered 
suggestions as to what changes would be required to make the goal 
feasible. Only one comment was received which suggested a specific 
revised goal, while several others suggested that modifying the goal 
would be as arbitrary as the original goal.
    Comments received were in general agreement that the lack of 
alternative fuel infrastructure, low petroleum fuel prices, and various 
limitations on alternative fuel vehicle availability were key barriers 
to achievement of EPAct 1992's 30 percent replacement fuel production 
goal. Numerous comments were received suggesting a variety of 
incentives (such as tax credits) to spur greater production and use of 
replacement fuels. Virtually no comments were received suggesting 
additional data relevant to the decision at hand, nor concerning how to 
determine the impact of efforts to increase replacement fuel use.

[[Page 54776]]

C. Final Private and Local Determination/Court Decision

    DOE previously addressed the issue of whether to revise the 
replacement fuel production goal for 2010 contained in EPAct 1992 in 
the context of its determination that an AFV acquisition mandate for 
private and local government fleets was not necessary. (See 69 FR 4219; 
January 29, 2004.) Section 507(e) directs the Department to consider 
whether a fleet requirement program is ``necessary'' for the 
achievement of the replacement fuel goals. (42 U.S.C. 13257(e)) As part 
of the Department's decision under that directive, DOE stated in its 
notice of final rulemaking that a private and local government fleet 
rule would ``not appreciably increase the percentage of alternative 
fuel and replacement fuel used by motor vehicles'' (69 FR 4220). DOE 
further concluded that ``adoption of a revised goal would not impact 
its determination that a private and local government rule * * * would 
not provide any appreciable increase in replacement fuel use'' (69 FR 
4221). DOE, therefore, did not revise the replacement fuel goal at the 
time but indicated that it would continue to evaluate the need to 
revise the statutory goal in the future.
    Subsequent to the publication of the January 29, 2004, final rule, 
DOE was sued in Federal court by the Center for Biological Diversity 
and Friends of the Earth for failing to impose a private and local 
government fleet acquisition mandate and for not revising the 
replacement fuel production goal for 2010 as part of its determination. 
On March 6, 2006, the U.S. District Court for the Northern District of 
California invalidated DOE's final determination regarding the private 
and local government fleet mandate and ordered DOE to revise the 
replacement fuel production goal for 2010. (See Center for Biological 
Diversity v. U.S. Department of Energy et al., No. C 05-01526 WHA 
(Order on Cross-Motions for Partial Summary Judgment).) In its order, 
the Court directed DOE to prepare notices of proposed rulemaking and 
final rules on both the replacement fuel goal for 2010 and the private 
and local government fleets determination. Today's notice fulfills the 
Court's requirement that DOE ``shall publish a Notice of Proposed 
Rulemaking for a revised replacement fuel goal by no later than 
September 6, 2006.'' (See the Court's timeline order at p. 2 of the 
order.) This is the initial step to a later rulemaking that DOE will 
conduct to decide whether a private and local government fleet mandate 
is necessary.

D. Advanced Energy Initiative

    The President's Advanced Energy Initiative sets out an aggressive 
course for reducing the Nation's dependence on foreign petroleum. This 
initiative, announced in the President's State of the Union address in 
January 2006, sets a national goal of replacing more than 75 percent of 
the U.S. imports from foreign sources by 2025. The Advanced Energy 
Initiative emphasizes technology developments as the key to reducing 
energy dependence, including several in the area of replacement fuels. 
These appear under the portion of the Initiative focused on ``Changing 
the way we fuel our vehicles'', which indicates:

    We can improve our energy security through greater use of 
technologies that reduce oil use by improving efficiency, expansion 
of alternative fuels from homegrown biomass, and development of fuel 
cells that use hydrogen from domestic feedstocks.

    The Advanced Energy Initiative is available on the White House Web 
site at the following location: https://www.whitehouse.gov/
stateoftheunion/2006/energy/.

V. Goal Modification Analysis

    Given the timeframe set by the Court, in this NOPR, the Department 
has had to rely on the best information and data currently available. 
The Department searched and reviewed relevant internal and external 
reports, studies, and analyses on alternative and replacement fuel use 
and projected production. The pertinent information was compiled to 
assist in the development of an ``achievable goal.''

A. Approach

    The Department has several options, in accordance with the 
authority provided in section 504 of EPAct 1992. First, DOE could 
modify the goal level to what it believed was achievable in the 2010 
timeframe, probably around the 3 percent projected in the AEO 2006. DOE 
estimates that given technical and other constraints in this short 
timeframe, expanding production of replacement fuels much beyond 3 
percent by 2010 is unlikely as previously discussed.
    The other primary option would be to move the goal out in time, 
since the potential contributions from replacement fuels increase over 
time. A third option would be to combine the two primary options and 
modify both the replacement fuel level and date. In analyzing the data, 
DOE looked at all of these options. The Department evaluated credible 
data, projections, and other information covering approximately the 
next 25 years, to see what could be achievable. The Department's 
evaluation and analysis went out to 2030, since that is the last date 
for which credible input existed, particularly in the form of the AEO 
2006.
    In general, the analytical framework included only existing 
statutory authorities and incentives in the development of the 
technologies. The only exception was in DOE's Hydrogen, Fuel Cells and 
Infrastructure Technologies Program (Hydrogen Program) which did 
consider additional incentives and/or mandates in the future as is 
discussed later in this section. Therefore, the primary variables in 
the Department's analysis were projected technological and economical 
improvements.

B. Building Blocks

    The replacement fuel production goal proposed in this NOPR was 
developed after careful consideration of existing market factors, 
energy forecasts, and programs directed by the Department and its 
national laboratories. Three combined building blocks were considered: 
(1) The reference case projected by EIA in the AEO 2006; (2) the high 
price case presented in the AEO 2006; and (3) projections from the DOE 
programs conducting research and development (R&D) on replacement fuel 
and vehicle technologies. The outcome of this effort is several 
different cases under which varying levels of replacement fuel are 
potentially achieved.
    Each of these three combined building blocks includes a number of 
smaller building blocks which were assembled to form the combined 
building blocks. These building blocks include replacement fuel and 
vehicle technologies, with projected contributions based on either the 
high or reference prices from the AEO, or the DOE program development 
projections. Some of the building blocks are relevant to all of the 
scenarios, while others appear in a limited number of scenarios. As 
indicated above, the Department evaluated data out through 2030, at 
periodical intervals. In all cases, the highest levels of replacement 
fuels appear in 2030. Below is a description of the building blocks and 
``cases'' which were used to develop the four scenarios, described in 
the subsequent section.
1. AEO 2006 Reference Case Description
    The AEO 2006 reference case is the base case assembled by EIA. It 
takes into account developments that are likely to occur as a result of 
technologies and

[[Page 54777]]

policies that exist today. It does not account for potentially new 
policies, or legislation. The reference case also includes a number of 
other critical assumptions including economic growth rates and oil 
prices. The AEO 2006 reference case assumes a U.S. economic growth rate 
of 3 percent per year. Oil prices in this case are projected to 
fluctuate from the high $40 range to mid $50 range and peak at $57 in 
2030. The AEO indicates that the oil price projection in the reference 
case represents EIA's ``current judgment regarding the expected 
behavior of the Organization of Petroleum Exporting Countries (OPEC) 
producers in the long term, adjusting production to keep world oil 
prices in a range of $40 to $50 per barrel'' (AEO 2006, p. 206).
    According to the reference case, potential replacement fuel levels 
will grow from the 2005 level of 2.63 percent of total motor fuel use 
to 8.65 percent in 2030. To arrive at a potential replacement figure, 
DOE used the figures provided in the AEO 2006 but made the additional 
assumption that all of the coal-to-liquid (CTL) fuels in the AEO 2006 
figures are used in the transportation sector and count as replacement 
fuels for purposes of section 502 of EPAct 1992. A significant portion 
of CTL is expected to be used as jet fuel, so a somewhat smaller 
portion than assumed here would probably be used for on road motor 
vehicle transportation. In the reference case, the CTL fuels account 
for slightly more than half of the total replacement fuels in 2030 or 
about 4 percent. Realistically, DOE expects a portion of CTL fuels may 
be used for non-transportation purposes (such as industrial.) However, 
it is anticipated that the transportation sector is likely to represent 
the highest-value use of these fuels. While it is unclear at this time 
to what extent they will be supplied to non-transportation sectors, the 
projected high-value of motor vehicle fuels would likely result in the 
majority of CTL production being used as motor fuels the transportation 
sector. Therefore, the figure used with the AEO 2006 reference case 
description represents an upper bound for CTL fuel produced for the 
transportation sector. (See below for additional discussion on CTL 
fuels.) The other replacement fuels included in the reference case for 
2030 are ethanol at slightly over 3 percent, biodiesel at less than a 
quarter of a percent, and ``other alternative fuels'' at less than 1 
percent. The ``other alternative fuels'' are discussed below. Hydrogen 
use occurs in the AEO reference case but is minimal.
2. AEO 2006 High Price Case Description
    The high price case makes ``more pessimistic assumptions for 
worldwide crude oil and natural gas resources than in the reference 
case'' (AEO 2006, p. 204). In particular, OPEC resources and production 
capacity are projected to be lower in this case. As a result, oil 
prices rise to nearly $90/barrel by 2030. Even in the high price case, 
however, some of the projected prices are considerably lower than 
today's levels and only rise to $70/barrel in 2013 and $80/barrel in 
2018. The high oil price forecast for the next several years ranges 
from $50 to $60. In this case, transportation energy demand also is 
reduced because of high petroleum prices, which tend to encourage fuel 
efficiency. At the same time, higher oil prices in general also 
encourage more replacement fuel use. The result is that the replacement 
fuel potential of the high price case is more than double the reference 
case, rising to a level of almost 18 percent in 2030.
    As in the reference case, CTL fuels account for a large share of 
the total replacement fuels. Of the nearly 18 percent replacement fuel 
level, CTL accounts for more than 11 percent with a total production 
capacity of 1.69 million barrels per day. Thus, the CTL level more than 
doubles from the reference case projection. As noted above, DOE assumes 
that all of the CTL produced is used for transportation purposes and 
therefore counts toward the replacement fuel goal provisions in section 
502 of EPAct 1992. This represents an upper bound of the potential for 
CTL since it is likely that not all the CTL produced will be used as a 
transportation motor fuel. Ethanol production and the other alternative 
fuels largely are unchanged from the reference case. However, gas-to-
liquid (GTL) fuels for the first time show up as a potential 
replacement fuel, accounting for approximately 1.31 percent petroleum 
replacement and providing about 0.19 million barrels of oil equivalent 
production per day. GTL fuels are discussed in the Program Development 
Case section below because DOE has an active program underway to 
increase their potential.
3. DOE Program Development Case Description
    The DOE program development case represents the potential 
replacement fuel levels achieved if DOE is successful in accelerating 
the introduction of technologies and new fuels through its R&D 
programs. These levels are predicated on the respective programs 
continuing existing R&D activities and the achievement of technology 
goals/milestones that have been set. They also depend on economic 
targets being achieved and market acceptance of the technologies and 
fuels reviewed; however, for the most part, they do not rely upon new 
policy or regulatory initiatives. Information to support these cases 
came primarily from the relevant Energy Efficiency and Renewable Energy 
and Fossil Energy programs, and included Government Performance and 
Results Act (Pub. L. 103-62; August 3, 1993; GPRA) analyses and 
recently released technical reports identifying potential contributions 
of various fuel and vehicle technologies. (For more information 
concerning GPRA analyses, see https://www1.eere.doe.gov/ba/pba/gpra_
estimates/fy_07.html.)
    The GPRA analysis specifically was relied on for the figures used 
for the Hydrogen Program and the fuel-efficiency savings rates 
projected for the EERE's FreedomCAR and Vehicles Technologies Program 
(FCVT). It should be noted that the GPRA figures are based on the AEO 
2005 forecast and not AEO 2006 because it was not available when the 
most recent GPRA analysis was conducted. In the case of hydrogen, 
therefore, this means that the analysis presented here is based on last 
year's AEO and thus probably understates the contribution of hydrogen 
because oil prices (a major factor in determining alternative fuel use 
levels) were much lower in AEO 2005. In the case of FCVT's fuel 
efficiency savings, DOE calculated a savings rates based on last year's 
GPRA report and applied this figure to AEO 2006's projection of on-road 
motor fuel use.
    The discussion below includes the programs and fuels that 
contribute to the replacement fuel goal, including fuel efficiency 
measures, ethanol, biodiesel, coal-to-liquid fuels, gas-to-liquid 
fuels, hydrogen, other alternative fuels, and plug-in hybrid-electric 
vehicles (PHEVs). In particular, the technologies and fuels for which 
information was received from DOE program offices include fuel 
efficiency measures, ethanol, gas-to-liquid fuels, hydrogen, and 
electricity in PHEVs.
    Section 504(b) of EPAct 1992 requires that the goal, as modified, 
be achievable. (42 U.S.C. 13254(b)) As part of our determination as to 
whether a goal would be achievable, the Department considered 
technologies that are technically and economically feasible today. The 
Department also considered technologies that currently may not be 
technologically or economically feasible, but that we reasonably expect 
to be technologically and economically feasible given the achievement 
of

[[Page 54778]]

certain conditions in the timeframes necessary to contribute to the 
goal. Thus, for any technology included in the analysis that is not now 
considered technically and economically feasible, the discussion below 
includes information on the conditions the Department considers 
necessary for such technologies to be technologically and economically 
feasible.
a. Energy Efficiency for Light-Duty, Medium-Duty, and Heavy-Duty 
Vehicles
    The EPAct 1992 replacement fuel goal does not directly take into 
account improvements in fuel efficiency because the goal is measured in 
terms of the percentage of motor fuels provided by replacement fuels. 
Fuel efficiency improvements to motor vehicles, however, indirectly 
contribute to the achievement of the replacement fuel goal contained in 
EPAct 1992 by lowering total fuel consumption, resulting in a larger 
percentage of petroleum replacement provided by a given amount of 
replacement fuel. Moreover, fuel efficiency is an important objective 
because it helps conserve all fuels whether they are petroleum or 
replacement fuels and greater fuel efficiency can lower the cost to 
consumers of operating motor vehicles. DOE, therefore, has an 
aggressive R&D program that focuses on accelerating the development of 
technologies that will greatly improve the fuel efficiency of on-road 
vehicles including light-duty vehicles, commercial light trucks, and 
heavy trucks and buses.
    EERE's FCVT R&D program is leading to a comprehensive suite of new 
technologies, including hybrid vehicle components, such as electric 
motors; energy storage units, such as advanced batteries; and power 
electronics. It also is working on advanced combustion systems, 
advanced fuels, lightweight materials, and many other systems to 
improve the fuel efficiency of today's conventionally-fueled vehicles 
and pave the way for the advanced technology vehicles of tomorrow, 
including fuel cell vehicles.
    Through its efforts, FCVT expects to dramatically reduce oil 
consumption by improving the fuel efficiency of personal vehicles, such 
as passenger cars and light-duty trucks, and doubling the fuel 
efficiency of commercial vehicles, while also developing the core 
technologies needed for tomorrow's fuel cell hybrid vehicles. The fuel 
savings provided by these efforts are expected to be significant. (As 
discussed below in section VI, changes in the motor vehicle fleet take 
many years to achieve because of the long replacement rates for motor 
vehicles. These technology improvements and breakthroughs take a long 
time to have an impact on petroleum consumption.)
    Based on the GPRA analysis conducted by FCVT, DOE projects that 
fuel efficiency improvements could offset as much as 3.04 million 
barrels per day of petroleum by 2030. This figure was derived by 
looking at the GPRA fiscal year 2007 savings rates and comparing them 
to forecasted on-road petroleum consumption levels in the AEO 2006. A 
major reason for the reduction in petroleum is the increased fuel 
efficiency due to increased numbers of diesel-fueled and hybrid-
electric vehicles. The FCVT goals analysis indicates much higher levels 
of these vehicles than forecasted by EIA, which typically relies upon 
more modest improvements in technologies based upon historical 
patterns. According to the GPRA analysis, by 2030 conventional gasoline 
vehicles will only account for 37 percent of new vehicles sales while 
they account for 80 percent in the AEO reference forecast. The reason 
for the difference is the much higher level of market penetration 
projected for new hybrid and diesel-fueled vehicles in the GPRA 
analysis.
    While there is a great deal of promise demonstrated by these 
technologies, the Department recognizes that their achievement of the 
levels proposed is not assured. The fuel savings described in this 
document are specifically contingent on meeting every goal currently 
set in the FCVT program. If milestones set by the programs are not met, 
or if oil price levels turn out to be lower than those currently 
incorporated into programmatic forecasts, there may be some reduction 
in the penetration of these new technologies and the resulting fuel 
savings. Further, we note that that the projected fuel savings 
resulting from the FCVT program were not arrived at through the same 
type of analysis used to establish fuel economy standards under the 
National Highway Traffic Safety Administration (NHTSA's) fuel economy 
rulemaking process. As such, the levels relied upon in this current 
analysis should not be interpreted as levels that could be set as 
standards under NHTSA's fuel economy program. Fuel economy standards 
are set by NHTSA after analyzing vehicle manufacturers' specific 
product plans and technology data. The level at which the fuel economy 
standards are set must reflect a balancing of four statutory criteria: 
technological feasibility, economic practicability, the need of the 
nation to conserve energy, and the effects of other federal motor 
vehicle standards on fuel economy. Thus, NHTSA must adhere to a 
significantly different process when establishing standards, in 
contrast to DOE's effort here to modify the replacement fuel goal. 
Nevertheless, the Department believes that it has taken a reasonable 
approach in relying upon technological improvement projections for the 
purpose of today's rule.
    As noted above, this level of petroleum reduction cannot be 
directly reflected in the replacement fuel production goal proposed 
because it offsets petroleum use but does not result in more 
replacement fuel use. However, because it lowers the total amount of 
petroleum used, it nevertheless permits replacement fuel production to 
account for a higher percentage of motor vehicle fuel production than 
would otherwise be achievable without the petroleum savings. Another 
indirect benefit of the FCVT programs is the greater market penetration 
of diesel-fueled vehicles. These vehicles will be increasingly 
necessary if and when larger amounts of synthetic distillate fuels such 
as CTL and GTL are to be used in the transportation sector.
b. Ethanol
    Ethanol is a two-carbon straight-chain alcohol that is used as both 
a near-neat fuel (i.e., as E85) and in low-level blends with gasoline 
(at up to 10 percent ethanol by volume). Ethanol can be produced from a 
variety of feedstocks, including ethylene, corn, sorghum, and biomass, 
and using a variety of processing methods. By far, the most common 
feedstock in the U.S. is corn; in other countries, such as Brazil, 
sugarcane is the primary feedstock. In the corn process, the starch is 
extracted from the feedstock and then hydrolyzed to sugar where 
microorganisms (e.g., yeast) ferment it into ethanol. Ethanol is 
produced from corn through the wet or dry mill process. The primary 
production method in the U.S. is dry milling. About 75 percent of 
ethanol is produced using dry milling (Renewable Fuels Association 
2005). The ethanol from corn (and sorghum) process is fully 
commercialized. At the end of 2005, the U.S. fuel ethanol capacity was 
over 4 billion gallons from approximately 100 plants located primarily 
in the Midwest. Most of the plants process corn or sorghum, but there 
are several small facilities that process wastes, such as beer and 
cheese whey.
    Several organizations (including DOE) are working at developing 
ethanol from biomass such as energy crops (e.g., switchgrass), 
agricultural residues (e.g., corn stover) and forestry wastes. There 
are no commercial biomass-to-ethanol (cellulosic) facilities currently 
in

[[Page 54779]]

operation in the United States. However, DOE has a significant research 
and development effort in the production of ethanol from biomass. The 
U.S. Department of Agriculture (USDA) and DOE are also jointly working 
on developing the technologies for energy crop development.
    The DOE program has outlined a detailed plan for developing a cost-
effective technology by 2012, based on achieving an ethanol selling 
price of $1.07/gallon from feedstocks costing $35/dry ton. The plan 
does not analyze whether the target price of $1.07/gallon is 
economically feasible, but instead identifies the technological 
advancements and economic conditions necessary to yield the target 
price at which ethanol is cost-competitive. In addition, the program is 
evaluating or developing integrated bio-refineries that would produce 
ethanol both biologically and thermochemically through gasification. 
Finally, DOE and USDA are jointly working on technologies to drive down 
the cost of biomass from roughly $50/dry ton today to $30-$35/dry ton 
in 2012.
    Significant amounts of ethanol use are projected in both the EIA 
and the DOE Program Development Cases. In the reference case of the 
2006 AEO, it is estimated that almost 7 billion gallons of ethanol are 
produced in 2010 with just over 16 billion gallons being produced in 
2030. The Program Development Case has much higher projections, with 
10.7 billion gallons in 2010 and over 60 billion gallons in 2030.
c. Biodiesel
    Biodiesel (methyl esters) is produced from biomass oils and fats 
such as soybean oil, waste grease and palm oil. The oils or fats are 
reacted with an alcohol, usually methanol, in the presence of a 
catalyst. Both acidic and basic-catalysts are used, but most processes 
use base catalysis by NaOH. Conversions of over 97 percent are common. 
In addition to biodiesel, this process produces glycerin, a mix of 
glycerol (1,2,3-propanetriol), water, and salts. The production of 
biodiesel is a fully commercialized process, however, there is 
considerable ongoing industrial development directed at improving the 
efficiency of the process technology. The primary ongoing government 
research efforts in this area are in the areas of air emissions, 
compatibility with advanced engines, and development of additional 
products from glycerin, as well as USDA's continued efforts to increase 
corn yields.
    Biodiesel use in the transportation sector was 75 million gallons 
in 2005, a tripling of the 2004 levels. This growth is expected to 
continue. Projections of the maximum biodiesel production were made for 
the near-, mid- (2015) and longer-term (2030), in a 2004 report 
published by the National Renewable Energy Laboratory (Biomass Oil 
Analysis: Research Needs and Recommendations, National Renewable Energy 
Laboratory, document NREL/TP-510-34796, June 2004). In the near-term, 
if all biomass oils currently exported were converted to biodiesel, 
over 1.6 billion gallons of biodiesel would be available. In 2015, it 
is estimated that 3.5 billion gallons of biodiesel could be produced by 
improving oil seed yields and using Conservation Reserve Program (CRP) 
lands. In addition, 133 million gallons of biodiesel could be produced 
from waste fats and oils, bringing the total to 3.6 billion gallons of 
biodiesel. In the longer-term (i.e., 2030), the projected maximum 
potential biodiesel almost triples over 2015 levels to 10 billion 
gallons. According to the report, production of 10 billion gallons of 
biodiesel could be produced by 2030, assuming:
     A 25 percent improvement in oil crop yield (4 billion 
gallons);
     All wheat exports were displaced, freeing up 30 million 
acres (3.1 billion gallons) for production of canola or other high oil 
yield crops; and
     Convert some fraction of soybean production to canola 
production (3.1 billion gallons).
    The AEO 2006 provides much lower estimates for biodiesel. In the 
reference case, 190 million gallons of biodiesel are used in 2010, 
rising to 340 million gallons in 2030.
d. Coal-to-Liquid (CTL) Fuels
    Coal is the most abundant fossil fuel resource in the U.S. with 
recoverable reserves estimated in 2005 at 267 billion tons. The 
recoverable resource base provides approximately 250-year supply at 
today's usage rates. The technology to produce CTL synthetic fuels has 
been available for years, and the industry contin