Production Incentives for Cellulosic Biofuels; Reverse Auction Procedures and Standards, 78663-78670 [E8-30500]

Agencies

• DEPARTMENT OF ENERGY

[Federal Register Volume 73, Number 247 (Tuesday, December 23, 2008)]
[Proposed Rules]
[Pages 78663-78670]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-30500]


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DEPARTMENT OF ENERGY

10 CFR Part 452

RIN 1904-AB73


Production Incentives for Cellulosic Biofuels; Reverse Auction 
Procedures and Standards

AGENCY: Office of Energy Efficiency and Renewable Energy, U.S. 
Department of Energy.

ACTION: Notice of proposed rulemaking (NOPR) and opportunity for 
comment.

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SUMMARY: The Department of Energy (DOE) today publishes a proposed rule 
to establish the procedures and standards for reverse auctions of 
production incentives for cellulosic biofuels pursuant to section 942 
of the Energy Policy Act of 2005 (EPAct 2005).

DATES: Public comment on this proposed rule will be accepted until 
January 22, 2009.

ADDRESSES: You may submit comments, identified by RIN 1904-AB73, by any 
of the following methods:
    1. Federal eRulemaking Portal: http:/www.regulations.gov. Follow 
the instructions for submitting comments.
    2. E-mail to EPAct942@go.doe.gov. Include RIN 1904-AB73 in the 
subject line of the e-mail. Please include the full body of your 
comments in the text of the message or as an attachment.
    3. Mail: Address written comments to James Spaeth, U.S. Department 
of Energy, 1617 Cole Blvd., Golden, CO 80401.
    If you submit information that you believe to be exempt by law from 
public disclosure, you should submit one complete copy, as well as one 
copy from which the information claimed to be exempt by law from public 
disclosure has been deleted. DOE is responsible for the final 
determination with regard to disclosure or nondisclosure of the 
information and for treating it accordingly under the DOE Freedom of 
Information Act regulations at 10 CFR 1004.11.
    Due to potential delays in DOE's receipt and processing of mail 
sent through the U.S. Postal Service, we encourage respondents to 
submit comments electronically to ensure timely receipt.
    You may obtain copies of comments submitted in response to this 
notice of proposed rulemaking by contacting Mr. James Spaeth.

FOR FURTHER INFORMATION CONTACT: Mr. James Spaeth, U.S. Department of 
Energy, 1617 Cole Blvd., Golden, CO 80401; (303) 275-4771; 
jim.spaeth@go.doe.gov; or Mr. Edward Myers, Office of the General 
Counsel, U.S. Department of Energy, Mailstop GC-72, Room 6B-256, 1000 
Independence Avenue, SW., Washington, DC 20585; (202) 586-3397 or 
edward.myers@hq.doe.gov.

SUPPLEMENTARY INFORMATION:

I. Background
II. Discussion of Proposed Rule
III. Regulatory Review
IV. Approval by the Office of the Secretary

I. Background

    Section 942 of the Energy Policy Act of 2005, Public Law No. 109-58 
(August 8, 2005), requires the Secretary of Energy (Secretary), in 
consultation with the Secretary of Agriculture, the Secretary of 
Defense, and the Administrator of the Environmental Protection Agency, 
to establish an incentive program for the production of cellulosic 
biofuels and to implement that program by means of a ``reverse 
auction.'' Section 942(a) states that the purposes of the program are 
to: ``(1) Accelerate deployment and commercialization of biofuels; (2) 
deliver the first 1 billion gallons of annual cellulosic biofuel 
production by 2015; (3) ensure biofuels produced after 2015 are cost 
competitive with gasoline and diesel; and (4) ensure that small 
feedstock producers and rural small businesses are full participants in 
the development of the cellulosic biofuels industry.'' In order to 
achieve these purposes, the Secretary is to award production incentives 
on a per gallon basis to eligible entities by means of a reverse 
auction. Under section 942, the first reverse auction is required 
annually until the earlier of the first year that annual production of 
cellulosic biofuels in the United States reaches 1 billion gallons or 
10 years after enactment of EPAct 2005, i.e., August 8, 2015.
    However, pursuant to section 202 of the Energy Independence and 
Security Act of 2007 (Pub. L. 110-140) (EISA), the Administrator of the 
Environmental Protection Agency is required to issue regulations that 
implement certain Renewable Fuel Standards, including regulations to 
ensure that transportation fuel sold or introduced into commerce in the 
United States (except in noncontiguous States or territories), on an 
annual average basis, contains at least 1 billion gallons of cellulosic 
biofuel by calendar year 2013. Consequently, if the Renewable Fuel 
Standard for cellulosic biofuel under EISA is achieved, the last 
reverse auction under section 942 of EPAct 2005 would occur in 2013.

II. Discussion of Proposed Rule

A. Overview

    The proposed rule would establish procedures for the reverse 
auction and standards for making production incentive awards. The 
eligibility standards include both pre-auction requirements which must 
be met prior to an entity's participation in a reverse auction under 
section 942 and several post-auction standards which must be met as a 
condition of receiving an award. The post-auction standards are 
especially necessary if the Nation is to achieve the long-term goals of 
section 942, including delivery of the first one billion gallons of 
annual cellulosic biofuel production by 2015, and

[[Page 78664]]

establishment of a biofuels industry after 2015 that is cost 
competitive with gasoline and diesel. The post-auction standards are 
thus intended to ensure that successful bidders make real and 
meaningful progress toward the production of cellulosic biofuels in 
commercially significant quantities. DOE believes that as successive 
auctions yield more and more production of cellulosic biofuels, the 
Nation will move closer to achieving section 942's long-term national 
goal of a commercially viable production capability after 2015. In 
addition, by setting forth clear pre-auction and post-auction 
standards, DOE believes that only the most serious entities will seek 
to participate in each reverse auction.
    More particularly, section 452.2 of the proposed rule defines key 
terms used in the proposed regulations. Section 452.3 describes the 
proposed rule's pre-auction eligibility standards, reverse auction 
procedures, and post-auction standards that must be met as a condition 
of receiving production incentive awards. Section 452.4 sets forth 
proposed terms of and limitations on the incentive production awards 
that will be issued under the program.

B. Definitions

    Section 942 of EPAct 2005 defines ``cellulosic biofuels'' as ``any 
fuel that is produced from cellulosic feedstocks.'' 42 U.S.C. 
16251(b)(1). Because the incentives authorized by section 942 are based 
on a gallon measure, DOE proposes in section 452.2 of the regulations 
to refine the statutory definition of ``cellulosic biofuel'' by 
requiring the production of a liquid fuel. Additionally, the proposed 
rule would define ``cellulosic feedstock'' as any lignocellulosic 
feedstock as so defined by EPAct, section 932(a)(2). This serves to 
make the proposed rule consistent with and complementary to the 
Department's existing Bioenergy Program under section 932 of EPAct and 
supports the Renewable Fuels Standard for biofuels originally in EPAct 
2005, section 1501, which was enhanced by the Energy Independence and 
Security Act of 2007.
    As explained above, the goals of section 942 include the delivery 
of the first one billion gallons of annual cellulosic biofuel 
production by 2015 and establishment of a biofuels industry after 2015 
that is cost competitive with gasoline and diesel. In addition, section 
942(c)(4)(C) requires that, as a condition of receiving an award, 
successful bidders must enter into an agreement with the Secretary to 
begin production of cellulosic biofuels not later than three years 
after the date of the reverse auction in which they participated. 
Taking the aforementioned goals together with the contractual 
requirement of section 942(c)(4)(C), DOE proposes to require successful 
bidders to commit to production of a commercially significant quantity 
within three years of the reverse auction in which they submitted their 
successful bid. This requirement is necessary if the Nation is to be 
able to achieve delivery of the first one billion gallons of annual 
cellulosic biofuel production by 2015 and the establishment of a 
commercially viable cellulosic biofuels production capability after 
2015. Accordingly, ``Commercially Significant Quantity'' is defined in 
the proposed rule as 10 million or greater gallons of cellulosic 
biofuels produced in one year. This volume is an estimate of the volume 
necessary to operate a commercial scale refinery at approximately 60 
percent of nameplate capacity; it is a level adequate to make such a 
facility commercially viable and is based on the size (15 to 20 million 
gallons per year) of commercial scale corn ethanol biorefineries when 
they were first commercialized. See, Funding Opportunity Announcement 
(FOA) DE-PS36-06GO96016, ``Commercial Demonstration of an Integrated 
Biorefinery System for Production of Liquid Transportation Biofuels, 
Biobased Chemicals, Substitutes for Petroleum-based Feedstocks and 
Products, and Biomass-based Heat/Power.''
    Two other proposed definitions similarly reflect DOE's intent to 
assure that the goals of section 942 are achieved. First, ``eligible 
biofuels producer'' is defined as a business association, including but 
not limited to a sole proprietorship, partnership, joint venture, 
corporation, or other business entity that owns and operates, or plans 
to own and operate, an eligible cellulosic biofuels production facility 
and that meets all other eligibility requirements that are conditions 
on the receipt of production incentives under this part. These 
eligibility requirements are discussed in Section II.C.
    Secondly, DOE proposes to define the term ``eligible cellulosic 
biofuels production facility'' as a facility that: (1) Is or will be 
located in the United States (including U.S. territories and 
possessions); (2) meets or will meet all applicable Federal and State 
permitting requirements; and (3) meets any financial criteria 
established by the Secretary.
    DOE encourages interested persons to submit comments on the above 
definitions and to make recommendations regarding other terms that may 
warrant definition in the final rule.

C. Reverse Auction Procedures and Eligibility Requirements

    Solicitations. Under the proposed rule, the reverse auction process 
commences with DOE's issuance of a solicitation. DOE proposes to issue 
the solicitation by publication in the Federal Register and by posting 
the solicitation on its Web site at https://www.eere.energy.gov no later 
than 60 days before the reverse auction. The solicitation would invite 
interested persons and businesses to file eligibility submissions, as 
described herein, and set forth the terms on which bids will be 
accepted.
    Eligibility. As discussed above, the proposed rule includes both 
pre-auction and post-auction eligibility requirements intended to 
ensure that the goals of section 942 are met. The result is a three-
step eligibility process. First, the proposed rule would require 
entities seeking to participate in a reverse auction to make a pre-
auction eligibility submission that includes an implementation plan 
demonstrating at a minimum that they own and operate, or plan to own 
and operate, an eligible cellulosic biofuels production facility; 
identifies the site or proposed site for the facility; identifies one 
or more proposed sources of financing for the construction or expansion 
of the facility; and provides any other additional information 
specified in the applicable solicitation. The proposed rule would 
require the pre-auction eligibility submission, including the 
implementation plan, at a time to be specified in the solicitation 
prior to the reverse auction.
    Second, the proposed rule would require that, within one year of a 
reverse auction, the successful bidder(s) submit a progress report. The 
progress report must demonstrate that the successful bidder has 
acquired the site where its proposed eligible cellulosic biofuels 
production facility will be located; it has obtained secure financing 
commitments for the facility's construction or expansion thereof; a 
licensed construction/design firm has entered into a written 
engineering, procurement, and construction (EPC) agreement for design 
and construction of the facility or facility expansion; and the EPC 
agreement provides for completion of the facility or facility expansion 
such that production operations at the facility are likely to be 
completed in order to commence production of commercially significant 
quantities within three years of the date of the reverse auction.

[[Page 78665]]

    Third, as a condition of receiving the award, the proposed rule 
would require the successful bidder, within 90 days after the reverse 
auction, to enter into an agreement with the Secretary to begin 
production of commercially significant quantities of cellulosic biofuel 
in an eligible cellulosic biofuels production facility within three 
years of the date of the reverse auction in which it made a successful 
bid. The successful bidder must fulfill the terms of its agreement or 
else lose the award.
    Upon meeting the above three eligibility requirements on a timely 
basis, including the timely commencement of production in commercially 
significant quantities, the successful bidder will begin to receive 
production incentives on a volumetric basis, as per the terms of its 
bid. DOE believes that these three eligibility requirements are 
necessary in order to make meaningful progress toward the goals of 
section 942 and to meet the requirements of a production agreement with 
the Secretary, entered into pursuant to section 942(c)(4)(C) of EPAct 
2005.
    Notification of Eligibility Status. The proposed rule provides that 
all parties who make pre-auction eligibility submissions will be 
notified by DOE of their eligibility status no later than 15 days 
before the relevant reverse auction. Similarly, all successful bidders 
will be duly notified of the acceptability of their progress reports 
and contract submissions in the second and third steps of eligibility 
determinations required under the proposed rule.
    Bidding Procedures. The proposed rule provides that following DOE's 
review of pre-auction eligibility submissions and notifications of pre-
auction eligibility status, DOE will conduct an electronic reverse 
auction through a limited duration single bid auction process open only 
to eligible biofuels producers. The proposed rule would require bids to 
be submitted electronically to a Web site specified in the 
solicitation. The ``open window'' period for bid submissions would 
consist of a single continuous, minimum four-hour period for each 
auction. Eligible biofuels producers would submit their electronic bids 
for production incentives, as specified in DOE's regulations and the 
relevant solicitation. Only electronic bids received from pre-auction 
eligible biofuels producers during the open window period would be 
accepted. The proposed rule would require bids to specify a desired 
level of production incentive on a per gallon basis and an estimated 
annual production amount in gallons.
    Bid Evaluation and Incentive Awards Selection and Notification. The 
proposed rule provides that DOE will review the bids received during 
the open window period and, within 45 days following the close of the 
open window for submission of bids, announce on its Web site and by 
direct mail the names of the successful bidders and the terms of their 
bids. As required by section 942(c)(4)(A)(iii) of EPAct 2005, the 
proposed rule states that DOE will issue awards for the bid production 
amounts beginning with the bidder that submitted the bid for the lowest 
level of production incentive on a per gallon basis.
    DOE encourages comments and recommendations regarding the 
advisability of using the above-described electronic single bidding 
process or, alternatively, whether the reverse auction would be 
improved by use of an open iterative process allowing eligible entities 
to submit multiple bids in real-time during the open window period of 
the live auction. In particular, DOE is interested in comments as to 
whether a transparent iterative process, where several rounds of bids 
are posted, would tend to increase economic efficiency by driving down 
the production incentives to a market-clearing level. DOE also invites 
comments regarding the optimum duration of the open window period for 
bidding.
    Statutory Priorities. Section 942(e) of EPAct 2005 requires the 
Secretary to give award priority to projects that: ``(1) Demonstrate 
outstanding potential for local and regional economic development; (2) 
include agricultural producers or cooperatives of agricultural 
producers as equity partners in the ventures; and (3) have a strategic 
agreement in place to fairly reward feedstock suppliers.'' 42 U.S.C. 
16251(e).
    In order to implement this statutory priority scheme in a manner 
that also complies with the statutory requirement to issue awards 
beginning with the eligible entity that submits a bid for lowest level 
of production incentive, DOE proposes to use the priorities in section 
942(e) as a tie-breaker device. Specifically, the proposed rule 
provides in section 452.5(c)(3) that in the event of a tie among the 
lowest bids, preference will be given to the lowest tied bidder based 
on DOE's evaluation of the extent to which of the tied bids best meets 
one or more of the three statutory priority standards. In the event 
more than one lowest tied bid is found to meet the priority standards 
to an equal extent, section 452.5(c)(4) of the proposed rule states 
that the award will be distributed equally on a per capita basis among 
such bidders.
    For example, assume the available funds for section 942 incentive 
awards pursuant to congressional appropriations under a solicitation 
and reverse auction are $2,500,000; assume further that there are two 
pre-qualified lowest bidders, both of which are agricultural producers. 
Assume further that these two bidders submitted identical low bids of 
$.65 per gallon and the two bidders meet the statutory preference 
standards to the same extent; but one of these bidders (Bidder A) 
sought an incentive for 10,000,000 gallons of biofuels production, 
while the other (Bidder B) sought an incentive for 5,000,000 gallons of 
biofuels production. The total production incentive sought under these 
circumstances for Bidder A is $6,500,000 and the total production 
incentive sought by Bidder B is $3,250,000. Under these assumed facts, 
DOE intends to make half of the appropriated funds ($1,250,000) 
available for awards to each of the two lowest successful bidders. 
Bidder A would not receive a greater award than Bidder B even though 
its bid was based on double the production of Bidder B. This approach 
would distribute incentives on the widest scale among lowest successful 
bidders that qualify for statutory preferences.
    DOE invites comments on its proposed method for determining the 
successful bid. DOE is particularly interested in knowing whether it 
would be advisable to apply the statutory priorities not as a tie 
breaker device but as a pre-qualification preference or evaluation 
point preference. With respect to the tie breaker approach proposed in 
this NOPR, DOE is interested in receiving comments from the public 
about the proposed prorating of awards among successful bids that meet 
the statutory priority standards. DOE invites public comment on whether 
it would be preferable for DOE to make a determination of which bidder 
among those who have tied best meets the statutory priority standards, 
thereby obviating the need to prorate awards. DOE is concerned that the 
auction process could be ``gamed,'' i.e., there is a potential for 
undisclosed business or investment interests to ``front'' a bidder that 
qualifies for a statutory priority to the disadvantage of other bidders 
that do not qualify for a statutory priority. DOE encourages parties to 
comment on the likelihood of such abuses and how to best prevent them.

[[Page 78666]]

D. Incentive Award Terms and Limitations

    1. Amount of Incentive. As required by section 942(c)(4)(B) of 
EPAct 2005 and subject to appropriations, the proposed rule states that 
an auction participant selected to receive an award shall receive the 
amount of the production incentive on the per gallon basis requested in 
the auction solicitation for each gallon produced and sold by the 
entity during the first six years of operation.
    2. Failure to Commence Production. As discussed above, the proposed 
rule provides in section 452.4(d) that a successful bidder must enter 
into an agreement with DOE under which the successful bidder agrees to 
begin production of cellulosic biofuels not later than three years 
after the date of the reverse auction in which it submitted a 
successful bid. This is a statutory requirement contained in section 
942(c)(4)(C) of EPAct 2005. Section 452.6(b) of the proposed rule 
provides that failure of a successful bidder to fulfill the terms of 
this agreement by actually commencing production of commercially 
significant quantities of cellulosic biofuels within three years after 
the date of the auction shall result in the immediate revocation of the 
award. DOE invites comments and recommendations concerning the 
appropriateness of this remedy.
    3. Limitations. Section 942(d) of EPAct 2005 establishes five types 
of limitations on the cellulosic biofuels production incentives, 
including: (1) A per gallon amount determined by the Secretary may be 
awarded during the first four years of the program; (2) a declining per 
gallon cap on the incentives awarded over the remaining lifetime of the 
program, to be established by the Secretary, so that cellulosic 
biofuels produced after the first year of annual cellulosic biofuels 
production in the United States in excess of one billion gallons are 
cost competitive with gasoline and diesel; (3) not more than 25 percent 
of the funds committed within each reverse auction may be awarded to 
any one project; (4) not more than $100 million may be awarded in any 
one year; and (5) not more than $1 billion may be awarded over the 
lifetime of the program.
    The proposed rule would implement the foregoing limitations at 
section 452.6(c). In particular, the proposed rule provides that the 
first of the above limitations shall be $1.00 per gallon during the 
first four years of the program. For these purposes, the program would 
be deemed to have commenced on the date that the first solicitation for 
a reverse auction is issued. DOE's intent is to create an incentive for 
early commencement of operations that yield commercially significant 
production volumes in the near term. Because the second limitation 
described above (the declining per gallon cap) will result in lower 
incentive awards in years after the first four years of the program, an 
earlier program commencement date should hasten the period during which 
the higher limitation ceiling will be available. However, DOE solicits 
comments and recommendations regarding its selection of the program 
commencement date.
    4. Transferability of Awards. The proposed rule would permit awards 
to be transferred to successor entities that meet all eligibility 
requirements for the program, as set forth in the proposed rule, and 
enter into an agreement with the Secretary to commence production 
within three years of the date of the reverse auction. DOE encourages 
interested persons to submit comments and recommendations regarding 
these proposed transferability restrictions. In addition, DOE requests 
comments regarding any other transfer-related issues. For example, 
should awards (including the right to the awards and the underlying 
obligation to commence production within three years of the auction) be 
transferable at all? If the awards should be transferable, should the 
awards be transferable prior to the time that production commences? 
Should the awards be transferable to entities not engaged in the 
production of cellulosic biofuels, i.e., should DOE permit the creation 
of a securitized interest and secondary market in production incentive 
awards, or should DOE (as proposed in this NOPR) only permit entities 
actually engaged in cellulosic ethanol production to receive the 
awards?

III. Regulatory Review

A. Executive Order 12866

    Today's proposed rule has been determined to be a significant 
regulatory action under Executive Order 12866, ``Regulatory Planning 
and Review,'' 58 FR 51735 (October 4, 1993). Accordingly, this action 
was subject to review under that Executive Order by the Office of 
Information and Regulatory Affairs of the Office of Management and 
Budget (OMB).

B. National Environmental Policy Act

    DOE has determined that this proposed rule is covered under the 
Categorical Exclusion found in the DOE's National Environmental Policy 
Act (NEPA) regulations at paragraph A6 of Appendix A to Subpart D, 10 
CFR Part 1021, which applies to rulemakings that are strictly 
procedural. DOE notes that the procedures proposed in this NOPR do not 
afford DOE discretion to determine whether or how a facility will be 
constructed or operated. DOE's prescribed role under section 942, that 
is, awarding production incentives to the lowest bidder in a reverse 
auction, is strictly procedural. Accordingly, neither an environmental 
assessment nor an environmental impact statement is required for the 
proposed rule or for an award that DOE gives or proposes to give to a 
successful bidder. If DOE subsequently proposes to take any additional 
actions with respect to successful bidders, separate from the award of 
funds under section 942 of EPAct 2005, DOE will separately evaluate the 
need for NEPA review of those new proposed actions.

C. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires 
preparation of an initial regulatory flexibility analysis for any rule 
that by law must be proposed for public comment, unless the agency 
certifies that the rule, if promulgated, will not have a significant 
economic impact on a substantial number of small entities. As required 
by Executive Order 13272, ``Proper Consideration of Small Entities in 
Agency Rulemaking,'' 67 FR 53461 (August 16, 2002), DOE published 
procedures and policies on February 19, 2003, to ensure that the 
potential impacts of its rules on small entities are properly 
considered during the rulemaking process (68 FR 7990). DOE has made its 
procedures and policies available on the Office of General Counsel's 
Web site: https://www.gc.doe.gov.
    DOE has reviewed today's proposed rule under the provisions of the 
Regulatory Flexibility Act and the procedures and policies published on 
February 19, 2003. The proposed rule will only affect biofuels 
producers if they choose to participate in the reverse auction. 
Moreover, the proposed rule would provide an economic benefit without 
imposing any regulatory requirements on producers of cellulosic 
biofuels. On the basis of the foregoing, DOE certifies that this 
proposed rule would not have a significant economic impact on a 
substantial number of small entities. Accordingly, DOE has not prepared 
a regulatory flexibility analysis for this rulemaking. This 
certification and supporting statement of factual basis will be 
provided to the Chief Counsel for Advocacy of the Small

[[Page 78667]]

Business Administration pursuant to 5 U.S.C. 605(b).

D. Paperwork Reduction Act

    Proposed section 452.4(a) provides that entities that intend to 
participate in a reverse auction must file a pre-auction eligibility 
submission. The pre-auction eligibility submission must contain certain 
information, including an implementation plan, as described above. This 
information will be used by DOE to determine if an entity that files a 
pre-auction eligibility submission will be accepted to participate in 
the reverse auction.
    In addition, proposed section 452.4(c) provides that a bidder must 
submit a progress report. The progress report must contain the 
additional information described above. DOE will use this information 
to evaluate the bidder's progress in the production of cellulosic 
biofuels. DOE has submitted this collection of information to the 
Office of Management and Budget for approval pursuant to the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3501 et seq.) and the procedures 
implementing that Act, 5 CFR 1320.1 et seq.
    DOE estimates that the annual reporting and recordkeeping burden 
for this collection of information will be 30 hours per year (10 
bidders x 3 hours) at a total annual cost of $2250 (10 bidders x $225 
per auction). Burden means the total time, effort, or financial 
resources expended by persons to generate, maintain, retain, or 
disclose or provide information to or for a federal agency. An agency 
may not conduct or sponsor, and a person is not required to respond to 
a collection of information unless it displays a currently valid OMB 
control number.
    Interested parties are invited to submit comments to OMB addressed 
to: Department of Energy Desk Officer, Office of Information and 
Regulatory Affairs, OMB, 725 17th Street, NW., Washington, DC 20503. 
Persons submitting comments to OMB also are requested to send a copy to 
the DOE contact person at the address given in the ADDRESSES section of 
this notice. OMB is particularly interested in comments on (1) The 
necessity of the proposed information collection requirements, 
including whether the information will have practical utility; (2) the 
accuracy of DOE's estimates of the burden; (3) ways to enhance the 
quality, utility, and clarity of the information to be maintained; and 
(4) ways to minimize the burden of the requirements on respondents.

E. Unfunded Mandates Reform Act of 1995

    The Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) generally 
requires Federal agencies to examine closely the impacts of regulatory 
actions on State, local, and tribal governments. Subsection 101(5) of 
title I of that law defines a Federal intergovernmental mandate to 
include any regulation that would impose upon State, local, or tribal 
governments an enforceable duty, except a condition of Federal 
assistance or a duty arising from participating in a voluntary federal 
program. Title II of that law requires each Federal agency to assess 
the effects of Federal regulatory actions on State, local, and tribal 
governments, in the aggregate, or to the private sector, other than to 
the extent such actions merely incorporate requirements specifically 
set forth in a statute. Section 202 of that title requires a Federal 
agency to perform a detailed assessment of the anticipated costs and 
benefits of any rule that includes a Federal mandate which may result 
in costs to State, local, or tribal governments, or to the private 
sector, of $100 million or more in any one year (adjusted annually for 
inflation). 2 U.S.C. 1532(a) and (b). Section 204 of that title 
requires each agency that proposes a rule containing a significant 
Federal intergovernmental mandate to develop an effective process for 
obtaining meaningful and timely input from elected officers of State, 
local, and tribal governments. 2 U.S.C. 1534.
    This proposed rule would not impose a Federal mandate on State, 
local, or tribal governments or on the private sector. Accordingly, no 
assessment or analysis is required under the Unfunded Mandates Reform 
Act of 1995.

F. Treasury and General Government Appropriations Act, 1999

    Section 654 of the Treasury and General Government Appropriations 
Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a Family 
Policymaking Assessment for any proposed rule that may affect family 
wellbeing. The proposed rule would not have any impact on the autonomy 
or integrity of the family as an institution. Accordingly, DOE has 
concluded that it is not necessary to prepare a Family Policymaking 
Assessment.

G. Executive Order 13132

    Executive Order 13132, ``Federalism,'' 64 FR 43255 (August 4, 1999) 
imposes certain requirements on agencies formulating and implementing 
policies or regulations that preempt State law or that have federalism 
implications. Agencies are required to examine the constitutional and 
statutory authority supporting any action that would limit the 
policymaking discretion of the States and carefully assess the 
necessity for such actions. DOE has examined this proposed rule and has 
determined that it would not preempt State law and would not have a 
substantial direct effect on the States, on the relationship between 
the national government and the States, or on the distribution of power 
and responsibilities among the various levels of government. No further 
action is required by Executive Order 13132.

H. Executive Order 12988

    With respect to the review of existing regulations and the 
promulgation of new regulations, section 3(a) of Executive Order 12988, 
``Civil Justice Reform,'' 61 FR 4729 (February 7, 1996), imposes on 
Executive agencies the general duty to adhere to the following 
requirements: (1) Eliminate drafting errors and ambiguity; (2) write 
regulations to minimize litigation; and (3) provide a clear legal 
standard for affected conduct rather than a general standard and 
promote simplification and burden reduction. With regard to the review 
required by section 3(a), section 3(b) of Executive Order 12988 
specifically requires that Executive agencies make every reasonable 
effort to ensure that the regulation: (1) Clearly specifies the 
preemptive effect, if any; (2) clearly specifies any effect on existing 
Federal law or regulation; (3) provides a clear legal standard for 
affected conduct while promoting simplification and burden reduction; 
(4) specifies the retroactive effect, if any; (5) adequately defines 
key terms; and (6) addresses other important issues affecting clarity 
and general draftsmanship under any guidelines issued by the Attorney 
General. Section 3(c) of Executive Order 12988 requires Executive 
agencies to review regulations in light of applicable standards in 
section 3(a) and section 3(b) to determine whether they are met or it 
is unreasonable to meet one or more of them. DOE has completed the 
required review and determined that, to the extent permitted by law, 
the proposed rule meets the relevant standards of Executive Order 
12988.

I. Treasury and General Government Appropriations Act, 2001

    The Treasury and General Government Appropriations Act, 2001 (44 
U.S.C. 3516 note) provides for agencies to review most disseminations 
of information to the public under guidelines established by each 
agency

[[Page 78668]]

pursuant to general guidelines issued by OMB.
    OMB's guidelines were published at 67 FR 8452 (February 22, 2002), 
and DOE's guidelines were published at 67 FR 62446 (October 7, 2002). 
DOE has reviewed today's proposed rule under the OMB and DOE guidelines 
and has concluded that it is consistent with applicable policies in 
those guidelines.

J. Executive Order 13211

    Executive Order 13211, ``Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use,'' 66 FR 28355 
(May 22, 2001) requires Federal agencies to prepare and submit to OMB, 
a Statement of Energy Effects for any proposed significant energy 
action. A ``significant energy action'' is defined as any action by an 
agency that promulgated or is expected to lead to promulgation of a 
final rule, and that: (1) Is a significant regulatory action under 
Executive Order 12866, or any successor order; and (2) is likely to 
have a significant adverse effect on the supply, distribution, or use 
of energy, or (3) is designated by the Administrator of OIRA as a 
significant energy action. For any proposed significant energy action, 
the agency must give a detailed statement of any adverse effects on 
energy supply, distribution, or use should the proposal be implemented, 
and of reasonable alternatives to the action and their expected 
benefits on energy supply, distribution, and use. Today's regulatory 
action would not have a significant adverse effect on the supply, 
distribution, or use of energy and is therefore not a significant 
energy action. Accordingly, DOE has not prepared a Statement of Energy 
Effects.

K. Consultation

    Pursuant to section 942(c)(1) of EPAct 2005, DOE will consult with 
the Secretary of Agriculture, the Secretary of Defense, and the 
Administrator of the Environmental Protection Agency prior to issuing a 
final rule.

IV. Approval of the Office of the Secretary

    The issuance of this proposed rule has been approved by the Office 
of the Secretary.

List of Subjects in 10 CFR Part 452

    Fuel, Grant programs, Recordkeeping and reporting requirements, 
Renewable energy.

    Issued in Washington, DC, on December 11, 2008.
Steven G. Chalk,
Principal Deputy Assistant Secretary, Energy Efficiency and Renewable 
Energy.

    For the reasons stated in the preamble, DOE proposes to amend 
chapter II of title 10 of the Code of Federal Regulations by adding a 
new part 452 as set forth below:

PART 452--PRODUCTION INCENTIVES FOR CELLULOSIC BIOFUELS

Sec.
452.1 Purpose and scope.
452.2 Definitions.
452.3 Solicitations.
452.4 Eligibility requirements.
452.5 Bidding procedures.
452.6 Incentive award terms and limitations.

    Authority: 42 U.S.C. 7101 et seq.; 42 U.S.C. 16251.


Sec.  452.1  Purpose and scope.

    (a) This part sets forth the standards, policies, and procedures 
that the Department of Energy uses for receiving, evaluating, and 
awarding bids in reverse auctions of production incentive payments for 
cellulosic biofuels under section 942 of the Energy Policy Act of 2005 
(42 U.S.C. 16251).
    (b) Part 1024 of chapter X of title 10 of the Code of Federal 
Regulations shall not apply to actions taken under this part.


Sec.  452.2  Definitions.

    Cellulosic biofuels means any liquid fuel produced from cellulosic 
feedstocks.
    Cellulosic feedstock means any lignocellulosic feedstock as defined 
by EPAct 2005, section 932(a)(2).
    Commercially significant quantity means 10 million gallons or more 
of cellulosic biofuels produced in one year.
    DOE means the U.S. Department of Energy.
    Eligible biofuels producer means a business association, including 
but not limited to a sole proprietorship, partnership, joint venture, 
corporation, or other business entity that owns and operates, or plans 
to own and operate, an eligible cellulosic biofuels production facility 
and that meets all other eligibility requirements that are conditions 
on the receipt of production incentives under this part.
    Eligible cellulosic biofuels production facility means a facility--
    (1) Located in the United States (including U.S. territories and 
possessions);
    (2) Which meets all applicable Federal and State permitting 
requirements; and
    (3) Meets any financial criteria established by the Secretary.
    EPAct 2005 means the Energy Policy Act of 2005, Public Law 109-58 
(August 8, 2005).
    Open window means the period during each reverse auction, as 
specified in an associated solicitation, during which DOE accepts bids 
for production incentives under this part.
    Secretary means the Secretary of Energy.


Sec.  452.3  Solicitations.

    The reverse auction process commences with the issuance of a 
solicitation by DOE. DOE will publish a solicitation in the Federal 
Register and shall post the solicitation on its Web site at https://
www.eere.energy.gov no later than 60 days before the bidding in a 
reverse auction under this part commences. The solicitation shall:
    (a) Invite interested persons and businesses to submit pre-
qualification statements;
    (b) Set forth the terms on which bids will be accepted;
    (c) Specify the open window for bidding; and
    (d) Specify the date by which successful bidders will be required 
to file pre-auction eligibility submissions.


Sec.  452.4  Eligibility requirements.

    (a) Pre-auction eligibility submissions. (1) Entities that intend 
to participate in a reverse auction, within the time period stated in 
the relevant solicitation, must file a pre-auction eligibility 
submission that provides all information requested in the applicable 
solicitation to which it is responding, including an implementation 
plan.
    (2) Each pre-auction eligibility submission's implementation plan 
must, at a minimum:
    (i) Demonstrate that the filing party owns and operates or plans to 
own and operate an eligible cellulosic biofuels production facility;
    (ii) Identify the site or proposed site for the filing party's 
eligible cellulosic biofuels production facility; and
    (iii) Identify one or more proposed sources of financing for the 
construction or expansion of the filing party's eligible cellulosic 
biofuels production facility.
    (b) Notification of pre-auction eligibility status. DOE shall 
notify each entity that files a pre-auction eligibility submission of 
its acceptance or rejection no later than 15 days before the reverse 
auction for which the submission was made. A DOE decision constitutes 
final agency action and is conclusive.

[[Page 78669]]

    (c) Progress reports. Within one year after the reverse auction in 
which a bidder successfully competed, the bidder must submit a progress 
report that includes all additional information required by the 
solicitation in which the bidder submitted a successful bid and which 
demonstrates that the bidder has:
    (1) Acquired the site where its proposed eligible cellulosic 
biofuels production facility is or will be located;
    (2) Obtained secure financing commitments for the plant or 
expansion thereof, as necessary to produce cellulosic biofuels; and
    (3) Entered into a written engineering, procurement, and 
construction (EPC) contract for design and construction of the eligible 
cellulosic biofuels production facility; such EPC contract must provide 
for completion of construction of the eligible cellulosic biofuels 
production facility such that operations at the plant or plant 
expansion will commence within three years of the reverse auction in 
which the bidder successfully competed.
    (d) Production agreement. Within 90 days after submission of its 
progress report under paragraph (c) of this section, the successful 
bidder must enter into an agreement with DOE which requires the bidder 
to begin production of commercially significant quantities of 
cellulosic biofuels, at the plant or plant expansion that was the 
subject of the relevant bid, not later than three years from the date 
of the acceptance of the successful bid.
    (e) Confirmation of continuing eligibility. After receiving the 
progress report under paragraph (c) of this section and upon 
confirmation by DOE that the successful bidder has entered into a 
production agreement with DOE, as described in paragraph (d) of this 
section, DOE will confirm to the bidder that it continues to meet the 
eligibility requirements of this part.
    (f) Contractual condition on eligibility. (1) As a condition of the 
receipt of an award under this part, a successful bidder in a reverse 
auction under this part must demonstrate that it has fulfilled the 
terms of its production agreement entered into with DOE pursuant to 
paragraph (d) of this section.
    (2) As a condition of continuing to receive production incentive 
payments under this part, a bidder that has entered into a production 
agreement with DOE must annually submit to DOE, by a commercially 
reasonable date specified by DOE, verification of the bidder's 
production volumes for the prior calendar year. Within 90 days of the 
submission of such verification, DOE shall notify the successful bidder 
whether the bidder has fulfilled the terms of the production agreement 
and shall make payment of any production incentive awards then 
outstanding for the one year period covered by the verified data 
submission.


Sec.  452.5  Bidding procedures.

    DOE shall conduct an electronic reverse auction through a limited 
duration single bid per producer auction process open only to pre-
auction eligible cellulosic biofuels producers. The following 
procedures shall be used:
    (a) DOE shall accept only electronic bids received from pre-auction 
eligible cellulosic biofuels producers during the open window 
established in the solicitation. The open window shall consist of a 
single continuous period of at least four hours for each auction.
    (b) Bids must specify:
    (1) A desired level of production incentive on a per gallon basis.
    (2) An estimated annual production amount in gallons.
    (3) All bids will be confidential until 45 days after the close of 
the window for submission of bids for the reverse auction.
    (c) Bid evaluation and incentive awards selection.
    (1) After DOE evaluates the bids received during the open window, 
it shall, within 45 days following the close of the open window for 
submission of bids for the reverse auction, announce on DOE's Web site 
and by direct mail the names of the successful bidders and the terms of 
their bids.
    (2) DOE shall issue awards for the bid production amounts beginning 
with the bidder that submitted the bid for the lowest level of 
production incentive on a per gallon basis.
    (3) In the event of a tie among the lowest bids, preference will be 
given to the lowest tied bidder based on DOE's evaluation of the extent 
to which the tied bids meet the following criteria:
    (i) Demonstrates outstanding potential for local and regional 
economic development;
    (ii) Includes agricultural producers or cooperatives of 
agricultural producers as equity partners in the ventures; and
    (iii) Has a strategic agreement in place to fairly reward feedstock 
suppliers.
    (4) In the event more than one lowest tied bid equally meets the 
standards in paragraph (c)(3) of this section, the award will be 
distributed equally on a per capita basis among those lowest tied 
bidders meeting the standards.


Sec.  452.6  Incentive award terms and limitations.

    (a) Amount of incentive. Subject to the availability of 
appropriated funds and the limitations in paragraph (c) of this 
section, an eligible cellulosic biofuels producer selected to receive 
an award shall receive the amount of the production incentive on the 
per gallon basis requested in the auction solicitation for each gallon 
produced and sold by the entity during the first six years of operation 
of its eligible cellulosic biofuels production facility.
    (b) Failure to commence production. Failure by an eligible 
cellulosic biofuels producer that made a successful bid to commence 
production of cellulosic biofuels, at the eligible cellulosic biofuels 
production facility that was the subject of the successful bid, by the 
end of the third year after the close of submission of the open window 
of bids for the reverse auction in which it submitted a successful bid, 
shall result in immediate revocation of DOE's award to that producer.
    (c) Incentive award limitations. The following limits shall apply 
to awards of cellulosic biofuels production incentives under this part:
    (1) During the first four years after the commencement of the 
program, the incentive shall be limited to $1.00 per gallon. For 
purposes of this limitation, the program shall be deemed to have 
commenced on the date that the first solicitation for a reverse auction 
is issued;
    (2) A per gallon cap over the remaining lifetime of the program of 
$.95 per gallon provided that--
    (i) This cap shall be lowered by $.05 each year commencing the 
first year after annual cellulosic biofuels production in the United 
States exceeds one billion gallons;
    (ii) Not more than 25 percent of the funds committed within each 
reverse auction shall be awarded to any single project;
    (iii) Not more than $100 million in production incentives shall be 
awarded in any one calendar year; and
    (iv) Not more than $1 billion in production incentives shall be 
awarded over the lifetime of the program.
    (d) Participation in subsequent auctions. A successful bidder in a 
reverse auction under this part may participate in subsequent reverse 
auctions if the incentives sought will assist the addition of plant 
production capacity for the eligible cellulosic biofuels production 
facility associated with its previously successful bid.
    (e) Transferability of awards. A production incentive award under 
this part may be transferred to a successor entity that meets all 
eligibility requirements of this part, including execution of an 
agreement with DOE to commence production of cellulosic

[[Page 78670]]

biofuels in commercially significant quantities not later than three 
years of the date that bidding closes on the reverse auction in which 
the predecessor entity submitted a successful bid.

 [FR Doc. E8-30500 Filed 12-22-08; 8:45 am]
BILLING CODE 6450-01-P