Regulation of Fuels and Fuel Additives: Changes to Renewable Fuel Standard Program, 24904-25143 [E9-10978]

Agencies

• ENVIRONMENTAL PROTECTION AGENCY

[Federal Register Volume 74, Number 99 (Tuesday, May 26, 2009)]
[Proposed Rules]
[Pages 24904-25143]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-10978]



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Part II





Environmental Protection Agency





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40 CFR Part 80



Regulation of Fuels and Fuel Additives: Changes to Renewable Fuel 
Standard Program; Proposed Rule

Federal Register / Vol. 74, No. 99 / Tuesday, May 26, 2009 / Proposed 
Rules

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2005-0161; FRL-8903-1]
RIN 2060-A081


Regulation of Fuels and Fuel Additives: Changes to Renewable Fuel 
Standard Program

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice of proposed rulemaking.

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SUMMARY: Under the Clean Air Act, as amended by Sections 201, 202, and 
210 of the Energy Independence and Security Act of 2007, the 
Environmental Protection Agency is required to promulgate regulations 
implementing changes to the Renewable Fuel Standard program. The 
revised statutory requirements specify the volumes of cellulosic 
biofuel, biomass-based diesel, advanced biofuel, and total renewable 
fuel that must be used in transportation fuel each year, with the 
volumes increasing over time. The revised statutory requirements also 
include new definitions and criteria for both renewable fuels and the 
feedstocks used to produce them, including new greenhouse gas emission 
thresholds for renewable fuels. For the first time in a regulatory 
program, an assessment of greenhouse gas emission performance is being 
utilized to establish those fuels that qualify for the four different 
renewable fuel standards. As mandated by the revised statutory 
requirements, the greenhouse gas emission assessments must evaluate the 
full lifecycle emission impacts of fuel production including both 
direct and indirect emissions, including significant emissions from 
land use changes. The proposed program is expected to reduce U.S. 
dependence on foreign sources of petroleum by increasing domestic 
sources of energy. Based on our lifecycle analysis, we believe that the 
expanded use of renewable fuels would provide significant reductions in 
greenhouse gas emissions such as carbon dioxide that affect climate 
change. We recognize the significance of using lifecycle greenhouse gas 
emission assessments that include indirect impacts such as emission 
impacts of indirect land use changes. Therefore, in this preamble we 
have been transparent in breaking out the various sources of greenhouse 
gas emissions included in the analysis and are seeking comments on our 
methodology as well as various options for determining the lifecycle 
greenhouse gas emissions (GHG) for each fuel. In addition to seeking 
comments on the information in this document and its supporting 
materials, the Agency is conducting peer reviews of critical aspects of 
the lifecycle methodology. The increased use of renewable fuels would 
also impact criteria pollutant emissions, with some pollutants such as 
volatile organic compounds (VOC) and nitrogen oxides (NOX) 
expected to increase and other pollutants such as carbon monoxide (CO) 
and benzene expected to decrease. The production of feedstocks used to 
produce renewable fuels is also expected to impact water quality.
    This action proposes regulations designed to ensure that refiners, 
blenders, and importers of gasoline and diesel would use enough 
renewable fuel each year so that the four volume requirements of the 
Energy Independence and Security Act would be met with renewable fuels 
that also meet the required lifecycle greenhouse gas emissions 
performance standards. Our proposed rule describes the standards that 
would apply to these parties and the renewable fuels that would qualify 
for compliance. The proposed regulations make a number of changes to 
the current Renewable Fuel Standard program while retaining many 
elements of the compliance and trading system already in place.

DATES: Comments must be received on or before July 27, 2009, 60 days 
after publication in the Federal Register. Under the Paperwork 
Reduction Act, comments on the information collection provisions are 
best assured of having full effect if the Office of Management and 
Budget (OMB) receives a copy of your comments on or before June 25, 
2009, 30 days after date of publication in the Federal Register.
    Hearing: We will hold a public hearing on June 9, 2009 at the 
Dupont Hotel in Washington, DC. The hearing will start at 10 a.m. local 
time and continue until everyone has had a chance to speak. If you want 
to testify at the hearing, notify the contact person listed under FOR 
FURTHER INFORMATION CONTACT by June 1, 2009.
    Workshop: We will hold a workshop on June 10-11, 2009 at the Dupont 
Hotel in Washington, DC to present details of our lifecycle GHG 
analysis. During this workshop, we intend to go through the lifecycle 
GHG analysis included in this proposal. The intent of this workshop is 
to help ensure a full understanding of our lifecycle analysis, the 
major issues identified and the options discussed. We expect that this 
workshop will help ensure that we receive submission of the most 
thoughtful and useful comments to this proposal and that the best 
methodology and assumptions are used for calculating GHG emissions 
impacts of fuels for the final rule. While this workshop will be held 
during the comment period, it is not intended to replace either the 
formal public hearing or the need to submit comments to the docket.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-
OAR-2005-0161, by one of the following methods:
     www.regulations.gov: Follow the on-line instructions for 
submitting comments.
     E-mail: asdinfo@epa.gov.
     Mail: Air and Radiation Docket and Information Center, 
Environmental Protection Agency, Mailcode: 2822T, 1200 Pennsylvania 
Ave., NW., Washington, DC 20460. In addition, please mail a copy of 
your comments on the information collection provisions to the Office of 
Information and Regulatory Affairs, Office of Management and Budget 
(OMB), Attn: Desk Officer for EPA, 725 17th St., NW., Washington, DC 
20503.
     Hand Delivery: EPA Docket Center, EPA West Building, Room 
3334, 1301 Constitution Ave., NW., Washington, DC 20004. Such 
deliveries are only accepted during the Docket's normal hours of 
operation, and special arrangements should be made for deliveries of 
boxed information.
    Instructions: Direct your comments to Docket ID No. EPA-HQ-OAR-
2005-0161. EPA's policy is that all comments received will be included 
in the public docket without change and may be made available online at 
www.regulations.gov, including any personal information provided, 
unless the comment includes information claimed to be Confidential 
Business Information (CBI) or other information whose disclosure is 
restricted by statute. Do not submit information that you consider to 
be CBI or otherwise protected through www.regulations.gov or e-mail. 
The www.regulations.gov Web site is an ``anonymous access'' system, 
which means EPA will not know your identity or contact information 
unless you provide it in the body of your comment. If you send an e-
mail comment directly to EPA without going through www.regulations.gov 
your e-mail address will be automatically captured and included as part 
of the comment that is placed in the public docket and made available 
on the Internet. If you submit an electronic comment, EPA recommends 
that you include your name and other contact information in the body of 
your

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comment and with any disk or CD-ROM you submit. If EPA cannot read your 
comment due to technical difficulties and cannot contact you for 
clarification, EPA may not be able to consider your comment. Electronic 
files should avoid the use of special characters, any form of 
encryption, and be free of any defects or viruses. For additional 
information about EPA's public docket visit the EPA Docket Center 
homepage at https://www.epa.gov/epahome/dockets.htm. For additional 
instructions on submitting comments, go to Section XI, Public 
Participation, of the SUPPLEMENTARY INFORMATION section of this 
document.
    Docket: All documents in the docket are listed in the 
www.regulations.gov index. Although listed in the index, some 
information is not publicly available, e.g., CBI or other information 
whose disclosure is restricted by statute. Certain other material, such 
as copyrighted material, will be publicly available only in hard copy. 
Publicly available docket materials are available either electronically 
in www.regulations.gov or in hard copy at the Air and Radiation Docket 
and Information Center, EPA/DC, EPA West, Room 3334, 1301 Constitution 
Ave., NW., Washington, DC. The Public Reading Room is open from 8:30 
a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The 
telephone number for the Public Reading Room is (202) 566-1744, and the 
telephone number for the Air Docket is (202) 566-1742.
    Hearing: The public hearing will be held on June 9, 2009 at the 
Dupont Hotel, 1500 New Hampshire Avenue, NW., Washington, DC 20036. See 
Section XI, Public Participation, for more information about the public 
hearing.

FOR FURTHER INFORMATION CONTACT: Julia MacAllister, Office of 
Transportation and Air Quality, Assessment and Standards Division, 
Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor, MI 
48105; Telephone number: 734-214-4131; Fax number: 734-214-4816; E-mail 
address: macallister.julia@epa.gov, or Assessment and Standards 
Division Hotline; telephone number (734) 214-4636; E-mail address 
asdinfo@epa.gov.

SUPPLEMENTARY INFORMATION:

General Information

A. Does This Proposal Apply to Me?

    Entities potentially affected by this proposal are those involved 
with the production, distribution, and sale of transportation fuels, 
including gasoline and diesel fuel or renewable fuels such as ethanol 
and biodiesel. Regulated categories include:

 
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                                               NAICS \1\   SIC \2\
                   Category                      codes      codes                         Examples of potentially regulated entities
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Industry.....................................     324110       2911  Petroleum Refineries.
Industry.....................................     325193       2869  Ethyl alcohol manufacturing.
Industry.....................................     325199       2869  Other basic organic chemical manufacturing.
Industry.....................................     424690       5169  Chemical and allied products merchant wholesalers.
Industry.....................................     424710       5171  Petroleum bulk stations and terminals.
Industry.....................................     424720       5172  Petroleum and petroleum products merchant wholesalers.
Industry.....................................     454319       5989  Other fuel dealers.
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\1\ North American Industry Classification System (NAICS).
\2\ Standard Industrial Classification (SIC) system code.

    This table is not intended to be exhaustive, but rather provides a 
guide for readers regarding entities likely to be regulated by this 
proposed action. This table lists the types of entities that EPA is now 
aware could potentially be regulated by this proposed action. Other 
types of entities not listed in the table could also be regulated. To 
determine whether your activities would be regulated by this proposed 
action, you should carefully examine the applicability criteria in 40 
CFR part 80. If you have any questions regarding the applicability of 
this proposed action to a particular entity, consult the person listed 
in the preceding FOR FURTHER INFORMATION CONTACT section.

B. What Should I Consider as I Prepare My Comments for EPA?

1. Submitting CBI
    Do not submit this information to EPA through www.regulations.gov 
or e-mail. Clearly mark the part or all of the information that you 
claim to be confidential business information (CBI). For CBI 
information in a disk or CD-ROM that you mail to EPA, mark the outside 
of the disk or CD-ROM as CBI and then identify electronically within 
the disk or CD-ROM the specific information that is claimed as CBI. In 
addition to one complete version of the comment that includes 
information claimed as CBI, a copy of the comment that does not contain 
the information claimed as CBI must be submitted for inclusion in the 
public docket. Information so marked will not be disclosed except in 
accordance with procedures set forth in 40 CFR part 2.
2. Tips for Preparing Your Comments
    When submitting comments, remember to:
     Explain your views as clearly as possible.
     Describe any assumptions that you used.
     Provide any technical information and/or data you used 
that support your views.
     If you estimate potential burden or costs, explain how you 
arrived at your estimate.
     Provide specific examples to illustrate your concerns.
     Offer alternatives.
     Make sure to submit your comments by the comment period 
deadline identified.
     To ensure proper receipt by EPA, identify the appropriate 
docket identification number in the subject line on the first page of 
your response. It would also be helpful if you provided the name, date, 
and Federal Register citation related to your comments.
    We are primarily seeking comment on the proposed 40 CFR Part 80 
Subpart M regulatory language that is not directly included in 40 CFR 
Part 80 Subpart K. For the proposed subpart M regulatory language that 
is unchanged from subpart K, we are only soliciting comment as it 
relates to its use for the RFS2 rule.

Outline of This Preamble

I. Introduction
    A. Renewable Fuels and the Transportation Sector

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    B. Renewable Fuels and Greenhouse Gas Emissions
    C. Building on the RFS1 Program
II. Overview of the Proposed Program
    A. Summary of New Provisions of the RFS Program
    1. Required Volumes of Renewable Fuel
    2. Changes in How Renewable Fuel Is Defined
    3. Analysis of Lifecycle Greenhouse Gas Emissions and Thresholds 
for Renewable Fuels
    4. Coverage Expanded to Transportation Fuel, Including Diesel 
and Nonroad Fuels
    5. Effective Date for New Requirements
    6. Treatment of Required Volumes Preceding the RFS2 Effective 
Date
    7. Waivers and Credits for Cellulosic Biofuel
    8. Proposed Standards for 2010
    B. Impacts of Increasing Volume Requirements in the RFS2 Program
    1. Greenhouse Gases and Fossil Fuel Consumption
    2. Economic Impacts and Energy Security
    3. Emissions, Air Quality, and Health Impacts
    4. Water
    5. Agricultural Commodity Prices
III. What Are the Major Elements of the Program Required Under EISA?
    A. Changes to Renewable Identification Numbers (RINs)
    B. New Eligibility Requirements for Renewable Fuels
    1. Changes in Renewable Fuel Definitions
    a. Renewable Fuel and Renewable Biomass
    b. Advanced Biofuel
    c. Cellulosic Biofuel
    d. Biomass-Based Diesel
    e. Additional Renewable Fuel
    2. Lifecycle GHG Thresholds
    3. Renewable Fuel Exempt From 20 Percent GHG Threshold
    a. Definition of Commence Construction
    b. Definition and Boundaries of a Facility
    c. Options Proposed in Today's Rulemaking
    i. Basic Approach: Grandfathering Limited to Baseline Volumes
    (1) Increases in volume of renewable fuel produced at 
grandfathered facilities due to expansion
    (2) Replacements of equipment
    (3) Registration, Recordkeeping and Reporting
    (4) Sub-option of treatment of future modifications
    ii. Alternative Options for Which We Seek Comment
    (1) Facilities that meet the definition of ``reconstruction'' 
are considered new
    (2) Expiration date of 15 years for exempted facilities
    (3) Expiration date of 15 years for grandfathered facilities and 
limitation on volume
    (4) ``Significant production units'' are defined as facilities
    (5) Indefinite grandfathering and no limitations placed on 
volume
    4. Renewable Biomass with Land Restrictions
    a. Definitions of Terms
    i. Planted Crops and Crop Residue
    ii. Planted Trees and Tree Residue
    iii. Slash and Pre-Commercial Thinnings
    iv. Biomass Obtained From Certain Areas at Risk From Wildfire
    b. Issues Related to Implementation and Enforceability
    i. Ensuring That RINs Are Generated Only for Fuels Made From 
Renewable Biomass
    ii. Ensuring That RINs Are Generated for All Qualifying 
Renewable Fuel
    c. Review of Existing Programs
    i. USDA Programs
    ii. Third-Party Programs
    d. Approaches for Domestic Renewable Fuel
    e. Approaches for Foreign Renewable Fuel
    C. Expanded Registration Process for Producers and Importers
    1. Domestic Renewable Fuel Producers
    2. Foreign Renewable Fuel Producers
    3. Renewable Fuel Importers
    4. Process and Timing
    D. Generation of RINs
    1. Equivalence Values
    2. Fuel Pathways and Assignment of D Codes
    a. Domestic Producers
    b. Foreign Producers
    c. Importers
    3. Facilities With Multiple Applicable Pathways
    4. Facilities That Co-Process Renewable Biomass and Fossil Fuels
    5 Treatment of Fuels Without an Applicable D Code
    6. Carbon Capture and Storage (CCS)
    E. Applicable Standards
    1. Calculation of Standards
    a. How Would the Standards Be Calculated?
    b. Proposed Standards for 2010
    c. Projected Standards for Other Years
    d. Alternative Effective Date
    2. Treatment of Biomass-Based Diesel in 2009 and 2010
    a. Proposed Shift in Biomass-Based Diesel Requirement from 2009 
to 2010
    i. First Option for Treatment of 2009 Biodiesel and Renewable 
Diesel RINs
    ii. Second Option for Treatment of 2009 Biodiesel and Renewable 
Diesel RINs
    b. Proposed Treatment of Deficit Carryovers and Valid RIN Life 
for Adjusted 2010 Biomass-Based Diesel Requirement
    c. Alternative Approach to Treatment of Biomass-Based Diesel in 
2009 and 2010
    F. Fuels That Are Subject to the Standards
    1. Gasoline
    2. Diesel
    3. Other Transportation Fuels
    G. Renewable Volume Obligations (RVOs)
    1. Determination of RVOs Corresponding to the Four Standards
    2. RINs Eligible to Meet Each RVO
    3. Treatment of RFS1 RINs under RFS2
    a. Use of 2009 RINs in 2010
    b. Deficit Carryovers from the RFS1 Program to RFS2
    4. Alternative Approach to Designation of Obligated Parties
    H. Separation of RINs
    1. Nonroad
    2. Heating Oil and Jet Fuel
    3. Exporters
    4. Alternative Approaches to RIN Transfers
    5. Neat Renewable Fuel and Renewable Fuel Blends Designated as 
Transportation Fuel, Home Heating Oil, or Jet Fuel
    I. Treatment of Cellulosic Biofuel
    1. Cellulosic Biofuel Standard
    2. EPA Cellulosic Allowances for Cellulosic Biofuel
    3. Potential Adverse Impacts of Allowances
    J. Changes to Recordkeeping and Reporting Requirements
    1. Recordkeeping
    2. Reporting
    3. Additional Requirements for Producers of Renewable Natural 
Gas, Electricity, and Propane
    K. Production Outlook Reports
    L. What Acts Are Prohibited and Who Is Liable for Violations?
IV. What Other Program Changes Have We Considered?
    A. Attest Engagements
    B. Small Refinery and Small Refiner Flexibilities
    1. Small Refinery Temporary Exemption
    2. Small Refiner Flexibilities
    a. Extension of Existing RFS1 Temporary Exemption
    b. Program Review
    c. Extensions of the Temporary Exemption Based on 
Disproportionate Economic Hardship
    d. Phase-in
    e. RIN-Related Flexibilities
    C. Other Flexibilities
    1. Upward Delegation of RIN-Separating Responsibilities
    2. Small Producer Exemption
    D. 20% Rollover Cap
    E. Concept for EPA Moderated Transaction System
    2. How EMTS Would Work
    3. Implementation of EMTS
    F. Retail Dispenser Labelling for Gasoline with Greater than 10 
Percent Ethanol
V. Assessment of Renewable Fuel Production Capacity and Use
    A. Summary of Projected Volumes
    1. Reference Case
    2. Control Case for Analyses
    a. Cellulosic Biofuel
    b. Biomass-Based Diesel
    c. Other Advanced Biofuel
    d. Other Renewable Fuel
    B. Renewable Fuel Production
    1. Corn/Starch Ethanol
    a. Historic/Current Production
    b. Forecasted Production Under RFS2
    2. Cellulosic Ethanol
    a. Current Production/Plans
    b. Federal/State Production Incentives
    c. Feedstock Availability
    i Urban Waste
    ii. Agricultural and Forestry Residues
    iii Dedicated Energy Crops
    iv. Summary of Cellulosic Feedstocks for 2022
    v. Cellulosic Plant Siting
    3. Imported Ethanol
    a. Historic World Ethanol Production and Consumption
    b. Historic/Current Domestic Imports
    c. Projected Domestic Imports
    4. Biodiesel & Renewable Diesel
    a. Historic and Projected Production
    i. Biodiesel

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    ii. Renewable Diesel
    b. Feedstock Availability
    C. Renewable Fuel Distribution
    1. Overview of Ethanol Distribution
    2. Overview of Biodiesel Distribution
    3. Overview of Renewable Diesel Distribution
    4. Changes in Freight Tonnage Movements
    5. Necessary Rail System Accommodations
    6. Necessary Marine System Accommodations
    7. Necessary Accommodations to the Road Transportation System
    8. Necessary Terminal Accommodations
    9. Need for Additional E85 Retail Facilities
    D. Ethanol Consumption
    1. Historic/Current Ethanol Consumption
    2. Increased Ethanol Use under RFS2
    a. Projected Gasoline Energy Demand
    b. Projected Growth in Flexible Fuel Vehicles
    c. Projected Growth in E85 Access
    d. Required Increase in E85 Refueling Rates
    e. Market Pricing of E85 Versus Gasoline
    3. Other Mechanisms for Getting Beyond the E10 Blend Wall
    a. Mandate for FFV Production
    b. Waiver of Mid-Level Ethanol Blends (E15/E20)
    c. Partial Waiver for Mid-Level Blends
    d. Non-Ethanol Cellulosic Biofuel Production
    e. Measurement Tolerance for E10
    f. Redefining ``Substantially Similar'' to Allow Mid-Level 
Ethanol Blends
VI. Impacts of the Program on Greenhouse Gas Emissions
    A. Introduction
    1. Definition of Lifecycle GHG Emissions
    2. History and Evolution of GHG Lifecycle Analysis
    B. Methodology
    1. Scenario Description
    2. Scope of the Analysis
    a. Legal Interpretation of Lifecycle Greenhouse Gas Emissions
    b. System Boundaries
    3. Modeling Framework
    4. Treatment of Uncertainty
    5. Components of the Lifecycle GHG Emissions Analysis
    a. Feedstock Production
    i. Domestic Agricultural Sector Impacts
    ii. International Agricultural Sector GHG Impacts
    b. Land Use Change
    i. Amount of Land Converted
    ii. Where Land Is Converted
    iii. What Type of Land Is Converted
    iv. What Are the GHG Emissions Associated with Different Types 
of Land Conversion
    v. Assessing GHG Emissions Impacts Over Time and Potential 
Application of a GHG Discount Rate
    c. Feedstock Transport
    d. Processing
    e. Fuel Transport
    f. Tailpipe Combustion
    6. Petroleum Baseline
    7. Energy Sector Indirect Impacts
    C. Fuel Specific GHG Emissions Estimates
    1. Greenhouse Gas Emissions Reductions Relative to the 2005 
Petroleum Baseline
    a. Corn Ethanol
    b. Imported Ethanol
    c. Cellulosic Ethanol
    d. Biodiesel
    2. Treatment of GHG Emissions Over Time
    D. Thresholds
    E. Assignment of Pathways to Renewable Fuel Categories
    1. Statutory Requirements
    2. Assignments for Pathways Subjected to Lifecycle Analyses
    3. Assignments for Additional Pathways
    a. Ethanol From Starch
    b. Renewable Fuels from Cellulosic Biomass
    c. Biodiesel
    d. Renewable Diesel Through Hydrotreating
    4. Summary
    F. Total GHG Emission Reductions
    G. Effects of GHG Emission Reductions and Changes in Global 
Temperature and Sea Level
    1. Introduction
    2. Estimated Projected Reductions in Global Mean Surface 
Temperatures
VII. How Would the Proposal Impact Criteria and Toxic Pollutant 
Emissions and Their Associated Effects?
    A. Overview of Impacts
    B. Fuel Production & Distribution Impacts of the Proposed 
Program
    C. Vehicle and Equipment Emission Impacts of Fuel Program
    D. Air Quality Impacts
    1. Current Levels of PM2.5, Ozone and Air Toxics
    2. Impacts of Proposed Standards on Future Ambient 
Concentrations of PM2.5, Ozone and Air Toxics
    E. Health Effects of Criteria and Air Toxic Pollutants
    1. Particulate Matter
    a. Background
    b. Health Effects of PM
    2. Ozone
    a. Background
    b. Health Effects of Ozone
    3. Carbon Monoxide
    4. Air Toxics
    a. Acetaldehyde
    b. Acrolein
    c. Benzene
    d. 1,3-Butadiene;
    e. Ethanol
    f. Formaldehyde
    g. Naphthalene
    h. Peroxyacetyl nitrate (PAN)
    i. Other Air Toxics
    F. Environmental Effects of Criteria and Air Toxic Pollutants
    1. Visibility
    2. Atmospheric Deposition
    3. Plant and Ecosystem Effects of Ozone
    4. Welfare Effects of Air Toxics
VIII. Impacts on Cost of Renewable Fuels, Gasoline, and Diesel
    A. Renewable Fuel Production Costs
    1. Ethanol Production Costs
    a. Corn Ethanol
    b. Cellulosic Ethanol
    i. Feedstock Costs
    ii. Production Costs
    c. Imported Sugarcane Ethanol
    2. Biodiesel and Renewable Diesel Production Costs
    a. Biodiesel
    b. Renewable Diesel
    3. BTL Diesel Production Costs
    B. Distribution Costs
    1. Ethanol Distribution Costs
    a. Capital Costs to Upgrade the Distribution System for 
Increased Ethanol Volume
    b. Ethanol Freight Costs
    2. Biodiesel and Renewable Diesel Distribution Costs
    a. Capital Costs to Upgrade the Distribution System for 
Increased FAME Biodiesel Volume
    b. Biodiesel Freight Costs
    c. Renewable Diesel Distribution System Capital and Freight 
Costs
    C. Reduced Refining Industry Costs
    D. Total Estimated Cost Impacts
    1. Refinery Modeling Methodology
    2. Overall Impact on Fuel Cost
    a. Costs Without Federal Tax Subsidies
    b. Gasoline and Diesel Costs Reflecting the Tax Subsidies
IX. Economic Impacts and Benefits of the Proposal
    A. Agricultural Impacts
    1. Commodity Price Changes
    2. Impacts on U.S. Farm Income
    3. Commodity Use Changes
    4. U.S. Land Use Changes
    5. Impact on U.S. Food Prices
    6. International Impacts
    B. Energy Security Impacts
    1. Implications of Reduced Petroleum Use on U.S. Imports
    2. Energy Security Implications
    a. Effect of Oil Use on Long-Run Oil Price, U.S. Import Costs, 
and Economic Output
    b. Short-Run Disruption Premium from Expected Costs of Sudden 
Supply Disruptions
    c. Costs of Existing U.S. Energy Security Policies
    d. Anticipated Future Effort
    e. Total Energy Security Benefits
    C. Benefits of Reducing GHG Emissions
    1. Introduction
    2. Marginal GHG Benefits Estimates
    3. Discussion of Marginal GHG Benefits Estimates
    4. Total Monetized GHG Benefits Estimates
    D. Co-pollutant Health and Environmental Impacts
    1. Human Health and Environmental Impacts
    2. Monetized Impacts
    3. Other Unquantified Health and Environmental Impacts
    E. Economy-Wide Impacts
X. Impacts on Water
    A. Background
    1. Ecological Impacts
    2. Gulf of Mexico
    B. Upper Mississippi River Basin Analysis
    1. SWAT Model
    2. Baseline Model Scenario
    3. Alternative Scenarios
    C. Additional Water Issues
    1. Chesapeake Bay Watershed
    2. Ethanol Production
    a. Distillers Grain with Solubles
    b. Ethanol Leaks and Spills
    3. Biodiesel Plants
    4. Water Quantity
    5. Drinking Water
    D. Request for Comment on Options for Reducing Water Quality 
Impacts
XI. Public Participation

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    A. How Do I Submit Comments?
    B. How Should I Submit CBI to the Agency?
    C. Will There Be a Public Hearing?
    D. Comment Period
    E. What Should I Consider as I Prepare My Comments for EPA?
XII. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and Review
    B. Paperwork Reduction Act
    C. Regulatory Flexibility Act
    1. Overview
    2. Background
    3. Summary of Potentially Affected Small Entities
    4. Potential Reporting, Record Keeping, and Compliance
    5. Related Federal Rules
    6. Summary of SBREFA Panel Process and Panel Outreach
    a. Significant Panel Findings
    b. Panel Process
    c. Panel Recommendations
    i. Delay in Standards
    ii. Phase-in
    iii. RIN-Related Flexibilities
    iv. Program Review
    v. Extensions of the Temporary Exemption Based on a Study of 
Small Refinery Impacts
    vi. Extensions of the Temporary Exemption Based on 
Disproportionate Economic Hardship
    D. Unfunded Mandates Reform Act
    E. Executive Order 13132: Federalism
    F. Executive Order 13175: Consultation and Coordination With 
Indian Tribal Governments
    G. Executive Order 13045: Protection of Children From 
Environmental Health Risks and Safety Risks
    H. Executive Order 13211: Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use
    I. National Technology Transfer Advancement Act
    J. Executive Order 12898: Federal Actions to Address 
Environmental Justice in Minority Populations and Low-Income 
Populations
XIII. Statutory Authority

I. Introduction

    The current Renewable Fuel Standard program (RFS1) was originally 
adopted by EPA to implement the provisions of the Energy Policy Act of 
2005 (EPAct), which added section 211(o) to the Clean Air Act (CAA). 
With the passage of the Energy Independence and Security Act of 2007 
(EISA), Congress recently made several important revisions to these 
renewable fuel requirements. This Notice proposes to revise the RFS 
program regulations to implement these EISA provisions. The proposed 
changes would apply starting January 1, 2010. For the remainder of 
2009, the current RFS1 regulations would apply. However, in 
anticipation of the biomass-based diesel standard proposed for 2010, 
obligated parties may find it in their best interest to plan 
accordingly in 2009.

A. Renewable Fuels and the Transportation Sector

    For the past several years, U.S. renewable fuel use has been 
rapidly increasing for a number of reasons. In the early 1990's, 
certain oxygenated gasoline fuel programs required by the CAA 
amendments of 1990 established new market opportunities for renewable 
fuels, primarily ethanol. At the same time, growing concern over U.S. 
dependence on foreign sources of crude placed increasing focus on 
renewable fuels as a replacement for petroleum-based fuels. More 
recently, several state bans on the use of methyl tertiary butyl ether 
(MTBE) in gasoline resulted in a large, sudden increase in demand for 
ethanol. Perhaps the largest impact on renewable fuel demand, however, 
has been the dramatic increase in the cost of crude oil. In the last 
few years, both crude oil prices and crude oil price forecasts have 
increased dramatically, which have resulted in a large economic 
incentive for the increased development and use of renewable fuels.
    In 2005, Congress introduced a new approach to supporting renewable 
fuels. EPAct established a major new federal renewable fuel volume 
mandate. EPAct required a ramp up to 7.5 billion gallons of renewable 
fuel as motor vehicle fuel by 2012 and set annual volume targets for 
each year leading up to 2012. For 2013 and beyond, EPA was directed to 
establish the annual required renewable fuel volumes, but at a 
percentage level no less than that required for 2012. While the market 
forces described above ultimately caused renewable fuel use to far 
exceed the EPAct mandates, this program provided certainty that at 
least a minimum amount of renewable fuel would be used in the U.S. 
transportation market, which in turn provided assurance for investment 
in production capacity.
    The subsequent passage of EISA made significant changes to both the 
structure and the magnitude of the renewable fuel program. The 
renewable fuel program established by EISA, hereafter referred to as 
RFS2, mandates the use of 36 billion gallons of renewable fuel by 2022. 
This is nearly a five-fold increase over the highest volume specified 
by EPAct and constitutes a 10-year extension of the scheduled 
production ramp-up period provided for in that legislation. It is clear 
that the volumes required by EISA will push the market to new levels--
far beyond what current market conditions would achieve alone. In 
addition, EISA specifies four separate categories of renewable fuels, 
each with a separate volume mandate. The categories are renewable fuel, 
advanced biofuel, biomass-based diesel, and cellulosic biofuel. There 
is a notable increase in the mandate for cellulosic biofuels in 
particular. EISA increased the cellulosic biofuel mandate from 250 
million in EPAct to 1.0 billion gallons by 2013, with additional yearly 
increases to 16 billion gallons by 2022. These requirements will 
provide a strong foundation for investment in cellulosic production and 
position cellulosic fuel to become a major portion of the renewable 
fuel pool over the next decade.
    The implications of the volume expansion of the program are not 
trivial. Development of infrastructure capable of delivering, storing 
and blending these volumes in new markets and expanding existing market 
capabilities will be needed. For example, the market's absorption of 
increased volumes of ethanol may ultimately require new ``outlets'' 
beyond E10 blends (i.e., gasoline containing 10% ethanol by volume), 
such as an expansion of the number of flexible-fuel E85 vehicles and 
the number of retail outlets selling E85.

B. Renewable Fuels and Greenhouse Gas Emissions

    Another significant aspect of the RFS2 program is the focus on the 
greenhouse gas impact of renewable fuels, from a lifecycle perspective. 
The lifecycle GHG emissions means the aggregate quantity of GHGs 
related to the full fuel cycle, including all stages of fuel and 
feedstock production and distribution, from feedstock generation and 
extraction through distribution and delivery and use of the finished 
fuel. EISA established specific greenhouse gas emission thresholds for 
each of four types of renewable fuels, requiring a percentage 
improvement compared to a baseline of the gasoline and diesel used in 
2005. EPA must conduct a lifecycle analysis to determine whether or not 
renewable fuels produced under varying conditions will meet the 
greenhouse gas (GHG) thresholds for the different fuel types for which 
EISA establishes mandates. While these thresholds do not constitute a 
control on greenhouse gases for transportation fuels (such as a low 
carbon fuel standard),\1\ they do require that the volume mandates be 
met through the use of renewable fuels that meet certain lifecycle GHG 
reduction thresholds when compared to

[[Page 24909]]

the baseline lifecycle emissions of petroleum fuel they replace. 
Compliance with the thresholds requires a comprehensive evaluation of 
renewable fuels, as well as of gasoline and diesel, on the basis of 
their lifecycle emissions. As mandated by EISA, the greenhouse gas 
emission assessments must evaluate the full lifecycle emission impacts 
of fuel production including both direct and indirect emissions, 
including significant emissions from land use changes. We recognize the 
significance of using lifecycle greenhouse gas emission assessments 
that include indirect impacts such as emission impacts of indirect land 
use changes. Therefore, in this preamble, we have been transparent in 
breaking out the various sources of greenhouse gas emissions included 
in the analysis. As described in detail in Section VI, EPA has analyzed 
the lifecycle GHG impacts of the range of biofuels currently expected 
to contribute significantly to meeting the volume mandates of EISA 
through 2022. In these analyses we have used the best science 
available. Our analysis relies on peer reviewed models and the best 
estimate of important trends in agricultural practices and fuel 
production technologies as these may impact our prediction of 
individual biofuel GHG performance through 2022. We have identified and 
highlighted assumptions and model inputs that particularly influence 
our assessment and seek comment on these assumptions, the models we 
have used and our overall methodology so as to assure the most robust 
assessment of lifecycle GHG performance for the final rule.
---------------------------------------------------------------------------

    \1\ See Section IV.D of EPA's advanced notice of proposed 
rulemaking, Regulating Greenhouse Gas Emissions under the Clean Air 
Act, for a discussion of EPA's possible authority under section 
211(c) of the CAA to establish GHG standards for renewable and 
alternative fuels. 73 FR 44354, July 30, 2008.
---------------------------------------------------------------------------

    Because lifecycle analysis is a new part of the RFS program, in 
addition to the formal comment period on the proposed rule, EPA is 
making multiple efforts to solicit public and expert feedback on our 
proposed approach. EPA plans to hold a public workshop focused 
specifically on lifecycle analysis during the comment period to assure 
full understanding of the analyses conducted, the issues addressed and 
the options that are discussed. We expect that this workshop will help 
ensure that we receive submission of the most thoughtful and useful 
comments to this proposal and that the best methodology and assumptions 
are used for calculating GHG emissions impacts of fuels for the final 
rule. Additionally, between this proposal and the final rule, we will 
conduct peer-reviews of key components of our analysis. As explained in 
more detail in the Section VI, EPA is specifically seeking peer review 
of: Our use of satellite data to project future the type of land use 
changes; the land conversion GHG emissions factors estimates we have 
used for different types of land use; our estimates of GHG emissions 
from foreign crop production; methods to account for the variable 
timing of GHG emissions; and how the several models we have relied upon 
are used together to provide overall lifecycle GHG estimates.
    In addition to the GHG thresholds, EISA included several provisions 
for the RFS2 program designed to address the long-term environmental 
sustainability of expanded biofuels production. The new law limits the 
crops and crop residues used to produce renewable fuel to those grown 
on land cleared or cultivated at any time prior to enactment of EISA, 
that is either actively managed or fallow, and non-forested. EISA also 
generally requires that forest-related slash and tree thinnings used 
for renewable fuel production pursuant to the Act be harvested from 
non-federal forest lands.
    To address potential air quality concerns, EPA is required by 
section 209 of EISA to determine whether the RFS2 volumes will 
adversely impact air quality as a result of changes in vehicle and 
engine emissions and then to issue fuel regulations that mitigate--to 
the extent achievable--these impacts. The Agency is also required by 
section 204 of EISA to conduct a broad study of environmental and 
resource conservation impacts of EISA, including impacts on water 
quality and availability, soil conservation, and biodiversity. Congress 
set specific deadlines for both of these provisions, which are separate 
from this rulemaking and will be carried out as part of a future 
effort. However, this NPRM does include EPA's initial assessment of the 
air and water quality impacts of the EISA volumes.
    While the above described changes are significant, it is important 
to note that Congress left other structural elements of the RFS program 
basically intact. The various modifications are discussed throughout 
this preamble.

C. Building on the RFS1 Program

    In designing this proposed RFS2 program, the Agency is utilizing 
and building on the same programmatic structure created to implement 
the current renewable fuel program (hereafter referred to as RFS1). For 
example, we propose to continue to use the Renewable Identification 
Number (RIN) system currently in place to track compliance with the 
RFS1 program, with modifications to implement the EISA provisions. This 
approach is in keeping with the Agency's overall intent for RFS1--to 
design a flexible and enforceable system that could continue to operate 
effectively regardless of the level of renewable fuel use or market 
conditions in the transportation fuel sector.
    A key component of the Agency's work to build a successful RFS1 
program was early and sustained engagement with our stakeholders. In 
developing this proposed rulemaking, we have again worked closely with 
a wide variety of stakeholders. Because EISA created new obligated 
parties and established new, complex provisions such as the lifecycle 
GHG thresholds and previous cropland requirements, EPA has extended its 
stakeholder engagement to include dozens of meetings with stakeholders 
from a broad spectrum of perspectives. For example, the Agency has had 
multiple meetings and discussions with renewable fuel producers, 
technology companies, petroleum refiners and importers, agricultural 
associations, lifecycle experts, environmental groups, vehicle 
manufacturers, states, gasoline and petroleum marketers, pipeline 
owners and fuel terminal operators.

II. Overview of the Proposed Program

    This section provides an overview of the RFS2 program requirements 
that EPA proposes to implement as a result of EISA. The RFS2 program 
would replace the RFS1 program promulgated on May 1, 2007 (72 FR 
23900).\2\ We are also proposing a number of changes to make the 
program more flexible based on what we learned from the operation of 
the RFS1 program since it began on September 1, 2007. Details of the 
proposed requirements can be found in Sections III and IV. We request 
comment on our proposed regulatory requirements and the alternatives 
that we have considered.
---------------------------------------------------------------------------

    \2\ To meet the requirements of EPAct, EPA had previously 
adopted a limited program that applied only to calendar year 2006. 
The RFS1 program refers to the general program adopted in the May 
2007 rulemaking.
---------------------------------------------------------------------------

    This section also provides a summary of EPA's impacts assessment of 
the use of higher renewable fuel volumes. Impacts that we assessed 
include: emissions of pollutants such as greenhouse gases (GHG), oxides 
of nitrogen (NOX), hydrocarbons, particulate matter (PM), 
and toxics; reductions in petroleum use and related impacts on national 
energy security; impacts on the agriculture sector; impacts on costs of 
transportation fuels; economic costs and benefits; and impacts on 
water. Details of these

[[Page 24910]]

analyses can be found in Sections V through X and in the Draft 
Regulatory Impact Analysis (DRIA).

A. Summary of New Provisions of the RFS Program

    Today's notice proposes new regulatory requirements for the RFS 
program that would be implemented through a new Subpart M to 40 CFR 
Part 80. EPA is generally proposing to maintain many elements of the 
RFS1 program such as regulations governing the generation, transfer, 
and use of Renewable Identification Numbers (RINs). At the same time, 
we seek comment on a number of RFS1 provisions that may require 
adjustment under an expanded RFS2 program, including whether or not to 
require that all qualifying renewable fuels have RINs generated for it 
(discussed in Section III.B.4.b.ii), and whether a rollover cap on RINs 
other than 20 percent might be appropriate (discussed in Section IV.D). 
Furthermore, EPA is proposing several new provisions and seeking 
comment on alternatives on aspects of the program for which EISA grants 
EPA discretion and flexibility, such as the grandfathering of existing 
renewable fuel production facilities (discussed in Section III.B.3), 
the potential inclusion of electricity for credit (discussed in Section 
III.B.1.a), and how renewable fuels are categorized based on the 
results of lifecycle analyses (discussed in Section VI.B). We believe 
these and other aspects of the program are important because they will 
affect available volumes of qualifying renewable fuel, regulated 
parties' ability to comply with the program and, ultimately, the 
program's environmental and societal impacts. A full description of all 
the changes we are proposing to the RFS program to implement the 
requirements in EISA is provided in Section III, while Section IV 
includes extensive discussion of other changes to the RFS program under 
consideration.
1. Required Volumes of Renewable Fuel
    The primary purpose of the RFS program is to require a minimum 
volume of renewable fuel to be used each year in the transportation 
sector. Under RFS1, the required volume was 4.0 billion gallons in 
2006, ramping up to 7.5 billion gallons by 2012. Starting in 2013, 
EPAct required that the total volume of renewable fuel represent at 
minimum the same volume fraction of the gasoline fuel pool as it did in 
2012, and that the total volume of renewable fuel contains at least 250 
million gallons of fuel derived from cellulosic biomass.
    EISA makes three primary changes to the volume requirements of the 
RFS program. First, it substantially increases the required volumes and 
extends the timeframe over which the volumes ramp up through at least 
2022. Second, it divides the total renewable fuel requirement into four 
separate categories, each with its own volume requirement. Third, it 
requires that each of these mandated volumes of renewable fuels achieve 
certain minimum thresholds of GHG emission performance. The volume 
requirements in EISA are shown in Table II.A.1-1.

                           Table II.A.1-1--Renewable Fuel Volume Requirements for RFS2
                                                [Billion gallons]
----------------------------------------------------------------------------------------------------------------
                                                    Cellulosic    Biomass- based     Advanced          Total
                                                      biofuel         diesel          biofuel     renewable fuel
                                                    requirement     requirement     requirement     requirement
----------------------------------------------------------------------------------------------------------------
2009............................................             n/a             0.5             0.6            11.1
2010............................................             0.1            0.65            0.95           12.95
2011............................................            0.25            0.80            1.35           13.95
2012............................................             0.5             1.0             2.0            15.2
2013............................................             1.0             \a\            2.75           16.55
2014............................................            1.75             \a\            3.75           18.15
2015............................................             3.0             \a\             5.5            20.5
2016............................................            4.25             \a\            7.25           22.25
2017............................................             5.5             \a\             9.0            24.0
2018............................................             7.0             \a\            11.0            26.0
2019............................................             8.5             \a\            13.0            28.0
2020............................................            10.5             \a\            15.0            30.0
2021............................................            13.5             \a\            18.0            33.0
2022............................................            16.0             \a\            21.0            36.0
2023+...........................................             \b\             \b\             \b\             \b\
----------------------------------------------------------------------------------------------------------------
\a\ To be determined by EPA through a future rulemaking, but no less than 1.0 billion gallons.
\b\ To be determined by EPA through a future rulemaking.

As shown in the table, the volume requirements are not exclusive, and 
generally result in nested requirements. Any renewable fuel that meets 
the requirement for cellulosic biofuel or biomass-based diesel is also 
valid for meeting the advanced biofuel requirement. Likewise, any 
renewable fuel that meets the requirement for advanced biofuel is also 
valid for meeting the total renewable fuel requirement. See Section 
VI.E for further discussion of which specific types of fuel meet the 
requirements for one of the four categories shown in Table II.A.1-1.
    We are co-proposing and taking comment on two options for how to 
treat the volumes of different renewable fuels for purposes of 
complying with the volume mandates of RFS2: As either ethanol-
equivalent gallons, based on energy content, as finalized in the RFS1 
program, or as actual volume in gallons. Consideration of the actual 
volume option would recognize that EISA now guarantees a market for 
specific categories of renewable fuel and assigns a GHG requirement to 
each category in the form of minimum GHG thresholds that each must 
meet. The approach taken in RFS1 would continue to assign value, in 
terms of gallons, to all renewable fuels based on their energy value in 
comparison with ethanol. Further discussion of the rationale and 
implications of these two approaches can be found in Section III.D.1.
    The statutorily-prescribed phase-in period ends in 2012 for 
biomass-based diesel and in 2022 for cellulosic biofuel, advanced 
biofuel, and total renewable fuel. Beyond these years, EISA requires 
EPA to determine the applicable

[[Page 24911]]

volumes based on a review of the implementation of the program up to 
that time, and an analysis of a wide variety of factors such as the 
impact of the production of renewable fuels on the environment, energy 
security, infrastructure, costs, and other factors. For these future 
standards, EPA must promulgate rules establishing the applicable 
volumes no later than 14 months before the first year for which such 
applicable volumes would apply. For biomass-based diesel, this would 
mean that final rules would need to be issued by October 31, 2011 for 
application starting on January 1, 2013. In today's proposed 
rulemaking, we are not suggesting any specific volume requirements for 
biomass-based diesel for 2013 and beyond that would be appropriate 
under the statutory criteria that we must consider. Likewise, we are 
not suggesting any specific volume requirements for the other three 
renewable fuel categories for 2023 and beyond. However, the statute 
requires that the biomass-based diesel volume in 2013 and beyond must 
be no less than 1.0 billion gallons, and that advanced biofuels in 2023 
and beyond must represent at a minimum the same percentage of total 
renewable fuel as it does in 2022.
2. Changes in How Renewable Fuel Is Defined
    Under the existing Renewable Fuel Standard, (RFS1) renewable fuel 
is defined generally as ``any motor vehicle fuel that is used to 
replace or reduce the quantity of fossil fuel present in a fuel mixture 
used to fuel a motor vehicle''. The RFS1 definition includes motor 
vehicle fuels produced from biomass material such as grain, starch, 
fats, greases, oils and biogas.
    The definitions of renewable fuels under today's proposed rule 
(RFS2) are based on the new statutory definitions in EISA. Like the 
existing rules, the definitions in RFS2 include a general definition of 
renewable fuel, but unlike RFS1, we are including a separate definition 
of ``Renewable Biomass'' which identifies the feedstocks from which 
renewable fuels may be made.
    Another difference in the definitions of renewable fuel is that 
RFS2 contains three subcategories of renewable fuels: (1) Advanced 
Biofuel, (2) Cellulosic Biofuel and (3) Biomass-Based Diesel.
    ``Advanced Biofuel'' is a renewable fuel other than ethanol derived 
from corn starch and which must achieve a lifecycle GHG emission 
displacement of 50%, compared to the gasoline or diesel fuel it 
displaces.
    Cellulosic biofuel is any renewable fuel, not necessarily ethanol, 
derived from any cellulose, hemicellulose, or lignin each of which must 
originate from renewable biomass. It must achieve a lifecycle GHG 
emission displacement of 60%, compared to the gasoline or diesel fuel 
it displaces for it to qualify as cellulosic biofuel.
    The RFS1 definition provided that ethanol made at any facility--
regardless of whether cellulosic feedstock is used or not--may be 
defined as cellulosic if at such facility ``animal wastes or other 
waste materials are digested or otherwise used to displace 90% or more 
of the fossil fuel normally used in the production of ethanol.'' This 
provision was not included in EISA, and therefore does not appear in 
the definitions pertaining to cellulosic biofuel in today's proposed 
rule.
    The statutory definition of ``renewable biomass'' in EISA does not 
include a reference to municipal solid waste (MSW) as did the 
definition of ``cellulosic biomass ethanol'' in EPAct, but instead 
includes ``separated yard waste and food waste. EPA's proposed 
definition of renewable biomass in today's proposed rule includes the 
language present in EISA. As discussed in Section III.B.1.a, we invite 
comment on whether this definition should be interpreted as including 
or excluding MSW containing yard and/or food waste from the definition 
of renewable biomass. EPA intends to resolve this matter in the final 
rule, and EPA solicits comment on the approach that it should take.
    Under today's proposed rule ``Biomass-based diesel'' includes 
biodiesel (mono-alkyl esters), non-ester renewable diesel and any other 
diesel fuel made from renewable biomass, as long as they are not ``co-
processed'' with petroleum. EISA requires that such fuel achieve a 
lifecycle GHG emission displacement of 50%, compared to the gasoline or 
diesel fuel it displaces. As discussed in Section III.B.1.d, we are 
proposing that co-processing is considered to occur only if both 
petroleum and biomass feedstock are processed in the same unit 
simultaneously. Thus, if serial batch processing in which 100% 
vegetable oil is processed one day/week/month and 100% petroleum the 
next day/week/month occurs, the fuel derived from renewable biomass 
would be assigned RINs with a D code identifying it as biomass-based 
diesel. The resulting products could be blended together, but only the 
volume produced from renewable biomass would count as biomass-based 
diesel.
    For other renewable fuels, EISA makes a distinction between fuel 
from new and existing facilities. Only renewable fuel from new 
facilities is required to achieve a lifecycle GHG emission displacement 
of 20%. As discussed in Section III.B.3, this requirement applies only 
to renewable fuel that is produced from certain facilities which 
commenced construction after December 19, 2007.
    EISA defines ``additional renewable fuel'' as fuel produced from 
renewable biomass that is used to replace or reduce fossil fuels used 
in home heating oil or jet fuel. The Act provides that EPA may allow 
for the generation of RFS credits for such fuel. This represents a 
change from RFS1, where renewable fuel qualifying for credits was 
limited to fuel used in motor vehicles. We propose to modify the 
regulatory requirements to allow RINs assigned to renewable fuel 
blended into heating oil or jet fuel to be valid for compliance 
purposes. The fuel would still have to meet all the other criteria to 
qualify as a renewable fuel, including being made from renewable 
biomass. For example, RINs generated for advanced biofuel or biomass-
based diesel that could be used in automobiles would still be valid, 
and would not need to be retired, if the fuel producer instead sells 
the fuels for use in heating oil or jet fuel.
    ``Renewable biomass'' is defined in EISA to include a number of 
feedstock types, such as planted crops and crop residue, planted trees 
and tree residue, animal waste, algae, and yard and food waste. 
However, the EISA definition limits many of these feedstocks according 
to the management practices for the land from which they are derived. 
For example, planted crops and crop residue must be harvested from 
agricultural land cleared or cultivated at any time prior to December 
19, 2007, that is actively managed or fallow, and non-forested. 
Therefore, planted crops and crop residue derived from land that does 
not meet this definition cannot be used to produce renewable fuel for 
credit under RFS2.
    Under today's proposed rule, we describe several options for 
ensuring that feedstocks used to produce renewable fuel for which 
credits are generated under RFS2 meet the definition of renewable 
biomass. Our proposed approach places overall responsibility for 
verifying a feedstock's source on the party who generates a RIN for the 
renewable fuel produced from the feedstock. We also present options for 
how a party could or should verify his or her feedstock, and we seek 
comment on these options. A full discussion of the definition and 
implementation options for ``renewable biomass'' is presented in 
Section III.B.4.

[[Page 24912]]

3. Analysis of Lifecycle Greenhouse Gas Emissions and Thresholds for 
Renewable Fuels
    As shown in Table II.A.3-1, EISA requires that a renewable fuel 
must meet minimum thresholds for their reduction in lifecycle 
greenhouse gas emissions: A 20% reduction in lifecycle GHG emissions 
for any renewable fuel produced at new facilities; a 50% reduction in 
order to be classified as biomass-based diesel or advanced biofuel; and 
a 60% reduction in order to be classified as cellulosic biofuel. The 
lifecycle GHG emissions means the aggregate quantity of GHG emissions 
related to the full fuel cycle, including all stages of fuel and 
feedstock production and distribution, from feedstock generation or 
extraction through distribution and delivery and use of the finished 
fuel. As mandated by EISA, it includes direct emissions and significant 
indirect emissions such as significant emissions from land use changes. 
EPA believes that compliance with the EISA mandate--determining the 
aggregate GHG emissions related to the full fuel lifecycle, including 
both direct emissions and significant indirect emissions such as land 
use changes--make it necessary to assess those direct and indirect 
impacts that occur not just within the United States but also those 
that occur in other countries. This applies to determining the 
lifecycle emissions for petroleum-based fuels to determine the 
baseline, as well as the lifecycle emissions for biofuels. For 
biofuels, this includes evaluating significant emissions from indirect 
land use changes that occur in other countries as a result of the 
increased domestic production or importation of biofuels into the U.S. 
As detailed in Section VI, we have included the GHG emission impacts of 
international land use changes including the indirect land use changes 
that result from domestic production of biofuel feedstocks. We 
recognize the significance of including international land use emission 
impacts and, in our analysis presentation in Section VI, have been 
transparent in breaking out the various sources of GHG emissions so 
that the reader can readily see the impact of including international 
land use impacts.

       Table II.A.3-1--Lifecycle GHG Thresholds Specified in EISA
                    [Percent reduction from baseline]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Renewable fuel \a\.............................................       20
Advanced biofuel...............................................       50
Biomass-based diesel...........................................       50
Cellulosic biofuel.............................................       60
------------------------------------------------------------------------
\a\ The 20% criterion generally applies to renewable fuel from new
  facilities that commenced construction after December 19, 2007.

    The lifecycle GHG emissions of the renewable fuel are compared to 
the lifecycle GHG emissions for gasoline or diesel (whichever is being 
replaced by the renewable fuel) sold or distributed as transportation 
fuel in 2005. EISA provides some limited flexibility for EPA to adjust 
these GHG percentage thresholds downward by up to 10 percent under 
certain circumstances. As discussed in Section VI.D, we are proposing 
that the GHG threshold for advanced biofuels be adjusted to 44% or 
potentially as low as 40% depending on the results from the analyses 
that will be conducted for the final rule. This adjustment would allow 
ethanol produced from sugarcane to count as advanced biofuel and would 
help ensure that the volume mandate for advanced biofuel could be met.
    The regulatory purpose of the lifecycle greenhouse gas emissions 
analysis is to determine whether renewable fuels meet the GHG 
thresholds for the different categories of renewable fuel. As described 
in detail in Section VI, EPA has analyzed the lifecycle GHG impacts of 
the range of biofuels currently expected to contribute significantly to 
meeting the volume mandates of EISA through 2022. In these analyses we 
have used the best science available. Our analysis relies on peer 
reviewed models and the best estimate of important trends in 
agricultural practices and fuel production technologies as these may 
impact our prediction of individual biofuel GHG performance through 
2022. We have identified and highlighted assumptions and model inputs 
that particularly influence our assessment and seek comment on these 
assumptions, the models we have used and our overall methodology so as 
to assure the most robust assessment of lifecycle GHG performance for 
the final rule.
    In addition to the many technical issues addressed in this 
proposal, Section VI discusses the emissions decreases and increases 
associated with the different parts of the lifecycle emissions of 
various biofuels and the timeframes in which these emissions changes 
occur. The need to determine a single lifecycle value that best 
represents this combination of emissions increases and decreases 
occurring over time led EPA to consider various alternative ways to 
analyze the timeframe of emissions changes related to biofuel 
production and use as well as options for adjusting or discounting 
these emissions to determine their net present value. Section VI 
highlights two options. One option assumes a 30 year time period for 
assessing future GHG emissions impacts of the anticipated increase in 
biofuel production to meet the mandates of EISA, both emissions 
increases and decreases, and values all these emission impacts the same 
regardless of when they occur during that time period (i.e., no 
discounting). The second option assesses emissions impacts over a 100 
year time period but then discounts future emissions 2% annua