Regulation of Fuels and Fuel Additives: 2011 Renewable Fuel Standards, 42238-42268 [2010-17281]

Agencies

• ENVIRONMENTAL PROTECTION AGENCY

[Federal Register Volume 75, Number 138 (Tuesday, July 20, 2010)]
[Proposed Rules]
[Pages 42238-42268]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-17281]



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Part III





Environmental Protection Agency





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40 CFR Part 80



Regulation of Fuels and Fuel Additives: 2011 Renewable Fuel Standards; 
Proposed Rule

Federal Register / Vol. 75 , No. 138 / Tuesday, July 20, 2010 / 
Proposed Rules

[[Page 42238]]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[EPA-HQ-OAR-2010-0133; FRL-9175-8]
RIN 2060-AQ16


Regulation of Fuels and Fuel Additives: 2011 Renewable Fuel 
Standards

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice of proposed rulemaking.

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SUMMARY: Under the Clean Air Act Section 211(o), as amended by the 
Energy Independence and Security Act of 2007 (EISA), the Environmental 
Protection Agency is required to set the renewable fuel standards each 
November for the following year based on gasoline and diesel 
projections from EIA. Additionally, EPA is required to set the 
cellulosic biofuel standard each year based on the volume projected to 
be available during the following year, using EIA projections and 
assessments of production capability from industry. This regulatory 
action proposes these annual standards for cellulosic biofuel, biomass-
based diesel, advanced biofuel, and renewable fuels that apply to all 
gasoline and diesel produced or imported in year 2011. This action also 
presents two proposed changes to the RFS2 regulations. The first would 
create a temporary and limited means for certain renewable fuel 
producers to generate delayed RINs after they have produced and sold 
renewable fuel. This proposed provision would apply only to those 
producers who use canola oil, grain sorghum, pulpwood, or palm oil to 
produce renewable fuel. The second proposed regulatory provision would 
establish criteria for foreign countries to adopt an aggregate approach 
to compliance with the renewable biomass provision akin to that 
applicable to the U.S.

DATES: Comments must be received on or before August 19, 2010.
    Hearing: We do not expect to hold a public hearing. However, if we 
receive such a request we will publish information related to the 
timing and location of the hearing and the timing of a new deadline for 
public comments.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-
OAR-2010-0133, by one of the following methods:
     https://www.regulations.gov: Follow the online 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.
     Hand Delivery: EPA Docket Center, EPA West Building, Room 
3334, 1301 Constitution Ave., NW., Washington, DC 20460. Such 
deliveries are only accepted during the Docket's normal hours of 
operation, and special arrangements should be made for deliveries of 
boxed information.
    Instructions: Direct your comments to Docket ID No. EPA-HQ-OAR-
2010-0133. EPA's policy is that all comments received will be included 
in the public docket without change and may be made available online at 
https://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 https://www.regulations.gov or e-mail. The https://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 https://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 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 I.B of the SUPPLEMENTARY INFORMATION section of 
this document.
    Docket: All documents in the docket are listed in the https://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 https://www.regulations.gov or in hard copy at the Air and Radiation 
Docket and Information Center, EPA/DC, EPA West, Room 3334, 1301 
Constitution Ave., NW., Washington, DC. The Public Reading Room is open 
from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal 
holidays. The telephone number for the Public Reading Room is (202) 
566-1744, and the telephone number for the Air Docket is (202) 566-
1742.

FOR FURTHER INFORMATION CONTACT: Julia MacAllister, Office of 
Transportation and Air Quality, Assessment and Standards Division, 
Environmental Protection Agency, 2000 Traverwood Drive, Ann Arbor, MI 
48105; Telephone number: 734-214-4131; Fax number: 734-214-4816; 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: 

I. General Information

A. Does this action apply to me?

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

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                                            NAICS \1\                       Examples of potentially regulated
                Category                      codes       SIC \2\ codes                  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.

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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 section.

B. What should I consider as I prepare my comments for EPA?

1. Submitting CBI
    Do not submit this information to EPA through https://www.regulations.gov or e-mail. Clearly mark the part or all of the 
information that you claim to be CBI. For CBI information in a disk or 
CD-ROM that you mail to EPA, mark the outside of the disk or CD-ROM as 
CBI and then identify electronically within the disk or CD-ROM the 
specific information that is claimed as CBI. In addition to one 
complete version of the comment that includes information claimed as 
CBI, a copy of the comment that does not contain the information 
claimed as CBI must be submitted for inclusion in the public docket. 
Information so marked will not be disclosed except in accordance with 
procedures set forth in 40 CFR part 2.
2. Tips for Preparing Your Comments
    When submitting comments, remember to:
     Identify the rulemaking by docket number and other 
identifying information (subject heading, Federal Register date and 
page number).
     Follow directions--The agency may ask you to respond to 
specific questions or organize comments by referencing a Code of 
Federal Regulations (CFR) part or section number.
     Explain why you agree or disagree, suggest alternatives, 
and substitute language for your requested changes.
     Describe any assumptions and provide any technical 
information and/or data that you used.
     If you estimate potential costs or burdens, explain how 
you arrived at your estimate in sufficient detail to allow for it to be 
reproduced.
     Provide specific examples to illustrate your concerns, and 
suggest alternatives.
     Explain your views as clearly as possible, avoiding the 
use of profanity or personal threats.
     Make sure to submit your comments by the comment period 
deadline identified.

Outline of This Preamble

I. Executive Summary
    A. Statutory Requirements for Cellulosic Biofuel
    B. Assessment of 2011 Cellulosic Biofuel Volume
    C. Advanced Biofuel and Total Renewable Fuel
    D. Proposed Percentage Standards
II. Volume Production and Import Potential for 2011
    A. Cellulosic Biofuel
    1. Domestic Cellulosic Ethanol
    2. Domestic Cellulosic Diesel
    3. Other Domestic Cellulosic Biofuels
    4. Imports of Cellulosic Biofuel
    5. Summary of Volume Projections
    B. Potential Limitations
    C. Advanced Biofuel and Total Renewable Fuel
    D. Biomass-Based Diesel
III. Proposed Percentage Standards for 2011
    A. Background
    B. Calculation of Standards
    1. How are the standards calculated?
    2. Small Refineries and Small Refiners
IV. Cellulosic Biofuel Technology Assessment
    A. What pathways are valid for the production of cellulosic 
biofuel?
    B. Cellulosic Feedstocks
    C. Emerging Technologies
    1. Biochemical
    a. Feedstock Handling
    b. Biomass Pretreatment
    c. Hydrolysis
    i. Acid Hydrolysis
    ii. Enzymatic Hydrolysis
    d. Fuel Production
    e. Fuel Separation
    f. Process Variations
    g. Current Status of Biochemical Conversion Technology
    h. Major Hurdles to Commercialization
    2. Thermochemical
    a. Ethanol Based on a Thermochemical Platform
    b. Diesel and Naphtha Production Based on a Thermochemical 
Platform
    3. Hybrid Thermochemical/Biochemical Processes
    4. Pyrolysis and Depolymerization
    a. Pyrolysis Diesel Fuel and Gasoline
    b. Catalytic Depolymerization
    5. Catalytic Reforming of Sugars to Gasoline
V. Proposed Changes to RFS2 Regulations
    A. Delayed RIN Generation for New Pathways
    B. Criteria and Process for Adoption of Aggregate Approach to 
Renewable Biomass for Foreign Countries
    1. Criterion and Considerations
    2. Data Sources
    3. Petition Submission
    4. Petition Process
VI. Public Participation
    A. How do I submit comments?
    B. How should I submit CBI to the agency?
VII. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and Review
    B. Paperwork Reduction Act
    C. Regulatory Flexibility Act
    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
VIII. Statutory Authority

I. Executive Summary

    The Renewable Fuel Standard (RFS) program began in 2007 following 
the requirements in Clean Air Act (CAA) section 211(o) which were 
implemented through the Energy Policy Act of 2005 (EPAct). The 
statutory requirements for the RFS program were subsequently modified 
through the Energy Independence and Security Act of 2007 (EISA), 
resulting in the release of revised regulatory requirements on March 
26, 2010 \1\. In general, the transition from the RFS1 requirements of 
EPAct to the RFS2 requirements of EISA will occur on July 1, 2010.
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    \1\ 75 FR 14670.
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    EPA is required to determine and publish the applicable annual 
percentage standards for each compliance year by November 30 of the 
previous year. The determination of the applicable standards under RFS2 
requires the EPA to conduct an in-depth evaluation of the volume of 
qualifying cellulosic biofuel that can be supplied in the following 
year. If the projected

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volume of cellulosic biofuel production is less than the required 
volume specified in the statute, EPA must lower the required volume 
used to set the annual cellulosic biofuel percentage standard to the 
projected volume of production. We must also determine whether the 
advanced biofuel and/or total renewable fuel volumes should be reduced 
by the same or a lesser amount. Since these evaluations will be based 
on evolving information about emerging segments of the biofuels 
industry, and may result in the required volumes differing from those 
in the statute, we believe that a notice-and-comment rulemaking process 
is appropriate. Today's notice provides our evaluation of the projected 
production of cellulosic biofuel for 2011, and proposed percentage 
standards for compliance year 2011. We will complete our evaluation 
based on comments received in response to this proposal, the Production 
Outlook Reports due to the Agency on September 1, 2010, the estimate of 
projected biofuel volumes that the EIA is required to provide to EPA by 
October 31, and other information that becomes available, and will 
finalize the standards for 2011 by November 30, 2010.
    Today's proposed rule does not include an assessment of the 
environmental impacts of the standards we are proposing for 2011. All 
of the impacts of the RFS2 program were addressed in the RFS2 final 
rule published on March 26, 2010, including impacts of the biofuel 
standards specified in the statute. Today's rulemaking simply proposes 
the standards for 2011 whose impacts were already analyzed previously.
    Today's notice also presents two proposed changes to the RFS2 
regulations. The first would create a temporary and limited means for 
certain renewable fuel producers to generate RINs after they have 
produced and sold renewable fuel. This proposed provision for ``Delayed 
RINs'' would apply only to those producers who use canola oil, grain 
sorghum, pulpwood, or palm oil to produce renewable fuel, and only if 
EPA determines that fuel pathways utilizing these feedstocks provide 
appropriate greenhouse gas reductions as compared to baseline fuels to 
enable EPA to list the pathways in Table 1 to Sec.  80.1426. We are 
proposing that the provision for Delayed RINs would apply only to these 
four feedstocks because we would have included them in the final RFS2 
rule if the lifecycle analyses had been completed in time. The 
greenhouse gas (GHG) lifecycle impacts of these four feedstocks are 
currently being analyzed as a supplement to the RFS2 final rule and are 
expected to be completed in 2010. The second proposed regulatory 
provision would establish criteria for EPA to use in determining 
whether to authorize renewable fuel producers using foreign-grown 
feedstocks to use an aggregate approach to compliance with the 
renewable biomass verification provisions, akin to that applicable to 
producers using crops and crop residue grown in the United States. 
Further discussion of both of these proposed provisions can be found in 
Section V.
    Finally, we note that in the RFS2 final rule we also stated our 
intent to make two announcements each year:
     Set the price for cellulosic biofuel waiver credits that 
will be made available to obligated parties in the event that we reduce 
the volume of cellulosic biofuel below the volume required by EISA.
     Announce the results of our assessment of the aggregate 
compliance approach for verifying renewable biomass requirements for 
U.S. crops and crop residue, and our conclusion regarding whether the 
aggregate compliance provision will continue to apply.
    For both of these determinations EPA will use specific sources of 
data and a methodology laid out in the RFS2 final rule. We intend to 
present the results of both of these determinations in the final rule 
following today's proposal.

A. Statutory Requirements for Cellulosic Biofuel

    The volumes of renewable fuel that must be used under the RFS2 
program each year (absent an adjustment or waiver by EPA) are specified 
in CAA 211(o)(2). These volumes for 2011 are shown in Table I.A-1.

       Table I.A-1--Required Volumes in the Clean Air Act for 2011
                               [Bill gal]
------------------------------------------------------------------------
                                                               Ethanol
                                                 Actual      equivalent
                                                 volume        volume
------------------------------------------------------------------------
Cellulosic biofuel..........................          0.25      \a\ 0.25
Biomass-based diesel........................          0.80          1.20
Advanced biofuel............................          1.35          1.35
Renewable fuel..............................         13.95         13.95
------------------------------------------------------------------------
\a\ This value assumes that all cellulosic biofuel would be ethanol. If
  any portion of the renewable fuel used to meet the cellulosic biofuel
  volume mandate has a volumetric energy content greater than that for
  ethanol, this value will be higher.

    By November 30 of each year, the EPA is required under CAA 211(o) 
to determine and publish in the Federal Register the renewable fuel 
standards for the following year. These standards are to be based in 
part on transportation fuel volumes estimated by the Energy Information 
Administration (EIA) for the following year. The calculation of the 
percentage standards is based on the formulas in Sec.  80.1405(c) which 
express the required volumes of renewable fuel as a volume percentage 
of gasoline and diesel sold or introduced into commerce in the 48 
contiguous states plus Hawaii.
    The statute requires the EPA to determine whether the projected 
volume of cellulosic biofuel production for the following year is less 
than the minimum applicable volume shown in Table I.A-1. If this is the 
case, then the standard for cellulosic biofuel must be based upon the 
volume projected to be available rather than the applicable volume in 
the statute. In addition, if EPA reduces the required volume of 
cellulosic biofuel below the level specified in the statute, the Act 
also indicates that we may reduce the applicable volume of advanced 
biofuels and total renewable fuel by the same or a lesser volume.
    As described in the final rule for the RFS2 program, we intend to 
examine EIA's projected volumes and other available data including the 
Production Outlook Reports required under Sec.  80.1449 in making the 
determination of the appropriate volumes to require for 2011. Since the 
first set of Production Outlook Reports are not due until September 1, 
2010, they were not available for today's proposal but will be 
considered for development of the

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final rule to be released by November 30, 2010.

B. Assessment of 2011 Cellulosic Biofuel Volume

    To estimate the volume of cellulosic biofuel that could be made 
available in the U.S. in 2011, we researched all potential production 
sources by company and facility. This included sources that were still 
in the planning stages, those that were under construction, and those 
that are already producing some volume of cellulosic ethanol, 
cellulosic diesel, or some other type of cellulosic biofuel. We 
considered all pilot and demonstration plants as well as commercial 
plants. From this universe of potential cellulosic biofuel sources we 
identified the subset that had a possibility of producing some volume 
of qualifying cellulosic biofuel for use as transportation fuel in 
2011. We then conducted a rigorous process of contacting all of these 
producers to determine which ones were actually in a position to 
produce and make available any commercial volumes of cellulosic biofuel 
in 2011. Based on information gathered in this process, we estimated 
the maximum potentially available 2011 volumes. For the final rule, we 
will specify the projected available volume for 2011 that will be the 
basis for the percentage standard for cellulosic biofuel. To determine 
the projected available volume, we will consider factors such as the 
current and expected state of funding, the status of the technology and 
contracts for feedstocks, and progress towards construction and 
production goals. A complete list of all the factors we expect to 
consider in this process is provided in Section II.A.5.
    In our assessment we evaluated both domestic and foreign sources of 
cellulosic biofuel. Of the domestic sources, we estimated that seven 
facilities have the potential to make volumes of cellulosic biofuel 
available for transportation use in the U.S. in 2011. We also 
determined that one facility in Canada has the potential to export some 
cellulosic biofuel to the U.S. These facilities are listed in Table 
I.B-1 along with our estimate of the maximum potentially available 
volume.

              Table I.B-1--Maximum Potentially Available Cellulosic Biofuel Plant Volumes for 2011
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                                                                                           Maximum potentially
                                                                                             available volume
               Company                         Location                Fuel type            (million ethanol-
                                                                                           equivalent gallons)
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AE Advanced Fuels Keyes..............  Keyes, CA..............  Ethanol................                     0.5
Agresti Biofuels.....................  Pike County, KY........  Ethanol................                     1
Bell Bio-Energy......................  Atlanta, GA............  Diesel feedstock.......                    11.9
Cello Energy.........................  Bay Minette, AL........  Diesel.................                     8.5
DuPont Dansico.......................  Vonore, TN.............  Ethanol................                     0.15
Fiberight............................  Blairstown, IA.........  Ethanol................                     2.8
Iogen Corporation....................  Ottawa, Ont............  Ethanol................                     0.25
KL Energy Corp/WBE...................  Upton, WY..............  Ethanol................                     0.4
                                                                                        ------------------------
    Total............................  .......................  .......................                    25.5
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    The volumes in Table I.B-1 for each facility represent the volume 
that would be produced in 2011 based upon the owner's expected month of 
startup and an assumed period of production rampup for testing and 
process validation. However, none of the facilities we evaluated are 
currently producing cellulosic biofuel at the rates they project for 
2011. Moreover, there are other uncertainties associated with each 
facility's projected volume that could result in less production volume 
in 2011 than the maximum potentially available values shown in Table 
I.B-1. These uncertainties include outstanding issues in areas such as 
technology, funding, and construction. Historical successes in meeting 
various past milestones also play a role in assessing the likelihood of 
meeting future milestones. A detailed discussion of these uncertainties 
is presented in Section II.A. Finally, the volumes that should be 
considered for setting the 2011 standard are those that result from 
valid cellulosic biofuel pathways in Table 1 to Sec.  80.1426. As 
described more fully in Section IV.A, some of the facilities in Table 
I.B-1 may use feedstocks that have not yet been subjected to lifecycle 
analyses to determine if the pathway meets the applicable GHG 
thresholds.
    Based on our preliminary assessment for this NPRM, we believe that 
we could justify a 2011 cellulosic biofuel volume requirement of at 
least 6.5 million ethanol-equivalent gallons, and potentially as high 
as 25.5 million gallons. For the final rule we will use additional 
information that becomes available after publication of this proposal 
and a more precise assessment of the uncertainties associated with each 
facility to determine the projected available volume on which to base 
the cellulosic biofuel percentage standard for 2011.

C. Advanced Biofuel and Total Renewable Fuel

    As described in Section I.A above, the statute indicates that we 
may reduce the applicable volume of advanced biofuel and total 
renewable fuel if we determine that the projected volume of cellulosic 
biofuel production for 2011 falls short of the statutory volume of 250 
million gallons. As shown in Table I.B-1, we are proposing a 
determination that this is the case. Therefore, we also needed to 
evaluate the need to lower the required volumes for advanced biofuel 
and total renewable fuel.
    We first considered whether it appears likely that the required 
biomass-based diesel volume of 0.8 billion gallons can be met with 
existing biodiesel production capacity in 2011. As discussed in Section 
II.D, we believe that the 0.8 billion gallon standard can indeed be 
met. Since biodiesel has an Equivalence Value of 1.5, 0.8 billion 
physical gallons of biodiesel would provide 1.20 billion ethanol-
equivalent gallons that can be counted towards the advanced biofuel 
standard of 1.35 billion gallons. Of the remaining 0.15 bill gallons, 
up to 0.026 bill gallons would be met with the proposed volume of 
cellulosic biofuel. Based on our analysis as described in Section II.C, 
there may be sufficient volumes of other advanced biofuels, such as 
imported sugarcane ethanol, additional biodiesel, or renewable diesel, 
such that the standard for advanced biofuel could remain at the 
statutory level of 1.35 billion gallons. However, uncertainty in

[[Page 42242]]

the potential volumes of these other advanced biofuels coupled with the 
range of potential production volumes of cellulosic biofuel could 
provide a rationale for lowering the advanced biofuel standard. If we 
do not simultaneously lower the required volume for total renewable 
fuel, the result would be that additional volumes of conventional 
renewable fuel, such as corn-starch ethanol, would be produced, 
effectively replacing some advanced biofuels. In today's NPRM we are 
proposing that neither the required 2011 volumes for advanced biofuel 
nor total renewable fuel be lowered below the statutory volumes. 
However, we request comment on whether the advanced biofuel and/or 
total renewable fuel volume requirements should be lowered if, as we 
propose, EPA lowers the required cellulosic biofuel volume from that 
specified in the Act.

D. Proposed Percentage Standards

    The renewable fuel standards are expressed as a volume percentage, 
and are used by each refiner, blender or importer to determine their 
renewable fuel volume obligations. The applicable percentages are set 
so that if each regulated party meets the percentages, and if EIA 
projections of gasoline and diesel use are accurate, then the amount of 
renewable fuel, cellulosic biofuel, biomass-based diesel, and advanced 
biofuel used will meet the volumes required on a nationwide basis. To 
calculate the percentage standard for cellulosic biofuel for 2011, we 
have used a potential volume range of 6.5-25.5 million ethanol-
equivalent gallons (representing 5-17.1 million physical gallons). For 
the final rule, EPA intends to pick a single value from within this 
range to represent the projected available volume on which the 2011 
percentage standard for cellulosic biofuel will be based. We are also 
proposing that the applicable volumes for biomass-based diesel, 
advanced biofuel, and total renewable fuel for 2011 will be those 
specified in the statute. These volumes are shown in Table I.D-1.

                                     Table I.D-1--Proposed Volumes for 2011
----------------------------------------------------------------------------------------------------------------
                                                   Actual volume                Ethanol equivalent volume
----------------------------------------------------------------------------------------------------------------
Cellulosic biofuel.......................  5-17.1 mill gal.............  6.5-25.5 mill gal.
Biomass-based diesel.....................  0.80 bill gal...............  1.20 bill gal.
Advanced biofuel.........................  1.35 bill gal...............  1.35 bill gal.
Renewable fuel...........................  13.95 bill gal..............  13.95 bill gal.
----------------------------------------------------------------------------------------------------------------

    Four separate standards are required under the RFS2 program, 
corresponding to the four separate volume requirements shown in Table 
I.D-1. The specific formulas we use to calculate the renewable fuel 
percentage standards are contained in the regulations at Sec.  80.1405 
and repeated in Section III.B.1. The percentage standards represent the 
ratio of renewable fuel volume to non-renewable gasoline and diesel 
volume. The projected volumes of gasoline and renewable fuels used to 
calculate the standards are provided by EIA's Short-Term Energy Outlook 
(STEO) \2\. The projected volume of transportation diesel used to 
calculate the standards is provided by EIA's 2010 Annual Energy Outlook 
(early release version).\3\ Because small refiners and small refineries 
are also regulated parties beginning in 2011 \4\, there is no small 
refiner/refinery volume adjustment to the 2011 standard as there was 
for the 2010 standard. Thus, the increase in the percentage standards 
relative to 2010 appears smaller than would otherwise be the case, 
since more obligated parties will be participating in the program. The 
proposed standards for 2011 are shown in Table I.D-2. Detailed 
calculations can be found in Section III.
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    \2\ The March 2010 issue of STEO was used for today's proposal. 
We intend to use the October 2010 version for the final rule.
    \3\ EIA has recommended the use of the Annual Energy Outlook 
(AEO) rather than the Short Term Energy Outlook as a better 
representation of the estimated transportation sector diesel fuel 
use. We will use the most recent version of AEO in the final values 
of the standards.
    \4\ The Department of Energy concluded that there is no reason 
to believe that any small refinery would be disproportionately 
harmed by inclusion in the proposed RFS2 program for 2011 and 
beyond. See DOE report ``EPACT 2005 Section 1501 Small Refineries 
Exemption Study'', (January 2009). We will revisit extensions to the 
exemption for small refiners and refineries if DOE revises their 
study and provides a different conclusion, or an individual small 
refinery is able to demonstrate that it will suffer a 
disproportionate economic hardship under the RFS program.

           Table I.D-2--Proposed Percentage Standards for 2011
------------------------------------------------------------------------
                                                              Percent
------------------------------------------------------------------------
Cellulosic biofuel......................................     0.004-0.015
Biomass-based diesel....................................            0.68
Advanced biofuel........................................            0.77
Renewable fuel..........................................            7.95
------------------------------------------------------------------------

II. Volume Production and Import Potential for 2011

    In order to project production volumes of cellulosic biofuel in 
2011 for use in setting the percentage standards, we collected 
information on individual facilities that have the potential to produce 
qualifying volumes for consumption as transportation fuel, heating oil, 
or jet fuel in the U.S. in 2011. This section describes the potential 
volumes that we believe could be produced or imported in 2011 as well 
as the uncertainties associated with those volumes. The volumes listed 
in this section do not represent the projected available volume of 
cellulosic biofuel that will be used to finalize the cellulosic biofuel 
percentage standard for 2011. Rather, for today's NPRM we have assessed 
the maximum potentially available volume for 2011, which is intended to 
represent an upper bound of the volume of fuel that may be produced and 
made available. The production of cellulosic biofuel remains highly 
uncertain, and EPA expects that the volume of cellulosic biofuel used 
to set the 2011 percentage standard will be a lesser volume than this 
maximum potentially available volume. Section III describes the 
conversion of our maximum potentially available volumes for cellulosic 
biofuel into a range of percentage standards.
    While the 2011 volume projections in today's proposal were based on 
our own assessment of the cellulosic biofuel industry, by the time we 
announce the final 2011 volumes and percentage standards we will have 
additional information. First, in addition to comments in response to 
today's proposal, we will have updated and more detailed information 
about how the industry is progressing in 2010. Second, by September 1 
all registered producers and importers of renewable fuel must submit 
Production Outlook Reports describing their expectations for new or 
expanded biofuel supply for the next five years, according to Sec.  
80.1449. Finally, by October 2010 the Energy

[[Page 42243]]

Information Administration (EIA) is required by statute to provide EPA 
with an estimate of the volumes of transportation fuel, biomass-based 
diesel, and cellulosic biofuel projected to be sold or introduced into 
commerce in the U.S. in 2011.

A. Cellulosic Biofuel

    The task of projecting the volume of cellulosic biofuels that will 
be produced in 2011 is a difficult one. Currently there are no 
facilities consistently producing cellulosic biofuels for commercial 
sale. Announcements of new projects, changes in project plans, project 
delays, and cancellations occur with great regularity. Biofuel 
producers face not only the challenge of the scale up of innovative, 
first-of-a-kind technology, but also the challenge of securing funding 
in a difficult economy.
    In order to project cellulosic biofuel production in 2011, EPA has 
tracked the progress of over 100 biofuel production facilities. From 
this list of facilities we used publicly available information, as well 
as information provided by DOE and USDA, to determine which facilities 
were the most likely candidates to produce cellulosic biofuel and make 
it commercially available in 2011. Each of these companies was 
contacted by EPA in order to determine the current status of their 
facilities and discuss their commercialization plans for the coming 
years. Our estimate of the maximum potentially available cellulosic 
biofuel production in 2011 is based on the information we received in 
conversations with these companies as well as our own assessment of the 
likelihood of these facilities successfully producing cellulosic 
biofuel in the volumes indicated.
    A brief description of each of the companies we believe may produce 
cellulosic biofuel and make it commercially available can be found 
below. These companies have been grouped according to the type of 
biofuel they produce. For the purpose of setting the cellulosic biofuel 
standard for 2011 this is a convenient grouping, as the number of RINs 
generated per gallon of fuel produced is dependent on the type of fuel. 
A more in depth discussion of the technologies used to produce 
cellulosic biofuels can be found in Section IV.
    In today's NPRM EPA is proposing a range, rather than a single 
value, for the required 2011 cellulosic biofuel volume. At a minimum, 
we believe that a volume of 6.5 million gallons could be justified 
based on currently available information. This is the cellulosic 
biofuel volume that was required in 2010, and absent a waiver for some 
portion of this volume, producers will be aiming to meet it. Therefore, 
it is reasonable to project that this same volume could, at minimum, 
also be produced in 2011.
    For a maximum potentially available cellulosic biofuel volume for 
2011, we are proposing 25.5 million ethanol equivalent gallons, 
representing the highest volume of fuel that can reasonably be expected 
to be produced and made available based on current information. In 
order for this volume of cellulosic biofuel to be produced in 2011, 
each of the companies discussed below would have to achieve their 
production targets in their projected timeframes. However, historical 
trends among cellulosic biofuel producers suggests that this is 
unlikely to be the case, as there are many factors which have the 
potential to result in production delays. For instance, several of the 
companies we considered when setting the 2010 cellulosic biofuel 
standard have yet to sell cellulosic biofuel in the United States and 
appear unlikely to do so by the end of 2010. This fact demonstrates the 
uncertainty of cellulosic biofuel production estimates, and is one of 
many factors EPA will consider when setting the cellulosic biofuel 
standard for 2011.
    The rest of this section describes the analyses that were used as 
the basis for this maximum value. We will continue to gather more 
information to help inform our decision on the final cellulosic biofuel 
standard for 2011, and we will specify a single volume in the final 
rule that will be the basis for the cellulosic biofuel percentage 
standard for 2011.
1. Domestic Cellulosic Ethanol
    Based on our assessment of the cellulosic biofuel industry we 
believe that there are five companies in the United States with the 
potential to produce cellulosic ethanol and make it commercially 
available in 2011. These companies are AE Biofuels, Agresti Biofuels, 
DuPont Danisco Cellulosic Ethanol, Fiberight, and KL Energy 
Corporation. This section will provide a brief description of each of 
these companies and our assessment of their potential fuel production 
in 2011. This section also provides a brief update on companies from 
whom we do not expect any commercial sales of transportation fuel in 
2011 in the U.S. but were included in prior assessments.
    AE Biofuels is a company that plans to convert corn cobs and corn 
stover to ethanol using an enzymatic hydrolysis. They plan to use an 
integrated process that converts both starch and cellulose to ethanol. 
In August 2008 they opened a demonstration plant in Butte, Montana to 
test their technology and gather information for their first commercial 
scale plant. AE Biofuels has reached a lease agreement with Cilion to 
operate Cilion's 55 MGY corn ethanol plant in Keyes, CA under the name 
AE Advanced Fuels Keyes. This facility has been idled since April 2009 
and will require repairs before being operational. AE Biofuels plans to 
start up production with a starch feedstock in late-2010 and then begin 
to transition some production to cellulosic feedstock in mid-2011. AE 
Biofuels plans to eventually use up to 25% cellulosic feedstock for 
ethanol production in this facility. EPA projects that up to 0.5 
million gallons of ethanol may be produced by this facility in 2011.
    Agresti Biofuels plans to produce ethanol from separated municipal 
solid waste (separated MSW) at a facility in Pike County, Kentucky. 
Their process uses a gravity pressure vessel licensed from GeneSyst to 
crack the lignin in their feedstock and then a combination of weak 
bases and acids to convert the cellulose and hemicellulose into simple 
sugars for later fermentation into ethanol. Agresti plans to begin 
construction on their first production facility in Pike County sometime 
in the summer of 2010 and hope to be producing ethanol by the end of 
2011. The full production capacity of this facility will be 20 million 
gallons of ethanol per year. Due to the fact that construction on this 
facility has not yet begun and production is not expected until late in 
2011 EPA expects no more than 1 million gallons of cellulosic ethanol 
to be produced by Agresti Biofuels in 2011.
    DuPont Danisco Cellulosic Ethanol (DDCE) began start up operations 
at a small demonstration facility in Vonore, Tennessee in early 2010. 
This facility has a maximum production capacity of 250,000 gallons of 
ethanol per year and uses an enzymatic hydrolysis process to convert 
corn cobs into ethanol. The main purpose of this facility is not to 
produce ethanol to be sold commercially, but rather to provide 
information for the future construction and optimization of larger, 
commercial scale cellulosic ethanol production facilities. DDCE have 
indicated that they do not intend to produce more than 150,000 gallons 
of ethanol in 2011 from the Vonore facility.
    Fiberight is another company planning to convert MSW to ethanol. 
Fiberight purchased a small corn ethanol plant in Blairstown, IA and 
has converted it to produce cellulosic ethanol. They use an enzymatic 
hydrolysis process, with enzymes

[[Page 42244]]

provided by Novozymes, to convert the cellulosic waste materials to 
simple sugars and eventually to ethanol. Fiberight has a unique enzyme 
recycle and recovery process that allows them to affordably use high 
concentrations of enzymes to increase the speed and conversion rate of 
the cellulose to simple sugars. Fiberight plans to begin ethanol 
production in the summer of 2010 and ramp up to full production 
capacity of 5.7 million gallons of ethanol per year by late 2011. Based 
on company estimates, EPA projects Fiberight could produce as much as 
2.8 million gallons of cellulosic ethanol in 2011.
    The fifth company that EPA is aware of with the potential to 
produce cellulosic ethanol in 2011 is KL Energy Corporation. KL Energy 
has a small facility in Upton, Wyoming that uses an enzymatic 
hydrolysis process to convert wood chips and wood waste to ethanol. 
This facility has a maximum annual production volume of 1.5 million 
gallons and has been operational since the fall of 2007. Since KL 
Energy completed construction on this facility they have been slowly 
ramping up production and gathering information to optimize this and 
future ethanol production facilities. KL has informed EPA that they 
intend to produce 400,000 gallons of cellulosic ethanol from their 
Upton, WY facility in 2011.
    In addition to the five companies mentioned above, EPA is also 
tracking the progress of more than 70 ethanol production facilities in 
various stages ranging from construction to planning stages. Several of 
these companies, including Abengoa, BlueFire Ethanol, Coskata, Fulcrum, 
POET, and Vercipia all intend to begin the production and commercial 
sale of cellulosic ethanol in 2012. These facilities range in maximum 
production capacity from 10 to 100 million gallons of ethanol. EPA 
anticipates a significant increase in the production and sale of 
cellulosic ethanol in 2012, and strong continued growth in the 
following years. In addition, if any of these or other companies 
accelerates their production plans to make cellulosic biofuel available 
for commercial sale in 2011, we will take those volumes into account in 
our final rule.
2. Domestic Cellulosic Diesel
    EPA is also aware of two companies in the United States with the 
potential of producing cellulosic diesel fuel in 2011. The first of 
these companies is Cello Energy. Cello Energy plans to use a catalytic 
depolymerization process to produce diesel fuel from wood chips and 
hay. Cello currently has a structurally complete facility in Bay 
Minette, Alabama with an annual production capacity of 20 million 
gallons of diesel per year. While having a structurally complete 
facility puts Cello ahead of many other potential biofuel producers 
they have yet to be able to produce biofuel at anywhere near the 
production capacity. They are currently assessing feedstock preparation 
and handling issues that must be resolved before they are able to again 
attempt start up and production at this facility. If these issues are 
successfully addressed EPA believes that Cello could, at most, produce 
up to 5 million gallons (8.5 million ethanol equivalent gallons) of 
cellulosic diesel fuel in 2011.
    Another potential producer of cellulosic biofuel in 2011 is Bell 
Bio-Energy. Bell Bio-Energy uses proprietary organisms to convert waste 
materials to liquid fuels and compost in a single step. The company 
currently has an agreement in place for the sale of the compost they 
produce and are searching for a location for their first plant and a 
partner to supply the waste materials they intend to use as feedstock. 
The liquid fuel they produce is not a finished transportation fuel, but 
could be upgraded to jet or diesel fuel. Bell Bio-Energy is currently 
working with a refining company to analyze the fuel they produce and 
determine the extent of upgrading necessary for the fuel to qualify as 
transportation fuel. They plan to begin construction on their first 
facility, which will have an annual fuel production capacity of 14.4 
million gallons per year, as soon as a suitable site and partner are 
found. The simplicity and low capital costs of Bell Bio-Energy's single 
step production process allow them to construct plants very rapidly, in 
as little as six weeks. This would make it possible for Bell Bio-Energy 
to produce cellulosic biofuel in 2011 despite the fact that they have 
not yet begun construction on their first commercial scale facility. It 
is unclear when fuel will be produced at this facility, and whether it 
would qualify under the RFS2 program. If Bell Bio-Energy is successful 
in producing and upgrading their fuel EPA estimates the maximum volume 
of fuel they could produce in 2011 would be 7 million gallons (11.9 
million ethanol equivalent gallons) of jet or diesel fuel.
    EPA is also tracking the progress of 17 other facilities that plan 
to produce cellulosic diesel. Flambeau Rivers Biofuels, New Page, and 
Terrabon are planning on opening commercial scale cellulosic diesel 
facilities in 2012. Both Bell Bio-Energy and Cello have plans to build 
additional facilities if their initial projects are successful. As with 
cellulosic ethanol, cellulosic diesel production has the potential for 
rapid growth in 2012 and the following years.
3. Other Domestic Cellulosic Biofuels
    We are currently unaware of any companies in the United States 
planning on producing cellulosic biofuel other than ethanol and diesel 
and making it commercially available. EPA is currently tracking the 
efforts of 10 companies that plan to produce fuels such as gasoline, 
jet fuel, dimethyl ether (DME), and others. Many of these companies 
have reported that they are still developing their technologies and 
waiting for funding, and that they are not expecting to make any 
cellulosic fuel commercially available until 2012 at the earliest. 
There are several companies, such as Gevo and Virent, with small 
demonstration facilities who intend to produce other fuels from 
cellulosic feedstocks, but are currently optimizing their technology 
with sugar or starch feedstocks. EPA anticipates that in the future 
this may be a significant source of cellulosic biofuel, however we are 
only expecting cellulosic ethanol and diesel to be produced in 2011.
4. Imports of Cellulosic Biofuel
    In addition to the companies located in the United States, EPA is 
also aware of two Canadian companies with the potential for cellulosic 
biofuel production in 2011. If this fuel was imported into the United 
States, these companies would be eligible to participate in the RFS2 
program. Counting on cellulosic biofuel produced internationally in 
setting the 2011 standard brings with it the additional uncertainty 
associated with the fact that the fuel may be used locally rather than 
imported into the United States.
    Iogen uses a steam explosion pre-treatment process followed by 
enzymatic hydrolysis to produce cellulosic ethanol from wheat, oat, and 
barley straw. They have a demonstration facility with an annual 
production capacity of 500,000 gallons of ethanol located in Ontario, 
Canada. This facility has been operational and producing small volumes 
of ethanol since 2004. So far all of the ethanol produced by this 
facility has been used locally and in racing and other promotional 
events. Iogen, however, is exploring the possibility of participating 
in the RFS2 program. If they do decide to import ethanol to the United 
States, EPA projects that they could provide as much as 250,000 gallons 
of cellulosic ethanol in 2011 based on production volumes from previous 
years.

[[Page 42245]]

    Another Canadian company with the potential to produce cellulosic 
ethanol in 2011 is Enerkem. Enerkem plans to use a thermo-chemical 
process to gasify separated MSW and other waste products and then use a 
catalyst to convert the synthesis (syn) gas into ethanol. Enerkem is 
currently finishing construction on a 1.3 million gallon per year 
facility in Westbury, Quebec and plans to begin producing ethanol in 
the summer of 2010. They are also planning a 10 million gallon per year 
facility in Edmonton, Alberta, however production from this facility is 
not expected until 2012. Enerkem has informed EPA that they plan to 
market ethanol they produce locally, and have no intentions to import 
cellulosic ethanol into the United States. We are therefore not 
projecting any available cellulosic fuel from Enerkem in 2011.
    While Canada may be the most likely source of imported cellulosic 
biofuels due to its close proximity, it is possible that cellulosic 
biofuels produced in other countries may be imported into the United 
States as well. Another potential source of cellulosic biofuel imports 
is Brazil, due to its established ethanol industry and history of 
importing ethanol into the United States. EPA is aware of several 
companies exploring the possibility of cellulosic biofuel production in 
Brazil; however none of these companies are likely to make cellulosic 
biofuels commercially available in the United States in 2011. With the 
exception of Iogen, as mentioned above, EPA has not projected imports 
of cellulosic biofuels from outside the United States in 2011.
5. Summary of Volume Projections
    The information EPA has gathered on the potential cellulosic 
biofuel producers in 2011, summarized in Section II.A above, allows us 
to project a maximum potentially available biofuel volume for each 
facility in 2011. After the appropriate ethanol equivalence value has 
been applied to the volumes of those facilities producing diesel fuel, 
the overall maximum potentially available volume of cellulosic biofuels 
for 2011 can be calculated by summing the maximum potential of each 
facility. EPA is not proposing to set the 2011 cellulosic biofuel 
standard at this maximum potentially available volume, rather this is 
intended to serve as an upper bound. This information is summarized in 
Table II.A.5-1 below.

                                      Table II.A.5-1--Cellulosic Biofuel Maximum 2011 Potentially Available Volume
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                           Maximum 2011
                                                                                                            Earliest        potentially       Ethanol
         Company name                Location          Feedstock           Fuel        Capacity (MGY)      production        available      equivalent
                                                                                                                            volume (MG)    gallons (MG)
--------------------------------------------------------------------------------------------------------------------------------------------------------
AE Advanced Fuels Keyes.......  Keyes, CA........  Corn, then        Ethanol.........              20  June 2011........             0.5             0.5
                                                    stover.
Agresti Biofuels..............  Pike County, KY..  MSW.............  Ethanol.........              20  Oct. 2011........               1               1
Bell Bio-Energy...............  Atlanta, GA......  MSW or other      Diesel Feedstock            14.4  June 2011........               7            11.9
                                                    cellulosic
                                                    biomass.
Cello Energy..................  Bay Minette, AL..  Wood, hay.......  Diesel..........              20  Online...........               5             8.5
DuPont Danisco \a\............  Vonore, TN.......  Corn cobs, then   Ethanol.........            0.25  Online...........            0.15            0.15
                                                    switchgrass.
Fiberight \a\.................  Blairstown, IA...  MSW.............  Ethanol.........               6  April 2010.......             2.8             2.8
Iogen.........................  Ottawa, Ontario..  Wheat, oat &      Ethanol.........             0.5  Online...........            0.25            0.25
                                                    barley straw.
KL Energy \a\.................  Upton, WY........  Wood............  Ethanol.........             1.5  Online...........             0.4             0.4
�������������������������������
    Total.....................  .................  ................  ................  ..............  .................            17.1            25.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Maximum Production/Import Potential represents company estimate.

    It is important to note that this maximum potentially available 
volume of 17.1 million gallons of cellulosic biofuel, or 25.5 million 
ethanol equivalent gallons, is not the volume on which the final 2011 
cellulosic biofuel standard will be based. This number represents the 
maximum amount of fuel EPA believes could reasonably be expected to be 
produced or imported and made available for use as transportation fuel, 
heating oil, or jet fuel in 2011. It incorporates some reductions from 
the annual production capacity of each facility based on when the 
facilities anticipate fuel production will begin and assumptions 
regarding a ramp up period to full production. However, as stated 
earlier, in order for this volume of cellulosic biofuel to be produced 
in 2011, each of the companies listed in Table II.A.5-1 would have to 
achieve their production targets in their projected timeframes. The 
history of the cellulosic biofuels industry has many examples of delays 
in achieving full production capacity in new facilities. Also, there 
are many other factors that increase the uncertainty of fuel production 
facilities being able to achieve their maximum potential production. 
These factors may include:
     Difficulty/delays in securing necessary funding.
     Delays in permitting and/or construction.
     Difficulty in scale up, especially for 1st of their kind 
technologies.
     Volumes from pilot and demonstration plants may not be 
sold commercially.
     Not all feedstocks may qualify to produce cellulosic RINs; 
some still awaiting evaluation of lifecycle impacts.
     Likelihood that fuels produced internationally will be 
exported to the United States rather than consumed locally.
    Each of the facilities listed in Table II.A.5-1 may experience some 
of the difficulties listed above, and as a result may produce a volume 
of fuel less than that listed as their maximum 2011 potentially 
available volume. Despite this uncertainty, EPA believes that the 
volume of cellulosic biofuel produced in 2011 will, at minimum, be able 
to meet or exceed the 2010 standard of 6.5 million ethanol equivalent 
gallons. However, we will have more detailed and accurate information 
for the final rule, including the first round of Production Outlook 
Reports, due on

[[Page 42246]]

September 1, 2010 \5\ which will provide information from each producer 
or importer on the type or types of fuel they plan to make available, 
the volume of fuel, and the number of RINs they plan to generate for 
the next five calendar years.\6\ Therefore, in today's NPRM we are 
proposing a range of values, from a minimum of 6.5 million ethanol 
equivalent gallons to a maximum of 25.5 million ethanol equivalent 
gallons for the 2011 cellulosic biofuel standard. As time progresses 
and we are able to track whether or not the cellulosic biofuels 
producers are able to meet the construction and ramp up schedules they 
have presented, we will have a better idea of the appropriate volume of 
fuel that we can reasonably expect to be produced and made commercially 
available in 2011. Additionally, each year by October 31 EIA is 
required to provide an estimate of the volume of cellulosic biofuel 
they expect to be sold or introduced into commerce in the United States 
in the following year. EPA will consider this information as well when 
finalizing a single volume for use in setting the 2011 cellulosic 
biofuel standard.
---------------------------------------------------------------------------

    \5\ In future years, Production Outlook Reports will be due on 
March 1. As a result, they may be considered during development of 
the NPRM in year 2011 and beyond.
    \6\ For more information on the annual production outlook 
reports see Sec.  80.1449 of the RFS2 regulations.
---------------------------------------------------------------------------

    Although we are currently projecting that the potentially available 
volume of cellulosic biofuel in 2011 will be in the range of 6.5 to 
25.5 million ethanol-equivalent gallons, we expect that volumes of 
cellulosic biofuel will increase rapidly in the years following 2011. 
As stated before, we are aware of more than 100 companies that are 
actively investigating or making plans to produce cellulosic biofuel in 
the near future. Many of these companies intend to begin construction 
in 2011 or 2012. We will be monitoring these companies carefully as we 
project the potential volumes of cellulosic biofuel for years 2012 and 
beyond.

B. Potential Limitations

    In addition to production capacity, a variety of other factors have 
the potential to limit the amount of cellulosic biofuel that can be 
produced and used in the U.S. For instance, there may be limitations in 
the availability of qualifying cellulosic feedstocks at reasonable 
prices. Most of the cellulosic biofuel producers that we project will 
produce commercial volumes in 2011 have indicated that they will use 
some type of cellulosic waste, such as separated municipal solid waste, 
wastes from the forestry industry, and agricultural residues. Based on 
the analyses of cellulosic feedstock availability in the RFS2 final 
rule, we believe that there will be significantly more than enough 
sources of these feedstocks for 2011. For producers that intend to use 
dedicated energy crops, we do not believe that the availability of 
existing cropland will limit production in 2011. We plan to continue to 
evaluate the availability of valid feedstocks in future years as the 
required volumes of cellulosic biofuel increase.
    Another factor that has the potential to limit the amount of 
renewable fuel that can be produced and used in the U.S. is 
distribution and storage capacity. In the longer term, most biofuels 
are expected to be produced in the heartland of the country and then be 
shipped towards the coasts, flowing roughly in the opposite direction 
of petroleum-based fuels. The physical and chemical nature of many of 
these biofuels may limit the extent to which they can be shipped and/or 
stored fungibly with petroleum-based fuels. As a result, new and 
expanded rail, barge and tank truck transport will need to be put in 
place. Dedicated biofuels pipelines are also being investigated. For 
instance, a short gasoline pipeline in Florida is currently shipping 
batches of ethanol.\7\ Evaluations are also currently underway 
regarding the feasibility of constructing a new dedicated ethanol 
pipeline from the Midwest to the East coast.\8\ However, for 2011 the 
volumes of cellulosic biofuel are small enough that long-distance 
transport will be unnecessary; with the exception of foreign-produced 
biofuels, much of the cellulosic biofuel volumes can be consumed in 
regions close to their production facilities. We also expect existing 
distribution and storage capacity to be sufficient to accommodate